Flagstone Reinsurance Holdings SA and its principal subsidiary Flagstone Reassurance Suisse SA’s ratings have been placed under review for a possible downgrade by Moody’s Investors Service.Moody’s action follows a series of natural disasters in the first quarter which are likely to result in a material loss for Flagstone, with the ratings agency seeking more clarity on the re/insurer’s losses and assessing the compatibility of its strategy and risk appetite with its current ratings in its review.But Flagstone said the action was unwarranted and did not accurately reflect the company’s overall risk exposure and that Moody’s had not adequately assessed the company’s limited exposure to future events and the significant reinsurance protection it had in place.Flagstone Reinsurance Holdings SA, which moved from Bermuda to Luxembourg last year, currently has a Baa3 longer-term issuer rating and Flagstone Reassurance Suisse SA has a A3 insurance financial strength.According to Moody’s, Flagstone is likely to incur material losses from the first quarter’s natural catastrophes. with estimates, net of reinsurance, for January’s Australian floods and February’s Cyclone Yasi of between $60 million to 80 million (5.3 percent to seven percent of Flagstone’s equity) and for February’s New Zealand earthquake from $60 million to 90 million (5.3 percent to 7.9 percent of Flagstone’s equity).The re/insurance company has yet to disclose its loss estimates for the Japanese earthquake and tsunami, but Moody’s expects that it will incur losses given its geographic risk profile.“Moody’s considers the size of the losses from the Australian floods and New Zealand earthquake to be out of step in relation to the limited size of the company,” said Kevin Lee, a senior credit officer at Moody’s. “In the coming months, we will review Flagstone’s strategy and risk tolerance, including its approach to allocating notional limits by geographic zones.”Flagstone said that despite the level of industry-wide losses as a result of events during the first quarter, it believed its financial position remained strong.“Unfortunately, Flagstone believes that the Moody’s decision to review its ratings relies too much on subjective criteria rather than the modelled financial strength of the company and Moody’s subjective approach has been an ongoing concern of the company,” Flagstone said in a statement.Flagstone pointed out that the company maintained its A- (excellent) rating from AM Best and A- (stable) rating from Fitch Ratings, noting Best’s was its principal rating for the assessment of financial strength and the ability to conduct business in the re/insurance market.“As previously announced, along with the entire industry, Flagstone is currently assessing the financial impact of the Japan events,” the response continued. “While it remains too early to make a reasonable estimate of the company’s losses, Flagstone does have significant reinsurance protection covering this and subsequent events, particularly should the size of the industry losses increase.”On December 8, 2010, Moody’s had continued the negative outlook for Flagstone’s ratings due to increased underwriting leverage, higher catastrophe exposure and a lower assessment of capital adequacy.The ratings agency said that Flagstone appeared to have meaningful reinsurance protections in place to manage losses from future catastrophes.Nevertheless, it added that the company’s meaningful reliance on reinsurance in order to support its underwriting strategy had its own risks, as it exposes the company to shifts in the availability and pricing of such protection to a greater degree than peers.