Flagstone Reinsurance Holdings intends to sell its Lloyd’s and Islands Heritage units as part of a cost-cutting, restructuring plan.The Luxembourg-based company, which was launched in Bermuda in 2005 after Hurricane Katrina, has been hit by larger than expected catastrophe losses this year.The company’s Lloyd’s segment includes the business generated for Lloyd’s Syndicate 1861 by Marlborough Underwriting Agency, which was acquired by Flagstone from Berkshire Hathaway in 2008.Flagstone expects the sale to lower its gross written premium by about $300 million per year and said its Lloyd’s segment was likely to report a third-quarter loss of $10 million.The sale of the two units is expected by the end of the first quarter of next year and the company has retained Evercore Partners and Aon Benfield Securities to look into the divestiture.Flagstone said it also recently closed its offices in Dubai and Puerto Rico, and plans to divest its South Africa office by the first quarter of 2012.The company said underwriting operations would continue to be centralised in Bermuda and Martigny in Switzerland and further steps would be taken to reduce back-office expenses across the organisation.Third-quarter results will be impacted by an estimated $35 million by catastrophes during the July through September period, including Hurricane Katrina. There will be a further $35 million impact from increases to loss estimates relating to catastrophes in the first half of the year.An analyst’s note from Keefe, Bruyette and Woods yesterday stated that the total $70 million catastrophe loss impact in the quarter, plus the $10 million loss at the Loyd’s unit, was greater than expected and represented about eight percent of the company’s second-quarter equity.“2011 continues to be one of the most active years in terms of catastrophic loss events in history,” Flagstone CEO David Brown said in a statement. “While these events have continued to impact our industry, Flagstone’s overall capital levels remain stable and we expect to benefit from a hardening rate environment.”The markets reacted positively to the Flagstone announcement and the company’s share price climbed 16 cents, or 1.9 percent, to close on $8.59 in New York Stock Exchange trading yesterday.“We believe this business realignment will result in a more nimble, cost-effective, and opportunistic structure, allowing the company to react quickly to market changes,” Mr Brown said.“These changes will not impact our strong technical, analytical focus and we will continue to provide exemplary service for our clients. Moving forward, our underwriting strategy will focus on our highly successful property and property catastrophe units, leveraging existing strengths to improve performance and move Flagstone back to one of the most competitive combined ratios in the market.“We will also continue to aggressively reduce expenses and bring expense ratios to competitive levels. By significantly streamlining our cost structure, we expect to have enhanced financial flexibility to pursue future opportunities to deliver greater value.“We believe transparency is the best policy and announcing these initiatives simultaneously, rather than piecemeal, is the best approach for our clients, employees, and shareholders.”Ratings agency AM Best yesterday affirmed Flagstone’s financial strength rating of A- (excellent).“While this is a significant shift away from the company’s previous strategy of diversification, the streamlined structure is anticipated to result in overall efficiencies throughout the organisation,” Best said in its commentary on the restructuring.“Additionally, the new structure will allow the company to reduce its global risk profile and refocus on its core underwriting strategies.”