A.M. Best Places Ratings of Flagstone Reassurance Suisse S.A. Under Review with Developing Implications

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has placed under review with developing implications the financial strength rating of A- (Excellent) and issuer credit ratings (ICR) of “a-” of Flagstone Reassurance Suisse S.A. (Martigny, Switzerland) and Flagstone Alliance Insurance and Reinsurance PLC (Limassol, Cyprus). A.M. Best also has placed under review with developing implications the ICR of “bbb-” of Flagstone Reinsurance Holdings S.A. (Luxembourg) [NYSE: FSR] (collectively referred to as Flagstone Re).

These actions follow the recent announcement that Flagstone Reinsurance Holdings S.A. and Validus Holdings, Ltd. have entered into a definitive merger agreement in which Validus will acquire all of the issued and outstanding shares of Flagstone, representing an aggregate equity value of $623 million. As part of the agreement, Validus will assume Flagstone’s Junior Subordinated Deferrable Debentures of $250 million. Under the terms of the agreement, Flagstone shareholders will receive 0.1935 Validus voting common shares and $2.00 in cash for each Flagstone share. The merger is expected to close in the fourth quarter of 2012, subject to shareholder and regulatory approvals.

The under review with developing implications reflects the uncertainty around the future plans Validus may have for Flagstone, the possibility of the deal not closing due to risks beyond the parties control and this occurring during the peak of wind season.

Flagstone's Ratings had been assigned a negative rating outlook in 2011, due to the group's historically weak operating performance and concerns over their enterprise risk management capability. Over the past year, Flagstone has made significant progress in strengthening their enterprise risk management program, streamlining the organization and cutting operating expenses. A. M. Best believes that these actions made the organization more appealing to the new investor. A.M. Best also views Validus' historically very strong operating performance, capitalization and proven strong enterprise risk management capability as positives for Flagstone's existing clients and should enable Validus to successfully execute on this transaction.

The ratings will remain under review pending the completion of the transaction and A.M. Best’s continuing discussions with management relative to the future plans for the Flagstone legal entities.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; “Insurance Holding Company and Debt Ratings”; and “Rating Members of Insurance Groups.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Gale Guerra
Senior Financial Analyst
908-439-2200, ext. 5069
[email protected]
or
Robert DeRose
Vice President
908-439-2200, ext. 5453
[email protected]
or
Rachelle Morrow
Senior Manager, Public Relations
908-439-2200, ext. 5378
[email protected]
or

Assistant Vice President, Public Relations
908-439-2200, ext. 5644
[email protected]

Source: A.M. Best Co.