Flagstone Reinsurance Holdings SA's profits almost halved during the third quarter as the company took a $52.5 million hit from the New Zealand earthquake.

The reinsurer, which redomiciled from Bermuda to Luxembourg in May this year, saw its net income drop to $37.3 million, or 48 cents per share, for the quarter from $67.1 million or 80 cents per share compared to the same period last year.

The company also experienced a drop of almost $90 million in its net income for the nine months ended September 30, 2010, to $82 million, or $1.02 per share, from $170.7 million, or $2.01 per share, at September 30, 2009.

But Flagstone reported a 4.3 percent rise in basic book value per share for the third quarter to $15.93 and a 4.4 percent increase in diluted book value per share to $15.10. Yesterday, the company's share price was $10.92 at the close of regular New York trading.

David Brown, Flagstone's CEO, said: "I am pleased to report that our diluted book value per share increased by 4.4 percent for the quarter.

"This growth in value occurred despite a material net loss of $52.5 million from the Christchurch earthquake and $14.1 million of one-off charges related to expense reduction. In some quarters, and this is one, our diversified strategy will result in us sharing in losses that don't necessarily impact the broader industry.

"Despite this, we did manage to grow book value this quarter above our targeted annualised rate and remain convinced that our cumulative underwriting results demonstrate the long-run attractiveness of our focus on highly technical underwriting, risk management, and diversification.

"We continue to optimise our global underwriting platform, and as a result of our efforts, our expense ratios (excluding one-offs), are trending towards mean industry levels resulting in $4.2 million of G&A savings this quarter over last."

He continued: "We see significant value in our franchise and view the recent share price levels as an historic opportunity to add shareholder value by continuing to buy back stock through our authorised repurchase plan. In the quarter we repurchased an additional 1.4 million shares at an average price of $10.43.

"For 2011 we anticipate that rates in our preferred lines of business will be flat to modestly lower. We plan to remain disciplined, not increase our risk or exposure and are likely to repurchase shares when we see exceptional opportunities to do so."

Gross premiums written were up 6.3 percent to $185.6 million for the third quarter 2010 from $174.6 million in 2009.

The company's combined ratio also climbed 23.1 percent to 100.1 percent from 77 percent over the corresponding period.

Within its reinsurance segment, Flagstone's underwriting income dropped $43 million from $47.1 million in the third quarter to $4.1 million last year mainly due to the more significant catastrophic events such as the New Zealand earthquake and an increase in administrative expenses related to asset impairment losses.

The New Zealand Earthquake, the Deepwater Horizon and the Chile earthquake losses also accounted for a $121 million decline in underwriting income between the nine months ended September 30, 2009 and 2010.

Meanwhile Flagstone's Lloyd's segment experienced a $994,000 underwriting loss during the three months ended September 30, 2010 - higher than the $102,000 recorded in 2009.

The company's Island Heritage segment also made a $1.1 million underwriting loss for the third quarter, having posted a $1.5 million profit a year earlier.

Total return on Flagstone's invested assets was 2.6 percent for the third quarter of 2010 and 3.3 percent for the nine months ended September 30, 2010.