A strategy of seeking to find better risk returns through a more global book of business rather than one heavily focused on the US remains in place at Flagstone Re despite the company suffering a 44 percent dip in second quarter profits as a result of heavy loss exposure to floods and storms outside the US.

The "Class of 2005" Bermuda reinsurer made a profit of $14.7 million in the quarter compared to $26.1m last year.

Exposure to UK floods, a damaging storm in New South Wales, Australia and a cyclone in Oman - all occurring in June - dented the company's profits.

But despite this chairman Mark Byrne said Flagstone would continue with its global book strategy.

During a conference call yesterday he said: "Flagstone only made modest progress towards our primary financial goal of high-tens annual growth in book value per share.

"Loss in New South Wales and the UK were the principle reasons for our earnings below plan. Given the high percentage of our risks borne outside the US, Flagstone will be more vulnerable to such losses than a company, which was more focused principally on the US.

"In the long run we like the improved risk return dynamics this strategy offers, in a given quarter the effect could be either way - and this (second quarter) was the unfavourable way."

On a positive he noted the good ratings the company has attracted from various analysts.

At the start of the week the company announced it had taken a controlling stake in Cayman Island's based insurer Island Heritage Holdings, which writes business in 16 Caribbean countries. On July 3 it bought 73,110 shares, representing an additional 21.4 percent interest in the company to go alongside its previous holdings giving it a 54.6 percent stake of voting shares.

Flagstone chief financial officer David Brown, commented: "We were successful in increasing our ownership in Island Heritage to 55 percent and now have effective control our plan is to continue our role as a major reinsurer of the company and we are pleased that the remaining shareholders, Ace Ltd., Butterfield Bank and management all share our excitement at these opportunities."

The company also stated it has $58.6m total exposure to the US subprime mortgage sector.

Flagstone's second-quarter results represent a diluted book value per share of $12.46, up 1.2 percent for the quarter.

In an earlier release by the company yesterday, chairman Mr. Byrne said: "Organisationally, we had a productive quarter, and many seasoned executives joined Flagstone around the world. Progress on our many systems and technology initiatives continues apace.

"Furthermore, we have launched new offices covering the MENA region from Dubai, and the Latin American region from San Juan Puerto Rico. Our globally diversified book of business means that when there are significant losses in non-peak zones, our portfolio will experience losses which a peak-zone strategy might avoid.

"Naturally we would have preferred to have a stronger Q2 2007 from a returns perspective, but we view the moderate size of the losses relative to our exposures in the UK Wind and Australian zones, to be a satisfactory demonstration of our risk management."

Flagstone's losses for the second quarter were $77.3m with $31m of that coming from floods in northern England, $23.5m from a storm and flooding in New South Wales, and $4.5m from Cyclone Gonu in Oman.