Bermuda-based Flagstone Reinsurance Holdings Ltd. announced a fourth-quarter net loss of $75.6 million on a decline in the value of its investments.

The class of 2005 reinsurer posted solid underwiting results, but they were overshadowed by realised and unrealised investment losses of $111.8 million in the three months ending on December 31, and $272.2 million for the full year 2008.

Diluted book value per share fell 10.1 percent in the quarter to $11.30, and fell 17.3 percent for the year.

Despite $25.2 million in fourth-quarter losses stemming from hurricanes Gustav and Ike, on top of the $115 million declared in the third quarter, the company made an underwriting profit.

Combined ratio - the percentage of premium dollars spent on claims and expenses - was 75.9 percent for the quarter and 89.4 percent for the year.

The widening reach of the company's global platform was apparent as gross premiums written rose 35.5 percent to $781.9 million for 2008. The rise was 46 percent for the quarter.

No contributions from Flagstone's largest acquisition yet, the Lloyd's-based Marlborough Underwriting Agency, were included in the fourth-quarter numbers.

The quarterly loss broke down to 89 cents per diluted share, compared to net income of $51.4 million, or 60 cents per diluted share for the same period in the prior year.

Full-year net loss was $187.3 million, or $2.20 per share, compared to net income of $167.9 million, or $2.05 per diluted share, in 2007.

Chairman Mark Byrne said the investment losses came about largely because of the Flagstone portfolio's previous exposure to turmoil on world equity and bond markets.

"2008 was a challenging year," Mr. Byrne said. "Our book value declined due to investment losses, with the majority of these losses occurring in the third quarter and the first two weeks of the fourth quarter as we announced in mid-October.

"We had no material exposure or losses from sub-prime or Alt-A securities; our losses were primarily due to our previous 23 percent allocation to global equity indices, and the worst performance of those equities in more than a century.

"When our internal circuit breakers were tripped, we made the decision to reallocate our asset portfolio in October to a very risk-averse portfolio where we remain today."

Flagstone now had 90 percent of its assets in high grade fixed-income securities, Mr. Byrne added.

Flagstone chairman David Brown said he had been "very pleased" with Flagstone's growth in business during the January 1 renewal period, "as we were able to capitalise on the hardening market caused in general by the losses of 2008 and in particular the difficulties being experienced by some major market participants".

Mr. Brown added that the company had taken steps to boost its ability to write more business even as capacity in the industry was shrinking.

"Although we are not typically major users of retrocessional cover, in anticipation of the capacity crunch we were proactive in arranging such covers early in the fourth quarter," Mr. Brown said.

"We now have significant retrocessional protection covering losses on both an event and aggregate basis. This protection on top of our existing capital and our conservative investment portfolio positions us well to participate fully in the attractive markets we believe 2009 will present."