Flagstone Re Reports Basic Book Value per Share of $13.59 for end of Third Quarter 2007

Flagstone Reinsurance Holdings Limited (NYSE:FSR) announced today that their third quarter of 2007 ended with a basic book value per share of $13.59, up 7.1% for the quarter and diluted book value per share of $13.30, up 7.1% for the quarter both measures inclusive of dividends. Net income available to common shareholders for the quarter ended September 30, 2007 of $66.2 million, or $0.77 per diluted share, compared to $56.9 million, or $0.79 per diluted share, for the quarter ended September 30, 2006. Net income for the nine months ended September 30, 2007 was $116.6 million, or $1.44 per diluted share, compared to $88.8 million, or $1.27 per diluted share, for the corresponding period of 2006.

CEO David Brown commented: “The third quarter produced a very pleasing result. Our gross premiums written for the year to date are up 77.6% over last year, after eliminating the impact of Island Heritage which we consolidated for the first time this quarter. This growth was achieved in a careful manner without sacrificing quality or terms and conditions. The quarter was not without losses, but they were moderate events for us and reserves established in prior quarters proved to be solid.”

Chairman, Mark Byrne noted: “We regard the increase in diluted book value per share, measured over intervals of three years, as the best single measure of our performance for shareholders. Since the founding of the Company the annualized growth is 18.9%, which is better than our 17% target. Since our reinsurance book is exposed to catastrophes, our results will not be smooth from quarter to quarter, and we do not issue earnings guidance.”

Summary of unaudited consolidated financial data for the periods are follows:

Basic and diluted book value per share are non-GAAP financial measures. A reconciliation of these measures to shareholders' equity are presented at the end of this release.

Results of Operations

Premiums

Gross premiums written for the third quarter of 2007 were $123.7 million, compared to $61.9 million for the same quarter of 2006, an increase of 99.8% from the prior quarter. Gross premiums written for the nine months ended September 30, 2007 were $512.1 million compared to $276.0 million for the same period in 2006, an increase of 85.5% from the prior period.

The increase in gross premiums written for both periods was due primarily to: (i) increased participations on programs from our existing clients and the addition of new clients due to our larger capital base and growth in our franchise; and, (ii) the acquisition of the controlling interest in Island Heritage in July 2007 which resulted in the inclusion of $21.8 million in gross premiums for the quarter.

The gross premiums written in third quarter 2007 include $68.5 million for property catastrophe, $36.1 million for other property, and $19.1 million for specialty compared to $41.3 million, $11.9 million and $8.7 million, respectively, for the same quarter in 2006.

The gross premiums written for the nine months ended September 30, 2007 include $373.8 million for property catastrophe, $84.5 million for other property, and $53.8 million for specialty compared to $201.5 million, $53.7 million and $20.8 million, respectively, for the same period in 2006.

Net premiums earned were $138.8 million for the third quarter of 2007 compared to $63.5 million for the same quarter of 2006. Net premiums earned for the nine months ended September 30, 2007 were $351.9 million compared to $119.7 million for the same period of 2006.

Net investment income and net realized and unrealized gains and losses on investments

Net investment income for the third quarter of 2007 was $17.0 million, compared to $9.8 million for the same quarter in 2006. Net investment income for the nine months ended September 30, 2007 was $51.2 million, compared to $24.7 million for the same period in 2006.

The increase in investment income for both periods reflects higher average invested assets in our portfolio of high quality, short duration fixed maturity and short term investments.

During the third quarter of 2007, the Company recorded $8.3 million of net realized and unrealized gains compared to net realized and unrealized gains of $10.8 million in the third quarter of 2006. As noted in our first quarter, 2007 earnings press release, effective January 1, 2007 we early adopted SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities including an amendment of FASB Statement No. 115”, (“SFAS 159”) with respect to our investment portfolio. The impact is that all subsequent changes in the fair value of our investment portfolio will be recorded as net realized and unrealized gains (losses) in our statement of operations. For the three months ended September 30, 2007, our net realized and unrealized gains includes $8.1 million gain on our fixed maturity portfolio, $3.7 million gain on our equity portfolio, $7.3 million loss on our derivative instruments, and $3.8 million gain on other investments.

During the nine months ended September 30, 2007, the Company recorded $10.9 million of net realized and unrealized gains compared to net realized and unrealized gains of $2.2 million in the same period of 2006. For the nine months ended September 30, 2007, our net realized and unrealized gains includes $3.1 million loss on our fixed maturity portfolio, $6.9 million gain on our equity portfolio, and $6.4 million gain on other investments.

Losses incurred

Losses and loss adjustment expenses were $37.4 million for the third quarter of 2007, representing a loss ratio of 27.0% compared to $9.7 million and a loss ratio of 15.3% for the same quarter last year. The third quarter of 2007 includes $10.3 million with respect to flooding which impacted parts of Southern and Central England and Wales in July. In the current quarter, the Company did not experience any deterioration in the prior estimates for Windstorm Kyrill, the June 2007 United Kingdom floods, and the New South Wales (Australia) flood losses.

Losses and loss adjustment expenses were $162.4 million for the nine months ended September 30, 2007, representing a loss ratio of 46.2% compared to $19.6 million and a loss ratio of 16.3% for the same period last year. In addition to the July UK floods noted above, we incurred gross losses of $33.8 million from Windstorm Kyrill which swept across Northern Europe in January 2007, $31.0 million for United Kingdom flood losses in Northern England in June 2007, $23.5 million for New South Wales (Australia) flood losses, and $6.0 million for a Zenit Satellite loss in January 2007. The first nine months of 2006 experienced light catastrophe activity.

Expenses

Acquisition costs and general and administrative expenses were $48.6 million for the third quarter of 2007 representing an expense ratio of 34.9% compared to $18.6 million or 29.2% for the same quarter last year. Included in these numbers were $2.0 million and $1.2 million for the quarters ended September 30, 2007 and September 30, 2006, respectively, relating to the expensing of share based equity compensation. Also included in the September 30, 2007 results is $5.0 million of acquisition costs and general and administrative expenses relating to Island Heritage which are now included in the Company's consolidated results since the acquisition of the controlling interest in Island Heritage in July 2007.

Acquisition costs and general and administrative expenses were $104.5 million for the nine months ended September 30, 2007 representing an expense ratio of 29.7% compared to $42.9 million and 35.9% for the same period in 2006. Included in these numbers were $6.2 million and $5.5 million for the nine month periods ended September 30, 2007 and September 30, 2006, respectively, relating to the expensing of share based equity compensation. Also included in the September 30, 2007 results is $5.0 million relating to Island Heritage noted above.

For the third quarter of 2007, the Company generated a combined ratio of 61.9%, compared to a combined ratio of 44.5% for the third quarter of 2006. For the nine months ended September 30, 2007, the Company generated a combined ratio of 75.9%, compared to a combined ratio of 52.2% for the same period in 2006.

Interest expense

Interest expense for the third quarter of 2007 was $5.9 million, compared to $1.3 million for the same quarter in 2006. Interest expense for the nine months ended September 30, 2007 was $12.7 million, compared to $1.3 million for the same period in 2006. Interest expense primarily consists of interest due and amortization of debt offering costs on our junior subordinated deferrable interest debentures which were issued in August 2006, June 2007, and September 2007.

Minority interest

From January 1, 2007, the Company consolidates Mont Fort Re ("Mont Fort"), a segregated accounts or "cell" company registered under the Bermuda Segregated Accounts Companies Act 2000 (as amended) in accordance with the provisions of FASB Interpretation No. 46 (revised) Consolidation of Variable Interest Entities. As such, the results of Mont Fort are included in the Company's unaudited consolidated financial statements and the portions of Mont Fort's net income and shareholders equity attributable to the preferred shareholders are recorded in the consolidated financial statements of the Company as minority interest.

Included in the Company's assets as at September 30, 2007 were cash, cash equivalents and fixed maturity investments of $167.2 million held for the sole benefit of preferred shareholders of each specific Mont Fort cell and available to settle the specific current and future liabilities of each cell.

On July 3, 2007, Flagstone purchased 73,110 shares (representing a 21.4% interest) in Island Heritage for a purchase price of $12.6 million. Island Heritage is a Caribbean property insurer based in the Cayman Islands which targets the property insurance market. With this acquisition, Flagstone took a controlling interest in Island Heritage by increasing its interest to 54.6% of the voting shares. Flagstone's share of Island Heritage's results from operations was recorded in the Company's consolidated financial statements under the equity method of accounting through June 30, 2007. As a result of the acquisition of the controlling interest, the results of operations of Island Heritage have been included in the Company's consolidated financial statements from July 1, 2007, with the portions of Island Heritage's net income and shareholders' equity attributable to minority shareholders recorded as minority interest in the Company's consolidated financial statements.

Shareholders' equity

Shareholders' equity was $1.2 billion at September 30, 2007, compared to $864.5 million at December 31, 2006. Diluted book value per share at September 30, 2007 was $13.30, compared to $11.94 per share at December 31, 2006.

Declaration of quarterly dividend

On October 26, 2007, the Board of Directors declared a quarterly dividend of $0.04 per common share. The dividend is payable on November 15, 2007 to shareholders of record at the close of business on October 31, 2007.

Regulation G

This earnings release includes diluted book value per share. This is a non-GAAP financial measure and it has been reconciled to its most comparable GAAP financial measure. Flagstone believes this measure to be more relevant than comparable GAAP measures in evaluating Flagstone's financial performance. A reconciliation of this measure to shareholders' equity is presented at the end of this release.

Additional information

Flagstone will host a conference call on Thursday November 8^th, 2007 at 9.30 a.m. (EST) to discuss this release. Live broadcast of the conference call will be available through the Investor Section of Flagstone Re's website at www.flagstonere.bm

Flagstone Reinsurance Holdings Limited, through its operating subsidiaries, is a global reinsurance company headquartered in Bermuda. Flagstone Re employs a focused, technical approach to the Property Catastrophe, Property, and Specialty reinsurance business. Flagstone Re and Flagstone Réassurance Suisse have received "A-" financial strength ratings from both A.M. Best and Fitch Ratings, and "A3" ratings from Moody's Investors Service.

The company is traded on the New York Stock Exchange under the symbol FSR. Additional financial information and other items of interest are available at the Company's website located at http://www.flagstonere.bm. The Company expects to file its Form 10-Q with the Securities and Exchange Commission on or before November 14, 2007 and urges shareholders to refer to that document for more complete information concerning Flagstone's financial results.

Please refer to the September 30, 2007 Financial Supplement, which will be posted on the Company's website at www.flagstonere.bm for more detailed financial information.

Cautionary Statement under Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.

This report may include forward-looking statements which reflect our current views with respect to future events and financial performance. Statements which include the words "expect," "intend," "plan," "believe," "project," "anticipate," "will" and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the U.S. federal securities laws or otherwise.

These statements include forward-looking statements both with respect to us specifically and our industry in general. These statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate in the circumstances. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties that could cause actual results to differ materially from expectations, including, but not limited to, the following:

• the risks discussed on our Form S-1 filed with the SEC on March 30, 2007 beginning on page 12

• cyclicality of demand and pricing in the reinsurance market

• unpredictability and severity of catastrophic events

• adequacy of our risk management and loss limitation methods

• adequacy of our loss reserves

• our limited operating history

• dependence on key personnel

• dependence on the policies, procedures and expertise of ceding companies

• potential loss of business from one or more major reinsurance brokers

• potential for financial strength rating downgrade

• risks inherent to our acquisition strategy

• highly competitive business environment and

• other factors, most of which are beyond our control.

Accordingly, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in our Form S-1 filed with the SEC on March 30, 2007 which could cause actual results to differ before making an investment decision.

Non-GAAP Financial Measures

In addition to the GAAP financial measures set forth in this Press Release, we have presented “basic and diluted book value per share” which are non GAAP financial measures. We have included the diluted book value per share measure because it takes into account the effect of dilutive securities and therefore, we believe that this is a better measure of calculating shareholder returns than basic book value per share.

Basic book value per share is defined as total shareholders' equity divided by the number of common shares outstanding at the end of the period, giving no effect to dilutive securities. Diluted book value per share is defined as total shareholders' equity divided by the number of common shares and common share equivalents outstanding at the end of the period including all potentially dilutive securities such as the Warrant, PSUs and RSUs. When the effect of securities would be anti-dilutive, these securities are excluded from the calculation of diluted book value per share. The Warrant was anti-dilutive and was excluded from the calculation of diluted book value per share as at September 30, 2007 and December 31, 2006.

Investors are cautioned not to place undue reliance on this non-GAAP measure in assessing the Company's overall financial performance.