pre14a.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
 
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 
Filed by the Registrant    x
 
Filed by a Party other than the Registrant    ¨
 
 
Check the appropriate box:
x
Preliminary Proxy Statement
¨
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
¨
Definitive Proxy Statement
¨
Definitive Additional Materials
¨
Soliciting Material Pursuant to § 240.14a-12
 
 
Flagstone Reinsurance Holdings, S.A.
(Name of Registrant as Specified In Its Charter)
 (Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 
 
Payment of Filing Fee (Check the appropriate box):
x
No fee required
¨
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
1)
Title of each class of securities to which transaction applies:
 
2)
Aggregate number of securities to which transaction applies:
 
3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
 
4)
Proposed maximum aggregate value of transaction:
 
5)
Total fee paid:
¨
Fee paid previously with preliminary materials.
¨
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
1)
Amount Previously Paid:
 
2)
Form, Schedule or Registration Statement No.:
 
3)
Filing Party:
 
4)
Date Filed:
 

 
 
 
 
 
 
 
  
Flagstone Reinsurance Holdings, S.A.
37, Val St. André
L-1128 Luxembourg
Grand Duchy of Luxembourg
RCS Luxembourg number: B153214

 
April  , 2011
 
Dear Shareholder:
 
You are cordially invited to attend the 2011 Annual General Meeting of Shareholders (the “Annual General Meeting”) of Flagstone Reinsurance Holdings, S.A. (the “Company” or “we”) which will be held on May 12, 2011, at 2 p.m. (Central European Time) at Hôtel Le Royal Luxembourg, 12 Boulevard Royal, Luxembourg L-2449, Grand Duchy of Luxembourg. Details regarding the admission to the Annual General Meeting and the business to be conducted at the Annual General Meeting can be found in the attached Notice of Annual General Meeting and the attached Proxy Statement.
 
This year, we are pleased to be using the U.S. Securities and Exchange Commission rules that allow companies to furnish their proxy materials over the Internet. As a result, we are mailing to many of our shareholders a notice instead of a paper copy of this Proxy Statement and our 2010 Annual Report on Form 10-K (together with related documents, the “2010 Annual Report”). The notice contains instructions on how to access those documents over the Internet and how to receive a paper copy of our proxy materials, including this Proxy Statement, our 2010 Annual Report and a form of proxy card or voting instruction card. All shareholders who do not receive a notice, including shareholders who have previously requested to receive paper copies of proxy materials, will receive a paper copy of the proxy materials by mail unless they have previously requested delivery of proxy materials electronically. This distribution process will conserve natural resources and reduce the costs of printing and distributing our proxy materials.
 
If you are a shareholder of record who receives a notice and proxy card by registered mail from Luxembourg and who does not wish to attend the Annual General Meeting, your shares can be voted if you submit your written proxy by mail or by physical delivery to the registered office of the Company prior to the Annual General Meeting.
 
Your vote is important. Regardless of whether you plan to attend the Annual General Meeting in person, we hope that you will submit your proxy or voting instructions as soon as possible by following the instructions in these proxy materials.
 
I look forward to greeting those of you who are able to attend.
 
Sincerely,
 

 
David A. Brown
Chief Executive Officer

 
The attached Proxy Statement is dated April  , 2011. The Proxy Statement (which includes, for Luxembourg law purposes, the Consolidated Management Report of the Board of Directors, the Authorized Statutory Auditor’s Reports and the Luxembourg Statutory Accounts), the accompanying proxy card, the Notice of Annual General Meeting and the Company’s 2010 Annual Report are first being made available to shareholders on or about April  , 2011 and will be available from April  , 2011 at the Company’s registered office.
 
 
 
 
 
 
 
  
Flagstone Reinsurance Holdings, S.A.
37, Val St. André
L-1128 Luxembourg
Grand Duchy of Luxembourg
RCS Luxembourg number: B153214

 
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
 
TO BE HELD ON MAY 12, 2011
 
 
NOTICE IS HEREBY GIVEN that the 2011 Annual General Meeting of Shareholders (the “Annual General Meeting”) of Flagstone Reinsurance Holdings, S.A. (the “Company” or “we”) will be held on May 12, 2011, at 2 p.m. Central European Time at Hôtel Le Royal Luxembourg, 12 Boulevard Royal, Luxembourg  L-2449, Grand Duchy of Luxembourg for the following purposes:
 
 
Ordinary Business
 
 
 
1.
To elect four Class B directors to hold office until the 2014 annual general meeting of shareholders or until their respective successors have been duly elected or appointed.
 
 
 
2.
To elect certain individuals as Designated Company Directors of certain of the Company’s non-U.S. subsidiaries.
 
 
 
3.
To approve the appointment of Deloitte & Touche Ltd. (Bermuda) to serve as the Company’s Independent Registered Public Accounting Firm (the “Independent Auditor”) for fiscal year 2011 and until our 2012 annual general meeting of shareholders and to refer the determination of the auditor’s remuneration to the Board of Directors.
 
 
 
4.
To approve, as required by Luxembourg law, the appointment of Deloitte S.A. (Luxembourg) to serve as the Company’s réviseur d’entreprises agréé (the “Authorized Statutory Auditor”) for the fiscal year 2011 and until our 2012 annual general meeting of shareholders.
 
 
 
5.
To conduct an advisory vote on executive compensation.
 
 
 
6.
To conduct an advisory vote on the frequency of holding future advisory votes on executive compensation.
 
 
 
7.
To approve, as required by Luxembourg law, the consolidated financial statements of the Company prepared in accordance with U.S. GAAP and the annual accounts of the Company prepared in accordance with Luxembourg GAAP, in each case as at and for the year ended December 31, 2010 (together, the “Luxembourg Statutory Accounts”).
 
 
 
8.
To approve, as required by Luxembourg law, the Consolidated Management Report of the Board of Directors on the business of the Company in relation to the year ended December 31, 2010 and the Authorized Statutory Auditor’s Reports on the Luxembourg Statutory Accounts as at and for the year ended December 31, 2010.
 
 
 
9.
To allocate, as required by Luxembourg law, the Company’s results and part of its distributable reserves.
 
 
 
10.
To grant a discharge to each of the current and past directors and officers of the Company in respect to the performance of their mandates during the year ended December 31, 2010.
 
 
 
11.
To approve, as required by Luxembourg law, all interim dividends declared since the Company’s last annual general meeting of shareholders.
 
 
 
 
 
 
 
 
 
Special Business
 
 
 
12.
To approve amendments to the Articles of Incorporation (Statuts) to, among other things, (i) limit the voting rights of certain of the Company’s U.S. shareholders under limited circumstances, (ii) clarify the roles of the Authorized Statutory Auditor and the Independent Auditor, (iii) clarify the authority of the Board of Directors of the Company to issue shares upon the conversion of convertible debt, (iv) amend the term “Warrant” and (v) change the date of the Company’s annual general meetings.
 
The ordinary and special business of the Annual General Meeting set out above is described in more detail in this Proxy Statement and the proposals that form part of this Notice.
 
In addition, we will consider any other business as may properly come before the Annual General Meeting or any adjournment(s) thereof. The Company’s audited consolidated financial statements for the fiscal year ended December 31, 2010, included in the 2010 Annual Report on Form 10-K (together with related documents, the “2010 Annual Report”), and the Luxembourg Statutory Accounts will be presented at the Annual General Meeting. The Consolidated Management Report of the Board of Directors, the Authorized Statutory Auditor’s Reports and the Luxembourg Statutory Accounts are included in this Proxy Statement and will also be available for inspection at the Company’s registered office at least 15 days prior to the Annual General Meeting and at the Annual General Meeting. At the Annual General Meeting, shareholders may also be asked to consider and take action with respect to such other matters as may properly come before the Annual General Meeting or any adjournment(s) thereof.
 
Your vote is very important. Whether or not you plan to attend the Annual General Meeting, we encourage you to read this Proxy Statement and submit your proxy or voting instructions as soon as possible. If you are a shareholder of record holding your shares directly in your name, you may submit your proxy by signing, dating and returning your proxy card in the enclosed postage-paid envelope or by personal delivery to the registered office of the Company. This proxy may be revoked if the shares are represented in person and voted at the Annual General Meeting by the record holder as of the date of the Annual General Meeting. If you are a beneficial owner holding your shares in “street name” (through a broker, bank, trustee or other nominee) as of the close of business on March 21, 2011, the record date fixed by our Board of Directors, you should submit your voting instructions in accordance with the instructions on the voting instruction form provided to you. For specific instructions on how to submit your proxy or voting instruction form, please refer to the section entitled Questions and Answers beginning on page 2 of this Proxy Statement.
 
The attached Proxy Statement is dated April  , 2011. The Proxy Statement (which includes, for Luxembourg law purposes, the Consolidated Management Report of the Board of Directors, the Authorized Statutory Auditor’s Reports and the Luxembourg Statutory Accounts), the accompanying proxy card, the Notice of Annual General Meeting and the Company’s 2010 Annual Report are first being made available to shareholders on or about April  , 2011 and will be available from April  , 2011 at the Company’s registered office.
 
By order of the Board of Directors,
 

 
William F. Fawcett
Corporate Secretary
Luxembourg, Grand Duchy of Luxembourg
 
 
 
Important Notice Regarding the Availability of Proxy Materials for the 2011 Annual General Meeting of Shareholders
to be held on May 12, 2011.
 
The Notice of Annual General Meeting, the Proxy Statement and the 2010 Annual Report are available at
http://ir.flagstonere.com/phoenix.zhtml?c=205986&p=proxy
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 

 
PROXY STATEMENT

 
General
 
This Proxy Statement has information about the 2011 Annual General Meeting of Shareholders (the “Annual General Meeting”) of Flagstone Reinsurance Holdings, S.A. (the “Company”) and was prepared by our management at the direction of Company’s Board of Directors (the “Board of Directors” or “Board”). This Proxy Statement is being made available to you over the Internet or mailed through the U.S. or Luxembourg postal service on or around April  , 2011.
 
Annual General Meeting
 
 
Date:
May 12, 2011
 
Time:
2 p.m. (Central European Time)
 
Place:
Hôtel Le Royal Luxembourg
12 Boulevard Royal
Luxembourg  L-2449
Grand Duchy of Luxembourg

 
Persons Making the Solicitation
 
Proxies in the form enclosed are being solicited by the Board of Directors. The persons named in the accompanying proxy card have been designated as proxies by the Board of Directors. Such persons designated as proxies serve as officers of the Company.
 
Board Recommendation
 
The Company’s Board of Directors recommends that you vote your shares:
 
 
○
 
“FOR” each of the Company’s nominees to the Board (Proposal No. 1);
 
 
○
 
“FOR” the Designated Company Directors (Proposal No. 2);
 
 
○
 
“THREE YEARS” for the proposal regarding the advisory vote on the frequency of the executive compensation advisory vote (Proposal No. 6); and
 
 
○
“FOR” all the other proposals.
 
 
 
 
 
QUESTIONS AND ANSWERS
 

 
Voting
 
Why did I receive these materials?
 
The Board has made these materials available to you over the Internet or delivered paper copies of these materials to you by mail in connection with the solicitation of proxies for use at the Annual General Meeting, which will take place on May 12, 2011 at 2:00 p.m. Central European Time at Hôtel Le Royal Luxembourg, 12 Boulevard Royal, Luxembourg  L-2449, Grand Duchy of Luxembourg. As a shareholder of the Company, you are invited to attend the Annual General Meeting and vote on the items of business described in this Proxy Statement.
 
What information is contained in this Proxy Statement?
 
This Proxy Statement includes information that we are required to provide to you under the rules of the U.S. Securities and Exchange Commission (“SEC”) and that relate to the proposals to be voted on at the Annual General Meeting, the voting process, compensation matters, corporate governance, information about our Board of Directors and certain related information. It also contains information required to be given to you pursuant to Luxembourg law.
 
What is included in the proxy materials?
 
The proxy materials include:
 
 
●
Our Proxy Statement for the Annual General Meeting (which includes, for Luxembourg law purposes, the Consolidated Management Report of the Board of Directors, the Authorized Statutory Auditor’s Reports and the Luxembourg Statutory Accounts);
 
 
●
Our 2010 Annual Report on Form 10-K (together with related documents, the “2010 Annual Report”); and
 
 
●
A proxy card or a voting instruction card (together, the “Proxy Materials”).
 
Who is entitled to vote?
 
If you are a shareholder of record holding your shares directly in your name, you may submit your proxy by signing, dating and returning your proxy card in the enclosed postage-paid envelope or by personal delivery to the registered office of the Company. This proxy may be revoked if the shares are represented in person and voted at the Annual General Meeting by the record holder as of the date of the Annual General Meeting. If you are a beneficial owner holding your shares in “street name” (through a broker, bank, trustee or other nominee) as of the close of business on March 21, 2011, the record date fixed by our Board of Directors, you should submit your voting instructions in accordance with the instructions on the voting instruction form provided to you.
 
How many votes do I have?
 
Each holder of a share entitled to vote will be entitled to one vote per share on each matter presented at the Annual General Meeting. On March 21, 2011, there were  shares outstanding and entitled to vote at the Annual General Meeting.
 
 
 
 
 
Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a full set of proxy materials?
 
This year, we are pleased to be using the SEC rules that allow companies to furnish their proxy materials over the Internet. As a result, we are mailing to many of our shareholders a notice of Internet availability of proxy materials instead of a paper copy of the proxy materials. All shareholders receiving the notice will have the ability to access the proxy materials over the Internet and request to receive a paper copy of the proxy materials by mail. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the notice. In addition, the notice contains instructions on how you may request to access proxy materials in printed form by mail or electronically on an ongoing basis.
 
Why didn’t I receive a notice of Internet availability of proxy materials in the mail?
 
We are providing some of our shareholders, including shareholders of record, shareholders who have previously requested to receive paper copies of the proxy materials and some of our shareholders who are living outside of the United States, with paper copies of the proxy materials instead of a notice of Internet availability of proxy materials.
 
How can I access the proxy materials over the Internet?
 
Your notice of Internet availability of proxy materials, proxy card or voting instruction card will contain instructions on how to:
 
 
●
View our proxy materials for the Annual General Meeting on the Internet; and
 
 
●
Instruct us to send our future proxy materials to you electronically by e-mail.
 
Our proxy materials are also available on the “Financial & Investor Information” section our website at www.flagstonere.com.
 
Your notice of Internet availability of proxy materials, proxy card or voting instruction card will contain instructions on how you may request to access proxy materials electronically on an ongoing basis. Choosing to access your future proxy materials electronically will help us conserve natural resources and reduce the costs of distributing our proxy materials. If you choose to access future proxy materials electronically, you will receive an e-mail with instructions containing a link to the website where those materials are available and a link to the proxy voting website. Your election to access proxy materials by e-mail will remain in effect until you terminate it.
 
How may I obtain a paper copy of the proxy materials?
 
Shareholders receiving a notice of Internet availability of proxy materials by mail will find instructions about how to obtain a paper copy of the proxy materials on the notice. All shareholders who do not receive a notice of Internet availability of proxy materials by mail will receive a paper copy of the proxy materials by mail.
 
I share an address with another shareholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials?
 
The Company adopted a procedure called “householding,” which the SEC has approved. Under this procedure, if you are a beneficial owner holding your shares in street name and you share an address with another shareholder, you may receive a single copy of the notice of Internet availability of proxy materials and, if applicable, the Proxy Materials, unless you have provided contrary instructions. This procedure reduces the Company’s printing costs, mailing costs and fees. If you wish to receive a separate copy of the notice of Internet availability of proxy materials and, if applicable, these Proxy Materials now, please request the additional copy by contacting Broadridge, either by phone at 1-800-579-1639, by e-mail at sendmaterial@proxyvote.com or on the Internet at www.proxyvote.com. A separate set of Proxy Materials will be sent promptly following receipt of your request. All shareholders also may write to us at the address below to request a separate copy of these materials:
 
Flagstone Reinsurance Holdings, S.A.
Attn: Company Secretary
37, Val St. André
L-1128 Luxembourg
Grand Duchy of Luxembourg
 
 
 
 
 
What should I do if I receive more than one notice of Internet availability of proxy materials or more than one paper copy of the proxy materials?
 
You may receive more than one notice or more than one paper copy of the proxy materials, including multiple paper copies of this Proxy Statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate notice or a separate voting instruction card for each brokerage account in which you hold shares. If you are a shareholder of record and your shares are registered in more than one name, you may receive more than one notice or more than one proxy card. To submit your proxy, you must complete, sign, date and return each proxy card and voting instruction card that you receive.
 
How may I obtain a copy of the Company’s 2010 Annual Report and other financial information?
 
Shareholders may request a free copy of our 2010 Annual Report, which includes our 2010 Form 10-K, from:
 
Flagstone Reinsurance Holdings, S.A.
Attn: Company Secretary
37, Val St. André
L-1128 Luxembourg
Grand Duchy of Luxembourg
 
Alternatively, shareholders can access the 2010 Annual Report on Flagstone’s website at www.flagstonere.com. We also will furnish any exhibit to the 2010 Form 10-K if specifically requested.
 
What proposals are being presented at the Annual General Meeting?
 
 
We intend to present several proposals for shareholder consideration and approval at the Annual General Meeting in connection with corporate matters. These proposals are:
 
 
Ordinary Business
 
 
 
●
To elect four Class B directors to hold office until the 2014 annual general meeting of shareholders or until their respective successors have been duly elected or appointed.
 
 
●
To elect certain individuals as Designated Company Directors of certain of the Company’s non-U.S. subsidiaries.
 
 
●
To approve the appointment of Deloitte & Touche Ltd. (Bermuda) to serve as the Company’s Independent Registered Public Accounting Firm (the “Independent Auditor”) for fiscal year 2011 and until our 2012 annual general meeting of shareholders and to refer the determination of the auditor’s remuneration to the Board of Directors.
 
 
●
To approve, as required by Luxembourg law, the appointment of Deloitte S.A. (Luxembourg) to serve as the Company’s réviseur d’entreprises agréé (the “Authorized Statutory Auditor”) for the fiscal year 2011 and until our 2012 annual general meeting of shareholders.
 
 
●
To conduct an advisory vote on executive compensation.
 
 
●
To conduct an advisory vote on the frequency of holding future advisory votes on the executive compensation.
 
 
●
To approve, as required by Luxembourg law, the consolidated financial statements of the Company prepared in accordance with U.S. GAAP and the annual accounts of the Company prepared in accordance with Luxembourg GAAP, in each case as at and for the year ended December 31, 2010 (together, the “Luxembourg Statutory Accounts”).
 
 
 
 
 
 
●
To approve, as required by Luxembourg law, the Consolidated Management Report of the Board of Directors on the business of the Company in relation to the year ended December 31, 2010 and the Authorized Statutory Auditor’s Reports on the Luxembourg Statutory Accounts as at and for the year ended December 31, 2010.
 
 
●
To allocate, as required by Luxembourg law, the Company’s results and part of its distributable reserves.
 
 
●
To grant a discharge to each of the current and past directors and officers of the Company in respect to the performance of their mandates during the year ended December 31, 2010.
 
 
●
To approve, as required by Luxembourg law, all interim dividends declared since the Company’s last annual general meeting of shareholders.
 
 
Special Business
 
 
 
●
To approve amendments to the Articles of Incorporation (Statuts) to, among other things, (i) limit the voting rights of certain of the Company’s U.S. shareholders under limited circumstances, (ii) clarify the roles of the Authorized Statutory Auditor and the Independent Auditor, (iii) clarify the authority of the Board of Directors of the Company to issue shares upon the conversion of convertible debt, (iv) amend the term “Warrant” and (v) change the date of the Company’s annual general meetings.
 
What is the difference between holding shares as a shareholder of record and as a beneficial owner?
 
Most Flagstone shareholders hold their shares as a beneficial owner through a broker, bank, trustee or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and shares owned beneficially.
 
 
●
Shareholder of Record—If your shares are held directly in your name with Flagstone’s transfer agent, you are considered, with respect to those shares, a “shareholder of record.” As the shareholder of record, you have the right to grant your voting proxy directly to the Company or to a third party, or to vote in person at the Annual General Meeting if you hold your shares as of that date.
 
 
●
Beneficial Owner—If your shares are held through a broker, bank, trustee or other nominee, you are considered the “beneficial owner” of those shares held in “street name”. As the beneficial owner of those shares on the record date fixed by the Board, you have the right to direct your broker, bank, trustee or other nominee how to vote and you also are invited to attend the Annual General Meeting. However, because your shares are not held directly in your name, you may not vote these shares in person at the meeting unless you obtain a “legal proxy” from the broker, bank, trustee or other nominee that holds your shares, giving you the right to vote the shares at the Annual General Meeting.
 
How do I attend the Annual General Meeting?
 
All shareholders are invited to attend the Annual General Meeting. For admission to the Annual General Meeting, shareholders of record should bring valid proof of identification as a shareholder as of the date of the Annual General Meeting. Those who have beneficial ownership of shares held in street name must bring account statements or letters from their brokers, banks, trustees or other nominees showing that they own shares of the Company as of the record date.
 
How can I vote my shares in person at the Annual General Meeting?
 
Shares held in your name as the shareholder of record as of the date of the Annual General Meeting may be voted in person at the Annual General Meeting. Shares that you hold in street name as of the record date may be voted in person at the Annual General Meeting only if you obtain a legal proxy from the broker, bank, trustee or other nominee that holds your shares giving you the right to vote the shares. Even if you plan to attend the Annual General Meeting, we recommend that you also submit your proxy or voting instruction card as described below so that your vote will be counted.
 
 
 
 
 
How can I make sure my shares are voted without attending the Annual General Meeting?
 
Whether you hold shares directly as the shareholder of record or beneficially in street name, you may direct how your shares are voted without attending the Annual General Meeting. If you hold your shares directly in your name, you may submit your proxy by signing, dating and returning your proxy card in the enclosed postage-paid envelope or by personal delivery to the registered office of the Company. If you hold your shares in street name through a broker, bank, trustee or other nominee, you must follow the instructions on the voting instruction form provided to you.
 
What if I return my proxy or voting instruction card but do not mark it to show how I am voting?
 
Your shares will be voted according to the instructions you have indicated on your proxy or voting instruction card. If you sign and return your proxy card but do not indicate instructions for voting, your shares will be voted in accordance with the Board’s recommendations, that is “FOR” each of the Company’s nominees to the Board (Proposal No. 1), “FOR” the Designated Company Directors (Proposal No. 2), “THREE YEARS” for the proposal regarding the advisory vote on the frequency of the executive compensation advisory vote (Proposal No. 6), and “FOR” all the other proposals. With respect to any other matter which may properly come before the Annual General Meeting, your shares will be voted at the discretion of the proxy holders.
 
May I change or revoke my vote after I return my proxy or voting instruction card?
 
If you hold your shares directly in your name, you may change your vote in one of three ways at any time before it is exercised:
 
 
●
notify our Secretary in writing that you are revoking your proxy;
 
 
●
submit another proxy card with a later date; or
 
 
●
vote in person at the Annual General Meeting.
 
Your presence without voting at the Annual General Meeting will not automatically revoke your proxy, and any revocation during the meeting will not affect votes previously taken. If your shares are held in street name through a broker, bank, trustee or other nominee, you must follow the instructions on the voting instruction form provided to you in revoking your previously granted proxy.
 
What constitutes a quorum?
 
Generally, the presence, in person or by proxy, of two or more of shareholders entitled to vote at the Annual General Meeting constitutes a quorum for the conduct of ordinary business. However, Proposal No. 12 constitutes special business and requires the passing of a special resolution; therefore, the presence, in person or by proxy, of two or more shareholders representing together more than one half of the total outstanding capital of the Company constitutes a quorum for that proposal. Abstentions are counted for the purpose of determining the presence of a quorum.
 
What vote is required in order to approve each proposal?
 
The affirmative vote of a majority of the shares present, in person or by proxy, at the Annual General Meeting and entitled to vote on the proposal is generally required to approve each of the proposals to be acted on at the Annual General Meeting as ordinary business. However, the affirmative vote of more than two-third of the shares present, in person or by proxy, at the Annual General Meeting and entitled to vote on the proposal is required for the approval of Proposal No. 12.
 
 
 
 
 
How will voting on any other business be conducted?
 
Other than matters incidental to the conduct of the Annual General Meeting, we do not know of any business or proposals to be considered at the Annual General Meeting other than those set forth in this Proxy Statement. If any other business is proposed and properly presented at the Annual General Meeting, the proxies received from our shareholders give the proxy holders the authority to vote on the matter at their discretion.
 
Where can I find the voting results of the Annual General Meeting?
 
We intend to announce preliminary voting results at the Annual General Meeting and publish final results in a Current Report on Form 8-K to be filed to the SEC within four business days of the Annual General Meeting.
 
 
 
 
 
THE ANNUAL GENERAL MEETING

 
Date, Time and Place
 
The Annual General Meeting will be held on May 12, 2011 at 2 p.m. (Central European Time) at Hôtel Le Royal Luxembourg, 12 Boulevard Royal, Luxembourg  L-2449, Grand Duchy of Luxembourg.
 
We are first making these Proxy Materials available to shareholders by mail and over the Internet beginning on or about April          , 2011.
 
Company’s Mailing Address
 
Flagstone Reinsurance Holdings, S.A.
37, Val St. André
L-1128 Luxembourg
Grand Duchy of Luxembourg
+352 273 515 02
 
Purpose of the Meeting
 
At the meeting, the Board of Directors will ask our shareholders to vote:
 
Ordinary Business
 
 
●
Proposal 1: To elect four Class B directors to hold office until the 2014 annual general meeting or until their respective successors have been duly elected or appointed.
 
 
●
Proposal 2: To elect certain individuals as Designated Company Directors of certain of the Company’s non-U.S. subsidiaries.
 
 
●
Proposal 3: To approve the appointment of Deloitte & Touche Ltd. (Bermuda) to serve as the Company’s Independent Registered Public Accounting Firm (the “Independent Auditor”) for fiscal year 2011 and until our 2012 annual general meeting of shareholders and to refer the determination of the auditor’s remuneration to the Board of Directors.
 
 
●
Proposal 4: To approve, as required by Luxembourg law, the appointment of Deloitte S.A. (Luxembourg) to serve as the Company’s réviseur d’entreprises agréé (the “Authorized Statutory Auditor”) for the fiscal year 2011 and until our 2012 annual general meeting of shareholders.
 
 
●
Proposal 5:  To conduct an advisory vote on executive compensation.
 
 
●
Proposal 6:  To conduct an advisory vote on the frequency of holding future advisory votes on the executive compensation.
 
 
●
Proposal 7: To approve, as required by Luxembourg law, the consolidated financial statements of the Company prepared in accordance with U.S. GAAP and the annual accounts of the Company prepared in accordance with Luxembourg GAAP, in each case as at and for the year ended December 31, 2010 (together, the “Luxembourg Statutory Accounts”).
 
 
●
Proposal 8: To approve, as required by Luxembourg law, the Consolidated Management Report of the Board of Directors on the business of the Company in relation to the year ended December 31, 2010 and the Authorized Statutory Auditor’s Reports on the Luxembourg Statutory Accounts as at and for the year ended December 31, 2010.
 
 
●
Proposal 9: To allocate, as required by Luxembourg law, the Company’s results and part of its distributable reserves.
 
 
●
Proposal 10: To grant a discharge to each of the current and past directors and officers of the Company in respect to the performance of their mandates during the year ended December 31, 2010.
 
 
 
 
 
 
●
Proposal 11: To approve, as required by Luxembourg law, all interim dividends declared since the Company’s last annual general meeting of shareholders.
 
 
Special Business
 
 
●
Proposal 12: To approve amendments to the Articles of Incorporation (Statuts) to, among other things, (i) limit the voting rights of certain of the Company’s U.S. shareholders under limited circumstances, (ii) clarify the roles of the Authorized Statutory Auditor and the Independent Auditor, (iii) clarify the authority of the Board of Directors of the Company to issue shares upon the conversion of convertible debt, (iv) amend the term “Warrant” and (v) change the date of the Company’s annual general meetings.
 
The matters described in this Proxy Statement are the only matters that we know will be voted on at the Annual General Meeting. If other matters are properly presented at the Annual General Meeting, the proxy holders will vote your shares as they see fit.
 
Board Recommendation
 
The Board of Directors recommends that you vote your shares “FOR” each of the Company’s nominees to the Board (Proposal No. 1), “FOR” the Designated Company Directors (Proposal No. 2), “THREE YEARS” for the proposal regarding the advisory vote on the frequency of the executive compensation advisory vote (Proposal No. 6), and “FOR” all the other proposals.
 
Revocability of Proxy
 
If your shares are held directly in your name, you may change your vote in one of three ways at any time before it is exercised:
 
 
●
notify our Secretary in writing that you are revoking your proxy;
 
 
●
submit another proxy card with a later date; or
 
 
●
vote in person at the Annual General Meeting.
 
Your presence without voting at the Annual General Meeting will not automatically revoke your proxy, and any revocation during the meeting will not affect votes previously taken. If your shares are held in street name through a broker, bank, trustee or other nominee, you must follow the instructions on the voting instruction form provided to you in revoking your previously granted proxy.
 
Dissenter’s Right of Appraisal
 
The Board of Directors has not proposed for consideration at the Annual General Meeting any matter for which the laws of Luxembourg entitle shareholders to appraisal rights.
 
Persons Making the Solicitation
 
Proxies in the form enclosed are being solicited by the Board of Directors. The persons named in the accompanying proxy card have been designated as proxies by the Board. Such persons designated as proxies serve as officers of the Company.
 
We will pay the entire cost of preparing, assembling, printing, mailing and distributing these Proxy Materials and soliciting votes. We have engaged Okapi Partners LLC as the proxy solicitor for the Annual General Meeting for an aggregate fee of approximately $25,000. In addition to the use of the mails and the Internet, certain of our directors, officers or employees may solicit proxies by telephone or personal contact. Upon request, we will reimburse brokers, banks, trustees or other nominees, for reasonable expenses incurred by them in forwarding Proxy Materials to beneficial owners of shares.
 
 
 
 
 
Interest of Certain Persons in Matters to be Acted Upon
 
Other than for any interest arising from the ownership of our common shares or any nominee’s election to office, the Company is not aware of any substantial interest of any director, executive officer, nominee for election as a director or associate of any of the foregoing in any matter to be acted upon at the Annual General Meeting.
 
Voting Securities
 
Number of Shares Outstanding
 
On March 21, 2011,                      shares were issued and entitled to be voted at the meeting.
 
Voting Rights
 
Shareholders have one vote for each share held by them.
 
Principal Holders of Common Shares
 
Our directors and executive officers have indicated that they intend to vote their shares in favor of (i) each of the Company’s nominees to the Board (Proposal No. 1), (ii) the Designated Company Directors (Proposal No. 2), (iii) holding an advisory vote on executive compensation every three years (Proposal No. 6), and (vi) all the other proposals.
 
Voting Procedures
 
Quorum
 
Generally, the presence, in person or by proxy, of two or more of shareholders entitled to vote at the Annual General Meeting constitutes a quorum for the conduct of ordinary business. However, Proposal No. 12 constitutes special business and requires the passing of a special resolution; therefore, the presence, in person or by proxy, of two or more shareholders representing together more than one half of the total outstanding capital of the Company constitutes a quorum for that proposal. Abstentions are counted for the purpose of determining the presence of a quorum. Shareholders are entitled to vote on each matter to be voted upon by the shareholders at the Annual General Meeting, in accordance with the voting rights afforded under Article 42 of the Company’s Articles of Incorporation (the “Articles”).
 
Voting in Person
 
If you hold your shares directly in your name, you may vote in person at the Annual General Meeting. If your shares are held in street name through a broker, bank, trustee or other nominee, you may vote in person the Annual General Meeting only if you obtain a legal proxy from the broker, bank, trustee or other nominee that holds your shares. Even if you plan to attend the Annual General Meeting, we recommend that you also submit your proxy or voting instruction card as described below so that your vote will be counted.
 
Submitting your Proxy; Record Date
 
Whether you hold shares directly in your name or in street name through a broker, bank, trustee or other nominee, you may direct how your shares are voted without attending the Annual General Meeting. If hold your shares directly in your name, you may submit your proxy by signing, dating and returning your proxy card in the enclosed postage-paid envelope or by personal delivery to the registered office of the Company. This proxy may be revoked if the shares are represented in person and voted at the Annual General Meeting by the record holder as of the date of the Annual General Meeting. If your shares are held in street name through a broker, bank, trustee or other nominee as the record date fixed by our Board of Directors, you should submit your voting instructions in accordance with the instructions on the voting instruction form provided to you.
 
You may abstain on any of the proposals by marking “ABSTAIN” with respect to any proposal.
 
 
 
 
 
 
The matters described in this Proxy Statement are the only matters that we know will be voted on at the Annual General Meeting. If other matters are properly presented at the Annual General Meeting, the proxy holders will vote your shares as they see fit.
 
If you do not appoint a proxy and you do not vote at the Annual General Meeting, you will still be bound by the outcome. You therefore are strongly urged to attend and submit your proxy or voting instruction card as soon as possible.
 
Abstentions and Broker Non-Votes
 
Pursuant to Luxembourg law, the shares with respect to which a stockholder abstains and broker “non-votes” are included in determining whether a quorum is present at the Annual General Meeting. However, abstentions and broker “non-votes” are not included in the determination of the common shares voting of the relevant matter. A broker “non-vote” occurs when nominees, such as brokers, banks, trustees or other nominees, holding shares on behalf of beneficial owners, do not receive voting instructions from the beneficial holders at least ten days before the Annual General Meeting.
 
Vote Required for Approval
 
The affirmative vote of a majority of the shares present, in person or by proxy, at the Annual General Meeting and entitled to vote on the proposal is generally required to approve each of the proposals to be acted on at the Annual General Meeting as ordinary business. However, the affirmative vote of more than two-third of the shares present, in person or by proxy, at the Annual General Meeting and entitled to vote on the proposal is required for the approval of Proposal No. 12.
 
 
 
 

 
 
PROPOSAL 1 – ELECTION OF DIRECTORS

 
The Articles provide for a classified Board of Directors of no fewer than ten and no more than twelve directors, divided into three classes of as nearly equal size as possible. The Board of Directors currently consists of eleven directors.  Each director is elected for a three-year term. At the Annual General Meeting, our shareholders will elect the Class B directors, who will be elected for a term ending at the 2014 annual general meeting. Our incumbent Class A and Class C directors are elected for a term ending at the 2012 and 2013 annual general meetings, respectively.
 
At its meeting on February 17, 2011, the Board of Directors nominated Messrs. Black, Dickson, Spiering and Thorn for re-election as Class B directors at the Annual General Meeting. Each of these directors has indicated that he will offer himself for re-election to the Board of Directors.
 
If any nominee shall, prior to the Annual General Meeting, become unavailable for election as a director, the persons named in the accompanying proxy card will vote for such other nominee, if any, in their discretion as may be recommended to the Board of Directors.
 
NOMINEES
 
Mr. Gary Black
Mr. Thomas Dickson
Mr. Jan Spiering
Mr. Wray T. Thorn
 
The respective ages, business experience, directorships and committee memberships for the nominees are set out in “Our Directors” below. All of the nominees currently serve as directors of the Company.
 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF THE FOUR DIRECTORS NAMED ABOVE.
 
 
 
 
 
 
PROPOSAL 2 – ELECTION OF SUBSIDIARY DIRECTORS

 
Under the proposed Company’s Articles (Proposal No. 12), the boards of directors of each non-U.S. subsidiary of the Company that is regulated as an insurance company in its home jurisdiction must consist of persons who have been elected by our shareholders as Designated Company Directors.
 

The persons named below currently serve as directors and have been nominated to serve as Designated Company Directors of each such subsidiaries indicated below. If any nominee shall, prior to the Annual General Meeting, become unavailable for election as a director, the persons named in the accompanying proxy card will vote for such other nominee, if any, in their discretion as may be recommended to the Board of Directors.
 

 
Flagstone Capital Management (Bermuda) Limited
 
David Brown(1)
William Fawcett(2)
James O’Shaughnessy
Venkateswara Rao Mandava(3)
Brenton Slade(4)
 
 
 
Flagstone Réassurance Suisse SA
 
David Brown(1)
Guy Swayne(5)
Frédéric Traimond(6)
Karl Grieves
David Flitman(7)
Gary Prestia(8)
Patrick Boisvert(9)
 
Flagstone Réassurance Suisse SA (Bermuda Branch)
 
Guy Swayne(5)
David Brown(1)
Frédéric Traimond(6)
Karl Grieves
David Flitman(7)
Gary Prestia(8)
Patrick Boisvert(9)
 
Mont Fort Re Ltd.
 
David Brown(1)
William Fawcett(2)
James O’Shaughnessy
Brenton Slade(4)
Mosaic Underwriting Services (Dubai) Limited
 
Chris Jarvis
Guy Swayne(5)
John Hyland
 
Flagstone Underwriters Middle East LTD
 
John Hyland
Guy Swayne(5)
Flagstone Syndicate Management Limited
 
Frédéric Traimond(6)
Anthony P. Latham(10)
Nicholas Pawson
Iain Macdowall
Karl Grieves
Leslie Allen
David Young
Tony Hulse
Ian Mallery
Guy Swayne(5)
Paul Chubb
Richard Housley
Cynthia Hallman
 
Flagstone Reinsurance Africa Limited
 
James O’Shaughnessy
Karl Grieves
Howard Cheetham
Steve Handler
Phillip Pettersen
Stephen Smith
Guy Swayne(5)
Frédéric Traimond(7)
 
 
 
 
 
 
 
Island Heritage Insurance Company NV
 
J. Bryan O’Neal
 
Island Heritage Insurance Company Limited
 
J. Bryan O’Neal
Flagstone Underwriters Latin-America Limited A.I.
 
Guy Swayne(5)
David Brown(1)
James O’Shaughnessy
Ralph Rexach
  
  
(1)
See biography of Mr. Brown under “Our Directors” below.
(2)
See biography of Mr. Fawcett under “Executive Officers” below.
(3)
See biography of Mr. Mandava under “Executive Officers” below.
(4)
See biography of Mr. Slade under “Executive Officers” below.
(5)
See biography of Mr. Swayne under “Executive Officers” below.
(6)
See biography of Mr. Traimond under “Executive Officers” below.
(7)
See biography of Mr. Flitman under “Executive Officers” below.
(8)
See biography of Mr. Prestia under “Executive Officers” below.
(9)
See biography of Mr. Boisvert under “Executive Officers” below.
(10)
See biography of Mr. Latham under “Our Directors” below.

 
James O’Shaughnessy joined the Company as Chief Financial Officer in May 2006. Mr. O’Shaughnessy holds a Bachelor of Commerce degree from University College, Cork, Ireland and is both a Fellow of the Institute of Chartered Accountants of Ireland and an Associate Member of the Chartered Insurance Institute of the U.K.
 
Karl Grieves joined Flagstone in January 2008 and is currently Managing Director and Deputy Chairman of Flagstone Syndicate Management Limited since March 1, 2010. Holds a BA Honours degree in Economics from the University of Leeds, UK and MSc in Business Administration from the University of Bath, UK. By profession, he is a Fellow of the Institute of Chartered Accountants in England & Wales having qualified with KPMG in London.
 
Chris Jarvis holds a manager’s position within Mosaic Underwriting Services (Dubai) Limited since 2008. Mr. Jarvis is an Associate of the Chartered Insurance Institute, and holds the Lloyd’s market Certificate.
 
John Hyland is a director of Mosaic Underwriting Services (Dubai) Limited. He holds a BTEC higher National Diploma Business Studies from Croydon Technical College.
 
Nicholas Pawson has been a Non-Executive Director of Flagstone Syndicate Management Limited (formerly Marlborough Underwriting Agency Limited) since January 1998.
 
Iain Macdowall was appointed Compliance Director of Flagstone Syndicate Management Limited in 2003. Iain is an Associate of the Chartered Insurance Institute.
 
Leslie Allen has almost 40 years experience in the London market having spent the first 28 years in the company market with the Commercial Union Group where he was the underwriter of the Indemnity and British and European underwriting rooms before all CU rooms were merged prior to the move to Flagstone Syndicate Management Limited. He is currently in charge of a small specialist team of underwriters.
 
David Young has been a Non-Executive Director of Flagstone Syndicate Management Limited since January 2001. As a Chartered Accountant, Mr. Young held the role of Chairman of Touche Ross & Co.
 
Tony Hulse is an insurance specialist with KPMG in London, England, and has more than 35 years experience of auditing and advising insurance and other businesses. He is a Fellow of the Institute of Chartered Accountants in England and Wales.

 
 
 
Ian Mallery has 35 years experience working in the Lloyd’s Market. He moved to Flagstone Syndicate Management Limited in 1997 to head up claims and reinsurance recoveries and was appointed to the board in 2001. He is now Chief Operating Officer and Operations Director of Flagstone Syndicate Management Limited.
 
Paul Chubb is the Finance director of Flagstone Syndicate Management Limited.  By profession, he is a Chartered Accountant.
 
Richard Housley has 25 years experience of London and international markets having started his career in 1986 in London as a placing broker and moving to underwriting in 1996 for Brockbank Syndicate Management. Joined Axis Specialty shortly after its formation at the beginning of 2002. He held various positions including President of its Global Insurance segment and later as CEO of the Specialty Lines Division of Axis Insurance.
 
Cynthia Hallman, our Global Claims and Reinsurance Manager, has over 30 years of insurance industry experience. Prior to joining Flagstone in 2008, Ms. Hallman was Director of Claims – Eastern Canada with Royal & Sun Alliance Insurance Company of Canada.
 
Howard Cheetham has in excess of 30 years experience in the reinsurance market and has been with Flagstone since the company’s inception.  Howard is International Business Development Officer for Flagstone Re, and CEO of Flagstone Representatives Limited in the UK.  Previously Howard was an MD and Deputy Chairman within Aon Reinsurance UK.
 
Steve Handler is a Qualified Actuary. Steve has over 40 years experience in the insurance and reinsurance industry.
 
Phillip Pettersen is a qualified Fellow of both the Chartered Insurance Institute and the Insurance Institute of South Africa. He also serves as Chairman of the audit committee for Telesure Group in South Africa. Phillip has 35 years experience in the insurance and reinsurance industry, both locally and internationally.
 
Stephen Smith is an associate of Chartered Insurance Institute and Insurance Institute of South Africa. Steve has over 30 years experience in reinsurance industry, 10 years in UK and past 22 in South Africa.
 
J. Bryan O’Neal has served as a director of Island Heritage Insurance Company since 2009. Prior to joining Flagstone, he served in the US Navy for five years as a submarine officer. He holds an MBA from the Tuck School of Business at Dartmouth, and a BA in Physics and Economics from Vanderbilt University.
 
Ralph Rexach is the managing partner and co-founder of Rexach & Pico Rexach served as Commissioner of Insurance of the Commonwealth of Puerto Rico during 1991-1992, and has lectured extensively on matters relating  to the lsland’s insurance regulatory system in Puerto Rico and abroad. He graduated from Yale University in 1970 and received his law degree from the University of Puerto Rico Law School in 1974.
 
 
 
 
The election of the Designated Company Directors named above is conditioned on the approval of Proposal No. 12 below.
 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF THE DESIGNATED COMPANY DIRECTORS NAMED ABOVE.
 
 
 
 
 
PROPOSAL 3 – APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
Upon the recommendation of the Audit Committee of the Board (the “Audit Committee”), the Board of Directors proposes that the shareholders approve the appointment of Deloitte & Touche Ltd. (Bermuda) to serve as our Independent Registered Public Accounting Firm (the “Independent Auditor”) for the 2011 fiscal year until the 2012 annual general meeting of shareholders. Deloitte & Touche Ltd. (Bermuda) has served as our Independent Auditor since October 2005. A representative from Deloitte & Touche Ltd. (Bermuda) will attend the Annual General Meeting and will be available to respond to any questions and make a statement if he or she so desires. Shareholders at the Annual General Meeting will also be asked to vote to refer the determination of the auditor’s remuneration to the Board of Directors.
 
The following sets forth the fees billed to us by Deloitte & Touche Ltd. (Bermuda) and its affiliates during the 2010 fiscal year:
 
Audit Fees
 
Aggregate audit fees billed to us by Deloitte & Touche Ltd. (Bermuda) for the fiscal years ended December 31, 2010 and 2009 were $2,940,819 and $3,057,559, respectively. The aggregate audit fees in respect to the fiscal year ended December 31, 2010 include audit fees payable by the Company to Deloitte S.A. (Luxembourg). Audit fees were for (a) the audit of our annual financial statements, (b) review of our quarterly financial statements, and (c) statutory audits.
 
Audit-Related Fees
 
Audit-related fees billed to us by Deloitte & Touche Ltd. (Bermuda) for the fiscal years ended December 31, 2010 and 2009 were $60,649 and $123,718, respectively, for assurance and related services that are related to the audit and review of the financial statements (including technical consultations and services provided in relation to securities offerings) which are not reported as audit fees above.
 
Tax Fees
 
Fees billed to us by Deloitte & Touche Ltd. (Bermuda) for all tax-related services for the fiscal years ended December 31, 2010 and 2009 were $40,594 and $nil, respectively. These fees were for professional services rendered for tax compliance.
 
All Other Fees
 
The aggregate fees billed by Deloitte & Touche Ltd. (Bermuda) for products and services rendered to the Company, other than the services described above under “Audit Fees”, “Audit-Related Fees” and “Tax Fees”, for the fiscal years ended December 31, 2010 and 2009 were $1,500 and $106,772, respectively, which relate to other services primarily for due diligence. The Audit Committee has considered whether any information technology and non-audit consulting services provided by Deloitte & Touche Ltd. (Bermuda) could impair the independence of Deloitte & Touche Ltd. (Bermuda). No such services were provided by Deloitte & Touche Ltd. (Bermuda) during 2010 or 2009 and thus the Audit Committee concluded that such services did not impair the auditor’s independence.
 
Pre-Approval Policies
 
The Audit Committee must pre-approve all audit services and permitted non-audit services performed for the Company by our auditor, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are approved by the Audit Committee prior to the completion of the audit. All engagements of Deloitte & Touche Ltd. (Bermuda) to provide audit, audit-related and tax services to the Company during 2010 and 2009 were pre-approved by the Audit Committee.
 
 
 
 
The Audit Committee is responsible for managing our relationship with our Independent Registered Public Accounting Firm. The Audit Committee has the sole authority to hire and employ our auditor. The Audit Committee regularly reviews the auditor’s work plan, bills and work product. Accordingly, it is our policy that all proposed engagements by our current audit firm must be approved in advance by the Audit Committee.
 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE REAPPOINTMENT OF DELOITTE & TOUCHE LTD. (BERMUDA) AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2011 FISCAL YEAR UNTIL THE 2012 ANNUAL GENERAL MEETING OF SHAREHOLDERS AND THE REFERRAL OF THE DETERMINATION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S REMUNERATION TO THE BOARD OF DIRECTORS.  PROXIES WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES.
 
 
 
 
 
PROPOSAL 4 – APPOINTMENT OF AUTHORIZED STATUTORY AUDITOR

 
Under Luxembourg law, the appointment of a firm to audit the Luxembourg Statutory Accounts must be submitted for approval by our shareholders. Our Board of Directors has recommended that Deloitte S.A. (Luxembourg) be elected as the Company’s réviseur d’entreprises agréé (“Authorized Statutory Auditor”).
 
Deloitte S.A. (Luxembourg) has served as our Authorized Statutory Auditor since May 2010. A representative from Deloitte S.A. (Luxembourg) will attend the Annual General Meeting and will be available to respond to any questions and make a statement if he or she so desires.
 
The fees payable by the Company to the Authorized Statutory Auditor in respect to the fiscal year ended December 31, 2010 are included in the aggregate audit fees set forth in Proposal No. 3.
 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE REAPPOINTMENT OF DELOITTE S.A. (LUXEMBOURG) AS OUR AUTHORIZED STATUTORY AUDITOR FOR THE 2011 FISCAL YEAR UNTIL THE 2012 ANNUAL GENERAL MEETING OF SHAREHOLDERS.
 
 
 
 
 
 
PROPOSAL 5 – ADVISORY VOTE ON EXECUTIVE COMPENSATION

 
The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) enables Flagstone shareholders to vote to approve, on an advisory or non-binding basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules.
 
Flagstone’s executive compensation programs are designed to encourage our executive officers to think and act like, and over time themselves become, shareholders of the Company. We want our executive officers to take appropriate risks with our capital in order to generate returns for our shareholders but at the same time to share the downside risk if their decisions cause poor performance or even loss. Through our performance management and rewards processes and programs, we endeavor to create an environment that fosters and rewards multiple objectives: finding and assuming attractively priced risk; managing our overall risk exposure to mitigate loss; ensuring we have optimal capital to run our business; working hard and cooperating with colleagues; and providing excellent service to clients and colleagues.
 
Specifically, our executive compensation policy includes the following features:
 
 
●
Review by Independent Directors. All compensation-related decisions with respect to our named executive officers are reviewed and approved by the Compensation Committee, which solely comprises independent, non-management directors.
 
 
●
Emphasis on Performance-Based Compensation.  We guarantee a fairly small portion of the overall compensation for our named executive officers while providing a much larger portion in the form of incentive-based compensation that is linked to the Company’s annual financial results over a three-year performance period.
 
 
●
Avoidance of Problematic Pay Practices.  We have generally avoided pay practices that are widely considered problematic, such as providing tax gross-ups, guaranteed bonuses, using the same performance criteria for short- and long-term compensation or excessive severance packages.  In addition, change-in-control benefits payable under the Company’s Performance Share Unit Plan generally have “double trigger” vesting conditions, meaning that they vest in connection with a change in control only if the executive officer also experiences a qualifying termination or there is an adverse change to the plan.
 
 
●
Clawback Policy.  In order to ensure that our executive officers do not inadvertently receive compensation that they did not earn, the Company has a policy to recover payments made with respect to performance share unit (“PSU”) grants which are our primary long-term incentive vehicle, if the relevant performance measures upon which the grant was based are restated or otherwise adjusted in a manner that would reduce the size of a payment; in the event the Company is required to make a financial restatement due to a material misstatement, any PSU grant based upon the erroneous financial statements is cancelled.  This clawback policy is more stringent than the existing clawback requirements under the Sarbanes-Oxley Act in that it applies to all persons who receive compensation under a PSU (not just the Chief Executive Officer and Chief Financial Officer) and applies regardless of whether the misstatement was a result of misconduct.
 
For additional information on the Company’s compensation policies and practices, see “Compensation Discussion and Analysis”.
 
We are asking for shareholder approval of the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules, which disclosures include the disclosures under “Compensation Discussion and Analysis”, the compensation tables and the narrative discussion following the compensation tables. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the policies and practices described in this proxy statement.
 
 
 
 
 
This vote is advisory and therefore not binding on Flagstone, the Board or the Compensation Committee. The Board and the Compensation Committee value the views of our shareholders and to the extent there is any significant vote against the named executive officer compensation as disclosed in this Proxy Statement, we and the Compensation Committee will evaluate whether any actions are necessary to address the outcome of the vote.
 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE FOLLOWING RESOLUTION:
 
RESOLVED, that the compensation paid to the company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement is hereby APPROVED.
 
Unless a proxy is marked to give a different direction, the persons named in the proxy will vote FOR the approval of the compensation of our named executive officers as disclosed in this proxy statement.
 

 
 
 
PROPOSAL 6 – ADVISORY VOTE ON THE FREQUENCY OF THE EXECUTIVE COMPENSATION ADVISORY VOTE

 
The Dodd-Frank Act also enables shareholders to vote, on an advisory or non-binding basis, on how frequently they would like to cast an advisory vote on the compensation of our named executive officers. By voting on this proposal, shareholders may indicate whether they would prefer an advisory vote on named executive officer compensation every one, two, or three years.  Shareholders may also, if they wish, abstain from casting a vote on this proposal.
 
After careful consideration of the frequency alternatives, the Board believes that conducting advisory vote on executive compensation every three years is appropriate for the Company and its shareholders at this time.  We believe that a three-year frequency is most consistent with the Company’s approach to compensation for the following reasons:
 
 
●
Consistent Compensation Practices.  We seek a consistent compensation approach from year to year for all of our executives, including the named executive officers.  We believe that taking a consistent and long-term perspective of compensation is particularly important given the cyclical nature of our industry, in which certain years corporate performance may be extremely strong and other years corporate performance may be significantly weaker.  Because we believe that an effective compensation program should incentivize performance over a multi-year horizon, we do not make, or believe it would be appropriate to make, frequent changes to our programs.
 
 
●
Long-Term Performance.  As described in the “Compensation Discussion and Analysis” below, one of the core principles of our compensation program is to ensure that management’s interests are aligned with our shareholders’ interests to support long-term value creation. Accordingly, we grant performance share unit awards with multi-year vesting provisions to encourage our named executive officers to focus on long-term performance, and recommend a triennial vote to allow our compensation programs to be evaluated over a similar time frame and in relation to our long-term performance.
 
 
●
Corporate Governance.  We seek to maintain the highest standards of corporate governance.  Accordingly, we believe that our compensation practices are already reflective of the values of our shareholders.  All compensation policies and decisions with respect to our named executive officers are approved by our Compensation Committee, which is comprised solely of independent directors.  Reflecting our strong corporate governance practices, we have adopted a pay for performance philosophy and have generally avoided pay practices that are widely considered problematic, such as providing tax gross-ups, guaranteed bonuses, using the same performance criteria for short- and long-term compensation or excessive severance packages.  In addition, change-in-control benefits payable under the Company’s Performance Share Unit Plan generally have “double trigger” vesting conditions, meaning that they vest in connection with a change in control only if the executive officer also experiences a qualifying termination or there is an adverse change to the plan.
 
The Board will carefully consider the outcome of the vote when making future decisions regarding the frequency of advisory votes on executive compensation. However, because this vote is advisory and not binding, the Board may decide that it is in the best interests of Flagstone and its shareholders to hold an advisory vote more or less frequently than the alternative that has been selected by our shareholders.
 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF AN ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS TO BE UNDERTAKEN EVERY THREE YEARS.
 
 
 
 
 
Unless a proxy is marked to give a different direction, the persons named in the proxy will vote FOR an advisory vote every three years on the compensation of our named executive officers.
 
 
 
 
 
 
PROPOSAL 7 – APPROVAL OF THE LUXEMBOURG STATUTORY ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010

 
Luxembourg law requires that our Luxembourg Statutory Accounts be submitted for approval by our shareholders at the Annual General Meeting. The Luxembourg Statutory Accounts include the consolidated financial statements of the Company prepared in accordance with U.S. GAAP and the annual accounts of the Company prepared in accordance with Luxembourg GAAP. The Luxembourg Statutory Accounts as at and for the year ended December 31, 2010 are attached as Exhibit A and will be available from April  , 2011 at the Company’s registered office.
 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE LUXEMBOURG STATUTORY ACCOUNTS AS AT AND FOR THE YEAR ENDED DECEMBER 31, 2010.
 
 
 
 
 
 
PROPOSAL 8 – APPROVAL OF THE CONSOLIDATED MANAGEMENT REPORT OF THE BOARD OF DIRECTORS AND THE AUTHORIZED STATUTORY AUDITOR’S REPORTS FOR THE YEAR ENDED DECEMBER 31, 2010

 
Luxembourg law requires that the Board of Directors prepares a Consolidated Management Report on an annual basis (the “Consolidated Management Report”) that, among other things, presents an overview of the business of the Company during the period covered by the Luxembourg Statutory Accounts, provides an explanation of the results, and makes a proposal to the shareholders of the Company as to the allocation of such results for such fiscal year. Luxembourg law also requires that the Authorized Statutory Auditor prepares two reports (the “Authorized Statutory Auditor’s Reports”) in connection with the Luxembourg Statutory Accounts.
 
The Consolidated Management Report and Authorized Statutory Auditor’s Reports must be submitted for approval by the shareholders of the Company at the Annual General Meeting. The Director’s Report and the Authorized Statutory Auditor’s Reports for the year ended December 31, 2010 are attached as Exhibit B and Exhibit C, respectively, and will be available from April  , 2011 at the Company’s registered office.
 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE CONSOLIDATED MANAGEMENT REPORT AND THE AUTHORIZED STATUTORY AUDITOR’S REPORTS FOR THE YEAR ENDED DECEMBER 31, 2010.
 
 
 
 
 
PROPOSAL 9 – ALLOCATION OF RESULTS AND PART OF DISTRIBUTABLE RESERVE

 
Under Luxembourg law, when a company acquires its own shares and holds them in treasury and those shares are reflected as an asset on the company’s or one of its subsidiaries balance sheet, a non-distributable reserve of a corresponding amount must be created.
 
Luxembourg law also requires a company to allocate at least five percent (5%) of its net profits, if any, to a legal reserve; provided, however that this allocation shall cease to be required under Luxembourg law when the reserve attains ten percent (10%) of the share capital of the Company but shall again be required if the reserve amount falls below this threshold. As the Company made a net loss for the year ended December 31, 2010, there is no requirement to make such allocation.
 
The shareholders of the Company will accordingly be asked to approve the allocation of the Company’s results and distributable reserves as follows:
 
 
●
an allocation from the Company’s share premium account to a non-distributable reserve of an amount equal to US$ 178,718,000, which is the amount required to reflect the shares of the Company that are held in treasury by the Company and its subsidiaries as of December 31, 2010;
 
 
●
an allocation of the loss as reflected in the annual accounts of the Company to results brought forward.
 

 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE ALLOCATION OF RESULTS AND PART OF DISTRIBUTABLE RESERVE AS DESCRIBED ABOVE.
 
 
 
 
 
PROPOSAL 10 – DISCHARGE OF LIABILITY OF EACH OF THE CURRENT AND PAST DIRECTORS AND OFFICERS FOR THE PERFORMANCE OF THEIR DUTIES DURING THE YEAR ENDED DECEMBER 31, 2010.
 

 
Pursuant to Luxembourg law, shareholders may approve the individual discharge of all of the current and past directors and officers of the Company in respect to liability arising from the performance of their respective mandates during the relevant fiscal year. If the shareholders grant the discharge of liability of directors and officers for the relevant fiscal year, the Company will not be able to initiate a liability claim against such directors in connection with the performance of their duties for the relevant fiscal year. However, such discharge will not be valid if the Luxembourg Statutory Accounts contain an omission or false information concerning the Company’s position. Furthermore, such discharge will not be valid with respect to any acts taken by a director or officer which fall outside the scope of the Company’s Articles unless such actions have been disclosed to the shareholders and approved by them. For fiscal year 2010, the Company believes none of the directors or officers have taken any actions outside the scope of the Company’s Articles. The discharge is also not enforceable against anyone other than the Company.
 
During the fiscal year ended December 31, 2010, the following persons served as directors:
 
E. Daniel James
David A. Brown
Gary Black
Stephen Coley
Thomas Dickson
Stewart Gross
Anthony P. Latham
Dr. Anthony Knap
Jan Spiering
Wray T. Thorn
Peter F. Watson
Mark J. Byrne

 
During the fiscal year ended December 31, 2010, the following persons served as officers:
 
David A. Brown
Patrick Boisvert
William Fawcett
David Flitman
Venkateswara Rao Mandava
Gary Prestia
Brenton Slade
Guy Swayne
Frédéric Traimond

 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE DISCHARGE OF LIABILITY OF EACH OF THE CURRENT AND PAST DIRECTORS AND OFFICERS OF THE COMPANY FOR THE PERFORMANCE OF THEIR DUTIES DURING THE YEAR ENDED DECEMBER 31, 2010.
 
 
 
 
 
 
PROPOSAL 11 – APPROVAL OF INTERIM DIVIDENDS DECLARED SINCE THE LAST ANNUAL GENERAL MEETING OF SHAREHOLDERS

 
Pursuant to Luxembourg law, the declaration of interim dividends by the Board of Directors must be subject to a subsequent approval of shareholders at the following general meeting of shareholders. The Company has declared interim dividends on the following three occasions since the Company’s last general meeting of shareholders held on May 14, 2010:
 
●           On August 12, 2010, the Company declared an interim dividend of $0.04 per share;
 
●           On November 19, 2010, the Company declared an interim dividend of $0.04 per share; and
 
●           On February 18, 2011, the Company declared an interim dividend of US$0.04 per share.
 
In accordance with Luxembourg law, the shareholders of Company are being asked to approve each of the declared interim dividends described above. If our shareholders do not approve the interim dividends described above, such interim dividends shall be deemed to have been paid on account of the next dividend to be declared by the Company, which would therefore result in a reduction of the next dividend to be declared by the Company.
 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF INTERIM DIVIDENDS DECLARED SINCE THE LAST ANNUAL MEETING OF SHAREHOLDERS AS DESCRIBED ABOVE.
 
 
 
 
 
 
PROPOSAL 12 – AMENDMENTS TO THE COMPANY’S ARTICLES OF INCORPORATION

 
We are asking shareholders to approve the following amendments, which will be reflected in an amendment of our Articles to read substantially in the form attached as an Exhibit D, which is marked to show changes from our current Articles (Statuts). The Board of Directors approved these amendments and declared them to be advisable and in the best interests of our shareholders. Pursuant to Luxembourg law, the following amendments to the Articles requires the approval of shareholders by way of special resolution; therefore, the affirmative vote of more than two-third of the shares present, in person or by proxy, at this Annual General Meeting is required.
 
Voting Rights
 
Under our current Articles, our shareholders are entitled to one vote for each share held by them and to vote such shares at all general meetings of shareholders. Among the proposed amendments to our Articles is a provision that would reduce the voting rights of any U.S. person who is deemed to own 9.9% or more of our shares, either directly or under the constructive ownership provisions of Section 958 of the Internal Revenue Code of 1986, as amended (the “Code”).  The purpose of this amendment is to reduce the risk that the Company and certain of its subsidiaries will become “controlled foreign corporations” (“CFCs”) for United States Federal income tax purposes.  The treatment of the Company or any of its subsidiaries as CFCs is likely to result in adverse U.S. tax consequences to certain of our larger U.S. shareholders.
 
Under this proposed amendment, if any U.S. person is deemed to own shares of the Company that constitute 9.9% or more of our issued and outstanding shares (a “9.9% U.S. Shareholder”), the voting rights otherwise associated with such shares shall be reduced to less than 9.9% and the excess will be reallocated to our other shareholders.  In general, any reduction in voting rights shall first apply to the shares owned directly by a 9.9% U.S. Shareholder and then to the shares owned constructively (if any) by a 9.9% U.S. Shareholder.  Conversely, any reallocation of voting rights shall apply to the shares of our remaining shareholders on a proportionate basis except to the extent that another U.S. person would otherwise become a 9.9% U.S. Shareholder, in which case the remaining voting rights shall be continuously reallocated to the shares of the remaining shareholders on a proportionate basis until no U.S. person is a 9.9% U.S. Shareholder.
 
The proposed amendments also require any 9.9% U.S. Shareholder to notify the Company of this status and to provide the Company with certain related information. Moreover, because the constructive ownership of our shares may trigger these limitations, it is possible that the voting rights of a shareholder who is not a 9.9% U.S. Shareholder will be limited to less than one vote per share.
 
If the Company or any of its subsidiaries has the right to elect the board of directors of any direct or indirect insurance subsidiary of the Company, a U.S. person owning more than 9.9% of our stock will be attributed its proportionate share of the voting power of the insurance subsidiary despite the voting reductions described above.  This attribution rule could result in certain of our non-U.S. insurance subsidiaries becoming CFCs and could have adverse U.S. tax consequences to certain of our larger U.S. shareholders. In order to avoid this characterization, the proposed amendments provide that the shareholders of the Company (rather than the Company itself) will elect the boards of directors of each non-U.S. subsidiary of the Company that is regulated as an insurance company in its home jurisdiction.  The slate of directors for each such subsidiary is therefore provided in Proposal No. 2.
 
The amendments described in this proposal will only become effective upon the approval of the special resolution and the execution of a notarial deed by a Luxembourg public notary.  If a shareholder objects to application of the voting reduction to its shares, there can be no assurance under current Luxembourg law that the voting reduction can be enforced against such an objecting shareholder.  If, as a result of such an objection, a 9.9% U.S. Shareholder votes a number of shares greater than 9.9% of our issued and outstanding shares, the Company and its subsidiaries could become CFCs, which could result in adverse U.S. Federal income tax consequences to certain of our larger U.S. shareholders, including the objecting shareholder.
 
 
 
 
 
Auditors
 
The Company is required to appoint an Independent Auditor for SEC purposes and an Authorized Statutory Auditor for Luxembourg law purposes. A number of amendments to the Articles are being proposed to clarify the respective roles of each auditor.
 
Date of Annual General Meeting
 
Under Article 33.1 of the Articles, the Company’s annual general meetings shall be held on the second Thursday of the month of May at 2 p.m. (Central European Time). Shareholders are asked to vote to amend the Company’s Articles to move the date of the Annual General Meeting to the third Thursday of the month of May in order to provide the Company with additional time to prepare materials to be sent to shareholders, including Luxembourg-specific materials, in connection with the annual general meetings.
 
Definition of Warrant
 
In connection with the initial closing of the private placement for the Company’s common shares in December 2005, the Company issued a warrant (the “Haverford Warrant”) to Haverford (Bermuda) Ltd, a portion of which was transferred to Leyton Limited in June 2010 (the “Leyton Warrant”).  The Haverford Warrant was subsequently purchased and cancelled by the Company. Shareholders are asked to vote to amend the existing definition of Warrant to refer to the Leyton Warrant.
 
Convertible Debt
 
The Board of Directors also recommends that the Articles be amended to give the Board the authority to issue shares upon the conversion of convertible debt.  This would give the Company flexibility for general corporate purposes, including capital raising transactions.
 
Other Amendments
 
The Board of Directors also recommends other amendments to the Articles described in Exhibit D, which are generally technical or ministerial and necessitated by the amendments described above.
 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE AMENDMENTS TO THE COMPANY’S ARTICLES OF INCORPORATION DESCRIBED ABOVE.
 
 
 
 
 
 
OUR DIRECTORS

 
The table below sets forth the names, ages and positions of the current directors of the Company:
 
Name
  
Age
  
Position
E. Daniel James
  
46
  
Chairman of the Board
David A. Brown
  
53
  
Chief Executive Officer and Director
Gary Black
  
65
  
Director
Stephen Coley
  
66
  
Director
Thomas Dickson
  
48
  
Director
Stewart Gross
  
51
  
Director
Anthony P. Latham
  
60
  
Director
Dr. Anthony Knap
  
61
  
Director
Jan Spiering
  
59
  
Director
Wray T. Thorn
  
39
  
Director
Peter F. Watson
  
68
  
Director

 
The Board of Directors currently consists of eleven directors and is divided into three classes (A, B and C). At each annual general meeting, certain directors shall be elected or appointed for a full three-year term to succeed those whose terms expire at such meeting. Each director shall hold office for the term for which he is elected or until his successor is elected or appointed or until his office is otherwise vacated.
 
Class B Directors with terms expiring at the 2011 Annual General Meeting
 
Gary Black has been a director since June 2006. He was Chief Claims Executive and Senior Vice President of OneBeacon Insurance Company, a subsidiary of White Mountains Insurance Group, until his retirement in 2006. Prior to joining OneBeacon in January of 2004, Mr. Black spent 35 years with Fireman’s Fund Insurance Companies where he was an Executive Vice President and President of the Claims Division. At Fireman’s Fund his responsibilities included claims, corporate administration, general counsel, staff counsel and systems. He received his B.A. degree from Southwest Baptist University and is a Chartered Property Casualty Underwriter. Mr. Black’s extensive experience, credentials and qualifications in the insurance industry led the Company to believe that he should proposed for re-election.
 
Thomas Dickson has been a director since December 2005. Mr. Dickson is Chief Executive Officer and Founder of Meetinghouse LLC, a private firm that provides investment advisory and management services and advice and support to management for underwriting, ratings, capital management and actuarial functions. Mr. Dickson currently serves as President and Chief Executive Officer of Haverford Capital Partners (Cayman) Limited (“HCP”), a private equity fund specializing in investments in insurance, reinsurance and specialty finance started in August 2005. Mr. Dickson served as President and Chief Executive Officer of The Centre Group and as its Chief Underwriting Officer. At the time, The Centre Group held assets in excess of $9 billion and capital in excess of $1 billion. He joined The Centre Group at the time of its establishment in 1988 and, prior to assuming responsibilities as Chief Underwriting Officer, served in a variety of business production and underwriting capacities in Bermuda and New York. Mr. Dickson holds a bachelor’s degree with honors from Stanford University and a Masters Degree from the Johns Hopkins School of Advanced International Studies. Mr. Dickson’s extensive experience, credentials and qualifications in insurance, reinsurance and specialty finance led the Company to believe that he should proposed for re-election.
 
Jan Spiering has been a director since December 2005. From February 1979 to June 2002, Mr. Spiering served as a member of Ernst & Young, becoming the Chairman and Managing Partner of Ernst & Young Bermuda. During his tenure at Ernst & Young, Mr. Spiering was a member of the firm’s Global Advisory Counsel, founding member of the International Investment Committee, and was Chairman of the firm’s Offshore Fund’s Group. He retired from Ernst & Young in 2002, and currently serves on the board of directors of certain investment funds and various private companies. Mr. Spiering is a Fellow of the Institute of Chartered Accountants in England & Wales and the Institute of Chartered Accountants of Bermuda and is a Member of the Canadian Institute of Chartered Accountants. Mr. Spiering’s extensive experience, credentials and qualifications in accounting and corporate finance led the Company to believe that he should be proposed for re-election.
 
 
 
 
 
 
Wray T. Thorn has been a director since October 2006. Mr. Thorn is a Managing Director at Marathon Asset Management, LP, a global alternative investment and asset management company, where he has worked since 2005. Mr. Thorn is a senior member of the investment management team responsible for identifying, evaluating, structuring and managing private debt and equity investments for Marathon’s family of investment funds. In addition, Mr. Thorn has been involved in leading a number of Marathon’s new business opportunities, investor-related activities and capital formation initiatives. Mr. Thorn has spent the majority of his career identifying, financing and investing in private equity transactions, including management buyout transactions, acquisition and expansion strategies, growth programs, shareholder transitions and financial restructurings. Prior to joining Marathon, Mr. Thorn was a Director with Fox Paine & Company, LLC, and had also been a Principal and founding member of Dubilier & Company, LLC. Mr. Thorn began his career in the financial analyst program at Chemical Bank, where he worked in the acquisition finance group, arranging and structuring senior and subordinated debt financings for the firm’s private equity clients. Mr. Thorn is a graduate of Harvard University with an A.B. in Government, cum laude. Mr. Thorn’s extensive experience, credentials and qualifications in corporate finance led the Company to believe that he should proposed for re-election.
 
Class A Directors with terms expiring at the 2012 Annual General Meeting
 
Stewart Gross has been a director since January 2006. Mr. Gross is a Managing Director and member of the Investment Committee of Lightyear Capital, a private equity firm investing in companies in the financial services industry. Prior to joining Lightyear in April 2005, Mr. Gross spent 17 years at Warburg Pincus where he was a Managing Director and member of the Executive Management Group. Mr. Gross has been a primary investor in many highly successful companies, including RenaissanceRe Holdings Ltd. Mr. Gross is currently a director of Higher One Holdings and several private companies. Mr. Gross received an A.B., magna cum laude, from Harvard College and an M.B.A. from Columbia Business School where he was elected to Beta Gamma Sigma. Mr. Gross’ extensive experience, credentials and qualifications in corporate finance and the financial services industry led the Company to believe that he should serve as a director.
 
E. Daniel James has been a director since December 2005 and Chairman of the Board of Directors since May 2010. Mr. James is a founding partner and head of North America of Trilantic Capital Partners. He joined Trilantic Capital Partners in 1995. Prior to joining Trilantic Capital Partners, he was a member of the Lehman Brothers M&A Group, based in London and New York. In 1988, Mr. James joined Lehman Brothers’ Financial Institutions Group. He is currently a director of Blount International, Inc. and Phoenix Brands LLC. He holds a B.A. in chemistry, with honors, from the College of the Holy Cross. Mr. James’ extensive experience, credentials and qualifications in the financial services industry led the Company to believe that he should serve as a director.
 
Anthony P. Latham has been a director since November 2008. Mr. Latham currently serves as Chairman of the board of directors of Pool Reinsurance Limited, the U.K. government-backed terrorism damage reinsurer. He also serves as the Chairman of the board of directors of Pool Reinsurance (Nuclear) Limited. He is Deputy Chairman of the board of directors of Codan A/S and Codan Forsikring A/S in Denmark where he chairs the audit committee. He is also a Director of  Ecclesiastical Insurance Group plc and Ecclesiastical Insurance Office plc, where he is the Chairman of the Group Risk Committee and a member of the Audit and Compensation Committees, as well as the Chairman of Torus Insurance (U.K.) Limited. Mr. Latham is a former member of the Group Executive of RSA Group plc where he held a variety of senior executive roles over a period of 17 years. RSA Group plc is an international insurance group, listed on the London Stock Exchange. Prior to his employment at RSA Group plc, Mr. Latham worked for an international insurance brokerage firm for 19 years. Mr. Latham’s extensive experience, credentials and qualifications in the reinsurance industry led the Company to believe that he should serve as a director.
 
 
 
 
 
Class C Directors with terms expiring at the 2013 Annual General Meeting
 
David Brown has served as Chief Executive Officer of Flagstone since October 2005. Mr. Brown is also a director of Island Heritage, an indirect majority-owned subsidiary of the Company. From September 2003 until October 2005, Mr. Brown served as the Chief Executive Officer of Haverford (Bermuda) Ltd (“Haverford”) and as the Chief Operating Officer of Flagstone Capital Management, a wholly-owned subsidiary of the Company. Mr. Brown joined Centre Solutions (Bermuda) Limited (“Centre Solutions”) in 1993, and was its President and Chief Executive Officer at the time of his retirement in 1998. Prior to joining Centre Solutions, Mr. Brown was a Partner with Ernst & Young in Bermuda. Mr. Brown is the non-executive Chairman of the Bermuda Stock Exchange and a Director and Trustee for the Schroder Family Trusts. Mr. Brown led the team which analyzed, structured and negotiated the acquisition of Merastar Insurance Company in 2004. As Chairman of Merastar, Mr. Brown led the board’s oversight of the successful turn-around strategy. At Centre Solutions, Mr. Brown was responsible for the global operations of a group with over $7 billion in assets and offices in several countries. During his ten years with Ernst & Young, Mr. Brown specialized in insurance and was involved in the liquidation of numerous insurance companies in Bermuda, the U.K. and the U.S. Mr. Brown is a Fellow of the Institute of Chartered Accountants in England & Wales and a Member of both the Institute of Chartered Accountants of Bermuda and the Canadian Institute of Chartered Accountants. Mr. Brown’s extensive experience, credentials and qualifications in the reinsurance industry, in corporate finance, strategic planning and international operations led the Company to believe that he should serve as a director.
 
Stephen Coley has been a director since January 2006. Mr. Coley is a Director Emeritus of McKinsey & Company, a director of DyCom Industries, and Chairman of the Board of Trustees of Underwriters Laboratories. During his more than 28 years of active client service with McKinsey, Mr. Coley led a wide variety of successful business strategy and organization efforts, principally serving technology and basic industrial clients, and led McKinsey’s corporate growth practice. In addition, Mr. Coley served for 10 years on McKinsey’s Investment Committee, which oversees employee profit sharing investments and principal alternative investment vehicles, and served as the committee’s chairman from 2000 to 2004. Mr. Coley received an M.B.A., with distinction, from Harvard Business School, where he was named a Loeb Fellow in finance. Mr. Coley has a B.S. in electrical engineering from Duke University. Mr. Coley currently serves on the boards of directors of Dycom Industries and Underwriters Laboratories, where he also serves on the Board of Trustees. He also serves on the Duke University Pratt School of Engineering Board of Visitors. Mr. Coley’s extensive experience, credentials and qualifications in finance led the Company to believe that he should serve as a director.
 
Dr. Anthony Knap, Ph.D., has been a director since December 2005. Dr. Knap serves as President, Director and Senior Research Scientist of the Bermuda Institute of Ocean Sciences, which he joined in 1978. In 1994, Dr. Knap founded the Risk Prediction Initiative, a partnership between the science community and the reinsurance industry providing essential information between natural disasters and changing climate. Dr. Knap’s principal research interests are climate change, environmental science, atmosphere/ocean interactions, effects of chemicals on the marine environment as well as relationships between ocean health and human health. Dr. Knap holds a number of professorships, and serves on numerous expert panels and committees in his field. Dr. Knap received his Ph.D. in oceanography in 1978 from the University of Southampton, U.K. Mr. Knap’s extensive background in environmental science, natural disasters and changing climate, as well as his credentials and qualifications in the reinsurance industry, led the Company to believe that he should serve as a director.
 
 
 
 
 
Peter F. Watson was appointed director in September 2007. Mr. Watson was most recently a consultant to Attorney’s Liability Assurance Society (Bermuda) Ltd. (‘‘ALAS’’), a mutual insurance company formed in Bermuda to provide professional liability insurance for large U.S. law firms. Mr. Watson served as President and Chief Executive Officer of ALAS from 2002 to December 31, 2007. Prior to joining ALAS in 1998, Mr. Watson’s career was with Price Waterhouse, initially in London and Montreal and, since 1975, in Bermuda where he also served as senior partner of the firm. In his later years with Price Waterhouse, Mr. Watson was responsible for managing the worldwide professional indemnity program for the firm. Mr. Watson is a past president and a Fellow of the Institute of Chartered Accountants of Bermuda and a member of the Institute of Chartered Accountants of Ontario and of the Ordre des comptables agréés du Québec. Mr. Watson’s extensive experience, credentials and qualifications in accounting and in the insurance industry led the Company to believe that he should serve as a director.
 
 
 
 
EXECUTIVE OFFICERS

 
The table below sets forth the names, ages and positions of the current executive officers of the Company:
 
Name
  
Age
  
Position
David A. Brown(1)
  
53
  
Chief Executive Officer, Deputy Chairman and Director
Patrick Boisvert
  
37
  
Chief Financial Officer
William Fawcett
  
48
  
General Counsel
David Flitman
  
40
  
Chief Actuary
Venkateswara Rao Mandava
  
49
  
Chief Information Officer
Gary Prestia
  
49
  
Chief Underwriting Officer – North America
Brenton Slade
  
40
  
Chief Marketing Officer
Guy Swayne
  
47
  
Chief Underwriting Officer – International
Frédéric Traimond
  
42
  
Chief Operating Officer

 
(1)           See biography of Mr. Brown under “Our Directors”.
 
Patrick Boisvert was appointed as Chief Financial Officer in November 2008. Prior to his appointment as Chief Financial Officer, Mr. Boisvert had previously served various roles within the Flagstone Group: Chief Financial Officer (“CFO”) and Group Finance Director of Flagstone Réassurance Suisse SA, a subsidiary of the Company, since July 2008, and Group Chief Accounting Officer and Treasurer from February 2006 until July 2008. From February 2005 to February 2006, he was CFO of Flagstone Capital Management which was acquired by the Company in March 2006, where he had responsibility for all finance aspects of a hedge fund manager with approximately $1 billion dollars under management. Prior to joining Flagstone, he was Vice President Fund Administration for BISYS Hedge Fund Services (now part of Citigroup). Mr. Boisvert began his career with Ernst & Young in Montreal, Canada. He holds a Bachelor in Accounting from Université du Quebec à Trois-Rivieres, is a member of the C.F.A. Institute and a member of the Canadian Institute of Chartered Accountants.
 
William Fawcett has served as our General Counsel since June 2008. A US and UK qualified attorney with over twenty years of international experience, Mr. Fawcett is responsible for the oversight and management of legal functions throughout the Flagstone Group. Prior to joining Flagstone, he served as the Chief Legal Officer of AXA’s North American P&C operations and as Deputy General Counsel and Head of Claims for Swiss Re. He holds a Bachelor of Arts degree from Colgate University and a Juris Doctor from the University of the Pacific, McGeorge School of Law.
 
David Flitman joined Flagstone as Chief Actuary in early 2006. Mr. Flitman has worked in the reinsurance industry for over 15 years offering a depth of experience in risk management. Prior to joining us he was Chief Actuary and Senior Vice President for ACE Tempest Reinsurance where he managed Actuarial, Claims, Development, and Infrastructure. He began his career in 1993 as an Actuarial Analyst with Insurance Services Office. Moving on to WR Berkley Group where he became Assistant Vice President and Chief Actuary for Berkley Mid-Atlantic Group managing the department responsible for Actuarial, Information Management, and Reporting and Regulatory Filing. Mr. Flitman also worked at XL Reinsurance America as an Assistant Vice President and Senior Pricing Actuary where he priced all lines of Property and Casualty. Mr. Flitman earned his Bachelor’s of Science from St. John School of Actuarial Science, Risk Management, and Insurance in New York. He is an Associate of the Society of Actuaries, a Member of the American Academy of Actuaries, and a Fellow of the Casualty Actuarial Society.
 
Venkateswara Rao Mandava joined Flagstone Capital Management in April 2004. He is currently the Group Chief Information Officer and also has a primary responsibility for our India operations. Over the past 25 years, Mr. Mandava held multi-disciplinary roles between Research, Analytics & Development, Technology Management, Fixed Income Trading and Investment Management at various organizations globally, including Vanderbilt, Credit Suisse, Barclays Capital, E*Trade, and American Century. Mr. Mandava received a Ph.D. in Computer Science from Vanderbilt University, Nashville, Tennessee.
 
 
 
 
 
Gary Prestia has served as our Chief Underwriting Officer-North America since December 2005. Mr. Prestia has more than 25 years’ experience in the insurance and reinsurance industry in senior underwriting and executive management positions successfully navigating across the underwriting cycles. From 1998 through 2004, Mr. Prestia served as an executive officer of Converium AG (“Converium”), becoming President of Converium North America, with responsibility for all legal entities and staff in the U.S. and Canada. As Senior Vice President and Chief Underwriting Officer of Converium, he was responsible for property catastrophe, property non-catastrophe, motor, marine and third-party liability (excluding professional liability and workers’ compensation). In early 2005, Mr. Prestia joined Alea North America as Chief Executive Officer of the North American Reinsurance Division. Prior to 1998, Mr. Prestia held senior underwriting positions at Transatlantic Re. Mr. Prestia received his CPCU and ARe professional designations from the American Institute for Chartered Property and Casualty Underwriters and Bachelor of Business Administration undergraduate degree and graduate work at St. Johns University School of Risk Management and Insurance in New York.
 
Brenton Slade is the Chief Marketing Officer of Flagstone, responsible for investor relations, capital market initiatives, and firm marketing. Mr. Slade has been at Flagstone since its founding in 2005 assisting in the formation. Prior to Flagstone, Mr. Slade worked with several members of the Executive Management at West End Capital Management in the role of Director of Business Development, beginning in 2003. Before joining West End Capital, Mr. Slade was a Vice President at Agora Capital (an XL Capital affiliate). Mr. Slade has a degree in Economics and Politics from the University of Western Ontario.
 
Guy Swayne has served as our Chief Underwriting Officer-International since December 2005. He was appointed Chairman of Flagstone Syndicate Management Limited in May 2010. Mr. Swayne has extensive experience in the industry worldwide and brings a depth of expertise in underwriting, business development, and leadership to the Company. Prior to joining the Company, Mr. Swayne was Chief Underwriting Officer —International with ACE Tempest Reinsurance Ltd. where he managed the International Catastrophe underwriting unit. Mr. Swayne joined Ace in January 2000 and has held senior positions including Executive Vice President, ACE Financial Solutions International (AFSI) — Bermuda where he managed AFSI offices in London, Dublin, and Melbourne. In London he became President of ACE Financial Solutions Europe (AFSE) where he established and developed the European office reporting directly to the President and Chief Executive Officer in Bermuda. Mr. Swayne was instrumental in many key elements associated with a start-up operation, including business plan and budget development, hiring underwriting teams, business production and program completion.
 
Frédéric Traimond was appointed Group Chief Operating Officer of the Company on March 1, 2008. Mr. Traimond is also a member of the Boards of Directors of various entities within the Flagstone Group and is the Chief Operating Officer of Flagstone Réassurance Suisse SA. Before joining Flagstone Group, Mr. Traimond worked for 15 years for AXA Group, primarily in Switzerland. His last position was Chief Risk Officer of AXA-Winterthur, where most notably he was responsible for the Economic Capital studies, including Swiss Solvency Test, Asset-Liability Management, reinsurance strategy and reserve review. For the 8 years preceding holding that position, he was the chief management officer for the Non-Life subsidiary of AXA Switzerland. Mr. Traimond is a full member of the IAF (Institut des Actuaires Français) and SAA (Swiss Association of Actuaries).
 
 
 
 
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 
We describe below the transactions we entered into with parties that are related to our Company during the year ended December 31, 2010. We believe that each of the transactions described below was on terms no less favorable to us than we could have obtained from unrelated parties.
 
Policies and Procedures for Related Party Transactions
 
The Company adopted a written Code of Conduct and Ethics on June 16, 2006 which specifies the Company’s policy relating to conflicts of interest (the “Code of Conduct”). The Code of Conduct defines a “conflict of interest” as any situation in which the private interest of any director, board observer or employee of the Company interferes in any way (or even appears to interfere) with the interests of the Company as a whole. Under the Code of Conduct, an individual who becomes aware of a potential conflict of interest must report this conflict to the Chairman of the Audit Committee for consideration by the Audit Committee. The Audit Committee will determine whether a conflict of interest exists on a case-by-case basis and will memorialize its determinations and the reasons behind such determinations. The Audit Committee will ensure that the directors voting on an issue are informed, disinterested and independent with respect to that issue. If the Audit Committee determines that a conflict of interest exists, then the director, board observer or employee shall not participate, directly or indirectly, in the matter or activity that has given rise to such conflict of interest unless expressly approved by the Audit Committee. The charter of the Audit Committee requires the Audit Committee to review and discuss with management the reasonableness of the price, terms and conditions for all related party transactions. The transactions described below have been reviewed by Audit Committee in accordance with this mandate:
 
●           On May 21, 2010, in connection with the resignation of Mark J. Byrne (“Mr. Byrne”) from his position as Executive Chairman of the Board of the Company, Flagstone (Bermuda) Holdings Limited (“Bermuda Holdings”), a subsidiary of the Company, and Mr. Byrne entered into a General Release and Settlement Agreement (the “Release Agreement”), pursuant to which Bermuda Holdings agreed to pay Mr. Byrne a lump-sum cash severance payment of $1,100,000 on May 24, 2010, and a second lump-sum cash severance payment of $1,100,000 on May 20, 2012, in respect of amounts payable to Mr. Byrne pursuant to the terms of his employment agreement and other compensation rights. All equity, equity-based, bonus or incentive compensation awards (including performance share units under the Company’s Amended and Restated Performance Share Unit Plan) held by Mr. Byrne were forfeited without payment. The Release Agreement also provided Mr. Byrne with continuation of certain benefits, including medical insurance. Pursuant to the Release Agreement, Mr. Byrne and Bermuda Holdings mutually released one another from, among other things, any and all existing liabilities and agreements relating to Mr. Byrne’s employment with the Company.
 
●           In connection with the execution of the Release Agreement, the Company and Limestone Business Limited, a company controlled and capitalized by Mr. Byrne (“Limestone”), entered into a Share Purchase Agreement pursuant to which, on May 25, 2010, the Company purchased from Limestone 2,000,000 common shares of the Company for a total price of $24 million.
 
●           On December 8, 2010, Bermuda Holdings entered into a Share Purchase Agreement (the “Second Purchase Agreement”) with Mark J. Byrne, at the time a director of the Company, Limestone, and Haverford, a company associated with Mr. Byrne.  Pursuant to the Second Purchase Agreement, Bermuda Holdings  (i) purchased from Limestone 5,155,156 shares, par value $0.01 per share, of the Company at a price of $11.4823 per share, (ii) purchased from Haverford 2,849,868 shares, par value $0.01 per share, of the Company at a price of $11.4823 per share and (iii) purchased from Haverford, at a price of $13,500,000, the Amended and Restated Share Purchase Warrant dated as of June 25, 2010, issued to Haverford and exercisable for 7,955,553 shares of the Company.
 
 
 
 
 
●           On December 14, 2010, Mr. Byrne retired as a member of the Board. In connection with his retirement, the Company, Mr. Byrne, Limestone and Haverford entered into a letter agreement dated December 8, 2010, pursuant to which the Company agreed to continue to indemnify Mr. Byrne for actions taken by him while an employee or a director of the Company to the same extent as other former employees and directors of the Company.
 
Other Transactions
 
Set forth below are other transactions entered into between the Company and entities that have a relationship with certain of our directors or shareholders:
 
●    On May 17, 2010, the Company entered into a commitment agreement to purchase $25.0 million of Marathon Legacy Securities Public-Private Investment Funds, Ltd. On September 30, 2010, the Company entered into a further commitment agreement to purchase $9.0 million of the fund. A member of the Company’s Board is also a managing director of Marathon Asset Management, L.P., the investment manager of the fund, but does not personally have a role in the management of the fund nor does he receive compensation as a result of the Company’s investment. As of December 31, 2010, the market value of the Company’s investment in this fund was $31.9 million and the remaining capital commitment was $6.8 million.
 
●    Three of the Company's subsidiaries have investment management agreements in place with Neuberger Berman Fixed Income LLC, which owns shares in the Company.  Investment management fees under these agreements during 2010 were $0.3 million.
 
●    Flagstone Réassurance Suisse S.A., a wholly-owned subsidiary of the Company, has cash and cash equivalent investments in money market funds that are managed by the BlackRock group, which owns shares in the Company.  As of December 31, 2010, the Company held $4.3 million in these investments.
 
 
 
 
 
COMPENSATION DISCUSSION AND ANALYSIS

 
This Compensation Discussion and Analysis explains the material elements of the compensation of our named executive officers for 2010, who are set forth in the table below:
 
Name
  
Title
David Brown
  
Chief Executive Officer
 
Patrick Boisvert
  
Chief Financial Officer
 
David Flitman
  
Chief Actuary
 
Gary Prestia
  
Chief Underwriting Officer –North America
 
Guy Swayne
  
Chief Underwriting Officer –International

 
Highlights from 2010
 
In 2010, the Company, along with the insurance and reinsurance industry generally, faced significant challenges, including the explosion of the Deepwater Horizon oil rig, earthquakes in Chile and New Zealand and flooding in Australia. Despite these challenges, our management accomplished the following objectives designed to maximize shareholder value.
 
 
●
Despite a significant amount of catastrophe losses globally, our management delivered 12.1% of diluted book value per share growth in 2010.  This is largely as a result of the diversified book of business built during our first five years and our active capital management in 2010.  These actions created significant value for our shareholders through the repurchase of shares by the Company.
 
 
●
As result of efforts by our management, we attained significant operating milestones, including the completion of the redomestication of the Company to Luxembourg, successfully purchasing reinsurance protection from Montana Re in connection with the issuance of our fourth catastrophe bond, and winning the award of Reinsurance Company of the Year by an international trade magazine.
 
 
●
Our senior management, through the formation of a new six-member executive committee, took on significant new responsibilities as a result of changes to our management structure that occurred in 2010.
 
 
●
Our management has worked diligently to perform a comprehensive strategic review of the organization, which is ongoing, and has begun to implement cost-saving initiatives, especially in relation to expense management.
 
Overview
 
Philosophy and Objectives
 
Our executive compensation programs are designed to encourage our executive officers to think and act like, and over time themselves become, shareholders of the Company. We want our executive officers to take appropriate risks with our capital in order to generate returns for our shareholders but at the same time to share the downside risk if their decisions cause poor performance or even loss. Through our performance management and rewards processes and programs, we endeavor to create an environment that fosters and rewards:
 
 
 
 
 
●
finding and assuming attractively priced risk;
 
 
●
managing our overall risk exposure to mitigate loss;
 
 
●
ensuring we have optimal capital to run our business;
 
 
●
working hard and cooperating with colleagues; and
 
 
●
providing excellent service to clients and colleagues.
 
We foster an attitude of shared risk-taking between each of our executive officers and our shareholders by providing a significant portion of our executive officers’ incentive compensation through equity-based awards. We emphasize “at risk” pay tied to performance as the majority of total compensation potential. We evaluate and reward our executive officers based on dynamic factors such as whether they are willing and able to challenge existing processes, adapt to sudden or frequent changes in priorities and capitalize on “windows of opportunity”.
 
Corporate Governance and Performance-Based Compensation
 
We seek to maintain the highest corporate governance standards.  With respect to our compensation practices, all compensation-related decisions with respect to our named executive officers are reviewed and approved by the Compensation Committee, which is comprised solely of independent, non-management directors.
 
Reflective of our efforts to maintain a compensation program that is consistent with best practices, we have adopted the following specific approaches with respect to our compensation:
 
 
●
Emphasis on Performance-Based Compensation.  We guarantee a fairly small portion of the overall compensation for our named executive officers while providing a much larger portion in the form of incentive-based compensation that is linked to the Company’s annual financial results over a three-year performance period.
 
 
●
Avoidance of Problematic Pay Practices.  We have generally avoided pay practices that are widely considered problematic, such as providing tax gross-ups, guaranteed bonuses, using the same performance criteria for short- and long-term compensation or excessive severance packages.  In addition, change-in-control benefits payable under the Company’s Performance Share Unit Plan generally have “double trigger” vesting conditions, meaning that they vest in connection with a change in control only if the executive officer also experiences a qualifying termination or there is an adverse change to the plan.
 
 
●
Clawback Policy.  In order to ensure that our executive officers do not inadvertently receive compensation that they did not earn, the Company has a policy to recover payments made with respect to performance share unit (“PSU”) grants, which are our primary long-term incentive vehicle, if the relevant performance measures upon which the grant was based are restated or otherwise adjusted in a manner that would reduce the size of a payment; in the event the Company is required to make a financial restatement due to a material misstatement, any PSU grant based upon the erroneous financial statements is cancelled.  This clawback policy is more stringent than the clawback requirements under the Sarbanes-Oxley Act in that it applies to all persons who receive compensation under a PSU (not just the Chief Executive Officer and Chief Financial Officer) and applies regardless of whether the misstatement was a result of misconduct.
 
 
 
 
 
Executive Compensation Policy
 
Role of the Compensation Committee
 
The Compensation Committee
 
The Compensation Committee, which solely comprises independent directors, is responsible for reviewing and approving all compensation paid to our named executive officers. The Chief Executive Officer provides input to the Compensation Committee regarding the compensation of each named executive officer other than his own.
 
The Compensation Committee has the authority, under its charter, to hire independent consultants at the Company’s expense and, in the future, it may seek such advice. In 2010, the Compensation Committee directly engaged Aon Hewitt to advise with respect to executive compensation. Aon Hewitt provided limited other advisory services to the Company for which it received less than $120,000 in fees.
 
Named Executive Officer Performance Assessment
 
At the end of the fiscal year, the Compensation Committee engages in a performance assessment of each of our named executive officers, focusing on each executive’s relative contribution during the fiscal year. The Compensation Committee principally uses a qualitative assessment, including factors such as our progress towards implementing our key strategic and operational initiatives, our investments in and improvements of technology and our key decision support tools, such as our exposure-based underwriting models, our efforts to improve the strength of our control and operating environments, and our efforts to attract, retain, and motivate our global workforce.
 
With respect to named executive officers other than the Chief Executive Officer, the Chief Executive Officer presents the Compensation Committee with his assessment of each other executive’s relative performance with respect to the above-mentioned categories for such fiscal year. The Chief Executive Officer does not play a role in determining his compensation. Instead, the Compensation Committee reviews his performance independently.
 
Competitive Market Review
 
The Compensation Committee considers competitive market practices with respect to the salaries and total compensation of our named executive officers. For purposes of determining competitive compensation levels for our named executive officers, the Compensation Committee subscribed to the PricewaterhouseCoopers Bermuda International Compensation Survey, an independent local market annual survey. In addition, the Compensation Committee’s consultant, Aon Hewitt, conducted a competitive market review of the components of executive officer compensation based on the companies in the PricewaterhouseCoopers Bermuda International Compensation Survey for 2009 and two other companies that the Compensation Committee considered comparable to the Company, Validus Holdings, Ltd. and  Platinum Underwriters Holding Ltd.
 
In order to understand the general level of compensation in our industry and to determine whether the components of compensation of our named executive officers are appropriate, the Compensation Committee also reviews market practices by speaking to recruitment agencies and reviewing annual reports, proxy statements and similar information released by other, similar Bermuda and Swiss reinsurance companies with market capitalizations greater than $500 million and less than $3 billion, in particular Aspen Insurance Holdings Ltd., Endurance Specialty Holdings Ltd., Allied World Assurance Company Holdings, Ltd, Montpelier Re Holdings Ltd. and Platinum Underwriters Holding Ltd. In order to maintain flexibility, the Compensation Committee does not formally engage in benchmarking of compensation levels.
 
Components of Executive Compensation
 
The Company’s performance-driven compensation policy consists of the following components:
 
 
●
base salary
 
 
●
annual cash bonuses;
 
 
 
 
 
 
●
long-term incentive awards in the form of Performance Share Units;
 
 
●
retirement benefits; and
 
 
●
limited personal benefits and perquisites;
 
We balance short-term compensation (base salaries and annual cash bonuses) and long-term compensation (PSUs) to achieve our goal of driving long-term growth. The long-term compensation component, the PSUs, is designed to emphasize performance measures our executive officers need to address in order to deliver sustained shareholder value over time.
 
Balance of Components of Compensation
 
The Compensation Committee carefully determines the percentage mix of compensation components, with respect to both short- versus long-term compensation and cash versus equity compensation, that it considers appropriate for each of our named executive officers. This is not a mechanical process, and the Compensation Committee uses its judgment, experience and work with our named executive officers to determine the appropriate mix of compensation for each individual.
 
Base salary typically will constitute a minority portion of the total compensation of our named executive officers. The Compensation Committee sets salary to provide adequate cash compensation to support a reasonable standard of living, so that our named executive officers are prepared to have “at risk” the portion of their compensation received in annual bonuses and PSUs. With regard to our incentive compensation components, the Compensation Committee anticipates that if the Company achieves strong performance our named executive officers will receive significantly more long-term value from their PSUs than from their annual cash bonuses. The base number of PSUs granted to each named executive officer is based on such individual’s role and responsibility at the Company and the expectations the Compensation Committee has for the individual; the actual number of PSUs that ultimately vest is based on the Company’s diluted return on equity.  For additional information, see “Compensation Discussion and Analysis—Long-Term Incentive Awards” below.
 
2010 Compensation
 
Base Salary
 
General.  Base salary is used to recognize the experience, skills, knowledge and responsibilities required of the executive officers in their roles.
 
Determination.  The salaries of our named executive officers are reviewed by the Compensation Committee and, other than with respect to his own compensation, our Chief Executive Officer, on an annual basis, as well as at the time of promotion or other changes in responsibilities. The leading factor in determining increases in salary level is the employment market in Bermuda and, solely in respect of Mr. Boisvert, Switzerland for senior executives of insurance and reinsurance companies. Other factors that the Compensation Committee and our Chief Executive Officer consider include the seniority of the individual, the functional role of the individual’s position, the level of the individual’s responsibility, the ability to replace the individual, the base salary of the individual at his prior employment and the limited number of well-qualified candidates available in Bermuda and Switzerland, where all of our named executive officers are located. In addition, the Compensation Committee informally considers competitive market practices with respect to the salaries of our named executive officers and increases in the cost of living in Bermuda and Switzerland.
 
Salaries in 2010.  When establishing the 2010 base salaries of our named executive officers other than our Chief Executive Officer, the Compensation Committee decided to increase each such individual’s base salary to reflect increases in the cost of living. With respect to the 2010 base salary of our Chief Executive Officer, the Compensation Committee determined that his base salary should be raised from $650,000 to $1 million to reflect competitive market practices.
 
 
 
 
 
Annual Cash Bonuses
 
General.  Annual cash bonuses are intended to reward individual performance during the year and can therefore be highly variable from year to year. We believe our annual bonus pay component helps us to provide an element of our incentive compensation on a more immediate basis than with long-term incentive awards.
 
Determination.  The Compensation Committee, on a discretionary basis and taking into account individual performance and corporate performance for the year, using both subjective and objective criteria, determines annual bonus awards for each of our named executive officers. Due to the volatility of our industry and thus our financial results, the Compensation Committee and management believe that pure quantitative performance measures are not the most appropriate method of rewarding executive performance, and in light of this, we do not provide for a formulaic bonus plan.
 
With respect to the annual bonus compensation payable to each of our named executive officers, the Compensation Committee determines a potential bonus amount based on the seniority of such individual’s position and the Compensation Committee’s view of the degree to which such individual’s performance could affect the Company’s overall results. Effective January 1, 2011, the employment agreements for each of our named executive officers other than our Chief Executive Officer limit the amount of annual bonus to 90% of annual base salary; however, the Compensation Committee retains discretion to pay a bonus in excess of such limit in recognition of extraordinary performance. The employment agreement for our Chief Executive Officer does not limit the amount of his annual bonus.
 
With respect to performance criteria, our Chief Executive Officer agrees with each of our other named executive officers upon factors of both individual and corporate performance to be considered in the evaluation process described above, and then subsequently rates each named executive officer in writing based on those factors before deciding the bonus amount to recommend to the Compensation Committee. In the case of the Chief Executive Officer, the Compensation Committee establishes these factors. The Compensation Committee may increase or decrease a named executive officer’s actual bonus amount from the amount recommended by management in order to reflect extraordinary individual performance in a fiscal year that the Compensation Committee may determine warrants specific recognition.
 
Annual Bonuses in 2010.  The short-term and long-term factors considered in determine each named executive officer’s annual bonus in 2010 were based on specific confidential strategic objectives. The primary objectives were finding and assuming attractively-priced risk; managing our overall risk exposure to mitigate loss; ensuring we have optimal capital to run our business; working hard and cooperating with colleagues; and providing excellent service to clients and colleagues.
 
Long-Term Incentive Awards
 
General.  The Company has adopted the Amended and Restated Performance Share Unit Plan (the “PSU Plan”) to provide PSUs as long-term incentive compensation to certain key employees of the Company (including our named executive officers).
 
The PSUs are designed to align management’s performance objectives with the interests of our shareholders. We believe that PSUs (which are based on diluted return on equity) align the compensation of our named executive officers more closely to shareholder value than other alternatives such as options (which place 100% weight on growth in market value). Diluted return on equity is the ratio of net income for a fiscal year over the Company’s shareholders’ equity at the beginning of such fiscal year, adjusted for any changes in the number of common shares issued and outstanding and dividends paid.
 
The Compensation Committee has exclusive authority to select the persons to be awarded PSUs. At the time of each award, the Compensation Committee determines the terms of the award, including the performance period (or periods) and the performance objectives relating to the award.  With the exception of the special 2009 − 2010 series (described below) that vest in two years, the PSUs vest over a period of three years.
 
 
 
 
 
 
To enhance retention, the Company generally will cancel PSUs without payment if the participant’s employment terminates prior to the end of the performance period.
 
Determination.  We generally grant PSU awards annually, prior to the commencement of the performance period they track. In the case of new hires, we generally award PSUs that have a performance period commencing at the beginning of the year of hire.
 
Following the end of the performance period of a PSU, the Compensation Committee determines whether the diluted return on equity performance objectives were met in whole or in part, and calculates the payment due on the PSU as a result. The Compensation Committee has no discretion to modify the performance goals of PSUs that have already been granted.
 
Grants in 2009 and 2010.  PSUs entitle the recipient to receive the number of common shares of the Company (or cash equivalent or combination of cash and common shares) equal to the product of the number of PSUs granted times a “multiplier”. The applicable multiplier for each series of PSUs outstanding during 2010 is determined as follows:
 
 
●
2009 − 2011 (Series A, B and H): The multiplier is determined based on the arithmetic average return on equity of the Company during the fiscal years 2009 − 2011 measured in accordance with U.S. GAAP on a fully diluted basis. The multiplier is 100% if return on equity is 13.5%, 150% if return on equity is 18.5% or greater, and 50% if return on equity is 8.5% or less. The multiplier scales ratably between return on equity endpoints of 8.5% and 18.5%.
 
 
●
2009 − 2010 (Series F): The multiplier is determined based on the arithmetic average return on equity of the Company during the fiscal years 2009 and 2010 measured in accordance with U.S. GAAP on a fully diluted basis. The multiplier is 100% if return on equity is 13.5%, 150% if return on equity is 18.5% or greater, and 50% if return on equity is 8.5% or less. The multiplier scales ratably between return on equity endpoints of 8.5% and 18.5%.
 
 
●
2010 − 2012 (Series A): The multiplier is determined based on the arithmetic average return on equity of the Company during the fiscal years 2010 − 2012 measured in accordance with U.S. GAAP on a fully diluted basis. The multiplier is 100% if return on equity is 14.5%, 140% if return on equity is 19.5% or greater, and 60% if return on equity is 9.5% or less. The multiplier scales ratably between return on equity endpoints of 9.5% and 19.5%.
 
Other Compensation Components
 
Retirement Benefits
 
We maintain a defined contribution pension plan in accordance with the National Pension Scheme (Occupational Pensions Act) 1998, as amended, for the benefit of employees, including our named executive officers, who are Bermudians or spouses of Bermudians.
 
We maintain a defined contribution pension plan in accordance with the Occupational Pensions Act in Switzerland for the benefit of employees, including our named executive officers, who are resident in Switzerland.
 
The named executive officers do not participate in any defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified, except for those contributions to the Swiss social pension plan, or l’Assurance-Vieillesse et Survivant.
 
 
 
 
 
Personal Benefits and Perquisites
 
Each of our named executive officers is required to maintain a personal residence in Bermuda or Switzerland. Consistent with the practices of our competitors and to encourage executives to join the Company, we may provide housing allowances to help defray the high cost of housing in those locations. We may also provide schooling allowances to certain of our executive officers with school age children who are asked to relocate for work. In certain cases, we may also reimburse personal travel expenses that a named executive officer incurs in connection with his relocation.
 
Change in Control and Severance Benefits
 
Upon termination of employment, our named executive officers may receive payments under the Company’s PSU Plan and severance payments under their employment agreements.  The Company provides change in control benefits in order to protect executives during a transaction that may cause them substantial professional uncertainty, so that they can focus on maximizing shareholder value.  In addition to the information below, for information on change-in-control and severance benefits, see “Potential Payments Upon Termination or Change in Control”.
 
Other Matters
 
Employment Agreements
 
Each of our named executive officers is party to an employment agreement that entitles him to compensation if his employment is terminated without cause.  In Mr. Brown’s case, his severance payment is enhanced if his termination occurs after a change in control of the Company.  Each agreement contains a requirement that the executive give significant advanced notice of a termination, as well as restrictive covenants to protect the Company’s interests.
 
The Compensation Committee determined that the level of severance payments payable to each of our named executive officers was reasonable in light of the length of the notice period and restrictive covenant period to which he is committed. A decision to resign would effectively freeze Mr. Brown’s career for at least a year and the careers of our other named executive officers for at least six months, which in each case, is proportional to the one year’s or six months’ severance pay, respectively, to which each would be entitled.
 
In addition, Mr. Brown’s severance provisions are more generous than those of the other named executive officers in reflection of the high opportunity costs he would bear if the Company decided to change its Chief Executive Officer.
 
Clawback Policy
 
In 2010, we amended the PSU Plan to provide for the recovery of payments made with respect to a PSU grant if the relevant performance measures upon which the grant was based are restated or otherwise adjusted in a manner that would reduce the size of a payment.  In the event the Company is required to make a financial restatement due to a material misstatement any PSU grant based upon the erroneous financial statements is cancelled. This clawback policy is more stringent than the clawback requirements under the Sarbanes-Oxley Act in that it applies to all persons who receive compensation under a PSU (not just the Chief Executive Officer and Chief Financial Officer) and applies regardless of whether the misstatement was a result of misconduct.
 
Common Share Ownership Requirements
 
The Company seeks to weight its compensation scheme to ownership of our common shares. The Company believes that broad-based stock ownership by its employees (including our named executive officers) enhances its ability to deliver superior shareholder returns by increasing the alignment between the interests of our employees and our shareholders. The goal of the PSU program is to engage all of our named executive officers as partners in the Company’s success and help the Company realize the maximum gain from its strategy. The Company does not have a formal requirement for share ownership by any group of employees.
 
 
 
 
 
Assessment of Risks Associated with Compensation Programs
 
The Company has reviewed and considered its compensation policies and practices and does not believe that they create risks that are reasonably likely to have a material adverse effect on the Company.
 
The Company has a Chief Enterprise Risk Officer who is responsible for managing various risks facing the Company, including operational and reputational risks. As part of his risk assessment, he considered the risks posed by the Company’s compensation programs and determined that they were not reasonably likely to have a material adverse effect on the Company.
 
Warrant
 
In connection with the initial closing of the private placement for the Company’s common shares in December 2005, the Company issued the Warrant to Haverford (the “Haverford Warrant”) for its role in these capital raising activities. The Haverford Warrant granted the holder the right, at any time during the period commencing on December 1, 2010 and ending December 31, 2010, to purchase from the Company up to 12.0% of the issued share capital of the Company at the consummation of the initial private placements of the Company at an exercise price of $14.00 per common share. At the Board meeting held on November 14, 2008, the Warrant was amended to change the exercise date from December 1, 2010 to December 31, 2010, to December 1, 2013 to December 31, 2013, to change the strike price to $14.80 from $14.00 and to include a provision that amends the strike price for all dividends paid by the company from the issuance of the Haverford Warrant to its exercise date. On June 25, 2010, the Haverford Warrant was amended and restated so that Haverford could transfer a portion of the Haverford Warrant to Leyton Limited. (the “Leyton Warrant”), a company associated with Flagstone’s chief executive officer David Brown. Haverford continued to hold the Haverford Warrant and all other terms of each Haverford Warrant remained unchanged. On December 14, 2010, in connection with the retirement of Mr. Byrne as a member of the Board and pursuant to the Purchase Agreement between Bermuda Holdings, Mr. Byrne and Haverford and Limestone, companies associated with Mr. Byrne, Bermuda Holdings purchased the Haverford Warrant at a cost of $13.5 million. On December 14, 2010, the Company purchased the Haverford Warrant from Bermuda Holdings.  The Company subsequently cancelled the Haverford Warrant.  The Leyton Warrant, exercisable at maturity for 630,194 common shares of the Company, remains outstanding.
 
 
 
 
 
 
 
COMPENSATION COMMITTEE REPORT

 
The Compensation Committee has reviewed and discussed with management of the Company the Compensation Discussion and Analysis (“CD&A”). Based on such review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in this Proxy Statement.
 

 
Compensation Committee
 
Stewart Gross, Chairman
 
E. Daniel James
 
Gary Black
 
Anthony P. Latham
 
Dr. Anthony Knap
 
Wray T. Thorn
 
 
 
 
 

 
COMPENSATION TABLES AND NARRATIVE DISCLOSURES
 
The following tables, narratives and footnotes describe the total compensation and benefits for our named executive officers for fiscal 2010.
 
Summary Compensation Table
 
The following Summary Compensation Table summarizes the total compensation awarded to our named executive officers as of December 31, 2010 for services rendered by them to the Company and to its subsidiaries.
 
Name and Principal Position
Year
  
Salary
$
    
Bonus(1)
$
    
Stock Awards(2)
$
    
Option Awards(3)
$
    
All Other Compensation(4)
$
    
Total
$
  
David Brown
2010
     1,000,000       1,000,000       1,816,040       –       –       3,816,040  
Chief Executive Officer
2009
     650,000       601,250       1,709,750       –       46,958       3,007,958  
 
2008
     650,000       422,500       8,168,670       261,708       46,958       9,549,836  
                                                   
Patrick Boisvert(5)
2010
     403,872       336,560       794,145       –       134,082       1,668,659  
Chief Financial Officer
2009
     378,471       230,775       619,900       –       85,431       1,314,577  
 
2008
     246,326       299,742       1,453,870       –       –       2,071,159  
                                                   
David Flitman
2010
     565,000       500,000       941,815       ­       120,000       2,126,815  
Chief Actuary
2009
     525,000       400,000       732,750       –       120,000       1,777,750  
 
2008
     500,000       280,000       2,654,096       –       120,000       3,554,096  
                                                   
Gary Prestia
2010
     565,000       500,000       941,815       ­       67,674       2,074,489  
Chief Underwriting Officer –
2009
     546,000       400,000       732,750       –       51,200       1,729,950  
North America
2008
     520,000       292,500       2,879,507       –       51,600       3,743,607  
                                                   
Guy Swayne(6)
2010
     565,000       500,000       941,815       ­       69,740       2,076,555  
Chief Underwriting Officer –
2009
     478,800       400,000       732,750       –       117,154       1,728,704  
International
2008
     359,484       283,416       3,234,271       –       125,661       3,987,362  
 
(1)
The amounts shown in this column are bonuses paid in fiscal year 2011 and reflecting performance in fiscal year 2010; and bonuses paid in fiscal year 2010 reflecting performance in fiscal year 2009; and bonuses paid in fiscal year 2009 reflecting performance in fiscal year 2008.
 
(2)
The amounts shown is this column represent the grant date fair value based on probable performance results of PSUs granted during the fiscal year to our named executive officers in accordance with FASB ASC Topic 718 (Compensation — Stock Compensation). At a meeting of the Compensation Committee on November 13, 2008, the members of the Compensation Committee voted to cancel the PSUs previously granted in 2006, 2007 and January 2008 to our named executive officers in light of the Company’s then current diluted return on equity estimates, subject to receiving such executive officer’s consent. On December 8, 2008, the executive officers each consented to this cancellation and the PSUs previously granted were cancelled. In lieu of this cancellation, two special series, 2009 − 2010 and 2009 − 2011, were issued as replacement PSUs to those employees who were holders of the cancelled series. The value of the stock awards for 2008 include the grant date fair value of the PSUs granted in January 2008 (which were subsequently cancelled) and the grant date fair value of the two special PSU series described above.
 
 
 
 
 
 
(3)
The amounts shown in this column represent the interests of Mr. Brown in the fair value of the amendment to the Haverford Warrant during 2008, based upon his contributions to the capital of Haverford.
 
(4)
The amounts shown in this column represent Company matches to the named executive officers’ contributions under the Company’s deferred contribution plans, housing allowances or mortgage assistance, school subsidies and personal travel reimbursements provided to our named executive officers. The value of each such benefit paid to each named executive officer for fiscal year 2010 is disclosed in the table below. Mr. Brown received no such benefits. During fiscal years 2010, 2009 and 2008, on flights of Company aircraft, the Company allowed employees and their family members to occupy seats that otherwise would have been vacant. This benefit had no incremental cost to the Company as each named executive officer reimbursed the marginal cost to the Company for any such personal use.
 
 
 
 
 
Name
  
Company Matching Contributions under Defined Contribution Plans (S)
    
Housing Allowances or Mortgage Subsidies ($)
    
School Subsidies ($)
    
Personal Travel Reimbursements ($)
  
Patrick Boisvert
     37,922       57,696       38,464       ­  
David Flitman
     ­       120,000       ­       ­  
Gary Prestia
     ­       49,560       ­       18,114  
Guy Swayne
     28,250       41,490       ­       ­  

 
(5)
Mr. Boisvert received his salary and his housing allowance in U.S. dollars from January 1, 2007 until June 30, 2008. Mr. Boisvert then received his salary and his housing allowance in Swiss francs beginning July 1, 2008. The Swiss franc amounts were converted into U.S. dollars at an average foreign exchange rate for the 2008 period of $0.89871, for the 2009 period of $0.91061 and for the 2010 period of $0.96159.
 
(6)
Mr. Swayne entered into an employment agreement effective September 1, 2007 to serve as the Chief Executive Officer of Flagstone Réassurance Suisse S.A. for a period of up to two years. This agreement concluded effective July 1, 2009 when Mr. Swayne entered into a new employment agreement to assume the position of Chief Underwriting Officer — International for Flagstone Réassurance Suisse S.A. (Bermuda Branch). In fiscal year 2008, Mr. Swayne was paid a bonus of CHF 50,000 reflecting performance for the last quarter of fiscal year 2007. In fiscal year 2009, Mr. Swayne received performance bonuses of CHF 65,000 and $225,000 reflecting his performance for fiscal year 2008. The Swiss franc amounts were converted into U.S. dollars at an average foreign exchange rate for the 2008 period of $0.89871 and for the 2009 period of $0.91061.
 
 
 
 
 
Grants of Plan-Based Awards Table
 
The following Grants of Plan-Based Awards Table summarizes all grants made to our named executive officers under any plan during the fiscal 2010 year.
 
       
Estimated Future Payouts Under Equity Incentive Plan Awards(1)
 
       Grant Date Fair Value of Stock and Option Awards(2)
$
  
Name
  
Grant Dates
  
Threshold
#
    
Target
#
    
Maximum
#
    
 
  
David Brown
  
January 1, 2010
     99,600       166,000       232,400       1,816,040  
Patrick Boisvert
  
January 1, 2010
     34,800       58,000       81,200       634,520  
   
December 10, 2010
     7,500       12,500       17,500       159,625  
David Flitman
  
January 1, 2010
     45,000       75,000       105,000       820,500  
   
December 10, 2010
     5,700       9,500       13,300       121,315  
Gary Prestia
  
January 1, 2010
     45,000       75,000       105,000       820,500  
   
December 10, 2010
     5,700       9,500       13,300       121,315  
Guy Swayne
  
January 1, 2010
     45,000       75,000       105,000       820,500  
   
December 10, 2010
     5,700       9,500       13,300       121,315  

 
(1)
“Minimum” means the minimum number of common shares issuable under the award (factor of 0.6); “Target” means the number of common shares issuable if the performance objectives of the award were met in full (factor of one), and “maximum” means maximum number of common shares issuable under the award (factor of 1.4).
 
(2)
The amounts shown in this column are based on the fair value at time of grant of the PSUs. It assumes the performance objectives of the PSU grant were met in full (factor of one), which the Company has determined to be the probable performance outcome with respect to the PSUs. The ultimate value of the PSUs is highly dependent on the Company’s diluted return on equity. See “— Long Term Incentive Awards”.
 
Narrative to the Summary Compensation Table and Grants of Plan-Based Awards Table
 
Employment Agreements
 
The following paragraphs summarize the employment-related agreements for our named executive officers. The employment agreements for Messrs. Swayne, Boisvert, Flitman and Prestia provide that either party may terminate the agreement upon 180 days’ advance written notice to the other party and do not otherwise specify a termination date. The employment agreement for Mr. Brown provides that either party may terminate the agreement upon 365 days’ advanced written notice to the other party and does not otherwise specify a termination date. The employment agreement for each named executive officer provides for a discretionary annual bonus to be paid to each named executive officer. The employment agreements for Messrs. Swayne, Boisvert, Flitman and Prestia specify that the annual bonus shall not exceed 75%, 75%, 60% and 75% of their annual salary, respectively; the bonus limit for each such named executive officer was increased to 90% of annual salary with effect from January 1, 2011. The employment agreement for Mr. Brown does not limit the amount of his annual bonus.
 
 
 
 
 
 
The employment agreements for each of our named executive officers specify that each named executive officer shall have the right to personal use of the Company aircraft, provided that each named executive officer shall reimburse the marginal cost to the Company for this personal use. This amount does not include fixed costs which do not change based on usage, such as pilot salaries, the lease costs of the Company aircraft, and the cost of maintenance not related to trips on the aircraft.
 
David Brown.       We have entered into an employment agreement with Mr. Brown, dated October 15, 2006, under which he has agreed to serve as our Chief Executive Officer. Pursuant to this agreement, Mr. Brown was paid an annual salary of $1,000,000 for the year ended December 31, 2010. The agreement further provides that Mr. Brown will receive a housing allowance through a mortgage subsidy, which will lower the effective cost of financing on his Bermuda residence to 3% per annum. The maximum financing to which this applies is an amount equal to five times Mr. Brown’s annual salary as amended from time to time. Mr. Brown and the Company have agreed that his annual salary for the year ending December 31, 2011 will be approximately $1,000,000.
 
Patrick Boisvert. We restated the employment agreement with Mr. Boisvert, on March 31, 2009, under which he has agreed to serve as our Chief Financial Officer. This employment agreement replaced the prior agreements dated July 1, 2008 and April 9, 2008 between Flagstone Reinsurance Limited and Mr. Boisvert. Pursuant to the agreement, Mr. Boisvert was paid an annual salary of CHF420,000 for the year ended December 31, 2010. The agreement further provides that Mr. Boisvert shall receive a housing allowance of CHF 6,000 per month until October 31, 2010, at which point his housing allowance ceased. Mr. Boisvert and the Company have agreed that his annual salary for the year ending December 31, 2011 will be approximately CHF 450,000.
 
David Flitman.    We restated the employment agreement with Mr. Flitman, on March 31, 2009, under which he has agreed to serve as our Chief Actuary. This employment agreement replaced the prior employment agreements with the Company dated August 25, 2008 and January 5, 2006 between Flagstone Reinsurance Limited and Mr. Flitman. Pursuant to the agreement, Mr. Flitman was paid an annual salary of $565,000 for the year ended December 31, 2010. The agreement further provides that Mr. Flitman will receive a housing allowance of up to $120,000 per annum. Mr. Flitman and the Company have agreed that his annual salary for the year ending December 31, 2011 will be approximately $580,000.
 
Gary Prestia.       We restated the employment agreement with Mr. Prestia, on March 31, 2009, under which he has agreed to serve as our Chief Underwriting Officer — North America. This employment agreement replaced the prior agreements with the Company dated October 18, 2006 and August 26, 2008 between Flagstone Reinsurance Limited and Mr. Prestia. Pursuant to the agreement, Mr. Prestia was paid an annual salary of $565,000 for the year ended December 31, 2010. The agreement further provides that Mr. Prestia will receive a housing allowance of up to $60,000 per annum. Mr. Prestia and the Company have agreed that his annual salary for the year ending December 31, 2011 will be approximately $580,000.
 
Guy Swayne.        We restated the employment agreement with Mr. Swayne, on June 24, 2009, under which he has agreed to serve as our Chief Underwriting Officer — International. This employment agreement replaced the prior agreements with the Company dated August 26, 2007. Pursuant to the agreement, Mr. Swayne was paid an annual salary of $565,000 for the year ended December 31, 2010. During 2010, Mr. Swayne received a housing allowance of $41,490. Mr. Swayne and the Company have agreed that his annual salary for the year ending December 31, 2011 will be approximately $580,000.
 
 
 
 
 
PSU Plan
 
The Compensation Committee determines the size of any plan-based awards granted to our named executive officers.  In 2008, 2009 and 2010, all plan-based awards were granted under the Company’s PSU Plan.
 
In January and December 2010, the Compensation Committee awarded PSUs for the 2010 - 2012 performance period. Under the non-discretionary formula set forth in the PSUs, upon vesting, the executive officers holding PSUs will be entitled to receive a number of common shares of the Company (or the cash equivalent, or a combination of both, in each case at the election of the Compensation Committee) equal to the product of the number of PSUs granted multiplied by a factor. The factor will range between 0.6 and 1.4, depending on the diluted return on equity achieved during the vesting period. The PSUs vest over a period of approximately three years. If the diluted return on equity goals are not met, no compensation cost is recognized.
 
To enhance retention, if a participant’s continuous employment terminates prior to the end of the performance period, the Company generally will cancel PSU grants without value at the end of the next performance period.
 
Outstanding Equity Awards at Fiscal Year-End Table
 
The following table summarizes the number of securities underlying the Leyton Warrant and the Company’s PSU Plan awards for each named executive officer as of December 31, 2010:
 
   
Option Awards
    
Stock Awards
  
Name
  
Number of Securities Underlying Unexercised Options Exercisable
#
    
Number of Securities Underlying Unexercised Options Unexercisable(1)
#
    
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
#
    
Option Exercise Price(2)
$
    
Option Expiration Date
    
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested(3)
#
    
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested(4)
#
  
David Brown
     N/A       630,194       –       $14.80    
Dec 31, 2013
       888,586       11,196,184  
Patrick Boisvert
     N/A       N/A       N/A       N/A       N/A       222,234       2,800,148  
David Flitman
     N/A       N/A       N/A       N/A       N/A       329,050       4,146,030  
Gary Prestia
     N/A       N/A       N/A       N/A       N/A       347,890       4,383,414  
Guy Swayne
     N/A       N/A       N/A       N/A       N/A       479,092       6,036,559  
________________
(1)
The amounts shown in this column represent the interests of Mr. Brown in the Leyton Warrant, based upon his to the capital of Leyton Limited. Such interests will vest on December 1, 2013.
 
 
 
 
 
(2)
Strike price at expiration date will be $14.80 adjusted for all dividends paid by the company from the issuance of the Leyton Warrant to its expiration date.
 
(3)
The number of common shares shown in this column assumes the performance objectives of the PSU grant were met in full (factor of one). The number of common shares issuable in respect of the PSUs could increase by a factor of 1.5 for the 2009 - 2011 series and the 2009 - 2010 series and 1.4 for the 2010 - 2012 series or decrease by a factor of 0.5 for the 2009 - 2011 series and the 2009 - 2010 series and .6 for the 2010 - 2012 series depending on diluted return on equity. See “— Long Term Incentive Awards”. Set forth in the table below are the vesting dates of all PSU awards that were unvested as of December 31, 2010:
 
 
 
 
Name
  
Stock Award Grant Date
  
Base Number of PSUs
That Have Not Vested
  
Vesting Dates
David Brown
  
December 8, 2008
  
273,793
  
January 1, 2011
   
December 8, 2008
  
273,793
  
January 1, 2012
   
January 1, 2009
  
175,000
  
January 1, 2012
   
January 1, 2010
  
166,000
  
January 1, 2013
Patrick Boisvert
  
December 8, 2008
  
44,867
  
January 1, 2011
   
December 8, 2008
  
44,867
  
January 1, 2012
   
January 1, 2009
  
50,000
  
January 1, 2012
   
August 30, 2009
  
12,000
  
January 1, 2012
   
January 1, 2010
  
58,000
  
January 1, 2013
   
December 10, 2010
  
12,500
  
January 1, 2013
David Flitman
  
December 8, 2008
  
84,775
  
January 1, 2011
   
December 8, 2008
  
84,775
  
January 1, 2012
   
January 1, 2009
  
75,000
  
January 1, 2012
   
January 1, 2010
  
75,000
  
January 1, 2013
   
December 10, 2010
  
9,500
  
January 1, 2013
Gary Prestia
  
December 8, 2008
  
94,195
  
January 1, 2011
   
December 8, 2008
  
94,195
  
January 1, 2012
   
January 1, 2009
  
75,000
  
January 1, 2012
   
January 1, 2010
  
75,000
  
January 1, 2013
   
December 10, 2010
  
9,500
  
January 1, 2013
Guy Swayne
  
December 8, 2008
  
159,796
  
January 1, 2011
   
December 8, 2008
  
159,796
  
January 1, 2012
   
January 1, 2009
  
75,000
  
January 1, 2012
   
January 1, 2010
  
75,000
  
January 1, 2013
   
December 10, 2010
  
9,500
  
January 1, 2013

 
(4)           Based on the closing price per common share of $12.60 at December 31, 2010.
 
Option Exercises and Stock Vested
 
For our named executive officers, no PSUs vested during 2010.
 
Potential Payments Upon Termination or Change in Control
 
The following summarizes potential payments payable to our named executive officers upon termination of their employment or a change in control of the Company under their current employment agreements and our PSU Plan.
 
Employment Agreements
 
The employment agreement of each named executive officer entitles him to a severance payment if the Company terminates his employment without cause.
 
 
 
 
 
 
As used in these employment agreements, “cause” means:
 
 
●
a material breach by the named executive officer of any contract between such executive officer and the Company;
 
 
●
the willful and continued failure or refusal by such executive officer to perform any duties reasonably required by the Company, after notification by the Company of such failure or refusal, and failing to correct such behavior within 20 days of such notification;
 
 
●
commission by the executive officer of a criminal offence or other offence of moral turpitude;
 
 
●
perpetration by the executive officer of a dishonest act or common law fraud against the Company or a client thereof; or
 
 
●
the named executive officer’s willful engagement in misconduct which is materially injurious to the Company, including without limitation the disclosure of any trade secrets, financial models, or computer software to persons outside the Company without the consent of the Company.
 
Mr. Brown’s employment agreement provides that, in the event he is terminated without cause not following a change in control of the Company, he generally will be entitled to a lump sum cash payment of the greater of: (i) one year’s annual salary and a bonus calculated by averaging the sum of the three most recent bonuses paid to him and (ii) the cash value determined on a mark-to-market basis per the Company’s books and records for the most recently ended quarter, of the PSUs he lost due to termination, pro-rated for the portion of the performance period served under the PSUs. Under this provision, for a termination as of December 31, 2010, the Company would be obligated to pay $7,916,853 to Mr. Brown, following and subject to Mr. Brown’s compliance with a 730 day non-solicitation period (as described below).
 
If the Company terminates Mr. Brown’s employment without cause following a change in control of the Company, the Company will be obligated immediately to pay Mr. Brown a lump sum cash payment equal to one year’s annual salary and a bonus calculated by averaging the sum of three most recent bonuses paid to him. Under this provision, for a termination of employment as of December 31, 2010, the Company would be obligated to pay $1,674,583 to Mr. Brown. In addition to such compensation  under his employment agreement, under the PSU Plan, Mr. Brown would also be entitled to compensation with respect to his outstanding, unvested PSUs approximately equal to $16,585,115.  For additional information, see “—PSU Plan—Vesting Upon a Change in Control”.
 
Mr. Brown’s severance provisions are slightly more generous than those of the other named executive officers and reflect the high opportunity costs he would bear if the Company decided to change its Chief Executive Officer.  In the case of the other named executive officers, severance payments include a cash payment equal to six months’ salary and a bonus calculated by averaging the sum of the most recent three bonuses paid to each of them.  Under this provision, for a termination of employment as of December 31, 2010, the Company would be obligated to make the following payments to each of the named executive officers other than Mr. Brown, subject to each named executive officer’s compliance with a 545 day non-solicitation period (as described below):  $489,921 to Mr. Boisvert, $675,833 to Mr. Flitman, $680,000 to Mr. Prestia and $676,972 to Mr. Swayne.  In the event of a change in control, in addition to such compensation under his employment agreement, under the PSU Plan, each such named executive officer would also be entitled to compensation with respect to his outstanding, unvested PSUs in approximately the following amounts:  Mr. Boisvert:  $4,111,393; Mr. Flitman:  $6,112,575; Mr. Prestia:  $6,468,651; and Mr. Swayne $8,948,369.  For additional information, see “—PSU Plan—Vesting Upon a Change in Control”.
 
 
 
 
 
 
Severance payments for each named executive officer under his employment agreement are in addition to the Company’s obligation to pay such named executive officer’s salary during the requisite notice period.
 
Each employment agreement includes a covenant by the named executive officer not to solicit employees of the Company during a period following notice of termination, and, except for a termination of Mr. Brown without cause following a change in control of the Company, provides for the severance compensation under the employment agreements to be paid in a lump sum only after the officer shall have complied with such non-solicitation requirement (in the reasonable judgment of the Company). In the case of Mr. Brown, that period is 730 days. In the case of the other named executive officers, that period is 545 days. Payment terms with respect to the vesting of PSUs held by the named executive officers are described below.
 
PSU Plan
 
Vesting Upon Death or Disability
 
In the event that a PSU holder dies or becomes disabled prior to the end of a performance period, the PSU Plan provides that the PSU holder or his beneficiary will be entitled to a cash payment with respect to the number of PSUs that would have vested had the applicable performance criteria been achieved and the PSU holder had remained employed through the end of the performance period. Such cash payment is based on the market price of a common share on the date that the PSU holder becomes entitled to payment.
 
In the event that the employment of any of our named executive officers was terminated as a result of death or disability on December 31, 2010, based on the number of PSUs held by each named executive officer on such date and assuming that the closing price per share of common stock on the date the applicable named executive officer becomes entitled to payment is $12.60 (the closing price per common share on December 31, 2010), our named executive officers would be entitled to approximately the following payments:  $11,196,184 to Mr. Brown, $2,800,148 to Mr. Boisvert, $4,146,030 to Mr. Flitman, $4,383,414 to Mr. Prestia and $6,036,559 to Mr. Swayne.
 
Vesting Upon Retirement
 
The PSU Plan provides for the vesting of various amounts of PSUs upon a PSU holder’s retirement depending on the PSU holder’s years of service to the Company and its affiliates and the amount of time that has elapsed since the grant of the PSUs.
 
The PSU Plan provides for the vesting of outstanding unvested PSUs in the event that the applicable PSU holder retires at age 65 or older or the sum of the PSU holder’s age and years of service to the Company and its affiliates is 65 or greater.  However, none of our named executive officers meet these criteria.
 
In the event that a PSU holder does not meet the criteria described above at the time of his retirement, at such time the PSU holder will receive a cash payment with respect to any outstanding unvested PSUs as follows:  PSUs that were granted less than 24 months earlier would vest with respect to the value of one-ninth of the common shares that would have vested had the performance criteria been achieved and PSUs that were granted more than 24 months earlier would vest with respect to the value of two-ninths of the common shares that would have vested had the performance criteria been achieved.
 
In the event that the employment of any of our named executive officers was terminated as a result of retirement on December 31, 2010, based on the number of PSUs held by each named executive officer on such date, the respective grant dates thereof and assuming that the closing price per share of common stock on the date the applicable named executive officer becomes entitled to payment is $12.60 (the closing price per common share on December 31, 2010), our named executive officers would be entitled to approximately the following payments:  Mr. Brown:  $2,010,641; Mr. Boisvert:  $436,756; Mr. Flitman:  $698,040; Mr. Prestia:  $750,792; and Mr. Swayne:  $1,118,158.
 
 
 
 
 
Vesting Upon a Change in Control
 
Within 24 months following a change in control, and prior to the end of the performance period, the PSU Plan provides for payment in the event of a termination without cause, constructive termination or adverse change in the plan. As used in the PSU Plan:
 
 
●
A “change in control” means any person or group, other than the initial subscribers of the Company, becomes the beneficial owner of 50% or more of the Company’s then outstanding shares, or the business of the Company for which the participant’s services are principally performed is disposed of by the Company pursuant to a sale or other disposition of all or substantially all of the business or business related assets of the Company (including shares of a subsidiary of the Company).
 
 
●
“Cause” has the meaning set forth above under “— Employment Agreements”.
 
 
●
A participant who terminates employment at his own initiative may, by prior written notice to the Company, declare the termination to be a “constructive termination’’ if it follows (a) a material decrease in his salary or (b) a material diminution in the authority, duties or responsibilities of his position with the result that the participant makes a determination in good faith that he cannot continue to carry out his job in substantially the same manner as it was intended to be carried out immediately before such diminution. The Company has 30 days to cure the circumstances that would constitute a constructive termination.
 
 
●
An ‘‘adverse change in the plan’’ principally includes a termination of the plan, an amendment that materially diminishes the value of PSU grants, or a material diminution of the rights of the holder of the PSU.
 
In these circumstances, if the Compensation Committee shall have determined, prior to the change in control and based on the most recent performance status reports, that the performance objectives for the particular grant were being met at the date of the determination, the participant shall receive the maximum award for those PSUs, which is a number of common shares equal to 1.5 times the number of his PSUs for the 2009 - 2011 series and the 2009 - 2010 series and 1.4 times the number of his PSUs for the 2010 - 2012 series. If the Compensation Committee shall have determined that the performance objectives were not being met, the participant shall receive a portion of the maximum award to be determined by the Compensation Committee at its discretion, but not less than the pro-rated portion of the maximum award based on the number of full months which have elapsed since the date of the PSU grant plus half of the difference between that amount and the maximum award. For all PSU awards to date, the sole performance objective has been stated as a target diluted return on equity of the Company.
 
If the change in control is hostile, immediately upon any termination of the employment of the participant by the Company, each participant shall be entitled to receive (a) a number of common shares equal to the maximum award for his unvested PSUs, which is a number of common shares equal to 1.5 times the number of his unvested PSUs for the 2009 - 2011 series and the 2009 - 2010 series and 1.4 times the number of his PSUs for the 2010 - 2012 series or, (b) in the discretion of the Company, the cash value of those shares based on the market price per share at the date of termination.
 
The maximum number of common shares issuable under these provisions for a termination event as of December 31, 2010 would be approximately 1,316,279 shares to Mr. Brown, 326,301 shares to Mr. Boisvert, 485,125 shares to Mr. Flitman, 513,385 shares to Mr. Prestia and 710,188 shares to Mr. Swayne. Based on the closing price per common share of $12.60 at December 31, 2010, the value of those shares would be $16,585,115, $4,111,393, $6,112,575, $6,468,651 and $8,948,369, respectively.
 
 
 
 
 
Each of these provisions of the PSU Plan provides for payment only upon a change in control and another triggering event, such as a termination without cause. We believe this “double trigger” requirement maximizes shareholder value because this structure would prevent an unintended windfall to management in the event of a friendly (non-hostile) change in control, while protecting executives during a transaction that may cause them substantial professional uncertainty, so that they can focus on maximizing shareholder value. Under this structure, shareholders would have the ability to sell their common shares since the unvested PSUs would continue to incentivize our named executive officers to remain with the Company after the friendly change in control.
 
If, by contrast, the PSU plan had only a “single trigger”, and a friendly change in control occurred, management’s PSUs would all vest immediately creating a windfall, and the new owner would then likely find it necessary to replace the compensation with fresh unvested compensation, in order to retain management. This is why we believe a double trigger is more shareholder-friendly, and thus more appropriate, than a single trigger.
 
 
 
 
 
Director Compensation Table
 
The following table summarizes the fees or other compensation that our directors earned for services as members of the Board or any committee of the Board during 2010.
 
Name
  
Fees Earned or Paid in Cash
$
    
Stock Awards(1)
$
    
Total
$
  
Gary Black
 
     23,500       80,772       104,272  
Stephen Coley
 
     64,000       85,949       149,949  
Thomas Dickson(2)
 
     90,500       42,975       133,475  
Stewart Gross(3)
 
     131,500       15,533       147,033  
E. Daniel James(4)
 
     85,000       89,065       174,065  
Dr. Anthony Knap
 
     80,500       72,489       152,989  
Anthony P. Latham
 
     93,500       25,889       119,389  
Jan Spiering
 
     84,500       190,559       275,059  
Wray T. Thorn(5)
 
     90,500       90,096       180,596  
Peter F. Watson
 
     92,500       41,944       134,444  
Mark Byrne(6)
     59,387       –       59,387
 
 

 
(1)
The amounts shown in this column are based on the dollar amount recognized for financial statement reporting purposes for the 2010 fiscal year in accordance with FASB ASC Topic 718 (Compensation — Stock Compensation). The amounts shown in this column also represent the fair value at time of grant of the Restricted Share Units (“RSUs”) granted to each director during 2010. The aggregate number of RSUs issued to each director during 2010 (all of which remained outstanding as at December 31, 2010 with the exception of  the RSUs issued to Mr. Dickson, which were exercised in full) was as follows: Mr. Black — 7,129 RSUs; Mr. Coley — 7,586 RSUs; Mr. Dickson — 3,793 RSUs; Mr. Gross — 1,371 RSUs; Mr. James — 7,861 RSUs; Dr. Knap — 6,398 RSUs; Mr. Latham — 2,285 RSUs; Mr. Spiering — 16,819 RSUs; Mr. Thorn — 7,952 RSUs; Mr. Watson — 3,702 RSUs; and Mr. Byrne - nil.
 
(2)
As noted in “Our Directors”, Thomas Dickson is Chief Executive Officer and Founder of Meetinghouse LLC. The Company authorized the issuance of such RSUs in consideration of Mr. Dickson’s service as a director. The RSUs were granted in favor of Meetinghouse, LLC.
 
(3)
As noted in “Our Directors”, Stewart Gross is a Managing Director of Lightyear Capital. The Company authorized the issuance of such RSUs in consideration of Mr. Stewart’s service as a director. The RSUs were granted in favor of Lightyear Capital, LLC. Mr. Gross does not beneficially own these RSUs.
 
(4)
As noted in “Our Directors”, E. Daniel James is a founding partner and head of North America of Trilantic Capital Partners. As part of his compensation for serving as a director of the Company, Mr. James has received, and it is expected that he will in the future from time to time receive, common shares, RSUs or options to purchase our common shares. Under the terms of Mr. James’ employment with Trilantic Capital Partners, he is required to surrender to Trilantic Capital Partners any compensation (including common shares, RSUs and options) received in his capacity as a director of the Company. Mr. James disclaims beneficial ownership of all RSUs granted to him and all common shares beneficially owned by the Trilantic entities. See ‘‘Security Ownership of Certain Beneficial Owners, Management and Directors’’.
 
 
 
 
 
(5)
As noted in “Our Directors”, Wray Thorn is Managing Director at Marathon Asset Management, LP (formerly known as Marathon Asset Management, LLC) (“Marathon”) and serves as the investment manager of Marathon Special Opportunity Master Fund, Ltd. and Marathon Special Opportunity Liquidating Fund, Ltd. (together, the “Marathon Funds”). The Company authorized the issuance of such RSUs in consideration of Mr. Thorn’s service as a director. The RSUs were granted in favor of Marathon Funds. Mr. Thorn does not beneficially own these RSUs.
 
(6)
Currently, directors who are or were also employees during their period of service on the Board are not paid any fees or other compensation for services as members of the Board of Directors or of any committee of the Board.
 
Directors who are not employees of the Company are paid an annual fee of $75,000. The Company pays a minimum of $15,000 of the annual fee in RSUs under the RSU Plan. Each RSU will be valued at the market price of the common shares as of January 1 of each fiscal year. Directors receive the remaining portion of the annual fee in cash, or may, at their election, receive RSUs instead of cash for any amount of their annual fee. Some of our directors represent institutions that require them to assign over to the institution any compensation that they receive for serving as directors. The table above includes these amounts.
 
Each non-employee director receives cash in the amount of $3,500 for each Board or committee meeting attended in person, and $2,000 for each meeting attended by telephone. Each non-employee director receives cash in the amount of $3,000 per year for each committee the director serves upon. In addition, committee chairs (other than the Audit Committee Chair) receive an annual fee of $2,000 for each committee chaired. The Audit Committee Chair receives an annual fee of $100,000. This fee is greater than that received by the other committee chairs due to the substantially greater time and responsibility demands made upon the Audit Committee Chair.
 
 
 
 
 
Compensation Committee Interlocks and Insider Participation
 
The Compensation Committee comprises five non-executive directors, Messrs. James, Black, Latham, Knap and Thorn, and Mr. Gross serves as Chairman. No member has ever been an officer or employee of the Company or of any of its subsidiaries.
 
 
 
 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
MANAGEMENT AND DIRECTORS

 
Beneficial Ownership of Common Shares by Certain Beneficial Owners
 
The following table sets forth information as at March 10, 2011 regarding beneficial ownership of common shares and the applicable voting rights attached to such share ownership in accordance with our Articles by each person known by us to beneficially own 5% or more of our outstanding common shares.
 
Name of Beneficial Owner
  
Number of
Common
Shares
Beneficially
Owned
  
Percentage of Voting Rights
Trilantic entities(1)
  
10,000,000
  
14.27%
E. Daniel James(2)
  
10,000,000
  
14.27%
Silver Creek entities(3)
  
6,285,009
  
8.97%
Lightyear entities(4)
  
6,000,000
  
8.56%
Stewart Gross(5)
  
6,000,000
  
8.56%
Neuberger Berman entities (6)
  
5,657,818
  
8.07%
Robeco Investment Management, Inc.
  
4,297,007
  
6.13%

 
Beneficial Ownership of Common Shares by Management
 
The following table sets forth information as at March 10, 2011 regarding beneficial ownership of common shares and the applicable voting rights attached to such share ownership in accordance with our Articles by:
 
 
●
each of our directors;
 
 
●
each of our named executive officers; and
 
 
●
all of our executive officers and directors as a group.
 
Name of Beneficial Owner
  
Number of Common Shares Beneficially Owned
  
 
Restricted Share Units
  
Percentage of Voting Rights
E. Daniel James(2)
  
10,000,000
  
34,923
  
14.31%
Stewart Gross(5)
  
6,000,000
  
6,558
  
8.57%
David A. Brown(7)
  
730,074
  
–
  
1.04%
Guy Swayne(8)
  
249,694
  
–
  
*
Gary Prestia(9)
  
141,792
  
–
  
*
David Flitman
  
127,162
  
–
  
*
Jan Spiering
  
10,000
  
74,372
  
*
Patrick Boisvert(10)
  
70,800
  
–
  
*
Thomas Dickson
  
66,012
  
–
  
*
Wray T. Thorn
  
–
  
34,426
  
*
Stephen Coley
  
–
  
33,594
  
*
Gary Black
  
–
  
31,987
  
*
Dr. Anthony Knap(11)
  
1,300
  
30,258
  
*
Peter F. Watson
  
–
  
11,052
  
*
Anthony P. Latham
  
–
  
4,843
  
*
All directors and executive officers as a group (19 persons) (see notes (2), (5) and (7) through (11)
  
17,548,268
  
262,013
  
25.32%
 
 
*           Represents less than 1% of the outstanding common shares.
 
 
 
 
 
 
(1)
The common shares are owned by Trilantic Capital Partners and its affiliates. The address of the Trilantic entities is 399 Park Avenue, New York, NY 10022.
(2)
Represents shares held by Trilantic entities as described in note 1. Mr. James is a founding partner and head of North America of Trilantic Capital Partners, and he disclaims beneficial ownership of all common shares owned by the Trilantic entities.
(3)
Silver Creek Capital Management LLC serves as the managing member of the Silver Creek entities and as such exercises all management and control of the business affairs of the Silver Creek entities. The managing members of Silver Creek Capital Management LLC are Eric Dillon and Timothy Flaherty. The address of the Silver Creek entities is 1301 Fifth Avenue, 40th Floor, Seattle, WA 98101.
(4)
Of the common shares beneficially owned by the Lightyear entities, 5,982,000 are held by Lightyear Fund II (Cayman), L.P., and 18,000 are held by Lightyear Co-Invest Partnership II (Cayman), L.P. As the sole general partner of each of Lightyear Fund II (Cayman), L.P. and Lightyear Co-Invest Partnership II (Cayman), L.P., Lightyear Fund II (Cayman) GP, L.P. may be deemed to have voting and/or investment power over such securities. As the sole general partner of Lightyear Fund II (Cayman) GP, L.P., Lightyear Fund II (Cayman) GP, Ltd. may also be deemed to have voting and/or investment power over such securities. As the sole Class A shareholder of Lightyear Fund II (Cayman) GP, Ltd., Marron & Associates, LLC (‘‘Marron & Associates’’) may also be deemed to have voting and/or investment power over such securities, although the Class A shareholder holds only a 7.69% vote with respect to the voting power over such securities. As the sole member of Marron & Associates, Chestnut Venture Holdings, LLC may also be deemed to have voting and/or investment power over such securities. As the managing member of Chestnut Venture Holdings, LLC, Donald B. Marron may also be deemed to have voting and/ or investment power over such securities. Each of Lightyear Fund II (Cayman) GP, L.P., Lightyear Fund II (Cayman) GP, Ltd., Marron & Associates, Chestnut Venture Holdings, LLC, and Donald B. Marron disclaims beneficial ownership of the common shares held by Lightyear Fund II (Cayman), L.P. and Lightyear Co-Invest Partnership II (Cayman), L.P., except to the extent of its or his pecuniary interest in such common shares. The address of the Lightyear entities and Donald B. Marron is 375 Park Avenue, 11th Floor, New York, NY 10152.
(5)
Represents the shares owned by certain Lightyear entities as described in note 4. Mr. Gross is a Managing Director and member of the Investment Committee of Lightyear Capital, and he disclaims beneficial ownerships of the shares owned by the Lightyear entities.
(6)
On May 4, 2009, Neuberger Berman Group LLC (“NBG”) acquired 4,705,737 common shares previously owned by Lehman Brothers Co-Investment Partners L.P. and Lehman Brothers Co-Investment Associates L.P. Pursuant to investment management agreements, NB Alternatives advisers LLC (“NB Alternatives”) maintains investment and voting power with respect to the securities held by NB Co-Investment Partners L.P. (“NB Partners”) and certain affiliated investment funds. NB Co-Investment Associates L.P. (“NB Associates”) is the general partner of NB Partners and may be deemed to have beneficial ownership of the securities held by NB Partners. NBG controls each of NB Alternatives and NB Associates, and each of them may be deemed to beneficially own such securities. The address of the Neuberger Berman entities is 605 Third Avenue, New York, New York 10158.
(7)
Mr. Brown acts as the settlor of a trust that is the owner of Leyton Limited (“Leyton”), and Leyton is the record holder of 718,874 common shares of the Company, 80,000 of which were purchased through the Directed Share Program in connection with the initial public offering of common shares of the Company (the “IPO”), 2,435 of which were paid to Leyton from Haverford on November 12, 2008 as a dividend in specie, and 225,750 of which were paid to Leyton from Haverford on June 28, 2010 pursuant to a transaction. Mr. Brown disclaims beneficial ownership of the shares held by Leyton Limited. 11,200 of these shares are owned directly by Mr. Brown.
(8)
Represents 239,694 shares held in trust for the benefit of others, and 10,000 shares owned by Mr. Swayne’s wife. Mr. Swayne disclaims beneficial ownership of the shares held in trust and the shares owned by his wife.
(9)
Represents 141,292 shares owned directly by Mr. Prestia. 500 shares are owned by Donna Prestia, Mr. Prestia’s wife, and he disclaims beneficial ownership of those shares.
(10)
Represents 67,300 shares held in trust for the benefit of others, and he disclaims beneficial ownership of those shares.  3,500 shares are owned directly by Mr. Boisvert.
(11)
Represents shares purchased through the Directed Share Program in connection with the IPO by Philippa Knap, Dr. Knap’s wife, and he disclaims beneficial ownership of shares held by his wife.

 
 
 
 
 
CORPORATE GOVERNANCE

 
The Board of Directors and its Committees
 
Our Articles provide for a Board of Directors of no fewer than ten and no more than twelve directors. The Board of Directors currently consists of eleven directors. The Board of Directors met a total of six times in fiscal 2010 and all incumbent directors attended at least 80% of such meetings and of meetings held by the committees of the Board of Directors of which they were members. The Company expects directors to attend the Annual General Meeting and all of the Company’s then-directors attended the 2010 annual general meeting.
 
Our Board of Directors is divided into three classes: four Class B directors whose current term will expire at the Annual General Meeting, three Class C directors whose current term will expire at the 2012 annual general meeting of our shareholders, and four Class A directors whose current term will expire at the 2013 annual general meeting of our shareholders. Directors hold office until the next annual general meeting at which the term of that class of directors expires or until their successors are duly elected or appointed or their office is otherwise vacated.
 
Our Board of Directors has established corporate governance measures in compliance with the requirements of the SEC and the NYSE as well as with applicable provisions of Luxembourg law. These include a set of Corporate Governance Guidelines, Independence Guidelines, and charters for each of the Audit Committee, Compensation Committee and Governance Committee and the Code of Conduct for directors, officers and employees. Our Board of Directors has also adopted a Code of Business Practices for the Company’s principal executive, financial and accounting officers. These documents have been published on the Financial & Investor Information section of the Company’s website, www.flagstonere.com, and will be provided upon written request to the Company’s Corporate Secretary at its registered office address, 37 Val St. André, L-1128 Luxembourg, Grand Duchy of Luxembourg.
 
Our Board of Directors has reviewed the materiality of any relationship that each of the eleven directors of the Company has with the Company either directly or indirectly through another organization. The criteria applied included the director independence requirements set forth in the Company’s Independence Guidelines, the independence requirements of the NYSE with respect to the Company’s Audit Committee, and the audit committee independence rules of the SEC. In conducting this review of the directors’ independence, the Board of Directors considered any managerial, familial, professional, commercial or affiliated relationship between a director and the Company or another director. In particular, the Board of Directors considered the following arrangements of certain directors before determining that each is independent under the NYSE independence requirements and the Company’s Independence Guidelines:
 
 
●
Mr. Black, a director of the Company since June 2006, formerly served as Chief Claims Executive and Senior Vice President of One Beacon Insurance Company, a part of the White Mountains Insurance Group.
 
●
Mr. Coley, a director of the Company since January 2006, is Director Emeritus of McKinsey & Company, a group which previously owned 2.8% of the common stock of the Company.
 
●
Mr. Thomas Dickson, a director of the Company since December 2005, controls the investment manager of HCP, which previously owned approximately 2.9% of the common stock of the Company. In addition, Mr. Dickson is the Chief Executive Officer of Meetinghouse LLC, which was hired by the Company for various services in connection with its private placement in December 2005, including consulting services.
 
●
Mr. Gross, a director of the Company since January 2006, is the Managing Director of Lightyear Capital LLC, a group which accounts for approximately 8.56% of the common stock of the Company.
 
 
 
 
 
 
 
 
●
Mr. E. Daniel James, a director of the Company since December 2005, is a founding partner and head of North America of Trilantic Capital Partners, which owns 14.27% of the common stock of the Company. Mr. James was also a Managing Director of Lehman Brothers Merchant Banking (“LBMB”) which the Company hired for various investment banking services.
 
●
Dr. Anthony Knap, Ph.D., a director of the Company since December 2005, is the President and Director and Senior Research Scientist of the Bermuda Institute of Ocean Sciences. The Company has regularly made charitable contributions to Bermuda Institute of Ocean Sciences, a tax-exempt organization.
 
●
Mr. Anthony P. Latham, a director of the Company since November 2008, is a former member of the Group Executive of RSA Group plc, an international insurance group (“RSA”), where he held a variety of senior executive roles ending December 31, 2007. Mr. Latham is also a director of  Ecclesiastical Insurance Group plc and Ecclesiastical Insurance Office plc (together, “Ecclesiastical Insurance”) and chairman of Torus Insurance (U.K.) Limited (“Torus”).  For several years, the Company has provided reinsurance support for RSA’s programs and supported the reinsurance program of Ecclesiastical Insurance and Torus.
 
●
Mr. Spiering, a director of the Company since December 2005, served as the Chairman and Managing Partner of Ernst & Young Bermuda until 2002. The Company has engaged Ernst & Young Bermuda as a consultant and uses Ernst & Young for other projects for the Company.
 
●
Mr. Thorn, a director of the Company since October 2006, has served as a Managing Director of Private Equity at Marathon Asset Management, LLC (“Marathon”) since 2005.  Affiliated entities of Marathon previously owned 6% of the common stock of the Company. During 2010, the Company made two investments in the PPIP Fund managed by Marathon. See “Certain Relationship and Related Transactions”.
 
●
Mr. Watson, a director of the Company since September 2007, served as a consultant to and Chief Executive Officer of the Attorney’s Liability Assurance Society (Bermuda) Ltd. until 2008.
 
Based on this review, the Board of Directors has determined that Messrs. Black, Coley, Dickson, Gross, James, Knap, Latham, Spiering, Thorn and Watson are independent directors. Therefore, the Board of Directors has concluded that the Audit Committee, Compensation Committee and Governance Committee consist only of independent directors, and the Board of Directors consists of a majority of independent directors.
 
Board of Directors Role in Risk Oversight
 
The Board oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance shareholder value. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. The involvement of the full Board in setting the Company’s business strategy is a key part of its assessment of management’s appetite for risk and also a determination of what constitutes an appropriate level of risk for the Company.
 
While the Board is responsible for overseeing management in the execution of its responsibilities and for assessing the Company’s approach to risk management, various committees of the Board also have responsibility for risk management.  In particular, the Audit Committee supervises and oversees the review of the financial reporting process and internal audit functions that are designed to provide management and the Audit Committee with assessments of the Company’s risk management processes and internal control systems.  The Underwriting Committee oversees the Company’s underwriting risk management exposure and the Finance Committee oversees the Company’s investment risk management.  In setting compensation, the Compensation Committee strives to implement a compensation structure that rewards performance and discourages risk taking that is inconsistent with the Company’s business strategy.
 
 
 
 
 
Leadership Structure
 
The Chairman of the Board is selected by the Board of Directors from among its members. The Board of Directors has no established policy with respect to combining or separating the offices of Chairman and CEO. This decision is made depending on what is in the Company’s best interests at any given point in time. The Company currently divides the roles of Chairman of the Board of Directors and CEO. E. Daniel James serves as the Chairman while David Brown serves as CEO as well as a director. We believe the separation of the roles of Chairman and CEO enhances the effectiveness of the Chairman and CEO in their separate roles at the present time.
 
Committees of the Board of Directors
 
As of December 31, 2010, the standing committees of the Board of Directors and their members are:
 
Audit
Committee
  
Compensation Committee
  
Governance Committee
  
Finance Committee
  
Underwriting Committee
Jan Spiering*
  
Stewart Gross*
  
Stephen Coley*
  
Wray T. Thorn*
  
Thomas Dickson*
Stephen Coley
  
E. Daniel James
  
Stewart Gross
  
Stewart Gross
  
Gary Black
Thomas Dickson
  
Gary Black
  
E. Daniel James
  
E. Daniel James
  
David Brown
Dr. Anthony Knap
  
Anthony P. Latham
  
Jan Spiering
  
Jan Spiering
  
Dr. Anthony Knap
Anthony P. Latham
  
Dr. Anthony Knap
  
Wray T. Thorn
  
David Brown
  
Anthony P. Latham
Peter F. Watson
  
Wray T. Thorn
          
Peter F. Watson

 
*           Chairman
 
Audit Committee
 
The Audit Committee has general responsibility for the oversight and surveillance of our accounting, reporting and financial control practices. Among its functions, the Audit Committee:
 
 
●
reviews and discusses the audited financial statements with management, reviews the audit plans and findings of the Independent Registered Public Accounting Firm, reviews the audit plans and findings of our internal audit and risk review staff, reviews the results of regulatory examinations and tracks management’s corrective actions plans where necessary;
 
 
●
reviews our accounting policies and controls, compliance programs, and significant tax and legal matters;
 
 
●
is directly responsible for the appointment, compensation, retention and oversight of the work of the Independent Registered Public Accounting Firm;
 
 
●
receives and considers reports from internal auditors on risk assessment, work completed against annual audit plan and other areas proposed by the committee;
 
 
●
reviews our risk assessment and management processes; and
 
 
●
performs other tasks in accordance with the terms of its charter.
 
The Audit Committee met a total of seven times during fiscal 2010. Mr. Spiering, who is an independent director, is the Chairman of the Audit Committee, and the Board of Directors has designated him as an “audit committee financial expert” as that term is defined in Item 401(k) of Regulation S-K under the Securities Act of 1933, as amended.  As described above, all members of the Audit Committee are independent.
 
Compensation Committee
 
The Compensation Committee oversees our compensation and benefit plans, including administration of annual bonus awards and long-term incentive plans and reports their findings and opinions to the Board of Directors. The Compensation Committee also approves the final determination of compensation for the Named Executive Officers, acting on the recommendation of our Chief Executive Officer, Mr. Brown. Mr. Brown does not play a role in determining his bonus. Instead, the Compensation Committee sets his bonus independently. The Compensation Committee met four times during fiscal 2010.
 
 
 
 
 
Governance Committee
 
The Governance Committee of the Board (the “Governance Committee”) has responsibility for identifying individuals qualified to become members of the Board of Directors consistent with the criteria approved by the Board of Directors, recommending director nominees to the Board of Directors, recommending Corporate Governance Guidelines to the Board of Directors and overseeing an evaluation of the Board of Directors and management.  The Governance Committee believes that shareholders are already well-represented on the Board of Directors and therefore has not adopted a specific policy with regard to the consideration of director candidates recommended by shareholders. The Governance Committee met nine times during fiscal 2010.
 
The Board of Directors has accorded to the Governance Committee the responsibility to consider the effectiveness and composition of the Board of Directors, to nominate candidates for election by our shareholders, and to fill vacancies on the Board of Directors that emerge from time to time. The Governance Committee will consider potential nominees to the Board of Directors recommended for election by shareholders. Any such recommendation must be sent to the Corporate Secretary of the Company not less than 120 days prior to the scheduled date of the Annual General Meeting and must set forth for each nominee:
 
 
(i)
the name, age, business address and residence address of the nominee;
 
 
(ii)
the principal occupation or employment of the nominee;
 
 
(iii)
the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the nominee; and
 
 
(iv)
any other information relating to the nominee that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act and the rules and regulations promulgated thereunder.
 
The written notice must also include the following information with regard to the shareholders giving the notice:
 
 
(i)
the name and record address of such shareholders;
 
 
(ii)
the number of common shares of the Company which are owned beneficially or of record by such shareholders;
 
 
(iii)
a description of all arrangements or understandings between such shareholders and each proposed nominee and any other person (including his or her name and address) pursuant to which the nomination(s) are to be made by such shareholders;
 
 
(iv)
a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and
 
 
(v)
any other information relating to such shareholder that would be required to be disclosed in a proxy statement or other required filing. Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected.
 
The Governance Committee may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
 
Assuming that the shareholder suggesting a nomination follows the procedure outlined above, the Governance Committee will evaluate those candidates by following substantially the same process, and applying substantially the same criteria, as for candidates submitted by members of the Board of Directors or by other persons. In considering whether to recommend any candidate for inclusion in the Board of Director’s slate of recommended director nominees, including candidates recommended by shareholders, the Governance Committee would expect to apply the same criteria which it applies to its own nominations. These criteria typically include the candidate’s integrity, business acumen, leadership qualities, experience in the reinsurance, insurance and risk-bearing industries and other industries in which the Company may participate, independence, judgment, mindset, vision, record of accomplishment, ability to work with others and potential conflicts of interest. The Governance Committee does not assign specific weight to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. Our Board of Directors believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the Board of Directors to fulfil its responsibilities. Accordingly, the Governance Committee will consider the interplay of the candidate’s experience with the experience of other Board members, the extent to which the candidate would be a desirable addition to the Board of Directors and any committees of the Board of Directors and any other factors it deems appropriate, including, among other things, diversity.  The Governance Committee views diversity broadly encompassing differing viewpoints, professional experience, industry background, education, geographical orientation, professional interests and particular skill sets, as well as race, gender, and ethnicity.
 
 
 
 
 
 
Underwriting Committee
 
The Underwriting Committee of the Board (the “Underwriting Committee”) oversees the Company’s underwriting policies and approves any exceptions thereto. Among its functions, the Underwriting Committee:
 
 
●
reviews aggregate underwritten exposures;
 
 
●
reviews performance targets, including loss ratio targets, combined ratio targets, return on equity targets or other measurement devices employed by the Company to monitor its underwriting performance;
 
 
●
reviews projected potential aggregate losses in excess of amounts the Committee shall determine and revise from time to time; and
 
 
●
advises the Audit Committee and Board of Directors regarding loss reserves.
 
The Underwriting Committee met a total of four times during fiscal 2010.
 
Finance Committee
 
Among its functions, the Finance Committee of the Board (the “Finance Committee”):
 
 
●
reviews matters relating to liabilities, hedging practices, and other aspects of the Company’s financial affairs beyond asset management;
 
 
●
formulates the Company’s investment policy; and
 
 
●
oversees all of the Company’s significant investing activities.
 
The Finance Committee met a total of six times during fiscal 2010.
 
 
 
 

 
 
AUDIT COMMITTEE REPORT

 
The Audit Committee met a total of seven times during fiscal 2010 and discussed amongst other things the Company’s quarterly results. The Audit Committee also discussed with Deloitte & Touche Ltd. (Bermuda) and Deloitte S.A. (Luxembourg) the overall scope and plans for their audits and the results of such audits. At the end of each meeting the auditor was given the opportunity to meet with the Audit Committee members without the presence of management. The Audit Committee conducted an annual self-assessment in November 2010 in accordance with the terms of its charter.
 
The Audit Committee has reviewed and discussed the Company’s system of internal controls over financial reporting. The Audit Committee recommended to the Board of Directors that the Company’s audited financial statements for the fiscal year ended December 31, 2010 be included in the Company’s Annual Report on Form 10-K for such fiscal year. The recommendation was based on the Audit Committee’s (i) review of the audited financial statements, (ii) its discussion with management regarding the audited financial statements, (iii) its receipt of written disclosures and the letter from Deloitte & Touche Ltd. (Bermuda) required by applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte & Touche Ltd. (Bermuda)’s communications with the Audit Committee concerning independence, (iv) its discussions with Deloitte & Touche Ltd. (Bermuda) regarding its independence, the audited financial statements, the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T, Deloitte & Touche Ltd. (Bermuda)’s communications with respect to their audit and (v) other matters the Audit Committee deemed relevant and appropriate.
 
Audit Committee
 
Jan Spiering, Chairman
 
Stephen Coley
 
Thomas Dickson
 
Dr. Anthony Knap
 
Anthony P. Latham
 
Peter F. Watson
 
 

 
 
 
SIGNIFICANT BOARD PRACTICES

 
Executive Session
 
At the majority of physical meetings of the Board of Directors, there is an executive session during which Mr. Brown, our Chief Executive Officer, is excused. In 2010, there were four such sessions. The non-management members of the Board of Directors are at liberty to raise such issues as they deem necessary. The executive session is chaired by Mr. E. Daniel James.
 
Advance Materials
 
Information and related materials necessary to provide the directors with an understanding of the topics to be discussed at the Board and committee meetings are, where practicable, circulated in advance of each meeting. The directors are given sufficient time to allow careful review of the Board materials.
 
 
 
 
 
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 
Section 16(a) of the Exchange Act requires our directors, executive officers and 10% shareholders to file reports of ownership and reports of changes in ownership of our common stock and other equity securities with the SEC.
 
Based solely on a review of such reports furnished to the Company, the Company believes that, with respect to fiscal year 2010, all such filing requirements were met, except (a) Mr. Mark Byrne was late filing two Forms 4 with respect to six transactions, (b) Haverford (Bermuda) Ltd. was late filing one Form 4 with respect to two transactions, (c) David Brown was late filing one Form 4 with respect to three transactions (d) Thomas Dickson was late filing one Form 4 with respect to four transactions.
 
 
SHAREHOLDER PROPOSALS
General
 
Proposals for Inclusion in the Proxy Statement. Shareholder Proposals for 2012 annual general meeting of shareholders must be received in writing by the Corporate Secretary of the Company no later than December  , 2011, and must comply with the requirements of the SEC in order to be considered for inclusion in our Proxy Statement and proxy card relating to the 2012 annual general meeting. Such proposals should be directed to the attention of the Corporate Secretary, Flagstone Reinsurance Holding, S.A., 37, Val St. André, L-1128 Luxembourg, Grand Duchy of Luxembourg.
 
Proposals not Included in the Proxy Statement.  Pursuant to the Articles, any shareholders holding in the aggregate not less than ten percent (10%) of the issued and outstanding paid up share capital of the Company may present proper proposals for inclusion in the agenda of the 2012 annual general meeting up until five days before that meeting. Such proposals should be directed to the attention of the Corporate Secretary, Flagstone Reinsurance Holding, S.A., 37, Val St. André, L-1128 Luxembourg, Grand Duchy of Luxembourg.
 
If a shareholder proposal is not submitted to the Corporate Secretary in a timely manner or is otherwise introduced at the 2012 annual general meeting of shareholders without any discussion of the proposal in our Proxy Statement, and the shareholder does not notify us on or before February  , 2012 as required by SEC Rule 14a-4(c)(1) of the intent to raise such proposal at the annual general meeting, then proxies received by us for the 2012 annual general meeting will be voted by the persons named as such proxies in their discretion with respect to such proposal. Notice of such proposal is to be sent to the address specified in the paragraph above.
 
Shareholder Nominees for Director Election at the 2012 annual general meeting
 
Any shareholders holding in the aggregate not less than ten percent (10%) of the issued and outstanding paid up share capital of the Company may deliver a written notice of nomination to the registered office of the Company, no later than five days after notice or public disclosure of the date of such annual general meeting is given or made available to the shareholders.
 
 
 
 
 
 
 
ADDITIONAL INFORMATION

 
The Company’s audited consolidated financial statements for the fiscal year ended December 31, 2010 included in the 2010 Annual Report, and the Luxembourg Statutory Accounts will be presented at the Annual General Meeting. The Consolidated Management Report of the Board of Directors, the Authorized Statutory Auditor’s Report and the Luxembourg Statutory Accounts will be available for inspection at the Company’s registered office at least 15 days prior to the Annual General Meeting and at the Annual General Meeting.
 
As of the date of this Proxy Statement we have no knowledge of any business, other than described herein and customary procedural matters, which will be presented for consideration at the Annual General Meeting. In the event that any other business is properly presented at the Annual General Meeting, it is intended that the persons named in the accompanying proxy will have authority to vote in accordance with their judgment on such business.
 
Shareholder Communications with the Board of Directors
 
Shareholders or any interested party desiring to contact the Board of Directors, any committee of the Board of Directors or the non-management directors as a group, should address such communication to Corporate Secretary, Flagstone Reinsurance Holdings, S.A., 37, Val St. André, L-1128 Luxembourg, Grand Duchy of Luxembourg, with a request to forward the communication to the intended recipient.
 
Corporate Documentation
 
The Company will furnish, without charge, to any shareholder a copy of all documents that it files with the SEC as well as the charter of any of the Company’s committee of the Board of Directors. All such documents are available at www.flagstonere.com or may be obtained upon written request to the Corporate Secretary, Flagstone Reinsurance Holdings, S.A., 37, Val St. André, L-1128 Luxembourg, Grand Duchy of Luxembourg.
 
Inspector of Election
 
The Bank of New York, whose principal executive office is located at 1 Wall Street, New York, NY 10004, has been appointed as Inspector of Election for the Annual General Meeting. Representatives of The Bank of New York will attend the Annual General Meeting to receive votes and ballots, supervise the counting and tabulating of all votes and determine the results of the vote.
 
 
HOUSEHOLDING

 
In order to reduce printing costs, mailing costs and fees, the Company adopted a procedure called “householding,” which the SEC has approved. Under this procedure, if you are a beneficial owner holding your shares in street name and if you share an address with another shareholder, you may receive a single copy of the notice of Internet availability of proxy materials and, if applicable, the Proxy Materials, unless you have provided contrary instructions. This procedure reduces the Company’s printing costs, mailing costs and fees. If you wish to receive a separate copy of the notice of Internet availability of proxy materials and, if applicable, this Proxy Statement and the 2010 Annual Report now, please request the additional copy by contacting Broadridge, either by calling at 1-800-579-1639, by sending an e-mail at sendmaterial@proxyvote.com or on the Internet at www.proxyvote.com. A separate set of Proxy Materials will be sent promptly following receipt of your request.
 
All shareholders also may write to us at the address below to request a separate copy of these materials:
 
Flagstone Reinsurance Holdings, S.A.
Attn: Company Secretary
37, Val St. André
L-1128 Luxembourg
Grand Duchy of Luxembourg

 
 
 
 
 
 
EXHIBIT B
 
 
To the Shareholders of
Flagstone Reinsurance Holdings, S.A.
37, Val St. André
L-1128 Luxembourg
Grand Duchy of Luxembourg
RCS Luxembourg number: B153214



CONSOLIDATED MANAGEMENT REPORT OF THE BOARD OF DIRECTORS
FOR THE YEAR ENDED DECEMBER 31, 2010


The Board of Directors of the Company (the “Board of Directors” or the “Board”) has pleasure in presenting its consolidated management report together with the consolidated financial statements and annual accounts as at and for the year ended 31 December 2010. For the purposes of this Report, “Company” means Flagstone Reinsurance Holdings, S.A. and “Group” or “Flagstone” means the Company and its subsidiary undertakings. As permitted by Luxembourg law, the Directors have elected to prepare a consolidated management report covering both the Company and the Group.

The consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”) and are complemented by the additional disclosures that the Luxembourg Ministry of Justice has requested in order for the consolidated financial statements to be fit for filing in Luxembourg. The annual accounts have been prepared in accordance with the accounting principles generally accepted in Luxembourg.

Principal activities and business review
 
We are a global reinsurance and insurance company. Our management views us as being organized into three business segments: Reinsurance, Lloyd’s and Island Heritage. Through our Reinsurance segment, we write primarily property, property catastrophe and short-tail specialty and casualty insurance and reinsurance.  Through our Lloyd’s segment, we write primarily property and short-tail specialty and casualty insurance and reinsurance focused on the energy, hull, cargo, marine liability, engineering, and aviation business sectors. Island Heritage Holdings Ltd. and its subsidiaries (“Island Heritage”) primarily write property insurance for homes, condominiums, office buildings and automobiles in the Caribbean region.

The various components of our operating model, including offices in Luxembourg, Luxembourg; Hamilton, Bermuda; Martigny, Switzerland; and London, England, are integrated through our use of advanced technology. Our investment and treasury operations are centrally managed in Luxembourg, which is the location of Flagstone Reinsurance Holdings, S.A., our holding company. Flagstone Réassurance Suisse SA (“Flagstone Suisse”) is based in Martigny in the canton of Valais, Switzerland. Through this office, we are in a position to closely follow and respond effectively to the changing needs of the various European insurance markets. Flagstone Suisse is licensed by the Swiss Financial Market Supervisory Authority, or FINMA, in Switzerland. Flagstone Suisse is also licensed as a permit company registered in Bermuda and is registered as a Class 4 insurer under the Bermuda Insurance Act and complements our Swiss based underwriters with a separately staffed Bermuda underwriting platform. Flagstone Reinsurance Africa Limited writes multiple lines of reinsurance in sub-Saharan Africa. Our research and development efforts and part of our catastrophe modeling and risk analysis team, and part of finance and accounting are based in Hyderābād, India, and our international reinsurance marketing operations are conducted from London, England. Our computer data center is in our Halifax, Canada office, where we also run support services such as accounting, claims, application support, administration, risk modeling, proprietary systems development and high performance computing. The result is an operating platform which provides significant efficiencies in our operations and access to a large and highly qualified staff at a relatively low cost.
 
 
 
B-1
 

 
Our consolidated financial statements are prepared in accordance with U.S. GAAP and our fiscal year ends on December 31.  Since a substantial portion of the reinsurance we write provides protection from damages relating to natural and man-made catastrophes, our results depend to a large extent on the frequency and severity of such catastrophic events, and the specific insurance coverages we offer to clients affected by these events.  This may result in volatility in our results of operations and financial condition.  In addition, the amount of premiums written with respect to any particular line of business may vary from quarter to quarter and year to year as a result of changes in market conditions.

We measure our financial success through long-term growth in diluted book value per share plus accumulated distributions measured over intervals of three years, which we believe is the most appropriate measure of our performance, a measure that focuses on the return provided to our common shareholders. Diluted book value per share is obtained by dividing Flagstone shareholders’ equity by the number of common shares and common share equivalents outstanding including all potentially dilutive securities such as our outstanding warrant, Performance Share Units (“PSUs”) and Restricted Share Units (“RSUs”).
 
We derive our revenues primarily from net premiums earned from the reinsurance and insurance policies we write, net of any retrocessional or reinsurance coverage purchased, income from our investment portfolio, and fees for services provided.  Premiums are generally a function of the number and type of contracts we write, as well as prevailing market prices. Premiums are normally due in installments and earned over the contract term, which ordinarily is 12 or 24 months.

Income from our investment portfolio is primarily comprised of interest on fixed maturity, short-term investments and cash and cash equivalents and dividends, and net realized and unrealized gains (losses) on our investment portfolio including our derivative positions, net of investment expenses.

Our expenses consist primarily of the following types: loss and loss adjustment expenses (“LAE”) incurred on the policies of reinsurance and insurance that we sell; acquisition costs which typically represent a percentage of the premiums that we write; general and administrative expenses which primarily consist of salaries, benefits and related costs, including costs associated with awards under our Performance Share Unit Plan (“PSU Plan”) and Restricted Share Unit Plan (“RSU Plan”), and other general operating expenses; interest expense related to our debt obligations; and noncontrolling interest, which represents the interest of external parties with respect to the net income of Mont Fort Re Ltd. (“Mont Fort”) and Island Heritage.  We are also subject to taxes in certain jurisdictions in which we operate; however, since the majority of our income to date has been earned in Bermuda where we are exempt from income tax, the impact of income taxes to date has been minimal. The Company has become a Luxembourg tax resident entity due to the redomestication to change its jurisdiction of incorporation from Bermuda to Luxembourg and it will therefore be subject to Luxembourg corporate income tax, municipal business tax, withholding tax, and net wealth tax. Management will attempt to minimize the income tax impact on the Group through effective tax planning. 

Despite an unprecedented number of large international events, we grew diluted book value per share by 12.1% in 2010, inclusive of distributions paid during 2010 of $0.16 per share. Since our founding five years ago, our team has worked diligently to build a platform that seeks to produce quality underwriting opportunities from around the globe.  We believe that this diversification, both geographically and by business line, provides us with broad global opportunities. We believe our underwriting performance is a result of our selective underwriting approach coupled with this diversification. In 2010, our international business experienced more catastrophic events than the historical average while our North American business experienced fewer catastrophic events than the historical average. We believe this to be a historic anomaly which negatively impacts our geographically diversified portfolio.

Our written premiums for the year 2010 were $1.1 billion, which is an 11.1% increase from 2009, which we believe is a result of our sourcing as much business as possible and then selecting the risks that meet our stringent pricing targets. We believe the increase in our written premiums is a testament to this strict oversight and our approach to underwriting was implemented with a close eye on cycle management. We believe we have continued to prudently manage our balance sheet and capital levels, and given the market conditions, we have exercised discipline in underwriting and instead allocated capital to share buy-backs in 2010. The Group repurchased $91.9 million of shares in the fourth quarter and $164.3 million of shares during the year, representing 7.6% and 13.6%, respectively, of our January 1, 2010 Flagstone shareholders’ equity.
 
 
 
B-2
 

 
We believe we remained disciplined throughout 2010, which resulted in benefits to our North American portfolio.  At January 1, 2011, North American catastrophe pricing in the market was generally down 7 to 10 percent on a risk-adjusted basis, and as such we were content to reduce risk by not renewing underpriced business.  The Northeast was among the more disappointing regions and we believe that at current market price levels increasing our number of programs is no longer supportable on a marginal pricing basis. The only region that saw some price increases was the Midwest, driven by programs directly affected by the high tornado and hail loss activity of the past three years. Overall, we expect cycle management to play a key role as the year progresses. The recent catastrophe model changes may partially offset this softening trend and increase demand; however, we expect the large industry loss activity to be the major catalyst for change.

Internationally, the January 1, 2011 renewals saw challenging market conditions, but we believe that the reinsurance market in general has remained disciplined. The business we write in Europe and South Africa was stable in 2010 and we were able to maintain our price levels as we continue to manage our portfolio. Furthermore, due to the recent losses in Australasia, we saw significant increases on rates in that region thus far in 2011.  Lastly, the specialty business was mixed with some areas such as the marine and energy markets as well as our engineering business showing improved pricing and good submission flow.

Critical Accounting Estimates

It is important to understand our accounting policies in order to understand our financial position and results of operations. Our consolidated financial statements contain certain amounts that are inherently subjective in nature and have required management to make assumptions and best estimates to determine the reported values.  If events or other factors cause actual events or results to differ materially from management’s underlying assumptions or estimates, there could be a material adverse effect on our results of operations, financial condition and liquidity.

The following are the accounting estimates that, in management’s judgment, are critical due to the judgments, assumptions and uncertainties underlying the application of those policies and the potential for results to differ from management’s assumptions.

Loss and Loss Adjustment Expense Reserves

Because a significant amount of time can lapse between the assumption of a risk, the occurrence of a loss event, the reporting of the event to an insurance company (the primary company or the cedent), the subsequent reporting to the reinsurance company (the reinsurer) and the ultimate payment of the claim by the reinsurer, our liability for loss reserves is based largely upon estimates. We believe that the most significant accounting judgment we make is our estimate of loss reserves.

Because of our relatively short operating history, our loss experience is limited and reliable evidence of changes in trends of numbers of claims incurred, average settlement amounts, numbers of claims outstanding and average losses per claim could take years to develop. A significant portion of our business is property catastrophe reinsurance and other classes of reinsurance with high attachment points of coverage. Attachment points refer to the dollar amount of loss above which excess of loss reinsurance coverage is triggered. Reserving for losses in such programs is inherently complicated in that losses in excess of the attachment level of our policies are characterized by high severity and low frequency. In addition, as a broker market reinsurer, we must rely on loss information reported to such brokers by primary insurers who must estimate their own losses at the policy level, often based on incomplete and changing information. If we underestimate our loss reserves, so that they are inadequate to cover our ultimate liability for losses, the underestimation could materially adversely affect our financial condition and results of operations.
 
 
 
B-3
 
 
 
Premiums and Acquisition Costs

We recognize premiums as revenue ratably over the terms of the related contracts and policies. Our gross premiums written are based on policy and contract terms and include estimates based on information received from both insured and ceding companies. The information received is typically in the form of bordereaux, broker notifications and/or discussions with ceding companies or their brokers. This information can be received on a monthly, quarterly or transactional basis and normally includes estimates of gross premiums written (including adjustment premiums and reinstatement premiums), net premiums earned, acquisition costs and ceding commissions. Adjustment premiums are premiums due to either party when the contract’s subject premium is adjusted at expiration and is recorded in subsequent periods.  Reinstatement premiums are premiums charged for the restoration of a reinsurance limit of an excess of loss contract to its full amount after the occurrence of a loss event.

Investments

In accordance with the Financial Instruments Topic of the FASB ASC, we elect the fair value option for all fixed maturity and short-term investments, equity investments (excluding investments accounted for under the equity method of accounting), investment funds, and catastrophe bonds. We also apply the Fair Value Measurements and Disclosures Topic of the FASB ASC.

We elected to use the fair value option because we focus on the total return of our portfolio. Any movement in unrealized gains and losses is recorded within net realized and unrealized gains (losses) within the consolidated statements of operations and comprehensive income (loss).

Share Based Compensation

Our shareholder approved PSU Plan is the primary long-term executive incentive scheme. Pursuant to the terms of the PSU Plan, at the discretion of the Compensation Committee of the Board of Directors, PSUs may be granted to executive officers and certain other key employees. The current series of PSUs vests over a period of approximately two or three years and vesting is contingent upon the Group meeting certain diluted return-on-equity (“DROE”) goals and service period. Future series of PSUs may be granted with different terms and measures of performance.

We estimate the fair value of PSUs granted under the PSU Plan on the date of grant using the closing price of our common shares on the grant date and the most probable DROE outcome and record the compensation expense in our consolidated statement of operations over the course of each two-year or three-year performance period.

Results of Operations

The following is a discussion and analysis of our results of operations for the year ended December 31, 2010.

Summary Overview

We generated $97.1 million of net income in 2010. The two most significant items impacting our 2010 financial performance include:

(1) Significant catastrophe losses (net of reinsurance and reinstatements) in the year 2010.  The main loss events in the year ended December 31, 2010 which caused the decrease are the Chile earthquake ($62.2 million), which occurred in the first quarter; the Deepwater Horizon oil rig explosion ($41.5 million), which occurred in the second quarter, the New Zealand earthquake ($75.5 million), which occurred during the third quarter; a number of losses in Australia during 2010 covered under an aggregate excess cover ($25.0 million) and the Queensland floods ($10.0 million) the first of which occurred in the fourth quarter. 

(2) Net investment income and net realized and unrealized gains on investments and other of $89.7 million.
 
 
 
B-4
 

 
Underwriting Results by Segment

Our management views us as being organized into three reportable segments:  Reinsurance, Lloyd’s and Island Heritage. We regularly review our financial results and assess performance on the basis of these three reporting segments in accordance with the Segment Reporting Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

Those segments are more fully described as follows:

Reinsurance

Our Reinsurance segment has three main units:

 
(1)
Property Catastrophe Reinsurance. Property catastrophe reinsurance contracts are typically ”all risk” in nature, meaning that they protect against losses from earthquakes and hurricanes, as well as other natural and man-made catastrophes such as tornados, wind, fires, winter storms, and floods (where the contract specifically provides for coverage).  Losses on these contracts typically stem from direct property damage and business interruption. To date, property catastrophe reinsurance has been the Company’s most important product. We write property catastrophe reinsurance primarily on an excess of loss basis.  In the event of a loss, most contracts of this type require us to cover a subsequent event and generally provide for a premium to reinstate the coverage under the contract, which is referred to as a ”reinstatement premium”.  These contracts typically cover only specific regions or geographical areas, but may be on a worldwide basis.
     
 
(2)
Property Reinsurance. We also provide reinsurance on a pro rata share basis and per risk excess of loss basis. Per risk reinsurance protects insurance companies on their primary insurance risks on a single-risk basis, for example, covering a single large building.  All property per risk and pro rata business is written with loss limitation provisions, such as per occurrence or per event caps, which serve to limit exposure to catastrophic events.
     
 
(3)
Short-tail Specialty and Casualty Reinsurance. We also provide short-tail specialty and casualty reinsurance for risks such as aviation, energy, personal accident and health, satellite, marine and workers’ compensation catastrophe.  Most short-tail specialty and casualty reinsurance is written with loss limitation provisions.

Lloyd’s

Our Lloyd’s segment includes the business generated through the Lloyd’s Syndicate 1861 and Flagstone Syndicate Management Limited (“FSML”). Syndicate 1861 primarily provides property and short-tail specialty and casualty insurance and reinsurance for risks such as energy, hull and cargo, marine liability, engineering and aviation.  FSML generates fee income for the provision of services to syndicates and third parties.

Island Heritage

Island Heritage is a property and casualty insurer based in the Cayman Islands which is primarily in the business of insuring homes, condominiums, office buildings and automobiles in the Caribbean region.
 
 
 
B-5
 
 
 
The following tables provide a summary of gross and net written and earned premiums, underwriting results, total assets, and ratios for each of our business segments for the year ended December 31, 2010:

    For the year ended December 31, 2010
    Reinsurance   Lloyd’s   Island Heritage  
 
Inter-segment Elimination
   Total
Gross premiums written
   $ 861,388     $ 187,420     $ 90,896     $ (41,854 )   $ 1,097,850  
Premiums ceded
     (150,820 )     (24,450 )     (80,580 )     41,854       (213,996 )
Net premiums written
    710,568       162,970       10,316       -       883,854  
Net premiums earned
  $ 697,614     $ 145,246     $ 9,224     $ -     $ 852,084  
Other related income
     3,817       13,566       23,343       (15,598 )     25,128  
Loss and loss adjustment expenses
     (413,005 )     (115,711 )     (1,420 )     -       (530,136 )
Acquisition costs
     (127,498 )     (34,818 )     (18,102 )     15,598       (164,820 )
General and administrative expenses
     (136,249 )     (26,144 )     (9,300 )     -       (171,693 )