Moody’s said Flagstone is likely to incur “material losses” from first-quarter catastrophes. The rating agency noted that Flagstone estimated losses of between $60 million and $80 million for Australian floods in January and Cyclone Yasi in February. The estimated losses for those two events account for 5.3-7 percent of the company’s equity, Moody’s noted.

Flagstone’s estimated losses of between $60 million and $90 million for February’s New Zealand earthquake account for another 5.3-7.9 percent of equity, Moody’s said.

“The company has yet to disclose its loss estimates for the March 11 earthquake in Japan, but Moody's expects that the reinsurer will incur losses from this event given its geographic risk profile,” the rating agency added.

Kevin Lee, a senior credit officer at Moody's, said in a statement: “Moody's considers the size of the losses from the Australian floods and New Zealand earthquake to be out of step in relation to the limited size of the company. In the coming months, we will review Flagstone's strategy and risk tolerance, including its approach to allocating notional limits by geographic zones.”

In a responding statement, Flagstone said: “Despite the level of industry-wide losses as a result of events during the first quarter, the company believes its financial position remains strong. Accordingly, Flagstone is disappointed in Moody's decision to place the company's ratings under review and believes the action is unwarranted.”

Flagstone added that it believes Moody's decision to review “relies too much on subjective criteria rather than the modeled financial strength of the company and Moody's subjective approach has been an ongoing concern of the company.”

The Luxembourg-based company also said it doesn’t believe that Moody's has adequately assessed Flagstone’s “limited exposure to future events and the significant reinsurance protection it has in place.”

Moody’s did note in its comment that Flagstone appears to have meaningful reinsurance protections in place to manage losses from future catastrophes. “Nevertheless, the company's meaningful reliance on reinsurance in order to support its underwriting strategy has its own risks, as it exposes the company to shifts in the availability and pricing of such protection to a somewhat greater degree than peers,” according to Moody’s.

Moody’s pointed out that on Dec. 8, 2010, it had continued a negative outlook for Flagstone's ratings because of increased underwriting leverage, higher catastrophe exposure and a lower assessment of capital adequacy.

In its review, Moody's said it will seek more clarity on Flagstone's losses from the first-quarter disasters and assess the compatibility of the company’s strategy and risk appetite with its current ratings.

Flagstone said it maintains its "A-minus" rating by A.M. Best and "A-minus" rating by Fitch Ratings. The company said the “AM Best rating in particular is its principal rating for the assessment of financial strength and the ability to conduct business in the insurance and reinsurance market.”