IPC Holdings, Ltd. Reports Second Quarter 2008 Results
SOURCE:
IPC Holdings, Ltd.
2008-07-24 16:00:00
IPC Holdings, Ltd. Reports Second Quarter 2008 Results
PEMBROKE, BERMUDA–(EMWNews – July 24, 2008) – IPC Holdings, Ltd. (
reported net income for the quarter ended June 30, 2008 of $47.5 million,
or $0.78 per common share, compared to $28.0 million, or $0.37 per common
share, for the second quarter of 2007. For the six months ended June 30,
2008 IPC reported net income of $134.3 million, or $2.12 per common share,
compared to $105.2 million, or $1.48 per common share, for the first six
months of 2007.
Quarter ended June 30, Six months ended June 30, ----------------------- ------------------------- 2008 2007 2008 2007 ----------- ----------- ----------- ------------- (unaudited) (unaudited) (unaudited) (unaudited) (expressed in thousands of U.S. Dollars, except per share amounts) NET OPERATING INCOME $ 98,339 $ 26,104 $ 191,162 $ 94,634 Net (losses) gains on investments (50,889) 1,868 (56,909) 10,545 ----------- ----------- ----------- ------------- NET INCOME $ 47,450 $ 27,972 $ 134,253 $ 105,179 ----------- ----------- ----------- ------------- Preferred dividend 4,330 4,378 8,564 8,564 ----------- ----------- ----------- ------------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 43,120 $ 23,594 $ 125,689 $ 96,615 =========== =========== =========== ============= Basic net income available to common shareholders, per common share $ 0.83 $ 0.37 $ 2.29 $ 1.52 Diluted net income per common share $ 0.78 $ 0.37 $ 2.12 $ 1.48 Net operating income per common share (diluted) $ 1.62 $ 0.41 $ 3.03 $ 1.33 Weighted average number of common shares - basic 52,159,646 63,194,240 54,793,624 63,445,797 Weighted average number of common shares - diluted 60,560,764 63,210,001 63,193,486 70,979,971
Non-GAAP Financial Measures:
In addition to the GAAP financial measures set forth herein, IPC Holdings,
Ltd. (the “Company”) has included certain non-GAAP financial measures in
this Press Release within the meaning of Regulation G as promulgated by the
U.S. Securities and Exchange Commission. “Net operating income” and its
per share equivalent, as used herein, differ from “net income” and its per
share equivalent under GAAP, which the Company believes is the most
directly comparable GAAP measure. Net operating income is a common
performance measurement which, as calculated by the Company, corresponds to
net income excluding net gains and losses on investments. These items are
excluded because they are not considered by management to be relevant
indicators of the performance of or trends in our business operations, but
rather of the investment and credit markets in general. We believe that
the presentation of net operating income provides useful information
regarding our results of operations because it follows industry practice,
is followed closely by securities analysts and rating agencies, and enables
investors and securities analysts to make performance comparisons with our
peers in the insurance industry. This measure may not, however, be
comparable to similarly titled measures used by companies outside of the
insurance industry. Investors are cautioned not to place undue reliance on
net operating income as a non-GAAP measure in assessing IPC’s overall
financial performance.
Results of Operations:
For the quarter ended June 30, 2008, our net operating income was $98.3
million, or $1.62 per common share, compared to $26.1 million, or $0.41 per
common share for the second quarter of 2007. For the six months ended June
30, 2008, our net operating income was $191.2 million, or $3.03 per common
share, compared to $94.6 million, or $1.33 per common share, for the
corresponding period in 2007.
President and Chief Executive Officer Jim Bryce commented: “We are
gratified by our strong operating results in both the second quarter and
six months to June 30, 2008. The severity of per-risk losses continued
during the second quarter, with the tragic events in China and the
Universal Studios fire in Hollywood. While these events had no direct
impact on IPC’s results for the quarter, they nevertheless serve as a
reminder of the need for discipline in the reinsurance market. Excess
capacity, resulting from the abundance of capital, has had some impact on
rates, though generally underwriting discipline is being shown in our
specialist line of property catastrophe reinsurance. However, there is
greater pressure as market capital continues to grow. Sensitivity in
demand and pricing was demonstrated by the commencement of hurricane
season, which resulted in an increase in demand and an immediate but
temporary increase in pricing in the United States. Generally, renewals at
July 1, 2008 were in line with, or better than, our expectations.
Frequency of natural catastrophe losses continued during the second quarter
this year, but given the current level of clients’ retentions this is
having little impact on property catastrophe reinsurers. The continued
updated claims information received from clients has again enabled us to
adjust our reserves, which has had a positive effect on our operating
results. However, the ongoing turbulence in the credit markets has had a
marked impact on equities and fixed maturity securities generally, and
despite the highly-rated, short duration nature of our portfolio, we have
not been immune from its consequences. As part of our persistent
discipline and determination to improve shareholder value, we continued our
repurchases of shares during the second quarter. During the three months
ended June 30, 2008 we had repurchased a further 5.7 million shares at an
average price of $28.81 per share, for a total cost of $163.3 million.
This brought aggregate repurchases for the period ended June 30, 2008 to
$212.8 million, with a total of 7.5 million shares being bought. These
repurchases have been financed in part by a drawdown of $150.0 million from
our syndicated revolving credit facility, which occurred in early June of
this year.”
In the quarter ended June 30, 2008, we wrote gross premiums of $105.2
million, compared to $109.3 million in the second quarter of 2007.
Premiums in respect of new business totaled $18.9 million; however premiums
from existing business were approximately $3.4 million less in the second
quarter of 2008 in comparison to the second quarter of 2007, mostly due to
program re-structuring, including changes in client retentions and pricing.
In addition, business that was not renewed because of unsatisfactory terms
and conditions, or because the cedant did not purchase the protection,
totalled approximately $11.5 million. There was also a $7.5 million
reduction in reinstatement premiums in the second quarter of 2008 compared
to the second quarter of 2007, due to the lower level of incurred losses in
the current period. Excess of loss premium adjustments, which are
adjustments generally arising from differences between cedants’ actual
exposure base and original estimates thereof, were $0.5 million less in the
second quarter of 2008 in comparison to the second quarter of 2007. For
the six months ended June 30, 2008, we wrote gross premiums of $303.0
million, compared to $345.5 million for the corresponding period of 2007.
The effect of changes to business written for existing clients, including
pricing, changes to program structure and/or renewal dates, as well as
changes to foreign exchange rates, was a decrease of $42.3 million.
Business that was not renewed in the six months ended June 30, 2008
totalled $28.1 million, which was more than offset by new business totaling
$41.6 million during the same period. Excess of loss premium adjustments
were $2.2 million less in the first six months of 2008 compared to the
corresponding period of 2007, while reinstatement premiums were $11.4
million less in the first six months of 2008 in comparison with the first
six months of 2007.
In the second quarter of 2008, we ceded $2.8 million of premiums to our
retrocessional facility, compared with $7.1 million for the quarter ended
June 30, 2007. The actual contracts ceded are at IPC’s underwriters’
judgement in optimizing the risk profile of the portfolio, which can cause
premiums ceded to vary as a proportion of our gross writings, from quarter
to quarter. In addition, our Property Catastrophe Excess of Loss
retrocessional facility was not renewed at January 1, 2008, and there was
less participation by retrocessionaires in our proportional reinsurance
facility. In the first six months of 2008, we ceded $4.8 million to our
retrocessional facilities, compared to $14.7 million ceded in the first six
months of 2007.
Net premiums earned in the quarter ended June 30, 2008 were $84.9 million,
compared to $98.8 million in the second quarter of 2007. This reduction is
primarily due to the reduction in written premiums, both in the quarter and
during the past twelve months, as well as the reduction in reinstatement
premiums as a result of decreased loss activity in the period. For the six
months ended June 30, 2008, earned premiums were $174.6 million, compared
to $203.5 million in the first six months of 2007, a decrease of 14%, which
was mostly due to a reduction of written premiums of 14% during the past
twelve months, including the impact of decreased reinstatement premiums.
We earned net investment income of $23.4 million in the quarter ended June
30, 2008, compared to $31.9 million in the second quarter of 2007. In the
second quarter of 2007 we received dividends of $6.7 million from our
investment in a fund of hedge funds, whereas we did not receive any
dividends from this investment in the second quarter of 2008. In addition,
the overall yield from the fixed income portfolio continues to be
approximately 20 basis points less during 2008, compared to 2007. For the
six months ended June 30, 2008 we earned net investment income of $47.3
million, compared to $65.0 million in the corresponding period in 2007.
During the first six months of 2007, we had received dividends of $14.6
million from the investments noted above.
We recognized a net loss of $(50.9) million from investments in the quarter
ended June 30, 2008, compared to a net gain of $1.9 million in the second
quarter of 2007. As discussed in our first quarter, 2007 earnings press
release, effective January 1, 2007 we early-adopted SFAS 159, the Fair
Value Option for Financial Assets and Financial Liabilities, with respect
to our investment portfolio. Accordingly, all changes to the fair value of
our investment portfolio are recorded as net (losses) gains on investments
in our consolidated statements of income. In the second quarter of 2008,
net losses from fixed maturity securities were $(50.1) million, and net
losses from our equity investments were $(0.8) million. For the six months
ended June 30, 2008 we recognized a net loss of $(56.9) million from
investments, compared to a net gain of $10.5 million in the first six
months of 2007. The net loss in the first six months of 2008 was comprised
$(14.4) million from fixed maturity investments and $(42.5) million from
equities.
In the quarter ended June 30, 2008, our incurred net losses and loss
adjustment expenses were $(6.4) million, compared to $87.2 million in the
second quarter of 2007. Losses in the second quarter of 2008 included
$13.8 million from events in 2008, including the flooding in Iowa in June,
tornadoes that affected the mid-West United States in May and minor
increases to events that occurred in the first quarter of this year. This
was more than offset by reductions to our estimates of net ultimate losses
for a number of prior year events, predominantly from 2007, totaling $20.7
million. The reductions to our estimates of ultimate net losses for these
events followed the continuing flow of information from our clients and
brokers in the affected areas, together with our own internal review and
analysis. In the second quarter of 2007, our incurred losses included
$62.6 million for the flooding that impacted parts of northern England and
$50.1 million for the storm and subsequent flooding that affected parts of
New South Wales, Australia, both of which took place in June of that year.
These amounts were offset in part by reductions to our estimates of net
ultimate losses for a number of prior year events, totalling $26.0 million.
Our loss ratio, which is the ratio of net losses and loss adjustment
expenses to net premiums earned, was (7.5)% for the quarter ended June 30,
2008, compared to 88.2% for the second quarter of 2007. In the six months
ended June 30, 2008, our incurred net losses and loss adjustment expenses
were $(1.1) million, compared to $140.2 million in the first six months of
2007. Our loss ratio was (0.6)% for the first six months of 2008, compared
to 68.8% for the first six months of 2007.
Our net acquisition costs, which are primarily commissions and fees paid to
brokers for the production of business, were $8.4 million for the quarter
ended June 30, 2008, compared to $10.4 million in the second quarter of
2007. These costs have decreased as a result of the decrease in earned
premiums in 2008, as well as a reduction in the component of profit
commission expense on proportional business compared to the corresponding
quarter in 2007. General and administrative expenses were $6.6 million in
the quarter ended June 30, 2008, compared to $6.8 million in the second
quarter of 2007. Our expense ratio, which is the ratio of net acquisition
costs plus general and administrative expenses to net premiums earned, was
18.0% for the second quarter of 2008, compared to 17.5% for the second
quarter of 2007. This increase is due primarily to the level of general
and administrative expenses as a proportion of earned premium. For the six
months ended June 30, 2008 our net acquisition costs were $17.1 million,
compared to $20.6 million for the corresponding period of 2007. The
reasons for the reduction are consistent with those for the second quarter.
For the first six months of 2008, our general and administrative expenses
were $13.7 million, compared to $14.0 million in the corresponding period
of 2007. Our expense ratio for the six months ended June 30, 2008 was
17.8%, compared to 17.0% for the corresponding period of 2007.
On July 24, 2008 the Board of Directors declared a quarterly dividend of
$0.22 per common share, payable on September 19, 2008 to shareholders of
record on September 3, 2008. In addition, the Board of Directors declared
a preferred dividend of $0.475781 per Series A Mandatory Convertible
preferred share, payable on August 15, 2008 to preferred shareholders of
record on August 1, 2008.
Conference Call
Our management will be holding a conference call to discuss these results
at 8:30 a.m. Eastern time tomorrow, July 25, 2008. To participate, call
1-800-862-9098 or (International dial-in 1-785-424-1051); the conference
ID is IPC. This conference call will be broadcast simultaneously on the
internet and can be accessed from
http://www.videonewswire.com/event.asp?id=49346 or our website at
www.ipcre.bm, under the ‘News’ / ‘Webcasts’ section, and a replay of the
call will also be available at this site from 10:30 a.m. Eastern time until
12:00 midnight Eastern time on Friday, August 1, 2008.
This press release contains certain forward-looking statements within the
meaning of the U.S. federal securities laws. Statements that are not
historical facts, including statements about our beliefs, plans or
expectations, are forward-looking statements. These statements are based
on our current plans, estimates and expectations. Some forward-looking
statements may be identified by our use of terms such as “believes,”
“anticipates,” “intends,” “expects” and similar statements of a future or
forward-looking nature. In light of the inherent risks and uncertainties
in all forward-looking statements, the inclusion of such statements in this
press release should not be considered as a representation by us or any
other person that our objectives or plans will be achieved. A
non-exclusive list of important factors that could cause actual results to
differ materially from those in such forward-looking statements includes
the following: (a) the occurrence of natural or man-made catastrophic
events with a frequency or severity exceeding our expectations; (b) the
adequacy of our loss reserves and the need to adjust such reserves as
claims develop over time; (c) any lowering or loss of one of our financial
ratings of our wholly-owned subsidiary, IPCRe Limited; (d) the effect of
competition on market trends and pricing; (e) changes in general economic
conditions, including changes in interest rates and/or equity values in the
United States of America and elsewhere; and (f) other factors set forth in
our most recent reports on Form 10-K, Form 10-Q and other documents on file
with the Securities and Exchange Commission. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only
as of the date on which they are made. We do not intend, and are under no
obligation, to update any forward-looking statement contained in this press
release.
IPC Holdings, Ltd., through its wholly-owned subsidiary IPCRe Limited,
provides property catastrophe reinsurance and, to a limited extent,
aviation, property-per-risk excess and other short-tail reinsurance on a
worldwide basis.
IPC HOLDINGS, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Expressed in thousands of United States dollars, except for per share amounts) As of As of June 30, 2008 December 31, 2007 ------------- ----------------- ASSETS: (unaudited) Fixed maturity investments, at fair value $ 1,826,152 $ 1,803,275 Equity investments, at fair value 470,491 630,483 Cash and cash equivalents 147,087 39,486 Reinsurance premiums receivable 188,578 91,393 Deferred premiums ceded 3,449 2,578 Losses and loss adjustment expenses recoverable 8,439 17,497 Accrued investment income 26,388 30,369 Deferred acquisition costs 20,069 8,893 Prepaid expenses and other assets 9,811 3,717 ------------- ----------------- TOTAL ASSETS $ 2,700,464 $ 2,627,691 ============= ================= LIABILITIES: Reserve for losses and loss adjustment expenses $ 306,246 $ 395,245 Unearned premiums 200,460 75,980 Reinsurance premiums payable 1,628 4,677 Deferred fees and commissions 557 476 Accounts payable and accrued liabilities 24,506 25,568 Bank loan 150,000 - ------------- ----------------- TOTAL LIABILITIES 683,397 501,946 ------------- ----------------- SHAREHOLDERS' EQUITY: Share capital: Common shares outstanding, par value U.S.$0.01 503 576 Mandatory convertible preferred shares, par value U.S.$0.01 90 90 Additional paid-in capital 1,163,347 1,334,271 Retained earnings 854,008 791,689 Accumulated other comprehensive loss (881) (881) ------------- ----------------- TOTAL SHAREHOLDERS' EQUITY 2,017,067 2,125,745 ------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,700,464 $ 2,627,691 ============= ================= Diluted book value per common share $ 34.48 $ 32.42 IPC HOLDINGS, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Expressed in thousands of United States dollars) Quarter ended June 30, Six months ended June 30, ------------------------ ------------------------ 2008 2007 2008 2007 ----------- ----------- ----------- ----------- REVENUES: (unaudited) (unaudited) (unaudited) (unaudited) Gross premiums written $ 105,170 $ 109,259 $ 303,045 $ 345,502 Premiums ceded (2,818) (7,062) (4,844) (14,718) ----------- ----------- ----------- ----------- Net premiums written 102,352 102,197 298,201 330,784 Change in unearned premium reserve, net (17,457) (3,348) (123,609) (127,248) ----------- ----------- ----------- ----------- Net premiums earned 84,895 98,849 174,592 203,536 Net investment income 23,395 31,904 47,269 65,014 Net (losses) gains on investments (50,889) 1,868 (56,909) 10,545 Other income 18 261 44 887 ----------- ----------- ----------- ----------- 57,419 132,882 164,996 279,982 ----------- ----------- ----------- ----------- EXPENSES: Net losses and loss adjustment expenses (6,382) 87,210 (1,058) 140,163 Net acquisition costs 8,444 10,437 17,118 20,585 General and administrative expenses 6,621 6,799 13,700 13,958 Interest expense 262 - 262 - Net exchange loss (gain) 1,024 464 721 97 ----------- ----------- ----------- ----------- 9,969 104,910 30,743 174,803 ----------- ----------- ----------- ----------- NET INCOME $ 47,450 $ 27,972 $ 134,253 $ 105,179 Preferred dividend 4,330 4,378 8,564 8,564 NET INCOME Available to ----------- ----------- ----------- ----------- Common Shareholders $ 43,120 $ 23,594 $ 125,689 $ 96,615 =========== =========== =========== =========== Loss and loss expense ratio (1) -7.5% 88.2% -0.6% 68.8% Expense ratio (2) 18.0% 17.5% 17.8% 17.0% Combined ratio (Sum of 1 + 2) 10.5% 105.7% 17.2% 85.8%
CONTACT: Jim Bryce President and Chief Executive Officer or John Weale Executive Vice President and Chief Financial Officer Telephone: 441-298-5100 |
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