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. (NASDAQ: IPCR) today

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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