<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ..................... to ......................
Commission file number: 0-27662
IPC Holdings, Ltd.
(Exact name of registrant as specified in its charter)
Bermuda Not Applicable
- ------------------------------------------ ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
American International Building, 29 Richmond Road, Hamilton, HM 08, Bermuda
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(441) 295-2121
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ..X..... No .........
The number of outstanding shares of IPC Holdings, Ltd. common stock, par value
U.S. $0.01 per share, as of November 7, 1996 was 25,000,000.
Total pages 13
Exhibit Index located on page 11
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
IPC HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States dollars except for per share amounts)
- ----------------------------------------------------------------------------------------------
As of As of
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited) (audited)
<S> <C> <C>
ASSETS:
Fixed maturity investments:
Available for sale, at fair market value (Amortized
cost 1996: $243,414; 1995: $211,121) $235,348 $215,632
Held to maturity, at amortized cost (Fair market
value 1996: $226,759; 1995: $214,356) 229,614 210,341
Cash and cash equivalents 32,003 18,109
Reinsurance balances receivable (Related party 1996:
$3,267; 1995: $2,804) 35,711 25,451
Accrued investment income 13,162 12,352
Deferred acquisition costs 4,205 2,441
Prepaid expenses and other assets 1,992 922
-------- --------
Total assets $552,035 $485,248
======== ========
LIABILITIES:
Reserve for losses and loss adjustment expenses $31,531 $24,717
Unearned premiums 42,529 23,971
Accounts payable and accrued liabilities (Related party
1996: $864; 1995: $698) 1,170 2,268
------- --------
Total liabilities $75,230 $50,956
======= =======
SHAREHOLDERS' EQUITY:
Share capital (1996: 25,000,000 shares, par value U.S.
$.01, outstanding; 1995: 1,000 shares, par value U.S
$200, outstanding) . 250 200
Additional paid in capital 299,267 299,317
Unrealised gain (loss) on investments (8,066) 4,511
Retained earnings 185,354 130,264
------- -------
Total shareholders' equity 476,805 434,292
------- -------
Total liabilities and shareholders' equity $552,035 $485,248
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
IPC HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in thousands of United States dollars except for per share amounts)
- -------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
----------------- ------------------ ------------------ ------------------
(unaudited) (unaudited) (unaudited) (audited)
<S> <C> <C> <C> <C>
REVENUES:
Premiums written $22,467 $20,204 $103,017 $93,270
Changed in unearned premiums 6,416 5,932 (18,558) (18,486)
------- ------- -------- --------
Premiums earned 28,883 26,136 84,459 74,784
Net investment income 7,414 6,144 21,286 16,536
Realised capital gains (losses), net (358) (484) 2,270 127
------- ------- -------- --------
Total revenues 35,939 31,796 108,015 91,447
-------------- ------- ------- -------- --------
EXPENSES:
Losses and loss adjustment expenses 12,086 17,051 22,288 32,901
Acquisition costs 3,004 3,092 8,667 7,971
General administrative expenses 2,013 1,401 7,652 5,177
Exchange (gain) loss, net (405) 501 (58) (1,375)
------- ------ ------- -------
Total expenses 16,698 22,045 38,549 44,674
-------------- ------- ------ ------- -------
Net income $19,241 $9,751 $69,466 $46,773
---------- ======= ====== ======= =======
Net income per common share $0.74 $0.38<F1> $2.66 $1.83<F1>
Weighted average number of common
shares 26,011,495 25,660,526<F1> 26,071,231 25,559,016<F1>
Dividends Declared per share $0.2875 $0.00 $0.575 $0.00
<FN>
<F1>
Pro Forma (See Note 4)
</FN>
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
IPC HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States dollars)
- -------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
(unaudited) (audited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $69,466 $46,773
Adjustments to reconcile net income to cash provided
by operating activities:
Amortization of investment premium, net 2,650 3,723
Realised capital (gains) losses, net (2,270) (127)
Changes in, net:
Reinsurance balances receivable (10,260) (11,928)
Accrued investment income (810) (17)
Deferred acquisition costs (1,764) (1,357)
Prepaid expenses and other assets (1,070) (197)
Reserve for losses and loss adjustment expenses 6,814 7,891
Unearned premiums 18,558 18,486
Accounts payable and accrued liabilities (1,098) 45
------- -------
80,216 63,292
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturity investments:
Available for sale (292,650) (235,392)
Held to maturity (34,006) (38,214)
Proceeds from sales of fixed maturity investments
Available for sale 261,710 196,509
Held to maturity 0 0
Proceeds from maturities of fixed maturity investments
Available for sale 0 0
Held to maturity 13,000 8,000
-------- --------
(51,946) (69,097)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid to shareholders (14,376) 0
-------- -------
Net increase (decrease) in cash and cash equivalents 13,894 (5,805)
Cash and cash equivalents at beginning of period 18,109 17,772
-------- -------
Cash and cash equivalents at end of period $32,003 $11,967
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
IPC HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars except for per share amounts)
(unaudited)
- --------------------------------------------------------------------------------
1. GENERAL:
The consolidated interim financial statements presented herein have been
prepared on the basis of United States generally accepted accounting
principles ("GAAP") and include the accounts of IPC Holdings, Ltd. (the
"Company") and its wholly owned subsidiary, International Property
Catastrophe Reinsurance Company, Ltd. ("IPC Re" and, together with the
Company, "IPC"). In the opinion of management, these financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the results of operations for the three and nine
month periods ended September 30, 1996 and 1995, the balance sheet at
September 30, 1996 and the cash flows for the nine month periods ended
September 30, 1996 and 1995. These interim consolidated financial statements
should be read in conjunction with the audited financial statements for the
year ended December 31, 1995. The results of operations for any interim
period are not necessarily indicative of results for the full year.
2. CAPITAL:
On March 13, 1996, the Company completed an initial public offering in which
13,521,739 Common Shares held by existing shareholders were sold. Proceeds
to selling shareholders were $281,590 which represented a price of $20.825
per share. The Company did not receive any of the proceeds from the sale of
shares, but did pay certain expenses related to the offering. Immediately
prior to the offering, the Company's share capital consisted of 1,000 common
shares, par value $200 per share, all of which were outstanding. Subsequent
to the offering the Company's share capital consists of: (i) 75,000,000
Common Shares, par value $0.01 per share, of which 25,000,000 are
outstanding and (ii) 25,000,000 preferred shares, par value $0.01 per share,
of which none are outstanding.
3. DIVIDENDS:
On April 18, 1996, the Directors approved the payment of a dividend of
$0.2875 per share on June 25, 1996, to shareholders of record on June 11,
1996. On July 25, 1996, the Directors approved the payment of a dividend of
$0.2875 per share on September 26, 1996, to shareholders of record on
September 10, 1996. These payments, totaling $14,376, are reflected in the
accompanying financial statements for the nine months ended September 30,
1996.
On October 28, 1996, the Directors approved the payment of a dividend of
$0.3175 per share on December 19, 1996, to shareholders of record on
December 3, 1996.
4. NET INCOME PER SHARE:
Net income per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period. For the three months and nine months ended
September 30, 1995, respectively, net income per share is computed after
giving effect to the conversion of each of the previously outstanding voting
and non-voting shares of common stock of the Company into 25,000 Common
Shares upon consummation of the Company's initial public offering on March
13, 1996 (the "Exchange"). Stock options held by a shareholder of the
Company were considered common stock equivalents and were included in the
weighted average shares outstanding using the treasury stock method. Stock
options granted to employees on February 15, 1996 were also considered
common stock equivalents for the purpose of computing net income per share
after giving effect to the Exchange.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS, QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995
In the quarters ended September 30, 1996 and 1995, IPC wrote premiums of
$22.5 million and $20.2 million, respectively, an increase of 11.2%. The
Company wrote business for new clients and had better signings from existing
clients, although the increase was partly offset by rate reductions,
typically of 10% but as high as 20%, in some cases. There were decreases
also as a result of competitive pressures and the restructuring by certain
clients of their reinsurance programs, such as increases in net retention.
In addition, premiums on some programs declined due to the effect of
changing exchange rates. Premiums earned in the three months ended September
30, 1996 were $28.9 million, compared to $26.1 million in the same period in
1995, an increase of 10.5%.
Investment income was $7.4 million in the quarter ended September 30, 1996,
compared to $6.1 million for the quarter ended September 30, 1995, an
increase of 20.7%. This increase was due to the improved yield of 6.1%
compared to 6.0% in the three months to September 30, 1995, as well as the
increased average investment base, which was 17.4% higher.
There was a net realized loss from the sale of investments in the quarter
ended September 30, 1996 of $0.4 million, compared to a net loss in the same
period of 1995 of $0.5 million. Net realized gains and losses fluctuate from
period to period, depending on the individual securities sold, as
recommended by the Company's investment advisor.
In the three months ended September 30, 1996, incurred losses were $12.1
million, compared to $17.1 million inn the corresponding period last year.
Accordingly, the Company's loss ratio (the ratio of losses and loss
adjustment expenses to premiums earned) was 41.8%, compared to 65.2% in the
corresponding period of 1995. Hurricane Fran was the major contributor to
claims in the third quarter, together with some reserve strengthening for
the marine and aviation portfolios. The Company's incurred loss for
Hurricane Fran was $10 million in the quarter. In the third quarter of 1995,
the Company's incurred losses were impacted by three major windstorms -
Hurricanes Luis, Marilyn and Opal.
Acquisition costs incurred, which consist primarily of commissions and
brokerage fees paid to intermediaries for the production of business, were
$3.0 million for the quarter ended September 30, 1996, compared to $3.1
million in the same period of 1995. Although earned premiums have increased,
the Company wrote some premiums which had lower acquisition costs (and in
some cases no acquisition costs). General and administrative expenses were
$2.0 million in the quarter ended September 30, 1996, in comparison to $1.4
million in the corresponding period in 1995. The primary reason for the
increase is the comparatively larger fees paid under the terms of an
administrative services Agreement to the affiliate of a shareholder,
according to which fees are calculated as a percentage of the written
premium. There have also been additional administrative costs associated
with the Company becoming publicly traded. The Company's expense ratio (the
ratio of acquisition costs plus general and administrative expenses, to
premiums earned) was 17.4% for the quarter ended September 30, 1996,
compared to 17.2% for the corresponding period in 1995.
The following table summarizes the loss ratio, expense ratio and combined
ratio for the three months ended September 30, 1996 and 1995, respectively:
Quarter ended:
September 30, 1996 September 30, 1995
------------------ ------------------
Loss & Loss Expense Ratio 41.8% 65.2%
Expense Ratio 17.4% 17.2%
Combined Ratio 59.2% 82.4%
Net income for the three months ended September 30, 1996 was $19.2 million,
compared to $9.8 million for the corresponding period in 1995, an increase
of 97.3%. Excluding the effects of realized gains and losses arising from
the sale of investments, net operating income was $19.6 million, compared to
$10.2 million for the second quarter of 1995, an increase of 91.5%.
6
<PAGE>
RESULTS OF OPERATIONS, NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
In the nine months ended September 30, 1996 and 1995, IPC wrote premiums of
$103.0 million and $93.3 million, respectively, an increase of 10.4%,
including reinstatement premiums of $2.9 million and $5.6 million,
respectively. Premiums written increased from new clients, and also as a
result of new business and larger signings from existing clients, although
the increase was offset by rate reductions, generally in the range of 10%,
but as high as 20% in some cases. Premiums earned in the nine months ended
September 30, 1996 and 1995 were $84.5 million and $74.8 million,
respectively, an increase of 12.9%.
Net investment income was $21.3 million in the first nine months of 1996, an
increase of $4.8 million or 28.7% from the $16.5 million reported in the
corresponding period in 1995. This increase resulted from a higher
investment yield, 6.1% in the first nine months of 1996 compared to 5.7% in
the same period of 1995, and an average investment base which was 20.8%
higher in the first nine months of 1996 compared to the same period in 1995.
Net realized gains from the sale of investments were $2.3 million and $0.1
million for the nine month periods ended September 30, 1996 and 1995,
respectively. Net realized gains and losses fluctuate from period to period,
depending on the individual securities sold, as recommended by the Company's
investment advisor.
Losses and loss adjustment expenses incurred during the first nine months of
1996 were $22.3 million compared to $32.9 million in the corresponding
period of 1995. In the third quarter of 1996, Hurricane Fran made landfall
in North Carolina, and subsequently caused approximately $1.6 billion of
insured losses, of which IPC's share is estimated to be $10 million. In
1995, there was the earthquake in Kobe, Japan, two large per-risk claims,
and Hurricanes Luis, Marilyn and Opal. Accordingly, IPC's loss ratio
decreased from 44.0% in the first nine months of 1995 to 26.4% in the first
nine months of 1996. IPC's business is the reinsurance of man-made and
natural disasters and its loss experience will generally include infrequent
events of great severity. Hence there is the potential for great volatility
in losses incurred in any period with a corresponding impact on net income
and shareholders' equity.
Acquisition costs incurred during the first nine months of 1996 were $8.7
million, after deferring those costs relating to unearned premiums, compared
to $8.0 million in the first nine months of 1995. Acquisition costs have
mostly increased commensurate with the increase in earned premiums, although
some premiums written in third quarter had no brokerage or commissions.
General and administrative expenses were $7.7 million, compared to $5.2
million reported for the first nine months of 1995. General and
administrative expenses included $0.5 million relating to the Company's
initial public offering (included in the first quarter of 1996), and $1.6
million for expenses incurred in connection with the bid for Tempest
Reinsurance Company Limited in the second quarter. The Company's expense
ratio was 19.3% in the first nine months of 1996 compared to 17.6% in the
first nine months of 1995.
The following table summarizes the loss ratio, expense ratio and combined
ratio for the nine months ended September 30, 1996 and 1995, respectively:
Nine months ended:
September 30, 1996 September 30, 1995
------------------ ------------------
Loss & Loss Expense Ratio 26.4% 44.0%
Expense Ratio 19.3% 17.6%
Combined Ratio 45.7% 61.6%
Net Income for the first nine months of 1996 was $69.5 million, an increase
of 48.5% over the $46.8 million reported in the corresponding period in
1995. Excluding the effects of realized gains arising from the sale of
investments, net operating income was $67.2 million, an increase of 44.1%
over that of the corresponding period in 1995.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities in the first nine months of 1996 were
$80.2 million compared to $63.3 million in the first nine months of 1995,
which represents an increase of 26.7%.
Net cash flows used in investing activities in the first nine months of 1996
were $52.0 million. Cash and cash equivalents were increased by $13.9
million in the nine months, resulting in a balance of $32.0 million at
September 30, 1996. At September 30, 1996, 11% of IPC's fixed income
portfolio was held in United States Treasury notes and a further 50% in
securities rated AAA.
Immediately prior to the Company's initial public offering on March 13,
1996, the Company's share capital consisted of 1,000 Common Shares, par
value $200 per share, all of which were outstanding. Subsequent to the
offering the Company's share capital consists of: (i) 75,000,000 common
shares, par value $0.01 per share, of which 25,000,000 are outstanding and
(ii) 25,000,000 preferred shares, par value $0.01 per share, of which none
are outstanding.
8
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security-Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Unless otherwise indicated, exhibits are incorporated by reference to
the corresponding numbered exhibits to the Company's Registration Statement on
Form S-1 (Registration No. 333-00088).
Exhibit
Number Description
3.1 Memorandum of Association of the Company
3.2 Amended and Restated Bye-laws of the Company
3.3 Form of Memorandum of Increase of Share Capital
11.1 * Statement regarding Computation of Per Share Earnings
27.1 * Financial Data Schedule
* Filed herewith
(b) Reports on Form 8-K
NONE
9
<PAGE>
IPC HOLDINGS, LTD.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IPC Holdings, Ltd.
(Registrant)
Date November 7, 1996 /s/John P. Dowling
---------------- ------------------
John P. Dowling
President and Chief Executive Officer
Date November 7, 1996 /s/John R. Weale
---------------- ------------------
John R. Weale
Vice President and Chief Financial Officer
10
<PAGE>
EXHIBIT INDEX
Unless otherwise indicated, exhibits are incorporated by reference to the
corresponding numbered exhibits to the Company's Registration Statement on Form
S-1 (Registration No. 333-00088).
Exhibit
Number Description
------ -----------
3.1 Memorandum of Association of the Company
3.2 Amended and Restated Bye-laws of the Company
3.3 Form of Memorandum of Increase of Share Capital
11.1 * Statement regarding Computation of Per Share Earnings
27.1 * Financial Data Schedule
* Filed herewith
11
Exhibit 11.1
<TABLE>
<CAPTION>
IPC HOLDINGS, LTD. AND SUBSIDIARY
COMPARISON OF NET INCOME PER COMMON SHARE
(Expressed in thousands of United States dollars)
- --------------------------------------------------------------------------------
Nine Months to Nine Months to
September 30, 1996 September 30, 1995
------------------ ------------------
(unaudited) (audited)
<S> <C> <C>
Net income $69,466 $46,773
Weighted Average Common
Shares Outstanding 25,000,000 25,000,000<F1>
Dilutive Effect of Share Options 1,071,231 559,016<F1>
--------- -------
Total 26,071,231 25,559,016<F1>
---------- ----------
Net income per Common Share (basic) $2.78 $1.87<F1>
Net income per Common Share
(fully diluted basis) $2.66 $1.83<F1>
<FN>
<F1>
Pro Forma (See Note 4 to accompanying Consolidated Financial Statements)
</FN>
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REPORT ON FORM 10-Q OF IPC HOLDINGS, LTD. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FINANCIAL STATEMENTS (AND THE NOTES THERETO) CONTAINED IN SUCH REPORT.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 235,238
<DEBT-CARRYING-VALUE> 229,614
<DEBT-MARKET-VALUE> 226,759
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 461,997
<CASH> 32,103
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 4,205
<TOTAL-ASSETS> 552,035
<POLICY-LOSSES> 31,531
<UNEARNED-PREMIUMS> 42,529
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 250
<OTHER-SE> 476,555
<TOTAL-LIABILITY-AND-EQUITY> 552,035
84,459
<INVESTMENT-INCOME> 21,286
<INVESTMENT-GAINS> 2,270
<OTHER-INCOME> 0
<BENEFITS> 22,288
<UNDERWRITING-AMORTIZATION> 8,667
<UNDERWRITING-OTHER> 7,652
<INCOME-PRETAX> 69,466
<INCOME-TAX> 0
<INCOME-CONTINUING> 69,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,466
<EPS-PRIMARY> 2.66
<EPS-DILUTED> 2.66
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
