<PAGE> 1
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: June 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 August 13, 1996 was 25,000,000.
Total pages 13
Exhibit Index located on page 11
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
IPC HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States dollars except for per share amounts)
<TABLE>
<CAPTION>
As of As of
June 30, 1996 December 31, 1995
(unaudited) (audited)
<S> <C> <C>
ASSETS:
Fixed maturity investments:
Available for sale, at fair market value (Amortized
cost 1996: $245,635; 1995: $211,121) ................. $ 235,059 $ 215,632
Held to maturity, at amortized cost (Fair market value
1996: $219,942; 1995: $214,356) ...................... 223,941 210,341
Cash and cash equivalents ............................... 12,426 18,109
Reinsurance balances receivable (Related party 1996:
$3,799; 1995: $2,804) ................................ 47,486 25,451
Accrued investment income ............................... 12,581 12,352
Deferred acquisition costs .............................. 5,064 2,441
Prepaid expenses and other assets ....................... 1,558 922
Total assets ................................... $ 538,115 $ 485,248
LIABILITIES:
Reserve for losses and loss adjustment expenses ......... $ 24,583 $ 24,717
Unearned premiums ....................................... 48,945 23,971
Accounts payable and accrued liabilities (Related party
1996: $794; 1995: $698) .............................. 2,341 2,268
Total liabilities .............................. $ 75,869 $ 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 ................... (10,576) 4,511
Retained earnings ....................................... 173,305 130,264
Total shareholders' equity ..................... 462,246 434,292
Total liabilities and shareholders' equity ..... $ 538,115 $ 485,248
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 3
IPC HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in thousands of United States dollars except for per share amounts)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Premiums written ............................................... $ 18,742 $ 19,496 $ 80,550 $ 73,066
Change in unearned premiums .................................... 9,001 5,884 (24,974) (24,418)
Premiums earned ................................................ 27,743 25,380 55,576 48,648
Net investment income .......................................... 7,146 5,405 13,872 10,392
Realized capital gains (losses), net ........................... (875) 66 2,628 611
Total revenues ........................................ 34,014 30,851 $ 72,076 $ 59,651
EXPENSES:
Losses and loss adjustment expenses ............................ 3,568 1,976 10,202 15,850
Acquisition costs .............................................. 3,006 2,533 5,663 4,879
General and administrative expenses ............................ 3,437 1,523 5,639 3,776
Exchange (gain) loss, net ...................................... 822 (281) 347 (1,876)
Total expenses ........................................ 10,833 5,751 21,851 22,629
Net income ............................................ $ 23,181 $ 25,100 50,225 37,022
Net income per common share .................................... $ 0.89 $ 0.98 $ 1.93 $ 1.45<F1>
Weighed average number of common shares ........................ 26,061,236 25,612,245<F1> 26,028,363 25,532,414<F1>
Dividends Declared per share ................................... $ 0.2875 $ 0.00 $ 0.2875 $ 0.00
<FN>
<F1>
Pro Forma (See Note 4)
</FN>
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 4
IPC HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASHFLOWS
(Expressed in thousands of United States dollars)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $50,225 $37,022
Adjustments to reconcile net income to cash provided
by operating activities:
Amortization of investment premium, net 1,791 2,491
Realised capital (gains) losses, net (2,628) (611)
Changes in, net:
Reinsurance balances receivable (22,035) (26,179)
Accrued investment income (229) (1,629)
Deferred acquisition costs (2,623) (2,730)
Prepaid expenses and other assets (636) (352)
Reserve for losses and loss adjustment expenses (134) 5,611
Unearned premiums 24,974 24,621
Accounts payable and accrued liabilities 73 544
48,778 38,788
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturity investments:
Available for sale (274,055) (118,963)
Held to maturity (27,761) (19,950)
Proceeds from sales of fixed maturity investments
Available for sale 241,542 72,841
Held to maturity 0 0
Proceeds from maturities of fixed maturity investments
Available for sale 0 12,000
Held to maturity 13,000 8,000
(47,274) (46,072)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid to shareholders (7,187) 0
Net increase (decrease) in cash and cash equivalents (5,683) (7,284)
Cash and cash equivalents at beginning of period 18,109 17,772
Cash and cash equivalents at end of period $12,426 $10,488
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 5
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 six month periods ended June 30, 1996 and 1995, the
balance sheet at June 30, 1996 and the cash flows for the six month
periods ended June 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. This payment, totaling $7,187.5 is reflected in the accompanying
financial statements for the six months ended June 30, 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.
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 six months ended June
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.
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS, QUARTERS ENDED JUNE 30, 1996 AND 1995
In the quarters ended June 30, 1996 and 1995, IPC wrote premiums of $18.7
million and $19.5 million, respectively, a reduction of 4%. Although the
Company wrote business for new clients and had better signings from existing
clients, the increase was more than offset by rate reductions, typically of
10% but as high as 20% in some cases. These decreases were also 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 June 30, 1996 were $27.7
million, compared to $25.4 million in the same period in 1995, an increase of
9%.
Investment income was $7.1 million in the quarter ended June 30, 1996,
compared to $5.4 million for the quarter ended June 30, 1995, an
increase of 31.5%. This increase was due to the improved yield of 6.1%
compared to 5.5% in the three months to June 30, 1995, as well as the
increased average investment base, which was 18.6% higher.
There was a net realized loss from the sale of investments in the quarter
ended June 30, 1996 of $0.9 million, compared to a net gain in the same
period of 1995 of $0.1 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 June 30, 1996, incurred losses were $3.6
million, compared to $2.0 million in the corresponding period last year.
Accordingly, the Company's loss ratio (the ratio of losses and
loss adjustment expenses to premiums earned) was 12.9%, compared to 7.9%
in the corresponding period of 1995. Winter snow and hail storms were
the major contributors to claims in the second quarter, together with
some losses from the aviation portfolio.
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 June 30, 1996, compared to
$2.5 million in the same period of 1995. Acquisition costs have increased
commensurate to premiums earned. General & Administrative expenses were
$3.4 million in the quarter ended June 30, 1996, in comparison to $1.5
million in the corresponding period in 1995. The primary reason for the
significant increase was a $1.6 million expense incurred in connection with
the Company's unsuccessful bid for Tempest Reinsurance Company Limited
("Tempest"), (another Bermuda-based property catastrophe reinsurance
company). The Company's expense ratio (the ratio of acquisition costs plus
general and administrative expenses, to premiums earned) was 23.2% for the
quarter ended June 30, 1996, compared to 16% for the corresponding period
in 1995.
The following table summarizes the loss ratio, expense ratio and combined
ratio for the three months ended June 30, 1996 and 1995, respectively:
Quarter ended:
June 30, 1996 June 30, 1995
Loss & Loss Expense Ratio 12.9% 7.9%
Expense Ratio 23.2% 16.0%
Combined Ratio 36.1% 23.9%
Net income for the three months ended June 30, 1996 was $23.2 million,
compared to $25.1 million for the corresponding period in 1995, a decrease of
7.6%. Excluding the effects of realized gains and losses arising from the
sale of investments, net operating income was $24.1 million, compared to
$25.0 million for the second quarter of 1995, a decrease of 4%.
RESULTS OF OPERATIONS, SIX MONTHS ENDED JUNE 30, 1996 AND 1995
In the six months ended June 30, 1996 and 1995, IPC wrote premiums of
$80.6 million and $73.1 million, respectively, an increase of 10.3%,
including reinstatement premiums of $1.6 million and $1.6 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
six months ended June 30, 1996 and 1995 were $55.6 million and $48.6
million, respectively, an increase of 14.2%.
Net investment income was $13.9 million in the first half of 1996, an
increase of $3.5 million or 33% from the $10.4 million reported in the
corresponding period in 1995. This increase resulted from a higher
investment yield, 6.1% in the first half of 1996 compared to 5.2% in the
first half of 1995, and an average investment base which was 14.6% higher
in the first half of 1996 compared to the same period in 1995.
Net realized gains from the sale of investments were $2.6 million and
$0.6 million for the six month periods ended June 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 six months
of 1996 were $10.2 million compared to $15.9 million in the
corresponding period in 1995, which included the earthquake in Kobe,
Japan. While there were no major catastrophes during the first six
months of 1996, there was a significant amount of loss activity,
particularly in the United States during this period, which turned
out to be the joint-second highest first half ever. IPC's loss ratio
decreased from 32.5% in the first six months of 1995 to 18.4% in the
first six 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 six months of 1996 were $5.7
million, after deferring those costs relating to unearned premiums,
compared to $4.9 million in the first six months of 1995. Acquisition costs
have increased commensurate with the increase in earned premiums. General
and administrative expenses were $5.6 million, compared to $3.8 million
reported for the first six months of 1995. General and administrative
expenses included $0.4 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 in the second
quarter. The Company's expense ratio was 20.3% in the first half of 1996
compared to 17.8% in the first half of 1995.
The following table summarizes the loss ratio, expense ratio and
combined ratio for the six months ended June 30, 1996 and 1995, respectively:
Six months ended:
June 30, 1996 June 30, 1995
Loss & Loss Expense Ratio 18.4% 32.5%
Expense Ratio 20.3% 17.8%
Combined Ratio 38.7% 50.3%
Net income for the first six months of 1996 was $50.2 million, an
increase of 35.7% over the $37.0 million reported in the corresponding
period in 1995. Excluding the effects of realized gains arising from
the sale of investments, net operating income was $47.6 million, an
increase of 30.7% over that of the corresponding period in 1995.
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities in the first half of 1996 were $48.8
million compared to $38.8 million in the first half of 1995, which
represents an increase of 26%.
Net cash flows used in investing activities in the first half of 1996
were $47.3 million. Cash and cash equivalents were reduced by $5.7
million in the first six months, leaving a balance of $12.4 million at
June 30, 1996. At June 30, 1996, 1% of IPC's fixed income portfolio was
held in United States Treasury notes and a further 65% 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.
<PAGE> 8
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
<PAGE> 9
PART II--OTHER INFORMATION--CONT'D
Item 5. Other Information
On June 19, 1996, the Board of Tempest announced that it had reached a
revised amalgamation agreement with Ace Limited, and terminated discussions
with the Company concerning the Company's proposal to acquire Tempest
reported on the Company's Form 8-K dated June 4, 1996.
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
Date of Report Matter Reported
June 4, 1996 The Company's proposal to the Board of Directors of
Tempest to acquire Tempest (reported under Item 5).
<PAGE> 10
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 August 9, 1996 /s/ John P. Dowling
-------------- --------------------------------------
John P. Dowling
President and Chief Executive Officer
Date August 9, 1996 /s/ John R. Weale
-------------- --------------------------------------
John R. Weale
Vice President and
Chief Financial Officer
<PAGE> 11
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
<PAGE> 12
Exhibit 11.1
IPC HOLDINGS, LTD. AND SUBSIDIARY
COMPARISON OF NET INCOME PER COMMON SHARE
(Expressed in thousands of United States dollars)
Six Months to Six Months to
June 30, 1996 June 30, 1995
(unaudited) (unaudited)
Net income $50,225 $37,022
Weighted Average Common
Shares Outstanding 25,000,000 25,000,000 <F1>
Dilutive Effect of Share Options 1,028,363 532,414 <F1>
Total 26,028,363 25,532,414 <F1>
Net income per Common Share (Basic) $2.01 $1.48 <F1>
Net income per Common Share
(Fully Diluted) $1.93 $1.45 <F1>
<F1> Pro Forma (See Note 4 to accompanying Consolidated Financial Statements)
<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 SIX MONTHS ENDED JUNE 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-START> JAN-01-1996
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 235,059
<DEBT-CARRYING-VALUE> 223,941
<DEBT-MARKET-VALUE> 219,942
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 455,001
<CASH> 12,426
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 5,064
<TOTAL-ASSETS> 538,115
<POLICY-LOSSES> 24,583
<UNEARNED-PREMIUMS> 48,945
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 250
<OTHER-SE> 461,996
<TOTAL-LIABILITY-AND-EQUITY> 538,115
55,576
<INVESTMENT-INCOME> 13,872
<INVESTMENT-GAINS> 2,628
<OTHER-INCOME> 0
<BENEFITS> 10,202
<UNDERWRITING-AMORTIZATION> 5,663
<UNDERWRITING-OTHER> 5,639
<INCOME-PRETAX> 50,225
<INCOME-TAX> 0
<INCOME-CONTINUING> 50,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,225
<EPS-PRIMARY> 2.01
<EPS-DILUTED> 1.93
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
