UNITED STATES
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: MARCH 31, 1997
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, PEMBROKE, 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 such 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 May 9, 1997 was 25,006,937.
TOTAL PAGES 12
EXHIBIT INDEX LOCATED ON PAGE 10
<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
March 31, 1997 December 31, 1996
-------------- -----------------
(unaudited) (audited)
<S> <C> <C>
ASSETS:
Fixed maturity investments:
Available for sale, at fair market value (Amortized
cost 1997: $272,911; 1996: $254,890) $263,836 $250,992
Held to maturity, at amortized cost (Fair market value
1997: $222,729; 1996: $229,464) 226,622 229,057
Cash and cash equivalents 33,530 23,797
Reinsurance balances receivable (Related party 1997:
$9,807; 1996: $3,097) 58,463 25,687
Accrued investment income 13,488 15,015
Deferred acquisition costs 6,371 2,354
Prepaid expenses and other assets 2,956 1,179
-------- --------
TOTAL ASSETS $605,266 $548,081
======== ========
LIABILITIES:
Reserve for losses and loss adjustment expenses $27,482 $28,483
Unearned premiums 64,906 21,898
Accounts payable and accrued liabilities (Related party
1997: $1,451; 1996: $825) 2,346 1,565
--------- --------
TOTAL LIABILITIES 94,734 51,946
--------- --------
SHAREHOLDERS' EQUITY:
Share capital (25,000,000 shares, par value U.S. $0.01,
outstanding) 250 250
Additional paid in capital 299,267 299,267
Unrealized gain (loss) on investments (9,075) (3,898)
Retained earnings 220,090 200,516
-------- --------
TOTAL SHAREHOLDERS' EQUITY 510,532 496,135
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $605,266 $548,081
======== ========
</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 March 31,
-----------------------
1997 1996
---- ----
(unaudited) (unaudited)
<S> <C> <C>
REVENUES:
Premiums written (Related party 1997: $7,069; 1996: $5,925) $71,415 $61,808
Change in unearned premiums (43,008) (33,975)
------------- ------------
Premiums earned 28,407 27,833
Net investment income 7,602 6,726
Realized capital gains (losses), net (322) 3,503
------------- ------------
TOTAL REVENUES 35,687 38,062
------------- ------------
EXPENSES:
Losses and loss adjustment expenses 2,464 6,634
Acquisition costs (Related party 1997: $733; 1996: $558) 2,879 2,657
General and administrative expenses (Related party 1997:
$710; 1996: $1,540) 2,056 2,202
Exchange (gain) loss, net 776 (475)
------------ ------------
TOTAL EXPENSES 8,175 11,018
------------ ------------
NET INCOME $27,512 $27,044
============ ============
Net income per common share $1.04 $1.03
Weighted average number of shares 26,346,576 26,140,361
Dividends declared per share $0.3175 $--
</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)
- ------------------------------------------------------------------------------------------------------------------------
Quarter Ended March 31,
-----------------------
1997 1996
---- ----
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $27,512 $27,044
Adjustments to reconcile net income to cash provided
by operating activities:
Amortization of investment premium, net 479 944
Realized capital (gains) losses, net 322 (3,503)
Changes in, net:
Reinsurance balances receivable (32,776) (24,610)
Accrued investment income 1,527 (1,770)
Deferred acquisition costs (4,017) (3,553)
Prepaid expenses and other assets (1,777) (1,090)
Reserve for losses and loss adjustment expenses (1,001) 396
Unearned premiums 43,008 33,975
Accounts payable and accrued liabilities 781 (610)
--------- ---------
34,058 27,223
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturity investments:
Available for sale (72,987) (242,246)
Held to maturity (17,814) (16,059)
Proceeds from sales of fixed maturity investments
Available for sale 54,064 217,686
Held to maturity 0 0
Proceeds from maturities of fixed maturity investments
Available for sale 600 0
Held to maturity 19,750 4,000
--------- ---------
(16,387) (36,619)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid to shareholders (7,938) 0
--------- ---------
Net increase (decrease) in cash and cash equivalents 9,733 (9,396)
Cash and cash equivalents at beginning of period 23,797 18,109
--------- ---------
Cash and cash equivalents at end of period $33,530 $8,713
========= =========
</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 month
periods ended March 31, 1997 and 1996, the balance sheet at March 31, 1997
and the cash flows for the three month periods ended March 31, 1997 and
1996. These interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1996. The results of operations for any interim period
are not necessarily indicative of results for the full year.
2. DIVIDENDS:
On February 28, 1997, the Directors approved the payment of a dividend of
$0.3175 per share on March 27, 1997, to shareholders of record on March 11,
1997.
On April 25, 1997, the Directors declared an extraordinary dividend of $1.00
per share, in addition to a quarterly dividend of $0.3175 per share. The
total dividend of $1.3175 will be payable on June 26, 1997, to shareholders
of record on June 10, 1997.
3. 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. 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, July 25, 1996 and January
2, 1997 were also considered common stock equivalents for the purpose of
computing net income per share.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings per Share" (SFAS 128)
which is effective for financial statements issued for periods ending after
December 15, 1997. SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and
diluted EPS on the face of the income statement. SFAS 128 requires
restatement of all prior-period EPS data presented.
The Company will comply with the requirements of SFAS 128 beginning with its
annual financial statements for the year ending December 31, 1997. For the
quarter ended March 31, 1997 and 1996, under SFAS 128 the Company would have
reported earnings per share as follows:
Quarter Ended March 31,
-----------------------
1997 1996
---- ----
Basic EPS $1.10 $1.08
Diluted EPS $1.05 $1.03
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS, QUARTERS ENDED MARCH 31, 1997 AND 1996
In the quarters ended March 31, 1997 and 1996, IPC wrote premiums of $71.4
million and $61.8 million, respectively, an increase of 15.5%. IPC Re wrote
business for new clients and had better signings from existing clients,
although the increase was partly offset by rate reductions, typically of 10%
to 15% but as high as 20%, in some cases. New business included $4.1 million
of written premiums from the California Earthquake Authority. Premiums
earned in the three months ended March 31, 1997 were $28.4 million, compared
to $27.8 million in the same period in 1996, an increase of 2.1%. Premiums
earned did not grow proportionately to written premiums, because some
programs were written which had policy periods greater than twelve months.
Investment income was $7.6 million in the quarter ended March 31, 1997,
compared to $6.7 million for the quarter ended March 31, 1996, an increase
of 13.0%. This increase was due to the improved yield of 5.9% compared to
5.7% in the three months ended March 31, 1996, as well as the increased
average investment base, which was 8.4% larger.
There was a net realized loss from the sale of investments in the quarter
ended March 31, 1997 of $0.3 million, compared to a net gain in the same
period of 1996 of $3.5 million. Net realized gains and losses fluctuate from
period to period, depending on the individual securities sold, as
recommended by IPC's investment advisor.
In the three months ended March 31, 1997, incurred losses were $2.5 million,
compared to $6.6 million in the corresponding period last year. There was
very little claim activity in the three months ended March 31, 1997, with
the majority of the incurred losses related to reserves established for
current year property, marine and aviation business, offset by reductions
from prior year claims. Accordingly, IPC's loss and loss expense ratio (the
ratio of losses and loss adjustment expenses to premiums earned) was 8.7%,
compared to 23.8% in the corresponding period of 1996.
Acquisition costs incurred, which consist primarily of commissions and
brokerage fees paid to intermediaries for the production of business, were
$2.9 million for the quarter ended March 31, 1997, compared to $2.7 million
in the same period of 1996. Certain contracts have been written with profit
commission clauses, which return a portion of the net underwriting profits
generated from those contracts as a commission to the insureds. This has
resulted in an increase in the level of acquisition cost as a percentage of
premiums earned. General and administrative expenses were $ 2.1 million in
the quarter ended March 31, 1997, in comparison to $ 2.2 million in the
corresponding period in 1996. In 1996, general and administrative expenses
included $0.4 million in respect of the Company's initial public offering.
IPC's expense ratio (the ratio of acquisition costs plus general and
administrative expenses, to premiums earned) was 17.4% for the quarter ended
March 31, 1997 compared to 17.5% for the corresponding period in 1996.
The following table summarizes the loss and loss expense ratio, expense
ratio and combined ratio (sum of loss and loss expense ratio, plus expense
ratio) for the three months ended March 31, 1997 and 1996, respectively:
Quarter ended March 31,
-----------------------
1997 1996
---- ----
Loss & Loss Expense Ratio 8.7% 23.8%
Expense Ratio 17.4% 17.5%
Combined Ratio 26.1% 41.3%
Net income for the three months ended March 31, 1997 was $27.5 million,
compared to $27.0 million for the corresponding period in 1996, an increase
of 1.7%. Excluding the effects of realized gains and losses arising from the
sale of investments, net operating income for the first quarter of 1997 was
$27.8 million, compared to $23.5 million for the first quarter of 1996, an
increase of 18.2%.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows will continue to rely primarily on cash dividends
and reimbursement of expenses from IPC Re. The dividends that IPC Re may pay
are limited under Bermuda legislation. The Bermuda Insurance Act of 1978 and
subsequent amendments thereto require IPC Re to maintain a minimum solvency
margin and a minimum liquidity ratio. The maximum dividend payable by IPC Re
in accordance with these restrictions as of January 1, 1997 was
approximately $123.5 million.
IPC Re's sources of funds consist of premiums written, investment income and
proceeds from sales and redemptions of investments. Cash is used primarily
to pay losses and loss adjustment expenses, brokerage commissions, excise
taxes, general and administrative expenses and dividends. The potential for
a large catastrophe means that unpredictable and substantial payments may
need to be made within relatively short periods of time. Hence the Company's
cash flows may fluctuate significantly from period to period.
Cash flows from operating activities in the first three months of 1997 were
$34.1 million compared to $27.2 million in the first three months of 1996,
which represents an increase of 25.1%.
Net cash flows used in investing activities in the first three months of
1997 were $16.4 million. In addition, dividends of $7.9 million were paid to
shareholders on March 27, 1997. Cash and cash equivalents increased by $9.7
million in the three months, resulting in a balance of $33.5 million at
March 31, 1997. At March 31, 1997, 69.9% of IPC's fixed income portfolio
(based on market value) was held in United States Treasury notes and in
securities rated AAA. The average modified duration of IPC's fixed income
portfolio was 3.6 years. The portfolio does not contain any investments in
real estate, mortgage loans or equity securities. Management believes that,
given the relatively high quality of its portfolio, adequate market
liquidity exists to meet IPC's cash demands.
Neither the Company or IPC Re has any material commitment for capital
expenditures.
NOTE ON FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements are
statements other than historical information or statements of current condition.
Some forward-looking statements may be identified by use of terms such as
"believes", "anticipates", "intends", or "expects". These forward-looking
statements relate to the plans and objectives of the Company, for future
operations. In light of the risks and uncertainties inherent in all future
projections, the inclusion of forward-looking statements in this report should
not be considered as a representation by the Company or any other person that
the objectives or plans of the Company will be achieved. Numerous factors could
cause the Company's actual results to differ materially from those in the
forward-looking statements, including the following: (i) the occurrence of
catastrophic events with a frequency or severity exceeding the Company's
estimates; (ii) a decrease in the level of demand for property catastrophe
reinsurance, or increased competition owing to increased capacity of property
catastrophe reinsurers; (iii) any lowering or loss of one of the financial
ratings of IPC Re, or the Company's nonadmitted status in United States
jurisdictions; (iv) loss of services of any one of the Company's executive
officers; (v) the passage of federal or state legislation subjecting the Company
to supervision or regulation in the United States; (vi) challenges by insurance
regulators in the United States or the United Kingdom to the Company's claim of
exemption from insurance regulation under current laws; or (vii) a contention by
the United States Internal Revenue Service that the Company or IPC Re is engaged
in the conduct of a trade or business within the U.S. The foregoing review of
important factors should not be construed as exhaustive; the Company undertakes
no obligation to release publicly the results of any future revisions it may
make to forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
7
<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
8
<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 MAY 9, 1997 /s/ John P. Dowling
----------- ----------------------------
JOHN P. DOWLING
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATE MAY 9, 1997 /s/ John R. Weale
----------- -----------------------------
JOHN R. WEALE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
9
<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
10
EXHIBIT 11.1
IPC HOLDINGS, LTD. AND SUBSIDIARY
COMPARISON OF NET INCOME PER COMMON SHARE
(Expressed in thousands of United States dollars, except for per share amounts)
- --------------------------------------------------------------------------------
Quarter ended March 31,
-----------------------
1997 1996
---- ----
(unaudited) (unaudited)
PRIMARY
Net income $27,512 $27,044
Weighted Average Common Shares Outstanding 25,000,000 25,000,000
Dilutive Effect of Share Options 1,283,459 1,140,361
---------- ------------
Total 26,283,459 26,140,361
---------- ------------
Net income per Common Share $1.05 $1.03
FULLY DILUTED Quarter ended March 31,
-----------------------
1997 1996
---- ----
(unaudited) (unaudited)
Net Income $27,512 $27,044
Weighted Average Common Shares Outstanding 25,000,000 25,000,000
Dilutive Effect of Share Options 1,346,576 1,140,361
-----------------------------
Total 26,346,576 26,140,361
-----------------------------
Net Income per Common Share $1.04 $1.03
11
<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 THREE MONTHS ENDED
MARCH 31, 1997 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 263,836
<DEBT-CARRYING-VALUE> 226,622
<DEBT-MARKET-VALUE> 222,729
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 486,565
<CASH> 33,530
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 6,371
<TOTAL-ASSETS> 605,266
<POLICY-LOSSES> 27,482
<UNEARNED-PREMIUMS> 64,906
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 250
<OTHER-SE> 510,282
<TOTAL-LIABILITY-AND-EQUITY> 605,266
28,407
<INVESTMENT-INCOME> 7,602
<INVESTMENT-GAINS> (322)
<OTHER-INCOME> 0
<BENEFITS> 2,464
<UNDERWRITING-AMORTIZATION> 2,879
<UNDERWRITING-OTHER> 2,056
<INCOME-PRETAX> 27,512
<INCOME-TAX> 0
<INCOME-CONTINUING> 27,512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,512
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.04
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
