<PAGE> 1
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, 1998
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) 298-5100
(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 common shares par value U.S. $0.01 per share of IPC
Holdings, Ltd., as of May 1, 1998, was 25,033,932.
TOTAL PAGES 12
EXHIBIT INDEX LOCATED ON PAGE 10
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IPC HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States dollars, except for per share amounts)
<TABLE>
<CAPTION>
As of As of
March 31, 1998 December 31, 1997
-------------- -----------------
(unaudited) (audited)
<S> <C> <C>
ASSETS:
Fixed maturity investments:
Available for sale, at fair market value (Amortized
cost 1998: $456,718; 1997: $439,517) $459,405 $442,328
Equity investments, available for sale (Cost 1998: $71,903;
1997: 80,020) 88,334 86,685
Cash and cash equivalents 5,492 9,746
Reinsurance balances receivable (Related party 1998:
$9,394; 1997: $4,418) 62,364 27,723
Funds withheld 2,439 12
Accrued investment income 11,717 14,374
Deferred acquisition costs 8,062 2,593
Prepaid expenses and other assets 2,845 1,558
-------- --------
TOTAL ASSETS $640,658 $585,019
======== ========
LIABILITIES:
Reserve for losses and loss adjustment expenses $ 27,910 $ 27,590
Unearned premiums 69,691 26,462
Accounts payable and accrued liabilities (Related party
1998: $1,464; 1997: $758) 4,005 2,674
-------- --------
TOTAL LIABILITIES 101,606 56,726
-------- --------
SHAREHOLDERS' EQUITY:
Share capital (Common shares outstanding, par value U.S. $0.01:
1998 - 25,033,932; 1997 - 25,017,603) 250 250
Additional paid-in capital 299,833 299,533
Unrealized gain (loss), net on investments 19,118 9,476
Retained earnings 219,851 219,034
-------- --------
TOTAL SHAREHOLDERS' EQUITY 539,052 528,293
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $640,658 $585,019
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
<PAGE> 3
IPC HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in thousands of United States dollars, except for per share amounts)
<TABLE>
<CAPTION>
Quarter Ended March 31,
1998 1997
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES:
Premiums written (Related party 1998: $10,361; 1997: $7,069) $ 72,173 $ 71,415
Change in unearned premiums (43,229) (43,008)
------------ ------------
Premiums earned 28,944 28,407
Net investment income 7,262 7,602
Realized gains (losses), net on investments 2,604 (322)
------------ ------------
TOTAL REVENUES 38,810 35,687
------------ ------------
EXPENSES:
Losses and loss adjustment expenses 4,125 2,464
Acquisition costs (Related party 1998: $151; 1997: $733) 3,260 2,879
General and administrative expenses (Related party 1998:
$724; 1997: $710) 2,635 2,056
Exchange (gain) loss, net (2) 776
------------ ------------
TOTAL EXPENSES 10,018 8,175
------------ ------------
NET INCOME $ 28,792 $ 27,512
============ ============
Basic net income per common share $ 1.15 $ 1.10
Diluted net income per common share $ 1.08 $ 1.05
Weighted average number of shares - basic 25,023,046 25,000,000
Weighted average number of shares - diluted 26,697,683 26,312,013
Dividends declared per share $ 1.1175 $ 0.3175
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
IPC HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States dollars)
<TABLE>
<CAPTION>
Quarter ended March 31,
1998 1997
--------- --------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,792 $ 27,512
Adjustments to reconcile net income to cash provided
by operating activities:
Amortization of investment premium, net 207 479
Realized (gains) losses, net on investments (2,604) 322
Changes in, net:
Reinsurance balances receivable (34,641) (32,776)
Funds withheld (2,427) (792)
Accrued investment income 2,657 1,527
Deferred acquisition costs (5,469) (4,017)
Prepaid expenses and other assets (1,287) (985)
Reserve for losses and loss adjustment expenses 320 (1,001)
Unearned premiums 43,229 43,008
Accounts payable and accrued liabilities 1,331 781
--------- --------
30,108 34,058
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equity investments (692) 0
Proceeds from sales of equities 10,597 0
Purchases of fixed maturity investments:
Available for sale (100,636) (72,987)
Held to maturity 0 (17,814)
Proceeds from sales of fixed maturity investments:
Available for sale 79,044 54,064
Held to maturity 0 0
Proceeds from maturities of fixed maturity investments:
Available for sale 5,000 600
Held to maturity 0 19,750
--------- --------
(6,687) (16,387)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional share capital 300 0
Cash dividends paid to shareholders (27,975) (7,938)
--------- --------
(27,675) (7,938)
--------- --------
Net (decrease) increase in cash and cash equivalents (4,254) 9,733
Cash and cash equivalents, beginning of period 9,746 23,797
--------- --------
Cash and cash equivalents, end of period $ 5,492 $ 33,530
========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
IPC HOLDINGS, LTD. AND SUBSIDIARIES
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"), its wholly owned subsidiaries,
International Property Catastrophe Reinsurance Company, Ltd. ("IPC Re")
and IPC Re Services Limited ("Services" and, together with the Company
and IPC Re, "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, 1998 and 1997,
respectively, the balance sheet at March 31, 1998 and the cash flows
for the three month periods ended March 31, 1998 and 1997,
respectively. These interim consolidated financial statements should be
read in conjunction with the audited consolidated financial statements
for the year ended December 31, 1997. The results of operations for any
interim period are not necessarily indicative of results for the full
year.
2. DIVIDENDS:
On February 28, 1998, the Directors declared a quarterly dividend of
$0.3175 per share, and a special dividend of $0.80 per share, payable
to shareholders of record on March 10, 1998. Such dividends were paid
on March 26, 1998.
On April 28, the Directors declared a quarterly dividend of $0.3175
per share, payable on June 25, 1998 to shareholders of record on June
9, 1998.
3. NET INCOME PER SHARE:
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share", which requires dual presentation of basic
and diluted earnings per share. Diluted net income per common share is
computed by dividing net income by the weighted average number of
shares of common stock and common stock equivalents outstanding during
the year. Stock options granted to a shareholder of the Company were
considered common stock equivalents and were included in the number of
weighted average shares outstanding using the treasury stock method.
Stock options granted to employees on February 15, 1996, July 25, 1996,
January 2, 1997 and January 2, 1998 were also considered common stock
equivalents for the purpose of calculating diluted net income per
common share.
4. COMPREHENSIVE INCOME
In June, 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 130, "Comprehensive Income" ("SFAS
130"), which is effective for financial statements issued for periods
beginning after December 15, 1997. SFAS 130 requires the disclosure of
all components of comprehensive income, including net income and other
comprehensive income. For the periods ended March 31, 1998 and March
31, 1997, comprehensive income is calculated as follows:
<TABLE>
<CAPTION>
Quarter ended March 31,
1998 1997
------- --------
<S> <C> <C>
Net income $28,792 $ 27,512
Other comprehensive income
Change in unrealized gains/losses, net on investments 9,642 (5,177)
======= ========
Comprehensive income 38,434 22,335
======= ========
</TABLE>
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS, QUARTERS ENDED MARCH 31, 1998 AND 1997
In the quarters ended March 31, 1998 and 1997, IPC Re wrote premiums of
$72.2 million and $71.4 million, respectively, an increase of 1.1%.
During the first quarter of 1998, IPC Re had better signings and
additional business from existing clients than in the same period of
1997, and selectively wrote business for new clients. The premium
increases were offset in part by rate reductions in the period,
generally in the region of 15%, but as high as 20% in some cases. In
addition, the 1997 premiums included $4.1 million from the California
Earthquake Authority, which covered a two year period, and was
therefore not written in 1998. Premiums earned in the three months
ended March 31, 1998 were $28.9 million, compared to $28.4 million in
the same period in 1997, an increase of 1.9%.
Net investment income was $7.3 million in the quarter ended March 31,
1998, compared to $7.6 million for the quarter ended March 31, 1997, a
decrease of 4.5%. Although the average amount of invested assets was
6.2% higher, the effect of the portfolio restructuring that took place
in the second quarter of 1997 resulted in the decline in income.
There was a net realized gain from the sale of investments in the
quarter ended March 31, 1998 of $2.6 million, compared to a net loss in
the same period of 1997 of $0.3 million. Net realized gains and losses
fluctuate from period to period, depending on the individual securities
sold, as recommended by IPC Re's investment advisor.
In the three months ended March 31, 1998, incurred losses were $4.1
million, compared to $2.5 million in the corresponding period last
year. Claim activity in the three months ended March 31, 1998 included
the icestorms in Canada in January, which accounted for almost 50% of
losses incurred in the quarter, as well as reserves established for
current year marine and aviation business, offset by reductions from
prior year claims. IPC's loss and loss expense ratio (the ratio of
losses and loss adjustment expenses to premiums earned) was 14.2% in
the first quarter of 1998 compared to 8.7% in the corresponding period
last year.
Acquisition costs incurred, which consist primarily of commissions and
brokerage fees paid to intermediaries for the production of business,
were $3.3 million for the quarter ended March 31, 1998, compared to
$2.9 million in the same period of 1997. 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 $2.6 million in the quarter ended March
31, 1998, compared to the $2.1 million incurred in the corresponding
period in 1997. This increase is due primarily to the accrual of
deferred compensation expense for executives. IPC's expense ratio (the
ratio of acquisition costs plus general and administrative expenses to
premiums earned) was 20.4% for the quarter ended March 31, 1998
compared to 17.4% for the corresponding period in 1997.
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 quarter ended March 31, 1998 and 1997,
respectively:
<TABLE>
<CAPTION>
Quarter ended March 31,
1998 1997
---- ----
<S> <C> <C>
Loss & loss expense ratio 14.2% 8.7%
Expense ratio 20.4% 17.4%
Combined ratio 34.6% 26.1%
</TABLE>
Net income for the quarter ended March 31, 1998 was $28.8 million,
compared to $27.5 million for the corresponding period in 1997, an
increase of 4.7%. Excluding the effects of net realized gains and
losses arising from the sale of investments, net operating income for
the first quarter of 1998 was $26.2 million, compared to $27.8 million
for the first quarter of 1997, a decrease of 5.9%. The decrease is a
result of the increases in claims and expenses, as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
6
<PAGE> 7
The Company's cash flows are limited to distributions from IPC Re and
Services by way of loans or dividends. 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, 1998 was approximately $131 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 1998
were $30.1 million compared to $34.1 million in the first three months
of 1997, which represents a decrease of 11.6%. The decrease arises
primarily from the reduction in operating income, as noted above.
Net cash flows used in investing activities in the first three months
of 1998 were $6.7 million. In addition, dividends totalling $28.0
million were paid to shareholders on March 26, 1998. Cash and cash
equivalents decreased by $4.3 million in the quarter, resulting in a
balance of $5.5 million at March 31, 1998. At March 31, 1998, 47.7% of
IPC's fixed maturity portfolio (based on market value) was held in
United States Treasury notes and in securities rated AAA, and 40.4% was
held in securities rated AA. The average modified duration of IPC's
fixed maturity portfolio was 2.7 years. IPC's portfolio does not
contain any investments in real estate or mortgage loans. Management
believes that, given the relatively high quality of its portfolio,
adequate market liquidity exists to meet IPC's cash demands.
Neither the Company, IPC Re nor Services have any material commitments
for capital expenditures.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable
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. 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 non-admitted 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> 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
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* Reconciliation of the numerator and denominator for basic and diluted
net income per common share ("EPS")
27.1* Financial Data Schedule
* Filed herewith
(b) Reports on Form 8-K
NONE
8
<PAGE> 9
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 4, 1998 /s/ John P. Dowling
----------- -----------------------------------------------------
JOHN P. DOWLING
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATE MAY 4, 1998 /s/ John R. Weale
----------- -----------------------------------------------------
JOHN R. WEALE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
9
<PAGE> 10
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* Reconciliation of the numerator and denominator for basic and diluted
net income per common share ("EPS")
27.1* Financial Data Schedule
* Filed herewith
10
<PAGE> 1
EXHIBIT 11.1
IPC HOLDINGS, LTD. AND SUBSIDIARIES
RECONCILIATION OF BASIC AND DILUTED NET INCOME PER COMMON SHARE
(Expressed in thousands of United States dollars, except for per share amounts)
A reconciliation of the numerator and denominator for basic and diluted EPS is
given in the following table:
<TABLE>
<CAPTION>
Income Shares Amount per
Three months ended March 31, 1998 Share
<S> <C> <C> <C>
Basic EPS $ 28,792 25,023,046 $ 1.15
Effect of Dilutive Options 1,674,637
Diluted EPS $ 28,792 26,697,683 $ 1.08
Three months ended March 31, 1997
Basic EPS $ 27,512 25,000,000 $ 1.10
Effect of Dilutive Options 1,312,013
Diluted EPS $ 27,512 26,312,013 $ 1.05
</TABLE>
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, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FINANCIAL STATEMENTS (AND THE
NOTES THERETO) CONTAINED IN SUCH REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 459,405
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 88,334
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 547,739
<CASH> 5,492
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 8,062
<TOTAL-ASSETS> 640,658
<POLICY-LOSSES> 27,910
<UNEARNED-PREMIUMS> 69,691
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
250
0
<COMMON> 0
<OTHER-SE> 538,802
<TOTAL-LIABILITY-AND-EQUITY> 640,658
28,944
<INVESTMENT-INCOME> 7,262
<INVESTMENT-GAINS> 2,604
<OTHER-INCOME> 0
<BENEFITS> 4,125
<UNDERWRITING-AMORTIZATION> 3,260
<UNDERWRITING-OTHER> 2,635
<INCOME-PRETAX> 28,792
<INCOME-TAX> 0
<INCOME-CONTINUING> 28,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,792
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.08
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
