<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: JUNE 30, 1999
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 August 10, 1999, was 25,033,932.
TOTAL PAGES 16
EXHIBIT INDEX LOCATED ON PAGE 14
<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
June 30, 1999 December 31, 1998
------------- -----------------
(unaudited) (audited)
<S> <C> <C>
ASSETS:
Fixed maturity investments:
Available for sale, at fair market value (Amortized
cost 1999: $497,706; 1998: $478,806) $ 489,214 $ 484,863
Equity investments, available for sale (Cost 1999:
$77,345; 1998: $69,268) 80,810 94,152
Cash and cash equivalents 33,822 20,966
Reinsurance balances receivable (Related party 1999:
$6,966; 1998: $3,653) 52,695 20,747
Funds held by reinsured companies 0 2,434
Deferred premiums ceded 1,381 0
Loss reserves recoverable 3,740 0
Accrued investment income 9,765 14,752
Deferred acquisition costs 5,653 2,048
Prepaid expenses and other assets 4,102 3,129
--------- ---------
TOTAL ASSETS $ 681,182 $ 643,091
========= =========
LIABILITIES:
Reserve for losses and loss adjustment expenses $ 91,494 $ 52,226
Unearned premiums 48,873 17,602
Reinsurance balances payable (Related party 1999: $167;
1998: $0) 1,669 0
Deferred commissions 89 0
Accounts payable and accrued liabilities (Related party
1999: $1,396; 1998: $1,689) 6,860 7,311
--------- ---------
TOTAL LIABILITIES 148,985 77,139
--------- ---------
SHAREHOLDERS' EQUITY:
Share capital (Common shares outstanding, par value
U.S.$0.01:1999: 25,033,932; 1998: 25,033,932 shares) 250 250
Additional paid-in capital 299,833 299,833
Retained earnings 237,162 234,928
Accumulated other comprehensive income (5,048) 30,941
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 532,197 565,952
--------- ---------
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 681,182 $ 643,091
========= =========
</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 June 30, Six Months ended June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
REVENUES: (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Gross premiums written $ 18,384 $ 18,398 $ 83,699 $ 90,571
Premiums ceded (260) 0 (3,099) 0
------------ ------------ ------------ ------------
Net written premiums 18,124 18,398 80,600 90,571
Change in unearned premium reserve 8,808 12,866 (29,890) (30,363)
------------ ------------ ------------ ------------
Net premiums earned 26,932 31,264 50,710 60,208
Net investment income 7,651 7,450 15,064 14,712
Realized gains/(losses), net on investments 23,633 1,084 30,178 3,688
------------ ------------ ------------ ------------
TOTAL REVENUES 58,216 39,798 95,952 78,608
============ ============ ============ ============
EXPENSES:
Losses and loss adjustment expenses, net 49,142 10,332 65,915 14,457
Acquisition costs, net 3,631 4,776 7,001 8,036
General and administrative expenses 2,460 2,327 4,736 4,962
Exchange loss / (gain) 70 207 171 205
------------ ------------ ------------ ------------
TOTAL EXPENSES 55,303 17,642 77,823 27,660
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME $ 2,913 $ 22,156 $ 18,129 $ 50,948
============ ============ ============ ============
Basic net income per common share $ 0.12 $ 0.89 $ 0.72 $ 2.04
Diluted net income per common share $ 0.11 $ 0.83 $ 0.70 $ 1.91
Weighted average number of common share - basic 25,033,932 25,033,932 25,033,932 25,028,489
Weighted average number of common share - diluted 25,990,215 26,702,589 26,081,456 26,700,869
</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>
Six months ended June 30,
--------------------------
1999 1998
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,129 $ 50,948
Adjustments to reconcile net income to cash provided
by operating activities:
Amortization of investment premium, net 38 503
Realized (gains) losses, net on investments (30,178) (3,688)
Changes in, net:
Reinsurance balances receivable (31,948) (27,574)
Funds held by reinsured companies 2,434 (2,409)
Deferred premiums ceded (1,381) 0
Loss reserves recoverable (3,740) 0
Accrued investment income 4,987 4,335
Deferred acquisition costs (3,605) (4,065)
Prepaid expenses and other assets (973) (781)
Reserve for losses and loss adjustment expenses 39,268 3,224
Unearned premiums 31,271 30,363
Reinsurance balances payable 1,669 0
Deferred commissions 89 0
Accounts payable and accrued liabilities (451) 2,700
--------- ---------
25,609 53,556
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed maturity investments (195,566) (155,809)
Proceeds from sale of fixed maturity investments 147,438 115,365
Proceeds from maturities of fixed maturity investments 29,500 7,000
Purchases of equity investments (79,141) (1,146)
Proceeds from sale of equity investments 100,912 15,773
--------- ---------
3,143 (18,817)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional share capital 0 300
Cash dividends paid to shareholders (15,896) (35,924)
--------- ---------
(15,896) (35,624)
--------- ---------
Net increase (decrease) in cash and cash equivalents 12,856 (885)
Cash and cash equivalents, beginning of period 20,966 9,746
--------- ---------
Cash and cash equivalents, end of period $ 33,822 $ 8,861
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
IPC HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Expressed in thousands of United States dollars)
<TABLE>
<CAPTION>
Quarter ended June 30, Six Months ended June 30,
---------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 2,913 $ 22,156 $ 18,129 $ 50,948
-------- -------- -------- --------
Other comprehensive income:
Holding (losses ) gains, net on investments
during period (3,798) 2,904 (5,811) 15,150
Reclassification adjustment for (gains) losses
included in net income (23,633) (1,084) (30,178) (3,688)
-------- -------- -------- --------
(27,431) 1,820 (35,989) 11,462
-------- -------- -------- --------
Comprehensive income $(24,518) $ 23,976 $(17,860) $ 62,410
======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
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"), and its wholly owned subsidiaries, IPCRe Limited ("IPCRe") and
IPCRe Services Limited ("Services" and, together with the Company and IPCRe,
"IPC") and IPCRe Europe Limited, which is a wholly-owned subsidiary of
IPCRe. 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, 1999 and 1998, respectively, the balance sheet at
June 30, 1999 and the cash flows for the six month periods ended June 30,
1999 and 1998, respectively. These interim consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 1998. The results of operations
for any interim period are not necessarily indicative of results for the
full year.
2. DIVIDENDS:
On February 28, 1999, the Directors declared a quarterly dividend of $0.3175
per share, payable to shareholders of record on March 9, 1999. Such
dividends were paid March 25, 1999.
On April 27, 1999, the Directors declared a quarterly dividend of $0.3175
per share, payable to shareholders of record on June 8, 1999. Such dividends
were paid on June 24, 1999.
On July 27, 1999, the Directors declared a quarterly dividend of $0.3175 per
share payable on September 24, 1999 to shareholders of record on September
8, 1999.
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
held by 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, January 2,
1998 and January 5, 1999 were also considered common stock equivalents for
the purpose of calculating diluted net income per common share.
4. ACCOUNTING FOR DERIVATIVES:
The Financial Accounting Standards Board has also recently issued Statement
of Financial Accounting Standard No. 137 ("SFAS 137"), which is an amendment
to Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS 133"), deferring the
effective date thereof to periods beginning after June 15, 2000. Management
does not expect the impact of the adoption of SFAS 137/133 on the Company's
financial position or results to be material.
5. DEPOSIT ACCOUNTING:
In October, 1998 the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-7, "Accounting for Insurance and
Reinsurance Contracts that do not Transfer Insurance Risk", which is
effective for fiscal years beginning after June 15, 1999. IPCRe does not
currently write or cede business which would be affected by this Statement.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS, QUARTERS ENDED JUNE 30, 1999 AND 1998
In the quarters ended June 30, 1999 and 1998, IPCRe wrote premiums of $18.4
million and $18.4 million, respectively. Written premiums were impacted by
rate reductions in the period, generally in the range of 10% but as high as
15 to 20% in some cases, and the non-renewal of some contracts by IPCRe,
where the rates and/or terms were considered unsatisfactory. In addition,
IPCRe has not renewed, or declined to write, multi-year treaties from April
1, 1999 onwards, unless the proposed rates are significantly higher than
current levels. The reductions in written premiums resulting from the above,
which totaled approximately $4.8 million, were partially offset by increased
signings and additional business from existing clients, and selectively
written business for new clients, which totaled approximately $0.7 million.
Premiums were also boosted by reinstatement premiums of $4.1 million from
increased claim activity. Net premiums written were also impacted by further
cessions to IPCRe's proportional reinsurance facility, which had the effect
of reducing premiums by a further $0.3 million. Net premiums earned in the
three months ended June 30, 1999 were $26.9 million, compared to $31.3
million in the same period in 1998, a decrease of 13.9%. Earned premiums are
reduced because less premiums were written in the latter half of 1998, which
are being earned in 1999, than in the corresponding period in 1997. This has
been partially offset by the impact of reinstatement premiums, which are
fully earned when written.
Net investment income was $7.7 million in the quarter ended June 30, 1999,
compared to $7.5 million for the quarter ended June 30, 1998, an increase of
2.7%. The increase arises from the average amount of invested assets being
9.2% higher, offset by decreases in short term interest rates.
There was a net realized gain from the sale of investments in the quarter
ended June 30, 1999 of $23.6 million, compared to $1.1 million in the second
quarter of 1998. Net realized gains and losses fluctuate from period to
period, depending on the individual securities sold, as recommended by
IPCRe's investment advisor. All of the securities in IPCRe's equity
portfolio were sold and subsequently repurchased in May, realizing the
gains which had accumulated since the original purchases.
In the three months ended June 30, 1999, incurred losses were $49.1 million,
compared to $10.3 million in the corresponding period of 1998. Claim
activity in the three months ended June 30, 1999 included a hailstorm in
Sydney, Australia which was the cause of the largest insured loss in
Australian history, and the tornadoes which struck Oklahoma, Tennessee and
Texas in early May. These two events accounted for approximately $45 million
of incurred losses in the second quarter of 1999. IPC's loss and loss
expense ratio (the ratio of losses and loss adjustment expenses to premiums
earned) was 182.5% in the second quarter of 1999, compared to 33.1% in the
corresponding period in 1998.
Acquisition costs incurred, which consist primarily of commissions and
brokerage fees paid to intermediaries for the production of business, were
$3.6 million for the quarter ended June 30, 1999, compared to $4.8 million
in the same period of 1998, a decrease of 24.0%. The reduction is due
primarily to the decrease in earned premiums, as well as the impact of
increased claim activity on no-claims bonuses and profit commissions
accrued. General and administrative expenses were $2.5 million in the
quarter ended June 30, 1999, compared to the $2.3 million incurred in the
corresponding period in 1998. The increase is due primarily to the fees for
IPCRe's $300 million standby credit facility, which became effective July 1,
1998. IPC's expense ratio (the ratio of acquisition costs plus general and
administrative expenses to premiums earned) was 22.6% for the quarter ended
June 30, 1999 compared to 22.7% for the corresponding period in 1998.
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 quarters ended June 30, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
Quarter ended June 30,
----------------------
1999 1998
----- ----
<S> <C> <C>
Loss & loss expense ratio 182.5% 33.1%
Expense ratio 22.6% 22.7%
Combined ratio 205.1% 55.8%
</TABLE>
Net income for the quarter ended June 30, 1999 was $2.9 million, compared to
$22.2 million for the corresponding period in 1998, a decrease of 86.9%.
Excluding the effects of net realized gains and losses arising from the sale
of investments, the net operating loss for the second quarter of 1999 was
$(20.7) million, compared to net operating income of $21.1 million for the
second quarter of 1998, a decrease of 198.3%. The decrease is a result of
the significant increases in claims, as discussed above.
7
<PAGE> 8
RESULTS OF OPERATIONS, SIX MONTHS ENDED JUNE 30, 1999 AND 1998
In the six months ended June 30, 1999 and 1998, IPCRe wrote premiums of
$83.7 million and $90.6 million, respectively, a decrease of 7.6%. Written
premiums were impacted by the following: rate reductions in the period,
generally in the range of 10% but as high as 15 to 20% in some cases;
program restructuring where ceding companies have consolidated; and the
non-renewal of some contracts by IPCRe, where the rates and/or terms were
considered unsatisfactory. In addition, IPCRe has not renewed, or declined
to write, multi-year treaties from April 1, 1999 onwards, unless the
proposed rates are significantly higher than current levels. The reductions
in written premiums resulting from the above, which totaled approximately
$16.8 million, were partially offset by increased signings and additional
business from existing clients, and selectively written business for new
clients, which totaled approximately $4.7 million. Premiums were also
boosted by reinstatement premiums of $5.5 million from increased claim
activity. Net premiums written were also impacted by IPCRe's cession to its
proportional reinsurance facility, which had the effect of reducing written
premium by a further $3.1 million. Net premiums earned in the six months
ended June 30, 1999 were $50.7 million, compared to $60.2 million in the
same period in 1998, a decrease of 15.8%. This reduction is primarily due to
the decrease in net premiums written, in the current year, as well as in the
latter half of 1998.
Net investment income was $15.1 million in the six months ended June 30,
1999, compared to $14.7 million for the six months ended June 30, 1998, an
increase of 2.4%. The increase arises from the average amount of invested
assets being 8.4% higher, offset by decreases in short term interest rates.
There was a net realized gain from the sale of investments in the six months
ended June 30, 1999 of $30.2 million, compared to $ 3.7 million in the
corresponding period of 1998. Net realized gains and losses fluctuate from
period to period, depending on the individual securities sold, as
recommended by IPCRe's investment advisor. Portfolio restructuring in the
first quarter of 1999, followed by the sale and subsequent repurchase of all
of the securities in IPCRe's equity portfolio during the second quarter,
resulted in the realization of significant gains which had accumulated
since the original purchases.
In the six months ended June 30, 1999, incurred losses were $65.9 million,
compared to $14.5 million in the corresponding period of 1998. Claim
activity in the six months ended June 30, 1999 included the Rouge Industries
steel mill explosion in Michigan, losses from crop hail damage during 1998,
storms which took place in Australia and Ireland in late December 1998, the
hailstorm in Sydney, Australia, and the tornadoes which struck Oklahoma,
Tennessee and Texas in May of this year, as well as some development from
Hurricanes Georges and Mitch and Typhoon Vicki. IPC's loss and loss expense
ratio was 130.0% in the first six months of 1999 compared to 24.0% in the
corresponding period of 1998.
Acquisition costs incurred were $7.0 million for the six months ended June
30, 1999, compared to $8.0 million in the same period of 1998. The reduction
is reflective of the decrease in net earned premiums. General and
administrative expenses were $4.7 million in the six months ended June 30,
1999, compared to the $5.0 million incurred in the corresponding period in
1998. The decrease is primarily due to a reduction in fees based on earned
premiums, which are paid under the administrative services agreement, a
decrease in the accrual of certain deferred benefits for executives, and
reduced insurance costs and professional fees, partially offset by fees paid
in respect of IPCRe's $300 million standby credit facility. IPC's expense
ratio was 23.1% for the six months ended June 30, 1999 compared to 21.6% for
the corresponding period in 1998.
The following table summarizes the loss and loss expense ratio, expense
ratio and combined ratio for the six months ended June 30, 1999 and 1998,
respectively:
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1999 1998
----- ----
<S> <C> <C>
Loss & loss expense ratio 130.0% 24.0%
Expense ratio 23.1% 21.6%
Combined ratio 153.1% 45.6%
</TABLE>
Net income for the six months ended June 30, 1999 was $18.1 million,
compared to $50.9 million for the corresponding period in 1998, a decrease
of 64.4%. Excluding the effects of net realized gains and losses arising
from the sale of investments, the net operating loss for the first six
months of 1999 was $(12.0) million, compared to net operating income of
$47.3 million for the corresponding period of 1998, a decrease of 125.5%.
The decrease is a result of the significant increase in claims, as discussed
above.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company that conducts no reinsurance operations of
its own. The Company's cash flows are limited to distributions from IPCRe
and Services by way of loans or dividends. The dividends that IPCRe may pay
are limited under Bermuda legislation and IPCRe's revolving credit facility.
The Bermuda Insurance Act of 1978, and subsequent amendments thereto
("Bermuda regulations"), require IPCRe to maintain a minimum solvency margin
and a minimum liquidity ratio. The maximum dividend payable by IPCRe in
accordance with Bermuda regulations as of January 1, 1999 was approximately
$141 million.
IPCRe'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, premiums retroceded, 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 six months ended June 30, 1999
were $25.6 million compared to $53.6 million in the corresponding period in
1998, which represents a decrease of 52.2%. The decrease arises primarily
from the reduction in operating income, as noted above.
Net cash flows derived from investing activities in the first six months of
1999 were $3.1 million. In addition, a total of $15.9 million were paid to
shareholders in dividends on March 26, 1999 and June 25, 1999, respectively.
Cash and cash equivalents increased by $12.9 million in the six months,
resulting in a balance of $33.8 million at June 30, 1999. At June 30, 1999,
52.0% of IPC's fixed maturity portfolio (based on market value) was held in
cash, United States Treasury notes and in securities rated AAA, and 34.7%
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
IPCRe's $300 million revolving credit facility, and the relatively high
quality of its investment portfolio, provides sufficient liquidity to meet
IPC's cash demands.
Neither the Company, IPCRe nor Services have any material commitments for
capital expenditures.
YEAR 2000 READINESS DISCLOSURE STATEMENT
Certain computer programs use only the last two digits to refer to a
year. Therefore, these computer programs do not properly recognize the
century in which a particular year occurs and may, for example, treat "00"
as being the year 1900, instead of the year 2000. These computer programs
may be used in software applications or may be embedded in microprocessors
used to control the operation of computer hardware and other devices. If not
corrected, many computer programs could fail or create erroneous results.
This problem is commonly known as the "Y2K", "Millennium Bug" and/or "Year
2000" issue and systems and equipment which use computer programs and
microprocessors that do not have this problem are generally referred to as
being "compliant".
IPC's Critical Systems
IPC believes that all of its critical systems, including its hardware
and software, are currently compliant. IPC's critical systems include those
used in assessing underwriting risk, recording policy details, processing
related premium and claims transactions and communicating with brokers who
produce the business. Following minor remedial work to some computer
hardware and the upgrading of some software, a test programme was undertaken
on these systems and the results were completed by September 30, 1998 and
subjected to audit by technology consultants provided through American
International Group, Inc. ("AIG"). Accordingly, while there can be no
assurance that these systems will be free from failure, IPC believes that
any failure will not result in material adverse impact on IPC's results of
operations or financial condition.
Third Party Dependencies
IPC's Y2K compliance programme also includes a review of third party
dependencies, which includes non-information technology areas, including
office equipment, power supply, telecommunications and building
infrastructure.
Administrative Services
IPC's day-to-day administrative services, including the provision of
non-information technology, are performed by American International Company,
Limited ("AICL"), a wholly-owned subsidiary of AIG, pursuant to an
administrative services agreement (the "Administrative Services Agreement").
Services and facilities provided
9
<PAGE> 10
pursuant to the Administrative Services Agreement include legal and
accounting services, office space in Bermuda, the use of office equipment,
electronic data services and other services required by IPC in the ordinary
course of business. IPC and AICL have worked jointly to ensure compliance of
systems used in the processing of IPC's business and this work was
successfully completed by September 30, 1998.
In addition, AICL is monitoring progress towards compliance by
significant third parties from whom IPC receives non-information technology
services, such as the suppliers of electric power and local and
long-distance telephone services. In the event that such third parties are
unable to achieve compliance, AICL has developed contingency plans, for
example, independent power supply, which are designed to mitigate the
effects of a failure on the part of such third parties to supply services.
Accordingly, while there can be no assurance that these systems will be
free from failure, IPC believes that any failure will not result in material
adverse impact on IPC's results of operations or financial condition.
Other Third Parties
As of June 30, 1999, IPC has contacted other third parties, such as
brokers and depository institutions, with whom IPC currently has a
relationship which, in IPC's judgement, involves material Y2K compliance
concerns, in order to establish their degree of compliance and/or their
plans to become compliant prior to December 31, 1999. Among other things,
IPC's brokers collect, and maintain records of, premiums and claims and, as
such, make payments into IPC's depository institutions. Responses to IPC's
requests for compliance status indicate that, where this is not yet the
case, such third parties are planning to achieve Y2K compliance prior to
December 31, 1999. IPC continues to periodically request updates of
compliance status from third parties. In the event that such third parties
are unable to achieve compliance, IPC has developed contingency plans, which
are designed to mitigate the effects of failure of such third party systems
on IPC's business operations, by the creation of hard-copy records and
backed-up PC records. There can be no assurance that the systems of such
third parties will be timely converted, that IPC's contingency plans will
prove to be adequate or that failure of such systems in any event would not
have a material adverse effect on IPC's results of operations or financial
condition.
Costs
The costs incurred by IPC up to June 30, 1999 in effecting Y2K
compliance of its own systems are nominal and it is not anticipated that the
future costs of IPC's Year 2000 evaluation, compliance implementation and
contingency planning will be material. In addition, AICL is responsible for
the cost of compliance of the administrative services it supplies to IPC.
Therefore, assuming compliance has been achieved as aforesaid, it is not
anticipated that the total costs incurred in relation to the Y2K issue will
have a material adverse effect on IPC's results of operations.
Policy Risks
The extent of worldwide property damage (whether insured or uninsured)
which could result from failure or malfunction of non-compliant systems is
not known. Many of the insurance markets around the world in which IPC's
clients operate have not established a clear position on whether to include
or exclude Y2K risk in policies available in those markets. Although Y2K
exclusion clauses have been produced by some individual companies and some
insurance and reinsurance industry associations, to date they have not been
applied in a uniform manner. The Y2K issue is unique. Therefore,
notwithstanding the presence or absence of an exclusion of the Y2K risk in
insurance or reinsurance policies, in the general absence of legal
precedent, courts may determine, on a case-by-case basis, that coverage
exists for property damage resulting from failure or malfunction of
non-compliant systems.
IPCRe is principally an excess of loss property catastrophe reinsurer.
Currently, IPCRe's reinsurance policies do not specifically include Y2K as a
covered event and IPCRe currently does not intend to provide specific
coverage for losses arising from Y2K events. However, in the future, it is
possible that market forces could oblige IPCRe to provide such coverage, or
that certain of IPCRe's policies could be held to cover such losses. IPC
carefully monitors the terms of policy renewals with respect to the extent
that they oblige IPC to provide such coverage and, with respect to renewals
on or after January 1, 1999, declined certain business. Regardless of
IPCRe's intent not to provide specific coverage for losses arising from Y2K
events and IPCRe's actions to avoid obligations to provide such coverage, if
IPCRe is obliged to provide such coverage or its policies are held to cover
such losses, there can be no assurance that such losses would not have a
material adverse effect on IPCRe's future results of operations or financial
condition, commencing in the year 2000.
10
<PAGE> 11
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
IPCRe commissioned an independent Value at Risk analysis, to estimate the
maximum potential loss of fair value for each segment of market risk, as of
December 31, 1998. There have been no material changes to the composition of
IPCRe's investment portfolio during the six months to June 30, 1999. The equity
element of the total portfolio was reduced from approximately 15% to 12% in
February, 1999, and the proceeds were used to purchase money-market instruments.
In addition, there were no material changes to interest rates or foreign
exchange rates in the six months. In addition, to reduce the potential impact of
exchange rate movements between the U.S. dollar and Australian dollar, on the
liabilities arising out of the Sydney hailstorm, IPCRe has purchased U.S.$20
million of Australian dollars in May and June of 1999. At June 30, 1999 IPCRe
held U.S.$13.8 million in Australian dollar time deposits.
Accordingly, management does not believe that there has been any material
change to the amount of market risk to which the Company is exposed, in the
period from January 1 to June 30, 1999.
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
Exchange Act. 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 Year 2000 issues,
including policy coverage issues and the effect of the future adoption of
accounting standards. In light of the risks and uncertainties inherent in all
forward-looking statements, the inclusion of such 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 unanticipated consequences of the
Millennium bug with respect to IPC or third parties.
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
On June 18, 1999, the Annual General Meeting of Shareholders of the
Company was held. At the meeting, shareholders were asked to vote
upon resolutions set forth below. The following tabulation
indicates the number of shares present in person or by proxy at
such meeting and the number of such shares for or against, or
withheld, or abstaining, with respect to each resolution, after
giving effect to the voting limitations contained in the Company's
Bye-Laws:
i). electing the following persons as directors of the Company to
serve until the 2000 Annual General Meeting -
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
--- ------- --------
<S> <C> <C> <C>
Joseph C.H. Johnson 15,818,701 - 25,978
Russell S. Fisher 15,818,701 - 25,978
John P. Dowling 15,818,701 - 25,978
Anthony M. Pilling 15,818,701 - 25,978
Dr. the Honourable Clarence James 15,818,701 - 25,978
Frank Mutch 15,818,235 - 25,978
John T. Schmidt 15,818,701 - 25,978
</TABLE>
11
<PAGE> 12
ii). approving the proposal to compensate members of the Executive
Committee of the Board of Directors for their service -
FOR AGAINST WITHHELD
--- ------- --------
14,965,562 131,230 747,821
iii). approving an amendment to the IPC Holdings, Ltd. Stock Option
Plan to increase the number of Common Shares subject thereto and to
extend the expiration date of the plan -
FOR AGAINST WITHHELD
--- ------- --------
11,608,711 3,546,711 223,761
iv). appointing Arthur Andersen & Co. as auditors of the Company
for its fiscal year ending December 31, 1999
FOR AGAINST WITHHELD
--- ------- --------
15,107,918 9,932 726,763
All resolutions were passed by show of hands. No other business of
substance was transacted.
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
12
<PAGE> 13
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 10, 1999 /s/ John P. Dowling
--------------- ------------------------------------------
JOHN P. DOWLING
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATE AUGUST 10, 1999 /s/ John R. Weale
--------------- ------------------------------------------
JOHN R. WEALE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
13
<PAGE> 14
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
14
<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>
Amount per
Three months ended June 30, 1999 Income Shares Share
---------- ---------- ----------
<S> <C> <C> <C>
Basic EPS $ 2,913 25,033,932 $ 0.12
Effect of Dilutive Options 956,283
Diluted EPS $ 2,913 25,990,215 $ 0.11
Three months ended June 30, 1998
Basic EPS $ 22,156 25,033,932 $ 0.89
Effect of Dilutive Options 1,668,657
Diluted EPS $ 22,156 26,702,589 $ 0.83
Six months ended June 30, 1999
Basic EPS $ 18,129 25,033,932 $ 0.72
Effect of Dilutive Options 1,047,524
Diluted EPS $ 18,129 26,081,456 $ 0.70
Six months ended June 30, 1998
Basic EPS $ 50,948 25,028,489 $ 2.04
Effect of Dilutive Options 1,672,380
Diluted EPS $ 50,948 26,700,869 $ 1.91
</TABLE>
15
<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, 1999 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 489,214
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 80,810
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 570,024
<CASH> 33,966
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 5,653
<TOTAL-ASSETS> 681,182
<POLICY-LOSSES> 91,494
<UNEARNED-PREMIUMS> 48,873
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
250
0
<COMMON> 0
<OTHER-SE> 531,947
<TOTAL-LIABILITY-AND-EQUITY> 681,182
50,710
<INVESTMENT-INCOME> 15,064
<INVESTMENT-GAINS> 30,178
<OTHER-INCOME> 0
<BENEFITS> 65,915
<UNDERWRITING-AMORTIZATION> 7,001
<UNDERWRITING-OTHER> 4,736
<INCOME-PRETAX> 18,129
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,129
<EPS-BASIC> 0.72
<EPS-DILUTED> 0.70
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
