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Exhibit 13.1

IPC HOLDINGS, LTD, AND SUBSIDIARIES

PORTIONS OF ANNUAL REPORT





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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following is a discussion of the results of operations and financial
position of IPC Holdings, Ltd. References to we, our or IPC mean IPC
Holdings together with its wholly-owned subsidiaries, IPCRe Limited (IPCRe),
and IPCRe Underwriting Services Limited. This discussion should be read in
conjunction with our Consolidated Financial Statements and related notes for
the year ended December 31, 2002.

General

We commenced operations in June 1993. Because of the volatile nature of
property catastrophe reinsurance, the financial data included in this
discussion are not necessarily indicative of our future financial condition or
results of operations.

In our discussion below, when we refer to written premiums, we include new
and renewal business, reinstatement premiums and premium adjustments on current
and prior year contracts. Renewal dates for property catastrophe reinsurance
policies are generally concentrated in the first quarter of each calendar year.
Generally, about 60% (by volume) of premiums we write each year are for
contracts which have effective dates in the first quarter, about 20% in the
second quarter, and about 15% in the third quarter. Premiums are generally due
in installments over the contract term, with each installment generally
received within 30 days after the due date. Premiums are earned on a pro rata
basis over the contract period, which is generally twelve months.

Property catastrophe reinsurers tend to experience significant
fluctuations in operating results because of, among other factors, frequency of
occurrence or severity of catastrophic events, competition, changes in levels
of underwriting capacity, and general economic conditions. Underwriting
results of primary property insurers and prevailing general economic conditions
significantly influence demand for reinsurance. After suffering from
deteriorating financial results because of increased severity or frequency of
claims, some primary insurers seek to protect their balance sheets or improve
their future earnings by purchasing more reinsurance. The supply of
reinsurance is related to prevailing prices, the levels of insured losses and
the level of industry capital which, in turn, may fluctuate in response to
changes in rates of returns being earned by the reinsurance industry. As a
result of these factors, the property catastrophe reinsurance business is a
cyclical industry characterized by both periods of intense price competition
due to excessive underwriting capacity and periods when shortages of capacity
permit favourable premium levels. Since underwriting capacity reflects the
amount of shareholders equity (also known as policyholders surplus in
mutual companies), increases in the frequency and severity of losses suffered
by insurers can significantly affect these cycles. Conversely, the absence of
severe or frequent catastrophic events could result in declining premium rates
in the global market. We have experienced, and expect to continue to
experience, the effects of these cycles.

Events from 1996 to 2002 demonstrate the volatility of catastrophe
reinsurance business. In 1996, 1997, 2000 and 2002, few catastrophic events
occurred. Consequently, few claims were made on IPCRe. Conversely, many
catastrophic events occurred in 1998, 1999 and 2001 in many parts of the world,
including Hurricane Georges in 1998 (estimated industry-wide insured losses in
excess of $4 billion), a hailstorm which struck Sydney, Australia in April,
1999 (estimated industry losses of $1.6 billion), Hurricane Floyd
(estimated industry losses of $2.2 billion), and cyclones Anatol, Lothar
and Martin that struck several parts of Europe in December, 1999 (estimated
industry losses in excess of $9 billion). In June 2001, Tropical Storm
Allison affected parts of Texas (estimated industry losses of $2.5 billion)
and on September 11, 2001, terrorist attacks were carried out in the U.S.
(estimated industry losses of $30 billion to $70 billion).

From 1996 to 1999, there was an increase in the supply of reinsurance
capacity, which caused downward pressure on pricing. For the January 1998 and
1999 renewal cycles, premium rates declined by an average of 15% and 10%,
respectively. For the January 2000 renewal cycle, due to the increased levels
of claim activity, premium rates were at a similar level to 1999. Significant
claims incurred by many reinsurers during 2000 as a result of events in late
1999, followed by several catastrophic events in 2001, resulted in a
contraction of capacity. Consequently, renewals during the fourth quarter of
2000 and throughout 2001 and 2002 saw premium rates increasing by between 10%
and 25%, on average, for contracts which had not suffered losses, with
significantly higher increases for those contracts which had suffered losses.
During the fourth quarter of 2001, in response to the reduction in the capacity
and anticipated increased demand, many companies, including ourselves, raised
additional capital. There were also a number of new insurance and reinsurance
companies formed in Bermuda and elsewhere, hoping to satisfy demand and benefit
from improved market terms and conditions. It is possible that the additional
capital affected price increases in 2002, as they were not as large





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as
previously anticipated. Pricing in 2003 and beyond will also be affected by
the frequency or severity of catastrophic events, or absence thereof. We
believe that we have benefitted from improving market conditions because
of our reputation, capital base, Standard & Poors (S & P) and A.M. Best
ratings and long-standing client relationships. We have been able to offer
additional underwriting capacity created by our increased capital base, to our
existing clients, and also to new clients. These factors have been reflected
in the significant increase in our written premium volume in 2002 in comparison
to 2001.

With respect to terms and conditions other than pricing, for 2002 renewals
the coverage of claims that are the result of terrorist acts was generally
excluded from property catastrophe reinsurance contracts covering large
commercial risks, but not excluded for personal lines or other coverages,
except where caused by nuclear, biological or chemical means. During 2002,
IPCRe participated in a number of underwriting pools which cover property
losses arising from terrorist acts as a separate hazard.

On November 26, 2002, the Terrorism Risk Insurance Act of 2002, (TRIA)
was signed into law. TRIA establishes a temporary federal program which
requires U.S. and other insurers to offer coverage in their commercial property
and casualty policies for losses resulting from terrorists acts committed by
foreign persons or interests in the United States or with respect to specified
U.S. air carriers, vessels or missions abroad. The coverage offered may not
differ materially from the terms, amounts and other coverage limitations
applicable to other policy coverages.

Under TRIA, the U.S. Secretary of the Treasury determines whether an act
is a covered terrorist act, and if it is covered, losses resulting from that
act ultimately are shared among insurers, the federal government and
policyholders. Generally, insurers pay all losses to policyholders, retaining
a defined deductible and 10% of losses above the deductible. The federal
government will reimburse insurers for 90% of losses above the deductible and,
under certain circumstances, the federal government will require insurers to
levy surcharges on policyholders to recoup for the federal government its
reimbursements paid. An insurers deductible in 2003 is 7% of the insurers
2002 direct earned premiums, and rises to 10% of 2003 direct earned premiums in
2004, and, if the program continues in 2005, 15% of 2004 direct earned premiums
in 2005. The program terminates at the end of 2004 unless the Secretary of the
Treasury extends it to 2005. Federal reimbursement of the insurance industry
is limited to $100 billion in each of 2003, 2004 and 2005, and no insurer that
has met its deductible shall be liable for the payment of its portion of the
aggregate industry insured loss that exceeds $100 billion, thereby capping the
insurance industrys and each insurers ultimate exposure to terrorist acts
covered by TRIA. Since TRIA does not apply to reinsurance companies, it will
have no direct impact on IPCRe. Until such time as the prices being asked by
insurance companies for terrorism cover, and the clients acceptance (take-up
rate) of the terms and conditions of the cover, are known, it is unclear how
this legislation will affect our potential writings of U.S. terrorism cover in
2003. We have continued to exclude losses resulting from terrorist acts, as
defined in this legislation, from U.S. property catastrophe contracts covering
large commercial risks incepting January 1, 2003.

Critical Accounting Policies

Our significant accounting policies are described in the Note 2 to our
Consolidated Financial Statements. The following is a summary of the
accounting policies for the three main components of our balance sheet and
statement of income (loss): premiums, losses (claims), including reserves and
investments / investment income.

Premiums

Premiums are recorded as written at the beginning of each policy, based
upon information received from ceding companies and their brokers, and are
earned over the policy period. For excess of loss contracts, the amount of
premium is contractually documented at inception, and no management judgement
is necessary in accounting for this. Premiums are earned on a pro rata basis
over the policy period. For proportional treaties, the amount of premium is
normally estimated at inception by the ceding company. We account for such
premium using the initial estimates, and then adjust them once a sufficient
period for actual premium reporting has elapsed, normally around three years.
For the year ended December 31, 2002 the net amount of premium written
resulting from estimate accruals was approximately 2% of total premiums
written. We also accrue for reinstatement premiums (premiums paid to reinstate
reinsurance coverage following a claim) on loss reserves. Such accruals are
based upon actual contractual terms, and the only element of management
judgement involved is with respect to the amount of loss reserves, as described
below. The amount accrued at December 31, 2002 for reinstatement premiums on
Reported But Not Enough losses (RBNE) and Incurred But Not Reported (IBNR)
loss reserves was $2.4 million, the majority of which relates to claims from
the terrorist attack on the World Trade Center.





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Loss Reserves

Under generally accepted accounting principles in the United States of
America, we are not permitted to establish loss reserves with respect to
reinsurance until the occurrence of an event which may give rise to a claim.
As a result, only loss reserves applicable to losses incurred up to the
reporting date may be established, with no allowance for the provision of a
contingency reserve to account for expected future losses. Claims arising from
future catastrophic events can be expected to require the establishment of
substantial reserves from time to time.

Estimating appropriate loss reserves for catastrophes is an inherently
uncertain process. Loss reserves represent our estimates, at a given point in
time, of ultimate settlement and administration costs of losses incurred
(including IBNR losses). We regularly review and update these estimates, using
the most current information available to us. Consequently, the ultimate
liability for a catastrophic loss is likely to differ from the original
estimate. Whenever we determine that any existing loss reserves are
inadequate, we are required to increase the loss reserves with a corresponding
reduction, which could be material, in our operating results in the period in
which the deficiency is identified. The establishment of new reserves, or the
adjustment of reserves for reported claims, could result in significant upward
or downward changes to our financial condition or results of operations in any
particular period.

The reserve for losses and loss adjustment expenses is based upon reports
from industry sources, individual case estimates received from ceding
companies, output from commercially available catastrophe loss models and
managements estimates. When a catastrophic event occurs, we first attempt to
determine which treaties may be affected using our geographic database of
exposures. We then contact the respective brokers and ceding companies
involved with those treaties, to determine their estimate of involvement and
the extent to which the reinsurance program is affected. We may also use
computer modeling to measure and estimate loss exposure under the actual event
scenario, if available. Since 1993, we have contracted Applied Insurance
Research, Inc. for the use of their proprietary models 
currently CATRADER ® 
as part of our modeling approach. These computer-based loss modeling systems
utilize A.M. Bests data and direct exposure information obtained from our
clients. Once an event occurs, we establish a specific reserve for that event,
based upon estimates of total losses incurred by the ceding insurers as a
result of the event and a specific estimate of the portion of such loss we have
reinsured. Managements estimates are used mostly for IBNR or RBNE loss
amounts. For certain catastrophic events there is considerable uncertainty
underlying the assumptions and associated estimated reserves for losses and
loss adjustment expenses. Reserves are reviewed regularly and, as experience
develops and additional information becomes known, the reserves are adjusted as
necessary. Such adjustments, if necessary, are reflected in results of
operations in the period in which they become known. For excess of loss
business, which is generally over 90% of the premium we write, we are aided by
the fact that each treaty has a defined limit of liability arising from one
event. Once that limit has been reached, we have no further exposure to
additional losses from that treaty for the same event. For proportional
treaties, we generally use an initial estimated loss and loss expense ratio
(the ratio of losses and loss adjustment expenses incurred to premiums earned)
which is adjusted as actual experience becomes known.

In the years ended December 31, 2002 and 2001, the amount of development
of losses in respect of prior years was not significant, at $4.5 million and
$3.9 million, respectively. In the year ended December 31, 2000 we incurred
significant losses with respect to prior years because of delayed reporting of
claims by ceding companies. In particular, several major events took place in
the last week of December, 1999 which made estimation of losses from those
events at December 31, 1999 inherently more difficult.

At December 31, 2002 managements estimates for IBNR/RBNE represented
approximately 27.9% of total loss reserves. The majority of the estimate
related to reserves for claims from the attack on the World Trade Center, the
floods which affected central and eastern Europe in August 2002 and reserves
for proportional treaties. In accordance with IPCRes registration under the
Bermuda Insurance Act 1978 and Related Regulations (the Insurance Act), the
loss reserves are certified annually by an independent loss reserve specialist.

Investments

In accordance with our investment guidelines, our investments consist of
certain marketable equity securities and high-grade marketable fixed income
securities. Investments are carried at fair value as determined by the most
recently





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traded price of each security at the balance sheet date. In
accordance with SFAS 115, unrealized gains and losses are included within
Accumulated Other Comprehensive Income as a separate component of Shareholders
Equity. Realized gains and losses on sales of investments are determined on a
first-in, first-out basis. Investment income is recorded when earned and
includes the amortization of premiums and discounts on investments.

We regularly monitor the difference between the cost and fair value of our
investments, which involves uncertainty as to whether declines in value are
temporary in nature. If we believe a decline in value of a particular
investment is
temporary, we record the decline as an unrealized loss as a separate
component of our shareholders equity. If we believe the decline is
other-than-temporary, we write down the cost basis of the investment to the
market price as of the reporting date and record a realized loss in our
statement of income (loss). The determination that a security has incurred an
other-than-temporary decline in value requires the judgement of IPCs
management, which includes the views of our investment managers and a regular
review of our investments. Our assessment of a decline in value includes our
current judgement as to the financial position and future prospects of the
entity that issued the security. If that judgement changes in the future we
may ultimately record a realized loss, after having originally concluded that
the decline in value was temporary.

We review all securities that are trading at a significant discount to
par, amortized cost (if lower) or cost for an extended period of time. We
generally focus our attention on all securities whose market value is less than
75% of their cost. The specific factors we consider in evaluating potential
impairment include the following:



| |  |  | The extent of decline in value                                                                           
| | - |  | ---------------------------------------------------------------------------------------------------------
|
| |  |  | The length of time the security is below cost                                                            
|
| |  |  | The future prospects of the issuer, or in the case of mutual funds, the future prospects of the fund     
|
| |  |  | Whether the decline appears to be related to general market or industry conditions, or is issuer-specific
|
| |  |  | Our intent and ability to hold the security                                                              
|
| |  |  | Other qualitative and quantitative factors                                                               

During 2002, we wrote down the cost basis of securities where we
considered the decline in value to be other than temporary, in the amount of
$49.1 million. In 2001, the total amount of similar impairment charges was
$5.3 million. The impairment charges during the first six months of 2002 as
well as those in the year ended December 31, 2001, related to individual stocks
that were part of our portfolio of 500 stocks which was structured to replicate
the S & P 500 Index. The entire portfolio of these stocks was sold in
September 2002, and the proceeds were invested in a mutual fund which has the
same overall characteristics as those of the S & P 500 Index. In addition,
we hold investments in two other mutual funds, managed by AIG/Sun America.
None of the funds have a significant concentration in any business sector;
accordingly, the value of our equity funds is principally influenced by macro
economic factors rather than issuer-specific factors. Since there is a
portfolio of securities within a mutual fund, the qualitative issues are usually
broader than those for individual securities, and therefore the assessment of
impairment is inherently more difficult and requires more management judgement.
We took impairment charges on both funds in the amount of $40.6 million in the
fourth quarter of 2002.

The following table summarizes the total unrealized gains and losses
included as a separate component of shareholders equity:

|                                    |  |                 |        |      |  |  |         |  
|----------------------------------- |  | --------------- | ------ | ---- |  |  | ------- | -
|                                    |  | At December 31,
|                                    |  |                
|                                    |  | 2002            |        | 2001
|                                    |  |                 |        |     
|                                    |  | $000            |        | $000
|Gross unrealized (losses):          |  |                 |        |      |  |  |         |  
|Fixed maturity securities           |  |                 | (816   | )    |  |  | (496    | )
|Equity securities                   |  |                 | (3,509 | )    |  |  | (10,876 | )
|                                    |  |                 |        |      |  |  |         |  
|                                    |  |                 | (4,325 | )    |  |  | (11,372 | )
|                                    |  |                 |        |      |  |  |         |  
|Gross unrealized gains:             |  |                 |        |      |  |  |         |  
|Fixed maturity securities           |  |                 | 40,993 |      |  |  | 18,097  |  
|Equity securities                   |  |                 | 3,591  |      |  |  | 5,918   |  
|                                    |  |                 |        |      |  |  |         |  
|                                    |  |                 | 44,584 |      |  |  | 24,015  |  
|                                    |  |                 |        |      |  |  |         |  
|Total net unrealized gains (losses) |  |                 | 40,259 |      |  |  | 12,643  |  
|                                    |  |                 |        |      |  |  |         |  





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The following table summarizes, for equity securities in an unrealized
loss position at December 31, 2002 and 2001, respectively, the aggregate cost
and gross unrealized losses by length of time those securities have been
continuously in an unrealized loss position:

|                   |  |                      |        |                      |  |       |       |                 |  |  |         |       |  |  |        | 
|------------------ |  | -------------------- | ------ | -------------------- |  | ----- | ----- | --------------- |  |  | ------- | ----- |  |  | ------ | 
|                   |  | At December 31, 2002 |        | At December 31, 2001
|                   |  |                      |        |                     
|                   |  |                      |        |                      |  | Gross |       |                 |  |  |         | Gross
|                   |  | Cost                 |        | unrealized loss      |  | Cost  |       | unrealized loss
|                   |  |                      |        |                      |  |       |       |                
|                   |  | $000                 |        | $000                 |  | $000  |       | $000           
|Equity securities: |  |                      |        |                      |  |       |       |                 |  |  |         |       |  |  |        | 
|0 - 6 months       |  |                      | 35,000 |                      |  |       | 1,502 |                 |  |  | 117,050 |       |  |  | 4,491  | 
|7 - 12 months      |  |                      | 10,000 |                      |  |       | 2,007 |                 |  |  | 8,010   |       |  |  | 3,092  | 
|Over 12 months     |  |                      | 0      |                      |  |       | 0     |                 |  |  | 13,178  |       |  |  | 3,293  | 
|                   |  |                      |        |                      |  |       |       |                 |  |  |         |       |  |  |        | 
|                   |  |                      | 45,000 |                      |  |       | 3,509 |                 |  |  | 138,238 |       |  |  | 10,876 | 
|                   |  |                      |        |                      |  |       |       |                 |  |  |         |       |  |  |        | 

At December 31, 2002 we did not hold any securities that are not
investment grade, not rated or not traded on a recognized exchange.

Results of Operations

Years Ended December 31, 2002, 2001 and 2000

In the twelve months ended December 31, 2002, we wrote gross premiums of
$259.7 million, compared to $133.1 million and $93.8 million written in the
years ended December 31, 2001 and 2000, respectively. These writings included
reinstatement premiums, which are premiums paid by ceding companies to
reinstate reinsurance coverage following a claim. Reinstatement premiums were
$1.4 million, $21.1 million and $2.1 million, for the years ended December 31,
2002, 2001 and 2000, respectively. The significant increase in 2001 was due to
the volume of claims relating to the attack on the World Trade Center. In both
2002 and 2001, we had increased participation and additional business from
existing clients and selectively wrote business for new clients. In 2002 and
2001, we also benefitted from rate increases, generally in the range of 10% to
20%, but as high as 25% in some cases. In addition, during both 2002 and 2001,
we decided not to renew some contracts with unsatisfactory rates or terms.
For renewals of loss-free contracts (contracts for which no claims were made
during the last policy period) at January 1, 2003, we have seen an overall
average rate increase of 3% to 8% in the U.S., and between 5% and 10% for
non-U.S. business. Rate increases for loss-impacted contracts have been
significantly higher. We currently believe that these levels of rate increase
will be sustained on most renewals during 2003.

We purchase reinsurance to reduce our exposure to large losses. (See Note
5 to the Consolidated Financial Statements  Ceded Reinsurance.) In the
years ended December 31, 2002, 2001 and 2000, premiums ceded to these
facilities were $5.4 million, $4.4 million and $4.8 million, respectively,
reducing net premium writings for those years to $254.3 million, $128.6 million
and $88.9 million, respectively. This represents an increase of net written
premiums of 97.7% and 44.7%, respectively.

Premiums
earned were $226.4 million, $123.4 million and
$87.0 million in the
years ended December 31, 2002, 2001 and 2000, respectively, representing
increases of 83.5% and 41.9%, respectively. Earned premiums increased from
2001 to 2002 because of the significant increase in written premiums during the
previous twelve months, which more than offset the significant amount of
reinstatement premiums recorded in 2001, which are fully earned when written.
Excluding reinstatement premiums, net premiums earned increased by 20.6% from
$84.8 million in 2000 to $102.2 million in 2001, and then by a further 120.0%
to $225.0 million in 2002.

We earned net investment income of $49.3 million in the year ended
December 31, 2002 compared to $32.2 million earned in the year ended December
31, 2001, and $31.1 million in the year ended December 31, 2000. These amounts
are net of investment expenses, which were primarily investment management and
custodial fees payable to subsidiaries of American International Group, Inc.
(AIG). (See Note 9 to the Consolidated Financial Statements  Related Party
Transactions.) These fees totaled $2.9 million in 2002 and $1.6 million in
each of 2001 and 2000. The increase in net investment income in 2002 compared
to 2001 was primarily due to the significant increase in invested assets of
approximately $546 million in December 2001, which resulted from a public
offering of shares concurrent with a private placement of shares to AIG, as
well as AIGs exercise of an option granted at the Companys inception. The
increase in the average balance of invested assets more than offset the
reduction in overall portfolio yield. This reduction in overall





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portfolio
yield is due to declining interest rates, as well as an increase in the
allocation to equities during 2002 and 2001. At December 31, 2002 the
portfolio consisted of cash and cash equivalents, high quality fixed maturity
investments,
investments in a global equity fund and a North American equity fund, both
managed by AIG/Sun America, and an investment in an Institutional Index fund,
which has similar characteristics to those of the S & P 500 Index.

We recorded a net realized loss of $(44.9) million on investments for the
year ended December 31, 2002, compared to net realized gains of $0.6 million
and $0.5 million for the years ended December 31, 2001 and 2000, respectively.
As noted above, the amounts for 2002 and 2001 include write-downs of $49.1
million and $5.3 million, respectively, in the cost basis of certain stocks
where management had determined there had been a decline in value which was
other-than-temporary. In accordance with SFAS 115, such a write-down is
recognized as a realized loss in the income statement, even though there were
no sales of the securities. Generally, net gains and losses fluctuate from
period to period, depending on the securities sold as recommended by our
investment advisor. Net unrealized gains (losses) on our investment portfolio
(see Note 3 to the Consolidated Financial Statements  Investments) were
$40.3 million at December 31, 2002, compared to $12.6 million at December 31,
2001, and $4.6 million at December 31, 2000.

We incurred losses and loss adjustment expenses of $38.8 million, $137.6
million and $53.7 million in the years ended December 31, 2002, 2001 and 2000,
respectively. The level of insured losses from catastrophic events around the
world was significantly lower in 2002 compared to the high frequency and
severity of events during 2001. A significant proportion of the losses we
incurred in 2000 were the result of prior year events, especially those which
occurred in the latter portion of 1999.

In 2002, we incurred losses from the floods which affected central and
eastern Europe in August ($18.5 million); reserves established for 2002 pro
rata treaties ($6.5 million); fires in Canada ($2.0 million); other European
weather-related losses ($2.2 million), as well as some development of losses
from the attack on the World Trade Center ($6.0 million).

Despite the large number of catastrophes that took place around the world
in 2001, we incurred losses primarily from three events: $116.0 million for the
attack on the World Trade Center, $8.3 million for Tropical Storm Allison, and
$4.1 million for a hailstorm which affected the mid-Western United States in
April.

During 2000, the events which occurred from which we primarily incurred
losses were: an explosion at the Kuwait National Petroleum refinery; a
satellite loss; and winter floods and storms that affected parts of Europe.
These events resulted in incurred losses of approximately $4.6 million. All
other events occurring in 2000 produced incurred losses totalling
$8.9 million. The balance of the losses resulted from the development of claims
from prior year events ($40.2 million), in particular Cyclones Lothar and
Martin, claims from which saw development of approximately $23 million, due to
delayed reporting of claims by ceding companies. Loss payments during the
years ended December 31, 2002, 2001 and 2000 were $83.9 million, $35.0 million
and $96.8 million, respectively. Our loss and loss expense ratio for 2002 was 17.1%,
compared to 111.5% in 2001 and 61.7% in 2000.

Acquisition costs, which are typically a percentage of premiums written,
consist primarily of commissions and brokerage fees paid to intermediaries for
the production of premiums written, and excise taxes. Brokerage commissions on
property catastrophe excess of loss contracts typically range from 5% to 10% of
written premiums. We incurred acquisition costs of $24.5 million, $12.7
million and $9.0 million for the years ended December 31, 2002, 2001 and 2000,
respectively, after deferring those costs related to the unearned portion of
premiums written. The increases from 2000 to 2001, and from 2001 to 2002 are
due to the increase in earned premiums. Also, in 2000, we reduced an accrual
for brokerage fees on reinstatement premiums which had been based on overly
conservative assumptions.

General and administrative expenses were $13.9 million, $9.4 million and
$9.3 million for the years ended December 31, 2002, 2001 and 2000,
respectively. These figures include fees paid to subsidiaries of AIG for
administrative services, which are based on a percentage of premiums written,
and were $5.8 million, $3.2 million and $2.3 million for the years ended
December 31, 2002, 2001 and 2000, respectively. (See Note 9 to the Consolidated
Financial Statements  Related Party Transactions.) In addition to this
significant increase, other expense categories which had increased were
salaries and other employee benefits, which increased because of increased
salaries and additional employees, Letter of Credit charges, which increased
because of the significant amount of collateral required by ceding companies
for losses from the attack on the World Trade Center, and travel and
representation costs. In 2001, operating costs which were below the 2000
levels were salaries and employee benefits, and other costs associated with the
operation of IPCRe Services Limited, which ceased trading in 2000, as well as
reductions due to the retirement of the former





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President and CEO. Our expense
ratio (the ratio of acquisition costs plus general and administrative expenses,
to earned premiums) was 17.0%, 17.9% and 21.1% for the years ended December
31, 2002, 2001 and 2000, respectively.

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 years ended December 31, 2002, 2001 and 2000, respectively:

|                            |  |                         |      |      |  |      |       |   |  |  |      |  
|--------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ----- | - |  |  | ---- | -
|                            |  | Year ended December 31,
|                            |  |                        
|                            |  | 2002                    |      | 2001 |  | 2000
|                            |  |                         |      |      |  |     
|Loss and loss expense ratio |  |                         | 17.1 | %    |  |      | 111.5 | % |  |  | 61.7 | %
|Expense ratio               |  |                         | 17.0 | %    |  |      | 17.9  | % |  |  | 21.1 | %
|Combined ratio              |  |                         | 34.1 | %    |  |      | 129.4 | % |  |  | 82.8 | %

The following table summarizes our net income (loss) and operating income
(loss), which is net income (loss) adjusted for realized (gains) and losses, in
each of the years in the three year period ended December 31, 2002, together
with diluted net income (loss) per share and diluted operating income (loss)
per share for the respective periods:

|                                           |  |                         |         |      |  |      |        |   |  |   |        |  
|------------------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                           |  | Year ended December 31,
|                                           |  |                        
|                                           |  | 2002                    |         | 2001 |  | 2000
|                                           |  |                         |         |      |  |     
|                                           |  | $000                    |         | $000 |  | $000
|Net income (loss)                          |  |                         | 157,906 |      |  |      | (3,933 | ) |  |   | 44,225 |  
|Adjustment for net realized losses (gains) |  |                         | 44,867  |      |  |      | (616   | ) |  |   | (544   | )
|                                           |  |                         |         |      |  |      |        |   |  |   |        |  
|Operating income (loss)                    |  |                         | 202,773 |      |  |      | (4,549 | ) |  |   | 43,681 |  
|Diluted net income (loss) per share        |  | $                       | 3.27    |      |  | $    | (0.15  | ) |  | $ | 1.73   |  
|Diluted operating income (loss) per share  |  | $                       | 4.20    |      |  | $    | (0.17  | ) |  | $ | 1.71   |  

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. Outstanding stock options are
considered common stock equivalents for the purpose of calculating diluted net
income per common share, and were included in the weighted average number of
shares outstanding using the Treasury Stock method. In a period where there
is a net loss, the dilutive effect of options is not included in the weighted
average number of shares, as this would be anti-dilutive.

Liquidity and Capital Resources

IPC Holdings is a holding company that conducts no reinsurance operations
of its own. During 1998, IPCRe incorporated a subsidiary in Ireland called
IPCRe Europe Limited, which underwrites selected reinsurance business primarily
in Europe. In November 2001, IPC Holdings incorporated a subsidiary in Bermuda
called IPCRe Underwriting Services Limited (IPCUSL), which currently acts as
an Underwriting Agent for a company which is related to AIG. (See Note 9 to the
Consolidated Financial Statements  Related Party Transactions.) IPC
Holdings cash flows are limited to distributions from IPCRe and IPCUSL by way
of loans or dividends. The dividends that IPCRe may pay are limited under
Bermuda legislation and IPCRes revolving credit facility.

Under the Insurance Act, IPCRe is required to maintain a solvency margin
and a minimum liquidity ratio, and is prohibited from declaring or paying
dividends if to do so would cause IPCRe to fail to meet its solvency margin and
its minimum liquidity ratio. Under the Insurance Act, IPCRe is prohibited
from paying dividends of more than 25% of its total statutory capital and
surplus at the end of the previous fiscal year unless it files an affidavit
stating that the declaration of such dividends has not caused IPCRe to fail to
meet its solvency margin and minimum liquidity ratio. The Insurance Act also
prohibits IPCRe from declaring or paying any dividend without the approval of
the Supervisor of Insurance of Bermuda if IPCRe failed to meet its solvency
margin and minimum liquidity ratio on the last day of the previous fiscal year.
The maximum dividend payable by IPCRe in accordance with the foregoing
restrictions as of January 1, 2003 was approximately $321.0 million.

In July 1998, to further enhance its liquidity, IPCRe entered into a
revolving credit facility with a syndicate of lenders led by Bank One N.A. The
original amount of the facility was $300 million, which was reduced to $150
million in June, 2001. The facility expires in June 2003. The facility limits
the amount of dividends that may be paid by IPCRe to IPC Holdings to the lesser
of i) the excess of IPCRes aggregate positive net income from March 31, 1998
to the end of the





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##### 



then-current fiscal quarter over the aggregate amount of all
dividends and distributions paid during the same period, or ii) the excess of
IPCRes positive consolidated net income for the prior four fiscal quarters
over the aggregate amount of all dividends and distributions paid during the
same period. IPCRe obtained waivers for this covenant from the lenders in the
facility in order to pay dividends in September and December, 1999. No amounts
have been drawn under this facility. The maximum amount of dividends that
IPCRe could have paid in the fourth quarter of 2002 under the terms of the
credit facility was $156.7 million.

On December 12, 2001, we completed a follow-on public offering in which
17,480,000 ordinary shares were sold (including the exercise of the
over-allotment option of 2,280,000 shares) at $26.00 per share. Concurrent
with the offering, we sold 2,847,000 shares in a private placement to AIG at a
price equal to the public offering price. Furthermore, AIG exercised an
option which had been granted at the time of the Companys formation, whereby
they acquired 2,775,000 shares at an exercise price of $12.7746 per share.
Total net proceeds raised from these transactions were approximately $546
million.

Our sources of funds consist of premiums written, losses recovered from
retrocedents, underwriting agency commissions, 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,
premiums retroceded, general and administrative expenses and dividends. We
generated or used cash flows from operations of $180.9 million, $83.6 million
and $(7.4) million in the years ended December 31, 2002, 2001 and 2000,
respectively. These amounts represent the difference between premiums
collected and investment earnings realized, and losses and loss adjustment
expenses paid, underwriting and other expenses paid and investment losses
realized. Cash flows from operations differ, and may continue to differ,
substantially from net income. To date, we have invested all cash flows not
required for operating purposes or payment of 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, future cash flows
cannot be predicted with any certainty and may vary significantly between
periods. As noted above, loss payments during the years ended December 31,
2002 and 2001 were $83.9 million and $35.0 million, respectively. During 2003,
we expect to pay the bulk of the $60.8 million of loss reserves we have accrued
at December 31, 2002 for the terrorist attack on the World Trade Center, or
other prior year events, as well as claims from other events that may occur
during the year.

With the exception of cash holdings, our funds are primarily invested in
fixed maturity securities, the fair value of which is subject to fluctuation
depending on changes in prevailing interest rates, and investments in three
mutual funds, which invest in stocks of large capitalized companies in the U.S.
and other major countries around the world. We do not hedge our investment
portfolio against interest rate risk. Accordingly, changes in interest rates
and equity prices may result in losses, both realized and unrealized, on our
investments (see Quantitative and Qualitative Disclosure about Market Risk
below for further explanation).

As of December 31, 2002 all of our investments were classified as
Available for Sale. Investments are carried at fair value and any unrealized
gains or losses are reported as accumulated other comprehensive income within
shareholders equity. At December 31, 2002 and 2001, shareholders equity was
$1,291.5 million and $1,105.8 million, respectively.

At December 31, 2002, 75.2% of our fixed maturity investment portfolio
consisted of cash, U.S. Treasuries or other government agency issues, and
investments with a AAA or AA rating. The primary rating source is Moodys
Investors Services Inc. (See Note 3 (f) to the Consolidated Financial
Statements  Investments). At December 31, 2002 the portfolio had an average
maturity of 2.9 years and an average modified duration of 2.45 years.

Net cash outflows used for investing activities in the years ended
December 31, 2002, 2001 and 2000 were $479.7 million, $320.1 million and $11.4
million, respectively. Because of the timing of our offerings, cash and cash
equivalents increased by $305.8 million during the year ended December 31,
2001, resulting in a balance of $315.2 million. Most of these funds were
invested in January 2002, resulting in the reduction in cash and cash
equivalents to a balance of $16.7 million at December 31, 2002.

Our functional currency is the U.S. dollar. Our operating currency is
generally also the U.S. dollar. However, premiums receivable and losses
payable in respect of a significant portion of our business are denominated in
currencies of other countries, principally industrial countries. Consequently,
we may, from time to time, experience currency exchange gains and losses that
could affect our financial position and results of operations. In 2002 we
incurred a foreign exchange gain of $1.6 million, which was primarily the
result of strengthening of the Euro and British pound. In 2001, we incurred a
net foreign exchange loss of $(0.6) million, compared to $(2.3) million in
2000, which was primarily





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##### 



the result of significant declines in the value of
several currencies during the year, in particular the Australian dollar, Euro
and British pound. We currently do not  and as a practical
matter cannot 
hedge our U.S. dollar currency exposure with respect to potential claims until
a loss payable in a non-U.S. dollar currency occurs, after which we may match
such liability with assets denominated in the same currency, as we have done on
three occasions, or enter forward purchase contracts for specific currencies,
which we did during 2000. This type of exposure could be substantial. We also
have not hedged our non-U.S. dollar currency exposure with respect to premiums
receivable, which generally are collected over the relevant contract term. Our
practice is to exchange non-U.S. dollar denominated premiums upon receipt.
Foreign currency investments have been infrequently made, generally for the
purpose of improving overall portfolio yield. At December 31, 2002, we had no
forward contract hedges outstanding.

Our investment portfolio does not currently include options, warrants,
swaps, collars or similar derivative instruments. Our investment policy
guidelines provide that financial futures and options and foreign exchange
contracts may not be used in a speculative manner, but may be used, subject to
certain numerical limits, only as part of a defensive strategy to protect the
fair value of the portfolio. Also, our portfolio does not contain any
investments in real estate or mortgage loans.

IPCRe is not a licensed insurer in the United States of America and
therefore, under the terms of most of its contracts with U.S.-based companies,
must provide security to reinsureds to cover unpaid liabilities in a form
acceptable to state insurance commissioners. Typically, this type of security
takes the form of a letter of credit issued by an acceptable bank, the
establishment of a trust, or a cash advance. Currently IPCRe obtains letters
of credit through one commercial bank pursuant to a $100.0 million facility.
In turn, IPCRe provides the bank security by giving the bank a lien over
certain of IPCRes investments in an amount not to exceed 118% of the aggregate
letters of credit outstanding. At December 31, 2002, 2001 and 2000, there were
outstanding letters of credit of $86.5 million, $17.0 million and $22.3
million, respectively. The significant increase in 2002 was due to the
increased requirements of our clients as a result of claims arising from the
attack on the World Trade Center. If we were unable to obtain the necessary
credit, IPCRe could be limited in its ability to write business for our clients
in the United States.

We believe that our revolving credit facility, operating cash flow and the
relatively high quality of our investment portfolio, provides sufficient
liquidity to meet our cash demands.

Neither IPC Holdings nor IPCRe or their subsidiaries have any material
commitments for capital expenditures.

Neither the Company nor any of its subsidiaries has any other forms of
off-balance sheet arrangements, or cash obligations and commitments, not
already disclosed above.

Quantitative and Qualitative Disclosure about Market Risk

The investment portfolio of IPCRe is exposed to market risk. Market risk
is the risk of loss of fair value resulting from adverse fluctuations in
interest rates, foreign currency exchange rates and equity prices.

Measuring potential losses in fair values has become the focus of risk
management efforts by many companies. Such measurements are performed through
the application of various statistical techniques. One such technique is Value
at Risk (VaR). VaR is a summary statistical measure that uses historical
interest and foreign currency exchange rates and equity prices and estimates of
the volatility and correlation of each of these rates and prices to calculate
the maximum loss that could occur within a given statistical confidence level
and time horizon.

We believe that statistical models alone do not provide a reliable method
of monitoring and controlling market risk. While VaR models are relatively
sophisticated, the quantitative market risk information is limited by the
assumptions and parameters established in creating the related models, which
rely principally on historic data. Because of this, such models may not
accurately predict future market behaviour. Therefore, such models are tools
and do not substitute for the experience or judgement of senior management.

Our investment managers performed a VaR analysis, to estimate the maximum
potential loss of fair value for each segment of market risk, as of December
31, 2002 and 2001. The analysis calculated the VaR with respect to the net
fair value of our invested assets (cash and cash equivalents, equity and
high-grade fixed income securities) as of December 31, 2002 and 2001 using
historical simulation methodology. At December 31, 2002 the VaR of IPCRes
investment portfolio was approximately $17.3 million, which represents a 95th
percentile value change over a one-month time horizon. This result was
obtained through historical simulation using approximately 750 days (3 years)
of historical interest rate and equity market data.





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##### 



The following table presents the VaR of each component of market risk of
IPCRes invested assets at December 31, 2002 and 2001, respectively, the
quarterly points during 2002 and the average for the year ended December 31,
2002, calculated using the VaR at the beginning, ending and quarterly points
(expressed in thousands of U.S. dollars):

|                |         |              |         |               |  |          |        |           |  |              |         |                  |  |   |         |   |  |   |        |   |  |   |         |   | 
|--------------- | ------- | ------------ | ------- | ------------- |  | -------- | ------ | --------- |  | ------------ | ------- | ---------------- |  | - | ------- | - |  | - | ------ | - |  | - | ------- | - | 
|Market Risk     |         | At           |         | At            |  | At       |        | At        |  | At           |         | Average for year
|                |         | December 31, |         | September 30, |  | June 30, |        | March 31, |  | December 31, |         | ended December  
|                |         | 2002         |         | 2002          |  | 2002     |        | 2002      |  | 2001         |         | 31, 2002        
|                |         |              |         |               |  |          |        |           |  |              |         |                 
|Currency        |         | $            | 1,093   |               |  | $        | 892    |           |  | $            | 1,283   |                  |  | $ | 1,351   |   |  | $ | 1,101  |   |  | $ | 1,144   |  
|Interest Rate   |         |              | 7,938   |               |  |          | 7,947  |           |  |              | 9,554   |                  |  |   | 11,404  |   |  |   | 7,296  |   |  |   | 8,828   |  
|Equity          |         |              | 18,397  |               |  |          | 15,625 |           |  |              | 17,029  |                  |  |   | 18,625  |   |  |   | 13,222 |   |  |   | 16,580  |  
|                |         |              |         |               |  |          |        |           |  |              |         |                  |  |   |         |   |  |   |        |   |  |   |         |  
|Sum of Risk     |         |              | 27,428  |               |  |          | 24,464 |           |  |              | 27,866  |                  |  |   | 31,380  |   |  |   | 21,619 |   |  |   | 26,552  |  
|Diversification |         |              | (10,102 | )             |  |          | (9,570 | )         |  |              | (11,576 | )                |  |   | (12,666 | ) |  |   | (8,305 | ) |  |   | (10,444 | )
|                | Benefit |              |         |               |  |          |        |           |  |              |         |                  |  |   |         |   |  |   |        |   |  |   |         |   | 
|                |         |              |         |               |  |          |        |           |  |              |         |                  |  |   |         |   |  |   |        |   |  |   |         |  
|Total Net Risk  |         | $            | 17,326  |               |  | $        | 14,894 |           |  | $            | 16,290  |                  |  | $ | 18,714  |   |  | $ | 13,314 |   |  | $ | 16,108  |  
|                |         |              |         |               |  |          |        |           |  |              |         |                  |  |   |         |   |  |   |        |   |  |   |         |  

IPCRes investment in equities (equity mutual funds) increased from $159
million at the end of 2001 to $217 million at the end of 2002. This caused the
equity VaR (the risk due to the uncertainties in stock market movements) to
increase from $13 million at the end of 2001 to $18 million at the end of 2002.
The increase in equity investment also explains, to a large extent, the
increase in aggregated VaR (the risk due to the combined uncertainties in the
movements of exchange rate, interest rate, and stock market) from $13.3 million
at the end of 2001 to $17.3 million at the end of 2002.

IPCRes premiums receivable and liabilities for losses from reinsurance
contracts it has written, are also exposed to the risk of changes in value
resulting from adverse fluctuations in foreign currency exchange rates. To an
extent, the impact on loss reserves of a movement in an exchange rate, will be
partly offset by the impact on assets (receivables and cash/investments)
denominated in the same currency, or vice versa. At December 31, 2002, an
estimated $11 million of reinsurance premiums receivable, and an estimated $33
million of loss reserves, were denominated in currencies other than the U.S.
dollar. At December 31, 2002 we held U.S.$3.3 million in Australian dollar
time deposits. Accordingly, from a risk perspective, we do not believe that
the impact of exchange rate movements in respect of receivables or loss
reserves on our overall VaR at December 31, 2002 to be material.

Transactions with Non-Independent Parties

All of our related party transactions have been disclosed in Note 9 to the
Consolidated Financial Statements  Related Party Transactions. To our
knowledge, neither the Company nor any of its subsidiaries have entered into
any other transactions with other non-independent parties.

Effects of Inflation

IPCRe estimates the effect of inflation on its business and reflects these
estimates in the pricing of its reinsurance contracts. Because of the
relatively short claims settlement cycle associated with its reinsurance
portfolio, IPCRe generally does not take into account the effects of inflation
when estimating reserves. The actual effects of inflation on the results of
IPCRe cannot be accurately known until claims are ultimately settled. Levels
of inflation also affect investment returns.





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##### 





| | IPC HOLDINGS, LTD. AND SUBSIDIARIES
| | -----------------------------------



| | CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2002 AND 2001
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
| | -------------------------------------------------------------------------------------------------------------------------





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##### 



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
IPC Holdings, Ltd.:

We have audited the accompanying consolidated balance sheet of IPC Holdings,
Ltd. and subsidiaries as of December 31, 2002, and the related consolidated
statements of income, comprehensive income, shareholders equity and cash flows
for the year ended December 31, 2002. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit. The accompanying consolidated balance sheet of IPC Holdings, Ltd. and
subsidiaries as of December 31, 2001, and the related consolidated statements
of (loss) income, comprehensive income, shareholders equity and cash flows for
each of the years in the two year period ended December 31, 2001 were audited
by other auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those consolidated financial statements in their report
dated February 8, 2002.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IPC
Holdings, Ltd. and subsidiaries as of December 31, 2002 and the results of
their operations and their cash flows for the year ended December 31, 2002
in conformity with accounting principles generally accepted in the United
States of America.

KPMG
Chartered Accountants
Hamilton, Bermuda
February 3, 2003





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##### 





| | IPC HOLDINGS, LTD. AND SUBSIDIARIES
| | -----------------------------------



| | CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2001
(Expressed in thousands of United States dollars except for per share amounts)
| | -------------------------------------------------------------------------------------------------------------------------------------------

|                      |                                                                                                                            |   |           |           |      |   |           |         | 
|--------------------- | -------------------------------------------------------------------------------------------------------------------------- | - | --------- | --------- | ---- | - | --------- | ------- | 
|                      |                                                                                                                            |   | 2002      |           | 2001
|                      |                                                                                                                            |   |           |           |     
|ASSETS:               |                                                                                                                            |   |           |           |      |   |           |        
|                      | Fixed maturity investments, available for sale, at fair value
(Amortized cost 2002: $1,113,432; 2001: $740,734)            |   | $         | 1,153,609 |      |   | $         | 758,224 | 
|                      | Equity investments, available for sale, at fair value
(Cost 2002: $216,815; 2001: $163,828)                                |   |           | 216,897   |      |   |           | 158,870 | 
|                      | Cash and cash equivalents                                                                                                  |   |           | 16,656    |      |   |           | 315,207 | 
|                      | Reinsurance premiums receivable                                                                                            |   |           | 50,328    |      |   |           | 42,356  | 
|                      | Deferred premiums ceded                                                                                                    |   |           | 819       |      |   |           | 1,228   | 
|                      | Loss and loss adjustment expenses recoverable                                                                              |   |           | 405       |      |   |           | 681     | 
|                      | Accrued investment income                                                                                                  |   |           | 24,163    |      |   |           | 18,841  | 
|                      | Deferred acquisition costs                                                                                                 |   |           | 6,095     |      |   |           | 2,833   | 
|                      | Prepaid expenses and other assets                                                                                          |   |           | 5,003     |      |   |           | 3,476   | 
|                      |                                                                                                                            |   |           |           |      |   |           |        
|                      |                                                                                                                            | $ | 1,473,975 |           |      | $ | 1,301,716 |        
|                      |                                                                                                                            |   |           |           |      |   |           |        
|LIABILITIES:          |                                                                                                                            |   |           |           |      |   |           |        
|                      | Reserve for losses and loss adjustment expenses                                                                            |   | $         | 119,355   |      |   | $         | 162,207 | 
|                      | Unearned premiums                                                                                                          |   |           | 51,902    |      |   |           | 24,440  | 
|                      | Reinsurance premiums payable                                                                                               |   |           | 1,555     |      |   |           | 1,732   | 
|                      | Deferred commissions                                                                                                       |   |           | 127       |      |   |           | 218     | 
|                      | Accounts payable and accrued liabilities                                                                                   |   |           | 9,553     |      |   |           | 7,325   | 
|                      |                                                                                                                            |   |           |           |      |   |           |        
|                      |                                                                                                                            |   | 182,492   |           |      |   | 195,922   |        
|                      |                                                                                                                            |   |           |           |      |   |           |        
|SHAREHOLDERS EQUITY: |                                                                                                                            |   |           |           |      |   |           |        
|                      | Share capital  2002: 48,179,805 shares outstanding, par value $0.01;
2001: 48,172,776 shares outstanding, par value $0.01 |   |           | 482       |      |   |           | 482     | 
|                      | Additional paid-in capital                                                                                                 |   |           | 846,397   |      |   |           | 846,101 | 
|                      | Retained earnings                                                                                                          |   |           | 404,345   |      |   |           | 246,568 | 
|                      | Accumulated other comprehensive income                                                                                     |   |           | 40,259    |      |   |           | 12,643  | 
|                      |                                                                                                                            |   |           |           |      |   |           |        
|                      |                                                                                                                            |   | 1,291,483 |           |      |   | 1,105,794 |        
|                      |                                                                                                                            |   |           |           |      |   |           |        
|                      |                                                                                                                            | $ | 1,473,975 |           |      | $ | 1,301,716 |        
|                      |                                                                                                                            |   |           |           |      |   |           |        

APPROVED BY THE BOARD:

| |  |          |  | 
| |  | -------- |  | 
| |  | Director |  | 
| |  |          |  | 
| |  |          |  | 
| |  | Director |  | 
| |  |          |  | 

The accompanying notes are an integral part of these consolidated financial
statements





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##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2002
(Expressed in thousands of United States dollars except for per share amounts)

|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |        |  
|-------------------------------------------------- | ------------------------------------------ | - | ---------- | ------- | ---- | - | ---------- | ------- | - | - | ---------- | ------ | -
|                                                   |                                            |   | 2002       |         | 2001 |   | 2000      
|                                                   |                                            |   |            |         |      |   |           
|REVENUES:                                          |                                            |   |            |         |      |   |            |         |   |   |            |       
|                                                   | Gross premiums written                     |   | $          | 259,685 |      |   | $          | 133,057 |   |   | $          | 93,757 |  
|                                                   | Change in unearned premiums                |   |            | (27,462 | )    |   |            | (5,372  | ) |   |            | (2,704 | )
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |       
|                                                   | Premiums earned                            |   |            | 232,223 |      |   |            | 127,685 |   |   |            | 91,053 |  
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |       
|                                                   | Reinsurance premiums ceded                 |   |            | 5,410   |      |   |            | 4,418   |   |   |            | 4,828  |  
|                                                   | Change in deferred premiums ceded          |   |            | 409     |      |   |            | (108    | ) |   |            | (736   | )
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |       
|                                                   | Premiums ceded                             |   |            | 5,819   |      |   |            | 4,310   |   |   |            | 4,092  |  
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |       
|                                                   | Net premiums earned                        |   |            | 226,404 |      |   |            | 123,375 |   |   |            | 86,961 |  
|                                                   | Net investment income                      |   |            | 49,320  |      |   |            | 32,245  |   |   |            | 31,089 |  
|                                                   | Other income                               |   |            | 2,684   |      |   |            | 0       |   |   |            | 0      |  
|                                                   | Net realized (losses) gains on investments |   |            | (44,867 | )    |   |            | 616     |   |   |            | 544    |  
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |       
|                                                   |                                            |   | 233,541    |         |      |   | 156,236    |         |   |   | 118,594    |       
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |       
|EXPENSES:                                          |                                            |   |            |         |      |   |            |         |   |   |            |       
|                                                   | Losses and loss adjustment expenses, net   |   |            | 38,775  |      |   |            | 137,551 |   |   |            | 53,661 |  
|                                                   | Acquisition costs, net                     |   |            | 24,521  |      |   |            | 12,686  |   |   |            | 9,049  |  
|                                                   | General and administrative expenses        |   |            | 13,893  |      |   |            | 9,381   |   |   |            | 9,311  |  
|                                                   | Foreign exchange (gain) loss, net          |   |            | (1,554  | )    |   |            | 551     |   |   |            | 2,348  |  
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |       
|                                                   |                                            |   | 75,635     |         |      |   | 160,169    |         |   |   | 74,369     |       
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |       
|NET INCOME (LOSS)                                  |                                            | $ | 157,906    |         |      | $ | (3,933     | )       |   | $ | 44,225     |       
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |       
|Basic net income (loss) per common share           |                                            | $ | 3.28       |         |      | $ | (0.15      | )       |   | $ | 1.77       |       
|Diluted net income (loss) per common share         |                                            | $ | 3.27       |         |      | $ | (0.15      | )       |   | $ | 1.73       |       
|Weighted average number of common shares  basic   |                                            |   | 48,173,362 |         |      |   | 26,266,019 |         |   |   | 25,034,414 |       
|Weighted average number of common shares  diluted |                                            |   | 48,266,444 |         |      |   | 26,266,019 |         |   |   | 25,497,671 |       

The accompanying notes are an integral part of these consolidated financial
statements





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2002
(Expressed in thousands of United States dollars)

|                            |                                                                              |   |         |         |      |   |        |       |   |   |        |        |  
|--------------------------- | ---------------------------------------------------------------------------- | - | ------- | ------- | ---- | - | ------ | ----- | - | - | ------ | ------ | -
|                            |                                                                              |   | 2002    |         | 2001 |   | 2000  
|                            |                                                                              |   |         |         |      |   |       
|NET INCOME (LOSS)           |                                                                              | $ | 157,906 |         |      | $ | (3,933 | )     |   | $ | 44,225 |       
|                            |                                                                              |   |         |         |      |   |        |       |   |   |        |       
|OTHER COMPREHENSIVE INCOME: |                                                                              |   |         |         |      |   |        |       |   |   |        |       
|                            | Net holding (losses) gains on investments during year                        |   |         | (17,251 | )    |   |        | 8,679 |   |   |        | 10,562 |  
|                            | Reclassification adjustment for losses (gains)
included in net income (loss) |   |         | 44,867  |      |   |        | (616  | ) |   |        | (544   | )
|                            |                                                                              |   |         |         |      |   |        |       |   |   |        |       
|                            |                                                                              |   | 27,616  |         |      |   | 8,063  |       |   |   | 10,018 |       
|                            |                                                                              |   |         |         |      |   |        |       |   |   |        |       
|COMPREHENSIVE INCOME        |                                                                              | $ | 185,522 |         |      | $ | 4,130  |       |   | $ | 54,243 |       
|                            |                                                                              |   |         |         |      |   |        |       |   |   |        |       

The accompanying notes are an integral part of these consolidated financial
statements





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2002
(Expressed in thousands of United States dollars except for per share amounts)

|                                        |                                                  |   |           |         |      |   |           |         |   |   |         |         |  
|--------------------------------------- | ------------------------------------------------ | - | --------- | ------- | ---- | - | --------- | ------- | - | - | ------- | ------- | -
|                                        |                                                  |   | 2002      |         | 2001 |   | 2000     
|                                        |                                                  |   |           |         |      |   |          
|COMMON SHARES PAR VALUE $0.01:          |                                                  |   |           |         |      |   |           |         |   |   |         |        
|                                        | Balance, beginning of year                       |   | $         | 482     |      |   | $         | 250     |   |   | $       | 250     |  
|                                        | Additional shares issued                         |   |           |        |      |   |           | 232     |   |   |         |        |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |         |        
|                                        | Balance, end of year                             |   | $         | 482     |      |   | $         | 482     |   |   | $       | 250     |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |         |        
|ADDITIONAL PAID-IN CAPITAL:             |                                                  |   |           |         |      |   |           |         |   |   |         |        
|                                        | Balance, beginning of year                       |   | $         | 846,101 |      |   | $         | 299,929 |   |   | $       | 299,833 |  
|                                        | Additional paid-in capital on shares issued      |   |           | 458     |      |   |           | 546,172 |   |   |         | 96      |  
|                                        | Reduction in paid-in capital on share repurchase |   |           | (162    | )    |   |           |        |   |   |         |        |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |         |        
|                                        | Balance, end of year                             |   | $         | 846,397 |      |   | $         | 846,101 |   |   | $       | 299,929 |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |         |        
|RETAINED EARNINGS:                      |                                                  |   |           |         |      |   |           |         |   |   |         |        
|                                        | Balance, beginning of year                       |   | $         | 246,568 |      |   | $         | 254,511 |   |   | $       | 210,286 |  
|                                        | Net income (loss)                                |   |           | 157,906 |      |   |           | (3,933  | ) |   |         | 44,225  |  
|                                        | Reduction on share repurchase                    |   |           | (129    | )    |   |           |        |   |   |         |        |  
|                                        | Dividends paid                                   |   |           |        |      |   |           | (4,010  | ) |   |         |        |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |         |        
|                                        | Balance, end of year                             |   | $         | 404,345 |      |   | $         | 246,568 |   |   | $       | 254,511 |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |         |        
|ACCUMULATED OTHER COMPREHENSIVE INCOME: |                                                  |   |           |         |      |   |           |         |   |   |         |        
|                                        | Balance, beginning of year                       |   | $         | 12,643  |      |   | $         | 4,580   |   |   | $       | (5,438  | )
|                                        | Other comprehensive income                       |   |           | 27,616  |      |   |           | 8,063   |   |   |         | 10,018  |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |         |        
|                                        | Balance, end of year                             |   | $         | 40,259  |      |   | $         | 12,643  |   |   | $       | 4,580   |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |         |        
|TOTAL SHAREHOLDERS EQUITY              |                                                  | $ | 1,291,483 |         |      | $ | 1,105,794 |         |   | $ | 559,270 |        
|                                        |                                                  |   |           |         |      |   |           |         |   |   |         |        

The accompanying notes are an integral part of these consolidated financial
statements





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2002
(Expressed in thousands of United States dollars)

|                                                     |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |          |      |         |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------------- | ---------- | ------ | ------- | ------- | -------- | ---- | ------- | ------- | -------- | ---- | ------- | -
|                                                     |                                                                                                |                                                          |                                                 |            | 2002   |         | 2001    |          | 2000
|                                                     |                                                                                                |                                                          |                                                 |            |        |         |         |          |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         
|                                                     | Net income (loss)                                                                              |                                                          | $                                               | 157,906    |        |         | $       | (3,933   | )    |         | $       | 44,225   |     
|                                                     | Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities: |                                                          |                                                 |            |        |         |         |          |      |         |         |          |     
|                                                     |                                                                                                | Amortization of fixed maturity premiums
(discounts), net |                                                 |            | 8,994  |         |         |          | 855  |         |         |          | (478 | )      
|                                                     |                                                                                                | Net realized losses (gains) on investments               |                                                 |            | 44,867 |         |         |          | (616 | )       |         |          | (544 | )      
|                                                     |                                                                                                | Changes in:                                              |                                                 |            |        |         |         |          |      |         |         |          |      |        
|                                                     |                                                                                                |                                                          | Reinsurance premiums receivable                 |            |        | (7,972  | )       |          |      | (16,937 | )       |          |      | (3,959  | )
|                                                     |                                                                                                |                                                          | Deferred premiums ceded                         |            |        | 409     |         |          |      | (108    | )       |          |      | (736    | )
|                                                     |                                                                                                |                                                          | Loss and loss adjustment expenses recoverable   |            |        | 276     |         |          |      | 506     |         |          |      | 3,398   |  
|                                                     |                                                                                                |                                                          | Accrued investment income                       |            |        | (5,322  | )       |          |      | (3,537  | )       |          |      | (1,615  | )
|                                                     |                                                                                                |                                                          | Deferred acquisition costs                      |            |        | (3,262  | )       |          |      | (584    | )       |          |      | (269    | )
|                                                     |                                                                                                |                                                          | Prepaid expenses and other assets               |            |        | (1,527  | )       |          |      | 204     |         |          |      | 410     |  
|                                                     |                                                                                                |                                                          | Reserve for losses and loss adjustment expenses |            |        | (42,852 | )       |          |      | 100,849 |         |          |      | (50,083 | )
|                                                     |                                                                                                |                                                          | Unearned premiums                               |            |        | 27,462  |         |          |      | 5,372   |         |          |      | 2,704   |  
|                                                     |                                                                                                |                                                          | Reinsurance premiums payable                    |            |        | (177    | )       |          |      | 812     |         |          |      | (270    | )
|                                                     |                                                                                                |                                                          | Deferred commissions                            |            |        | (91     | )       |          |      | 16      |         |          |      | 169     |  
|                                                     |                                                                                                |                                                          | Accounts payable and accrued liabilities        |            |        | 2,228   |         |          |      | 653     |         |          |      | (311    | )
|                                                     |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         
|                                                     | Cash provided by (used in) operating activities                                                |                                                          |                                                 | 180,939    |        |         |         | 83,552   |      |         |         | (7,359   | )   
|                                                     |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         
|                                                     | Purchases of fixed maturity investments                                                        |                                                          |                                                 | (1,092,085 | )      |         |         | (611,936 | )    |         |         | (224,097 | )   
|                                                     | Proceeds from sales of fixed maturity investments                                              |                                                          |                                                 | 694,988    |        |         |         | 370,341  |      |         |         | 194,449  |     
|                                                     | Proceeds from maturities of fixed maturity investments                                         |                                                          |                                                 | 28,676     |        |         |         | 26,000   |      |         |         | 12,000   |     
|                                                     | Purchases of equity investments                                                                |                                                          |                                                 | (167,196   | )      |         |         | (107,749 | )    |         |         | (5,836   | )   
|                                                     | Proceeds from sales of equity investments                                                      |                                                          |                                                 | 55,960     |        |         |         | 3,196    |      |         |         | 12,087   |     
|                                                     |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         
|                                                     | Cash used in investing activities                                                              |                                                          |                                                 | (479,657   | )      |         |         | (320,148 | )    |         |         | (11,397  | )   
|                                                     |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         
|                                                     | Proceeds from share issuance                                                                   |                                                          |                                                 | 167        |        |         |         | 546,404  |      |         |         | 96       |     
|                                                     | Cash dividends paid to shareholders                                                            |                                                          |                                                 |           |        |         |         | (4,010   | )    |         |         |         |     
|                                                     |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         
|                                                     | Cash provided by financing activities                                                          |                                                          |                                                 | 167        |        |         |         | 542,394  |      |         |         | 96       |     
|                                                     |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |                                                                                                |                                                          | (298,551                                        | )          |        |         | 305,798 |          |      |         | (18,660 | )       
|                                                     |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         
|CASH AND CASH EQUIVALENTS, beginning of year         |                                                                                                |                                                          | 315,207                                         |            |        |         | 9,409   |          |      |         | 28,069  |         
|                                                     |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         
|CASH AND CASH EQUIVALENTS, end of year               |                                                                                                | $                                                        | 16,656                                          |            |        | $       | 315,207 |          |      | $       | 9,409   |         
|                                                     |                                                                                                |                                                          |                                                 |            |        |         |         |          |      |         |         |         

The accompanying notes are an integral part of these consolidated financial
statements





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001 AND 2000
(Expressed in thousands of United States dollars except for per share amounts)



|1. |  | GENERAL
|-- |  | -------

IPC Holdings, Ltd. (the Company) was incorporated in Bermuda on May 20, 1993
and through its wholly-owned subsidiary, IPCRe Limited (IPCRe), provides
reinsurance of property catastrophe risks worldwide, substantially on an
excess-of-loss basis. Property catastrophe reinsurance covers unpredictable
events such as hurricanes, windstorms, hailstorms, earthquakes, volcanic
eruptions, fires, freezes, industrial explosions and other man-made or natural
disasters. IPCRes loss experience will generally include infrequent events of
great severity. IPCRes clients include many of the leading insurance
companies in the world. IPCRe also writes, to a limited extent, aviation,
property-per risk excess, marine and other short-tail reinsurance in various
parts of the world. Approximately 45% of total premiums written in 2002
related to U.S. risks (2001: 44%; 2000: 42%). The balance of IPCRes covered
risks are located principally in Europe, Japan, Australia and New Zealand.

On March 13, 1996, the Company completed an initial public offering in which
13,521,739 common shares held by existing shareholders were sold. All of the
shares sold were sold by existing shareholders. Consequently, the Company did
not receive any of the proceeds of the offering. The Company paid certain
expenses related to the offering, including certain expenses on behalf of the
selling shareholders.

On June 27, 1997, the Company incorporated a subsidiary in the United Kingdom,
named IPCRe Services Limited. This subsidiarys purpose was to perform the
same functions that were previously performed by the Companys representative
office in London. IPCRe Services Limited ceased trading in January, 2000 and
was dissolved on December 11, 2001.

On September 10, 1998, IPCRe incorporated a subsidiary in Ireland, named IPCRe
Europe Limited. This company underwrites selected reinsurance business
primarily in Europe.

On November 7, 2001, the Company incorporated a subsidiary in Bermuda named
IPCRe Underwriting Services Limited. (IPCUSL), which currently acts as an
Underwriting Agent for Allied World Assurance Company Ltd, a Bermuda-based
Class 4 insurer (Note 9).

On December 12, 2001, the Company completed a follow-on public offering in
which 17,480,000 ordinary shares were sold (including the exercise of the
over-allotment option of 2,280,000 shares) at $26.00 per share. Concurrent
with the offering, the Company sold 2,847,000 shares in a private placement to
American International Group, Inc. (AIG) at a price equal to the public
offering price. Furthermore, AIG exercised an option (AIG Option) which had
been granted at the time of the companys formation, whereby they acquired
2,775,000 shares at an exercise price of $12.7746 per share (Note 7). Total
net proceeds raised from these transactions were approximately $546,404.
Direct offering costs incurred in connection with this public offering of
$17,900 were deducted from the gross proceeds.



|2. |  | SIGNIFICANT ACCOUNTING POLICIES
|-- |  | -------------------------------

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of





---



##### 



revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The significant accounting policies are as follows:



|a) |  | Principles of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, IPCRe, IPCRe Services Limited (through
December 11, 2001) and IPCUSL. All significant intercompany transactions
have been eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|b) |  | Premiums and acquisition costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Premiums written are recorded at the policy inception date and are based on
information received from ceding companies. Subsequent premium adjustments,
if any, are recorded in the period in which they are determined. Premiums
are earned on a pro-rata basis over the period for which reinsurance
coverage is provided. Unearned premiums represent the portion of premiums
written which is applicable to the unexpired terms of the policies in force.
Ceded reinsurance premiums are similarly pro-rated over the terms of the
contracts with the unexpired portion deferred in the balance sheet.                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Acquisition costs, consisting primarily of commissions and brokerage
expenses incurred at policy issuance, are deferred and amortized to income
over the period in which the related premiums are earned. Deferred
acquisition costs are limited to estimated realizable value based on related
unearned premium, anticipated claims and expenses and investment income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|c) |  | Reserve for losses and loss adjustment expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | The reserve for losses and loss adjustment expenses, which includes an
allowance for losses and loss adjustment expenses incurred but not reported,
is based on reports from industry sources, individual case estimates
received from ceding companies, actuarial determinations and managements
estimates. For certain catastrophic events there is considerable
uncertainty underlying the assumptions and associated estimated reserves for
losses and loss adjustment expenses. Reserves are reviewed regularly and,
as experience develops and new information becomes known, the reserves are
adjusted as necessary. It is reasonably possible that changes in the near
term could require a material change in the amount estimated. Such
adjustments, if any, are reflected in results of operations in the period in
which they become known. Amounts recoverable from reinsurers are estimated
in a manner consistent with the underlying liabilities.
|  
|d) |  | Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Investments consist of fixed income securities, equity securities and
investments in mutual funds. Investments are stated at fair value as
determined by the most recently traded price of each security at the balance
sheet date. By policy, IPCRe invests in high-grade marketable securities.
All investments are classified as available-for-sale securities under the
provisions of Statement of Financial Accounting Standards No. (SFAS) 115,
Accounting for Certain Investments in Debt and Equity Securities.
Investments are recorded on a trade date basis. Realized gains and losses
on sales of investments are determined on the basis of first-in, first-out.
Investment income is recognized on the accrual basis and includes the
amortization of premiums and accretion of discounts on investments.                                                                                                                                       
|  
|   |  | Unrealized gains and losses are included as a separate component of
shareholders equity. Unrealized depreciation in the value of individual
securities considered by management to be other-than-temporary, is charged
to income in the period it is determined. IPCRes assessment of a decline
in value includes judgement as to the financial position and future
prospects of the entity that issued the security. If that judgement changes
in the future IPCRe may ultimately record a realized loss, after originally
concluding that the decline in value was temporary. Factors which
management consider in evaluating other-than-temporary declines in value
include the extent of decline, the length of time the security is below
cost, IPCRes intent and ability to hold the security, the future prospects
of the issuer and other qualitative and quantitative factors.                                                                        





---



##### 





|e) |  | Translation of foreign currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Transactions in foreign currencies are translated into U.S. dollars at the
rate of exchange prevailing at the date of each transaction. Monetary
assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the exchange rates in effect on the balance sheet date.
Foreign currency revenues and expenses are translated at the average
exchange rates prevailing during the period. Exchange gains and losses are
included in the determination of net income.                                                                                                                                                                                                                                                                                                                                                                                         
|  
|f) |  | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Cash and cash equivalents include amounts held in banks, time deposits and
commercial paper with maturities of less than three months from the date of
purchase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|g) |  | Net income per common share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Net income per common share is calculated by dividing net income by the
weighted average common stock outstanding during the year. 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 are considered common stock
equivalents for the purpose of calculating diluted net income per common
share, and were included in the weighted average number of shares
outstanding using the Treasury Stock method. In a period where there is a
net loss, the dilutive effect of options is not included in the weighted
average number of shares, as this would be anti-dilutive.                                                                                                                                                             
|  
|h) |  | Stock incentive compensation plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | In 1997, the Company adopted Statement of Financial Accounting
Standard No. 123 (SFAS 123), Accounting for Stock-based Compensation.
The Companys stock incentive compensation plan is more fully described in
Note 7. As permitted under this standard, the Company has elected to
follow Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, in accounting for its stock options and accordingly,
recognizes compensation expense for stock option grants to the extent that
the fair value of the stock exceeds the exercise price of the option at the
measurement date. No stock-based employee compensation cost has been
reflected in these consolidated financial statements as all options have
been granted under a fixed plan, and the exercise price is equal to the
market value of the underlying common stock on the date of grant.
|  
|   |  | The following table illustrates the effect on net income and earnings
per share if the fair value based method had been applied to all
outstanding and unvested awards in each period in accordance with SFAS 123.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                                                                                                |  |                         |         |      |  |      |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                                |  | Year Ended December 31,
|                                                                                                                |  |                        
|                                                                                                                |  | 2002                    |         | 2001 |  | 2000
|                                                                                                                |  |                         |         |      |  |     
|Net income (loss), as reported                                                                                  |  | $                       | 157,906 |      |  | $    | (3,933 | ) |  | $ | 44,225 |  
|Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards |  |                         | (799    | )    |  |      | (611   | ) |  |   | (506   | )
|                                                                                                                |  |                         |         |      |  |      |        |   |  |   |        |  
|Pro forma net income (loss)                                                                                     |  | $                       | 157,107 |      |  | $    | (4,544 | ) |  | $ | 43,719 |  
|                                                                                                                |  |                         |         |      |  |      |        |   |  |   |        |  
|Earnings per share:                                                                                             |  |                         |         |      |  |      |        |   |  |   |        |  
|Basic  as reported                                                                                             |  | $                       | 3.28    |      |  | $    | (0.15  | ) |  | $ | 1.77   |  
|Basic  pro forma                                                                                               |  | $                       | 3.26    |      |  | $    | (0.17  | ) |  | $ | 1.75   |  
|Diluted  as reported                                                                                           |  | $                       | 3.27    |      |  | $    | (0.15  | ) |  | $ | 1.73   |  
|Diluted  pro forma                                                                                             |  | $                       | 3.25    |      |  | $    | (0.17  | ) |  | $ | 1.71   |  





---



##### 





|i) |  | Accounting pronouncements
|-- |  | -------------------------



|   |  | On December 31, 2002, the Financial Accounting Standards Board
(FASB) issued Statement No. 148, Accounting for Stock-Based Compensation
and Disclosure (SFAS 148), which is
effective for fiscal years ending after December 15, 2002. SFAS 148
amends SFAS 123, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends disclosure
requirements of SFAS 123 to require prominent disclosure about the method
of accounting for stock based employee compensation and the effect of the
method used to report results. SFAS 148 permits two additional transition
methods for entities that adopt the preferable fair value method of
accounting for stock-based employee compensation. In addition, the
original prospective method of transition for changes to the fair value
method under SFAS 123 will no longer be permitted in fiscal periods
beginning after December 15, 2003. Management intends to adopt the fair
value method of accounting for stock-based employee compensation on a
prospective basis for all awards granted, modified or settled after January
1, 2003. Accordingly the Company will begin recording compensation costs
based on the fair value of awards granted after January 1, 2003.
Management has reviewed this Statement and has concluded that it is not
likely to significantly affect the Companys current financial reporting.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | INVESTMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|a) |  | The cost or amortized cost, gross unrealized gains, gross unrealized
losses and fair value of investments classified as available for sale by
category as of December 31, 2002 and December 31, 2001 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                        |  |           |           |            |  |            |        |       |  |   |        |   |  |   |           | 
|--------------------------------------- |  | --------- | --------- | ---------- |  | ---------- | ------ | ----- |  | - | ------ | - |  | - | --------- | 
|                                        |  | Cost or   |           | Gross      |  | Gross      |        |       |  |  
|                                        |  | Amortized |           | Unrealized |  | Unrealized |        | Fair 
|December 31, 2002                       |  | Cost      |           | Gains      |  | Losses     |        | Value
|                                        |  |           |           |            |  |            |        |      
|Fixed Maturity Investments              |  |           |           |            |  |            |        |       |  |   |        |   |  |   |           | 
|U.S. government and government agencies |  | $         | 101,357   |            |  | $          | 5,150  |       |  | $ |       |   |  | $ | 106,507   | 
|Other governments                       |  |           | 172,204   |            |  |            | 7,268  |       |  |   |       |   |  |   | 179,472   | 
|Corporate                               |  |           | 747,389   |            |  |            | 26,292 |       |  |   | (788   | ) |  |   | 772,893   | 
|Supranational entities                  |  |           | 92,482    |            |  |            | 2,283  |       |  |   | (28    | ) |  |   | 94,737    | 
|                                        |  |           |           |            |  |            |        |       |  |   |        |   |  |   |           | 
|                                        |  | $         | 1,113,432 |            |  | $          | 40,993 |       |  | $ | (816   | ) |  | $ | 1,153,609 | 
|                                        |  |           |           |            |  |            |        |       |  |   |        |   |  |   |           | 
|Equity investments                      |  | $         | 216,815   |            |  | $          | 3,591  |       |  | $ | (3,509 | ) |  | $ | 216,897   | 
|                                        |  |           |           |            |  |            |        |       |  |   |        |   |  |   |           | 

|                                        |  |           |         |            |  |            |        |       |  |   |         |   |  |   |         | 
|--------------------------------------- |  | --------- | ------- | ---------- |  | ---------- | ------ | ----- |  | - | ------- | - |  | - | ------- | 
|                                        |  | Cost or   |         | Gross      |  | Gross      |        |       |  |  
|                                        |  | Amortized |         | Unrealized |  | Unrealized |        | Fair 
|December 31, 2001                       |  | Cost      |         | Gains      |  | Losses     |        | Value
|                                        |  |           |         |            |  |            |        |      
|Fixed Maturity Investments              |  |           |         |            |  |            |        |       |  |   |         |   |  |   |         | 
|U.S. government and government agencies |  | $         | 148,208 |            |  | $          | 3,423  |       |  | $ | (262    | ) |  | $ | 151,369 | 
|Other governments                       |  |           | 102,534 |            |  |            | 2,823  |       |  |   | (10     | ) |  |   | 105,347 | 
|Corporate                               |  |           | 426,296 |            |  |            | 9,732  |       |  |   | (183    | ) |  |   | 435,845 | 
|Supranational entities                  |  |           | 63,696  |            |  |            | 2,008  |       |  |   | (41     | ) |  |   | 65,663  | 
|                                        |  |           |         |            |  |            |        |       |  |   |         |   |  |   |         | 
|                                        |  | $         | 740,734 |            |  | $          | 17,986 |       |  | $ | (496    | ) |  | $ | 758,224 | 
|                                        |  |           |         |            |  |            |        |       |  |   |         |   |  |   |         | 
|Equity investments                      |  | $         | 163,828 |            |  | $          | 5,918  |       |  | $ | (10,876 | ) |  | $ | 158,870 | 
|                                        |  |           |         |            |  |            |        |       |  |   |         |   |  |   |         | 





---



##### 





|b) |  | The contractual maturity dates of fixed maturity investments available for
sale as of December 31, 2002 are as follows:
|-- |  | -----------------------------------------------------------------------------------------------------------------------

|                                       |  |           |           |       |  |   |           | 
|-------------------------------------- |  | --------- | --------- | ----- |  | - | --------- | 
|                                       |  | Amortized |           | Fair 
|                                       |  | Cost      |           | Value
|                                       |  |           |           |      
|Due in one year or less                |  | $         | 99,357    |       |  | $ | 99,914    | 
|Due after one year through five years  |  |           | 850,531   |       |  |   | 883,323   | 
|Due after five years through ten years |  |           | 163,544   |       |  |   | 170,372   | 
|                                       |  |           |           |       |  |   |           | 
|                                       |  | $         | 1,113,432 |       |  | $ | 1,153,609 | 
|                                       |  |           |           |       |  |   |           | 



|   |  | Expected maturities may differ from contractual maturities because borrowers
may have the right to prepay obligations with or without prepayment
penalties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|c) |  | Pledged assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | In the normal course of business IPCRe provides security to reinsureds if
requested. Such security takes the form of a letter of credit or a cash
advance. Letters of credit are issued by IPCRes bankers, in favour of the
ceding company, at the request of IPCRe. Under an agreement effective
September 20, 1994, amended in 1999 and 2001, IPCRe provides the bank
security by giving the bank a lien over certain of IPCRes investments in an
amount not to exceed 118% of the aggregate letters of credit outstanding.
As of December 31, 2002 and 2001 the bank had outstanding letters of credit
of $86,513 and $17,026, respectively.
|  
|d) |  | Net investment income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                                        |  |      |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                        |  | 2002 |        | 2001 |  | 2000
|                                                        |  |      |        |      |  |     
|Interest on fixed maturity investments                  |  | $    | 57,693 |      |  | $    | 32,595 |   |  | $ | 30,357 |  
|Interest on cash and cash equivalents                   |  |      | 2,732  |      |  |      | 1,204  |   |  |   | 1,211  |  
|Net amortization of discounts
(premiums) on investments |  |      | (8,994 | )    |  |      | (855   | ) |  |   | 478    |  
|                                                        |  |      |        |      |  |      |        |   |  |   |        |  
|                                                        |  |      | 51,431 |      |  |      | 32,944 |   |  |   | 32,046 |  
|Net dividend income from equities                       |  |      | 789    |      |  |      | 886    |   |  |   | 611    |  
|Less: investment expenses                               |  |      | (2,900 | )    |  |      | (1,585 | ) |  |   | (1,568 | )
|                                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Net investment income                                   |  | $    | 49,320 |      |  | $    | 32,245 |   |  | $ | 31,089 |  
|                                                        |  |      |        |      |  |      |        |   |  |   |        |  



|e) |  | Proceeds from sales of available for sale securities for the years ended
December 31, 2002, 2001 and 2000 were $750,948, $373,537 and $206,536,
respectively. Components of net realized gains and losses on investments
are summarized in the following table:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  |                             |   |         |         |      |   |      |        |   |   |     |        |  
|--------------------------------- | --------------------------- | - | ------- | ------- | ---- | - | ---- | ------ | - | - | --- | ------ | -
|                                  |                             |   | 2002    |         | 2001 |   | 2000
|                                  |                             |   |         |         |      |   |     
|Fixed maturity investments:       |                             |   |         |         |      |   |      |        |   |   |     |       
|                                  | Gross realized gains        |   | $       | 14,463  |      |   | $    | 7,589  |   |   | $   | 367    |  
|                                  | Gross realized losses       |   |         | (1,083  | )    |   |      | (899   | ) |   |     | (724   | )
|                                  |                             |   |         |         |      |   |      |        |   |   |     |       
|                                  | Net realized gains (losses) |   |         | 13,380  |      |   |      | 6,690  |   |   |     | (357   | )
|                                  |                             |   |         |         |      |   |      |        |   |   |     |       
|Equity investments:               |                             |   |         |         |      |   |      |        |   |   |     |       
|                                  | Gross realized gains        |   |         | 5,708   |      |   |      | 788    |   |   |     | 2,790  |  
|                                  | Gross realized losses       |   |         | (63,955 | )    |   |      | (6,862 | ) |   |     | (1,889 | )
|                                  |                             |   |         |         |      |   |      |        |   |   |     |       
|                                  | Net realized (losses) gains |   |         | (58,247 | )    |   |      | (6,074 | ) |   |     | 901    |  
|                                  |                             |   |         |         |      |   |      |        |   |   |     |       
|Total net realized (losses) gains |                             | $ | (44,867 | )       |      | $ | 616  |        |   | $ | 544 |       
|                                  |                             |   |         |         |      |   |      |        |   |   |     |       



| |  | Included in gross realized losses on equity investments for the years ended
December 31, 2002, 2001 and 2000 are amounts totalling $49,030, $5,315 and
$nil respectively, in respect of declines in the value of individual
securities considered to be other than temporary.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





---



##### 





|f) |  | The following table summarizes the composition of the fair value of all
cash and cash equivalents and fixed maturity investments by rating:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|                                        |  |                   |       |                   |  |  |       |  
|--------------------------------------- |  | ----------------- | ----- | ----------------- |  |  | ----- | -
|                                        |  | December 31, 2002 |       | December 31, 2001
|                                        |  |                   |       |                  
|Cash and cash equivalents               |  |                   | 1.4   | %                 |  |  | 29.4  | %
|U.S. Government and government agencies |  |                   | 9.1   | %                 |  |  | 14.1  | %
|AAA                                     |  |                   | 30.8  | %                 |  |  | 16.9  | %
|AA                                      |  |                   | 33.9  | %                 |  |  | 32.2  | %
|A                                       |  |                   | 24.8  | %                 |  |  | 7.4   | %
|                                        |  |                   |       |                   |  |  |       |  
|                                        |  |                   | 100.0 | %                 |  |  | 100.0 | %
|                                        |  |                   |       |                   |  |  |       |  



|   |  | The primary rating source is Moodys Investors Service Inc. (Moodys).
When no Moodys rating is available, Standard & Poors Corporation (S & P)
ratings are used and where split-ratings exist, the higher of Moodys and S
& P is used.                                                                                                                                                                                                                                                                                                                                             
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|g) |  | At December 31, 2002, IPCRe held investments in three mutual funds: AIG
Global Equity Growth Fund, AIG North American Equity Trust Fund, both of
which are managed by AIG/Sun America and the Institutional Index Fund,
managed by Vanguard. At December 31, 2001 IPCRe held equity investments
in all of the companies which comprise the Standard & Poors 500 Index
(S & P 500). The number of shares of stock held was such that their
weighting within IPCRes portfolio matches the weighting of each stock
within the index. The S & P 500 stocks were all sold in September 2002.
|  
|4. |  | FAIR VALUE OF FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. Investments are carried at
fair value, based on quoted market prices provided by either independent
pricing services or when such prices are not available, by reference to broker
or underwriter bid indications. The fair value of other assets and
liabilities, consisting of reinsurance premiums receivable, accrued investment
income, other assets, reinsurance premiums payable and accounts payable and
accrued liabilities approximates their carrying value due to their relative
short term nature.

The estimates of fair value of other assets and liabilities are subjective in
nature and are not necessarily indicative of the amounts that the Company would
actually realize in a current market exchange. However, any differences would
not be expected to be material. Certain instruments such as deferred premiums
ceded, loss and loss adjustment expenses recoverable, deferred acquisition
costs, prepaid expenses, reserve for loss and loss adjustment expenses,
unearned premiums and deferred commissions are excluded from fair value
disclosure. Thus the total fair value amounts cannot be aggregated to
determine the underlying economic value of the Company.



|5. |  | CEDED REINSURANCE
|-- |  | -----------------

IPCRe utilizes reinsurance to reduce its exposure to large losses. Effective
January 1, 1999, IPCRe arranged a proportional reinsurance facility. This
facility covers property catastrophe business written by IPCRe, and provides
coverage up to $50,000 in each of at least 5 named zones, plus potentially
other zones of IPCRes choosing, provided that they do not accumulate with the
named zones. The United States and the Caribbean are excluded zones. The
named zones are the United Kingdom; Europe (excluding the U.K.); Australia /
New Zealand; Japan and Canada. Business ceded to the facility is solely at the
discretion of IPCRe. Within these limitations, IPCRe may designate the
treaties to be included in the facility, subject to IPCRe retaining at least
50% of the risk. The premium ceded is pro rata, less brokerage and an override
commission. A subsidiary of AIG is a participating reinsurer, and





---



##### 



committed a
10% participation on a direct basis (2001: 10%; 2000: 10%). Most reinsurers
participating in the facility have ratings of A or above, and the minimum
rating is A-.

Effective January 1, 2002 IPCRe arranged a Property Catastrophe Excess of Loss
Reinsurance facility in respect of certain property catastrophe business
written by IPCRe. This facility covers first losses only for the business
ceded to this facility. All subsequent events are retained by IPCRe.
Business ceded to this facility includes worldwide business excluding the
United States and Canada. IPCRe can cede $15,000 ultimate net loss in the
aggregate per contract year to the facility. IPCRes retention is $10 in the
aggregate per contract. Business ceded to this facility is solely at IPCRes
discretion. The reinsurer participating in this facility has a rating of A+.

Although reinsurance agreements contractually obligate the reinsurers to
reimburse IPCRe for the agreed upon portion of its gross paid losses, they do
not discharge IPCRes primary liability. Management believes that the risk of
non-payment by the reinsurers is minimal.



|6. |  | SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL
|-- |  | --------------------------------------------

On June 29, 1993 shareholders contributed total funds of $300,000 through a
private placement offering of which $483 was used to pay placement costs.

On December 12, 2001 shareholders contributed approximately $546,404 in
additional funds, net of placement costs of $17,900, through a public offering,
a private placement, and the exercise of the AIG Option, as described in Notes
1 and 7.

The capital of the Company as of December 31, 2002 and December 31, 2001
consisted of the following:

|                                                |  |                   |            |            |  |                   |            |         |  |   |     |                    |  |   |         | 
|----------------------------------------------- |  | ----------------- | ---------- | ---------- |  | ----------------- | ---------- | ------- |  | - | --- | ------------------ |  | - | ------- | 
|                                                |  |                   |            |            |  | Shares Issued and |            |         |  |   |     | Additional Paid-in
|December 31, 2002                               |  | Authorized Shares |            | Fully Paid |  | Share Capital     |            | Capital
|                                                |  |                   |            |            |  |                   |            |        
|Voting common shares, par value
U.S. $0.01 each |  |                   | 75,000,000 |            |  |                   | 48,179,805 |         |  | $ | 482 |                    |  | $ | 846,397 | 
|Preferred shares, par value
U.S. $0.01 each     |  |                   | 25,000,000 |            |  |                   |           |         |  |   |    |                    |  |   |        | 

|                                                |  |                   |            |            |  |                   |            |         |  |   |     |                    |  |   |         | 
|----------------------------------------------- |  | ----------------- | ---------- | ---------- |  | ----------------- | ---------- | ------- |  | - | --- | ------------------ |  | - | ------- | 
|                                                |  |                   |            |            |  | Shares Issued and |            |         |  |   |     | Additional Paid-in
|December 31, 2001                               |  | Authorized Shares |            | Fully Paid |  | Share Capital     |            | Capital
|                                                |  |                   |            |            |  |                   |            |        
|Voting common shares, par value
U.S. $0.01 each |  |                   | 75,000,000 |            |  |                   | 48,172,776 |         |  | $ | 482 |                    |  | $ | 846,101 | 
|Preferred shares, par value
U.S. $0.01 each     |  |                   | 25,000,000 |            |  |                   |           |         |  |   |    |                    |  |   |        | 

There are various restrictions on the ability of AIG to dispose of their shares
as they were acquired through private placement and are presently unregistered.
In September 2001, the Company paid a dividend of $0.16 per share to holders
of its common shares. The Company did not pay dividends during 2002 or 2000.





---



##### 





|7. |  | SHARE PURCHASE OPTIONS
|-- |  | ----------------------

In conjunction with the private placement offering at the formation of the
company, the Company granted to AIG an option to acquire up to 2,775,000 common
shares at an exercise price of $12.7746 per share (AIG Option). The AIG
Option was exercisable in certain circumstances, including an offering of
common stock subsequent to the initial public offering. Concurrent with the
public offering in December 2001, described in Note 1, AIG elected to exercise
the option in full.

The Company also adopted a Stock Option Plan (the Plan), effective February
15, 1996. This plan was amended and approved by the shareholders in 1999.
Under the amended Plan, approved by shareholders in June 1999, at the
discretion of the Compensation Committee of the Board of Directors (the
Committee), the Company may grant to certain employees up to 577,500 common
shares, $0.01 par value (2001: 577,500 common shares, $0.01 par value). The
exercise price of the options granted under the Plan shall be as determined by
the Committee in its sole discretion, including, but not limited to, the book
value per share or the publicly traded market price per share.

On February 15, 1996 and July 25, 1996, the Company granted options to acquire
85,249 common shares to officers and management employees at an exercise price
of $16.54 per common share which equaled the book value per common share as of
December 31, 1995. Between January 2, 1997 and December 31, 2002, the Company
granted options to acquire common shares to officers and management employees
at exercise prices ranging from $13.375 and $32.1875 per common share, which
equaled the opening market prices on the dates of grant. Such options vest at
a rate of 25% annually and lapse on the tenth anniversary of issue.

The effect on net income and net income per common share of recording
compensation expense under the fair value provisions of SFAS 123, Accounting
for Stock-based Compensation, versus compensation expense under the provisions
of APB Opinion No. 25, is shown in Note 1 (h).

A summary of the status of the Companys stock option plan as of December 31,
2002, 2001 and 2000 and changes during the years then ended is presented in the
tables and narrative below:

|                                                           |  |           |         |          |  |           |       |          |  |           |         |          |  |   |       |  |  |          |         |  |  |   |       | 
|---------------------------------------------------------- |  | --------- | ------- | -------- |  | --------- | ----- | -------- |  | --------- | ------- | -------- |  | - | ----- |  |  | -------- | ------- |  |  | - | ----- | 
|                                                           |  | 2002      |         | 2001     |  | 2000     
|                                                           |  |           |         |          |  |          
|                                                           |  |           |         |          |  | Weighted  |       |          |  |           |         | Weighted |  |   |       |  |  | Weighted
|                                                           |  |           |         |          |  | Average   |       |          |  |           |         | Average  |  |   |       |  |  | Average 
|                                                           |  | Number of |         | Exercise |  | Number of |       | Exercise |  | Number of |         | Exercise
|                                                           |  | Shares    |         | Price    |  | Shares    |       | Price    |  | Shares    |         | Price   
|                                                           |  |           |         |          |  |           |       |          |  |           |         |         
|Outstanding, beginning of year                             |  |           | 251,719 |          |  | $         | 20.80 |          |  |           | 291,032 |          |  | $ | 20.76 |  |  |          | 187,813 |  |  | $ | 23.87 | 
|Granted                                                    |  |           | 127,500 |          |  | $         | 27.85 |          |  |           | 71,000  |          |  | $ | 21.00 |  |  |          | 109,000 |  |  | $ | 15.19 | 
|Exercised                                                  |  |           | 16,275  |          |  | $         | 17.96 |          |  |           | 31,063  |          |  | $ | 15.94 |  |  |          | 5,781   |  |  | $ | 16.54 | 
|Forfeited                                                  |  |           |        |          |  |           |      |          |  |           | 79,250  |          |  | $ | 22.74 |  |  |          |        |  |  |   |      | 
|Outstanding, end of year                                   |  |           | 362,944 |          |  | $         | 23.41 |          |  |           | 251,719 |          |  | $ | 20.80 |  |  |          | 291,032 |  |  | $ | 20.76 | 
|Exercisable, end of year                                   |  |           | 141,475 |          |  | $         | 22.19 |          |  |           | 94,966  |          |  | $ | 22.76 |  |  |          | 101,000 |  |  | $ | 22.77 | 
|Weighted average fair value of
options granted (per share) |  | $         | 10.64   |          |  |           |       |          |  | $         | 9.70    |          |  |   |       |  |  | $        | 6.79    |  |  |   |       | 

The fair value of options granted on January 2, 2002 was estimated using the
Black-Scholes option pricing model, using assumed risk-free rates of interest
of 4.80%; expected dividend yield of 3.0%; an expected life of 7 years; and an
expected volatility of 38.6%.





---



##### 



The fair value of options granted on January 2, 2001 was estimated using the
Black-Scholes option pricing model, using assumed risk-free rates of interest
of 4.83%; expected dividend yield of 3.0%; an expected life of 7 years; and an
expected volatility of 56.0%.

The fair value of options granted during 2000 was estimated using the
Black-Scholes option pricing model, using assumed risk-free rates of interest
of between 6.00% and 6.40%; expected dividend yields of 0.00% to 4.16%; an
expected life of 7 years; and an expected volatility of 55% to 66%.

|         |        |             |        |             |  |          |          |             |          |          |       |       |  |  |          |        |  |   |       |       | 
|-------- | ------ | ----------- | ------ | ----------- |  | -------- | -------- | ----------- | -------- | -------- | ----- | ----- |  |  | -------- | ------ |  | - | ----- | ----- | 
|         |        |             |        |             |  |          | Weighted |             |          |          |       |       |  |  |          |        |  |   |      
|         |        |             |        |             |  |          | Average  |             | Weighted |          |       |       |  |  | Weighted
|Range of |        | Outstanding |        | Contractual |  | Average  |          | Exercisable |          | Average 
|Exercise |        | at December |        | Periods     |  | Exercise |          | at December |          | Exercise
|Price    |        | 31, 2002    |        | in Years    |  | Price    |          | 31, 2002    |          | Price   
|         |        |             |        |             |  |          |          |             |          |         
|         | $13-19 |             |        | 82,063      |  |          |          | 6.44        |          |          | $     | 15.38 |  |  |          | 50,813 |  |   | $     | 15.58 | 
|         | $19-25 |             |        | 120,131     |  |          |          | 6.91        |          |          | $     | 21.74 |  |  |          | 57,412 |  |   | $     | 22.26 | 
|         | $25-31 |             |        | 127,500     |  |          |          | 9.00        |          |          | $     | 27.85 |  |  |          | 0      |  |   | $     | 0.00  | 
|Over $31 |        |             | 33,250 |             |  |          | 5.00     |             |          | $        | 32.19 |       |  |  | 33,250   |        |  | $ | 32.19 |      



|8. |  | NET INCOME (LOSS) PER COMMON SHARE
|-- |  | ----------------------------------

The following table sets forth the computation of basic and diluted net income
per common share (EPS):

|                  |  |        |         |        |  |           |            |        |  |   |       |  
|----------------- |  | ------ | ------- | ------ |  | --------- | ---------- | ------ |  | - | ----- | -
|                  |  | Income |         |        |  |           |            | Amount
|                  |  | (Loss) |         | Shares |  | per share
|                  |  |        |         |        |  |          
|December 31, 2002 |  |        |         |        |  |           |            |        |  |   |       |  
|Basic EPS         |  | $      | 157,906 |        |  |           | 48,173,362 |        |  | $ | 3.28  |  
|Diluted EPS       |  | $      | 157,906 |        |  |           | 48,266,444 |        |  | $ | 3.27  |  
|December 31,
2001 |  |        |         |        |  |           |            |        |  |   |       |  
|Basic EPS         |  | $      | (3,933  | )      |  |           | 26,266,019 |        |  | $ | (0.15 | )
|Diluted EPS       |  | $      | (3,933  | )      |  |           | 26,266,019 |        |  | $ | (0.15 | )
|December 31, 2000 |  |        |         |        |  |           |            |        |  |   |       |  
|Basic EPS         |  | $      | 44,225  |        |  |           | 25,034,414 |        |  | $ | 1.77  |  
|Diluted EPS       |  | $      | 44,225  |        |  |           | 25,497,671 |        |  | $ | 1.73  |  





---



##### 



|9. |  | RELATED PARTY TRANSACTIONS
|-- |  | --------------------------

In addition to the share purchase options discussed in Note 7, the Company and
its subsidiaries have entered into the following transactions and agreements
with companies affiliated with AIG:



|a) |  | Administrative services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company and IPCRe are parties to an agreement with American
International Company, Limited (AICL), an indirect wholly-owned
subsidiary of AIG, under which AICL provides administrative services for a
fee of 2.5% of the first $500,000 annual gross written premiums (1.5% of
the next $500,000 and 1% thereafter). These fees are included in general
and administrative expenses in the accompanying consolidated statements of
income. This administrative services agreement terminates on June 30, 2006
and is automatically renewed thereafter for successive three year terms
unless prior written notice to terminate is delivered by or to AICL at
least 180 days prior to the end of such three year term. In addition,
IPCRe Europe Limited is party to an agreement with AIG Insurance Management
Services (Europe) Limited (AIMS), an indirect wholly-owned subsidiary of
AIG, under which AIMS provides administrative services for an annual fee of



|   |  | approximately $30 per annum. This agreement may be terminated by either
party subject to three months written notice.                                                                                                                                                                                                                                                                                                          
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b) |  | Investment management services                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | IPCRe is party to an agreement with AIG Global Investment Corp. (Ireland)
Limited (AIGGIC), an indirect wholly-owned subsidiary of AIG, under which
AIGGIC provides investment advisory and management services. This agreement
is subject to termination by either party on 30 days written notice. IPCRe
has agreed to pay fees to AIGGIC based on the month end market value of the
total investment portfolio as follows:

|                                    |  |                 |    | 
|----------------------------------- |  | --------------- | -- | 
|                                    |  | Annual Fee     
|Portfolio Balance                   |  | in Basis Points
|                                    |  |                
|Up to $100,000                      |  |                 | 35 | 
|Excess of $100,000 through $200,000 |  |                 | 25 | 
|Excess of $200,000                  |  |                 | 15 | 



|   |  | Rebates are received on the management fees charged by AIG/Sun America for
the equity funds. These fees and rebates are included in net investment
income in the accompanying consolidated statements of income.                                                                                                                                                                                                                                                                                                                                    
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|c) |  | Investment custodian services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | IPCRe is party to an agreement with AIG Trust Services Limited (AIGTS), an
indirect wholly-owned subsidiary of AIG, under which AIGTS provides
investment custodian services. IPCRe has agreed to pay fees of 0.04% per
annum based on the month end market value of investments held under custody,
plus reimbursement of fees and out-of-pocket expenses. These fees are
included in net investment income in the accompanying consolidated
statements of income. This agreement may be terminated by either party upon
90 days written notice.
|  
|   |  | The following amounts were incurred/received for services provided by
indirect wholly-owned subsidiaries of AIG:                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                             |  |                |       |            |  |            |       |           |  |            |       |  |  |   |     | 
|---------------------------- |  | -------------- | ----- | ---------- |  | ---------- | ----- | --------- |  | ---------- | ----- |  |  | - | --- | 
|                             |  |                |       |            |  | Investment |       | Equity    |  | Investment
|                             |  | Administrative |       | Management |  | Funds Fee  |       | Custodian
|                             |  | Services       |       | Services   |  | Rebate     |       | Services 
|                             |  |                |       |            |  |            |       |          
|Year ended December 31, 2002 |  | $              | 5,806 |            |  | $          | 2,219 |           |  | $          | 1,237 |  |  | $ | 680 | 
|Year ended December 31, 2001 |  | $              | 3,191 |            |  | $          | 1,269 |           |  | $          | 335   |  |  | $ | 316 | 
|Year ended December 31, 2000 |  | $              | 2,316 |            |  | $          | 1,189 |           |  | $          |      |  |  | $ | 379 | 



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | The following amounts were payable as of the balance sheet date to
subsidiaries of AIG for these services:

|                  |  |   |       | 
|----------------- |  | - | ----- | 
|December 31, 2002 |  | $ | 2,885 | 
|December 31, 2001 |  |   | 1,212 | 





---



##### 





|d) |  | Underwriting Services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | IPCUSL is party to an agreement with Allied World Assurance Company Ltd
(AWAC), a Bermuda-based multi-line insurance and reinsurance company,
which is wholly-owned by Allied World Holdings, Ltd., a company in which AIG
has a 23.4% ownership interest. Under this agreement, IPCUSL underwrites
property catastrophe treaty reinsurance written by AWAC. IPCUSL receives an
agency commission of 6.5% of gross premiums written under this agreement,
which has an initial term of three years, commencing December 1, 2001.



|   |  | Business written under this agreement during the year ended December 31,
2002 was $41,284 and provided agency commission of $2,684. This amount is
recorded as other income in the accompanying consolidated statements of
income. The balance due as at December 31, 2002 was $51. No Business was
underwritten in the year ended December 31, 2001 and therefore no income was
recorded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|e) |  | Related Party Reinsurance Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | IPCRe assumed premiums from companies affiliated with two shareholders of
the Company. Premiums assumed were $42,888, $15,603 and $10,004,
respectively, for the years ended December 31, 2002, 2001 and 2000. In
addition, IPCRe assumed premiums through brokers related to shareholders of
the Company totaling $3,614, $4,866 and $5,308, respectively, for the years
ended December 31, 2002, 2001 and 2000. Brokerage fees and commissions
incurred in respect of this business were approximately $361, $487 and $531,
respectively, for the years ended December 31, 2002, 2001 and 2000. IPCRe
ceded premiums to a company affiliated with a shareholder (Note 5).
Premiums ceded were $601, $442 and $4,832, respectively, for the years ended
December 31, 2002, 2001 and 2000. All such transactions were undertaken on
normal commercial terms. Reinsurance premiums receivable due from related
parties as of December 31, 2002 and December 31, 2001 were $11,338 and
$3,644, respectively. Reinsurance premiums payable to related parties as of
December 31, 2002 and 2001 were $173 and $197, respectively.
|  
|f) |  | A director and executive officer of various AIG subsidiaries and
affiliates serves as the Chairman of the Board of Directors of the Company
and IPCRe. In addition, the managing director of AIMS serves as a
director of IPCRe Europe Limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              





---



##### 



|10. |  | RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
|--- |  | -----------------------------------------------

Activity in the reserve for losses and loss adjustment expenses is summarized
as follows:

|                                       |              |   |         |         |      |   |         |         |   |   |         |         |  
|-------------------------------------- | ------------ | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                       |              |   | 2002    |         | 2001 |   | 2000   
|                                       |              |   |         |         |      |   |        
|Balance, beginning of year             |              | $ | 161,526 |         |      | $ | 60,171  |         |   | $ | 106,856 |        
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|Net losses incurred related to:        |              |   |         |         |      |   |         |         |   |   |         |        
|                                       | Current year |   |         | 34,266  |      |   |         | 133,629 |   |   |         | 13,508  |  
|                                       | Prior years  |   |         | 4,509   |      |   |         | 3,922   |   |   |         | 40,153  |  
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|                                       |              |   | 38,775  |         |      |   | 137,551 |         |   |   | 53,661  |        
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|Net paid losses related to:            |              |   |         |         |      |   |         |         |   |   |         |        
|                                       | Current year |   |         | (4,473  | )    |   |         | (9,494  | ) |   |         | (2,648  | )
|                                       | Prior years  |   |         | (79,393 | )    |   |         | (25,553 | ) |   |         | (94,104 | )
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|                                       |              |   | (83,866 | )       |      |   | (35,047 | )       |   |   | (96,752 | )      
|Effect of foreign exchange movements   |              |   | 2,515   |         |      |   | (1,149  | )       |   |   | (3,594  | )      
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|Total net reserves, end of year        |              |   | 118,950 |         |      |   | 161,526 |         |   |   | 60,171  |        
|Loss reserves recoverable, end of year |              |   | 405     |         |      |   | 681     |         |   |   | 1,187   |        
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|Gross loss reserves, end of year       |              | $ | 119,355 |         |      | $ | 162,207 |         |   | $ | 61,358  |        
|                                       |              |   |         |         |      |   |         |         |   |   |         |        

Losses incurred in the year ended December 31, 2002 included $18,000 in respect
of the floods which affected parts of central and eastern Europe in August
2002. Losses incurred in the year ended December 31, 2002 in respect of prior
years primarily result from development of reserves relating to the attack on
the World Trade Center.

Losses incurred in the year ended December 31, 2001 included $116,000 in
respect of the September 11 attack on the World Trade Center, of which $113,587
were outstanding at December 31, 2001. Losses incurred in the year ended
December 31, 2001 in respect of prior years included claims from the hailstorm
which struck Louisiana in 2000, claims from the Norwegian Catastrophe Pool for
2000, and increases for proportional aviation treaties.

Losses incurred in the year ended December 31, 2000 in respect of prior years
included increases related to Cyclones Lothar and Martin which struck northern
Europe in December 1999, and Typhoon Bart which struck Japan in September 1999.
The development was primarily due to delayed reporting of claims by ceding
companies.





---



##### 



|11. |  | WRITTEN PREMIUM BY GEOGRAPHIC REGION
|--- |  | ------------------------------------

Financial information relating to reinsurance premiums written by geographic
region is as follows:

|                                   |  |                   |         |                   |  |                   |       |          |  |         |         |   |  |          |       |   |  |   |        |  |  |  |       |  
|---------------------------------- |  | ----------------- | ------- | ----------------- |  | ----------------- | ----- | -------- |  | ------- | ------- | - |  | -------- | ----- | - |  | - | ------ |  |  |  | ----- | -
|                                   |  | December 31, 2002 |         | December 31, 2001 |  | December 31, 2000
|                                   |  |                   |         |                   |  |                  
|                                   |  | Premiums          |         |                   |  |                   |       | Premiums |  |         |         |   |  | Premiums |       |   |  |  
|                                   |  | Written           |         | %                 |  | Written           |       | %        |  | Written |         | %
|                                   |  |                   |         |                   |  |                   |       |          |  |         |         |  
|Geographic
Area (1):               |  |                   |         |                   |  |                   |       |          |  |         |         |   |  |          |       |   |  |   |        |  |  |  |       |  
|United States                      |  | $                 | 117,904 |                   |  |                   | 45.4  | %        |  | $       | 57,971  |   |  |          | 43.6  | % |  | $ | 39,107 |  |  |  | 41.7  | %
|Worldwide (2)                      |  |                   | 36,804  |                   |  |                   | 14.2  | %        |  |         | 22,165  |   |  |          | 16.7  | % |  |   | 14,992 |  |  |  | 16.0  | %
|Worldwide
(excluding the U.S.) (3) |  |                   | 16,312  |                   |  |                   | 6.3   | %        |  |         | 5,758   |   |  |          | 4.3   | % |  |   | 4,827  |  |  |  | 5.2   | %
|United Kingdom                     |  |                   | 31,917  |                   |  |                   | 12.3  | %        |  |         | 14,713  |   |  |          | 11.1  | % |  |   | 10,467 |  |  |  | 11.1  | %
|Europe (excluding the U.K.)        |  |                   | 30,943  |                   |  |                   | 11.9  | %        |  |         | 11,722  |   |  |          | 8.8   | % |  |   | 8,677  |  |  |  | 9.3   | %
|Japan                              |  |                   | 15,432  |                   |  |                   | 5.9   | %        |  |         | 7,383   |   |  |          | 5.5   | % |  |   | 4,175  |  |  |  | 4.5   | %
|Australia/New Zealand              |  |                   | 6,103   |                   |  |                   | 2.4   | %        |  |         | 5,701   |   |  |          | 4.3   | % |  |   | 5,188  |  |  |  | 5.5   | %
|Other                              |  |                   | 4,270   |                   |  |                   | 1.6   | %        |  |         | 7,644   |   |  |          | 5.7   | % |  |   | 6,324  |  |  |  | 6.7   | %
|                                   |  |                   |         |                   |  |                   |       |          |  |         |         |   |  |          |       |   |  |   |        |  |  |  |       |  
|                                   |  | $                 | 259,685 |                   |  |                   | 100.0 | %        |  | $       | 133,057 |   |  |          | 100.0 | % |  | $ | 93,757 |  |  |  | 100.0 | %
|                                   |  |                   |         |                   |  |                   |       |          |  |         |         |   |  |          |       |   |  |   |        |  |  |  |       |  



|(1) |  | Except as otherwise noted, each of these categories includes contracts
that cover risks located primarily in the designated geographic area.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes contracts that cover risks primarily in two or more countries,
including the United States.                                        
|   
|(3) |  | Includes contracts that cover risks primarily in two or more countries,
excluding the United States.                                        
|   
|12. |  | CONCENTRATIONS AND CREDIT RISK                                                                                                              

Credit risk arises out of the failure of a counterparty to perform according to
the terms of the contract. IPC does not require collateral or other security
to support financial instruments with credit risk. A single broker group
accounted for approximately 35%, 42% and 36%, respectively, of total premiums
written for the years ended December 31, 2002, 2001 and 2000. Five broker
groups accounted for approximately 86%, 85% and 79%, respectively, of total
premiums written for the years ended December 31, 2002, 2001 and 2000.





---



##### 





|13. |  | CREDIT FACILITY
|--- |  | ---------------

In July 1998, IPCRe entered into a five year, revolving credit agreement with a
syndicate of financial institutions in the amount of $300,000. In July, 2001,
the amount was reduced to $150,000. The proceeds of this facility can be used
for general corporate purposes. This facility has certain financial covenants,
including minimum net worth provisions, restrictions on the amount of dividends
that IPCRe may pay to net income of the previous twelve months, and certain
investment restrictions. At December 31, 2002 no amounts have been drawn under
this facility, and IPCRe was in compliance with all covenants under this
facility.



|14. |  | STATUTORY CAPITAL AND SURPLUS
|--- |  | -----------------------------

IPCRe is registered under the Bermuda Insurance Act 1978 and Related
Regulations (the Act) and is obliged to comply with various provisions of the
Act regarding solvency and liquidity. Under the Act, as amended in May, 1995,
IPCRe is required to maintain minimum statutory capital and surplus equal to
the greater of $100,000, 50% of net premiums written or 15% of the net reserve
for losses and loss adjustment expenses. These provisions have been met as
shown in the following table:

|                                      |  |                   |           |                   |  |   |           | 
|------------------------------------- |  | ----------------- | --------- | ----------------- |  | - | --------- | 
|                                      |  | December 31, 2002 |           | December 31, 2001
|                                      |  |                   |           |                  
|Actual statutory capital and surplus  |  | $                 | 1,283,857 |                   |  | $ | 1,104,172 | 
|Minimum statutory capital and surplus |  | $                 | 127,145   |                   |  | $ | 100,000   | 

IPCRes statutory net income (loss) for the years ended December 31, 2002, 2001
and 2000, was $152,444, $(3,724) and $44,961, respectively.

The Act limits the maximum amount of annual dividends or distributions paid by
IPCRe to the Company without notification to the Supervisor of Insurance
(Supervisor) of such payment (and in certain cases the prior approval of the
Supervisor). The maximum amount of dividends which could be paid by IPCRe to
the Company at January 1, 2003 without such notification is approximately
$320,964.

In accordance with IPCRes license under the Act, loss reserves are certified
annually by an independent loss reserve specialist.



|15. |  | PENSION PLAN
|--- |  | ------------

Effective December 1, 1995, IPCRe adopted a defined contribution plan for the
majority of its officers and employees. Pursuant to the plan, each participant
can contribute 5% or more of their salary and IPCRe will contribute an amount
equal to 5% of each participants salary. IPCRe contributions in respect of
this plan amounted to approximately $72, $60 and $74 in 2002, 2001 and 2000
respectively. In addition, IPCRe has entered into individual pension
arrangements with specific employees that are non-contributory defined benefit
plans. Benefits are based upon a percentage of average final compensation
multiplied by years of credited service. An independent actuarial review of
the benefit obligations was undertaken at December 31, 2002. The Company has
recorded a liability for accumulated benefit obligations at December 31, 2002
of $732 (2001: $143), pension costs recorded in respect of the defined benefit
plan amounted to $589, $29 and $29 in 2002, 2001 and 2000 respectively. The
plan is currently unfunded. The projected benefit obligations were $832 and
$587 at December 31, 2002 and 2001, respectively. Actuarial assumptions used
in estimating obligations are a discount rate of 6.75% (2001: 7.5%) and average
compensation increases of 3.9% (2001: 3.9%).



|16. |  | TAXES
|--- |  | -----

At the present time, no income, profit, capital or capital gains taxes are
levied in Bermuda. In the event that such taxes are levied, the Company, IPCRe
and IPCUSL have received an undertaking from the Bermuda Government exempting
them from all such taxes until March 28, 2016.





---



##### 



The Company, IPCRe and IPCUSL do not consider themselves to be engaged in a
trade or business in the United States and, accordingly, do not expect to be
subject to United States income taxes.

IPCRe Services Limited was a tax-paying entity subject to the jurisdiction of
the Government of the United Kingdom. The amount of taxes incurred for 2001
and 2000 was not material to the consolidated financial statements.

IPCRe Europe Limited is a tax-paying entity subject to the jurisdiction of the
Government of Ireland. The amount of taxes incurred for 2002, 2001 and 2000 is
not material to the consolidated financial statements.



|17. |  | UNAUDITED QUARTERLY FINANCIAL DATA
|--- |  | ----------------------------------

|                                           |  |           |         |          |  |           |        |          |  |   |        |   |  |   |         |  
|------------------------------------------ |  | --------- | ------- | -------- |  | --------- | ------ | -------- |  | - | ------ | - |  | - | ------- | -
|                                           |  | Quarter   |         | Quarter  |  | Quarter   |        | Quarter 
|                                           |  | Ended     |         | Ended    |  | Ended     |        | Ended   
|                                           |  | March 31, |         | June 30, |  | Sept. 30, |        | Dec. 31,
|                                           |  | 2002      |         | 2002     |  | 2002      |        | 2002    
|                                           |  |           |         |          |  |           |        |         
|Gross premiums written                     |  | $         | 147,048 |          |  | $         | 60,110 |          |  | $ | 35,522 |   |  | $ | 17,005  |  
|Net premiums earned                        |  |           | 46,411  |          |  |           | 56,478 |          |  |   | 62,908 |   |  |   | 60,607  |  
|Net investment income                      |  |           | 11,882  |          |  |           | 13,075 |          |  |   | 12,451 |   |  |   | 11,912  |  
|Net realized (losses) gains on investments |  |           | (767    | )        |  |           | (6,658 | )        |  |   | (821   | ) |  |   | (36,621 | )
|Losses and loss adjustment expenses, net   |  |           | 7,607   |          |  |           | 7,765  |          |  |   | 18,872 |   |  |   | 4,531   |  
|Net income                                 |  |           | 43,507  |          |  |           | 48,646 |          |  |   | 45,783 |   |  |   | 19,970  |  
|Net income per common share  basic        |  | $         | 0.90    |          |  | $         | 1.01   |          |  | $ | 0.95   |   |  | $ | 0.41    |  
|Net income per common share  diluted      |  | $         | 0.90    |          |  | $         | 1.01   |          |  | $ | 0.95   |   |  | $ | 0.41    |  

|                                             |  |           |        |          |  |           |        |          |  |   |         |   |  |   |        |  
|-------------------------------------------- |  | --------- | ------ | -------- |  | --------- | ------ | -------- |  | - | ------- | - |  | - | ------ | -
|                                             |  | Quarter   |        | Quarter  |  | Quarter   |        | Quarter 
|                                             |  | Ended     |        | Ended    |  | Ended     |        | Ended   
|                                             |  | March 31, |        | June 30, |  | Sept. 30, |        | Dec. 31,
|                                             |  | 2001      |        | 2001     |  | 2001      |        | 2001    
|                                             |  |           |        |          |  |           |        |         
|Gross premiums written                       |  | $         | 65,622 |          |  | $         | 26,965 |          |  | $ | 33,081  |   |  | $ | 7,389  |  
|Net premiums earned                          |  |           | 24,487 |          |  |           | 24,845 |          |  |   | 45,111  |   |  |   | 28,932 |  
|Net investment income                        |  |           | 8,061  |          |  |           | 7,574  |          |  |   | 7,871   |   |  |   | 8,739  |  
|Net realized gains (losses) on investments   |  |           | 3,864  |          |  |           | 587    |          |  |   | 1,703   |   |  |   | (5,538 | )
|Losses and loss adjustment expenses, net     |  |           | 6,967  |          |  |           | 7,212  |          |  |   | 116,715 |   |  |   | 6,657  |  
|Net income (loss)                            |  |           | 23,905 |          |  |           | 20,835 |          |  |   | (68,979 | ) |  |   | 20,306 |  
|Net income (loss) per common share  basic   |  | $         | 0.95   |          |  | $         | 0.83   |          |  | $ | (2.75   | ) |  | $ | 0.68   |  
|Net income (loss) per common share  diluted |  | $         | 0.91   |          |  | $         | 0.79   |          |  | $ | (2.75   | ) |  | $ | 0.65   |  





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##### 





|18. |  | SUMMARIZED SUBSIDIARY FINANCIAL DATA
|--- |  | ------------------------------------

Summarized consolidated financial data of IPCRe Limited and subsidiary, is as
follows:

|                                        |  |                   |         |                   |  |                   |          |   |  |   |         |  
|--------------------------------------- |  | ----------------- | ------- | ----------------- |  | ----------------- | -------- | - |  | - | ------- | -
|                                        |  | Year Ended        |         | Year Ended        |  | Year Ended       
|                                        |  |                   |         |                   |  |                  
|                                        |  | December 31, 2002 |         | December 31, 2001 |  | December 31, 2000
|                                        |  |                   |         |                   |  |                  
|Gross premiums written                  |  | $                 | 259,685 |                   |  | $                 | 133,057  |   |  | $ | 93,757  |  
|Net premiums earned                     |  |                   | 226,404 |                   |  |                   | 123,375  |   |  |   | 86,961  |  
|Investment income, net                  |  |                   | 49,320  |                   |  |                   | 32,244   |   |  |   | 31,086  |  
|Net realized (loss) gain on
investments |  |                   | (44,867 | )                 |  |                   | 616      |   |  |   | 544     |  
|Incurred losses, net                    |  |                   | (38,775 | )                 |  |                   | (137,551 | ) |  |   | (53,661 | )
|Acquisition costs, net                  |  |                   | (24,521 | )                 |  |                   | (12,686  | ) |  |   | (9,049  | )
|General & administration expenses       |  |                   | (12,633 | )                 |  |                   | (8,443   | ) |  |   | (8,427  | )
|Foreign exchange gain (loss), net       |  |                   | 1,554   |                   |  |                   | (574     | ) |  |   | (2,323  | )
|                                        |  |                   |         |                   |  |                   |          |   |  |   |         |  
|Net income (loss)                       |  | $                 | 156,482 |                   |  | $                 | (3,019   | ) |  | $ | 45,131  |  
|                                        |  |                   |         |                   |  |                   |          |   |  |   |         |  
|Loss ratio (1)                          |  |                   | 17.1    | %                 |  |                   | 111.5    | % |  |   | 61.7    | %
|Expense ratio (2)                       |  |                   | 16.4    | %                 |  |                   | 17.1     | % |  |   | 20.1    | %
|Combined ratio (3)                      |  |                   | 33.5    | %                 |  |                   | 128.6    | % |  |   | 81.8    | %

|                                           |  |                   |           |                   |  |   |           | 
|------------------------------------------ |  | ----------------- | --------- | ----------------- |  | - | --------- | 
|                                           |  | December 31, 2002 |           | December 31, 2001
|                                           |  |                   |           |                  
|Cash & investments                         |  | $                 | 1,387,045 |                   |  | $ | 1,232,121 | 
|Reinsurance balances receivable            |  |                   | 50,328    |                   |  |   | 42,356    | 
|Other assets                               |  |                   | 37,393    |                   |  |   | 29,189    | 
|                                           |  |                   |           |                   |  |   |           | 
|Total assets                               |  | $                 | 1,474,766 |                   |  | $ | 1,303,666 | 
|                                           |  |                   |           |                   |  |   |           | 
|Unearned premiums                          |  | $                 | 51,902    |                   |  | $ | 24,440    | 
|Reserves for losses                        |  |                   | 119,355   |                   |  |   | 162,207   | 
|Other liabilities                          |  |                   | 11,088    |                   |  |   | 8,696     | 
|                                           |  |                   |           |                   |  |   |           | 
|Total liabilities                          |  |                   | 182,345   |                   |  |   | 195,343   | 
|                                           |  |                   |           |                   |  |   |           | 
|Common stock                               |  |                   | 250,000   |                   |  |   | 250,000   | 
|Additional paid-in capital                 |  |                   | 595,409   |                   |  |   | 595,409   | 
|Retained earnings                          |  |                   | 406,753   |                   |  |   | 250,271   | 
|Accumulated other comprehensive income     |  |                   | 40,259    |                   |  |   | 12,643    | 
|                                           |  |                   |           |                   |  |   |           | 
|Total shareholders equity                 |  |                   | 1,292,421 |                   |  |   | 1,108,323 | 
|                                           |  |                   |           |                   |  |   |           | 
|Total liabilities and shareholders
equity |  | $                 | 1,474,766 |                   |  | $ | 1,303,666 | 
|                                           |  |                   |           |                   |  |   |           | 



| | (1) |  | The ratio of incurred losses, net to net premiums earned.                                        
| | --- |  | -------------------------------------------------------------------------------------------------
|
| | (2) |  | The ratio of acquisition costs, net and general & administration
expenses to net premiums earned.
|
| | (3) |  | The sum of loss ratio and expenses ratio.