##### 



Exhibit 13.1
 PORTIONS OF ANNUAL REPORT
 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 the Company mean IPC Holdings and references to we, us, our
or IPC mean IPC Holdings together with its wholly-owned subsidiaries, IPCRe Limited (IPCRe) and
IPCRe Underwriting Services Limited (IPCUSL). This discussion should be read in conjunction with
our Consolidated Financial Statements and related notes for the year ended December 31, 2006.
 General Overview




---



##### 








---



##### 



Critical Accounting Policies
  Premiums




---



##### 



Loss Reserves




---



##### 



Cumulative percentage
increase of development from initial reportTotal Development After 6
    
    After 1
    
    After 2
    
    After 3
    
    Latest /
    
    initial report to latestmonths
    
    year
    
    years
    
    years
    
    Final %
    
    $(000)Cyclones Lothar /
Martin
    
    
    61
    %
    
    
    66
    %
    
    
    71
    %
    
    
    73
    %
    
    
    69
    %
    
    
    24,100Cat # 48 (WTC)
    
    
    6
    %
    
    
    7
    %
    
    
    9
    %
    
    
    9
    %
    
    
    3
    %
    
    
    3,0002004 Florida
hurricanes
    
    
    113
    %
    
    
    137
    %
    
    
    145
    %
    
    
    
    
    
    
    144
    %
    
    
    117,500Hurricane Katrina
    
    
    1
    %
    
    
    2
    %
    
    
    
    
    
    
    
    
    
    
    2
    %
    
    
    13,000




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##### 



Business
  Investments




---



##### 




    
    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
     At December 31,2006$000Gross unrealized (losses):Fixed maturity investments
    
    
    (2,020
    )Equity investments
    
    
    (2,020
    )Gross unrealized gains:Fixed maturity investments
    
    
    12,664Equity investments
    
    
    117,352130,016Total net unrealized gains
    
    
    127,996
  Less than 12 months
    
    12 months or longerGross
    
    
    
    
    
    Grossunrealized
    
    
    
    
    
    unrealizedlosses
    
    Fair Value
    
    losses
    
    Fair ValueLength of time with unrealized loss:Fixed maturity investments
    
    $
    (2,020
    )
    
    $
    499,792
    
    
    $
    
    
    
    $
    Equity investments
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    




---



##### 



Results of Operations
 Years Ended December 31, 2006, 2005 and 2004
   $(000)
    
    2006
    
    2005
    
    2004Annual (deposit) premiums
    
    
    413,632
    
    
    
    335,856
    
    
    
    333,106Reinstatement premiums
    
    
    6,713
    
    
    
    129,149
    
    
    
    32,507Adjustment premiums
    
    
    9,506
    
    
    
    7,382
    
    
    
    12,796Total premiums
    
    
    429,851
    
    
    
    472,387
    
    
    
    378,409




---



##### 








---



##### 



Liquidity and Capital Resources




---



##### 



Sources of Funds
    Uses of Funds




---



##### 



rd




---



##### 



Aggregate Contractual Obligations
  Payments due by period(expressed in millions of U.S. dollars)Less than 1
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    year
    
    1 - 3 Years
    
    3 -5 years
    
    5 yearsPurchase Obligations
    
    $
    5.9
    
    
    $
    2.2
    
    
    $
    3.4
    
    
    $
    0.3
    
    
    $
    Losses and Loss
Adjustment Expenses
    
    
    548.6
    
    
    
    221.6
    
    
    
    220.8
    
    
    
    52.7
    
    
    
    53.5
 Purchase Obligations
 1.
    
    Administrative Services Agreement: Effective July 1, 2006, 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  as
described above  for a fee of $2 million for the first $200 million annual gross written
premiums and 0.5% for annual gross written premiums in excess of $200 million. This
administrative services agreement terminates on June 30, 2009 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. As the
fee payable (in excess of $2 million) is based on annual gross written premiums the actual
annual amount is unknown until the end of the year and therefore the minimum payment of $2
million per annum until June 30, 2009 is included in the table above. The amount incurred
for 2006 was $11.5 million, which includes fees based on a prior agreement, under which
IPCRe paid fees based on 2.5% of gross annual premiums written (up to $500 million of
premiums).2.
    
    Credit Facility: As described above, effective April 13, 2006, we entered a new
syndicated credit facility in the amount of $500 million for a period of five years, ending
on April 13, 2011. The credit agreement consists of a $250 million senior unsecured credit
facility available for revolving borrowings and letters of credit, and a $250 million senior
secured credit facility available for letters of credit. The revolving line of credit will
be available for the working capital, liquidity and general corporate requirements of the
Company and its subsidiaries. The level of the facility fee payable is dependent upon the S
& P debt rating of the Company and therefore a change in this rating would affect the amount
paid. The applicable fee rate based upon the Companys present debt rating is 0.08% of the
amount of the unsecured facility and is included in the table above. A margin fee would be
payable on amounts drawn under this agreement with the fee payable also dependent upon the S
& P debt rating of the Company at that time. At December 31, 2006, the outstanding letters
of credit issued under the secured facility were $160 million and no amounts have been drawn
under the unsecured facility.3.
    
    Letters of credit: As noted above, we currently obtain letters of credit through three
facilities in amounts of $350 million, $250 million and $100 million. We pay fees to the
banks based on the amounts of letters of credit they issue on our behalf and also a facility
fee for the unused portion of the syndicated secured facility. Because these amounts change
during the course of the year, the total amount we will pay in aggregate is not known until
the end of the year, and therefore not included in the table above. Effective December 31,
2006 the aggregate amount of letters of credit issued were $375.9 million, and if this
amount remained unchanged throughout 2007, we would pay fees totaling $1.0 million. If we
were to utilize the full limits of the three facilities, we would pay $1.8 million in 2007.
With respect to the syndicated secured facility, we pay a commitment fee to the extent it is
unused. Effective December 31, 2006, the amount of the facility unused was $90.3 million.
The amount of the commitment fee that could be paid is not material.
 Losses and Loss adjustment expenses




---



##### 



Off-Balance Sheet Arrangements
  Quantitative and Qualitative Disclosure about Market Risk
      At
    
    At
    
    At
    
    At
    
    At
    
    Average for yearMarket Risk
    
    December 31,
    
    September 30,
    
    June 30,
    
    March 31,
    
    December 31,
    
    ended Dec. 31,2006
    
    2006
    
    2006
    
    2006
    
    2005
    
    2006Currency
    
    $
    2,628
    
    
    $
    2,749
    
    
    $
    3,097
    
    
    $
    3,188
    
    
    $
    2,445
    
    
    $
    2,821Interest Rate
    
    
    27,270
    
    
    
    31,210
    
    
    
    35,593
    
    
    
    37,363
    
    
    
    36,626
    
    
    
    33,612Equity (incl. hedge
fund)
    
    
    18,963
    
    
    
    17,793
    
    
    
    17,879
    
    
    
    18,786
    
    
    
    19,821
    
    
    
    18,648Sum of Risk
    
    
    48,861
    
    
    
    51,752
    
    
    
    56,569
    
    
    
    59,337
    
    
    
    58,892
    
    
    
    55,081Diversification
Benefit
    
    
    (15,885
    )
    
    
    (18,757
    )
    
    
    (18,690
    )
    
    
    (19,657
    )
    
    
    (21,188
    )
    
    
    (18,836
    )Total Net Risk
    
    $
    32,976
    
    
    $
    32,995
    
    
    $
    37,879
    
    
    $
    39,680
    
    
    $
    37,704
    
    
    $
    36,247




---



##### 



Transactions with Non-Independent Parties
  Effects of Inflation




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
 Consolidated Financial Statements




---



##### 



INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS REPORT
 
     KPMG




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 2006
    
    
    2005AssetsFixed maturity investments, available for sale, at fair value
(amortized cost 2006: $1,808,917; 2005: $2,014,735)
    
    $
    1,819,561
    
    
    $
    1,998,606Equity investments, available for sale, at fair value
(cost 2006: $460,197; 2005: $420,910)
    
    
    577,549
    
    
    
    530,127Cash and cash equivalents
    
    
    88,415
    
    
    
    31,113Reinsurance premiums receivable
    
    
    113,811
    
    
    
    180,798Deferred premiums ceded
    
    
    2,823
    
    
    
    4,120Loss and loss adjustment expenses recoverable
    
    
    1,989
    
    
    
    1,054Accrued investment income
    
    
    28,469
    
    
    
    19,885Deferred acquisition costs
    
    
    9,551
    
    
    
    7,843Prepaid expenses and other assets
    
    
    3,261
    
    
    
    4,735Total assets
    
    $
    2,645,429
    
    
    $
    2,778,281LiabilitiesReserve for losses and loss adjustment expenses
    
    $
    548,627
    
    
    $
    1,072,056Unearned premiums
    
    
    80,043
    
    
    
    66,311Reinsurance premiums payable
    
    
    4,680
    
    
    
    4,991Deferred fees and commissions
    
    
    1,150
    
    
    
    1,363Accounts payable and accrued liabilities
    
    
    19,974
    
    
    
    17,160Total liabilities
    
    
    654,474
    
    
    
    1,161,881Shareholders equityCommon shares - 2006: 63,706,567 shares outstanding, par value $0.01;
2005: 63,666,368 shares outstanding, par value $0.01
    
    
    637
    
    
    
    637Preferred shares  Series A mandatory convertible preferred shares
2006: 9,000,000 shares outstanding, par value $0.01;
2005: 9,000,000 shares outstanding, par value $0.01
    
    
    90
    
    
    
    90Additional paid-in capital
    
    
    1,475,533
    
    
    
    1,473,257Deferred stock grant compensation
    
    
    (1,441
    )
    
    
    (2,492
    )Retained earnings
    
    
    388,826
    
    
    
    52,126Accumulated other comprehensive income
    
    
    127,310
    
    
    
    92,782Total shareholders equity
    
    
    1,990,955
    
    
    
    1,616,400Total liabilities and shareholders equity
    
    $
    2,645,429
    
    
    $
    2,778,281
 See accompanying notes to consolidated financial statements




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 2006
    
    
    2005
    
    
    2004RevenueGross premiums written
    
    $
    429,851
    
    
    $
    472,387
    
    
    $
    378,409Change in unearned premiums
    
    
    (13,732
    )
    
    
    2,154
    
    
    
    (6,670
    )Premiums earned
    
    
    416,119
    
    
    
    474,541
    
    
    
    371,739Reinsurance premiums ceded
    
    
    17,690
    
    
    
    21,581
    
    
    
    20,098Change in deferred premiums ceded
    
    
    1,297
    
    
    
    438
    
    
    
    (3,241
    )Premiums ceded
    
    
    18,987
    
    
    
    22,019
    
    
    
    16,857Net premiums earned
    
    
    397,132
    
    
    
    452,522
    
    
    
    354,882Net investment income
    
    
    109,659
    
    
    
    71,757
    
    
    
    51,220Other income
    
    
    3,557
    
    
    
    5,234
    
    
    
    4,296Net realized gains (losses) on investments
    
    
    12,085
    
    
    
    (10,556
    )
    
    
    5,946Total income
    
    
    522,433
    
    
    
    518,957
    
    
    
    416,344ExpensesNet losses and loss adjustment expenses
    
    
    58,505
    
    
    
    1,072,662
    
    
    
    215,608Net acquisition costs
    
    
    37,542
    
    
    
    39,249
    
    
    
    37,682General and administrative expenses
    
    
    34,436
    
    
    
    27,466
    
    
    
    23,151Net foreign exchange (gain) loss
    
    
    (2,635
    )
    
    
    2,979
    
    
    
    1,290Total expenses
    
    
    127,848
    
    
    
    1,142,356
    
    
    
    277,731Net income (loss)
    
    
    394,585
    
    
    
    (623,399
    )
    
    
    138,613Dividend on preferred shares
    
    
    17,176
    
    
    
    2,664
    
    
    
    Net income (loss) available to common shareholders
    
    $
    377,409
    
    
    $
    (626,063
    )
    
    $
    138,613Basic net income (loss) per common share
    
    $
    5.93
    
    
    $
    (12.30
    )
    
    $
    2.87Diluted net income (loss) per common share
    
    $
    5.54
    
    
    $
    (12.30
    )
    
    $
    2.87Weighted average number of common shares  basic
    
    
    63,636,935
    
    
    
    50,901,382
    
    
    
    48,287,261Weighted average number of common shares  diluted
    
    
    71,212,287
    
    
    
    50,901,382
    
    
    
    48,376,865
 See accompanying notes to consolidated financial statements




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars)
 2006
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    394,585
    
    
    $
    (623,399
    )
    
    $
    138,613Other comprehensive incomeAdditional accumulated benefit pension obligation
    
    
    (380
    )
    
    
    (306
    )
    
    
    Net holding gains (losses) on investments during year
    
    
    46,993
    
    
    
    (8,618
    )
    
    
    5,989Reclassification adjustment for (gains) losses included
in net income (loss)
    
    
    (12,085
    )
    
    
    10,556
    
    
    
    (5,946
    )34,528
    
    
    
    1,632
    
    
    
    43Comprehensive income (loss)
    
    $
    429,113
    
    
    $
    (621,767
    )
    
    $
    138,656
 See accompanying notes to consolidated financial statements




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 2006
    
    
    2005
    
    
    2004Common shares par value $0.01Balance, beginning of year
    
    $
    637
    
    
    $
    484
    
    
    $
    483Additional shares issued
    
    
    
    
    
    
    153
    
    
    
    1Balance, end of year
    
    $
    637
    
    
    $
    637
    
    
    $
    484Preferred shares par value $0.01Balance, beginning of year
    
    $
    90
    
    
    $
    
    
    
    $
    Additional shares issued
    
    
    
    
    
    
    90
    
    
    
    Balance, end of year
    
    $
    90
    
    
    $
    90
    
    
    $
    Additional paid-in capitalBalance, beginning of year
    
    $
    1,473,257
    
    
    $
    854,797
    
    
    $
    850,133Additional paid-in capital on shares issued
    
    
    59
    
    
    
    617,561
    
    
    
    941Reduction in paid-in capital on share repurchase
    
    
    
    
    
    
    (1,334
    )
    
    
    (142
    )Stock options and grants
    
    
    2,217
    
    
    
    2,233
    
    
    
    3,865Balance, end of year
    
    $
    1,475,533
    
    
    $
    1,473,257
    
    
    $
    854,797Deferred stock grant compensationBalance, beginning of year
    
    $
    (2,492
    )
    
    $
    (2,899
    )
    
    $
    (1,495
    )Stock grants awarded
    
    
    (682
    )
    
    
    (1,316
    )
    
    
    (2,928
    )Stock grants forfeited
    
    
    
    
    
    
    454
    
    
    
    Amortization
    
    
    1,733
    
    
    
    1,269
    
    
    
    1,524Balance, end of year
    
    $
    (1,441
    )
    
    $
    (2,492
    )
    
    $
    (2,899
    )Retained earningsBalance, beginning of year
    
    $
    52,126
    
    
    $
    724,907
    
    
    $
    628,931Net income (loss)
    
    
    394,585
    
    
    
    (623,399
    )
    
    
    138,613Reduction on share repurchase
    
    
    
    
    
    
    (1,738
    )
    
    
    (155
    )Dividends paid and accrued
    
    
    (57,885
    )
    
    
    (47,644
    )
    
    
    (42,482
    )Balance, end of year
    
    $
    388,826
    
    
    $
    52,126
    
    
    $
    724,907Accumulated other comprehensive incomeBalance, beginning of year
    
    $
    92,782
    
    
    $
    91,150
    
    
    $
    91,107Other comprehensive income
    
    
    34,528
    
    
    
    1,632
    
    
    
    43Balance, end of year
    
    $
    127,310
    
    
    $
    92,782
    
    
    $
    91,150Total shareholders equity
    
    $
    1,990,955
    
    
    $
    1,616,400
    
    
    $
    1,668,439
 See accompanying notes to consolidated financial statements




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars)
 2006
    
    
    2005
    
    
    2004Cash flows from operating activitiesNet income (loss)
    
    $
    394,585
    
    
    $
    (623,399
    )
    
    $
    138,613Adjustments to reconcile net income (loss) to
cash provided by operating activities:Amortization of fixed maturity (discounts) premiums, net
    
    
    (9,512
    )
    
    
    8,128
    
    
    
    13,661Net realized (gains) losses on investments
    
    
    (12,085
    )
    
    
    10,556
    
    
    
    (5,946
    )Stock compensation
    
    
    3,296
    
    
    
    2,640
    
    
    
    2,461Changes in:Reinsurance premiums receivable
    
    
    66,987
    
    
    
    (95,712
    )
    
    
    (23,892
    )Deferred premiums ceded
    
    
    1,297
    
    
    
    438
    
    
    
    (3,241
    )Loss and loss adjustment expenses recoverable
    
    
    (935
    )
    
    
    3,952
    
    
    
    (3,196
    )Accrued investment income
    
    
    (8,584
    )
    
    
    810
    
    
    
    (874
    )Deferred acquisition costs
    
    
    (1,708
    )
    
    
    581
    
    
    
    (389
    )Prepaid expenses and other assets
    
    
    1,474
    
    
    
    (1,308
    )
    
    
    2,431Reserve for losses and loss adjustment expenses
    
    
    (523,429
    )
    
    
    797,593
    
    
    
    151,143Unearned premiums
    
    
    13,732
    
    
    
    (2,154
    )
    
    
    6,670Reinsurance premiums payable
    
    
    (311
    )
    
    
    1,604
    
    
    
    (490
    )Deferred fees and commissions
    
    
    (213
    )
    
    
    (112
    )
    
    
    641Accounts payable and accrued liabilities
    
    
    2,909
    
    
    
    2,129
    
    
    
    1,588Cash (used in) provided by operating activities
    
    
    (72,497
    )
    
    
    105,746
    
    
    
    279,180Cash flows from investing activitiesPurchases of fixed maturity investments
    
    
    (1,767,146
    )
    
    
    (2,410,649
    )
    
    
    (1,632,680
    )Proceeds from sales of fixed maturity investments
    
    
    1,413,748
    
    
    
    1,726,564
    
    
    
    1,398,678Proceeds from maturities of fixed maturity investments
    
    
    535,450
    
    
    
    91,740
    
    
    
    14,862Purchases of equity investments
    
    
    (128,607
    )
    
    
    (96,938
    )
    
    
    (102,254
    )Proceeds from sales of equity investments
    
    
    134,683
    
    
    
    17,000
    
    
    
    20,000Cash provided by (used in) investing activities
    
    
    188,128
    
    
    
    (672,283
    )
    
    
    (301,394
    )Cash flows from financing activitiesProceeds from share issuance, net of repurchases
    
    
    31
    
    
    
    614,732
    
    
    
    645Cash dividends paid to shareholders
    
    
    (58,360
    )
    
    
    (44,980
    )
    
    
    (42,482
    )Cash (used in) provided by financing activities
    
    
    (58,329
    )
    
    
    569,752
    
    
    
    (41,837
    )Net increase (decrease) in cash and cash equivalents
    
    
    57,302
    
    
    
    3,215
    
    
    
    (64,051
    )Cash and cash equivalents, beginning of year
    
    
    31,113
    
    
    
    27,898
    
    
    
    91,949Cash and cash equivalents, end of year
    
    $
    88,415
    
    
    $
    31,113
    
    
    $
    27,898
 See accompanying notes to consolidated financial statements




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 1.
    
    GeneralIPC Holdings, Ltd. (the Company) was incorporated in Bermuda on May 20, 1993 through the
sponsorship of American International Group, Inc. (AIG). AIG purchased 24.4% of the
initial share capital of the Company and an option to obtain up to an additional 10% of
the share capital. In December 2001, the Company completed a follow-on public offering
and AIG exercised its option. Concurrent with that offering, the Company also sold shares
in a private placement to AIG, which retained its approximate holding at 24.3%. In
November 2005, (Note 6) the Company completed a further follow-on public offering in which
AIG participated and subsequent to the offering AIG owned 24.2% of the common shares of
the Company. On August 15, 2006 AIG sold its entire shareholding in an underwritten
public offering. The Company did not receive any proceeds from the sale of AIGs shares
in the Company.Through its wholly-owned subsidiary, IPCRe Limited (IPCRe), the Company 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 and other short-tail reinsurance in various parts of
the world. Approximately 49% of underlying exposure premiums written (being total
premiums written excluding reinstatement premiums) in 2006 related to U.S. risks (2005:
40%; 2004: 38%). The balance of IPCRes covered risks is located principally in Europe,
Japan, Australia and New Zealand.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 provides underwriting services and acts
as an Underwriting Agent for Allied World Assurance Company, Ltd (AWAC), a Bermuda-based
Class 4 insurer (Note 8) and a subsidiary of Allied World Assurance Company Holdings,
Ltd.. Effective December 1, 2006, IPCUSL ceased actively underwriting on behalf of AWAC
but will continue to service business previously written on their behalf, for a period of
three years.2.
    
    Significant Accounting PoliciesThe 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 in the United States of America 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:




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 Significant Accounting Policies
 a)
    
    Principles of consolidationThe consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, IPCRe and IPCUSL. All significant intercompany transactions
have been eliminated in consolidation.b)
    
    Premiums and acquisition costsPremiums are recorded as written at the inception 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 deposit premium is contractually documented at
inception, and therefore no management judgement is necessary in accounting for this.
Subsequent premium adjustments, if any, are recorded in the period in which they are
reported. Reinstatement premiums are recognized and accrued at the time losses are
incurred and where coverage of the original contract is reinstated under pre-defined
contract terms and are earned pro-rata over the reinstated coverage period. Such accruals
are based upon actual contractual terms applied to the amount of loss reserves expected to
be paid, and the only element of management judgement involved is with respect to the
amount of loss reserves as described below, and associated rates on line (i.e. price).
For proportional treaties, the amount of premium is normally estimated at inception by the
ceding company. IPCRe accounts for such premium using initial estimates, which are
reviewed regularly with respect to the actual premium reported by the ceding company.
Premiums are earned on a pro-rata basis over the coverage period and 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 expensesThe reserve for losses and loss adjustment expenses, which includes a provision for losses
and loss adjustment expenses incurred but not reported and development on reported claims
(reported but not enough), is based on reports from industry sources, including initial
estimates of aggregate industry losses, individual case estimates received from ceding
companies and brokers, output from commercially available catastrophe loss models 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. For proportional treaties, an estimated loss and loss
adjustment expense ratio (the ratio of losses and loss adjustment expenses incurred to
premiums earned) is initially used, based upon information provided by the ceding company
and/or their broker and IPCRes historical experience of that treaty, if any. The
estimate is adjusted as actual experience becomes known.Amounts recoverable from reinsurers are estimated in a manner consistent with the
underlying liabilities.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 Significant Accounting Policies
 d)
    
    InvestmentsInvestments consist of fixed maturity investments and investments in mutual funds. Fixed
maturity investments are stated at fair value as determined by the quoted market price of
the securities as provided by either independent pricing services or, when such prices are
not available, by reference to broker or underwriter bid indications. Investments in
mutual funds are stated at fair value as determined by either the most recently traded
price or the net asset value as advised by the fund. 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. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS 115).
Investment transactions 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 within Accumulated other comprehensive income
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 considers 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)
    
    Other incomeOther income consists of agency commission earned by IPCUSL. The commission is based on
the gross premiums written under an agency agreement and is earned pro-rata over the
underlying reinsurance contract coverage periods. Unearned commission represents the
portion of commission which is applicable to the unexpired terms of the underlying
contracts. The unearned commission is included in deferred fees and commissions on the
balance sheet.f)
    
    Translation of foreign currenciesTransactions in foreign currencies are translated into U.S. dollars at the rate of
exchange prevailing in the accounting period 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. Realized and unrealized exchange
gains and losses are included in the determination of net income (loss).g)
    
    Cash and cash equivalentsCash and cash equivalents include amounts held in banks and time deposits with maturities
of less than three months from the date of purchase.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 Significant Accounting Policies
 h)
    
    Basic net income (loss) per common shareBasic net income (loss) per common share is calculated by dividing net income (loss)
available to common shareholders by the weighted average common shares outstanding during
the year. Diluted net income per common share is computed by dividing net income by the
weighted average number of common shares and common stock equivalents outstanding during
the year. Convertible preferred shares, stock options and unvested stock grants are
considered common stock equivalents for the purpose of calculating diluted net income per
common share, and are 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
convertible preferred shares, stock options and unvested stock grants are not included in
the weighted average number of shares, as this would be anti-dilutive.i)
    
    Stock incentive compensation planEffective January 1, 2006, management adopted the fair value method of accounting for
stock-based employee compensation as prescribed by Financial Accounting Standards Board
(FASB) Statement No. 123 (Revised 2004) Share-Based Payment (SFAS 123R). SFAS 123R
requires entities to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award. The cost of
such services will be recognized over the period during which an employee is required to
provide service in exchange for the award. Since 2003 the Company has expensed
compensation costs for stock options on a prospective basis for all awards granted,
modified or settled after January 1, 2003 in accordance with Statement of Financial
Accounting Standards No. 148, Accounting for Stock-Based Compensation and Disclosure.SFAS 123R requires expected forfeitures to be included in determining share-based employee
compensation expense. Prior to the adoption of SFAS 123R, forfeiture benefits were
recorded as a reduction to compensation expense when an employee left the Company and
forfeited the award. The transition impact of adopting SFAS 123R as of January 1, 2006,
including the effect of accruing for expected forfeitures on outstanding share-based
awards, was not material to our results of operations for the year ended December 31,
2006. In addition, SFAS 123R requires the immediate expensing of share-based awards
granted to retirement-eligible employees. Share-based awards granted to
retirement-eligible employees prior to the adoption of SFAS 123R must continue to be
amortized over the stated service period of the award (and accelerated if the employee
actually retires). Consequently, our compensation and benefits expenses in the year ended
December 31, 2006 include both the amortization of awards granted to retirement-eligible
employees prior to the adoption of SFAS 123R as well as the full grant-date fair value of
new awards granted to such employees under SFAS 123R.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 Significant Accounting Policies
 j)
    
    Accounting pronouncementsIn June 2006, the FASB issued FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial statements in
accordance with FASB Statement 109, Accounting for Income Taxes. FIN 48 prescribes a
two-step process to determine the amount of tax benefit to be recognized. First, the tax
position must be evaluated to determine the likelihood that it will be sustained upon
external examination. If the tax position is deemed more-likely-than-not to be sustained,
the tax position is then assessed to determine the amount of benefit to recognize in the
financial statements. The amount of the benefit that may be recognized is the largest
amount that has a greater than 50 percent likelihood of being realized upon ultimate
settlement. The provisions of FIN 48 are effective for the Company on January 1, 2007,
with the cumulative effect of the change in accounting principle recorded as an adjustment
to opening retained earnings. The potential impact of FIN 48 on the Companys balance
sheet and results of operations are expected to be insignificant.In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements (SFAS 157). The Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. The FASB believes that the new standard
will make the measurement of fair value more consistent and comparable and improve
disclosures about those measures. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the requirements and impact of SFAS
157 on the Companys consolidated financial statements, and will adopt the provisions on
January 1, 2008.In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan
amendment of FASB Statements 87, 88, 106 and 132(R) (SFAS 158). This Statement
requires an employer to recognize the over funded or under funded status of a defined
benefit postretirement plan as an asset or liability in its balance sheet and to recognize
changes in the funded status in the year in which the changes occur through comprehensive
income. The provisions of SFAS 158 are effective in stages, but the Company has adopted
all provisions as of December 31, 2006. The effect of the provisions of SFAS 158 on
comprehensive income (loss) and accumulated other comprehensive income, is shown in Note
14.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 3.
    
    
    Investmentsa)
    
    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, 2006
and 2005 are as follows:
 Cost or
    
    
    Gross
    
    
    Grossamortized
    
    
    unrealized
    
    
    unrealized
    
    
    FairDecember 31, 2006
    
    cost
    
    
    gains
    
    
    losses
    
    
    valueFixed maturity investmentsU.S. Government and
government agencies
    
    $
    279,963
    
    
    $
    2,649
    
    
    $
    (692
    )
    
    $
    281,920Other governments
    
    
    205,362
    
    
    
    683
    
    
    
    (82
    )
    
    
    205,963Corporate
    
    
    1,076,778
    
    
    
    8,189
    
    
    
    (956
    )
    
    
    1,084,011Supranational entities
    
    
    246,814
    
    
    
    1,143
    
    
    
    (290
    )
    
    
    247,667$
    1,808,917
    
    
    $
    12,664
    
    
    $
    (2,020
    )
    
    $
    1,819,561Equity investments
    
    $
    460,197
    
    
    $
    117,352
    
    
    $
    
    
    
    $
    577,549
 Cost or
    
    
    Gross
    
    
    Grossamortized
    
    
    unrealized
    
    
    unrealized
    
    
    FairDecember 31, 2005
    
    cost
    
    
    gains
    
    
    losses
    
    
    valueFixed maturity investmentsU.S. Government and
government agencies
    
    $
    326,916
    
    
    $
    64
    
    
    $
    (2,805
    )
    
    $
    324,175Other governments
    
    
    296,823
    
    
    
    165
    
    
    
    (3,026
    )
    
    
    293,962Corporate
    
    
    1,188,004
    
    
    
    1,048
    
    
    
    (9,735
    )
    
    
    1,179,317Supranational entities
    
    
    202,992
    
    
    
    
    
    
    
    (1,840
    )
    
    
    201,152$
    2,014,735
    
    
    $
    1,277
    
    
    $
    (17,406
    )
    
    $
    1,998,606Equity investments
    
    $
    420,910
    
    
    $
    109,952
    
    
    $
    (735
    )
    
    $
    530,127




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 3.
    
    Investments(continued)The following table summarizes, for all securities in an unrealized loss position at
December 31, 2006 and 2005, the unrealized loss and fair value by length of time the
security has continuously been in an unrealized loss position.
 Less than 12 months
    
    
    12 months or longerGross
    
    
    
    
    
    
    Grossunrealized
    
    
    
    
    
    
    unrealizedDecember 31, 2006
    
    losses
    
    
    Fair value
    
    
    losses
    
    
    Fair valueFixed maturity investmentsU.S. Government and
government agencies
    
    $
    (692
    )
    
    $
    90,996
    
    
    $
    
    
    
    $
    Other governments
    
    
    (82
    )
    
    
    62,330
    
    
    
    
    
    
    
    Corporate
    
    
    (956
    )
    
    
    288,049
    
    
    
    
    
    
    
    Supranational entities
    
    
    (290
    )
    
    
    58,417
    
    
    
    
    
    
    
    $
    (2,020
    )
    
    $
    499,792
    
    
    $
    
    
    
    $
    Equity investments
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Less than 12 months
    
    
    12 months or longerGross
    
    
    
    
    
    
    Grossunrealized
    
    
    
    
    
    
    unrealizedDecember 31, 2005
    
    losses
    
    
    Fair value
    
    
    losses
    
    
    Fair valueFixed maturity investmentsU.S. Government and
government agencies
    
    $
    (2,686
    )
    
    $
    272,899
    
    
    $
    (119
    )
    
    $
    5,849Other governments
    
    
    (1,152
    )
    
    
    119,225
    
    
    
    (1,874
    )
    
    
    89,167Corporate
    
    
    (6,525
    )
    
    
    876,583
    
    
    
    (3,210
    )
    
    
    115,708Supranational entities
    
    
    (1,752
    )
    
    
    179,132
    
    
    
    (88
    )
    
    
    22,020$
    (12,115
    )
    
    $
    1,447,839
    
    
    $
    (5,291
    )
    
    $
    232,744Equity investments
    
    $
    (735
    )
    
    $
    156,183
    
    
    $
    
    
    
    $
    
 The decline in the value of individual securities considered to be other than temporary
included in gross realized losses on fixed maturity or equity investments for the year
ended December 31, 2006 was $27,695 (2005: $nil; 2004: $nil).




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 3.
    
    
    Investments(continued)b)
    
    The contractual maturity dates of fixed maturity investments available for sale as of
December 31, 2006 are as follows:
 Amortized
    
    
    Faircost
    
    
    valueDue in one year or less
    
    $
    146,792
    
    
    $
    146,864Due after one year through five years
    
    
    1,156,425
    
    
    
    1,161,390Due after five years through ten years
    
    
    505,700
    
    
    
    511,307$
    1,808,917
    
    
    $
    1,819,561
 Actual maturities may differ from contractual maturities because borrowers may have the
right to prepay obligations with or without prepayment penalties.c)
    
    Pledged assetsIn 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. At
December 31, 2006 IPCRe has three letter of credit facilities. Under three separate
agreements effective September 20, 1994 (amended in 1999, 2001, 2004 and 2005), December
30, 2005 and April 13, 2006, IPCRe provides the banks security by giving the banks a lien
over certain of IPCRes investments in an amount not to exceed 118% of the aggregate
letters of credit outstanding. The total amount of security required by the banks under
the three facilities at December 31, 2006 was approximately $435,811 (2005: $689,971).
Effective December 31, 2006 outstanding letters of credit were $375,948 (2005: $606,329).d)
    
    Net investment income
 2006
    
    
    2005
    
    
    2004Interest on fixed maturity investments
    
    $
    86,345
    
    
    $
    69,125
    
    
    $
    60,253Interest on cash and cash equivalents
    
    
    4,949
    
    
    
    4,038
    
    
    
    2,839Net amortization of discounts (premiums)
on investments
    
    
    9,512
    
    
    
    (8,128
    )
    
    
    (13,661
    )100,806
    
    
    
    65,035
    
    
    
    49,431Net income from equity investments
    
    
    12,713
    
    
    
    9,873
    
    
    
    4,765Less: investment expenses
    
    
    (3,860
    )
    
    
    (3,151
    )
    
    
    (2,976
    )Net investment income
    
    $
    109,659
    
    
    $
    71,757
    
    
    $
    51,220




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 3.
    
    
    Investments(continued)e)
    
    Proceeds from sales of available for sale securities for the year ended December 31,
2006, were $1,548,431 (2005: $1,743,564; 2004: $1,418,678). Components of net realized
gains and losses and change in net unrealized appreciation on investments are summarized in the following table:
 2006
    
    
    2005
    
    
    2004Fixed maturity investmentsGross realized gains
    
    $
    3,385
    
    
    $
    343
    
    
    $
    7,032Gross realized losses
    
    
    (36,662
    )
    
    
    (16,153
    )
    
    
    (6,372
    )Net realized (losses) gains
    
    
    (33,277
    )
    
    
    (15,810
    )
    
    
    660Equity investmentsGross realized gains
    
    
    45,362
    
    
    
    5,254
    
    
    
    5,286Gross realized losses
    
    
    
    
    
    
    
    
    
    
    Net realized gains
    
    
    45,362
    
    
    
    5,254
    
    
    
    5,286Total net realized gains (losses)
    
    
    12,085
    
    
    
    (10,556
    )
    
    
    5,946Change in net unrealized appreciation on investmentsFixed maturity investments
    
    
    26,773
    
    
    
    (14,378
    )
    
    
    (22,030
    )Equity investments
    
    
    8,135
    
    
    
    16,316
    
    
    
    22,073Change in net unrealized appreciation on investments
    
    
    34,908
    
    
    
    1,938
    
    
    
    43Total net realized gains (losses) and change in net
unrealized appreciation on investments
    
    $
    46,993
    
    
    $
    (8,618
    )
    
    $
    5,989




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##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 3.
    
    
    Investments(continued)f)
    
    The following table summarizes the composition of the fair value of all cash and cash
equivalents and fixed maturity investments by rating:
 2006
    
    
    2005Cash and cash equivalents
    
    
    4.6
    %
    
    
    1.5
    %U.S. Government and government agencies
    
    
    14.8
    %
    
    
    16.0
    %AAA
    
    
    35.2
    %
    
    
    32.3
    %AA
    
    
    23.1
    %
    
    
    29.5
    %A
    
    
    21.8
    %
    
    
    20.2
    %BBB
    
    
    0.5
    %
    
    
    0.5
    %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)
    
    IPCRe holds the following equity investments:
 2006
    
    
    2005Fair value
    
    
    Fair valueAIG Global Equity Fund
    
    $
    159,299
    
    
    $
    176,737AIG American Equity Fund
    
    
    127,960
    
    
    
    97,780AIG Select Hedge Fund
    
    
    174,272
    
    
    
    156,183Vanguard Institutional Index Fund
    
    
    
    
    
    
    93,494Vanguard US Futures Fund
    
    
    108,180
    
    
    
    Other equity funds
    
    
    7,838
    
    
    
    5,933$
    577,549
    
    
    $
    530,127
 The AIG Global Equity Fund, AIG American Equity Fund, and AIG Select Hedge Fund are all
managed by AIG Global Investment Fund Management Limited. The AIG Global Equity Fund
invests predominantly in large capitalized companies operating in diverse sectors of
global equity markets, the AIG American Equity Fund invests predominantly in large
capitalized companies operating across diverse sectors of North America and the AIG Select
Hedge Fund invests in approximately 30-40 third party hedge funds utilizing a broad range
of alternative investment strategies. Net asset values of the AIG Global Equity Fund, the
AIG American Equity Fund and the AIG Select Hedge Fund as at December 31, 2006 are
$159,299, $127,960 and $174,272 respectively, as reported by our investment managers. The
Companys maximum exposure to loss as a result of these investments is limited to the fair
values of the Companys investment in these funds.The Vanguard US Futures Fund invests in large capitalized companies across diverse sectors
of North America and aims for returns similar to those of the S & P 500 Index.




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##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 4.
    
    Fair Value of Financial InstrumentsThe carrying amount of cash and cash equivalents approximates fair value because of the
short maturity of those instruments. Fixed maturity investments are stated at fair value
as determined by the quoted market price of the securities as provided by either
independent pricing services, or when such prices are not available, by reference to
broker or underwriter bid indications. Investments in mutual funds are stated at fair
value as determined by either the most recently traded price or the net asset value as
advised by the fund. The fair value of other assets and liabilities, consisting of
reinsurance premiums receivable, accrued investment income, other assets, reinsurance
premiums payable and accounts payable, approximates to their carrying value due to their
relative short term nature.The estimates of fair value of 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 fees and 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 ReinsuranceIPCRe utilizes reinsurance to reduce its exposure to large losses, outside the United
States. Effective January 1, 1999, IPCRe arranged a proportional reinsurance facility
covering property catastrophe business written by IPCRe. For the six year period to
December 31, 2004, the facility provided coverage of up to $50,000 in each of at least 5
named zones, and potentially other zones of IPCRes choosing, provided that the risks in
those zones do not accumulate with those in 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 Other. Effective January 1, 2005, the
facility provided coverage of up to $75,000 in each of the named zones, with the exception
of Europe (excluding the U.K.), where the coverage remained limited to $50,000. Effective
January 1, 2006, the facility provided coverage of up to $75,000 in each of the named
zones. Business ceded to the facility is solely at IPCRes discretion. 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,
taxes and an override commission. A subsidiary of AIG, as a participating reinsurer, has
a 10% participation on a direct basis. Most reinsurers participating in the facility have
financial strength ratings issued by S & P and/or A.M. Best of A or above, and the minimum
rating is A- at the time of acceptance.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 up to $30,000
(2005: $50,000; 2004: $50,000) 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 sole reinsurer participating in this
facility has a rating of AA-.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.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 6.
    
    Share Capital and Additional Paid-in CapitalOn February 21, 2006 our shareholders approved an increase in the number of the Companys
authorized common shares from 75,000,000 to 150,000,000, and an increase in the number of
the Companys authorized preferred shares from 25,000,000 to 35,000,000.On November 4, 2005, shareholders contributed approximately $614,628, net of underwriting
discounts of $19,191 and costs of $1,484 in additional funds through a public offering of
15,202,000 common shares and 9,000,000 preferred shares.The share capital of the Company as of December 31, 2006 and 2005 consisted of the following:
 AdditionalAuthorised
    
    
    Shares issued
    
    
    Share
    
    
    paid-inshares
    
    
    and fully paid
    
    
    capital
    
    
    capitalDecember 31, 2006Voting common shares, par value
U.S. $0.01 each
    
    
    150,000,000
    
    
    
    63,706,567
    
    
    $
    637
    
    
    $
    1,247,202Preferred shares, par value
U.S. $0.01 each
    
    
    35,000,000
    
    
    
    9,000,000
    
    
    $
    90
    
    
    $
    228,331December 31, 2005Voting common shares, par value
U.S. $0.01 each
    
    
    75,000,000
    
    
    
    63,666,368
    
    
    $
    637
    
    
    $
    1,244,926Preferred shares, par value
U.S. $0.01 each
    
    
    25,000,000
    
    
    
    9,000,000
    
    
    $
    90
    
    
    $
    228,331
 In 2006, the Company paid dividends of $0.16 per share in each of March, June, September
and December to holders of its common shares. In 2005, the Company paid dividends of
$0.24 per share in each of March, June and September and $0.16 per share in December to
holders of its common shares. In 2004, the Company paid dividends of $0.20 per share in
each of March and June and $0.24 per share in each of September and December to holders of
its common shares.The 9,000,000 preferred shares issued in November 2005 are 7.25% Series A Mandatory
Convertible Preferred Shares, with a liquidation preference of $26.25 per share, will
automatically convert on November 15, 2008 into between 0.8333 and 1.0000 common shares,
subject to anti-dilution adjustments, depending on the average closing price per share of
the common shares over the 20 trading day period ending on the third trading day prior to
such date. The preferred shares are non-voting except under certain limited prescribed
circumstances. The holder may elect, at any time prior to November 15, 2008, to convert
each preferred share into 0.8333 common shares, subject to anti-dilution adjustments. The
Company may, at any time prior to November 15, 2008, accelerate the conversion date of all
of the outstanding preferred shares under certain prescribed circumstances at a maximum
conversion rate of 1.0000 common share for each preferred share. Dividends on the
preferred shares are cumulative from the date of original issuance and are payable
quarterly in arrears when, if, and as declared by the Board of Directors. The Company paid
preferred dividends of $0.533932 per Series A Mandatory Convertible preferred share, in
February 2006, and $0.475781 per Series A Mandatory Convertible preferred share, in each
of May, August and November 2006, to holders of its Series A Mandatory Convertible
preferred shares.




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##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 7.
    
    Stock-based compensationThe Company adopted a Stock Option Plan (the Option Plan), effective February 15, 1996.
This Option Plan was amended and approved by the shareholders in 1999 and further amended
and approved in 2003 and 2005. Under the last amended Option Plan, approved by
shareholders in June 2005, at the discretion of the Compensation Committee of the Board of
Directors (the Committee), the Company may grant to certain employees up to 2,327,500
common shares, $0.01 par value. The exercise price of the options granted under the
Option 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 30, 2006, the Company granted options to acquire
common shares to officers and management employees at exercise prices ranging from $13.375
to $43.03 per common share, which equaled the opening market prices on the dates of grant.
Such options vest at a rate of 25% annually, are recorded on the straight line basis and
lapse on the tenth anniversary of issue. The amount of the charge recorded in net income
in the year ended December 31, 2006 for awards of stock options was $1,563 (2005: $1,371,
2004: $937).On June 13, 2003, the shareholders approved a stock incentive plan. The plan allows for
the issuance of up to 500,000 common shares, $0.01 par value, as grants of restricted
stock to selected employees to compensate them for their contributions to the long-term
growth and profits of the Company. Pursuant to SFAS 123R, compensation expense is
recorded ratably based on the fair value of the grants at the date of grant (i) over the
vesting period (ii) immediately for grants awarded to retirement-eligible employees or
(iii) over the period from the grant date until the date when retirement-eligibility is
achieved if earlier than the vesting date. Such units vest at a rate of 25% annually, but
are recorded as outstanding upon issuance (regardless of the vesting period). The charge
recorded in net income for the year ended December 31, 2006 was $1,733 (2005: $1,269;
2004: $1,524). The estimated annual non-cash expense in the year ended December 31, 2006
associated with the continued amortization of share-based awards granted to
retirement-eligible employees prior to the adoption of SFAS 123R was $676.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 7.
    
    Stock-based compensation(continued)The activity related to these restricted stock units is set forth below:
 Weighted average grant-date fairRestricted stock units
    
    
    value of restricted stock unitsoutstanding
    
    
    outstandingFuture
    
    
    No future
    
    
    Future
    
    
    No futureservice
    
    
    service
    
    
    service
    
    
    servicerequired
    
    
    required(2)
    
    
    required
    
    
    required(2)Outstanding, beginning of year
    
    
    49,984
    
    
    
    54,375
    
    
    
    36.44
    
    
    
    36.04Granted (1)
    
    
    15,477
    
    
    
    12,224
    
    
    
    23.10
    
    
    
    26.55Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vested
    
    
    17,277
    
    
    
    19,125
    
    
    
    36.41
    
    
    
    36.02Outstanding, end of year
    
    
    48184
    
    
    
    47,474
    
    
    
    32.91
    
    
    
    35.06
 
 (1)
    
    The weighted average grant-date fair value of restricted stock units
granted for the year ended December 31, 2006 was $24.62 per unit, (2005: $39.42; 2004:
$36.98).(2)
    
    Restricted stock units for retirement-eligible employees are deemed not to
require future service. 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 123R.
 Year ended December 31,2006
    
    
    2005
    
    
    2004Net income (loss), as reported
    
    $
    394,585
    
    
    $
    (623,399
    )
    
    $
    138,613Add: Stock-based employee expense
    
    
    3,296
    
    
    
    2,640
    
    
    
    2,461Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards
    
    
    (3,296
    )
    
    
    (2,875
    )
    
    
    (2,972
    )Pro forma net income (loss)
    
    $
    394,585
    
    
    $
    (623,634
    )
    
    $
    138,102Dividends on preferred shares
    
    
    17,176
    
    
    
    2,664
    
    
    
    Pro forma net income (loss) available
to common shareholders
    
    $
    377,409
    
    
    $
    (626,298
    )
    
    $
    138,102




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 7.
    
    Stock-based compensation(continued)
 Year ended December 31,2006
    
    
    2005
    
    
    2004Earnings per share:Basic  as reported
    
    $
    5.93
    
    
    $
    (12.30
    )
    
    $
    2.87Basic  proforma
    
    $
    5.93
    
    
    $
    (12.30
    )
    
    $
    2.86Diluted  as reported
    
    $
    5.54
    
    
    $
    (12.30
    )
    
    $
    2.87Diluted  proforma
    
    $
    5.54
    
    
    $
    (12.30
    )
    
    $
    2.85
 A summary of the status of the Companys Option Plan as of December 31, 2006, and changes during the year then ended is presented in the tables and narrative
below:
 Number of
    
    
    Weighted
average
exercise
    
    
    Weighted
average
remaining
contractual
    
    
    Aggregate
Intrinsic
Valueshares
    
    
    price
    
    

period
    
    

(in
thousands)Outstanding, beginning
of year
    
    
    452,125
    
    
    $
    36.47Granted
    
    
    162,500
    
    
    $
    28.00Exercised
    
    
    3,000
    
    
    $
    19.52Forfeited
    
    
    
    
    
    $
    Outstanding, end of year
    
    
    611,625
    
    
    $
    34.30
    
    
    
    7.2
    
    
    $
    999.6Exercisable, end of year
    
    
    245,375
    
    
    $
    33.38
    
    
    
    5.7
    
    
    $
    439.0
 The weighted average fair value of options granted (per
share) for the year ended December 31, 2006 was $8.99 (2005:
$15.07; 2004: $14.62). The total intrinsic value of stock options
exercised was $26, $1,837 and $697 for the years ended
December 31, 2006, 2005 and 2004, respectively.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 7.
    
    Stock-based compensation(continued)The fair value of options granted on March 17, 2006 was estimated using the Black-Scholes
option pricing model, using assumed risk-free rates of interest of 4.71%; expected
dividend yield of 2.286%; an expected life of 7 years; an expected volatility of 31.0%;
and a forfeiture rate of 16%.The fair value of options granted on January 3, 2005 was estimated using the Black-Scholes
option pricing model, using assumed risk-free rates of interest of 3.93%; expected
dividend yield of 2.231%; an expected life of 7 years; and an expected volatility of
36.7%.The fair value of options granted on January 2, 2004 was estimated using the Black-Scholes
option pricing model, using assumed risk-free rates of interest of 3.79%; expected
dividend yield of 2.073%; an expected life of 7 years; and an expected volatility of
39.5%.The assumed risk-free interest rate is the market yield on U.S. Treasury securities at
7-year constant maturity to match the expected life. The expected life is estimated based
on a 4 year vesting period and a 10-year exercising period together with a review of
actual historic exercising patterns of the Company. The expected dividend yield is
calculated using the share price and the last dividend per share amount at the date of
grant. The expected volatility is calculated using the Companys own historic price
volatility over the last 5.6 years. The forfeiture rate is obtained from the Companys
actual historic experience.
 Weightedaverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedOutstanding at
    
    
    contractual
    
    
    average
    
    
    Exercisable at
    
    
    averageRange of
    
    December 31,
    
    
    period in
    
    
    exercise
    
    
    December 31,
    
    
    exerciseexercise price
    
    2006
    
    
    years
    
    
    price
    
    
    2006
    
    
    price$13-19
    
    
    6,000
    
    
    
    3.00
    
    
    
    15.38
    
    
    
    6,000
    
    
    
    15.38$19-25
    
    
    10,000
    
    
    
    3.20
    
    
    
    21.73
    
    
    
    10,000
    
    
    
    21.73$25-31
    
    
    230,625
    
    
    
    7.82
    
    
    
    27.96
    
    
    
    68,125
    
    
    
    27.85$31-37
    
    
    83,750
    
    
    
    5.18
    
    
    
    31.65
    
    
    
    61,875
    
    
    
    31.68$37-43
    
    
    128,750
    
    
    
    7.00
    
    
    
    38.90
    
    
    
    61,250
    
    
    
    38.90$43-49
    
    
    152,500
    
    
    
    8.00
    
    
    
    43.03
    
    
    
    38,125
    
    
    
    43.03Total
    
    
    611,625
    
    
    
    
    
    
    
    
    
    
    
    245,375
 As of December 31, 2006, there was $4,003 of total unrecognized compensation cost related
to unvested share-based compensation arrangements. This cost is expected to be recognized
over a weighted average period of 1.76 years.




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##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 8.
    
    
    Related Party TransactionsAIG sold all of its shares in the Company in August 2006, but for the purpose of the
related party transactions disclosure we have treated AIG as a related party through
December 31, 2006. In addition to the related party transactions discussed elsewhere in
the notes to the financial statements, the Company and its subsidiaries have entered into
the following transactions and agreements with related parties:a)
    
    Administrative servicesThe 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. This agreement provides that AICL make available to the Company
and IPCRe certain office space, certain information and technology services, payroll and
administrative services, human resource personnel and other ancillary services. Up until
June 30, 2006, the services were provided for a fee of 2.5% of the first $500,000 annual
gross written premiums (1.5% of the next $500,000 and 1.0% thereafter). Effective July 1,
2006, a new arrangement was agreed whereby IPCRe pays an annual fee of $2,000 in the event
the Companys annual gross written premiums equal or are less than $200,000 and 0.5% of
any additional gross written premiums in excess of $200,000. This administrative services
agreement terminates on June 30, 2009 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. The services were provided for an annual fee
of approximately $60 per annum (2005: $50, 2004: $50). This agreement is in effect to June
30, 2007 and thereafter may be terminated with three months written notice.




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##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 8.
    
    
    Related Party Transactions(continued)b)
    
    Investment management servicesIPCRe 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 pays different levels of fees based on the
month end market values of the individual portfolios (fixed maturity, equity funds and
hedge fund).Rebates are received on the management fees charged by AIG Global Investment Fund
Management Limited for two of the equity funds, the AIG Global Equity Fund and the AIG
American Equity Fund. These fees and rebates are included in net investment income in the
accompanying consolidated statements of income (loss).c)
    
    Investment custodian servicesIPCRe 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 (loss). 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
    
    
    InvestmentAdministrative
    
    
    management
    
    
    funds fee
    
    
    custodianservices
    
    
    services
    
    
    rebate
    
    
    servicesYear ended December 31, 2006
    
    $
    11,546
    
    
    $
    2,824
    
    
    $
    (2,843
    )
    
    $
    1,036Year ended December 31, 2005
    
    $
    11,862
    
    
    $
    2,370
    
    
    $
    (2,325
    )
    
    $
    781Year ended December 31, 2004
    
    $
    9,292
    
    
    $
    2,227
    
    
    $
    (2,426
    )
    
    $
    749
 The following amounts were payable as of the balance sheet date to subsidiaries of AIG for these services:
 December 31, 2006
    
    $
    2,291December 31, 2005
    
    $
    4,835




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 8.
    
    
    Related Party Transactions(continued)d)
    
    Underwriting servicesIPCUSL is party to an agreement with AWAC, a Bermuda-based multi-line insurance and
reinsurance company, which is wholly-owned by Allied World Assurance Company Holdings,
Ltd., a company in which AIG has a 19.4% ownership interest. Under this agreement, IPCUSL
provides underwriting services on property catastrophe treaty reinsurance written by AWAC.
IPCUSL receives an agency commission of 6.5% of gross premiums written under this
agreement.On December 5, 2005, AWAC delivered notice to IPCUSL terminating the Agency Agreement
effective as of November 30, 2007. On December 5, 2006, IPCUSL and AWAC executed an
Amendment, dated as of December 1, 2006, to the Underwriting Agency Agreement, dated
December 1, 2001 as amended, between IPCUSL and AWAC. Pursuant to the amendment, IPCUSL
and AWAC mutually agreed to terminate the Agency Agreement effective as of November 30,
2006. In accordance with the amendment, AWAC shall pay to IPCUSL a $400 early termination
fee, $250 of which is immediately payable and $75 of which is payable on each of December
1, 2007 and 2008, respectively. AWAC will also continue to pay to IPCUSL any agency
commission due under the Agency Agreement for any and all business bound prior to November
30, 2006, and IPCUSL will continue to service such business until November 30, 2009
pursuant to the Amended Agency Agreement.Business written under this agreement during the year was $54,349 (2005: $80,234; 2004:
$65,150). Agency commission earned was $3,556 (2005: $5,234; 2004: $4,296). The amounts
are recorded as other income in the accompanying consolidated statements of income (loss).
The balance due from AWAC as at December 31, 2006 was $407 (2005: $1,017) and deferred
commissions relating to the unearned premiums written under this agreement were $716
(2005: $739).e)
    
    Related party reinsurance businessIPCRe assumed premiums (including reinstatement premiums) of $25,433 (2005: $44,283; 2004:
$34,767) from companies who are majority-owned by a shareholder of the Company. IPCRe did
not assume any premiums through brokers related to shareholders of the Company during each
of the years ended December 31, 2006, 2005 and 2004 and therefore did not incur any
brokerage fees and commissions in respect of this business during each of those years.
IPCRe ceded premiums (Note 5) of $1,437 (2005: $1,524; 2004: $1,348) to a company which is
wholly-owned by AIG. All such transactions were undertaken on normal commercial terms.
Reinsurance premiums receivable due from related parties as of December 31, 2006 were
$6,956 (2005: $20,097). Reinsurance premiums payable to related parties as of December
31, 2006 were $399 (2005: $469).f)
    
    A director and executive officer of various AIG subsidiaries and affiliates served as
the Chairman of the Board of Directors of the Company, IPCRe and IPCUSL until his
retirement from the Boards effective December 31, 2005. A new director appointed
effective January 1, 2006 is also a director and executive officer of various AIG
subsidiaries. In addition, the managing director of AIMS serves as a director of IPCRe
Europe Limited.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 9.
    
    Reserve for Losses and Loss Adjustment ExpensesMovements in the reserve for losses and loss adjustment expenses are summarized as follows:
 2006
    
    
    2005
    
    
    2004Gross loss reserves, beginning of the year
    
    $
    1,072,056
    
    
    $
    274,463
    
    
    $
    123,320Loss reserves recoverable, beginning of the year
    
    
    (1,054
    )
    
    
    (5,006
    )
    
    
    (1,810
    )Total net reserves, beginning of year
    
    
    1,071,002
    
    
    
    269,457
    
    
    
    121,510Net losses incurred related to:Current year
    
    
    24,697
    
    
    
    1,017,495
    
    
    
    229,112Prior years
    
    
    33,808
    
    
    
    55,167
    
    
    
    (13,504
    )Total incurred
    
    
    58,505
    
    
    
    1,072,662
    
    
    
    215,608Net paid losses related to:Current year
    
    
    (3,248
    )
    
    
    (96,705
    )
    
    
    (33,967
    )Prior years
    
    
    (582,248
    )
    
    
    (170,399
    )
    
    
    (34,740
    )Total paid
    
    
    (585,496
    )
    
    
    (267,104
    )
    
    
    (68,707
    )Effect of foreign exchange movements
    
    
    2,627
    
    
    
    (4,013
    )
    
    
    1,046Total net reserves, end of year
    
    
    546,638
    
    
    
    1,071,002
    
    
    
    269,457Loss reserves recoverable, end of year
    
    
    1,989
    
    
    
    1,054
    
    
    
    5,006Gross loss reserves, end of year
    
    $
    548,627
    
    
    $
    1,072,056
    
    
    $
    274,463
 Losses incurred in the year ended December 31, 2006 are predominantly due to cyclone Larry
which struck Queensland, Australia and super-typhoon Shanshan, which struck Japan. Amounts
recorded for these events were $13,148. Losses incurred in the year ended December 31,
2006 in respect of prior years are primarily the result of development in reserves
relating to the major windstorms of 2005, primarily hurricane Wilma. In addition there
were two losses recorded in 2006 which occurred in 2005: a U.K. explosion and a train
wreck and associated chemical spill which took place in South Carolina.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 9.
    
    Reserve for Losses and Loss Adjustment Expenses(continued)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. Such adjustments could require a material
change in the amount estimated. However, complexity resulting from problems such as
policy coverage issues, multiple events affecting one geographic area and the resulting
impact on claims adjusting (including allocation of claims to event and the effect of
demand surge on the cost of building materials and labour) by, and communications from,
ceding companies, can cause delays to the timing with which IPCRe is notified of changes
to loss estimates. In particular, the estimate for hurricane Katrina has been based on
industry insured loss estimates, output from industry and proprietary models, a review of
contracts potentially affected by the events, information received from both clients and
brokers and management judgement. It has also been assumed that underlying policy terms
and conditions are upheld during the loss adjustment process. The unique circumstances
and severity of this devastating catastrophe, including the extent of flooding and limited
access by claims adjusters, introduce additional uncertainty to the normally difficult
process of estimating catastrophe losses. This is compounded by the potential for legal
and regulatory issues arising regarding the scope of coverage. Consequently, the ultimate
net impact of losses from this event on the Companys net income might differ
substantially from the foregoing estimate. Such adjustments, if necessary, are reflected
in results of operations in the period in which they become known.Losses incurred in the year ended December 31, 2005 are predominantly due to hurricanes
Katrina, Rita and Wilma which struck Louisiana, Texas and Florida, respectively. Amounts
recorded for these events were $976,500 as of December 31, 2005. Losses incurred in the
year ended December 31, 2005 in respect of prior years primarily result from development
of 2004 reserves relating to three of the four hurricanes which struck Florida, two of the
typhoons which struck Japan and the Indonesian tsunami.Losses incurred in the year ended December 31, 2004 are predominantly due to the four
hurricanes which struck Florida and two of the typhoons which struck Japan in the third
quarter of 2004. Amounts recorded for these events were $220,658 as of December 31, 2004.
Losses incurred in the year ended December 31, 2004 in respect of prior years include
favourable development on 2003 losses for the May
hailstorms/tornadoes, hurricane Isabel
and the California brush fires, and 2002 losses for the eastern European floods.Net losses and loss adjustment expenses in the consolidated statements of income (loss)
are presented net of reinsurance recoveries during the year ended December 31, 2006 as
follows: $1,555 (2005: $3,872; 2004: $7,765).




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##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 10.
    
    Written Premium by Geographic RegionFinancial information relating to reinsurance premiums (excluding reinstatement premiums)
written by geographic region is as follows:
 December 31, 2006
    
    
    December 31, 2005
    
    
    December 31, 2004Premiums
    
    
    
    
    
    
    Premiums
    
    
    
    
    
    
    Premiumswritten
    
    
    %
    
    
    written
    
    
    %
    
    
    written
    
    
    %Geographic Area (1)United States
    
    $
    205,866
    
    
    
    48.7
    %
    
    $
    136,331
    
    
    
    39.7
    %
    
    $
    130,327
    
    
    
    37.7
    %Europe
    
    
    107,920
    
    
    
    25.5
    %
    
    
    94,183
    
    
    
    27.4
    %
    
    
    108,377
    
    
    
    31.3
    %Japan
    
    
    22,907
    
    
    
    5.4
    %
    
    
    24,395
    
    
    
    7.1
    %
    
    
    20,439
    
    
    
    5.9
    %Australia/New Zealand
    
    
    15,595
    
    
    
    3.7
    %
    
    
    14,647
    
    
    
    4.3
    %
    
    
    20,418
    
    
    
    5.9
    %Worldwide (2)
    
    
    58,293
    
    
    
    13.8
    %
    
    
    66,260
    
    
    
    19.3
    %
    
    
    56,115
    
    
    
    16.2
    %Worldwide
(excluding the U.S.)(3)
    
    
    9,106
    
    
    
    2.1
    %
    
    
    5,419
    
    
    
    1.6
    %
    
    
    7,082
    
    
    
    2.1
    %Other
    
    
    3,451
    
    
    
    0.8
    %
    
    
    2,003
    
    
    
    0.6
    %
    
    
    3,144
    
    
    
    0.9
    %423,138
    
    
    
    100.0
    %
    
    
    343,238
    
    
    
    100.0
    %
    
    
    345,902
    
    
    
    100.0
    %Reinstatement premiums
    
    
    6,713
    
    
    
    
    
    
    
    129,149
    
    
    
    
    
    
    
    32,507$
    429,851
    
    
    
    
    
    
    $
    472,387
    
    
    
    
    
    
    $
    378,409
 
 (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 geographic
zones, including the United States.(3)
    
    Includes contracts that cover risks primarily in two or more geographic
zones, excluding the United States. The Company operates in a single segment from a segmental-reporting perspective.




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##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 11.
    
    Concentration and Credit RiskCredit risk arises out of the failure of a counterparty to perform according to the terms
of the contract. IPCRe does not require collateral or other security to support financial
instruments with credit risk. For the year ended December 31, 2006, a single broker group
accounted for approximately 30% (2005: 34%; 2004: 33%) of premiums written, excluding
reinstatement premiums. For the year ended December 31, 2006, five broker groups accounted
for approximately 89% (2005: 88%; 2004: 88%) of premiums written, excluding reinstatement
premiums. In accordance with industry practice, IPCRe frequently pays amounts owed in
respect of claims under its policies to reinsurance brokers, for payment over to the ceding
insurers. In the event that a broker failed to make such a payment, depending on the
jurisdiction, IPCRe might remain liable to the client for the deficiency. Conversely, in
certain jurisdictions when premiums for such policies are paid to reinsurance brokers for
payment over to IPCRe, such premiums will be deemed to have been paid and the ceding
insurer will no longer be liable to IPCRe for those amounts whether or not actually
received by them. Consequently, IPCRe assumes a degree of credit risk associated with
brokers around the world during the payment process.12.
    
    Credit FacilityEffective March 31, 2006 IPCRe cancelled its three-year revolving credit facility for
$200,000, which was due to expire on June 30, 2006. Effective April 13, 2006 the Company
and IPCRe entered into a five-year, $500,000 credit agreement with a syndicate of lenders.
The credit agreement consists of a $250,000 senior unsecured credit facility available for
revolving borrowings and letters of credit, and a $250,000 senior secured credit facility
available for letters of credit. The revolving line of credit will be available for the
working capital, liquidity and general corporate requirements of the Company and its
subsidiaries.Under the terms of the new $500,000 credit agreement, the Company is permitted to declare
and pay dividends provided there are no defaults or unmatured defaults pending. One of the
significant covenants of the facility requires the Company to maintain a minimum
consolidated net worth (consolidated shareholders equity) of $1,000,000, plus 25% of any
positive net income for each fiscal year, beginning with the fiscal year ended December 31,
2006, plus 25% of the net proceeds of any equity issuance or other capital contributions.
As of the date of this report, the outstanding letters of credit issued under the secured
facility were $159,720 (included in pledged assets in Note 3c), no amounts have been
borrowed under the unsecured facility, and we are in compliance with all terms and
covenants thereof.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 13.
    
    Statutory Capital and SurplusIPCRe is registered under the Bermuda Insurance Act 1978 and Related Regulations as amended
(the Act) and is obliged to comply with various provisions of the Act regarding solvency
and liquidity. Under the Act, IPCRe is required to maintain minimum statutory capital and
surplus equal to the greatest 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:
 2006
    
    
    2005Actual statutory capital and surplus
    
    $
    1,981,780
    
    
    $
    1,611,634Minimum statutory capital and surplus
    
    $
    205,973
    
    
    $
    225,342
 IPCRes statutory net income (loss) for the year ended December 31, 2006 was $393,730
(2005: $(626,141); 2004: $136,450).The Act limits the maximum amount of annual dividends or distributions payable by IPCRe to
the Company, without notification to the Supervisor of Insurance (Supervisor) of such
payments (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, 2007 without such
notification is approximately $495,445.In accordance with IPCRes license under the Act, loss reserves are certified annually by
an independent loss reserve specialist.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 14.
    
    Pension PlanEffective 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 base salary and IPCRe will contribute an amount equal to 5% of each
participants base salary. In 2003, IPCRe adopted an additional defined contribution
plan, a Supplementary Executive Retirement Plan (SERP), which is applicable to
senior employees. Pursuant to the SERP, IPCRe contributes an amount equal to 10% of
each participants base salary to a maximum of $20 per employee. IPCRe contributions
in respect of these plans amounted to approximately $349 (2005: $276; 2004: $264).IPCRe has also entered into individual pension arrangements with specific employees that
are non-contributory defined benefit plans. These defined benefit plans are currently
unfunded. Benefits are based upon a percentage of average final compensation multiplied by
years of credited service. During 2004 one of these employees retired from the Company and
an independent actuarial calculation was obtained. The projected future benefits were
settled through a lump sum payment. Independent actuarial reviews of the ongoing benefit
obligations were undertaken at December 31, 2006, 2005 and 2004. A summary of the status
of the defined benefit plans is provided below:
 2006
    
    
    2005
    
    
    2004Change in benefit obligationProjected benefit obligation, beginning of year
    
    $
    1,904
    
    
    $
    1,377
    
    
    $
    1,506Service cost
    
    
    239
    
    
    
    180
    
    
    
    174Interest cost
    
    
    129
    
    
    
    91
    
    
    
    84Settlement loss
    
    
    
    
    
    
    
    
    
    
    193Benefits paid
    
    
    
    
    
    
    
    
    
    
    (524
    )Actuarial loss (gain)
    
    
    366
    
    
    
    256
    
    
    
    (56
    )Projected benefit obligation, end of year
    
    $
    2,638
    
    
    $
    1,904
    
    
    $
    1,377Reconciliation of funded statusFunded status, end of year
    
    $
    (2,638
    )
    
    $
    (1,904
    )
    
    $
    (1,377
    )Accumulated loss, end of year
    
    
    686
    
    
    
    581
    
    
    
    451Net amount recognized, end of year
    
    $
    (1,952
    )
    
    $
    (1,323
    )
    
    $
    (926
    )Amounts recognized in the balance sheetUnfunded net period benefit cost
    
    $
    (1,952
    )
    
    $
    (1,323
    )
    
    $
    (926
    )Accumulated other comprehensive income
    
    
    (686
    )
    
    
    (306
    )
    
    
    Accrued benefit liability, end of year
    
    $
    (2,638
    )
    
    $
    (1,629
    )
    
    $
    (926
    )Change in Accumulated Other Comprehensive Income
due to application of SFAS 158Accumulated other comprehensive income
    
    $
    686
    
    
    $
    306
    
    
    $
    Additional minimum liability (before SFAS 158)
    
    
    (202
    )
    
    
    
    
    
    
    Net increase in Accumulated Other Comprehensive Income
due to application of SFAS 158
    
    $
    484
    
    
    $
    306
    
    
    $
    




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 14.
    
    Pension Plan(continued)
 Components of net periodic benefit costService cost
    
    $
    239
    
    
    $
    180
    
    
    $
    174Interest cost
    
    
    129
    
    
    
    91
    
    
    
    84Actuarial loss
    
    
    261
    
    
    
    126
    
    
    
    80Net periodic benefit cost
    
    
    629
    
    
    
    397
    
    
    
    338Additional loss due to settlement
    
    
    
    
    
    
    
    
    
    
    193Net amount recognized in net periodic benefit cost
    
    
    629
    
    
    
    397
    
    
    
    531Total recognized in other comprehensive income
    
    
    380
    
    
    
    306
    
    
    
    Total recognized in net periodic benefit cost
and other comprehensive income during year
    
    $
    1,009
    
    
    $
    703
    
    
    $
    531Projected benefit obligation, end of year
    
    $
    2,638
    
    
    $
    1,904
    
    
    $
    1,377Accumulated benefit obligation
    
    $
    2,154
    
    
    $
    1,629
    
    
    $
    926Fair value of plan assets
    
    $
    
    
    
    $
    
    
    
    $
    
 In accordance with SFAS 158 an additional liability of $686 (2005: $306) is recorded in
accumulated other comprehensive income in shareholders equity in the accompanying
consolidated financial statements as the unfunded accrued benefit liability exceeded the
accrued pension cost. Actuarial assumptions used in estimating obligations are a discount
rate of 6.00% (2005: 5.50%, 2004: 6.00%) and average compensation increases of 3.75%
(2005: 3.75%, 2004: 3.75%). The benefits are expected to be paid in 2008, at an expected
amount of $3,395.




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 15.
    
    TaxesAt 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 Europe Limited is a tax-paying entity subject to the jurisdiction of the Government
of Ireland. The amount of taxes incurred for 2006, 2005 and 2004 is not material to the
consolidated financial statements.16.
    
    Unaudited Quarterly Financial Data
 Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarterended
    
    
    ended
    
    
    ended
    
    
    endedMarch 31,
    
    
    June 30
    
    
    Sept. 30,
    
    
    Dec. 31,2006
    
    
    2006
    
    
    2006
    
    
    2006Gross premiums written
    
    $
    235,593
    
    
    $
    120,325
    
    
    $
    56,288
    
    
    $
    17,645Net premiums earned
    
    
    86,943
    
    
    
    100,770
    
    
    
    107,840
    
    
    
    101,579Net investment income
    
    
    24,604
    
    
    
    31,064
    
    
    
    25,383
    
    
    
    28,608Net realized (losses) gains on investments
    
    
    (12,614
    )
    
    
    4,521
    
    
    
    9,072
    
    
    
    11,106Net losses and loss adjustment expenses
    
    
    22,096
    
    
    
    13,387
    
    
    
    7,918
    
    
    
    15,104Net income
    
    
    62,647
    
    
    
    108,822
    
    
    
    114,965
    
    
    
    108,151Net income per common share  basic
    
    $
    0.92
    
    
    $
    1.64
    
    
    $
    1.74
    
    
    $
    1.63Net income per common share  diluted
    
    $
    0.86
    
    
    $
    1.50
    
    
    $
    1.60
    
    
    $
    1.52
 Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarterended
    
    
    ended
    
    
    ended
    
    
    endedMarch 31,
    
    
    June 30
    
    
    Sept. 30,
    
    
    Dec. 31,2005
    
    
    2005
    
    
    2005
    
    
    2005Gross premiums written
    
    $
    205,841
    
    
    $
    86,994
    
    
    $
    165,980
    
    
    $
    13,572Net premiums earned
    
    
    82,038
    
    
    
    87,129
    
    
    
    207,291
    
    
    
    76,064Net investment income
    
    
    17,515
    
    
    
    14,857
    
    
    
    15,731
    
    
    
    23,654Net realized (losses) gains on investments
    
    
    (3,210
    )
    
    
    1,032
    
    
    
    (2,002
    )
    
    
    (6,376
    )Net losses and loss adjustment expenses
    
    
    37,936
    
    
    
    24,434
    
    
    
    855,977
    
    
    
    154,315Net income (loss)
    
    
    43,955
    
    
    
    64,050
    
    
    
    (656,570
    )
    
    
    (74,835
    )Net income (loss) per common share  basic
    
    $
    0.91
    
    
    $
    1.32
    
    
    $
    (13.57
    )
    
    $
    (1.32
    )Net income (loss) per common share  diluted
    
    $
    0.91
    
    
    $
    1.32
    
    
    $
    (13.57
    )
    
    $
    (1.32
    )




---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
  (Expressed in thousands of United States Dollars, except for per share amounts)
 17.
    
    Summarized Subsidiary Financial DataSummarized consolidated financial data of IPCRe Limited and subsidiary, is as follows:
 2006
    
    
    2005
    
    
    2004Gross premiums written
    
    $
    429,851
    
    
    $
    472,387
    
    
    $
    378,409Net premiums earned
    
    
    397,132
    
    
    
    452,522
    
    
    
    354,882Net investment income
    
    
    109,659
    
    
    
    71,641
    
    
    
    51,220Net realized gain (losses) on investments
    
    
    12,085
    
    
    
    (10,556
    )
    
    
    5,946Net losses and loss adjustment expenses
    
    
    (58,505
    )
    
    
    (1,072,662
    )
    
    
    (215,608
    )Net acquisition costs
    
    
    (37,542
    )
    
    
    (39,249
    )
    
    
    (37,682
    )General and administration expenses
    
    
    (31,481
    )
    
    
    (25,407
    )
    
    
    (20,981
    )Net foreign exchange gain (loss)
    
    
    2,635
    
    
    
    (2,979
    )
    
    
    (1,290
    )Net income (loss)
    
    $
    393,983
    
    
    $
    (626,690
    )
    
    $
    136,487Loss ratio (1)
    
    
    14.7
    %
    
    
    237.0
    %
    
    
    60.8
    %Expense ratio (2)
    
    
    17.4
    %
    
    
    14.3
    %
    
    
    16.5
    %Combined ratio (3)
    
    
    32.1
    %
    
    
    251.3
    %
    
    
    77.3
    %Cash and investments
    
    $
    2,485,341
    
    
    $
    2,559,736Balances receivable from reinsureds
    
    
    113,811
    
    
    
    180,798Other assets
    
    
    45,286
    
    
    
    39,179Total assets
    
    $
    2,644,438
    
    
    $
    2,779,713Unearned premiums
    
    $
    80,043
    
    
    $
    66,311Reserves for losses
    
    
    548,627
    
    
    
    1,072,056Other liabilities
    
    
    24,164
    
    
    
    19,753Total liabilities
    
    
    652,834
    
    
    
    1,158,120Common stock
    
    
    250,000
    
    
    
    250,000Additional paid-in capital
    
    
    1,211,609
    
    
    
    1,211,609Retained earnings
    
    
    402,685
    
    
    
    67,202Accumulated other comprehensive income
    
    
    127,310
    
    
    
    92,782Total shareholders equity
    
    
    1,991,604
    
    
    
    1,621,593Total liabilities and shareholders equity
    
    $
    2,644,438
    
    
    $
    2,779,713
 
 (1)
    
    The ratio of net losses and loss adjustment expenses to net premiums earned.(2)
    
    The ratio of net acquisition costs and general and administration expenses to net
premiums earned.(3)
    
    The sum of loss ratio and expense ratio.