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Exhibit 13.1

IPC HOLDINGS, LTD. AND
SUBSIDIARIES
PORTIONS OF ANNUAL REPORT





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

The following is a discussion of the results of operations and financial
position of IPC Holdings, Ltd. References to we, our or IPC mean IPC
Holdings together with its wholly-owned subsidiaries, IPCRe Limited (IPCRe),
and IPCRe Underwriting Services Limited. This discussion should be read in
conjunction with our Consolidated Financial Statements and related notes for
the year ended December 31, 2003.

General Overview

We commenced operations in June 1993. An overview of our principal lines
of business is provided under Item 1 Business - General Development of
Business - Overview. Property catastrophe reinsurers tend to experience
significant fluctuations in operating results primarily because of the
frequency of occurrence or severity of catastrophic events. Because of the
volatile nature of property catastrophe reinsurance, the financial data
included in this discussion are not necessarily indicative of our future
financial condition or results of operations.

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

Premiums (cash) received which are surplus to our short term funding
requirements, are invested in accordance with our investment guidelines. Our
current investment strategy is defined primarily by the need to safeguard our
capital, since we believe that the risks inherent in catastrophe reinsurance
should not be augmented by a speculative investment policy. For this reason,
our investment policy places a strong emphasis on the quality and liquidity of
investments.

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

Events from 1996 to 2003 demonstrate the volatility of catastrophe
reinsurance business. In 1996, 1997, 2000, 2002 and 2003, few major
catastrophic events occurred. Consequently, few claims were made on IPCRe.
Conversely, many catastrophic events occurred in 1998, 1999 and 2001 in many
parts of the world, including Hurricane Georges in 1998 (estimated
industry-wide insured losses in excess of $4 billion), a hailstorm which struck
Sydney, Australia in April, 1999 (estimated industry losses of $1.6 billion),
Hurricane Floyd (estimated industry losses of $2.2 billion), and cyclones
Anatol, Lothar and Martin that struck several parts of Europe in December, 1999
(estimated industry losses in excess of $9 billion). In June 2001, Tropical
Storm Allison affected parts of Texas (estimated industry losses of $2.5
billion) and on September 11, 2001, terrorist attacks were carried out in the
U.S. (estimated industry losses of $30 billion to $70 billion). Estimated
industry loss amounts have been derived from recognized sources such as Swiss
Res Sigma publication and reports from Property Claim Services (PCS), who
track insured catastrophic events in the United States of America.

From 1996 to 1999, there was an increase in the supply of reinsurance
capacity, which caused downward pressure on pricing. For the January 1998 and
1999 renewal cycles, premium rates declined by an average of 15% and 10%,
respectively. For the January 2000 renewal cycle, due to the increased levels
of claim activity, premium rates were at a similar level to 1999. Significant
claims incurred by many reinsurers during 2000 as a result of events in late
1999, followed by several catastrophic events in 2001, resulted in a
contraction of capacity. Consequently, renewals during





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the fourth quarter of 2000 and throughout 2001 and 2002 saw premium rates
increasing by between 10% and 25%, on average, for contracts which had not
suffered losses, with significantly higher increases for those contracts which
had suffered losses. During the fourth quarter of 2001, in response to the
reduction in the capacity and anticipated increased demand, many companies,
including ourselves, raised additional capital. There were also a number of
new insurance and reinsurance companies formed in Bermuda and elsewhere, hoping
to satisfy demand and benefit from improved market terms and conditions. We
believe that the additional capital flowing into the market affected price
increases in 2002 and 2003, as they were not as large as previously
anticipated. While prices continued to increase during 2003, the rate of
increase moderated as the year progressed. Pricing in 2004 and beyond will
also be affected by the frequency or severity of catastrophic events, or
absence thereof. Pricing of business renewing in January 2004 was generally
flat or with modest declines of around 5%. In the absence of a frequency or
severity of catastrophic events during 2004, it is possible that catastrophe
reinsurance pricing will decline. We believe that we have been able to
increase the amount of business allocated to us and our market share because of
our reputation, capital base, Standard & Poors (S & P) and A.M. Best Company
(A.M. Best) ratings and long-standing client relationships. We have been
able to offer, and continue to offer, additional underwriting capacity created
by our increased capital base, to our existing clients, and also to new
clients. These factors were reflected in the significant increase in our
written premium volume in 2002 and 2003 in comparison to 2001.

With respect to terms and conditions other than pricing, for 2002 and 2003
renewals the coverage of claims that are the result of terrorist acts was
generally excluded from property catastrophe reinsurance contracts covering
large commercial risks, but not excluded for personal lines or other coverages,
except where caused by nuclear, biological or chemical means. During 2002 and
2003, IPCRe participated in a number of underwriting pools which cover property
losses arising from terrorist acts as a separate hazard.

On November 26, 2002, the Terrorism Risk Insurance Act of 2002 (TRIA)
was signed into law. TRIA, which does not apply to reinsurance companies such
as IPCRe, establishes a temporary federal program which requires U.S. and other
insurers to offer coverage in their commercial property and casualty policies
for losses resulting from terrorists acts committed by foreign persons or
interests in the United States or with respect to specified U.S. air carriers,
vessels or missions abroad. The coverage offered may not differ
materially from the terms, amounts and other coverage limitations
applicable to other policy coverages. Generally, insurers will
pay all losses resulting from a covered terrorist act to policyholders,
retaining a defined deductible and 10% of losses above the deductible. The
federal government will reimburse insurers for 90% of losses above the
deductible and, under certain circumstances, the federal government will
require insurers to levy surcharges on policyholders to recoup for the federal
government its reimbursements paid. As a result of TRIA, our participation in
coverage for terrorism within the United States declined during 2003. We have
continued to exclude losses resulting from terrorist acts, as defined in this
legislation, from U.S. property catastrophe contracts covering large commercial
risks incepting January 1, 2004.

Critical Accounting Policies

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

Premiums

Premiums are recorded as written at the beginning of each policy period,
based upon information received from ceding companies and their brokers, and
are earned over the policy period. For excess of loss contracts, the amount of
premium is contractually documented at inception, and no management judgement
is necessary in accounting for this. Premiums are earned on a pro rata basis
over the policy period. For proportional treaties, the amount of premium is
normally estimated at inception by the ceding company. We account for such
premium using the initial estimates, which are reviewed regularly with respect
to the actual premium reported by the ceding company. At December 31, 2003 the
amount of premium written resulting from estimate accruals was approximately 4%
of total premiums written for the year then ended. We also accrue for
reinstatement premiums (premiums paid to reinstate reinsurance coverage
following a claim) on loss reserves. Such accruals are based upon actual
contractual terms, and the only element of management judgement involved is
with respect to the amount of loss reserves, as described below. The amount
accrued at December 31, 2003 for reinstatement premiums on Reported But Not
Enough losses (RBNE) and Incurred But Not Reported (IBNR) loss reserves was
$4.4 million, the majority of which relates to claims from events in 2003 and
the terrorist attack on the World Trade Center.





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Loss Reserves

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

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

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

At December 31, 2003 managements estimates for IBNR/RBNE represented
approximately 45% of total loss reserves. The majority of the estimate related
to reserves for claims from the attack on the World Trade Center, windstorms
which occurred in 2003 in various parts of the world, hailstorms and tornado
losses in April/May 2003 in the United States and Europe, a flood in southern
France which occurred in December 2003, an explosion/fire which occurred in
Canada in January 2003, the floods which affected central and eastern Europe in
August 2002, Tropical Storm Allison which affected parts of Texas in June 2001
and reserves for proportional treaties. In accordance with IPCRes
registration under the Bermuda Insurance Act 1978 and Related Regulations (the
Insurance Act), the loss reserves are certified annually by an independent
loss reserve specialist. If our estimate of IBNR/RBNE at December 31, 2003 was
inaccurate by a factor of 10%, our results of operations would be impacted by a
positive or negative movement of approximately $5.6 million. If our total
reserve for losses at December 31, 2003 was inaccurate by a factor of 10%, our
incurred losses would be impacted by approximately $12.3 million, which
represents less than 1% of shareholders equity.

Investments

In accordance with our investment guidelines, our investments consist of
certain marketable equity securities and high-grade marketable fixed income
securities. Investments are carried at fair value as determined by the most
recently traded price of each security at the balance sheet date. In
accordance with Statement No. 115, Accounting for Certain Investments in Debt
and Equity Securities (SFAS 115), unrealized gains and losses are included
within accumulated other comprehensive income as a separate component of
shareholders equity. Realized gains and losses on sales of investments are
determined on a first-in, first-out basis, and are included in net income
(loss). Investment income is recorded when earned and includes the
amortization of premiums and discounts on investments.





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

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



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

At December 31, 2003 our equity investments comprised three mutual funds:
a U.S. equity fund, a global equity growth fund and a fund with attributes
similar to those of the S & P 500 Index. None of the funds have a significant
concentration in any one business sector; accordingly, the value of these
equity funds is principally influenced by macro economic factors rather than
issuer-specific factors. Our investment in mutual funds is subject to the same
analyses as described above for the determination of other-than-temporary
declines in value. Since there is a portfolio of securities within a mutual
fund, the qualitative issues are usually broader than those for individual
securities and therefore the assessment of impairment is inherently more
difficult and requires more management judgement.

At December 31, 2003 we determined that there was no other-than-temporary
impairment of securities.

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

|                                    |  |                 |        |  
|----------------------------------- |  | --------------- | ------ | -
|                                    |  | At December 31,
|                                    |  | 2003           
|                                    |  |                
|                                    |  | $ 000          
|Gross unrealized (losses):          |  |                 |        |  
|Fixed maturity securities           |  |                 | (1,965 | )
|Equity securities                   |  |                 | (24    | )
|                                    |  |                 |        |  
|                                    |  |                 | (1,989 | )
|                                    |  |                 |        |  
|Gross unrealized gains:             |  |                 |        |  
|Fixed maturity securities           |  |                 | 22,244 |  
|Equity securities                   |  |                 | 70,852 |  
|                                    |  |                 |        |  
|                                    |  |                 | 93,096 |  
|                                    |  |                 |        |  
|Total net unrealized gains (losses) |  |                 | 91,107 |  
|                                    |  |                 |        |  





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The following table summarizes the unrealized loss position at December
31, 2003 by length of time those securities have been continuously in an
unrealized loss position:

|                                     |  |        |        |         |  |       |      |   |  |   |        |  
|------------------------------------ |  | ------ | ------ | ------- |  | ----- | ---- | - |  | - | ------ | -
|                                     |  | 0-12   |        | Over 12 |  |       |      |  
|2003 Unrealized Losses               |  | months |        | months  |  | Total
|                                     |  |        |        |         |  |      
|Length of time with unrealized loss: |  |        |        |         |  |       |      |   |  |   |        |  
|Fixed maturity investments           |  | $      | (1,778 | )       |  | $     | (187 | ) |  | $ | (1,965 | )
|Equity investments                   |  |        |       |         |  |       | (24  | ) |  |   | (24    | )
|                                     |  |        |        |         |  |       |      |   |  |   |        |  
|                                     |  | $      | (1,778 | )       |  | $     | (211 | ) |  | $ | (1,989 | )
|                                     |  |        |        |         |  |       |      |   |  |   |        |  

At December 31, 2003 we did not hold any securities that are not
investment grade, not rated or not traded on a recognized exchange.

Results of Operations

Years Ended December 31, 2003, 2002 and 2001

Our results over the past two years have improved dramatically in
comparison to 2001, as we have increased our written premium volumes in each of
2002 and 2003, respectively, and benefitted from a two year period in which
there has been little in the way of major catastrophe activity. As a result,
our net income in 2003 was $260.6 million, a 65% increase over net income of
$157.9 earned in 2002, compared to a net loss of $(3.9) million in 2001.

In the twelve months ended December 31, 2003, we wrote gross premiums of
$322.8 million, compared to $259.7 million and $133.1 million written in the
years ended December 31, 2002 and 2001, respectively. These writings included
adjustment premiums, which are adjustments generally arising from differences
between cedants actual premium income and the original estimates thereof, and
reinstatement premiums, which are premiums paid by ceding companies to
reinstate reinsurance coverage following a claim. Adjustment premiums were
$21.1 million, $5.8 million and $2.7 million, for the years ended December 31,
2003, 2002 and 2001, respectively. Adjustment premiums were significantly
higher in 2003 because original estimates of 2002 primary property insurance
premiums advised by cedants did not anticipate the significant increases in
pricing that occurred. We believe it is unlikely that adjustment premiums will
reach similar levels in 2004. Reinstatement premiums were $7.3 million, $1.4
million and $21.1 million, for the years ended December 31, 2003, 2002 and
2001, respectively. The significant amount in 2001 was due to the volume of
claims relating to the attack on the World Trade Center. In both 2003 and
2002, we had increased participation and additional business from existing
clients and selectively wrote business for new clients. In 2001 and 2002, we
also benefitted from rate increases, generally in the range of 10% to 20%, but
as high as 25% in some cases. In 2003 we benefitted from rate increases of 3%
to 10% during the first half of the year, but pricing generally flattened
during the latter half, principally due to the absence of significant
catastrophic events as well as increased competition. In addition, during both
2003 and 2002, we decided not to renew some contracts with unsatisfactory rates
or terms.

We purchase reinsurance to reduce our exposure to large losses. (See Note
5 to the Consolidated Financial Statements - Ceded Reinsurance.) In the
years ended December 31, 2003, 2002 and 2001, premiums ceded to these
facilities were $14.4 million, $5.4 million and $4.4 million, respectively,
reducing net premium writings for those years to $308.3 million, $254.3 million
and $128.6 million, respectively. The increase in ceded premiums reflects
increased transfers of exposure to our Property Catastrophe Aggregate Excess of
Loss Reinsurance facility, as well as the increase in retrocessionaires
participation in our proportional reinsurance facility, which has varied from
37% in 2002 to 60.5% in 2003, having been 61.5% in 2001.

We earned net premiums of $298.9 million, $226.4 million and $123.4
million in the years ended December 31, 2003, 2002 and 2001, respectively,
representing increases of 32.0% and 83.5%, respectively. Earned premiums
increased from 2002 to 2003 because of the increase in written premiums during
the previous twelve months, as well as the substantial increases in adjustment
and reinstatement premiums recorded in 2003. Excluding adjustment and
reinstatement premiums, net premiums earned increased by 120% from $99.6
million in 2001 to $219.2 million in 2002, and then by a further 23.4% to
$270.5 million in 2003.

We earned net investment income of $47.1 million in the year ended
December 31, 2003 compared to $49.3 million earned in the year ended December
31, 2002, and $32.2 million in the year ended December 31, 2001. The overall
yield of the fixed income portfolio was less for the year ended December 31,
2003 than for the year ended December 31, 2002, due to lower interest rates and
their adverse impact on the reinvestment of maturing fixed income securities.
This negative factor was offset in part by the increase in the average balance
of invested assets in 2003, which was 17% higher than in 2002, because of
positive operating cash flow in the period. The increase in net investment
income in 2002 compared to 2001 was primarily due to the significant increase
in invested assets of approximately $546 million in December 2001, which
resulted from a public offering of shares concurrent with a private placement
of shares to





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American International Group, Inc. (AIG), as well as AIGs exercise of an
option granted at the Companys inception. The increase in the average balance
of invested assets more than offset the reduction in overall portfolio yield.
The reduction in overall portfolio yield was due to declining interest rates,
as well as an increase in the allocation to equities during 2002 and 2001.
Investment income is net of investment expenses, which were primarily
investment management and custodial fees payable to subsidiaries of AIG. (See
Note 9 to the Consolidated Financial Statements  Related Party
Transactions.) These fees totaled $3.2 million in 2003, $2.9 million in 2002
and $1.6 million in 2001. We received refunds of management fees deducted from
the net assets of a global equity fund and a North American equity fund, in
which we are an investor, because we already pay management fees on the
portfolio as a whole. Both funds are managed by AIG/Sun America. These
refunds were $1.9 million, $1.2 million and $0.3 million, for the years ended
December 31, 2003, 2002 and 2001, respectively.

At December 31, 2003 the portfolio consisted of cash and cash equivalents,
high quality fixed maturity investments, investments in the AIG Global Equity
Fund PLC and the AIG North American Equity Trust fund, and an investment in an
Institutional Index fund, which has similar characteristics to those of the S &
P 500 Index.

We recorded a net realized gain of $13.7 million on investments for the
year ended December 31, 2003, compared to net realized loss of $(44.9) million
and a net realized gain of $0.6 million for the years ended December 31, 2002
and 2001, respectively. The amounts for 2002 and 2001 include write-downs of
$49.1 million and $5.3 million, respectively, in the cost basis of certain
stocks where management had determined there had been a decline in value which
was other-than-temporary. In accordance with SFAS 115, such a write-down is

recognized as a realized loss in the income statement, even though there were
no sales of the securities. Generally, net gains and losses fluctuate from
period to period, depending on the securities sold as recommended by our
investment advisor. Net unrealized gains on our investment portfolio (see Note
3 to the Consolidated Financial Statements  Investments) were $91.1 million
at December 31, 2003, compared to $40.3 million at December 31, 2002.

We incurred losses and loss adjustment expenses of $54.4 million, $38.8
million and $137.6 million in the years ended December 31, 2003, 2002 and 2001,
respectively. The level of insured losses from catastrophic events around the
world was significantly lower in 2003 and 2002 compared to the high frequency
and severity of events during 2001. Although 2003 saw many catastrophe events
in the United States, as determined by PCS, most of the insured losses from
those events were not large enough to breach the attachment points of our
catastrophe excess of loss reinsurance contracts.

In 2003 we incurred losses from: bush fires in Canberra, Australia in
January 2003 ($2.9 million), an explosion and fire which impacted an energy
facility in Canada, in January 2003 ($2.7 million), tornadoes and hailstorms
which affected the mid-West United States in April and May of 2003 ($10.3
million), several brush fires in California in October 2003 ($8.0 million), pro
rata treaties ($7.9 million), various windstorms which took place around the
world, including Hurricanes Isabel and Fabian, in September 2003 ($8.5
million), and the floods which affected southern France in December 2003 ($2.5
million). We also incurred losses as a result of development of claims from
prior years, including increases to claims resulting from Hurricane Lili and
storms which affected Europe in October 2002, and $7.0 million in respect of an
increase in the ultimate expected losses for Tropical Storm Allison which took
place in June, 2001. This was the result of an unfavourable court ruling,
regarding an insurance policy coverage dispute between a cedant and the
original insured under the policy.

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

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

Acquisition costs, which are typically a percentage of premiums written,
consist primarily of commissions and brokerage fees paid to intermediaries for
the production of premiums written, and excise taxes. Brokerage commissions on
property catastrophe excess of loss contracts typically range from 5% to 10% of
written premiums. We incurred acquisition costs of $30.9 million, $24.5
million and $12.7 million for the years ended December 31, 2003, 2002 and 2001,
respectively, after deferring those costs related to the unearned portion of
premiums written. The increases from 2001 to 2002, and from 2002 to 2003 are
primarily due to the increase in earned premiums, but they have not increased
proportionately, because we have written more business in 2003 where brokerage
is incurred by us.





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General and administrative expenses were $19.1 million, $13.9 million and
$9.4 million for the years ended December 31, 2003, 2002 and 2001,
respectively. These figures include fees paid to subsidiaries of AIG for
administrative services, which are based on a percentage of premiums written,
and were $7.8 million, $5.8 million and $3.2 million for the years ended
December 31, 2003, 2002 and 2001, respectively. These services include the
provision of certain office space, furnishings, computer systems, accounting,
legal, payroll, information technology and human resource personnel, and other
ancillary services. (See Note 9 to the Consolidated Financial
Statements 
Related Party Transactions.) In addition to this significant increase, other
expense categories which saw increases included salaries and benefits, which
include the impact of expensing stock grants and stock options granted to
certain officers in 2003, the increased cost of Directors and Officers
liability insurance, fees associated with the renewal of our revolving credit
facility and increased professional fees because of increased corporate
governance requirements under the Sarbanes-Oxley Act of 2002.

Liquidity and Capital Resources

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

Under the Insurance Act, IPCRe is required to maintain a solvency margin
and a minimum liquidity ratio, and is prohibited from declaring or paying
dividends if to do so would cause IPCRe to fail to meet its solvency margin and
its minimum liquidity ratio. Under the Insurance Act, IPCRe is prohibited from
paying dividends of more than 25% of its total statutory capital and surplus at
the end of the previous fiscal year unless it files an affidavit stating that
the declaration of such dividends has not caused IPCRe to fail to meet its
solvency margin and minimum liquidity ratio. The Insurance Act also prohibits
IPCRe from declaring or paying any dividend without the approval of the
Supervisor of Insurance of Bermuda if IPCRe failed to meet its solvency margin
and minimum liquidity ratio on the last day of the previous fiscal year. The
maximum dividend payable by IPCRe in accordance with the foregoing restrictions
as of January 1, 2004 was approximately $389.2 million.

Sources of Funds

Our sources of funds consist of premiums written, losses recovered from
retrocessionaires, underwriting agency commissions, investment income and
proceeds from sales and redemptions of investments.

In July 1998, to further enhance its liquidity, IPCRe entered into a
revolving credit facility with a syndicate of lenders led by Bank One N.A. The
amount of the original facility was $300 million, which was reduced to $150
million in June, 2001. The facility was renewed in July 2003 for a three-year
term, in the amount of $200 million. IPCRe is permitted to declare and pay
dividends to the Company provided there are no defaults or unmatured defaults
pending. One of the significant covenants of the facility requires IPCRe to
maintain a minimum net worth (shareholders equity) of $900 million, plus 50%
of any positive net income in any quarter, plus 75% of the net proceeds of any
equity issuance. As of December 31, 2003 no amounts have been drawn under this
facility, and IPCRe is in compliance with all the terms and covenants required.
The maximum amount of dividends that IPCRe could have paid in the fourth
quarter of 2003 under the terms of the credit facility was $603.9 million.

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

Uses of Funds

Cash is used primarily for investing activities and to pay losses and loss
adjustment expenses, brokerage commissions, excise taxes, premiums retroceded,
general and administrative expenses and dividends. We generated cash flows
from operations of $269.5 million, $180.9 million and $83.6 million in the
years ended December 31, 2003, 2002 and 2001, respectively. These amounts
represent the difference between premiums collected and investment earnings
realized, and losses and loss adjustment expenses paid, underwriting and other
expenses paid. Cash flows from





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##### 



operations differ, and may continue to differ, substantially from net income.
To date, we have invested all cash flows not required for operating purposes or
payment of dividends. The potential for large catastrophes means that
unpredictable and substantial payments may need to be made within relatively
short periods of time. Hence, future cash flows cannot be predicted with any
certainty and may vary significantly between periods. Loss payments during the
years ended December 31, 2003, 2002 and 2001 were $57.1 million, $84.1 million
and $35.6 million, respectively. During 2004, we expect to pay the bulk of the
$33 million of loss reserves we have accrued at December 31, 2003 for the
terrorist attack on the World Trade Center, or other prior year events, as well
as claims from other events that may occur during the year.

With the exception of cash holdings, our funds are primarily invested in
fixed maturity securities, the fair value of which is subject to fluctuation
depending on changes in prevailing interest rates, and investments in three
mutual funds, which invest in stocks of large capitalized companies in the U.S.
and other major countries around the world. We do not hedge our investment
portfolio against interest rate risk. Accordingly, changes in interest rates
and equity prices may result in losses, both realized and unrealized, on our
investments (see Quantitative and Qualitative Disclosure about Market Risk
below for further explanation). On January 2, 2004, we invested $75.0 million
in a mutual fund, AIG Select Hedge Fund, a limited company incorporated in the
Cayman Islands, which invests in a number, typically 20 to 25, of hedge funds
managed by unrelated parties, with a variety of investment strategies. The
purpose of this investment is to provide additional diversification of our
portfolio as a whole, and to potentially improve overall yield.

All of our investments are classified as Available for Sale.
Investments are carried at fair value and any unrealized gains or losses are
reported as accumulated other comprehensive income within shareholders equity.

At December 31, 2003, 82.9% of our fixed maturity investment portfolio
consisted of cash, U.S. Treasuries or other government agency issues, and
investments with a AAA or AA rating, compared to 75.2% of the portfolio at
December 31, 2002. The primary rating source is Moodys Investors Services
Inc. (See Note 3 (f) to the Consolidated Financial Statements

Investments.) At December 31, 2003 the portfolio had an average maturity of
2.8 years and an average modified duration of 2.6 years (compared to 2.9 years
and 2.5 years, respectively, at December 31, 2002).

Net cash outflows used for investing activities in the years ended
December 31, 2003, 2002 and 2001 were $159.6 million, $479.7 million and $320.1
million, respectively. At December 31, 2003 our cash and cash equivalents were
$91.9 million, of which $75.0 million was invested on January 2, 2004 in the
AIG Select Hedge Fund, discussed above. In 2001, because of the timing of our
offerings, cash and cash equivalents increased by $305.8 million, resulting in
a balance of $315.2 million. Most of these funds were invested in January
2002, resulting in the reduction in cash and cash equivalents to a balance of
$16.7 million at December 31, 2002.

Our functional currency is the U.S. dollar. However, premiums receivable
and losses payable in respect of a significant portion of our business are
denominated in currencies of other countries, principally industrial countries.
Consequently, we may, from time to time, experience currency exchange gains
and losses that could affect our financial position and results of operations.
In the years ended December 31, 2003 and 2002, we incurred foreign exchange
gains of $1.9 million and $1.6 million, respectively, which were primarily the
result of strengthening of the Euro and British pound. By comparison, in 2001,
we incurred a net foreign exchange loss of $(0.6) million. We currently do not
- and as a practical matter cannot  hedge our U.S. dollar currency exposure
with respect to potential claims until a loss payable in a non-U.S. dollar
currency occurs, after which we may match such liability with assets
denominated in the same currency, as we have done on three occasions, or enter
forward purchase contracts for specific currencies, which we did during 2000.
This type of exposure could be substantial. We also have not hedged our
non-U.S. dollar currency exposure with respect to premiums receivable, which
generally are collected over the relevant contract term. (See Quantitative
and Qualitative Disclosure about Market Risk below.) Our practice is to
exchange non-U.S. dollar denominated premiums upon receipt. Foreign currency
investments have been infrequently made, generally for the purpose of improving
overall portfolio yield. At December 31, 2003, we had no forward contract
hedges outstanding.

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

IPCRe is not a licensed insurer in the United States of America and
therefore, under the terms of most of its contracts with U.S.-based companies,
must provide security to reinsureds to cover unpaid liabilities in a form
acceptable to state insurance commissioners. Typically, this type of security
takes the form of a letter of credit issued by an acceptable bank, the
establishment of a trust, or a cash advance. Currently IPCRe obtains letters
of credit through one commercial





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bank pursuant to a $100.0 million facility. In turn, IPCRe provides the bank
security by giving the bank a lien over certain of IPCRes investments in an
amount not to exceed 118% of the aggregate letters of credit outstanding. At
December 31, 2003 and 2002, there were outstanding letters of credit of $52.0
million and $86.5 million, respectively. The amount in 2002 was due to the
increased requirements of our clients as a result of claims arising from the
attack on the World Trade Center. If we were unable to obtain the necessary
credit, IPCRe could be limited in its ability to write business for our clients
in the United States.

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

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

Aggregate Contractual Obligations

The following table summarizes our contractual obligations:

|                        |  |                                          |     |      |  |             |     |           |  |                   |     |  |  |   |   |  |  |   |   | 
|----------------------- |  | ---------------------------------------- | --- | ---- |  | ----------- | --- | --------- |  | ----------------- | --- |  |  | - | - |  |  | - | - | 
|                        |  | Payments due by period                  
|Contractual Obligations |  | (expressed in thousands of U.S. dollars)
|                        |  |                                         
|                        |  |                                          |     |      |  | Less than 1 |     |           |  |                   |     |  |  |   |   |  |  |  
|                        |  | Total                                    |     | year |  | 1-3 years   |     | 3-5 years |  | More than 5 years
|                        |  |                                          |     |      |  |             |     |           |  |                  
|Purchase Obligations    |  | $                                        | 715 |      |  | $           | 295 |           |  | $                 | 420 |  |  | $ |  |  |  | $ |  | 

Purchase Obligations are made up of the following contractual obligations:



| | 1. |  | Administrative Services Agreement: 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 2.5% of the
first $500 million annual gross written premiums (1.5% of the next $500
million and 1% thereafter). This administrative services agreement
terminates on June 30, 2006 and is automatically renewed thereafter for
successive three year terms unless prior written notice to terminate is
delivered by or to AICL at least 180 days prior to the end of such three
year term. As the fee payable is based on annual gross written premiums
the actual annual amount is unknown until the end of the year and
therefore not included in the table above. The amount incurred for 2003
was $7.8 million.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Credit Facility: As described above, we renewed a three year credit
facility in the amount of $200 million. Drawings on this facility can
be used for general corporate purposes. The level of the facility fee
payable is dependent upon the S & P credit rating of IPCRe and therefore
a change in this rating would affect the amount paid. The applicable
fee rate based upon IPCRes present credit rating is 0.125%. An annual
administration fee of $45,000 is also payable. A margin fee would be
payable on amounts drawn under this agreement with the fee payable also
dependent upon the S & P rating of IPCRe at that time. At December 31,
2003 no amounts have been drawn under this facility.                                                                                                                                                                                    

Off-Balance Sheet Arrangements

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

Quantitative and Qualitative Disclosure about Market Risk

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

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

We believe that statistical models alone do not provide a reliable method
of monitoring and controlling market risk. While VaR models are relatively
sophisticated, the quantitative market risk information is limited by the
assumptions and parameters established in creating the related models, which
rely principally on historic data. Because of this, such





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##### 



models may not
accurately predict future market behaviour. Therefore, such models are tools
and do not substitute for the experience or judgement of senior management.

Our investment managers performed a VaR analysis, to estimate the maximum
potential loss of fair value for each segment of market risk, as of December
31, 2003 and 2002. The analysis calculated the VaR with respect to the net
fair value of our invested assets (cash and cash equivalents, equity and
high-grade fixed income securities) as of December 31, 2003 and 2002 using
historical simulation methodology. At December 31, 2003 the VaR of IPCRes
investment portfolio was approximately $27.6 million, which represents a 95th
percentile value change over a one-month time horizon. This result was
obtained through historical simulation using approximately 750 days (3 years)
of historical interest rate and equity market data.

The following table presents the VaR of each component of market risk of
IPCRes invested assets at December 31, 2003 and 2002, respectively, the
quarterly points during 2003 and the average for the year ended December 31,
2003, calculated using the VaR at the beginning, ending and quarterly points
(expressed in thousands of U.S. dollars):

|                        |  |              |         |               |  |          |         |           |  |          |        |                    |  |   |        |   |  |   |         |   |  |   |         |  
|----------------------- |  | ------------ | ------- | ------------- |  | -------- | ------- | --------- |  | -------- | ------ | ------------------ |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                        |  | At           |         | At            |  | At       |         | At        |  | At       |        | Average for year  
|                        |  | December 31, |         | September 30, |  | June 30, |         | March 31, |  | December |        | ended December 31,
|Market Risk             |  | 2003         |         | 2003          |  | 2003     |         | 2003      |  | 31, 2002 |        | 2003              
|                        |  |              |         |               |  |          |         |           |  |          |        |                   
|Currency                |  | $            | 3,021   |               |  | $        | 1,549   |           |  | $        | 1,268  |                    |  | $ | 1,042  |   |  | $ | 1,093   |   |  | $ | 1,595   |  
|Interest Rate           |  |              | 17,685  |               |  |          | 11,182  |           |  |          | 6,604  |                    |  |   | 7,193  |   |  |   | 7,938   |   |  |   | 10,120  |  
|Equity                  |  |              | 29,666  |               |  |          | 26,501  |           |  |          | 23,092 |                    |  |   | 18,393 |   |  |   | 18,397  |   |  |   | 23,210  |  
|                        |  |              |         |               |  |          |         |           |  |          |        |                    |  |   |        |   |  |   |         |   |  |   |         |  
|Sum of Risk             |  |              | 50,372  |               |  |          | 39,232  |           |  |          | 30,964 |                    |  |   | 26,628 |   |  |   | 27,428  |   |  |   | 34,925  |  
|Diversification
Benefit |  |              | (22,757 | )             |  |          | (16,245 | )         |  |          | (8,937 | )                  |  |   | (9,434 | ) |  |   | (10,102 | ) |  |   | (13,495 | )
|                        |  |              |         |               |  |          |         |           |  |          |        |                    |  |   |        |   |  |   |         |   |  |   |         |  
|Total Net Risk          |  | $            | 27,615  |               |  | $        | 22,987  |           |  | $        | 22,027 |                    |  | $ | 17,194 |   |  | $ | 17,326  |   |  | $ | 21,430  |  
|                        |  |              |         |               |  |          |         |           |  |          |        |                    |  |   |        |   |  |   |         |   |  |   |         |  

Increased market volatility, reflected by higher bond yields in the fourth
quarter of 2003, has resulted in increases to interest rate VaR (the risk due
to the impact of changes in interest rates) and VaR overall. In addition, our
investment in equities (equity mutual funds) increased from $217 million at the
end of 2002 to $319 million at the end of 2003. This caused the equity VaR
(the risk due to the uncertainties in stock market movements) to increase from
$18 million at the end of 2002 to $30 million at the end of 2003. In addition,
the increased allocation to non-U.S. equities in our investment in the AIG
Global Equity Fund has resulted in increased currency VaR.

IPCRes premiums receivable and liabilities for losses from reinsurance
contracts it has written, are also exposed to the risk of changes in value
resulting from adverse fluctuations in foreign currency exchange rates. To an
extent, the impact on loss reserves of a movement in an exchange rate, will be
partly offset by the impact on assets (receivables and cash/investments)
denominated in the same currency, or vice versa. At December 31, 2003, an
estimated $20 million of reinsurance premiums receivable, and an estimated $35
million of loss reserves, were denominated in currencies other than the U.S.
dollar. At December 31, 2003 we held U.S.$1.9 million equivalent in Australian
dollar time deposits. Accordingly, from a risk perspective, we do not believe
that the impact of exchange rate movements in respect of receivables or loss
reserves on our overall VaR at December 31, 2003 to be material.

Transactions with Non-Independent Parties

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

Effects of Inflation

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





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##### 



| |  |                                    
| |  | -----------------------------------
| |  | IPC HOLDINGS, LTD. AND SUBSIDIARIES
| |  |                                    
| |  | CONSOLIDATED FINANCIAL STATEMENTS  
| |  | AS OF DECEMBER 31, 2003 and 2002   
| |  | TOGETHER WITH REPORT OF INDEPENDENT
| |  | AUDITORS                           





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##### 



REPORT OF INDEPENDENT AUDITORS

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

We have audited the accompanying consolidated balance sheets of IPC Holdings,
Ltd. and subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of income (loss), comprehensive income, shareholders
equity and cash flows for each of the years then ended. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The accompanying consolidated statements of
income (loss), comprehensive income, shareholders equity and cash flows for
the year ended December 31, 2001 were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those
consolidated financial statements in their report dated February 8, 2002.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IPC
Holdings, Ltd. and subsidiaries as of December 31, 2003 and 2002 and the
results of their operations and their cash flows for each of the years in the
two year period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.

Chartered Accountants
Hamilton, Bermuda
January 30, 2004





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##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 and 2002
(Expressed in thousands of United States dollars, except for per share amounts)

|                      |                                                                                                                            |   |           |           |   |   |           |           | 
|--------------------- | -------------------------------------------------------------------------------------------------------------------------- | - | --------- | --------- | - | - | --------- | --------- | 
|                      |                                                                                                                            |   |           | 2003      |   |   |           | 2002      | 
|                      |                                                                                                                            |   |           |           |   |   |           |           | 
|ASSETS:               |                                                                                                                            |   |           |           |   |   |           |          
|                      | Fixed maturity investments, available for sale, at fair value
(Amortized cost 2003: $1,240,188; 2002: $1,113,432)          |   | $         | 1,260,467 |   |   | $         | 1,153,609 | 
|                      | Equity investments, available for sale, at fair value
(Cost 2003: $248,179; 2002: $216,815)                                |   |           | 319,007   |   |   |           | 216,897   | 
|                      | Cash and cash equivalents                                                                                                  |   |           | 91,949    |   |   |           | 16,656    | 
|                      | Reinsurance premiums receivable                                                                                            |   |           | 61,194    |   |   |           | 50,328    | 
|                      | Deferred premiums ceded                                                                                                    |   |           | 1,317     |   |   |           | 819       | 
|                      | Loss and loss adjustment expenses recoverable                                                                              |   |           | 1,810     |   |   |           | 405       | 
|                      | Accrued investment income                                                                                                  |   |           | 19,821    |   |   |           | 24,163    | 
|                      | Deferred acquisition costs                                                                                                 |   |           | 8,035     |   |   |           | 6,095     | 
|                      | Prepaid expenses and other assets                                                                                          |   |           | 5,858     |   |   |           | 5,003     | 
|                      |                                                                                                                            |   |           |           |   |   |           |           | 
|                      |                                                                                                                            | $ | 1,769,458 |           |   | $ | 1,473,975 |          
|                      |                                                                                                                            |   |           |           |   |   |           |           | 
|LIABILITIES:          |                                                                                                                            |   |           |           |   |   |           |          
|                      | Reserve for losses and loss adjustment expenses                                                                            |   | $         | 123,320   |   |   | $         | 119,355   | 
|                      | Unearned premiums                                                                                                          |   |           | 61,795    |   |   |           | 51,902    | 
|                      | Reinsurance premiums payable                                                                                               |   |           | 3,877     |   |   |           | 1,555     | 
|                      | Deferred fees and commissions                                                                                              |   |           | 834       |   |   |           | 127       | 
|                      | Accounts payable and accrued liabilities                                                                                   |   |           | 10,473    |   |   |           | 9,553     | 
|                      |                                                                                                                            |   |           |           |   |   |           |           | 
|                      |                                                                                                                            |   | 200,299   |           |   |   | 182,492   |          
|                      |                                                                                                                            |   |           |           |   |   |           |           | 
|SHAREHOLDERS EQUITY: |                                                                                                                            |   |           |           |   |   |           |          
|                      | Share capital - 2003: 48,292,270 shares outstanding, par value $0.01;
2002: 48,179,805 shares outstanding, par value $0.01 |   |           | 483       |   |   |           | 482       | 
|                      | Additional paid-in capital                                                                                                 |   |           | 850,133   |   |   |           | 846,397   | 
|                      | Deferred stock grant compensation                                                                                          |   |           | (1,495    | ) |   |           |          | 
|                      | Retained earnings                                                                                                          |   |           | 628,931   |   |   |           | 404,345   | 
|                      | Accumulated other comprehensive income                                                                                     |   |           | 91,107    |   |   |           | 40,259    | 
|                      |                                                                                                                            |   |           |           |   |   |           |           | 
|                      |                                                                                                                            |   | 1,569,159 |           |   |   | 1,291,483 |          
|                      |                                                                                                                            |   |           |           |   |   |           |           | 
|                      |                                                                                                                            | $ | 1,769,458 |           |   | $ | 1,473,975 |          
|                      |                                                                                                                            |   |           |           |   |   |           |           | 

APPROVED BY THE BOARD:

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

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





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##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2003
(Expressed in thousands of United States dollars, except for per share amounts)

|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |         |  
|-------------------------------------------------- | ------------------------------------------ | - | ---------- | ------- | ---- | - | ---------- | ------- | - | - | ---------- | ------- | -
|                                                   |                                            |   | 2003       |         | 2002 |   | 2001      
|                                                   |                                            |   |            |         |      |   |           
|REVENUES:                                          |                                            |   |            |         |      |   |            |         |   |   |            |        
|                                                   | Gross premiums written                     |   | $          | 322,762 |      |   | $          | 259,685 |   |   | $          | 133,057 |  
|                                                   | Change in unearned premiums                |   |            | (9,893  | )    |   |            | (27,462 | ) |   |            | (5,372  | )
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |         |  
|                                                   | Premiums earned                            |   |            | 312,869 |      |   |            | 232,223 |   |   |            | 127,685 |  
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |         |  
|                                                   | Reinsurance premiums ceded                 |   |            | 14,466  |      |   |            | 5,410   |   |   |            | 4,418   |  
|                                                   | Change in deferred premiums ceded          |   |            | (498    | )    |   |            | 409     |   |   |            | (108    | )
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |         |  
|                                                   | Premiums ceded                             |   |            | 13,968  |      |   |            | 5,819   |   |   |            | 4,310   |  
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |         |  
|                                                   | Net premiums earned                        |   |            | 298,901 |      |   |            | 226,404 |   |   |            | 123,375 |  
|                                                   | Net investment income                      |   |            | 47,089  |      |   |            | 49,320  |   |   |            | 32,245  |  
|                                                   | Other income                               |   |            | 3,348   |      |   |            | 2,684   |   |   |            |        |  
|                                                   | Net realized gains (losses) on investments |   |            | 13,733  |      |   |            | (44,867 | ) |   |            | 616     |  
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |         |  
|                                                   |                                            |   | 363,071    |         |      |   | 233,541    |         |   |   | 156,236    |        
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |         |  
|EXPENSES:                                          |                                            |   |            |         |      |   |            |         |   |   |            |        
|                                                   | Net losses and loss adjustment expenses    |   |            | 54,382  |      |   |            | 38,775  |   |   |            | 137,551 |  
|                                                   | Net acquisition costs                      |   |            | 30,867  |      |   |            | 24,521  |   |   |            | 12,686  |  
|                                                   | General and administrative expenses        |   |            | 19,103  |      |   |            | 13,893  |   |   |            | 9,381   |  
|                                                   | Net foreign exchange (gain) loss           |   |            | (1,910  | )    |   |            | (1,554  | ) |   |            | 551     |  
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |         |  
|                                                   |                                            |   | 102,442    |         |      |   | 75,635     |         |   |   | 160,169    |        
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |         |  
|NET INCOME (LOSS)                                  |                                            | $ | 260,629    |         |      | $ | 157,906    |         |   | $ | (3,933     | )      
|                                                   |                                            |   |            |         |      |   |            |         |   |   |            |         |  
|Basic net income (loss) per common share           |                                            | $ | 5.41       |         |      | $ | 3.28       |         |   | $ | (0.15      | )      
|Diluted net income (loss) per common share         |                                            | $ | 5.40       |         |      | $ | 3.27       |         |   | $ | (0.15      | )      
|Weighted average number of common shares  basic   |                                            |   | 48,205,554 |         |      |   | 48,173,362 |         |   |   | 26,266,019 |        
|Weighted average number of common shares  diluted |                                            |   | 48,302,579 |         |      |   | 48,266,444 |         |   |   | 26,266,019 |        

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





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2003
(Expressed in thousands of United States dollars)

|                            |                                                                              |   |         |         |      |   |         |         |   |   |        |       |  
|--------------------------- | ---------------------------------------------------------------------------- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------ | ----- | -
|                            |                                                                              |   | 2003    |         | 2002 |   | 2001   
|                            |                                                                              |   |         |         |      |   |        
|NET INCOME (LOSS)           |                                                                              | $ | 260,629 |         |      | $ | 157,906 |         |   | $ | (3,933 | )    
|                            |                                                                              |   |         |         |      |   |         |         |   |   |        |      
|OTHER COMPREHENSIVE INCOME: |                                                                              |   |         |         |      |   |         |         |   |   |        |      
|                            | Net holding gains (losses) on investments during year                        |   |         | 64,581  |      |   |         | (17,251 | ) |   |        | 8,679 |  
|                            | Reclassification adjustment for (gains) losses
included in net income (loss) |   |         | (13,733 | )    |   |         | 44,867  |   |   |        | (616  | )
|                            |                                                                              |   |         |         |      |   |         |         |   |   |        |      
|                            |                                                                              |   | 50,848  |         |      |   | 27,616  |         |   |   | 8,063  |      
|                            |                                                                              |   |         |         |      |   |         |         |   |   |        |      
|COMPREHENSIVE INCOME        |                                                                              | $ | 311,477 |         |      | $ | 185,522 |         |   | $ | 4,130  |      
|                            |                                                                              |   |         |         |      |   |         |         |   |   |        |      

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





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2003
(Expressed in thousands of United States dollars, except for per share amounts)

|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |         |  
|--------------------------------------- | ------------------------------------------------ | - | --------- | ------- | ---- | - | --------- | ------- | - | - | --------- | ------- | -
|                                        |                                                  |   | 2003      |         | 2002 |   | 2001     
|                                        |                                                  |   |           |         |      |   |          
|COMMON SHARES PAR VALUE $0.01:          |                                                  |   |           |         |      |   |           |         |   |   |           |        
|                                        | Balance, beginning of year                       |   | $         | 482     |      |   | $         | 482     |   |   | $         | 250     |  
|                                        | Additional shares issued                         |   |           | 1       |      |   |           |        |   |   |           | 232     |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |         |  
|                                        | Balance, end of year                             |   | $         | 483     |      |   | $         | 482     |   |   | $         | 482     |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |        
|ADDITIONAL PAID-IN CAPITAL:             |                                                  |   |           |         |      |   |           |         |   |   |           |        
|                                        | Balance, beginning of year                       |   | $         | 846,397 |      |   | $         | 846,101 |   |   | $         | 299,929 |  
|                                        | Additional paid-in capital on shares issued      |   |           | 2,719   |      |   |           | 458     |   |   |           | 546,172 |  
|                                        | Reduction in paid-in capital on share repurchase |   |           | (1,321  | )    |   |           | (162    | ) |   |           |        |  
|                                        | Stock options and grants                         |   |           | 2,338   |      |   |           |        |   |   |           |        |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |         |  
|                                        | Balance, end of year                             |   | $         | 850,133 |      |   | $         | 846,397 |   |   | $         | 846,101 |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |        
|DEFERRED STOCK GRANT COMPENSATION:      |                                                  |   |           |         |      |   |           |         |   |   |           |        
|                                        | Balance, beginning of year                       |   | $         |        |      |   | $         |        |   |   | $         |        |  
|                                        | Stock grants awarded                             |   |           | (2,011  | )    |   |           |        |   |   |           |        |  
|                                        | Amortization                                     |   |           | 516     |      |   |           |        |   |   |           |        |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |         |  
|                                        | Balance, end of year                             |   | $         | (1,495  | )    |   | $         |        |   |   | $         |        |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |        
|RETAINED EARNINGS:                      |                                                  |   |           |         |      |   |           |         |   |   |           |        
|                                        | Balance, beginning of year                       |   | $         | 404,345 |      |   | $         | 246,568 |   |   | $         | 254,511 |  
|                                        | Net income (loss)                                |   |           | 260,629 |      |   |           | 157,906 |   |   |           | (3,933  | )
|                                        | Reduction on share repurchase                    |   |           | (1,334  | )    |   |           | (129    | ) |   |           |        |  
|                                        | Dividends paid                                   |   |           | (34,709 | )    |   |           |        |   |   |           | (4,010  | )
|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |         |  
|                                        | Balance, end of year                             |   | $         | 628,931 |      |   | $         | 404,345 |   |   | $         | 246,568 |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |        
|ACCUMULATED OTHER COMPREHENSIVE INCOME: |                                                  |   |           |         |      |   |           |         |   |   |           |        
|                                        | Balance, beginning of year                       |   | $         | 40,259  |      |   | $         | 12,643  |   |   | $         | 4,580   |  
|                                        | Other comprehensive income                       |   |           | 50,848  |      |   |           | 27,616  |   |   |           | 8,063   |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |        
|                                        | Balance, end of year                             |   | $         | 91,107  |      |   | $         | 40,259  |   |   | $         | 12,643  |  
|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |        
|TOTAL SHAREHOLDERS EQUITY              |                                                  | $ | 1,569,159 |         |      | $ | 1,291,483 |         |   | $ | 1,105,794 |        
|                                        |                                                  |   |           |         |      |   |           |         |   |   |           |         |  

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





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2003
(Expressed in thousands of United States dollars)

|                                                     |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |          |      |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------ | -------------------------------------------------------- | ----------------------------------------------- | ---------- | ------- | ------- | -------- | ---------- | ------ | ------- | ------- | -------- | ---- | ------- | -
|                                                     |                                                                                      |                                                          |                                                 |            | 2003    |         | 2002     |            | 2001  
|                                                     |                                                                                      |                                                          |                                                 |            |         |         |          |            |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |         
|                                                     | Net income (loss)                                                                    |                                                          | $                                               | 260,629    |         |         | $        | 157,906    |        |         | $       | (3,933   | )   
|                                                     | Adjustments to reconcile net income (loss) to cash
provided by operating activities: |                                                          |                                                 |            |         |         |          |            |        |         |         |          |     
|                                                     |                                                                                      | Amortization of fixed maturity premiums
(discounts), net |                                                 |            | 15,194  |         |          |            | 8,994  |         |         |          | 855  |        
|                                                     |                                                                                      | Net realized (gains) losses on investments               |                                                 |            | (13,733 | )       |          |            | 44,867 |         |         |          | (616 | )      
|                                                     |                                                                                      | Stock compensation                                       |                                                 |            | 842     |         |          |            |       |         |         |          |     |        
|                                                     |                                                                                      | Changes in:                                              |                                                 |            |         |         |          |            |        |         |         |          |      |        
|                                                     |                                                                                      |                                                          | Reinsurance premiums receivable                 |            |         | (10,866 | )        |            |        | (7,972  | )       |          |      | (16,937 | )
|                                                     |                                                                                      |                                                          | Deferred premiums ceded                         |            |         | (498    | )        |            |        | 409     |         |          |      | (108    | )
|                                                     |                                                                                      |                                                          | Loss and loss adjustment expenses recoverable   |            |         | (1,405  | )        |            |        | 276     |         |          |      | 506     |  
|                                                     |                                                                                      |                                                          | Accrued investment income                       |            |         | 4,342   |          |            |        | (5,322  | )       |          |      | (3,537  | )
|                                                     |                                                                                      |                                                          | Deferred acquisition costs                      |            |         | (1,940  | )        |            |        | (3,262  | )       |          |      | (584    | )
|                                                     |                                                                                      |                                                          | Prepaid expenses and other assets               |            |         | (855    | )        |            |        | (1,527  | )       |          |      | 204     |  
|                                                     |                                                                                      |                                                          | Reserve for losses and loss adjustment expenses |            |         | 3,965   |          |            |        | (42,852 | )       |          |      | 100,849 |  
|                                                     |                                                                                      |                                                          | Unearned premiums                               |            |         | 9,893   |          |            |        | 27,462  |         |          |      | 5,372   |  
|                                                     |                                                                                      |                                                          | Reinsurance premiums payable                    |            |         | 2,322   |          |            |        | (177    | )       |          |      | 812     |  
|                                                     |                                                                                      |                                                          | Deferred fees and commissions                   |            |         | 707     |          |            |        | (91     | )       |          |      | 16      |  
|                                                     |                                                                                      |                                                          | Accounts payable and accrued liabilities        |            |         | 920     |          |            |        | 2,228   |         |          |      | 653     |  
|                                                     |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |          |     
|                                                     | Cash provided by operating activities                                                |                                                          |                                                 | 269,517    |         |         |          | 180,939    |        |         |         | 83,552   |     
|                                                     |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |         
|                                                     | Purchases of fixed maturity investments                                              |                                                          |                                                 | (1,429,322 | )       |         |          | (1,092,085 | )      |         |         | (611,936 | )   
|                                                     | Proceeds from sales of fixed maturity investments                                    |                                                          |                                                 | 1,212,858  |         |         |          | 694,988    |        |         |         | 370,341  |     
|                                                     | Proceeds from maturities of fixed maturity investments                               |                                                          |                                                 | 88,246     |         |         |          | 28,676     |        |         |         | 26,000   |     
|                                                     | Purchases of equity investments                                                      |                                                          |                                                 | (31,364    | )       |         |          | (167,196   | )      |         |         | (107,749 | )   
|                                                     | Proceeds from sales of equity investments                                            |                                                          |                                                 |           |         |         |          | 55,960     |        |         |         | 3,196    |     
|                                                     |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |          |     
|                                                     | Cash used in investing activities                                                    |                                                          |                                                 | (159,582   | )       |         |          | (479,657   | )      |         |         | (320,148 | )   
|                                                     |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |         
|                                                     | Proceeds from share issuance, net of repurchases                                     |                                                          |                                                 | 67         |         |         |          | 167        |        |         |         | 546,404  |     
|                                                     | Cash dividends paid to shareholders                                                  |                                                          |                                                 | (34,709    | )       |         |          |           |        |         |         | (4,010   | )   
|                                                     |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |         
|                                                     | Cash (used in) provided by financing activities                                      |                                                          |                                                 | (34,642    | )       |         |          | 167        |        |         |         | 542,394  |     
|                                                     |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |         
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                      |                                                          | 75,293                                          |            |         |         | (298,551 | )          |        |         | 305,798 |         
|                                                     |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |          |     
|CASH AND CASH EQUIVALENTS, beginning of year         |                                                                                      |                                                          | 16,656                                          |            |         |         | 315,207  |            |        |         | 9,409   |         
|                                                     |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |         
|CASH AND CASH EQUIVALENTS, end of year               |                                                                                      | $                                                        | 91,949                                          |            |         | $       | 16,656   |            |        | $       | 315,207 |         
|                                                     |                                                                                      |                                                          |                                                 |            |         |         |          |            |        |         |         |         

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





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars, except for per share amounts)



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

IPC Holdings, Ltd. (the Company) was incorporated in Bermuda on May 20, 1993
and through its wholly-owned subsidiary, IPCRe Limited (IPCRe), provides
reinsurance of property catastrophe risks worldwide, substantially on an
excess-of-loss basis. Property catastrophe reinsurance covers unpredictable
events such as hurricanes, windstorms, hailstorms, earthquakes, volcanic
eruptions, fires, freezes, industrial explosions and other man-made or natural
disasters. IPCRes loss experience will generally include infrequent events of
great severity. IPCRes clients include many of the leading insurance
companies in the world. IPCRe also writes, to a limited extent, aviation,
property-per risk excess and other short-tail reinsurance in various parts of
the world. Approximately 42% of total premiums written in 2003 related to U.S.
risks (2002: 45%; 2001: 44%). The balance of IPCRes covered risks are located
principally in Europe, Japan, Australia and New Zealand.

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

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

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

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

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





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



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

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
significant accounting policies are as follows:



|a) |  | Principles of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, IPCRe, IPCRe Services Limited (through
December 11, 2001) and IPCUSL. All significant intercompany transactions
have been eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|b) |  | Premiums and acquisition costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Premiums written are recorded at the policy inception date and are based on
information received from ceding companies and their brokers. Subsequent
premium adjustments, if any, are recorded in the period in which they are
determined. Premiums are earned on a pro-rata basis over the period for
which reinsurance coverage is provided. Unearned premiums represent the
portion of premiums written which is applicable to the unexpired terms of
the policies in force. Ceded reinsurance premiums are similarly pro-rated
over the terms of the contracts with the unexpired portion deferred in the
balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Acquisition costs, consisting primarily of commissions and brokerage
expenses incurred at policy issuance, are deferred and amortized to income
over the period in which the related premiums are earned. Deferred
acquisition costs are limited to estimated realizable value based on related
unearned premium, anticipated claims and expenses and investment income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|c) |  | Reserve for losses and loss adjustment expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The reserve for losses and loss adjustment expenses, which includes 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, individual case estimates received from
ceding companies and brokers, actuarial determinations and managements
estimates. For certain catastrophic events there is considerable
uncertainty underlying the assumptions and associated estimated reserves for
losses and loss adjustment expenses. Reserves are reviewed regularly and,
as experience develops and new information becomes known, the reserves are
adjusted as necessary. It is reasonably possible that changes in the near
term could require a material change in the amount estimated. Such
adjustments, if any, are reflected in results of operations in the period in
which they become known. Amounts recoverable from reinsurers are estimated
in a manner consistent with the underlying liabilities.





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|d) |  | Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Investments consist of fixed maturity investments, equity securities and
investments in mutual funds. Investments are stated at fair value as
determined by the most recently traded price of each security at the balance
sheet date. By policy, IPCRe invests in high-grade marketable securities.
All investments are classified as available-for-sale securities under the
provisions of Statement of Financial Accounting Standards No. (SFAS) 115,
Accounting for Certain Investments in Debt and Equity Securities.
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 consider in evaluating
other-than-temporary declines in value include the extent of decline, the
length of time the security is below cost, IPCRes intent and ability to
hold the security, the future prospects of the issuer and other qualitative
and quantitative factors.
|  
|e) |  | Translation of foreign currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Transactions in foreign currencies are translated into U.S. dollars at the
rate of exchange prevailing 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. Foreign currency revenues and expenses are translated at the
average exchange rates prevailing during the period. Realized and
unrealized exchange gains and losses are included in the determination of
net income.                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|f) |  | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Cash and cash equivalents include amounts held in banks and time deposits
with maturities of less than three months from the date of purchase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|g) |  | Net income per common share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Net income per common share is calculated by dividing net income by the
weighted average common stock outstanding during the year. Diluted net
income per common share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year. Stock options and unvested stock grants are
considered common stock equivalents for the purpose of calculating diluted
net income per common share, and were included in the weighted average
number of shares outstanding using the Treasury Stock method. In a
period where there is a net loss, the dilutive effect of options is
not included in the weighted average number of shares, as this would
be anti-dilutive.                                                                                                                                                                                





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars, except for per share amounts)



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|h) |  | Stock incentive compensation plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | On December 31, 2002, the Financial Accounting Standards Board (FASB)
issued Statement No. 148, Accounting for Stock-Based Compensation and
Disclosure (SFAS 148), which is effective for fiscal years ending after
December 31, 2002. SFAS 148 amends Statement No. 123, Accounting for
Stock-Based Compensation (SFAS 123), to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends disclosure
requirements of SFAS 123 to require prominent disclosure about the method of
accounting for stock based employee compensation and the effect of the
method used to report results. SFAS 148 permits two additional transition
methods for entities that adopt the preferable fair value method of
accounting for stock-based employee compensation. Management has adopted
the fair value method of accounting for stock-based employee compensation on
a prospective basis for all awards granted, modified or settled after
January 1, 2003. Accordingly, compensation expense is recorded on a
straight-line basis over the vesting period based on the fair value of the
options issued at the date of grant. The amount of the charge recorded for
the year ended December 31, 2003 was $326.
|  
|   |  | On June 13, 2003, the shareholders approved a new stock incentive plan. The
plan allows for the issuance of up to 500,000 shares as grants of restricted
stock to selected employees to compensate them for their contributions to
the long-term growth and profits of the Company. These grants are accounted
for in accordance with SFAS 123. Compensation expense is recorded ratably
over the vesting period based on the fair value of the grants at the date of
grant. The grants are recorded as outstanding upon issuance. The charge
recorded for the year ended December 31, 2003 was $516.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The following table illustrates the effect on net income and earnings
per share if the fair value based method had been applied to all
outstanding and unvested awards in each period in accordance with SFAS 123.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                                                                                                |  |                         |         |      |  |      |         |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                                                                |  | Year Ended December 31,
|                                                                                                                |  |                        
|                                                                                                                |  | 2003                    |         | 2002 |  | 2001
|                                                                                                                |  |                         |         |      |  |     
|Net income (loss), as reported                                                                                  |  | $                       | 260,629 |      |  | $    | 157,906 |   |  | $ | (3,933 | )
|Add: Stock-based employee expense                                                                               |  |                         | 842     |      |  |      |        |   |  |   |       |  
|Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards |  |                         | (1,536  | )    |  |      | (799    | ) |  |   | (611   | )
|                                                                                                                |  |                         |         |      |  |      |         |   |  |   |        |  
|Pro forma net income (loss)                                                                                     |  | $                       | 259,935 |      |  | $    | 157,107 |   |  | $ | (4,544 | )
|                                                                                                                |  |                         |         |      |  |      |         |   |  |   |        |  
|Earnings per share:                                                                                             |  |                         |         |      |  |      |         |   |  |   |        |  
|Basic  as reported                                                                                             |  | $                       | 5.41    |      |  | $    | 3.28    |   |  | $ | (0.15  | )
|Basic  pro forma                                                                                               |  | $                       | 5.40    |      |  | $    | 3.26    |   |  | $ | (0.17  | )
|Diluted  as reported                                                                                           |  | $                       | 5.40    |      |  | $    | 3.27    |   |  | $ | (0.15  | )
|Diluted  pro forma                                                                                             |  | $                       | 5.40    |      |  | $    | 3.25    |   |  | $ | (0.17  | )





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|i) |  | Accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | In December 2003, the FASB revised the previously issued Interpretation No.
46, Consolidation of Variable Interest Entities with Interpretation No. 46
(Revised December 2003), Consolidation of Variable Interest Entities (FIN
46-R). FIN 46-R requires a variable interest entity to be consolidated by a
company if that company is the primary beneficiary, as defined in FIN 46-R.
FIN 46-R will be effective for the Company as of March 31, 2004. Certain
disclosures in relation to the Companys interests in variable interest
entities are provided in Note 9 (f) to the consolidated financial statements
in accordance with the transition requirements of FIN 46-R. Management do
not believe that the adoption of this new accounting pronouncement will have
any material impact on the Companys financial position or results of
operations.
|  

|3. |  | INVESTMENTS
|-- |  | -----------
|  

|a) |  | The cost or amortized cost, gross unrealized gains, gross unrealized
losses (including length of time the securities have been in an unrealized
loss position) and fair value of investments classified as available for
sale by category as of December 31, 2003 and 2002 are as follows:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           |                                         |      |           |         |            |           |                  |              |      |       |        |      |   |   |      |      |   |   |           |         | 
|-------------------------- | --------------------------------------- | ---- | --------- | ------- | ---------- | --------- | ---------------- | ------------ | ---- | ----- | ------ | ---- | - | - | ---- | ---- | - | - | --------- | ------- | 
|                           |                                         |      | Cost or   |         | Gross      |           | Gross Unrealized |              |      |       |       
|                           |                                         |      | Amortized |         | Unrealized |           | Losses           |              | Fair
|December 31, 2003          |                                         | Cost |           | Gains   |            | 0-12 mths |                  | Over 12 mths |      | Value
|                           |                                         |      |           |         |            |           |                  |              |      |      
|Fixed maturity investments |                                         |      |           |         |            |           |                  |              |      |       |        |      |   |   |      |      |   |   |           |        
|                           | U.S. Government and
government agencies |      | $         | 310,147 |            |           | $                | 1,899        |      |       | $      | (420 | ) |   | $    |     |   |   | $         | 311,626 | 
|                           | Other governments                       |      |           | 258,411 |            |           |                  | 2,669        |      |       |        | (361 | ) |   |      |     |   |   |           | 260,719 | 
|                           | Corporate                               |      |           | 596,186 |            |           |                  | 16,997       |      |       |        | (898 | ) |   |      | (187 | ) |   |           | 612,098 | 
|                           | Supranational entities                  |      |           | 75,444  |            |           |                  | 679          |      |       |        | (99  | ) |   |      |     |   |   |           | 76,024  | 
|                           |                                         |      |           |         |            |           |                  |              |      |       |        |      |   |   |      |      |   |   |           |         | 
|                           |                                         | $    | 1,240,188 |         |            | $         | 22,244           |              |      | $     | (1,778 | )    |   | $ | (187 | )    |   | $ | 1,260,467 |        
|                           |                                         |      |           |         |            |           |                  |              |      |       |        |      |   |   |      |      |   |   |           |         | 
|Equity investments         |                                         | $    | 248,179   |         |            | $         | 70,852           |              |      | $     |       |      |   | $ | (24  | )    |   | $ | 319,007   |        
|                           |                                         |      |           |         |            |           |                  |              |      |       |        |      |   |   |      |      |   |   |           |        

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





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(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, 2003 are as follows:
|-- |  | -----------------------------------------------------------------------------------------------------------------------

|                                       |  |           |           |       |  |   |           | 
|-------------------------------------- |  | --------- | --------- | ----- |  | - | --------- | 
|                                       |  | Amortized |           | Fair 
|                                       |  | Cost      |           | Value
|                                       |  |           |           |      
|Due in one year or less                |  | $         | 90,038    |       |  | $ | 91,731    | 
|Due after one year through five years  |  |           | 1,125,058 |       |  |   | 1,143,842 | 
|Due after five years through ten years |  |           | 25,092    |       |  |   | 24,894    | 
|                                       |  |           |           |       |  |   |           | 
|                                       |  | $         | 1,240,188 |       |  | $ | 1,260,467 | 
|                                       |  |           |           |       |  |   |           | 



|   |  | Expected maturities may differ from contractual maturities because borrowers
may have the right to prepay obligations with or without prepayment
penalties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|c) |  | Pledged assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | In the normal course of business IPCRe provides security to reinsureds if
requested. Such security takes the form of a letter of credit or a cash
advance. Letters of credit are issued by IPCRes bankers, in favour of the
ceding company, at the request of IPCRe. Under an agreement effective
September 20, 1994, amended in 1999 and 2001, IPCRe provides the bank
security by giving the bank a lien over certain of IPCRes investments in an
amount not to exceed 118% of the aggregate letters of credit outstanding.
As of December 31, 2003 and 2002 the bank had outstanding letters of credit
of $52,019 and $86,513, respectively.
|  
|d) |  | Net investment income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                                        |  |      |         |      |  |      |        |   |  |   |        |  
|------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                        |  | 2003 |         | 2002 |  | 2001
|                                                        |  |      |         |      |  |     
|Interest on fixed maturity investments                  |  | $    | 61,809  |      |  | $    | 57,693 |   |  | $ | 32,595 |  
|Interest on cash and cash equivalents                   |  |      | 346     |      |  |      | 1,494  |   |  |   | 869    |  
|Net amortization of discounts
(premiums) on investments |  |      | (15,194 | )    |  |      | (8,994 | ) |  |   | (855   | )
|                                                        |  |      |         |      |  |      |        |   |  |   |        |  
|                                                        |  |      | 46,961  |      |  |      | 50,193 |   |  |   | 32,609 |  
|Net income from equities                                |  |      | 3,307   |      |  |      | 2,026  |   |  |   | 1,221  |  
|Less: investment expenses                               |  |      | (3,179  | )    |  |      | (2,899 | ) |  |   | (1,585 | )
|                                                        |  |      |         |      |  |      |        |   |  |   |        |  
|Net investment income                                   |  | $    | 47,089  |      |  | $    | 49,320 |   |  | $ | 32,245 |  
|                                                        |  |      |         |      |  |      |        |   |  |   |        |  





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(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 years ended
December 31, 2003, 2002 and 2001 were $1,212,858, $750,948 and $373,537,
respectively. Components of net realized gains and losses on investments
are summarized in the following table:
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  |                       |   |        |        |      |   |         |         |   |   |     |        |  
|--------------------------------- | --------------------- | - | ------ | ------ | ---- | - | ------- | ------- | - | - | --- | ------ | -
|                                  |                       |   | 2003   |        | 2002 |   | 2001   
|                                  |                       |   |        |        |      |   |        
|Fixed maturity investments:       |                       |   |        |        |      |   |         |         |   |   |     |       
|                                  | Gross realized gains  |   | $      | 16,404 |      |   | $       | 14,463  |   |   | $   | 7,589  |  
|                                  | Gross realized losses |   |        | (2,671 | )    |   |         | (1,083  | ) |   |     | (899   | )
|                                  |                       |   |        |        |      |   |         |         |   |   |     |        |  
|                                  | Net realized gains    |   |        | 13,733 |      |   |         | 13,380  |   |   |     | 6,690  |  
|                                  |                       |   |        |        |      |   |         |         |   |   |     |       
|Equity investments:               |                       |   |        |        |      |   |         |         |   |   |     |       
|                                  | Gross realized gains  |   |        |       |      |   |         | 5,708   |   |   |     | 788    |  
|                                  | Gross realized losses |   |        |       |      |   |         | (63,955 | ) |   |     | (6,862 | )
|                                  |                       |   |        |        |      |   |         |         |   |   |     |        |  
|                                  | Net realized losses   |   |        |       |      |   |         | (58,247 | ) |   |     | (6,074 | )
|                                  |                       |   |        |        |      |   |         |         |   |   |     |        |  
|Total net realized gains (losses) |                       | $ | 13,733 |        |      | $ | (44,867 | )       |   | $ | 616 |       
|                                  |                       |   |        |        |      |   |         |         |   |   |     |        |  



|   |  | Included in gross realized losses on equity investments for the years ended
December 31, 2003, 2002 and 2001 are amounts totaling $Nil, $49,030 and
$5,315 respectively, in respect of declines in the value of individual
securities considered to be other than temporary.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|f) |  | The following table summarizes the composition of the fair value of all
cash and cash equivalents and fixed maturity investments by rating:                                                                                                                                 

|                                        |  |              |       |              |  |  |       |  
|--------------------------------------- |  | ------------ | ----- | ------------ |  |  | ----- | -
|                                        |  | December 31, |       | December 31,
|                                        |  | 2003         |       | 2002        
|                                        |  |              |       |             
|Cash and cash equivalents               |  |              | 6.8   | %            |  |  | 1.4   | %
|U.S. Government and government agencies |  |              | 23.1  | %            |  |  | 9.1   | %
|AAA                                     |  |              | 26.6  | %            |  |  | 30.8  | %
|AA                                      |  |              | 26.4  | %            |  |  | 33.9  | %
|A                                       |  |              | 16.6  | %            |  |  | 24.8  | %
|BBB                                     |  |              | 0.5   | %            |  |  | 0.0   | %
|                                        |  |              |       |              |  |  |       |  
|                                        |  |              | 100.0 | %            |  |  | 100.0 | %
|                                        |  |              |       |              |  |  |       |  



|   |  | The primary rating source is Moodys Investors Service Inc. (Moodys).
When no Moodys rating is available, Standard & Poors Corporation (S & P)
ratings are used and where split-ratings exist, the higher of Moodys and S
& P is used.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|g) |  | At December 31, 2003 and 2002, IPCRe held investments in three mutual
funds: AIG Global Equity Fund, AIG American Equity Trust Fund, both of
which are managed by AIG/Sun America and the Institutional Index Fund,
managed by Vanguard.      





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



|4. |  | FAIR VALUE OF FINANCIAL INSTRUMENTS
|-- |  | -----------------------------------

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

income, other assets, reinsurance premiums payable and accounts payable and
accrued liabilities approximates their carrying value due to their relative
short term nature.

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



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

IPCRe utilizes reinsurance to reduce its exposure to large losses. Effective
January 1, 1999, IPCRe arranged a proportional reinsurance facility. This
facility covers property catastrophe business written by IPCRe, and provides
coverage up to $50,000 in each of at least 5 named zones, plus potentially
other zones of IPCRes choosing, provided that they do not accumulate with the
named zones. The United States and the Caribbean are excluded zones. The
named zones are the United Kingdom; Europe (excluding the U.K.); Australia /
New Zealand; Japan and Canada. Business ceded to the facility is solely at the
discretion of IPCRe. Within these limitations, IPCRe may designate the
treaties to be included in the facility, subject to IPCRe retaining at least
50% of the risk. A subsidiary of AIG is a participating reinsurer, and
committed a 10% participation on a direct basis (2002: 10%; 2001: 10%). Most
reinsurers participating in the facility have ratings 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 $30,000 (2002: $15,000) ultimate net
loss in the aggregate per contract year to the facility. IPCRes retention is
$10 in the aggregate per contract. Business ceded to this facility is solely
at IPCRes discretion. The reinsurer participating in this facility has a
rating of 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



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

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

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

The share capital of the Company as of December 31, 2003 and 2002 consisted of
the following:

|                                                |  |            |            |            |  |         |            |         |  |   |     |            |  |   |         | 
|----------------------------------------------- |  | ---------- | ---------- | ---------- |  | ------- | ---------- | ------- |  | - | --- | ---------- |  | - | ------- | 
|                                                |  |            |            |            |  | Shares  |            |         |  |   |     | Additional
|                                                |  | Authorized |            | Issued and |  | Share   |            | Paid-in
|December 31, 2003                               |  | Shares     |            | Fully Paid |  | Capital |            | Capital
|                                                |  |            |            |            |  |         |            |        
|Voting common
shares, par value
U.S. $0.01 each |  |            | 75,000,000 |            |  |         | 48,292,270 |         |  | $ | 483 |            |  | $ | 850,133 | 
|Preferred shares,
par value U.S
$0.01 each      |  |            | 25,000,000 |            |  |         |           |         |  | $ |    |            |  | $ |        | 

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

There are various restrictions on the ability of AIG to dispose of their shares
as they were acquired through private placement and are presently unregistered.
In 2003, the Company paid dividends of $0.16 per share in each of March and
June, and $0.20 per share in each of September and December, to holders of its
common shares. In September 2001, the Company paid a dividend of $0.16 per
share to holders of its common shares. The Company did not pay dividends
during 2002.



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

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

The Company 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. Under the last amended Option
Plan, approved by shareholders in June 2003, at the discretion of the
Compensation Committee of the Board of Directors (the Committee), the Company
may grant to certain employees up to 1,077,500 common shares, $0.01 par value
(2002: 577,500 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.





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



|7. |  | SHARE PURCHASE OPTIONS (continued)
|-- |  | ----------------------------------

In June 2003 the shareholders also approved a Stock Incentive Plan (the Stock
Plan). Under the Stock Plan, at the discretion of the Compensation Committee
of the Board of Directors (the Committee), the Company may grant to certain
employees up to 500,000 common shares, $0.01 par value. The Stock Plan
provides for awards in the form of restricted stock units, which are unsecured
and unfunded rights to receive newly-issued, fully paid common shares at a
future date, subject to the terms and conditions of the Stock Plan. During
2003, the Company awarded 62,500 restricted stock units to officers and
management employees. Such units vest at a rate of 25% annually, but are
recorded as outstanding upon issuance (regardless of the vesting period).

On February 15, 1996 and July 25, 1996, the Company granted options to acquire
85,249 common shares to officers and management employees at an exercise price
of $16.54 per common share which equaled the book value per common share as of
December 31, 1995. Between January 2, 1997 and December 31, 2003, the Company
granted options to acquire common shares to officers and management employees
at exercise prices ranging from $13.375 and $32.1875 per common share, which
equaled the opening market prices on the dates of grant. Such options vest at
a rate of 25% annually and lapse on the tenth anniversary of issue.

The effect on net income and net income per common share of recording
compensation expense under the fair value provisions of SFAS 123, Accounting
for Stock-based Compensation, versus compensation expense under the provisions
of APB Opinion No. 25, is shown in Note 2 (h).

A summary of the status of the Companys stock option plan as of December 31,
2003, 2002 and 2001 and changes during the years then ended is presented in the
tables and narrative below:

|                                                           |  |           |         |          |  |           |       |          |  |           |         |          |  |   |       |  |  |          |         |  |  |   |       | 
|---------------------------------------------------------- |  | --------- | ------- | -------- |  | --------- | ----- | -------- |  | --------- | ------- | -------- |  | - | ----- |  |  | -------- | ------- |  |  | - | ----- | 
|                                                           |  | 2003      |         | 2002     |  | 2001     
|                                                           |  |           |         |          |  |          
|                                                           |  |           |         |          |  | Weighted  |       |          |  |           |         | Weighted |  |   |       |  |  | Weighted
|                                                           |  |           |         |          |  | Average   |       |          |  |           |         | Average  |  |   |       |  |  | Average 
|                                                           |  | Number    |         | Exercise |  | Number    |       | Exercise |  | Number    |         | Exercise
|                                                           |  | of Shares |         | Price    |  | of Shares |       | Price    |  | of Shares |         | Price   
|                                                           |  |           |         |          |  |           |       |          |  |           |         |         
|Outstanding, beginning of
year                             |  |           | 362,944 |          |  | $         | 23.41 |          |  |           | 251,719 |          |  | $ | 20.80 |  |  |          | 291,032 |  |  | $ | 20.76 | 
|Granted                                                    |  |           | 112,500 |          |  | $         | 31.54 |          |  |           | 127,500 |          |  | $ | 27.85 |  |  |          | 71,000  |  |  | $ | 21.00 | 
|Exercised                                                  |  |           | 125,069 |          |  | $         | 21.76 |          |  |           | 16,275  |          |  | $ | 17.96 |  |  |          | 31,063  |  |  | $ | 15.94 | 
|Forfeited                                                  |  |           |        |          |  |           |      |          |  |           |        |          |  |   |      |  |  |          | 79,250  |  |  | $ | 22.74 | 
|Outstanding, end of year                                   |  |           | 350,375 |          |  | $         | 29.38 |          |  |           | 362,944 |          |  | $ | 23.41 |  |  |          | 251,719 |  |  | $ | 20.80 | 
|Exercisable, end of year                                   |  |           | 87,250  |          |  | $         | 23.72 |          |  |           | 141,475 |          |  | $ | 22.19 |  |  |          | 94,966  |  |  | $ | 22.76 | 
|Weighted average fair
value of
options granted (per share) |  | $         | 11.52   |          |  |           |       |          |  | $         | 10.64   |          |  |   |       |  |  | $        | 9.70    |  |  |   |       | 

The fair value of options granted on January 2, 2003 was estimated using the
Black-Scholes option pricing model, using assumed risk-free rates of interest
of 3.63%; expected dividend yield of 2.2%; an expected life of 7 years; and an
expected volatility of 39.2%.





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



|7. |  | SHARE PURCHASE OPTIONS (continued)
|-- |  | ----------------------------------

The fair value of options granted on January 2, 2002 was estimated using the
Black-Scholes option pricing model, using assumed risk-free rates of interest
of 4.80%; expected dividend yield of 2.2%; an expected life of 7 years; and an
expected volatility of 38.6%.

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

|               |       |                   |         |            |         |          |      |              |      |          |       |                |       |         |        |          |        |  |       |  |       | 
|-------------- | ----- | ----------------- | ------- | ---------- | ------- | -------- | ---- | ------------ | ---- | -------- | ----- | -------------- | ----- | ------- | ------ | -------- | ------ |  | ----- |  | ----- | 
|               |       |                   |         |            |         |          |      | Weighted     |      |          |       |                |       |         |        |          |        |  |       | 
|               |       |                   |         |            |         |          |      | Average      |      | Weighted |       |                |       |         |        | Weighted
|               |       |                   |         |            |         |          |      | Contractual  |      | Average  |       | Exercisable at |       | Average
|Range of       |       | Outstanding at    |         | Periods in |         | Exercise |      | December 31, |      | Exercise
|Exercise Price |       | December 31, 2003 |         | Years      |         | Price    |      | 2003         |      | Price   
|               |       |                   |         |            |         |          |      |              |      |         
|$              | 13-19 |                   |         |            | 42,750  |          |      |              | 5.91 |          |       |                | 15.30 |         |        |          | 23,250 |  |       |  | 15.45 | 
|$              | 19-25 |                   |         |            | 59,500  |          |      |              | 6.63 |          |       |                | 21.28 |         |        |          | 24,000 |  |       |  | 21.70 | 
|$              | 25-31 |                   |         |            | 118,125 |          |      |              | 8.00 |          |       |                | 27.85 |         |        |          | 22,500 |  |       |  | 27.85 | 
|Over $31       |       |                   | 130,000 |            |         |          | 8.33 |              |      |          | 31.63 |                |       |         | 17,500 |          |        |  | 32.19 | 



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

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

|                  |  |        |         |        |  |           |            |        |  |   |       |  
|----------------- |  | ------ | ------- | ------ |  | --------- | ---------- | ------ |  | - | ----- | -
|                  |  | Income |         |        |  |           |            | Amount
|                  |  | (Loss) |         | Shares |  | per share
|                  |  |        |         |        |  |          
|December 31, 2003 |  |        |         |        |  |           |            |        |  |   |       |  
|Basic EPS         |  | $      | 260,629 |        |  |           | 48,205,554 |        |  | $ | 5.41  |  
|Diluted EPS       |  | $      | 260,629 |        |  |           | 48,302,579 |        |  | $ | 5.40  |  
|December 31, 2002 |  |        |         |        |  |           |            |        |  |   |       |  
|Basic EPS         |  | $      | 157,906 |        |  |           | 48,173,362 |        |  | $ | 3.28  |  
|Diluted EPS       |  | $      | 157,906 |        |  |           | 48,266,444 |        |  | $ | 3.27  |  
|December 31, 2001 |  |        |         |        |  |           |            |        |  |   |       |  
|Basic EPS         |  | $      | (3,933  | )      |  |           | 26,266,019 |        |  | $ | (0.15 | )
|Diluted EPS       |  | $      | (3,933  | )      |  |           | 26,266,019 |        |  | $ | (0.15 | )





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



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

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



|a) |  | Administrative services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company and IPCRe are parties to an agreement with American
International Company, Limited (AICL), an indirect wholly-owned
subsidiary of AIG, under which AICL provides administrative services for a
fee of 2.5% of the first $500,000 annual gross written premiums (1.5% of
the next $500,000 and 1% thereafter). These fees are included in general
and administrative expenses in the accompanying consolidated statements of
income. This agreement provides for AICL to make available to the Company
and IPCRe certain office space, furnishings, computer systems, accounting,
legal, payroll, information technology and human resource personnel, and
other ancillary services. This administrative services agreement
terminates on June 30, 2006 and is automatically renewed thereafter for
successive three year terms unless prior written notice to terminate is
delivered by or to AICL at least 180 days prior to the end of such three
year term. In addition, IPCRe Europe Limited is party to an agreement with
AIG Insurance Management Services (Europe) Limited (AIMS), an indirect
wholly-owned subsidiary of AIG, under which AIMS provides administrative
services for an annual fee of approximately $41 per annum. This agreement
may be terminated by either party subject to three months written notice.
|  
|b) |  | Investment management services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | IPCRe is party to an agreement with AIG Global Investment Corp. (Ireland)
Limited (AIGGIC), an indirect wholly-owned subsidiary of AIG, under which
AIGGIC provides investment advisory and management services. This agreement
is subject to termination by either party on 30 days written notice. IPCRe
has agreed to pay fees to AIGGIC based on the month end market value of the
total investment portfolio as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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



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





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



|9. |  | RELATED PARTY TRANSACTIONS (continued)                                                                          
|-- |  | ----------------------------------------------------------------------------------------------------------------
|  
|c) |  | Investment custodian services (continued)                                                                       
|  
|   |  | The following amounts were incurred/received for services provided by
indirect wholly-owned subsidiaries of AIG:

|                             |  |                |       |            |  |            |       |           |  |            |       |  |  |   |     | 
|---------------------------- |  | -------------- | ----- | ---------- |  | ---------- | ----- | --------- |  | ---------- | ----- |  |  | - | --- | 
|                             |  |                |       |            |  | Investment |       | Equity    |  | Investment
|                             |  | Administrative |       | Management |  | Funds Fee  |       | Custodian
|                             |  | Services       |       | Services   |  | Rebate     |       | Services 
|                             |  |                |       |            |  |            |       |          
|Year ended December 31,
2003 |  | $              | 7,821 |            |  | $          | 2,506 |           |  | $          | 1,939 |  |  | $ | 673 | 
|Year ended December 31,
2002 |  | $              | 5,806 |            |  | $          | 2,219 |           |  | $          | 1,237 |  |  | $ | 680 | 
|Year ended December 31,
2001 |  | $              | 3,191 |            |  | $          | 1,269 |           |  | $          | 335   |  |  | $ | 316 | 



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

|                  |  |   |       | 
|----------------- |  | - | ----- | 
|December 31, 2003 |  | $ | 3,914 | 
|December 31, 2002 |  | $ | 2,885 | 



|d) |  | Underwriting services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | IPCUSL is party to an agreement with Allied World Assurance Company Ltd.
(AWAC), a Bermuda-based multi-line insurance and reinsurance company,
which is wholly-owned by Allied World Holdings, Ltd., a company in which AIG
has a 23.4% ownership interest. Under this agreement, IPCUSL underwrites
property catastrophe treaty reinsurance written by AWAC. IPCUSL receives an
agency commission of 6.5% of gross premiums written under this agreement,
which is on a rolling three year basis, commencing December 1, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Business written under this agreement during the year ended December 31,
2003 was $61,246 (2002: $41,284) and provided agency commission of $3,348
(2002: $2,684). The amounts are recorded as other income in the
accompanying consolidated statements of income. The balance due as at
December 31, 2003 was $54 (2002: $51). No business was underwritten in the
year ended December 31, 2001 and therefore no income was recorded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|e) |  | Related party reinsurance business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | IPCRe assumed premiums from companies who are majority owned by two
shareholders of the Company. Premiums assumed were $41,136, $42,888 and
$15,603, respectively, for the years ended December 31, 2003, 2002 and 2001.
In addition, IPCRe assumed premiums through brokers related to shareholders
of the Company totaling $3,186, $3,614 and $4,866, respectively, for the
years ended December 31, 2003, 2002 and 2001. Brokerage fees and
commissions incurred in respect of this business were approximately $319,
$361 and $487, respectively, for the years ended December 31, 2003, 2002 and
2001. IPCRe ceded premiums to a company wholly owned by a shareholder (Note
5). Premiums ceded were $982, $601 and $442, respectively, for the years
ended December 31, 2003, 2002 and 2001. All such transactions were
undertaken on normal commercial terms. Reinsurance premiums receivable due
from related parties as of December 31, 2003 and December 31, 2002 were
$8,723 and $11,338, respectively. Reinsurance premiums payable to related
parties as of December 31, 2003 and 2002 were $156 and $173, respectively.





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



|9. |  | RELATED PARTY TRANSACTIONS (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|f) |  | Equity investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | IPCRe invests in two mutual funds which are managed by AIG/Sun America as
disclosed in Note 3 (g). The combined investment at fair value as of
December 31, 2003 and 2002 was $244,756 and $158,895 respectively. Included
in net investment income for 2003 is a dividend from the AIG American Equity
Trust Fund of $588.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Management has determined that IPCRe has a significant variable interest in
both the AIG Global Equity Fund and the AIG American Equity Trust Fund,
which management consider to be variable interest entities as defined by FIN
46-R. The AIG Global Equity Fund invests predominantly in large capitalized
companies operating in diverse sectors of global equity markets and the AIG
American Equity Trust Fund invests predominantly in large capitalized
companies operating across diverse sectors of North America. Net asset
values of the AIG Global Equity Fund and the AIG American Equity Trust Fund
as at December 31, 2003 are $354,322 and $213,403 respectively, as reported
by AIGGIC. The Companys maximum exposure to loss as a result of its
involvement with the two variable interest entities is limited to $157,872
in respect of the AIG Global Equity Fund and $87,884 in respect of the AIG
American Equity Trust Fund, being the fair values of the Companys
investment in these funds.
|  
|   |  | On January 2, 2004, the Company invested $75,000 in the AIG Select Hedge
Fund, which is managed by AIGGIC. Management consider the AIG Select Hedge
Fund to be a variable interest entity, however, management do not consider
that the application of FIN 46-R to the AIG Select Hedge Fund will have a
significant impact on the Companys financial position and results of
operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|g) |  | A director and executive officer of various AIG subsidiaries and
affiliates serves as the Chairman of the Board of Directors of the Company
and IPCRe. In addition, the managing director of AIMS serves as a
director of IPCRe Europe Limited.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



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

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

|                                       |              |   |         |         |      |   |         |         |   |   |         |         |  
|-------------------------------------- | ------------ | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                       |              |   | 2003    |         | 2002 |   | 2001   
|                                       |              |   |         |         |      |   |        
|Balance, beginning of year             |              | $ | 118,950 |         |      | $ | 161,526 |         |   | $ | 60,171  |        
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|Net losses incurred related to:        |              |   |         |         |      |   |         |         |   |   |         |        
|                                       | Current year |   |         | 40,334  |      |   |         | 34,266  |   |   |         | 133,629 |  
|                                       | Prior years  |   |         | 14,048  |      |   |         | 4,509   |   |   |         | 3,922   |  
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|                                       |              |   | 54,382  |         |      |   | 38,775  |         |   |   | 137,551 |        
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|Net paid losses related to:            |              |   |         |         |      |   |         |         |   |   |         |        
|                                       | Current year |   |         | (8,007  | )    |   |         | (4,473  | ) |   |         | (9,494  | )
|                                       | Prior years  |   |         | (47,803 | )    |   |         | (79,393 | ) |   |         | (25,553 | )
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|                                       |              |   | (55,810 | )       |      |   | (83,866 | )       |   |   | (35,047 | )      
|Effect of foreign exchange movements   |              |   | 3,988   |         |      |   | 2,515   |         |   |   | (1,149  | )      
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|Total net reserves, end of year        |              |   | 121,510 |         |      |   | 118,950 |         |   |   | 161,526 |        
|Loss reserves recoverable, end of year |              |   | 1,810   |         |      |   | 405     |         |   |   | 681     |        
|                                       |              |   |         |         |      |   |         |         |   |   |         |        
|Gross loss reserves, end of year       |              | $ | 123,320 |         |      | $ | 119,355 |         |   | $ | 162,207 |        
|                                       |              |   |         |         |      |   |         |         |   |   |         |        

Losses incurred in the year ended December 31, 2003 included $10,250 for
tornadoes and hailstorms which affected the mid-West United States in April and
May, $8,000 for the various brush fires in California in October, and $8,500
for various windstorms, including Hurricanes Isabel and Fabian, which took
place around the world during the third quarter of 2003. Losses incurred in
the year ended December 31, 2003 in respect of prior years include $7,000
development of losses for Tropical Storm Allison which took place in June 2001,
primarily resulting from an unfavourable court ruling regarding an insurance
policy dispute between a cedant and the original insured under the policy in
March 2003, and increases to claims resulting from Hurricane Lili and storms
which affected Europe, in October 2002.

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





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



|10. |  | RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES (continued)
|--- |  | -----------------------------------------------------------

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

Net losses and loss adjustment expenses in the consolidated statements of
income (loss) are presented net of reinsurance recoveries during the years
ended December 31, 2003, 2002 and 2001 of $2,338, $(74) and $60 respectively.



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

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

|                                   |  |                   |         |                   |  |                   |       |          |  |         |         |   |  |          |       |   |  |   |         |  |  |  |       |  
|---------------------------------- |  | ----------------- | ------- | ----------------- |  | ----------------- | ----- | -------- |  | ------- | ------- | - |  | -------- | ----- | - |  | - | ------- |  |  |  | ----- | -
|                                   |  | December 31, 2003 |         | December 31, 2002 |  | December 31, 2001
|                                   |  |                   |         |                   |  |                  
|                                   |  | Premiums          |         |                   |  |                   |       | Premiums |  |         |         |   |  | Premiums |       |   |  |  
|                                   |  | Written           |         | %                 |  | Written           |       | %        |  | Written |         | %
|                                   |  |                   |         |                   |  |                   |       |          |  |         |         |  
|Geographic Area (1)                |  |                   |         |                   |  |                   |       |          |  |         |         |   |  |          |       |   |  |   |         |  |  |  |       |  
|United States                      |  | $                 | 136,319 |                   |  |                   | 42.2  | %        |  | $       | 117,904 |   |  |          | 45.4  | % |  | $ | 57,971  |  |  |  | 43.6  | %
|Worldwide (2)                      |  |                   | 54,491  |                   |  |                   | 16.9  | %        |  |         | 36,804  |   |  |          | 14.2  | % |  |   | 22,165  |  |  |  | 16.7  | %
|Worldwide
(excluding the U.S.) (3) |  |                   | 15,747  |                   |  |                   | 4.9   | %        |  |         | 16,312  |   |  |          | 6.3   | % |  |   | 5,758   |  |  |  | 4.3   | %
|United Kingdom                     |  |                   | 40,650  |                   |  |                   | 12.6  | %        |  |         | 31,917  |   |  |          | 12.3  | % |  |   | 14,713  |  |  |  | 11.1  | %
|Europe (excluding the U.K.)        |  |                   | 46,944  |                   |  |                   | 14.6  | %        |  |         | 30,943  |   |  |          | 11.9  | % |  |   | 11,722  |  |  |  | 8.8   | %
|Japan                              |  |                   | 15,597  |                   |  |                   | 4.8   | %        |  |         | 15,432  |   |  |          | 5.9   | % |  |   | 7,383   |  |  |  | 5.5   | %
|Australia/New Zealand              |  |                   | 10,276  |                   |  |                   | 3.2   | %        |  |         | 6,103   |   |  |          | 2.4   | % |  |   | 5,701   |  |  |  | 4.3   | %
|Other                              |  |                   | 2,738   |                   |  |                   | 0.8   | %        |  |         | 4,270   |   |  |          | 1.6   | % |  |   | 7,644   |  |  |  | 5.7   | %
|                                   |  |                   |         |                   |  |                   |       |          |  |         |         |   |  |          |       |   |  |   |         |  |  |  |       |  
|                                   |  | $                 | 322,762 |                   |  |                   | 100.0 | %        |  | $       | 259,685 |   |  |          | 100.0 | % |  | $ | 133,057 |  |  |  | 100.0 | %
|                                   |  |                   |         |                   |  |                   |       |          |  |         |         |   |  |          |       |   |  |   |         |  |  |  |       |  



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

Credit risk arises out of the failure of a counterparty to perform according to
the terms of the contract. IPCRe does not require collateral or other security
to support financial instruments with credit risk. A single broker group
accounted for approximately 35%, 35% and 42%, respectively, of total premiums
written for the years ended December 31, 2003, 2002 and 2001. Five broker
groups accounted for approximately 91%, 86% and 85%, respectively, of total
premiums written for the years ended December 31, 2003, 2002 and 2001.





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



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

In July 1998, IPCRe entered into a five year, revolving credit agreement with a
syndicate of financial institutions in the amount of $300,000. In July, 2001,
the amount was reduced to $150,000. In July, 2003 a new three year facility
was entered into in the amount of $200,000. Drawings on this facility can be
used for general corporate purposes. This facility has certain financial
covenants, including minimum net worth provisions, and certain investment
restrictions. At December 31, 2003 no amounts have been drawn under this
facility, and IPCRe was in compliance with all covenants under this facility.



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

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

|                                      |  |                   |           |                   |  |   |           | 
|------------------------------------- |  | ----------------- | --------- | ----------------- |  | - | --------- | 
|                                      |  | December 31, 2003 |           | December 31, 2002
|                                      |  |                   |           |                  
|Actual statutory capital and surplus  |  | $                 | 1,556,695 |                   |  | $ | 1,283,857 | 
|Minimum statutory capital and surplus |  | $                 | 154,142   |                   |  | $ | 127,145   | 

IPCRes statutory net income (loss) for the years ended December 31, 2003, 2002
and 2001, was $256,738, $152,444 and $(3,724), respectively.

The Act limits the maximum amount of annual dividends or distributions paid by
IPCRe to the Company without notification to the Supervisor of Insurance
(Supervisor) of such payment (and in certain cases the prior approval of the
Supervisor). The maximum amount of dividends which could be paid by IPCRe to
the Company at January 1, 2004 without such notification is approximately
$389,174.

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





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



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

Effective December 1, 1995, IPCRe adopted a defined contribution plan for the
majority of its officers and employees. Pursuant to the plan, each participant
can contribute 5% or more of their salary and IPCRe will contribute an amount
equal to 5% of each participants salary. 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 salary to a maximum of
$20 per employee. IPCRe contributions in respect of these plans amounted to
approximately $234, $72 and $60 in 2003, 2002 and 2001 respectively. In
addition, IPCRe has entered into individual pension arrangements with specific
employees that are non-contributory defined benefit plans. Benefits are based
upon a percentage of average final compensation multiplied by years of credited
service. Independent actuarial reviews of the benefit obligations were
undertaken at December 31, 2003 and 2002. The Company has recorded a liability
for accumulated benefit obligations at December 31, 2003 of $919 (2002: $732),
pension costs recorded in respect of the defined benefit plan amounted to $187,
$589 and $29 in 2003, 2002 and 2001 respectively. The plan is currently
unfunded. The projected benefit obligations were $853 and $832 at December 31,
2003 and 2002, respectively. Actuarial assumptions used in estimating
obligations are a discount rate of 6.75% (2002: 6.75%) and average compensation
increases of 3.1% (2002: 3.9%).



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

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

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

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

IPCRe Europe Limited is a tax-paying entity subject to the jurisdiction of the
Government of Ireland. The amount of taxes incurred for 2003, 2002 and 2001 is
not material to the consolidated financial statements.





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



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

|                                        |  |           |         |          |  |           |        |          |  |   |        |  |  |   |        | 
|--------------------------------------- |  | --------- | ------- | -------- |  | --------- | ------ | -------- |  | - | ------ |  |  | - | ------ | 
|                                        |  | Quarter   |         | Quarter  |  | Quarter   |        | Quarter 
|                                        |  | Ended     |         | Ended    |  | Ended     |        | Ended   
|                                        |  | March 31, |         | June 30, |  | Sept. 30, |        | Dec. 31,
|                                        |  | 2003      |         | 2003     |  | 2003      |        | 2003    
|                                        |  |           |         |          |  |           |        |         
|Gross premiums written                  |  | $         | 191,852 |          |  | $         | 64,598 |          |  | $ | 45,804 |  |  | $ | 20,508 | 
|Net premiums earned                     |  |           | 74,300  |          |  |           | 72,283 |          |  |   | 77,774 |  |  |   | 74,544 | 
|Net investment income                   |  |           | 11,525  |          |  |           | 11,723 |          |  |   | 11,725 |  |  |   | 12,116 | 
|Net realized gains on investments       |  |           | 3,726   |          |  |           | 2,414  |          |  |   | 292    |  |  |   | 7,301  | 
|Net losses and loss adjustment expenses |  |           | 11,156  |          |  |           | 11,516 |          |  |   | 15,778 |  |  |   | 15,932 | 
|Net income                              |  |           | 67,528  |          |  |           | 65,588 |          |  |   | 62,132 |  |  |   | 65,381 | 
|Net income per common share - basic     |  | $         | 1.40    |          |  | $         | 1.36   |          |  | $ | 1.29   |  |  | $ | 1.36   | 
|Net income per common share - diluted   |  | $         | 1.40    |          |  | $         | 1.36   |          |  | $ | 1.29   |  |  | $ | 1.35   | 

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





---



##### 



IPC HOLDINGS, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(Expressed in thousands of United States dollars except for per share amounts)



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

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

|                                        |  |                   |         |                   |  |                   |         |   |  |   |          |  
|--------------------------------------- |  | ----------------- | ------- | ----------------- |  | ----------------- | ------- | - |  | - | -------- | -
|                                        |  | Year Ended        |         | Year Ended        |  | Year Ended       
|                                        |  | December 31, 2003 |         | December 31, 2002 |  | December 31, 2001
|                                        |  |                   |         |                   |  |                  
|Gross premiums written                  |  | $                 | 322,762 |                   |  | $                 | 259,685 |   |  | $ | 133,057  |  
|Net premiums earned                     |  |                   | 298,901 |                   |  |                   | 226,404 |   |  |   | 123,375  |  
|Net
investment income                   |  |                   | 47,089  |                   |  |                   | 49,320  |   |  |   | 32,244   |  
|Net realized gain (loss) on
investments |  |                   | 13,733  |                   |  |                   | (44,867 | ) |  |   | 616      |  
|Net
losses and loss adjustment expenses |  |                   | (54,382 | )                 |  |                   | (38,775 | ) |  |   | (137,551 | )
|Acquisition costs, net                  |  |                   | (30,867 | )                 |  |                   | (24,521 | ) |  |   | (12,686  | )
|General & administration expenses       |  |                   | (17,532 | )                 |  |                   | (12,633 | ) |  |   | (8,443   | )
|Foreign exchange gain (loss), net       |  |                   | 1,910   |                   |  |                   | 1,554   |   |  |   | (574     | )
|                                        |  |                   |         |                   |  |                   |         |   |  |   |          |  
|Net income (loss)                       |  | $                 | 258,852 |                   |  | $                 | 156,482 |   |  | $ | (3,019   | )
|                                        |  |                   |         |                   |  |                   |         |   |  |   |          |  
|Loss ratio (1)                          |  |                   | 18.2    | %                 |  |                   | 17.1    | % |  |   | 111.5    | %
|Expense ratio (2)                       |  |                   | 16.2    | %                 |  |                   | 16.4    | % |  |   | 17.1     | %
|Combined ratio (3)                      |  |                   | 34.4    | %                 |  |                   | 33.5    | % |  |   | 128.6    | %

|                                           |  |                   |           |                   |  |   |           | 
|------------------------------------------ |  | ----------------- | --------- | ----------------- |  | - | --------- | 
|                                           |  | December 31, 2003 |           | December 31, 2002
|                                           |  |                   |           |                  
|Cash & investments                         |  | $                 | 1,671,313 |                   |  | $ | 1,387,045 | 
|Reinsurance balances receivable            |  |                   | 61,194    |                   |  |   | 50,328    | 
|Other assets                               |  |                   | 36,495    |                   |  |   | 37,393    | 
|                                           |  |                   |           |                   |  |   |           | 
|Total assets                               |  | $                 | 1,769,002 |                   |  | $ | 1,474,766 | 
|                                           |  |                   |           |                   |  |   |           | 
|Unearned premiums                          |  | $                 | 61,795    |                   |  | $ | 51,902    | 
|Reserves for losses                        |  |                   | 123,320   |                   |  |   | 119,355   | 
|Other liabilities                          |  |                   | 16,766    |                   |  |   | 11,088    | 
|                                           |  |                   |           |                   |  |   |           | 
|Total liabilities                          |  |                   | 201,881   |                   |  |   | 182,345   | 
|                                           |  |                   |           |                   |  |   |           | 
|Common stock                               |  |                   | 250,000   |                   |  |   | 250,000   | 
|Additional paid-in capital                 |  |                   | 595,409   |                   |  |   | 595,409   | 
|Retained earnings                          |  |                   | 630,605   |                   |  |   | 406,753   | 
|Accumulated other comprehensive
income     |  |                   | 91,107    |                   |  |   | 40,259    | 
|                                           |  |                   |           |                   |  |   |           | 
|Total shareholders equity                 |  |                   | 1,567,121 |                   |  |   | 1,292,421 | 
|                                           |  |                   |           |                   |  |   |           | 
|Total liabilities and
shareholders equity |  | $                 | 1,769,002 |                   |  | $ | 1,474,766 | 
|                                           |  |                   |           |                   |  |   |           | 



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