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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended:March 31, 2005 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to Commission file number:0-27662 IPC Holdings, Ltd. (Exact name of registrant as specified in its charter) Bermuda
    
    Not Applicable(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 American International Building, 29 Richmond Road, Pembroke, HM 08, Bermuda 
  (441) 298-5100
(Registrants telephone number,
including area code)  þ o
 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes þ No o The number of outstanding common shares par value U.S. $0.01 per share of IPC Holdings, Ltd.,
as of May 4, 2005, was 48,334,110.




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TABLE OF CONTENTS  Item 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Unregistered Sale of Equity Securities and Use of ProceedsItem 3. Defaults upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEXHIBIT INDEXEX-11.1: RECONCILIATION OF BASIC AND DILUTED NET INCOME PER COMMON SHAREEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION    Table of Contents  PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements IPC HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
(Expressed in thousands of United States dollars, except for per share amounts) As of
    
    
    As ofMarch 31, 2005
    
    
    December 31, 2004(unaudited)ASSETS:Fixed maturity investments:Available for sale, at fair value
(amortized cost 2005: $1,485,723; 2004:$1,446,327)
    
    $
    1,451,271
    
    
    $
    1,444,576Equity investments, available for sale at fair
value (cost 2005: $340,622; 2004: $335,719)
    
    
    426,083
    
    
    
    428,620Cash and cash equivalents
    
    
    30,659
    
    
    
    27,898Reinsurance premiums receivable
    
    
    177,147
    
    
    
    85,086Deferred premiums ceded
    
    
    8,897
    
    
    
    4,558Loss and loss adjustment expenses recoverable
    
    
    5,078
    
    
    
    5,006Accrued investment income
    
    
    20,552
    
    
    
    20,695Deferred acquisition costs
    
    
    20,038
    
    
    
    8,424Prepaid expenses and other assets
    
    
    6,151
    
    
    
    3,427TOTAL ASSETS
    
    $
    2,145,876
    
    
    $
    2,028,290LIABILITIES:Reserve for losses and loss adjustment expenses
    
    $
    256,639
    
    
    $
    274,463Unearned premiums
    
    
    187,584
    
    
    
    68,465Reinsurance premiums payable
    
    
    7,648
    
    
    
    3,387Deferred fees and commissions
    
    
    3,153
    
    
    
    1,475Accounts payable and accrued liabilities
    
    
    14,340
    
    
    
    12,061469,364
    
    
    
    359,851SHAREHOLDERS EQUITY:Share capital (Common shares outstanding, par
value U.S. $0.01: 2005: 48,440,210; 2004:48,407,203 shares)
    
    
    484
    
    
    
    484Additional paid-in capital
    
    
    856,457
    
    
    
    854,797Deferred stock grant compensation
    
    
    (3,459
    )
    
    
    (2,899
    )Retained earnings
    
    
    757,006
    
    
    
    724,907Accumulated other comprehensive income
    
    
    66,024
    
    
    
    91,1501,676,512
    
    
    1,668,439TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    2,145,876
    
    
    $
    2,028,290
 The accompanying notes are an integral part of these consolidated financial statements 2




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IPC HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Expressed in thousands of United States dollars, except for per share amounts) Quarter ended March 31,2005
    
    
    2004(unaudited)
    
    
    (unaudited)REVENUES:Gross premiums written
    
    $
    205,841
    
    
    $
    210,157Change in unearned premiums
    
    
    (119,119
    )
    
    
    (122,912
    )Premiums earned
    
    
    86,722
    
    
    
    87,245Reinsurance premiums ceded
    
    
    (9,023
    )
    
    
    (10,180
    )Change in deferred premiums ceded
    
    
    4,339
    
    
    
    6,496Premiums ceded
    
    
    (4,684
    )
    
    
    (3,684
    )Net premiums earned
    
    
    82,038
    
    
    
    83,561Net investment income
    
    
    17,515
    
    
    
    11,563Net realized (losses) gains on investments
    
    
    (3,210
    )
    
    
    5,663Other income
    
    
    1,109
    
    
    
    91697,452
    
    
    
    101,703EXPENSES:Net losses and loss adjustment expenses
    
    
    37,936
    
    
    
    13,548Net acquisition costs
    
    
    8,122
    
    
    
    9,740General and administrative expenses
    
    
    6,016
    
    
    
    5,080Net exchange loss (gain)
    
    
    1,423
    
    
    
    (293
    )53,497
    
    
    
    28,075NET INCOME
    
    $
    43,955
    
    
    $
    73,628Basic net income per common share
    
    $
    0.91
    
    
    $
    1.53Diluted net income per common share
    
    $
    0.91
    
    
    $
    1.52Weighted average number of common shares
- basic
    
    
    48,330,812
    
    
    
    48,249,825Weighted average number of common shares
- diluted
    
    
    48,429,102
    
    
    
    48,459,653
 The accompanying notes are an integral part of these consolidated financial statements 3




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IPC HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Expressed in thousands of United States dollars) Quarter ended March 31,2005
    
    
    2004(unaudited)
    
    
    (unaudited)NET INCOME
    
    $
    43,955
    
    
    $
    73,628Other comprehensive (loss) income:Net holding (losses) gains on
investments during period
    
    
    (28,336
    )
    
    
    20,497Reclassification adjustment for
losses (gains) included in net
income
    
    
    3,210
    
    
    
    (5,663
    )(25,126
    )
    
    
    14,834COMPREHENSIVE INCOME
    
    $
    18,829
    
    
    $
    88,462
 The accompanying notes are an integral part of these consolidated financial statements 4




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IPC HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (Expressed in thousands of United States dollars, except per share amounts) As of
    
    
    As ofMarch 31, 2005
    
    
    December 31, 2004(unaudited)COMMON SHARES PAR VALUE $0.01:Balance, beginning of year
    
    $
    484
    
    
    $
    483Additional shares issued
    
    
    0
    
    
    
    1Balance, end of period
    
    $
    484
    
    
    $
    484ADDITIONAL PAID-IN CAPITAL:Balance, beginning of year
    
    $
    854,797
    
    
    $
    850,133Shares issued
    
    
    551
    
    
    
    941Shares repurchased
    
    
    (189
    )
    
    
    (142
    )Stock options and grants
    
    
    1,298
    
    
    
    3,865Balance, end of period
    
    $
    856,457
    
    
    $
    854,797DEFERRED STOCK GRANT COMPENSATION:Balance, beginning of year
    
    $
    (2,899
    )
    
    $
    (1,495
    )Stock grants awarded
    
    
    (905
    )
    
    
    (2,928
    )Amortization
    
    
    345
    
    
    
    1,524Balance, end of period
    
    $
    (3,459
    )
    
    $
    (2,899
    )RETAINED EARNINGS:Balance, beginning of year
    
    $
    724,907
    
    
    $
    628,931Net income
    
    
    43,955
    
    
    
    138,613Reduction on share repurchase
    
    
    (257
    )
    
    
    (155
    )Dividends paid
    
    
    (11,599
    )
    
    
    (42,482
    )Balance, end of period
    
    $
    757,006
    
    
    $
    724,907ACCUMULATED OTHER COMPREHENSIVE
INCOME:Balance, beginning of year
    
    $
    91,150
    
    
    $
    91,107Other comprehensive (loss) income
    
    
    (25,126
    )
    
    
    43Balance, end of period
    
    $
    66,024
    
    
    $
    91,150TOTAL SHAREHOLDERS EQUITY
    
    $
    1,676,512
    
    
    $
    1,668,439
 The accompanying notes are an integral part of these consolidated financial statements 5




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IPC HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of United States dollars) Quarter ended March 31,2005
    
    
    2004(unaudited)
    
    
    (unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    43,955
    
    
    $
    73,628Adjustments to reconcile net income to cash provided
by operating activities:Amortization of fixed maturity premiums, net
    
    
    3,788
    
    
    
    3,539Net realized losses (gains) on investments
    
    
    3,210
    
    
    
    (5,663
    )Stock compensation
    
    
    738
    
    
    
    551Changes in:Reinsurance premiums receivable
    
    
    (92,061
    )
    
    
    (93,753
    )Deferred premiums ceded
    
    
    (4,339
    )
    
    
    (6,496
    )Loss and loss adjustment expenses recoverable
    
    
    (72
    )
    
    
    52Accrued investment income
    
    
    143
    
    
    
    (573
    )Deferred acquisition costs
    
    
    (11,614
    )
    
    
    (12,011
    )Prepaid expenses and other assets
    
    
    (2,724
    )
    
    
    (3,504
    )Reserve for losses and loss adjustment expenses
    
    
    (17,824
    )
    
    
    2,295Unearned premiums
    
    
    119,119
    
    
    
    122,912Reinsurance premiums payable
    
    
    4,261
    
    
    
    6,374Deferred fees and commissions
    
    
    1,678
    
    
    
    2,228Accounts payable and accrued liabilities
    
    
    2,279
    
    
    
    989Cash provided by operating activities
    
    
    50,537
    
    
    
    90,568CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of fixed maturity investments
    
    
    (519,632
    )
    
    
    (577,619
    )Proceeds from sale of fixed maturity investments
    
    
    482,403
    
    
    
    500,411Proceeds from maturities of fixed maturity investments
    
    
    5,850
    
    
    
    0Purchases of equity investments
    
    
    (4,903
    )
    
    
    (75,194
    )Proceeds from sale of equity investments
    
    
    0
    
    
    
    0Cash used in investing activities
    
    
    (36,282
    )
    
    
    (152,402
    )CASH
FLOWS FROM FINANCING ACTIVITIES:Proceeds from share issuance, net of repurchases
    
    
    105
    
    
    
    0Cash dividends paid to shareholders
    
    
    (11,599
    )
    
    
    (9,649
    )Cash used by financing activities
    
    
    (11,494
    )
    
    
    (9,649
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,761
    
    
    
    (71,483
    )Cash and cash equivalents, beginning of period
    
    
    27,898
    
    
    
    91,949Cash and cash equivalents, end of period
    
    $
    30,659
    
    
    $
    20,466
 The accompanying notes are an integral part of these consolidated financial statements 6




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IPC HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in thousands of United States dollars, except for per share amounts)
(unaudited)  1.
    GENERAL:The consolidated interim financial statements presented herein have been prepared on the
basis of accounting principles generally accepted in the United States of America (GAAP)
and include the accounts of IPC Holdings, Ltd. (the Company) and its wholly-owned
subsidiaries, IPCRe Limited (IPCRe) and IPCRe Underwriting Services Limited (IPCUSL and,
together with the Company and IPCRe, IPC) and IPCRe Europe Limited, which is a
wholly-owned subsidiary of IPCRe. In the opinion of management, these financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the results of operations for the three month periods ended March 31, 2005
and 2004, respectively, the balance sheet as of March 31, 2005 and the cash flows for the
three month periods ended March 31, 2005 and 2004, respectively. These interim consolidated
financial statements should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 2004, in our report on Form 10-K. The results of
operations for any interim period are not necessarily indicative of results for the full
year.2.
    DIVIDENDS:On March 24, 2005 we paid a dividend of $0.24 per share to shareholders of record on March 8,
2005.On April 26, 2005 we declared a dividend of $0.24 per share to be paid on June 23, 2005, to
shareholders of record on June 7, 2005.3.
    ACCOUNTING FOR STOCK-BASED COMPENSATION AND DISCLOSURE:Management has adopted the fair value method of accounting for stock-based employee compensation
as prescribed by Financial Accounting Standards Board (FASB) issued Statement No. 123
Accounting for Stock-Based Compensation (SFAS 123) on a prospective basis for all awards
granted, modified or settled after January 1, 2003. In December 2004, the FASB revised SFAS 123,
replacing it with SFAS 123 (Revised 2004) Share-Based Payment (SFAS 123R). SFAS 123R
requires entities to measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. The cost of such services
will be recognized over the period during which an employee is required to provide service in
exchange for the award. Since 2003 the Company has expensed compensation costs for stock options
on a prospective basis for all awards granted, modified or settled after January 1, 2003 in
accordance with Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation and Disclosure. SFAS 123R requires that the portion of all outstanding awards for
which the requisite service has not yet been rendered, i.e. those awards granted prior to January
1, 2003 that have not yet had the requisite service rendered, be expensed. In our annual report
on Form 10-K for the year ended December 31, 2004, we stated that the Company would adopt SFAS
123R effective January 1, 2005. On April 14, 2005 the effective date for SFAS 123R was delayed
until the first quarter of 2006 and the Company will therefore now adopt SFAS 123R effective
January 1, 2006. The amount of the charge recorded in the three months ended March 31, 2005 was
$393. The application of SFAS 123R will not have a material effect on the Companys financial
statements.On June 13, 2003 the shareholders approved a new stock incentive plan. The plan allows for the
issuance of up to one million 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. The
charge recorded for the quarter ended March 31, 2005 was $345. 7




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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. Quarter ended March 31,2005
    
    
    2004(unaudited)
    
    
    (unaudited)Net income, as reported
    
    $
    43,955
    
    
    $
    73,628Add: Stock-based employee expense
    
    
    738
    
    
    
    551Deduct: Total stock-based
employee expense determined
under fair value based method
for all awards.
    
    
    (823
    )
    
    
    (678
    )Pro forma net income
    
    $
    43,870
    
    
    $
    73,501Earnings per share:Basic  as reported
    
    
    0.91
    
    
    
    1.53Basic  pro forma
    
    
    0.91
    
    
    
    1.52Diluted  as reported
    
    
    0.91
    
    
    
    1.52Diluted  pro forma
    
    
    0.91
    
    
    
    1.52
 8




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies The following is a summary of the accounting policies for the three main components of our
balance sheet and statement of income: premiums, losses (claims) including reserves and
investments/investment income. Premiums Premiums are recorded as written at the beginning of each policy, based upon information received
from ceding companies and their brokers, and are earned over the policy period. For excess of
loss contracts, the amount of deposit 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 initial
estimates, which are reviewed regularly with respect to the actual premium reported by the ceding
company. At March 31, 2005 the amount of premium accrued resulting from managements estimates
was approximately 10% of total gross premiums written for the quarter then ended. We also accrue
for reinstatement premiums (premiums paid to reinstate reinsurance coverage following a claim).
Such accruals are based upon actual contractual terms applied to the amount of loss reserves
expected to be paid, and the only element of management judgement involved is with respect to the
amount of loss reserves and associated rates on line (i.e. price), as described below. The
amount accrued at March 31, 2005 for estimated reinstatement premiums on Reported But Not Enough
losses (RBNE) and Incurred But Not Reported (IBNR) loss reserves was $7.8 million. 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 is likely to differ from the original estimate.
Whenever we determine that any existing loss reserves are inadequate, we are required to increase
the loss reserves with a corresponding reduction, which could be material, in our operating
results in the period in which the deficiency is identified. The establishment of new reserves,
or the adjustment of reserves for reported claims, could result in significant upward or downward
changes to our financial condition or results of operations in any particular period. The reserve for losses and loss adjustment expenses is based upon reports from industry sources,
individual case estimates received from ceding companies 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. However, complexity resulting from problems such as multiple events affecting one
geographic area and the resulting impact on claims adjusting (including allocation of claims to
event and the effect of demand surge on the cost of building materials and labour) by, and
communications from, ceding companies, can cause delays to the timing with which we are notified
of changes to loss estimates. 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 9




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information provided by the ceding company and/or their broker and our historical experience of
that treaty, if any. The estimate is adjusted as actual experience becomes known. At March 31, 2005 managements estimates for IBNR/RBNE represented approximately 31% of total
loss reserves. The majority of the estimate relates to reserves for claims from the four
hurricanes which struck Florida and two of the typhoons which struck Japan, in August and
September of 2004. If our estimate of IBNR/RBNE at March 31, 2005 was inaccurate by a factor of
10%, our results of operations would be impacted by a positive or negative movement of
approximately $8 million. If our total reserve for losses at March 31, 2005 was inaccurate by a
factor of 10%, our incurred losses would be impacted by approximately $26 million, which
represents approximately 1.5% of shareholders equity. In accordance with IPCRes registration
under the Bermuda Insurance Act 1978 and Related Regulations (the Insurance Act), the loss
reserves are certified annually by an independent loss reserve specialist. Investments In accordance with our investment guidelines, our investments consist of certain equity
securities and high-grade marketable fixed income securities. Investments are considered
Available for Sale and are carried at fair value. Fixed maturity investments are stated at
fair value as determined by the quoted market price of these securities as provided either by
independent pricing services or, when such prices are not available, by reference to broker or
underwriter bid indications. Equity securities and investments in mutual funds are stated at
fair value as determined by either the most recently traded price or the net asset value as
advised by the fund. Unrealized gains and losses are included within Accumulated other
comprehensive income as a separate component of shareholders equity. Realized gains and losses
on sales of investments are determined on a first-in, first-out basis. Investment income is
recorded when earned and includes the amortization of premiums and discounts on investments. We regularly monitor the difference between the cost and fair value of our investments, which
involves uncertainty as to whether declines in value are temporary in nature. If we believe a
decline in value of a particular investment is temporary, we record the decline as an unrealized
loss as a separate component of our shareholders equity. If we believe the decline is
other-than-temporary, we write down the cost basis of the investment to the market price as of
the reporting date and record a realized loss in our statement of income. The determination that
a security has incurred an other-than-temporary decline in value requires the judgement of IPCs
management, which includes the views of our investment managers and a regular review of our
investments. Our assessment of a decline in value includes our current judgement as to the
financial position and future prospects of the entity that issued the security. If that
judgement changes in the future we may ultimately record a realized loss, after having originally
concluded that the decline in value was temporary. 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 March 31, 2005 our equity investments comprised investments in the following: a U.S. equity
fund, a global equity fund, a fund of hedge funds 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 our equity funds is principally influenced by macro economic
factors rather than issuer-specific factors. Our equity investments are 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 each 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 March 31, 2005 we did not hold any fixed maturity securities that are not investment grade or
not rated. At March 31, 2005 we determined that there was no other-than-temporary impairment of securities. 10




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RESULTS OF OPERATIONS, QUARTERS ENDED MARCH 31, 2005 AND 2004 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 and IPCUSL. This discussion should be read in conjunction
with our Consolidated Financial Statements and related notes for the quarter ended March 31,
2005. Our net income for the three months ended March 31, 2005 was $44.0 million, compared to $73.6
million for the quarter ended March 31, 2004, a decrease of 40%. The results in the current
quarter were impacted by an increase in losses incurred of $24.4 million, compared to the first
quarter of 2004, with the most significant item being cyclone Erwin, which occurred in January of
2005, as well as other items, which are discussed below. Also, we made a net realized loss from
the sale of investments of $3.2 million in the quarter ended March 31, 2005, compared to a net
realized gain of $5.7 million in the first quarter of 2004. In the quarter ended March 31, 2005, we wrote premiums of $205.8 million, compared to $210.2
million in the first quarter of 2004, a decrease of 2%. In the first quarter of 2005 we
wrote new business of $16.2 million, which more than offset business which was not renewed
because of unsatisfactory terms and conditions, or because the cedant did not purchase the
protection, which totalled $12.7 million. Premiums from existing business were
approximately $5.0 million less in the first quarter of 2005 in comparison to the first
quarter of 2004, due to program re-structuring, pricing and foreign exchange rate
differences. Adjustment premiums, which are adjustments generally arising from differences
between cedants actual premium income and the original estimates thereof, were $2.0 million
in the first quarter of 2005 compared to $4.8 million in the first quarter of 2004.
Reinstatement premiums were $3.2 million in the first quarter of 2005, compared to $3.3
million in the first quarter of 2004. Although the level of losses incurred in the first
quarter of 2005 was much higher than in the corresponding period of 2004, the pricing of the
contracts impacted was generally much lower. We retroceded premiums of $9.0 million in the
quarter ended March 31, 2005, compared to $10.2 million ceded in the first quarter of 2004.
The actual contracts ceded in any quarter are at IPCs underwriters judgement in optimizing
the risk profile of the portfolio, which can cause premiums ceded to vary as a proportion of
our gross writings, from quarter to quarter. Net premiums earned in the quarter ended March
31, 2005 were $82.0 million, compared to $83.6 million in the first quarter of 2004, a
decrease of 2%, which is proportionate with the decrease in written premiums and a result of
the decrease in adjustment premiums, which are fully earned when written. Net investment income was $17.5 million in the quarter ended March 31, 2005, compared to
$11.6 million in the first quarter of 2004, an increase of 51%. In the first quarter of
2005 we benefitted from a dividend of $4.5 million from the fund of hedge funds in which we
invest. Such dividends will be declared periodically, provided the performance of the fund
is positive. We also benefitted from a small but positive increase in the average yield of
our fixed income investment portfolio. There was a net realized loss from investments in the quarter ended March 31, 2005 of $3.2
million, compared to a net realized gain of $5.7 million in the first quarter of 2004.
Generally, net realized gains and losses fluctuate from period to period, depending on the
individual securities sold. In the quarter ended March 31, 2005, we incurred net losses and loss adjustment expenses of $37.9
million, compared to $13.5 million for the first quarter of 2004. Our losses in the first
quarter of 2005 included $20.0 million as a result of cyclone Erwin which struck northern Europe,
especially Scandinavia, in January of this year, and an $8.0 million increase to the estimate of
our loss from the Tsunami which affected south-east Asia in late December. The increase to our
estimate has arisen primarily as a result of the increase in the overall industry loss estimated
in Swiss Res Sigma publication, which now indicates industry losses totaling $5 billion, an
increase of 100-150%. Other losses include minor development from other prior year events,
including $5.3 million for last years third quarter windstorms, as well as reserves established
for pro rata treaty business. Acquisition costs incurred, which consist primarily of commissions and brokerage fees paid to
intermediaries for the production of business, were $8.1 million for the quarter ended March 31,
2005, compared to $9.7 million in the first quarter of 2004, a decrease of 17%. The decrease in
these costs is primarily due to more contracts written where the fee or brokerage is being paid
by the ceding company. These terms were specific to the small number of contracts involved, and
based on renewals seen in the second quarter of 2005 to date, we do not expect this trend to
continue during the remainder of 2005. General and administrative expenses were $6.0 million in
the quarter ended March 31, 2005, compared to $5.1 million in the first quarter of 2004. The
major areas of increase were professional fees related to our compliance with the requirements of
the Sarbanes-Oxley Act of 2002 and the audit thereof, and compensation expense as a result of
expensing stock grants and options. 11




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES IPC Holdings is a holding company that conducts no reinsurance operations of its own. 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 under Bermuda legislation and IPCRes revolving credit
facility. The Insurance Act and subsequent amendments thereto, require IPCRe to maintain a
minimum solvency margin and a minimum liquidity ratio. The maximum dividend payable by IPCRe in
accordance with Bermuda regulations as of March 31, 2005 was approximately $412.9 million. The
maximum amount IPCRe could have paid in the first quarter under the terms of the revolving credit
facility was $584.1 million. IPCRes sources of funds consist of premiums written, investment income, paid losses recovered
from retrocessionaires, underwriting agency commissions and proceeds from sales and redemptions
of investments. Cash is used primarily to pay losses and loss adjustment expenses, premiums
retroceded, brokerage commissions, excise taxes, general and administrative expenses and
dividends. The potential for a large catastrophe means that unpredictable and substantial
payments may need to be made within relatively short periods of time, and therefore our cash
flows may fluctuate significantly from period to period. Net cash flows from operating activities in the quarter ended March 31, 2005 were $50.5 million
compared to $90.6 million in the first quarter of 2004. The decrease is primarily the result of
the increase in net claims paid during the period, which were $55.0 million in the quarter ended
March 31, 2005, compared to $10.9 million in the corresponding period of 2004. This trend is
expected to continue in the remainder of 2005, as we anticipate paying further claims associated
with the windstorms that took place in the third quarter of 2004, as well as claims from events
that took place in this quarter. Net cash outflows from investing activities in the quarter ended March 31, 2005 were $36.3
million (2004  outflows of $152.4 million). Cash and cash equivalents increased by $2.8 million
in the quarter ended March 31, 2005, resulting in a balance of $30.7 million at March 31, 2005.
At March 31, 2005, 52% of IPCs fixed maturity investment portfolio (based on fair value) was
held in securities rated AAA, and 26% was held in securities rated AA. At December 31, 2004 the
proportions of securities so rated were 53% and 26%, respectively. At March 31, 2005 the average
modified duration of IPCs fixed maturity portfolio was 2.6 years, compared to 2.3 years at
December 31, 2004. We renewed our revolving credit facility on July 1, 2003 in the amount of
$200 million, provided by a syndicate of lenders led jointly by Bank One N.A. and Citibank N.A.
To date we have not drawn upon this facility. We believe that this facility, together with the
relatively short duration and high quality of IPCs investment portfolio, will provide sufficient
liquidity to meet IPCs cash demands. IPCRe is not a licensed insurer in the United States and therefore, under the terms of most of
its contracts with U.S.-based companies, must provide security to reinsureds to cover unpaid
liabilities in a form acceptable to state insurance commissioners. Typically, this type of
security takes the form of a letter of credit issued by an acceptable bank, the establishment of
a trust, or a cash advance. Currently IPCRe obtains letters of credit through one commercial
bank pursuant to a $150.0 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, up to a maximum of $175.0 million. At March 31, 2005,
there were outstanding letters of credit of $119.5 million. 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. Our investment portfolio does not currently include direct investments in 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 market value of the portfolio. Also, our portfolio does not contain any
investments in real estate or mortgage loans. Neither the Company, IPCRe nor IPCUSL have any material commitments for capital expenditures. Off Balance Sheet Arrangements Neither the Company nor any of its subsidiaries have any forms of off-balance sheet
arrangements, or cash obligations and commitments, as defined by Item 303(a)(4) of Regulation
S-K. 12




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##### Table of Contents



Transactions with Non-Independent Parties The following is a summary of amounts in respect of significant non-independent party
transactions during the three month periods ended March 31, 2005 and 2004, respectively
(expressed in thousands of U.S. dollars): March 31, 2005
    
    
    March 31, 2004Administrative services fees (included in General & Admin.
expenses)
    
    $
    2,168
    
    
    $
    2,181Investment fees netted against investment income:
    
    $
    769
    
    
    $
    723Underwriting services fee income (included in Other income)
    
    $
    1,109
    
    
    $
    916Premiums written
    
    $
    24,587
    
    
    $
    25,354Premiums ceded
    
    $
    664
    
    
    $
    713
 Underwriting services fee income is a percentage of the premiums written on behalf of one client,
which is related to a shareholder of the Company. Fees are accrued and taken into income based
on the premiums earned each quarter. For a discussion of certain of our contractual relationships with non-independent parties, please
see Certain Relationships and Related Transactions in our definitive Proxy Statement on
Schedule 14A, filed with the Securities and Exchange Commission on April 28, 2005 and
incorporated by reference into our Form 10-K for the year ended December 31, 2004. All transactions with related parties are conducted at arms length, with normal terms and
conditions applicable. Neither the Company nor any of its subsidiaries have entered into any
other significant transactions with non-independent parties. 
 Item 3. Quantitative and Qualitative Disclosures 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. 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 for our investment portfolio, as of March 31, 2005 and
December 31, 2004. The analysis calculated the VaR with respect to the net fair value of our
financial instrument assets, which includes cash and cash equivalents, certain equity and high
grade fixed maturity securities, as of March 31, 2005 using historical simulation methodology.
As of March 31, 2005 the VaR of IPCRes investment portfolio was approximately $35.3 million,
which represents a 95th percentile value change over a one-month time horizon. This result was
obtained through historical simulation using approximately 750 days (3 years) of historical
interest rate, foreign exchange rate and equity market data. The following table presents the VaR of each component of market risk of IPCRes investment
portfolio as of March 31, 2005 and December 31, 2004, respectively, and the average for the
quarter ended March 31, 2005 calculated using the beginning, quarterly and ending points
(expressed in thousands of U.S. dollars): Market Risk Average for quarterDecember 31,
    
    
    ended March 31,March 31, 2005
    
    
    2004
    
    
    2005Currency
    
    $
    2,477
    
    
    $
    2,660
    
    
    $
    2,569Interest Rate
    
    
    29,505
    
    
    
    23,067
    
    
    
    26,286Equity (incl. hedge fund)
    
    
    24,775
    
    
    
    25,323
    
    
    
    25,049Sum of Risk
    
    
    56,757
    
    
    
    51,050
    
    
    
    53,904Diversification Benefit
    
    
    (21,437
    )
    
    
    (21,866
    )
    
    
    (21,652
    )Total Net Risk
    
    $
    35,320
    
    
    $
    29,184
    
    
    $
    32,252
 13




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##### Table of Contents



The increase in the overall VaR is primarily a result of an increase in interest rate value at
risk, which was due to the impact of the increase in U.S. bond yields in the quarter, as well as
the increase in overall duration of our fixed income portfolio. 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 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. As of March 31, 2005 an estimated 34% or $60 million
(March 31, 2004  40% or $62
million) of reinsurance premiums receivable, and an estimated
$51 million (March 31, 2004  $30
million) of loss reserves, were denominated in non-U.S. currencies. Accordingly, we do not
believe that the impact of exchange rate movements in respect of receivables or loss reserves on
our overall VaR as of March 31, 2005 to be material. 
 Item 4. Controls and Procedures An evaluation was carried out under the supervision and with the participation of the
Companys management, including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end
of the period covered by this report, the design and operation of these disclosure controls and
procedures were effective. No significant changes were made in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of their
evaluation. Note on Forward-Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Forward-looking statements are statements other than historical information or
statements of current condition, including, but not limited to, expectations regarding market
cycles, renewals and our ability to increase written premium volume and improve profit margins,
market conditions, the impact of current market conditions and trends on future periods, the
impact of our business strategy on our results, trends in pricing and claims and the insurance
and reinsurance market response to catastrophic events. Some forward-looking statements may be
identified by our use of terms such as believes, anticipates, intends, or expects and
relate to our plans and objectives for future operations. In light of the risks and
uncertainties inherent in all forward-looking statements, the inclusion of such statements in
this report should not be considered as a representation by us or any other person that our
objectives or plans will be achieved. We do not intend, and are under no obligation, to update
any forward-looking statement contained in this report. The largest single factor in our results
has been and will continue to be the severity or frequency of catastrophic events, which is
inherently unpredictable. Numerous factors could cause our actual results to differ materially
from those in the forward-looking statements, including, but not limited to, the following: (i)
the occurrence of natural or man-made catastrophic events with a frequency or severity exceeding
our estimates; (ii) any lowering or loss of one of the financial ratings of IPCRe; (iii) a
decrease in the level of demand for property catastrophe reinsurance, or increased competition
owing to increased capacity of property catastrophe reinsurers; (iv) the effect of competition on
market trends and pricing; (v) the adequacy of our loss reserves; (vi) loss of our non-admitted
status in United States jurisdictions or the passage of federal or state legislation subjecting
us to supervision or regulation in the United States; (vii) challenges by insurance regulators in
the United States to our claim of exemption from insurance regulation under current laws; (viii)
a contention by the United States Internal Revenue Service that we are engaged in the conduct of
a trade or business within the U.S.; (ix) loss of services of any one of our executive officers;
(x) changes in interest rates and/or equity values in the United States of America and elsewhere;
or (xi) changes in exchange rates and greater than expected currency exposure. 14




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1.
    
    Legal ProceedingsNONE
 
 Item 2.
    
    Unregistered Sale of Equity Securities and Use of ProceedsNONE
 
 Item 3.
    
    Defaults upon Senior SecuritiesNONE
 
 Item 4.
    
    Submission of Matters to a Vote of Security HoldersNONE
 
 Item 5.
    
    Other InformationNONE
 15




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##### Table of Contents



Item 6.
    
    ExhibitsUnless otherwise indicated, exhibits are incorporated by reference to the corresponding
numbered exhibits to the Companys Registration Statement on Form S-1 (Registration No.
333-00088).
 ExhibitNumber
    
    Description3.1
    
    
    
    Memorandum of Association of the Company3.2
    
    +
    
    Amended and Restated Bye-laws of the Company3.3
    
    
    
    Form of Memorandum of Increase of Share Capital11.1
    
    Ü
    
    Reconciliation of basic and diluted net income per common share (EPS).31.1
    
    Ü
    
    Certification by Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Ü
    
    Certification by Chief Financial Officer, as required by Section 302 of the
Sarbanes-Oxley Act of
2002.32.1
    
    **
    
    Certification by Chief Executive Officer, as required by Section 906 of the
Sarbanes-Oxley Act of
2002.32.2
    
    **
    
    Certification by Chief Financial Officer, as required by Section 906 of the
Sarbanes-Oxley Act of
2002.Ü
    
    Filed herewith+
    
    Incorporated by reference to
Exhibit 4.2 to our filing on Form 8-A/A of
July 9, 2003 (File No. 0-27662).**
    
    These certifications are being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (sub-sections (a) and (b) of Section 1350, Chapter 63
of Title 18, United States Code), and are not being filed as exhibits to this report.
 16




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##### Table of Contents



IPC HOLDINGS, LTD. 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IPC Holdings, Ltd.
(Registrant)Date May 5, 2005
    /s/ James P. BryceJames P. BrycePresident and Chief Executive OfficerDate May 5, 2005
    /s/ John R. WealeJohn R. WealeSenior Vice President and Chief Financial Officer 17




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##### Table of Contents



EXHIBIT INDEX Unless otherwise indicated, exhibits are incorporated by reference to the corresponding
numbered exhibits to the Companys Registration Statement on Form S-1 (Registration No.
333-00088). ExhibitNumber
    
    Description3.1
    
    
    
    Memorandum of Association of the Company3.2
    
    +
    
    Amended and Restated Bye-laws of the Company3.3
    
    
    
    Form of Memorandum of Increase of Share Capital11.1
    
    Ü
    
    Reconciliation of basic and diluted net income per common share (EPS).31.1
    
    Ü
    
    Certification by Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Ü
    
    Certification by Chief Financial Officer, as required by Section 302 of the
Sarbanes-Oxley Act of
2002.32.1
    
    **
    
    Certification by Chief Executive Officer, as required by Section 906 of the
Sarbanes-Oxley Act of
2002.32.2
    
    **
    
    Certification by Chief Financial Officer, as required by Section 906 of the
Sarbanes-Oxley Act of
2002.Ü
    
    Filed herewith+
    
    Incorporated by reference to
Exhibit 4.2 to our filing on Form 8-A/A of
July 9, 2003 (File No. 0-27662).**
    
    These certifications are being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (sub-sections (a) and (b) of Section 1350, Chapter 63
of Title 18, United States Code), and are not being filed as exhibits to this report.
 18