10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 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 incorporation or organization)	(I.R.S. Employer Identification No.)

American International Building, 29 Richmond Road, Pembroke, HM 08, Bermuda
(Address of principal executive offices)

(441) 298-5100
(Registrant’s telephone number,
including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Shares, par value $0.01 per share
Series A Mandatory Convertible Preferred Shares, par value $0.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes       No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o     No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No o

Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer      Accelerated filer o     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No 

The aggregate market value of the Registrant’s common shares held by non-affiliates of the Registrant as of June 30, 2005, was $1,451,331 based on the last reported sale price of common shares on the Nasdaq National Market system on that date.

The number of the Registrant’s common shares, par value U.S. $0.01 per share, as of February 28, 2006, was 63,606,290.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Registrant’s 2005 Annual Report to Shareholders (the “Annual Report”) to be mailed to shareholders on or about April 28, 2006 are incorporated by reference into Part II of this Form 10-K. With the exception of the portions of the Annual Report specifically incorporated herein by reference, the Annual Report is not deemed to be filed as part of this Form 10-K.

2. Portions of the Registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to the Registrant’s Annual Meeting of Shareholders scheduled to be held June 16, 2006 (the “Proxy Statement”) are incorporated by reference into Part III of this Form 10-K. With the exception of the portions of the Proxy Statement specifically incorporated herein by reference, the Proxy Statement is not deemed to be filed as part of this Form 10-K.

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IPC HOLDINGS, LTD.

TABLE OF CONTENTS

			Page
Item			Number
		PART I
	1.	Business		3
	1A.	Risk Factors		27
	1B.	Unresolved Staff Comments		35
	2.	Properties		35
	3.	Legal Proceedings		35
	4.	Submission of Matters to a Vote of Security Holders		36
		PART II
	5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		37
	6.	Selected Financial Data		38
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
	7A.	Quantitative and Qualitative Disclosures about Market Risk		39
	8.	Financial Statements and Supplementary Data		39
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		39
	9A.	Controls and Procedures		40
	9B.	Other Information		42
		PART III
	10.	Directors and Executive Officers of the Registrant		42
	11.	Executive Compensation		42
	12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		42
	13.	Certain Relationships and Related Transactions		42
	14.	Principal Accountant Fees and Services		42
		PART IV
	15.	Exhibits and Financial Statement Schedules		43
EX-11.1: STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
EX-12.1: STATEMENT OF COMPUTATION OF RATIOS OF EARINGS TO FIXED CHARGES
EX-13.1: PORTIONS OF THE ANNUAL REPORT
EX-21.1: SUBSIDIARIES
EX-23.1: CONSENT OF KPMG
EX-31.1: CERTIFICATIONS
EX-31.2: CERTIFICATIONS
EX-32.1: CERTIFICATIONS
EX-32.2: CERTIFICATION

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PART I

Special Note Regarding Forward-Looking Information

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,” “expects” or other words of similar import 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 factors in our results have been and will continue to be the severity and/or frequency of catastrophic events, which are 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 expectations; (ii) the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time; (iii) any lowering or loss of one of the financial ratings of IPC Holdings’ wholly-owned subsidiary, IPCRe Limited (“IPCRe”) and/or IPCRe Europe Limited (“IPCRe Europe”); (iv) a decrease in the level of demand for property catastrophe reinsurance, or increased competition owing to increased capacity of property catastrophe reinsurers; (v) the effect of competition on market trends and pricing; (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.

References in this report to the “Company”, “IPC”, “we”, “us” or “our” refer to IPC Holdings, Ltd. and its consolidated subsidiaries, unless the context otherwise requires. References to “IPC Holdings” refer solely to IPC Holdings, Ltd., unless the context otherwise requires. All currency amounts in this report are in United States dollars, unless the context otherwise requires.

Item 1.   Business

General Development of the Business

Overview.  We provide property catastrophe reinsurance and, to a limited extent, property-per-risk excess, aviation (including satellite) and other short-tail reinsurance on a worldwide basis. During 2005, approximately 83% of our gross premiums written, excluding reinstatement premiums, covered property catastrophe risks. Property catastrophe reinsurance covers unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, volcanic eruptions, fires, industrial explosions, freezes, riots, floods and other man-made or natural disasters. The substantial majority of the reinsurance written by IPCRe has been, and continues to be, written on an excess of loss basis for primary insurers rather than reinsurers, and is subject to aggregate limits on exposure to losses. During 2005, we had approximately 258 clients from whom we received either annual/deposit or adjustment premiums, including many of the leading insurance companies around the world. In 2005, approximately 42% of those clients were based in the United States, and approximately 40% of gross premiums written, excluding reinstatement premiums, related primarily to U.S. risks. Our non-U.S. clients and covered risks are located principally in Europe, Japan, Australia and New Zealand. During 2005, no single ceding insurer accounted for more than 4.1% of our gross premiums written, excluding reinstatement premiums. Certain AIG subsidiaries, when taken in the aggregate, accounted for 8% of gross premiums written, excluding reinstatement premiums. At December 31, 2005, IPC Holdings had total shareholders’ equity of $1,616 million and total assets of $2,778 million.

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In response to a severe imbalance between the global supply of and demand for property catastrophe reinsurance that developed in the period from 1989 through 1993, IPC Holdings and its wholly-owned subsidiary, IPCRe were formed as Bermuda companies and commenced operations in June 1993 through the sponsorship of American International Group, Inc. (“AIG”), a holding company incorporated in Delaware which, through its subsidiaries, is primarily engaged in a broad range of insurance and insurance-related activities and financial services in the United States and abroad. AIG purchased 24.4% of IPC Holdings’ initial share capital and an option (which was exercised on December 12, 2001) to obtain up to an additional 10% (on a fully diluted basis, excluding employee stock options) of our share capital (the “AIG Option”). Since our formation, subsidiaries of AIG have provided administrative, investment management and custodial services to us, and until December 31, 2005, the Chairman of the Boards of Directors of IPC Holdings, IPCRe and IPCRe Underwriting Services Limited (“IPCUSL”) was also a director and officer of various subsidiaries and affiliates of AIG. Since January 1, 2006 one of the directors of IPC Holdings and IPCRe is also the president and chief executive officer of American International Company, Ltd. (“AICL”), an indirect, wholly-owned subsidiary of AIG. See “Item 13. Certain Relationships and Related Transactions.” For a discussion of the limitation of voting rights of any 10% or more beneficial owner of common shares (including AIG) to less than 10% of total voting rights, see Amendment No. 2 to the Company’s Registration Statement on Form 8-A, dated July 9, 2003. We are currently negotiating amended terms and conditions with AICL with respect to the administrative services agreement, which renews July 1, 2006.

On March 13, 1996, IPC Holdings completed an initial public offering in which 13,521,739 of the 25,000,000 common shares outstanding, were sold by existing shareholders. IPC Holdings’ common shares are quoted on the Nasdaq National Market under the ticker symbol “IPCR”.

On September 10, 1998, IPCRe incorporated a subsidiary in Ireland, named IPCRe Europe Limited. Effective October 1, 1998, IPCRe Europe commenced underwriting selected reinsurance business, primarily in Europe. Currently, IPCRe Europe retrocedes 90% of the business it underwrites to IPCRe.

On November 7, 2001, IPC Holdings incorporated a subsidiary in Bermuda, IPCUSL, which is licensed as an Underwriting Agent and currently acts for Allied World Assurance Company, Ltd, a Bermuda-based Class 4 insurer in which AIG has a 23.3% ownership interest (see “Item 13. Certain Relationships and Related Transactions”, and Note 8 to the Consolidated Financial Statements — Related Party Transactions).

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

On October 7, 2005, IPC Holdings filed an S-3 Registration statement with the Securities and Exchange Commission (“SEC”) in the amount of $1,250,000,000, which became effective on October 17, 2005. On October 25, 2005, IPC announced its intention to issue and sell common shares and series A mandatory convertible preferred shares in underwritten offerings. On November 4, 2005, we completed a follow-on public offering in which 11,527,000 common shares were sold (including the exercise of the over-allotment option of 1,048,000 shares) at $26.25 per share. On the same date, 3,675,000 common shares were sold directly to AIG at a price equal to the public offering price. AIG presently owns 15,397,000 common shares, or 24.2%, of our outstanding common shares. AIG has informed us that they presently intend to continue their common share ownership in the Company for the foreseeable future. In addition, we have provided AIG with three demand registration rights covering its existing common share ownership (including the common shares purchased in connection with the follow-on offering in November 2005) until December 31, 2012. On November 4, 2005, we also completed a public offering in which 9,000,000 7.25% series A mandatory convertible preferred shares were sold, with a liquidation preference of $26.25 per share. Each series A mandatory convertible preferred share is non-voting, except in certain circumstances, and will automatically convert on November 15, 2008 into between 0.8333 and 1.0000 common shares, subject to anti-dilution adjustments, depending on the average closing price of our common shares over the 20-day trading period ending on the third trading day prior to such event. Prior to November 15, 2008, holders may elect to convert each series A mandatory convertible preferred share into 0.8333

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common shares, subject to anti-dilution adjustments. We may, at any time prior to November 15, 2008, accelerate the conversion date of all of the outstanding preferred shares under certain prescribed circumstances at a maximum conversion rate of 1.0000 common share for each preferred share. We will pay annual dividends of $1.903125 on each series A mandatory convertible preferred share, to the extent we are legally permitted to pay dividends and our board of directors or authorized committee thereof declares a dividend payable. AIG did not participate in the offering of series A mandatory convertible preferred shares. Total net proceeds from these transactions were approximately $614 million. We intend to use the net proceeds from the public offerings of common shares and series A mandatory convertible preferred shares to provide additional capital for reinsurance operations and general corporate purposes.

Internet Address:  Our Internet address is www.ipcre.bm and the investor relations section of our web site is located at www.ipcre.bm/financials/quarterly-index.html. We make available free of charge, on or through the investor relations section of our web site, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Recent Industry and Legislative Developments

During 2004 and 2005, the combined insured property losses from all catastrophic events set new consecutive annual records. Events in 2004 included the four hurricanes that made landfall in Florida and affected other parts of the south-eastern United States and the Caribbean in the third quarter, and a record number of typhoons which made landfall in Japan, several of which resulted in significant insured losses. Published estimates of the aggregated industry losses from these third quarter, 2004 events range from $30 billion to $35 billion. During 2005, there was a record number (27) of named storms in the north Atlantic, including hurricanes Katrina, Rita and Wilma. In addition, cyclone Erwin affected parts of northern Europe in January, 2005 and floods impacted parts of central Europe in August, 2005. Hurricane Katrina and the flooding that subsequently affected New Orleans and other parts of Louisiana are estimated to have resulted in the largest amount of insured losses from associated events. Published estimates of the aggregated industry losses from 2005 events range from $60 billion to $80 billion.

The impact of the magnitude of these events on the insurance and reinsurance industry has been multi-faceted. Pressure on the amount of reinsurance capacity available has not only resulted from the significant financial impact of these events on companies’ operating results and shareholders’ equity (or “policyholder surplus” in mutual companies), but also because of changes in rating agency requirements in respect of insurance/reinsurance companies’ capital levels and the amount of their aggregate exposures. In response to these new requirements, as well as to meet anticipated increased demand, many companies, including ourselves, raised capital, to at least replenish what had been lost as a result of the catastrophes in 2005. In addition, in an effort to reduce exposures, many insurance companies have sought to buy more reinsurance, including property catastrophe reinsurance. In some cases, where traditional reinsurance capacity has not been either sufficient or available to meet these new demands, some insurance companies have used alternative solutions, such as risk securitizations. Similarly, reinsurance companies have also sought to reduce their exposures, partly as a result of pressure from rating agencies. However, the amount of retrocessional (reinsurance protection for reinsurance companies) capacity has been significantly reduced, and the price of the capacity that is available is very high. In response to this situation, capital market participants, including hedge funds, have established vehicles to provide reinsurance companies with retrocessional support. In some cases, these new vehicles have entered into agency relationships with the reinsurance companies that they provide coverage for, such that the reinsurance company can also write third party retrocessional business on their behalf.

Furthermore, in late 2005 and the beginning of 2006, there have been a number of new reinsurance companies which have formed in Bermuda and elsewhere, to meet the anticipated increase in demand for reinsurance coverage, including property catastrophe reinsurance. The events affecting the insurance/reinsurance industry in the second half of 2005 are typical of the cyclical nature of this business, which have been repeated many times in the past, even during the comparatively short period of time that IPC has been in existence. From 1996 to 1999, there was an increase in the supply of reinsurance capacity, which caused downward pressure on pricing. In 1996, 1997, 2000, 2002 and 2003 few major catastrophic events occurred. Consequently, few claims were made on IPCRe. In contrast

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thereto, many catastrophic events occurred in 1998, 1999, 2001, 2004 and 2005 in many parts of the world, including numerous hurricanes, hailstorms, cyclones, and the terrorist attacks carried out in the U.S. on September 11, 2001. The property catastrophe reinsurance market began experiencing improvements in rates, terms and conditions in the fourth quarter of 2000. The improvements in rates, terms and conditions continued throughout 2001 and were accelerated by the terrorist attacks of September 11. 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, 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 and 2004, the rate of increase moderated over time, such that pricing in the second half of 2004 was generally leveling off. Despite the level of catastrophe activity in 2004, pricing of our business renewing in the first half of 2005 was generally flat or with modest declines of around 5% for contracts that had not incurred any losses, while loss-impacted contracts had increases of between 10% and 25%. Renewals of contracts with U.S. cedants from July 1, 2005 onwards saw the return of modest increases in premium rates, generally as a result of additional development of claims from events in the third quarter of 2004. Because of the unprecedented level of insured losses from events which occurred in the second half of 2005, pricing for contracts with U.S. cedants saw significant increases, especially contracts with coastal exposures, during negotiations for business renewing January 1, 2006. Generally, renewals of contracts with U.S. cedants that had not had claims arising from events in 2004 or 2005 saw price increases in the range of 10% to 25%, while contracts that had incurred losses in 2005 saw increases of between 50% and 100%, or more.

With respect to terms and conditions other than pricing, for renewals in the period 2002 to 2005 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 the period 2002 to 2005, 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. It expired at the end of 2005, but was renewed in modified form for 2006 and 2007. 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. In its revised form, the insurers’ deductible level is raised from 15% of earned premiums in covered lines in 2005, to 17.5% for 2006, and 20% in 2007. 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. The trigger for federal outlays has been raised from $5 million in insured losses arising from a terrorist act, to $50 million in 2006, and $100 million in 2007.

As a result of TRIA, our participation in coverage for terrorism within the United States declined during 2003, 2004 and 2005. 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, 2006.

Business Strategy

Our principal strategy is to provide property catastrophe excess of loss reinsurance programs to a geographically diverse, worldwide clientele of primary insurers with whom we maintain long-term relationships. Under excess of loss contracts, we begin paying losses when our customers’ claims from a particular catastrophic event exceed a specified amount (known as an attachment point), and our maximum liability is capped at an amount specified in our reinsurance contracts. To a lesser extent, we also seek to provide these clients with other excess of loss short-tail reinsurance products. On a limited basis, we provide similar reinsurance programs and products to reinsurers. We periodically consider underwriting additional lines of property/casualty coverage, including on a non-excess of loss basis, provided losses can be limited in a manner comparable to that described below.

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The primary elements of our strategy include:

Disciplined Risk Management.  We seek to limit and diversify our loss exposure through six principal mechanisms: (i) writing substantially all of our premiums on an excess of loss basis, which limits our ultimate exposure per contract and permits us to determine and monitor our aggregate loss exposure; (ii) adhering to maximum limitations on reinsurance accepted in defined geographical zones; (iii) limiting program size for each client in order to achieve diversity within and across geographical zones; (iv) administering risk management controls appropriately weighted with our modeling techniques, as well as our assessment of qualitative factors (such as the quality of the cedant’s management and capital and risk management strategy); (v) utilizing a range of attachment points for any given program in order to balance the risks assumed with the premiums written; and (vi) prudent underwriting of each program written. We decline to renew existing business if the terms were unfavorable or if the exposure would violate any of these limitations. We utilize a limited amount of retrocessional protection. Therefore, we retain most of the risk in the reinsurance contracts we write and pay a relatively small amount in retrocession premiums.

Capital-Based Exposure Limits.  Each year, we establish maximum limitations on reinsurance accepted in defined geographic zones on the basis of, and as a proportion of, shareholders’ equity.

Client Selection and Profile.  We believe that establishing long-term relationships with insurers who have sound capital and risk management strategies is key to creating long-term value for our shareholders. We have successfully attracted customers that are generally sophisticated, long-established insurers who desire the assurance not only that claims will be paid, but that reinsurance will continue to be available after claims have been paid. We believe our financial stability, ratings from Standard & Poor’s (“S & P”) and A.M. Best Company (“A.M. Best”) and growth of capital are essential for creating and maintaining these long-term relationships.

Capital Management and Shareholder Returns.  We manage our capital relative to our risk exposure in an effort to maximize sustainable long-term growth in shareholder value, while recognizing that catastrophic losses will adversely impact short-term financial results from time to time. We seek growth of IPC’s capital to protect it from major catastrophes, to ensure ongoing customer relationships and to support premium growth opportunities.

Disciplined Investment Management.  In light of the risks of our underwriting business, our primary investment strategy is capital preservation. Current investment guidelines permit investments in equities up to a maximum of 20% of the total portfolio, up to 7.5% in hedge funds and our fixed maturity investments are substantially limited to the top three investment grades or the equivalent thereof, at the time of purchase. At December 31, 2005 our equity and hedge fund investments consisted of four managed funds: an institutional index fund, which tracks the investment returns of the S & P 500 Index, a fund of hedge funds, a north American equity fund and a global equity fund. The last three funds are managed by a subsidiary of AIG. These investments represented 20.5% of the total fair value of our investment portfolio on December 31, 2005. On that date, 79.3% of our fixed maturity investments consisted of cash and cash equivalents, U.S. Treasuries or other government agency issues and investments with an AAA or AA rating.

Business

General.  We provide treaty reinsurance principally to insurers of personal and commercial property worldwide. Treaty reinsurance is reinsurance of a specified type or category of risk defined in a contract. As described below, we write most reinsurance on an excess of loss basis. Most of our policies are limited to losses occurring during the policy term. Our property catastrophe reinsurance coverages, which accounted for 83% of our gross premiums written, excluding reinstatement premiums, during 2005, are generally “all-risk” in nature, subject to various policy exclusions. Our predominant exposure under such coverages is to property damage from unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes and volcanic eruptions, although we are also exposed to losses from sources as diverse as freezes, riots, floods, industrial explosions, fires, and other man-made or natural disasters. The balance of premiums written are derived from aviation (including satellite), property-per-risk excess of loss and other short-tail reinsurance. In accordance with market practice, our property catastrophe reinsurance coverage generally excludes certain risks such as war, pollution, nuclear contamination and radiation. During the four year period between 2002 and 2005, IPCRe has participated in a number of underwriting pools which cover property losses arising from terrorist acts as a separate hazard.

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Because we underwrite property catastrophe reinsurance and have large aggregate exposures to natural and man-made disasters, our loss experience generally has included and is expected to continue to include infrequent events of great severity. Consequently, the occurrence of losses from catastrophic events has caused and is likely to continue to cause our financial results to be volatile. In addition, because catastrophes are an inherent risk of our business, a major event or series of events, such as occurred during 1998, 1999, 2001, 2004 and 2005, can be expected to occur from time to time. In the future, such events could have a material adverse effect on our financial condition or results of operations, possibly to the extent of eliminating our shareholders’ equity. Increases in the values and concentrations of insured property and the effects of inflation have resulted in increased severity of industry losses in recent years, and we expect that those factors will increase the severity of catastrophe losses per year in the future.

We currently seek to limit our loss exposure principally by offering most of our products on an excess of loss basis, adhering to maximum limitations on reinsurance accepted in defined geographic zones, limiting program size for each client and prudent underwriting of each program written. In addition, our policies contain limitations and certain exclusions from coverage. There can be no assurance that our efforts to limit exposure by using the foregoing methods will be successful. In addition, geographic zone limitations involve significant underwriting judgements, including the determination of the area of the zones and the inclusion of a particular policy within a zone’s limits. Underwriting is inherently a matter of judgement, involving important assumptions about matters that are unpredictable and beyond our control, and for which historical experience and probability analysis may not provide sufficient guidance.

Excess of Loss Reinsurance Contracts.  Our policy is to write substantially all of our business on an excess of loss basis. Such contracts provide a defined limit of liability, permitting us to quantify our aggregate maximum loss exposure. By contrast, maximum liability under pro rata contracts is more difficult to quantify precisely. Quantification of loss exposure is fundamental to our ability to manage our loss exposure through geographical zone limits and the program limits described below. Excess of loss contracts also help us to control our underwriting results by increasing our flexibility to determine premiums for reinsurance at specific retention levels, based upon our own underwriting assumptions, and independent of the premiums charged by primary insurers. In addition, because primary insurers typically retain a larger loss exposure under excess of loss contracts, they have a greater incentive to underwrite risks in a prudent manner.

In addition, we diversify our risk by, to a limited extent, writing other short-tail coverages, including risk excess of loss, aviation (including satellite), and to a limited extent, other lines, including marine, and kidnap and ransom and related exposures. These lines diversify risk (although they may involve some catastrophe exposure) and thus reduce the volatility in results of operations caused by catastrophes.

The following table sets out our gross premiums written, excluding reinstatement premiums, by type of reinsurance.

	Year Ended December 31,
	2005					2004					2003
			Percentage					Percentage					Percentage
			of					of					of
Type of Reinsurance	Premiums		Premiums			Premiums		Premiums			Premiums		Premiums
Assumed	Written		Written			Written		Written			Written		Written
	(In thousands)					(In thousands)					(In thousands)
Catastrophe excess of loss	$	285,264		83.1	%	$	291,087		84.2	%	$	264,894		84.0	%
Risk excess of loss		10,040		2.9	%		9,851		2.8	%		8,749		2.8	%
Retrocessional reinsurance		26,458		7.7	%		20,552		5.9	%		17,697		5.6	%
Aviation		9,618		2.8	%		15,099		4.4	%		12,066		3.8	%
Other		11,858		3.5	%		9,313		2.7	%		12,122		3.8	%
Total	$	343,238		100.0	%	$	345,902		100.0	%	$	315,528		100.0	%

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For more detailed information on our profits (or loss) and total assets, we refer to the financial statements filed under Item 8 of this Annual Report on Form 10-K.

Catastrophe Excess of Loss Reinsurance.  Catastrophe excess of loss reinsurance provides coverage to a primary insurer when aggregate claims and claim expenses from a single occurrence of a peril, covered under a portfolio of primary insurance contracts written by the primary insurer, exceed the attachment point specified in the reinsurance contract with the primary insurer. The primary insurer can then recover up to the limit of reinsurance it has elected to buy for each layer. Once a layer is breached by collection of claims, the primary insurer generally buys replacement coverage for the liability used, i.e., a reinstatement, for an additional premium.

Risk Excess of Loss Reinsurance.  To a lesser extent, we also write risk excess of loss property reinsurance. This reinsurance responds to a loss of the reinsured in excess of its retention level on a single “risk”, rather than to aggregate losses for all covered risks, as does catastrophe reinsurance. A “risk” in this context might mean the insurance coverage on one building or a group of buildings or the insurance coverage under a single policy which the reinsured treats as a single risk. Most of the risk excess treaties in which we participate contain a relatively low loss-per-event limit on our liability.

Retrocessional Reinsurance.  We also provide reinsurance cover to other reinsurance companies, which is known as retrocessional protection. Demand for, and terms and conditions, including pricing of, this type of business can vary quite significantly from year to year. Accordingly, the premium volume that we write of this type of business may fluctuate year to year. Most of the underlying risks retroceded arise from property catastrophe excess of loss contracts.

Aviation Reinsurance.  We also write a small amount of short-tail aviation reinsurance on proportional and excess of loss bases. Although they primarily involve property damage, certain aviation risks may involve casualty coverage arising from the same event causing the property damage. In 2005, the majority of this business was written in two pro rata aviation contracts, where the underlying insurance is written on an excess of loss basis, and one pro rata satellite contract.

Other Lines of Business.  Other lines include a quota share of kidnap and ransom and related exposures; excess of loss and a quota share of medical expense coverage (not renewed in 2005), a quota share of workers’ compensation catastrophe excess (not renewed in 2004); some marine excess of loss contracts and some miscellaneous property covers, on both a pro rata and excess of loss basis.

Policy Features.  Historically, our policies have been written for a one-year period, and generally without experience-based adjustments. In keeping with industry trends, a proportion of our policies in 1999 were for terms of fifteen to eighteen months, in part to address concerns regarding Y2K risks. Commencing in the second quarter of 1999, we declined renewals and submissions of new business which were on a multi-year basis, because of the general inadequacy of market pricing. In addition, during the same period, the industry offered a variety of experience-based incentives such as “no claims” bonuses and profit commissions. A proportion of our policies included some or all of these incentives, but we have generally declined to accept such terms during the past five years. Because of the improvements in terms and conditions that have taken place since 2002, we will consider writing business on a multi-year basis treaty by treaty.

Underwriting Services.  Beginning on December 1, 2001, we commenced providing underwriting services to Allied World Assurance Company Ltd., a multi-line insurance and reinsurance company in which AIG owns a 23.3% ownership interest. (See “Item 13. Certain Relationships and Related Transactions”, and Note 8 to the Consolidated Financial Statements — Related Party Transactions.) The provision of this service will come to an end effective November 30, 2007.

Geographic Diversification

Since inception, we have sought to diversify our exposure across geographic zones around the world in order to obtain the optimum spread of risk. We divide our markets into geographic zones and limit coverage we are willing to provide for any risk located in a particular zone, so as to limit our net aggregate loss exposure from all contracts covering risks believed to be located in that zone, to a predetermined level. Contracts that have “worldwide” territorial limits have exposures in several geographic zones. We treat these as truly global limits, although the actual underlying exposures may not be global. “Worldwide” aggregate liabilities are added to those in each and every applicable zone, to determine our aggregate loss exposure in each zone.

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The predetermined levels are established annually on the basis of, and as a proportion of, shareholders’ equity. If a proposed reinsurance program would cause the limit then in effect to be exceeded, the program would be declined, regardless of its desirability, unless we utilize retrocessional coverage (i.e., IPC purchasing reinsurance, such as our proportional reinsurance facilities discussed in “Retrocessional Reinsurance Purchased” below), thereby reducing the net aggregate exposure to the maximum limit permitted, or less. If we were to suffer a net financial loss in any fiscal year, thus reducing shareholders’ equity, the limits per zone would be reduced in the next year, with the possible effect that we would thereafter reduce existing business in a zone exceeding such limit.

Currently, we have divided the United States into 8 geographic zones and our other markets, including Europe and Japan, into a total of 18 zones. We designate as zones geographic areas which, based on historic catastrophe loss experience reflecting actual catastrophe events and property development patterns, we believe are most likely to absorb a large percentage of losses from one catastrophic event. These zones are determined using computer modeling techniques and underwriting assessments. The zones may vary in size, level of population density and commercial development in a particular area. The zones with the greatest exposure written are in the United States, in particular the Atlantic and North-Central regions, and northern Europe. The parameters of these geographic zones are subject to periodic review and change.

We recognize that events may affect more than one zone, and to the extent we have accepted reinsurance from a ceding insurer with a loss exposure in more than one zone, we will consider such potential loss in testing its limits in all such affected zones. For example, the program for a U.S. national carrier typically will be subject to limits in each U.S. zone. A program with worldwide exposure will also be subject to limits in U.S. zones or other zones around the world, as applicable. This results in very substantial “double-counting” of exposures in determining utilization of an aggregate within a given zone. Consequently, the total sum insured will be less than the sums of utilized aggregates for all of the zones.

The following table sets out gross premiums written, excluding reinstatement premiums, and the percentage of such premiums allocated to the zones of coverage exposure.

	Year Ended December 31,
	2005					2004					2003
			Percentage					Percentage					Percentage
			of					of					of
Geographic	Premiums		Premiums			Premiums		Premiums			Premiums		Premiums
Area(1)	Written		Written			Written		Written			Written		Written
	(In thousands)					(In thousands)					(In thousands)
United States	$	136,331		39.7	%	$	130,327		37.7	%	$	134,128		42.5	%
Worldwide(2)		66,260		19.3	%		56,115		16.2	%		50,550		16.0	%
Worldwide (excluding the U.S.)(3)		5,419		1.6	%		7,082		2.1	%		15,416		4.9	%
Europe		94,183		27.4	%		108,377		31.3	%		86,693		27.5	%
Japan		24,395		7.1	%		20,439		5.9	%		15,595		4.9	%
Australia and New Zealand		14,647		4.3	%		20,418		5.9	%		9,946		3.2	%
Other		2,003		0.6	%		3,144		0.9	%		3,200		1.0	%
Total	$	343,238		100.0	%	$	345,902		100.0	%	$	315,528		100.0	%

Notes: 

(1)	Except as otherwise noted, each of these categories includes contracts that cover risks primarily located 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.

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The following table sets out our gross aggregate in-force liability allocated to various zones of coverage exposure at January 1, 2006, 2005 and 2004. Our aggregate limits will be reduced to the extent that business is ceded to our reinsurance facilities (see “Retrocessional Reinsurance Purchased” below).

	Aggregate Limit of Liability at January 1,
Geographic Area	2006		2005		2004
	(In thousands)		(In thousands)		(In thousands)
United States
New England	$	1,062,731	$	1,087,617	$	977,208
Atlantic		1,084,192		1,098,190		1,034,551
Gulf		1,040,028		1,053,427		978,042
North Central		1,050,960		1,075,801		980,491
Mid West		1,015,877		1,034,271		963,394
West		1,029,394		1,048,816		956,375
Alaska		719,948		669,674		591,250
Hawaii		645,433		601,819		545,847
Total United States(1)		1,215,760		1,301,813		1,218,265
Canada		202,807		216,977		169,402
Worldwide(2)		261,541		272,039		212,433
Worldwide (excluding the U.S.)(3)		68,388		81,417		80,139
Northern Europe		1,055,449		992,525		934,122
Japan		291,190		275,210		227,655
Australia and New Zealand		309,225		312,950		233,080

Notes: 

(1)	The United States in aggregate is not a zone. The degree of “double-counting” in the 8 U.S. zones is illustrated by the relation of the aggregate in-force limit of liability for the United States compared to the individual limits of liability in the 8 zones.
(2)	Includes contracts that cover risks primarily in two or more geographic zones, including the United States.
(3)	Includes contracts that cover risks primarily in two or more geographic zones, excluding the United States.

The effectiveness of geographic zone limits in managing risk exposure depends on the degree to which an actual event is confined to the zone in question and on our ability to determine the actual location of the risks believed to be covered under a particular reinsurance program. Accordingly, there can be no assurance that risk exposure in any particular zone will not exceed that zone’s limits.

With respect to U.S. exposures, we use the computer-based systems described below as one tool in estimating the aggregate losses that could occur under all our contracts covering U.S. risks as a result of a range of potential catastrophic events. By evaluating the effects of various potential events, we monitor whether the risks that could be accepted within a zone are appropriate in light of other risks already affecting such zone and, in addition, whether the level of our zone limits is acceptable.

Underwriting and Program Limits

In addition to geographic zones, we seek to limit our overall exposure to risk by pursuing a disciplined underwriting strategy which limits the amount of reinsurance we will supply in accordance with a particular program or contract, so as to achieve diversification within and across geographical zones. Commencing January 2004 and continued in 2005, the maximum exposure was generally limited to $60 million per program and to $10 million per contract. In 2003, program limits and contract limits were $50 million and $10 million, respectively. Under the authority of the Chief Executive Officer, we have exceeded these limits in a small number of instances. We also attempt to distribute our exposure across a range of attachment points, i.e., the amount of claims that have to be borne by the ceding insurer before our reinsurance coverage applies. Attachment points vary and are based upon

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our assessment of the ceding insurer’s market share of property perils in any given geographic zone to which the contract relates, as well as the capital needs of the ceding insurer.

Prior to reviewing any program proposal, we consider the appropriateness of the cedant, including the quality of its management and its capital and risk management strategy. In addition, we request that each proposed reinsurance program received includes information on the nature of the perils to be included and detailed aggregate information as to the location or locations of the risks covered under the catastrophe contract. Additional information would also include the cedant’s loss history for the perils being reinsured, together with relevant underwriting considerations which would impact exposures to catastrophe reinsurers. We first evaluate exposures on new programs in light of the overall zone limits in any given catastrophe zone, together with program limits and contract limits, to ensure a balanced and disciplined underwriting approach. If the program meets all these initial underwriting criteria, we then evaluate the proposal in terms of its risk/reward profile to assess the adequacy of the proposed pricing and its potential impact on our overall return on capital. Once a program meets our requirements for underwriting and pricing, the program would then be authorized for acceptance.

We extensively use sophisticated modeling and other technology in our underwriting techniques. Each authorized line is registered on the reinsurance data system we use for both underwriting and aggregate control purposes. This system enables both management and underwriters to have on-line information regarding both individual exposures and zonal aggregate concentrations. Submissions are recorded to determine and monitor their status as being pending, authorized, or bound.

In addition to the reinsurance data system, we use computer modeling to measure and estimate loss exposure under both simulated and actual loss scenarios and in comparing exposure portfolios to both single and multiple events. 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, to assess each client’s catastrophe management approach and adequacy of their program’s protection. Modeling is part of our underwriting criteria for catastrophe exposure pricing. The majority of our client base also use one or more of the various modeling consulting firms in their exposure management analysis, upon which their catastrophe reinsurance buying is based. In addition, we sometimes perform or contract for additional modeling analysis when reviewing our major commitments. The combination of reinsurance system information, together with CATRADER^® modeling, enables us to monitor and control our acceptance of exposure on a global basis.

Generally, the proposed terms of coverage, including the premium rate and retention level for excess of loss contracts, are set by the lead reinsurer and agreed to by the client and broker. On placements requiring large market capacity, typically the broker strives to achieve a consensus of proposed terms with many participating underwriters to ensure placement. On both U.S. and non-U.S. business, we act in many cases as a lead or consensus lead reinsurer. When not the lead, we sometimes actively negotiate additional terms or conditions. If we elect to authorize a participation, the underwriter will specify the percentage or monetary participation in each layer, and will execute a slip wording or contract wording to formalize coverage.

We have a procedure for underwriting control to ensure that all acceptances are made in accordance with our underwriting policy and aggregate control. Each underwriting individual is given an underwriting authority, limits above which must be submitted for approval to the Chief Executive Officer. All new acceptances are reviewed by senior underwriting personnel.

Generally, 60% (by volume) of premiums (excluding reinstatement premiums) we write each year are for contracts which have effective dates in the first quarter, about 20% in the second quarter and about 15% in the third quarter. Premiums are generally due in installments, either quarterly or semi-annually, over the contract term, with each installment usually received within 30 days after the due date.

Retrocessional Reinsurance Purchased

Effective January 1, 1999, we arranged a proportional reinsurance facility covering property catastrophe business written by IPCRe. For the five year period to December 31, 2004, the facility provided coverage of up to $50 million in each of at least 5 named zones, and potentially other zones of our choosing, provided that the risks in those zones do not accumulate with those in the named zones. The United States and the Caribbean are excluded zones. The named zones are the United Kingdom; Europe (excluding the U.K.); Australia / New Zealand; Japan and

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Other. Effective January 1, 2005, the facility provides coverage of up to $75 million in each of the named zones, with the exception of Europe (excluding the U.K.), where the coverage remains limited to $50 million. Business ceded to the facility is solely at our discretion. Within these limitations, we may designate the treaties to be included in the facility, subject to IPCRe retaining at least 50% of the risk. The premium ceded is pro rata, less brokerage, taxes and an override commission. A subsidiary of AIG, as a participating reinsurer, has a 10% participation on a direct basis. Most reinsurers participating in the facility have financial strength ratings issued by S & P and/or A.M. Best of A or above, and the minimum rating is A- at the time of acceptance. This facility has been renewed annually and the bound participation has varied between 92.0%, and 37.0%. Participation in 2005 was 83.33%. IPCRe participates on the balance. The bound participation for 2006 is 60.5%.

Effective January 1, 2002 we arranged a Property Catastrophe Excess of Loss reinsurance facility in respect of certain property business written by IPCRe. This facility covers first losses only for the business ceded to this facility and all subsequent reinstatement premiums, and further events in that year are retained by IPCRe. Business ceded to this facility includes worldwide business excluding the United States and Canada. IPCRe originally ceded $15 million ultimate net loss in the aggregate per contract year to the facility. IPCRe’s retention is $10 thousand in the aggregate. This facility was renewed at January 1, 2003, 2004 and 2005 with a reinsurer whose rating is AA-. Under the terms of the treaty for 2003, coverage was $30 million excess of $10 thousand in the aggregate, and for 2004 and 2005 this was increased to $50 million excess of $10 thousand in the aggregate. At January 1, 2006 the facility has been renewed with the same terms as the expiring contract.

Marketing

Our customers generally are sophisticated, long-established insurers who understand the risks involved and who desire the assurance not only that claims will be paid but that reinsurance will continue to be available after claims are paid. Catastrophic losses can be expected to affect financial results adversely from time to time, and we believe that financial stability, ratings and growth of capital (as well as service and innovation) are essential for creating long-term relationships with clients, and that such relationships are key to creating long-term value for the Company and our shareholders. During 2005, no single ceding insurer accounted for more than 4.1% of our gross premiums written, excluding reinstatement premiums.

We market our reinsurance products worldwide through non-exclusive relationships with more than 50 of the leading reinsurance brokers active in the U.S. and non-U.S. markets for property catastrophe reinsurance.

Based on premiums written during the year ended December 31, 2005, the four broker groups from which we derived the largest portions of our business in 2005 (with the approximate percentage of our premium volume derived from such group, excluding reinstatement premiums) are Marsh & McLennan Companies, Inc. (34.3%), Aon Corp. and affiliates (28.5%), Willis Group (14.6%), and Benfield Group (9.4%). For the years ended December 31, 2004 and 2003, respectively, the approximate percentages on a comparative basis were: Marsh — 32.2% and 35.0%; Aon — 32.6% and 26.2%; Willis — 12.8% and 12.6%; Benfield — 9.4% and 12.4%. During the year ended December 31, 2005, we had in force reinsurance contracts with only eight ceding companies which were not derived from a reinsurance broker; otherwise, our products are marketed exclusively through brokers. All brokerage transactions are entered into on an arm’s-length basis.

Our brokers perform data collection, contract preparation and other administrative tasks, enabling us to market our reinsurance products cost effectively by maintaining a small staff. By relying largely on reinsurance brokers to market our products, we are able to avoid the expense and regulatory complications of worldwide offices, thereby minimizing fixed costs associated with marketing activities. We believe that by maintaining close relationships with brokers, we are able to obtain access to a broad range of potential reinsureds. We meet frequently in Bermuda and elsewhere outside the United States with brokers and senior representatives of clients and prospective clients. All contract submissions are approved in IPCRe’s executive offices in Bermuda, and we do not believe that conducting our operations in Bermuda has adversely affected our marketing activities in light of the client base we have attracted and retained.

Reserves for Losses and Loss Adjustment Expenses

Under generally accepted accounting principles in the United States of America (“GAAP”), we are not permitted to establish loss reserves until the occurrence of an event which may give rise to a claim. Once such an event occurs, we establish reserves based upon estimates of losses incurred by the ceding insurers as a result of the event and our

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estimate of the portion of such loss we have reinsured. With respect to our pro rata business, we establish loss reserves as determined by a historical loss development pattern. Only loss reserves applicable to losses incurred up to the reporting date may be set aside, 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. Our reserves are adjusted as we receive notices of claims and proofs of loss from reinsureds and as estimates of severity of damages and our share of the total loss are revised.

We establish additional reserves where we believe that the ultimate loss amount is greater than that reported to us by the ceding company. These reserves, which provide for development on reported losses, are also known as Reported but not Enough (“RBNE”) reserves. We also establish reserves for losses incurred as a result of an event known but not reported to us. These Incurred but not Reported (“IBNR”) reserves, together with RBNE reserves, are established for both catastrophe and other losses. To estimate the portion of loss and loss adjustment expenses relating to these claims for the year, we review our portfolio of business to determine where the potential for loss may exist. Industry loss data, as well as actual experience, knowledge of the business written by us and general market trends in the reinsurance industry, are considered. We may also use CATRADER ^® to measure and estimate loss exposure under the actual event scenario, if available. The sum of the individual estimates derived from the above methodology provides us with an overall estimate of the loss reserve for the company as a whole. We have contracted a leading worldwide independent firm of actuaries to conduct a review of reserves on a semi-annual basis.

Loss reserves represent our estimates, at a given point in time, of the ultimate settlement and administration costs of claims incurred, and it is possible that the ultimate liability may exceed or be less than such estimates. Such estimates are not precise in that, among other things, they are based on predictions of future developments and estimates of future trends in claim severity and frequency and other variable factors such as inflation and currency exchange rates. During the claim settlement period, it often becomes necessary to refine and adjust the estimates of liability on a claim either upward or downward, and any such adjustment would affect our results of operations in the period when the adjustment is determined. Even after such adjustments, ultimate liability may materially exceed or be less than the revised estimates. In contrast to casualty losses, which frequently can be determined only through lengthy, unpredictable litigation, property losses tend to be reported promptly and settled within a shorter period of time. 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) by, and communications from, ceding companies, can cause delays in the timing with which we are notified of changes to loss estimates. The following table presents an analysis of paid, unpaid and incurred losses and loss adjustment expenses and a reconciliation of the beginning and ending reserve for losses and loss adjustment expenses for the years indicated:

	2005			2004			2003
Gross loss reserves, beginning of the year	$	274,463		$	123,320		$	119,355
Loss reserves recoverable, beginning of the year		(5,006	)		(1,810	)		(405	)
Total net reserves, beginning of year		269,457			121,510			118,950
Net losses incurred related to:
Current year		1,017,495			229,112			40,334
Prior years		55,167			(13,504	)		14,048
Total incurred losses		1,072,662			215,608			54,382
Net paid losses related to:
Current year		(96,705	)		(33,967	)		(8,007	)
Prior years		(170,399	)		(34,740	)		(47,803	)
Total paid losses		(276,104	)		(68,707	)		(55,810	)
Effect of foreign exchange movements		(4,013	)		1,046			3,988
Total net reserves, end of year		1,071,002			269,457			121,510
Loss reserves recoverable, end of year		1,054			5,006			1,810
Gross loss reserves, end of year	$	1,072,056		$	274,463		$	123,320

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Losses incurred in the year ended December 31, 2005 are predominantly due from hurricanes Katrina, Rita and Wilma which struck Louisiana, Texas and Florida, respectively. Losses from these events total $976,500. Losses incurred in the year ended December 31, 2005 in respect of prior years primarily result from development of 2004 reserves relating to three of the four hurricanes which struck Florida, two of the typhoons which struck Japan and the Indonesian tsunami. For certain catastrophic events there is considerable uncertainty underlying the assumptions and associated estimated reserves for losses and loss adjustment expenses. Reserves are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments could require a material change in the amount estimated. However, complexity resulting from problems such as policy coverage issues, multiple events affecting one geographic area and the resulting impact on claims adjusting (including allocation of claims to event and the effect of demand surge on the cost of building materials and labour) by, and communications from, ceding companies, can cause delays to the timing with which IPCRe is notified of changes to loss estimates. In particular the estimate for hurricane Katrina has been based on industry insured loss estimates, output from both industry and proprietary models, a review of contracts potentially affected by the events, information received from both clients and brokers and management judgement. It has also been assumed that underlying policy terms and conditions are upheld during the loss adjustment process. The unique circumstances and severity of this devastating catastrophe, including the extent of flooding and limited access by claims adjusters, introduce additional uncertainty to the normally difficult process of estimating catastrophe losses. This is compounded by the potential for legal and regulatory issues arising regarding the scope of coverage. Consequently, the ultimate net impact of losses from this event on the Company’s net income might differ substantially from the foregoing estimate. Such adjustments, if necessary, are reflected in results of operations in the period in which they become known.

Losses incurred in the year ended December 31, 2004 are predominantly due from the four hurricanes which struck Florida and two of the typhoons which struck Japan in the third quarter of 2004. These events total $223,600. Losses incurred in the year ended December 31, 2004 in respect of prior years include favourable development on 2003 losses for the May hailstorms/tornadoes, Hurricane Isabel and the California brush fires, and 2002 losses for the eastern European floods.

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.

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The following table represents the development of our GAAP balance sheet reserves for the period 1995 to 2005. This table does not present accident or policy year development data. The top line of the table shows the gross reserves for losses and loss adjustment expenses at the balance sheet date for each of the indicated years. This represents the estimated amounts of losses and loss adjustment expenses arising in the current year and all prior years that are unpaid at the balance sheet date, including IBNR reserves. The table also shows the re-estimated amount of previously recorded reserves based on experience as of each of the succeeding year. The estimate changes as more information becomes known about the frequency and severity of losses for individual years. The “cumulative redundancy (deficiency) on gross reserves” represents the aggregate change to date from the indicated estimate of the gross reserve for losses and loss adjustment expenses.

Year Ended December 31,	1995		1996		1997			1998			1999			2000		2001			2002			2003		2004			2005
	(In millions of U.S. dollars)
Gross reserve for losses & loss adjustment expenses		24.7		28.5		27.5			52.0			111.8			60.1		162.1			119.5			123.3		274.4			1,072.1
1 year later		26.3		28.1		33.7			65.2			146.9			62.4		169.0			136.9			110.7		327.1
2 years later		26.8		26.1		33.3			65.2			143.1			60.3		178.1			131.0			111.1
3 years later		25.6		25.3		31.5			60.8			142.6			60.8		174.4			128.3
4 years later		24.8		24.2		29.3			60.9			143.1			60.2		172.5
5 years later		24.1		23.8		29.2			60.8			143.3			59.5
6 years later		24.0		23.6		29.3			62.2			142.6
7 years later		24.0		23.7		30.8			61.3
8 years later		24.1		23.6		30.1
9 years later		24.1		23.6
10 years later		24.1
Cumulative gross paid losses
1 year later		14.3		13.9		15.2			37.3			97.7			24.4		79.7			47.9			35.7		176.7
2 years later		19.8		18.7		23.0			50.0			116.7			39.5		115.2			75.7			59.2
3 years later		22.0		21.1		25.0			52.0			126.9			44.3		130.6			89.9
4 years later		23.2		21.3		25.8			53.6			130.6			49.4		143.5
5 years later		23.2		21.9		26.0			54.4			134.2			51.4
6 years later		23.3		22.1		26.2			56.8			136.0
7 years later		23.4		22.2		27.9			57.2
8 years later		23.4		22.3		27.9
9 years later		23.4		22.3
10 years later		23.5
Gross reserve for losses and loss adjustment expenses		24.7		28.5		27.5			52.0			111.8			60.1		162.1			119.5			123.3		274.4
Gross liability re-estimated		24.1		23.6		30.1			61.3			142.6			59.5		172.5			128.3			111.1		327.1
Cumulative redundancy (deficiency) on gross reserves		0.6		4.9		(2.6	)		(9.3	)		(30.8	)		0.6		(10.4	)		(8.8	)		12.2		(52.7	)

See also “Management’s Discussion and Analysis — Critical Accounting Policies” contained in the Annual Report, and the discussion on the reserve for losses and loss adjustment expenses above, for further information on the deficiencies for 2001 and 2004. The deficiency in 1999 arose primarily because two significant events occurred in the last week of December, 1999, making estimation of the losses resulting from those events extremely difficult.

Investments

General.  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 is conservative with a strong emphasis on the quality and liquidity of

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investments. At December 31, 2005, other than cash, our investments consisted of fixed maturity securities, only one of which had a rating of less than A, investments in three equity mutual funds and an investment in a fund of hedge funds. Corporate bonds represented 59% of total fixed maturity investments at December 31, 2005, and of these 54% were issued by non-U.S. corporations and 46% by U.S. corporations. Our investment policy also stresses diversification and at December 31, 2005 we had 93 different issuers in the portfolio with only three issuers (Kreditanstalt Fuer Wiederaufbau, European Investment Bank and Federal National Mortgage Association) that individually represented more than 5% of our portfolio. Guidelines are also set which limit permitted issuers, the amount of non-U.S. dollar denominated securities and the target duration of the portfolio.

The following table summarizes the fair value of our investments and cash and cash equivalents as of December 31, 2005 and 2004:

	December 31,
Type of Investment	2005		2004
	(In thousands)
Fixed Maturities available for sale
U.S. Government and government agencies	$	324,175	$	317,356
Other governments		293,961		156,075
Corporate		1,179,317		778,886
Supranational entities		201,153		192,259
		1,998,606		1,444,576
Equities, available for sale		530,127		428,620
Cash and cash equivalents		31,113		27,898
	$	2,559,846	$	1,901,094

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

Our investment guidelines are reviewed periodically and are subject to change at the discretion of the Board of Directors.

Maturity and Duration of Portfolio.  Currently, we maintain a target modified duration for the portfolio of between 1.25 years and 5.0 years as being appropriate for the type of business being conducted, although actual

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maturities of individual securities vary from less than one year to a maximum of ten years for fixed maturity securities and ten years for money-market securities. At December 31, 2005 the fixed maturity portfolio (including cash and cash equivalents within such portfolio) had an average maturity of 3.1 years and an average modified duration of 2.7 years. We believe that, given the relatively high quality of our portfolio, adequate market liquidity exists to meet our cash demands.

The following table summarizes the fair value by maturities of our fixed maturity investment portfolio as of December 31, 2005 and 2004. For this purpose, maturities reflect contractual rights to put or call the securities; actual maturities may be longer.

	December 31,
		2005		2004
	(In thousands)
Due in one year or less		$	406,649	$	211,795
Due after one year through five years			1,293,991		1,187,731
Due after five years through ten years			297,966		45,050
		$	1,998,606	$	1,444,576

Quality of Debt Securities in Portfolio.  Our investment guidelines stipulate that a majority of the securities be AAA and AA rated, although a select number of lesser rated issues is permitted. The primary rating source is Moody’s Investors Service Inc. (“Moody’s”). When no Moody’s rating is available, S & P ratings are used and where split-ratings exist, the higher of Moody’s and S & P is used.

The following table summarizes the composition of the fair value of all cash and fixed maturity investments by rating:

	December 31,
	2005			2004
Cash and cash equivalents		1.5	%		1.9	%
U.S. Government and government agencies		16.0	%		21.6	%
AAA		32.3	%		31.7	%
AA		29.5	%		25.7	%
A		20.2	%		18.5	%
BBB		0.5	%		0.6	%
		100.0	%		100.0	%

There are no delinquent securities in our investment portfolio.

Equities.  Our investments in equities mostly comprise holdings of units in three mutual funds and the fund of hedge funds described below. The AIG Global Equity Fund is incorporated in Ireland, managed by AIG/Sun America and invests predominantly in large capitalized companies operating in diverse sectors of global equity markets. The AIG American Equity Fund is also incorporated in Ireland, managed by AIG/Sun America and invests predominantly in large capitalized companies operating in diverse sectors of north America. The third fund is the Vanguard Institutional Index Fund, a U.S.-based fund which seeks to replicate the performance of the S & P 500 Index. Dividends received from these funds are reinvested in the respective fund.

On January 2, 2004, we invested an initial $75.0 million in the AIG Select Hedge Fund, a limited company incorporated in the Cayman Islands, managed by a subsidiary of AIG, which invests in a number of hedge funds, typically 30 to 40, 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. We invested a further $19.0 million in 2004 and $51.0 million in 2005, and dividends received have also been reinvested in the fund.

Real Estate.  Our portfolio does not contain any direct investments in real estate or mortgage loans.

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Foreign Currency Exposure.  At December 31, 2005 and 2004, all of our fixed maturity investments were in securities denominated in U.S. dollars. We also have an Australian dollar time deposit in the amount of approximately U.S. $1.0 million (equivalent). The investment guidelines permit up to 20% of the portfolio to be invested in non-U.S. dollar securities. However, from inception, such investments have been made infrequently and for the purpose of improving overall portfolio yield. When we do hold non-U.S. dollar denominated securities, we have entered and may enter into forward foreign exchange contracts for purposes of hedging our non-U.S. dollar denominated investment portfolio. In addition, in the event that loss payments must be made in currencies other than the U.S. dollar, in some cases we will match the liability with assets denominated in the same currency, thus mitigating the effect of exchange rate movements on the balance sheet. To date, this strategy has been used on three occasions. See also “Management’s Discussion and Analysis — Quantitative and Qualitative Disclosure about Market Risk”, contained in the Annual Report.

Derivatives.  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, as part of a defensive strategy to protect the market value of the portfolio. No direct investments were made in derivative instruments during 2005, and there were no open positions at December 31, 2005.

Investment Advisory and Custodial Services.  Investment advisory and custodial services are provided to us by subsidiaries of AIG. See “Item 13. Certain Relationships and Related Transactions”.

Competition

The property catastrophe reinsurance industry is highly competitive. We compete, and will continue to compete, with insurers and property catastrophe reinsurers worldwide, many of which have greater financial, marketing and management resources than we do. Some of our competitors are large financial institutions who have reinsurance divisions, while others are specialty reinsurance companies. In total, there are several hundred companies writing reinsurance of different types, including property catastrophe. Our main competition in the industry comes from multi-line insurance and reinsurance providers that write catastrophe-based products as part of a larger portfolio. Our major competitors include companies based in the U.S., Europe and Bermuda. Though all of these companies offer property catastrophe reinsurance, in many cases it accounts for a small percentage of their total portfolio. In response to a reduction in market capacity and perceived increase in demand, during the fourth quarter of 2005, with similarity to the fourth quarter of 2001, a number of new insurance and reinsurance companies were formed in Bermuda and elsewhere, most of which write property catastrophe reinsurance as part of their larger portfolio. Also, several of our existing competitors have raised additional capital, or may have plans to do so. In addition, there may be established companies or new companies of which we are not aware that may be planning to enter the property catastrophe reinsurance market or existing reinsurers that may be planning to commit capital to this market. Competition in the types of reinsurance business that we underwrite is based on many factors, including premium charges and other terms and conditions offered, services provided, ratings assigned by independent rating agencies, speed of claims payment, claims experience, perceived financial strength, the length of relationships with clients and brokers, and experience and reputation of the reinsurer in the line of reinsurance to be written. Many of the reinsurers who have entered the Bermuda-based and other reinsurance markets have or could have more capital than us. No assurance can be given as to what impact this additional capital will ultimately have on terms or conditions of the reinsurance contracts of the types written by us.

In addition, over the last few years capital market participants, including exchanges and financial intermediaries, have developed financial products such as risk securitizations, intended to compete with traditional reinsurance, the usage of which has grown in volume. Further, the tax policy of the countries in which our clients operate can affect the demand for reinsurance. We are also aware of initiatives by capital market participants to produce additional alternative products that may compete with the existing catastrophe reinsurance markets. This includes the recent entrance of several reinsurance vehicles funded by hedge funds, to write various types of reinsurance, including catastrophe business. We are unable to predict the extent to which any of the foregoing new, proposed or potential initiatives may affect the demand for our products or the risks which may be available for us to consider underwriting.

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In September 1996, IPCRe was rated by A.M. Best, who gave it an initial rating of A+ (Superior). This rating was extended to IPCRe Europe in 1999, and was affirmed by A.M. Best in all subsequent years, until November, 2005, when the rating was lowered to A (Excellent), 3^rd highest of 15 rating levels. In July, 1997 S & P assigned financial strength and counter-party credit ratings of A+ (Strong), which were also extended to IPCRe Europe in 1999 and affirmed in all subsequent years until November 2005, when it was also lowered to A, (Strong), 6^th highest of 18 rating levels. Such ratings are based on factors of concern to cedants and brokers and are not directed toward the protection of investors. Such ratings are neither a rating of securities nor a recommendation to buy, hold or sell such securities. While we believe that IPCRe’s current ratings are of benefit, some of our principal competitors have a rating equal to or greater than that of IPCRe. Insurance ratings are one factor used by brokers and cedants in the United States as a means of assessing the financial strength and quality of reinsurers. In addition, a cedant’s own rating may be adversely affected by the rating of its reinsurer(s).

IPCRe is not licensed or admitted as an insurer in any jurisdiction in the United States and, consequently, must generally post letters of credit or other security to cover outstanding claims of, or unearned premiums with respect to, ceding insurers in the United States to enable such insurers to obtain favorable regulatory capital treatment of their reinsurance. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”, contained in the Annual Report.

Employees

As of February 28, 2006, we employed 15 people on a full-time basis including our Chief Executive Officer, Chief Financial Officer and three underwriters. We believe that employee relations are good. None of our employees are subject to collective bargaining agreements, and we know of no current efforts to implement such agreements at IPC.

Some of our employees, including several of our senior management, are employed pursuant to work permits granted by the Bermuda authorities. These permits expire at various times over the next several years. We have no reason to believe that these permits would not be extended upon request at their respective expirations. However, regulations enacted by the Minister of Labour and Home Affairs in Bermuda have imposed a policy that places a six-year term limit on individuals with work permits who are deemed to be non-key employees.

Regulation

Bermuda — The Insurance Act of 1978, as amended, and Related Regulations (the “Insurance Act”).

As a holding company, IPC Holdings is not subject to Bermuda insurance regulations. The Insurance Act, which regulates the insurance business of IPCRe, provides that no person shall carry on any insurance business in or from within Bermuda unless registered as an insurer under the Insurance Act by the Bermuda Monetary Authority (the “Authority”), which is responsible for the day-to-day supervision of insurers. Under the Insurance Act, insurance business includes reinsurance business. The Authority, in deciding whether to grant registration, has broad discretion to act as the Authority thinks fit in the public interest. The Authority is required by the Insurance Act to determine whether the applicant is a fit and proper body to be engaged in the insurance business and, in particular, whether it has, or has available to it, adequate knowledge and expertise to operate an insurance business. The registration of an applicant as an insurer is subject to it complying with the terms of its registration and such other conditions as the Authority may impose at any time.

An Insurance Advisory Committee appointed by the Bermuda Minister of Finance (the “Minister”) advises the Authority on matters connected with the discharge of the Authority’s functions and sub-committees thereof supervise and review the law and practice of insurance in Bermuda, including reviews of accounting and administrative procedures.

The Insurance Act imposes on Bermuda insurance companies solvency and liquidity standards and auditing and reporting requirements and grants to the Authority powers to supervise, investigate, require information and the production of documents and intervene in the affairs of insurance companies. Certain significant aspects of the Bermuda insurance regulatory framework are set forth below.

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Classification of Insurers.  The Insurance Act distinguishes between insurers carrying on long-term business and insurers carrying on general business. There are four classifications of insurers carrying on general business, with Class 4 insurers subject to the strictest regulation. IPCRe is registered as a Class 4 insurer, and is regulated as such under the Insurance Act.

Cancellation of Insurer’s Registration.  An insurer’s registration may be cancelled by the Authority on certain grounds specified in the Insurance Act, including failure of the insurer to comply with its obligations under the Insurance Act or, if in the opinion of the Authority, the insurer has not been carrying on business in accordance with sound insurance principles.

Principal Representative.  An insurer is required to maintain a principal office in Bermuda and to appoint and maintain a principal representative in Bermuda. For the purpose of the Insurance Act, the principal office of IPCRe is at our executive offices in Pembroke, Bermuda, and IPCRe’s principal representative is our President and Chief Executive Officer. Without a reason acceptable to the Authority, an insurer may not terminate the appointment of its principal representative, and the principal representative may not cease to act as such, unless 30 days’ notice in writing to the Authority is given of the intention to do so. It is the duty of the principal representative, on reaching the view that there is a likelihood that the insurer will become insolvent or that a reportable “event” has or is believed to have occurred, to forthwith notify the Authority. Within 14 days of such notification, the principal representative must make a report in writing to the Authority setting out all the particulars of the case that are available to the principal representative. For example, the failure by the insurer to comply substantially with a condition imposed upon the insurer by the Authority relating to a solvency margin or a liquidity or other ratio would be a reportable “event.”

Independent Approved Auditor.  Every registered insurer must appoint an auditor who will annually audit and report on the Statutory Financial Statements and the Statutory Financial Return of the insurer, both of which, in the case of IPCRe, are required to be filed annually with the Authority. The independent auditor of IPCRe must be approved by the Authority and may be the same person or firm which audits IPCRe’s financial statements for presentation to its shareholders. No approved auditor of an insurer may have an interest in that insurer, other than as an insured, and no officer, servant or agent of an insurer shall be eligible for appointment as an insurer’s approved auditor. An insurer must give written notice to the Authority if it proposes to remove or replace its approved auditor, and further, an insurer’s approved auditor must notify the Authority in the event of his resignation or removal, or where the approved auditor includes a material modification of his report on an insurer’s Statutory Financial Statements.

Loss Reserve Specialist.  As a registered Class 4 insurer, IPCRe is required to submit an opinion of its approved loss reserve specialist with its Statutory Financial Return in respect of its loss and loss expense provisions. The appointment of the loss reserve specialist, who will normally be a qualified property and casualty actuary, must be approved by the Authority.

Statutory Financial Statements.  IPCRe must prepare annual Statutory Financial Statements. The Insurance Act prescribes rules for the preparation and substance of such Statutory Financial Statements (which include, in statutory form, a balance sheet, an income statement, a statement of capital and surplus and notes thereto). IPCRe is required to give information and analyses regarding premiums, claims, reinsurance and investments. The Statutory Financial Statements are not prepared in accordance with generally accepted accounting principles in the United States of America and are distinct from the financial statements prepared for presentation to IPCRe’s shareholder under the Companies Act 1981 of Bermuda (the “Companies Act”), which financial statements are prepared in accordance with generally accepted accounting principles in the United States of America. IPCRe, as a general business insurer, is required to submit the annual Statutory Financial Statements as part of the annual Statutory Financial Return. The Statutory Financial Statements and the Statutory Financial Return do not form part of the public records maintained by the Authority.

Annual Statutory Financial Return.  IPCRe is required to file with the Authority a Statutory Financial Return no later than four months after its financial year end (unless specifically extended upon application to the Authority). The Statutory Financial Return for a Class 4 insurer includes, among other matters, a report of the approved independent auditor on the Statutory Financial Statements of such insurer, solvency certificates, the Statutory Financial Statements themselves, the opinion of the loss reserve specialist and a schedule of reinsurance

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ceded. The solvency certificates must be signed by the principal representative and at least two directors of the insurer who are required to certify, among other matters, whether the minimum solvency margin has been met and whether the insurer complied with the conditions attached to its certificate of registration. The independent approved auditor is required to state whether in its opinion it was reasonable for the directors to so certify. Where an insurer’s accounts have been audited for any purpose other than compliance with the Insurance Act, a statement to that effect must be filed with the Statutory Financial Return.

Minimum Solvency Margin and Restrictions on Dividends and Distributions.  Under the Insurance Act, the value of the general business assets of a Class 4 insurer, such as IPCRe, must exceed the amount of its general business liabilities by an amount greater than the prescribed minimum solvency margin.

IPCRe:

(1) is required with respect to its general business, to maintain a minimum solvency margin equal to the greatest of:

(A) $100,000,000,

(B) 50% of net premiums written (being gross premiums written less any premiums ceded by IPCRe. IPCRe may not deduct more than 25% of gross premiums when computing net premiums written), and

(C) 15% of net losses and loss expense reserves,;

(2) is prohibited from declaring or paying any dividends during any financial year if it is in breach of its minimum solvency margin or minimum liquidity ratio (see below) or if the declaration or payment of such dividends would cause it to fail to meet such margin or ratio (if it has failed to meet its minimum solvency margin or minimum liquidity ratio on the last day of any financial year, IPCRe is prohibited, without the approval of the Authority, from declaring or paying any dividends during the next financial year);

(3) is prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory capital and surplus (as shown on its previous financial year’s statutory balance sheet) unless it files (at least 7 days before payment of such dividends) with the Authority an affidavit signed by two directors and the Principal Representative in Bermuda stating that it will continue to meet the required margins after the payment of the dividends;

(4) is prohibited, without the approval of the Authority, from reducing by 15% or more its total statutory capital as set out in its previous year’s financial statements, and any application for such approval must include an affidavit stating that it will continue to meet the required margins; and

(5) is required, at any time it fails to meet its solvency margin, within 30 days (45 days where total statutory capital and surplus falls to $75 million or less) after becoming aware of that failure or having reason to believe that such failure has occurred, to file with the Authority a written report containing certain information.

Minimum Liquidity Ratio.  The Insurance Act provides a minimum liquidity ratio for general business insurers, like IPCRe. An insurer engaged in general business is required to maintain the value of its relevant assets at not less than 75% of the amount of its relevant liabilities. Relevant assets include cash and time deposits, quoted investments, unquoted bonds and debentures, first liens on real estate, investment income due and accrued, accounts and premiums receivable and reinsurance balances receivable. There are certain categories of assets which, unless specifically permitted by the Authority, do not automatically qualify as relevant assets, such as unquoted equity securities, investments in and advances to affiliates and real estate and collateral loans. The relevant liabilities are total general business insurance reserves and total other liabilities less deferred income tax and sundry liabilities (by interpretation, those not specifically defined).

Supervision, Investigation and Intervention.  The Authority may appoint an inspector with extensive powers to investigate the affairs of an insurer if the Authority believes that an investigation is required in the interests of the insurer’s policyholders or persons who may become policyholders. In order to verify or supplement information otherwise provided to the Authority, the Authority may direct an insurer to produce documents or information relating to matters connected with the insurer’s business.

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If it appears to the Authority that there is a risk of the insurer becoming insolvent, or that it is in breach of the Insurance Act or any conditions imposed upon its registration, the Authority may, among other things, direct the insurer: (1) not to take on any new insurance business, (2) not to vary any insurance contract if the effect would be to increase the insurer’s liabilities, (3) not to make certain investments, (4) to realize certain investments, (5) to maintain in, or transfer to the custody of a specified bank, certain assets, (6) not to declare or pay dividends or other distributions or to restrict the making of such payments and/or (7) to limit its premium income.

Disclosure of Information.  In addition to powers under the Insurance Act to investigate the affairs of an insurer, the Authority may require certain information from an insurer (or certain other persons) to be produced to the Authority. Further, the Authority has been given powers to assist other regulatory authorities, including foreign insurance regulatory authorities with their investigations involving insurance and reinsurance companies in Bermuda but subject to restrictions. For example, the Authority must be satisfied that the assistance being requested is in connection with the discharge of regulatory responsibilities of the foreign regulatory authority. Further, the Authority must consider whether to co-operate is in the public interest. The grounds for disclosure are limited and the Insurance Act provides sanctions for breach of the statutory duty of confidentiality.

Certain Other Considerations.  IPC Holdings, IPCRe and IPCUSL (together “IPCBDA”) will each also need to comply with the provisions of the Companies Act regulating the payment of dividends and making of distributions from contributed surplus. A company is prohibited from declaring or paying a dividend, or making a distribution out of contributed surplus, if there are reasonable grounds for believing that: (a) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realizable value of the company’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

Although IPCBDA are incorporated in Bermuda, they are classified as non-resident of Bermuda for exchange control purposes by the Authority. Pursuant to their non-resident status, IPCBDA may hold any currency other than Bermuda Dollars and convert that currency into any other currency (other than Bermuda Dollars) without restriction.

As “exempted” companies, IPCBDA may not, without the express authorization of the Bermuda legislature or under a license granted by the Minister, participate in certain business transactions, including: (i) the acquisition or holding of land in Bermuda (except that held by way of lease or tenancy agreement which is required for its business and held for a term not exceeding 50 years, or which is used to provide accommodation or recreational facilities for their officers and employees and held with the consent of the Minister, for a term not exceeding 21 years); (ii) the taking of mortgages on land in Bermuda to secure an amount in excess of $50,000; or (iii) the carrying on of business of any kind in Bermuda, except in certain limited circumstances such as doing business with another exempted undertaking in furtherance of the business of IPCBDA (as the case may be) carried on outside Bermuda.

The Bermuda Government actively encourages foreign investment in “exempted” entities like the Company that are based in Bermuda, but do not operate in competition with local businesses. As well as having no restrictions on the degree of foreign ownership, IPCBDA are not currently subject to taxes on their income or dividends or to any foreign exchange controls in Bermuda. In addition, there currently is no capital gains tax in Bermuda.

United States

IPCRe is not admitted to do business in the United States. The insurance laws of each state of the United States and of many other countries regulate the sale of insurance and reinsurance within their jurisdictions by alien insurers and reinsurers such as IPCRe, which are not admitted to do business within such jurisdictions. With some exceptions, such sale of insurance or reinsurance within a jurisdiction where the insurer is not admitted to do business is prohibited. We do not intend to maintain an office or to solicit, advertise, settle claims or conduct other insurance activities in any jurisdiction other than Bermuda or Ireland where the conduct of such activities would require that IPCRe be so admitted.

In addition to the regulatory requirements imposed by the jurisdictions in which they are licensed, reinsurers’ business operations are affected by regulatory requirements in various states of the United States governing “credit for reinsurance” which are imposed on their ceding companies. In general, a ceding company which obtains

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reinsurance from a reinsurer that is licensed, accredited or approved by the jurisdiction or state in which the reinsurer files statutory financial statements is permitted to reflect in its statutory financial statements a credit in an aggregate amount equal to the liability for unearned premiums and loss reserves and loss expense reserves ceded to the reinsurer. IPCRe is not licensed, accredited or approved in any state in the United States. The great majority of states, however, permit a credit to statutory surplus resulting from reinsurance obtained from a non-licensed or non-accredited reinsurer to be offset to the extent that the reinsurer provides a letter of credit or other acceptable security arrangement. A few states do not allow credit for reinsurance ceded to non-licensed reinsurers except in certain limited circumstances and others impose additional requirements that make it difficult to become accredited. Premiums ceded to IPCRe are also subject to excise tax in the United States for U.S. business, and in certain other jurisdictions.

We do not believe that IPCRe violates insurance laws of any jurisdiction in the United States. There can be no assurance, however, that inquiries or challenges to IPCRe’s reinsurance activities will not be raised in the future. We believe that IPCRe’s manner of conducting business through our offices in Bermuda has not materially adversely affected its operations to date. There can be no assurance, however, that our location, regulatory status or restrictions on our activities resulting therefrom will not adversely affect our ability to conduct business in the future.

European Union

IPCRe Europe is incorporated in Ireland and is, as such, subject to regulations imposed by the European Union.

Certain United States Federal Income Tax Considerations

The discussion below is only a general summary of certain United States federal income tax considerations that are relevant to certain holders of common shares of IPC Holdings and of series A mandatory convertible preferred shares of IPC Holdings. It does not address all tax considerations that may be relevant to holders of these shares nor does it address tax considerations that may be relevant to certain holders of these shares. Investors and prospective investors should consult their own tax advisors concerning federal, state, local and non-U.S. tax consequences of ownership and disposition of these shares.

Dividends.  Because we believe that we are not a passive foreign investment company, we believe that, if you are a non-corporate U.S. person who holds our common shares, dividends paid to you on our common shares in taxable years beginning before January 1, 2009 that constitute “qualified dividend income” will be taxable to you at a maximum tax rate of 15%, if you hold the common shares for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date and meet other holding period requirements under United States federal income tax rules. Dividends that we pay with respect to the common shares generally will be “qualified dividend income” if, in the year that you receive the dividends, the common shares are readily tradable on an established securities market in the United States. We believe our common shares should be treated as readily tradable on an established securities market in the United States.

Because our series A mandatory convertible preferred shares are not listed on an established securities market in the United States, dividends paid on such shares will not constitute “qualified dividend income” and will be taxed instead at ordinary rates.

For corporate holders, dividends on our common shares and our series A mandatory convertible preferred shares will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. Distributions in excess of our current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in your shares and thereafter as capital gain.

Taxation of IPCBDA.  IPCBDA are Bermuda companies, none of which files United States federal income tax returns. We believe that IPCRe operates in such a manner that it is not subject to U.S. tax (other than U.S. excise tax on reinsurance premiums and withholding tax on certain investment income from U.S. sources) because it does not engage in a trade or business in the United States. However, because definitive identification of activities which constitute being engaged in a trade or business in the United States is not provided by the U.S. Internal Revenue Code of 1986, as amended (the “Code”), or regulations or court decisions, there can be no assurance that the

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U.S. Internal Revenue Service (the “IRS”) will not contend that any of IPCBDA is engaged in a trade or business in the United States. If IPCRe were to qualify for benefits under the income tax treaty between the United States and Bermuda, it would only be subject to U.S. tax if it is deemed to be engaged in the conduct of a U.S. trade or business through a “permanent establishment” in the United States. Any profits attributable to such permanent establishment would be subject to U.S. tax at regular corporate rates, plus an additional 30% “branch profits” tax on such income remaining after the regular tax, in which case our earnings and shareholders’ equity could be materially adversely affected.

Currently, IPCRe pays premium excise taxes in the United States (1%), Australia (3%), and certain other jurisdictions.

Controlled Foreign Corporation Rules.  Each “United States shareholder” of a “controlled foreign corporation” (“CFC”) who owns shares in the CFC on the last day of the CFC’s taxable year must include in its gross income for United States federal income tax purposes its pro rata share of the CFC’s “subpart F income”, even if the subpart F income is not distributed. For these purposes, any U.S. person who owns, directly or indirectly through foreign persons, or is considered to own under applicable constructive ownership rules of the Code, 10% or more of the total combined voting power of all classes of stock of a foreign corporation will be considered to be a “United States shareholder”. For these purposes, applicable constructive ownership rules under the Code treat any person with a right to acquire voting shares as if such person had exercised such right, and therefore, a holder of our series A mandatory convertible preferred shares will be treated for purposes of determining whether or not it is a United States shareholder as if it owned the common shares into which its series A mandatory convertible preferred shares can be converted. In general, a foreign insurance company such as IPCRe or IPCRe Europe is treated as a CFC only if such “United States shareholders” collectively own more than 25% of the total combined voting power or total value of its stock for an uninterrupted period of 30 days or more during any tax year. AIG owns 24.2% of the common shares, although, pursuant to our Bye-laws, the combined voting power of these shares is limited to less than 10% of the combined voting power of all shares. Because of the dispersion of IPC Holdings’ share ownership among holders other than AIG; because of the restrictions on transfer, issuance or repurchase of our shares; because under the Bye-laws no single beneficial shareholder (except for certain passive investor intermediaries) is permitted to exercise as much as 10% of the total combined voting power of IPC Holdings; and because the terms of our series A mandatory convertible preferred shares prohibit any person from converting the shares in a situation where such conversion would cause any person to own (or be treated as owning under applicable provisions of the Code) 10% or more of our common shares, we believe that shareholders of IPC Holdings should not be treated as “United States shareholders” of a CFC for purposes of these rules. There can be no assurance, however, that these rules will not apply to shareholders of IPC Holdings, including as a result of their indirect ownership of the stock of IPC Holdings’ subsidiaries. If they were to apply and if you hold series A mandatory convertible preferred shares, your pro rata share of our subpart F income with respect to your series A mandatory convertible preferred shares in most years should not, to the extent dividends are paid quarterly, exceed the amount of dividends that have been paid to you.

All U.S. persons who might, directly or through constructive ownership, acquire 10% or more of the shares of IPC Holdings should consider the possible application of the CFC rules.

Related Person Insurance Income Rules.  If IPCRe’s related person insurance income (“RPII”) were to equal or exceed 20% of IPCRe’s gross insurance income in any taxable year, any U.S. person who owns shares directly or indirectly on the last day of the taxable year would likely be required to include in its income for U.S. federal income tax purposes its pro rata share of IPCRe’s RPII for the taxable year, determined as if such RPII were distributed proportionately to such U.S. persons at that date regardless of whether such income is actually distributed. A U.S. person’s pro rata share of IPCRe’s RPII for any taxable year, however, will not exceed its proportionate share of IPCRe’s earnings and profits for the year (as determined for U.S. federal income tax purposes). In particular, if you are a holder of our series A mandatory convertible preferred shares, your share of IPCRe’s RPII with respect to your series A mandatory convertible preferred shares for most years should not, to the extent dividends are paid quarterly, exceed the amount of dividends that have been paid quarterly to you. The amount of RPII earned by IPCRe (generally, premium and related investment income from the direct or indirect insurance or reinsurance of any direct or indirect U.S. shareholder of IPCRe or any person related to such shareholder, including IPC Holdings) will depend on a number of factors, including the geographic distribution of IPCRe’s business and the identity of persons

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directly or indirectly insured or reinsured by IPCRe. Although we do not believe that the 20% threshold was met in taxable years from 1994 to 2005, some of the factors which determine the extent of RPII in any period may be beyond our control. Consequently, there can be no assurance that IPCRe’s RPII will not equal or exceed 20% of its gross insurance income in any taxable year.

The RPII rules described above may also apply to IPCRe Europe. We do not believe that U.S. persons who owned shares were required to include any amount of RPII in income for the taxable years 1998 to 2005 in respect of their indirect ownership of IPCRe Europe, but there can be no assurance that IPCRe Europe’s RPII will not equal or exceed 20% of its gross insurance income in any taxable year and/or that IPCRe Europe will have no earnings and profits (as determined for U.S. federal income tax purposes) in any taxable year.

The RPII rules provide that if a shareholder who is a U.S. person disposes of shares in a foreign insurance corporation that has RPII (even if the amount of RPII is less than 20% of the corporation’s gross insurance income) and in which U.S. persons own 25% or more of the shares, any gain from the disposition will generally be treated as ordinary income to the extent of the shareholder’s share of the corporation’s undistributed earnings and profits that were accumulated during the period that the shareholder owned the shares (whether or not such earnings and profits are attributable to RPII). In addition, such a shareholder will be required to comply with certain reporting requirements, regardless of the amount of shares owned by the shareholder. These rules should not apply to dispositions of common shares or of series A mandatory convertible preferred shares because IPC Holdings is not itself directly engaged in the insurance business and because proposed U.S. Treasury regulations appear to apply only in the case of shares of corporations that are directly engaged in the insurance business. There can be no assurance, however, that the IRS will interpret the proposed regulations in this manner or that the applicable regulations will not be promulgated in final form in a manner that would cause these rules to apply to the disposition of our common shares or series A mandatory convertible preferred shares.

Adjustments to Conversion Rate.  In general, any adjustment to the conversion rate that increases the interest of holders of our series A mandatory convertible preferred shares in our assets or earnings and profits will result in a constructive dividend distribution to such holders that are U.S. persons (treated as described above under “Dividends”) unless a safe harbor under U.S. Treasury Regulations applies. The anti-dilution safe harbor in the Regulations provides that changes in the conversion rate made solely to avoid dilution of the interests of holders who hold series A mandatory convertible preferred shares will not result in a constructive dividend, but the safe harbor specifically does not cover conversion rate adjustments that are made to compensate the holders of these shares for taxable cash or property distributions to other shareholders. Therefore, if you are a U.S. person who holds our series A mandatory convertible preferred shares, you could be required in some cases to include a deemed dividend in income even though you did not receive any distribution. For example, an increase in the conversion rate in the event of distributions of cash, indebtedness or assets by us will generally result in a taxable deemed dividend to you to the extent of our applicable earnings and profits, but generally an increase in the conversion rate resulting from share dividends or the distribution of rights to subscribe for our common shares will not result in a taxable deemed dividend.

Conversion of series A mandatory convertible preferred shares.  There is no clear authority concerning the tax treatment of cash paid upon conversion of the series A mandatory convertible preferred shares, whether such cash represents accrued, cumulated and unpaid dividends or the payment of the present value of future dividend payments in respect of an accelerated mandatory conversion date before November 15, 2008. Such cash may be subject to tax as a distribution in the manner described above under “Dividends” or it may be treated as cash paid in connection with the conversion. If treated as cash paid in connection with conversion, a U.S. holder of series A mandatory convertible preferred shares will recognize income in an amount equal to the lesser of the cash received or the amount by which the sum of the fair market value of the common shares received upon conversion and the cash paid upon conversion exceeds the holder’s basis in the series A mandatory convertible preferred shares surrendered. Such amount will be subject to tax in the manner described above under “Dividends” unless the conversion and related cash payment is “not substantially equivalent to a dividend.” If the conversion and related cash payment is not substantially equivalent to a dividend, such amount will be taxed as capital gain. While there is authority that redemptions of minority shareholders that have no control over the redeeming company are not substantially equivalent to a dividend, the treatment of the cash payment will be based upon the facts and circumstances at the time of conversion, and there can be no certainty that the IRS will not disagree with a holder’s

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determination as to whether the conversion and related cash payment is or is not substantially equivalent to a dividend. Losses may not be recognized upon conversion of series A mandatory convertible preferred shares

Tax-Exempt Shareholders.  Tax-exempt entities are generally required to treat certain subpart F insurance income, including RPII, that is includable in income by the tax-exempt entity as unrelated business taxable income.

Item 1A.   Risk Factors

Risks Related to Our Business

We face a variety of risks that are substantial and inherent in our business, including catastrophe, market, liquidity, credit, operational, legal and regulatory risks. Our business, by its nature, does not produce predictable earnings. The following are some of the more important factors that could affect our business.

The occurrence of severe catastrophic events may cause our financial results to be volatile.

Because we underwrite property catastrophe reinsurance and have large aggregate exposures to natural and man-made disasters, our management expects that our loss experience generally will include infrequent events of great severity. Consequently, the occurrence of losses from catastrophic events is likely to cause substantial volatility in our financial results. In addition, because catastrophes are an inherent risk of our business, a major event or series of events can be expected to occur from time to time and to have a material adverse effect on our financial condition and results of operations, possibly to the extent of eliminating our shareholders’ equity. Increases in the values and concentrations of insured property and the effects of inflation have resulted in increased severity of industry losses in recent years, and we expect that those factors will increase the severity of catastrophe losses in the future.

The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or our results of operations.

Our property catastrophe reinsurance contracts cover unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, volcanic eruptions, fires, industrial explosions, freezes, riots, floods and other natural or man-made disasters. We currently seek to limit our loss exposure principally by offering most of our products on an excess-of-loss basis, adhering to maximum limitations on reinsurance accepted in defined geographical zones, limiting program size for each client and prudent underwriting of each program written. We cannot be certain that any of these loss limitation methods will be effective. There can be no assurance that various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, will be enforceable in the manner we intended. Disputes relating to coverage or choice of legal forum may arise. Geographic zone limitations involve significant underwriting judgements, including the determination of the area of the zones and the inclusion of a particular policy within a particular zone’s limits. Underwriting is inherently a matter of judgement, involving important assumptions about matters that are inherently unpredictable and beyond our control, and for which historical experience and probability analysis may not provide sufficient guidance. One or more catastrophic or other events could result in claims that substantially exceed our management’s expectations, which could have a material adverse effect on our financial condition or our results of operations, possibly to the extent of eliminating our shareholders’ equity and statutory surplus or requiring us to raise additional capital on disadvantageous terms.

Establishing reserves for catastrophes is an inherently uncertain process and, if we are required to greatly increase our loss reserves, our operating results may significantly decrease.

Under GAAP, IPCRe is not permitted to establish loss reserves with respect to our property catastrophe reinsurance until an event occurs which may give rise to a claim. As a result, we can only reserve for known losses, and not for expected future losses. Claims arising from future catastrophic events can be expected to require the establishment of substantial reserves from time to time.

The establishment of appropriate reserves for catastrophes is an inherently uncertain process. Reserve estimates by property catastrophe reinsurers, such as us, may be inherently less reliable than the reserve estimates of reinsurers in other lines of business. Our own historical loss experience by itself may be inadequate for estimating

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reserves, and we utilize various loss forecasting models and industry loss data as well as industry experience of our management for this purpose. Loss reserves represent our estimates, at a given point in time, of the ultimate settlement and administration costs of losses incurred (including IBNR losses and RBNE amounts) and these estimates are regularly reviewed and updated, using the most current information available to management. 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 our loss reserves with a corresponding reduction, which could be material, to 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 have a material adverse effect on our financial condition or results of operations in any particular period.

Unlike the loss reserves of U.S. insurers, our loss reserves are not regularly examined by insurance regulators, although, as a registered Class 4 insurer, we are required to submit an opinion of our approved loss reserve specialist with our annual statutory financial return in respect of our losses and loss expenses provisions. The loss reserve specialist, who will normally be a qualified property and casualty actuary, must be approved by the Bermuda Monetary Authority.

Uncertainty related to estimated losses from hurricanes Katrina, Rita and Wilma may further materially impact our financial results. As of December 31, 2005, we estimated that the aggregate losses from hurricanes Katrina, Rita and Wilma for the year then ended was $977 million. The impact of these events may materially increase as our ultimate liability is established.

Based upon an analysis of the information available, as of December 31, 2005 we estimated that the aggregate losses from hurricanes Katrina, Rita and Wilma for the year then ended, were $977 million. This estimated amount is based on industry insured loss estimates, output from both industry and proprietary models, including pre-event, modeled exposure data provided to us by client companies, a review of contracts potentially affected by the event, information received from both clients and brokers, and management’s estimates. We have also assumed that underlying policy terms and conditions would be upheld during the loss adjustment process.

The unique circumstances and severity of hurricane Katrina, including the extent of flooding and limited access by claims adjusters, introduce additional uncertainty to the normally difficult process of estimating catastrophe losses. This is compounded by the potential for legal and regulatory issues arising regarding the scope of coverage, including causation and coverage issues associated with the attribution of losses to wind or flood damage or other perils such as fire, business interruption or riot and civil commotion. We expect that these issues will not be resolved for a considerable period of time and may be influenced by evolving legal and regulatory developments.

The impact of losses from hurricanes Katrina, Rita and Wilma on our net income may exceed the estimate noted above as a result of, among other things, an increase in industry insured loss estimates, the receipt of additional information from clients, the attribution of losses to coverages that for the purpose of our estimates we assumed would not be exposed and inflation in repair costs due to the limited availability of labour and materials, in which case our financial results could be further materially adversely affected.

We are rated by A.M. Best and S & P, and a decline in these ratings could affect our standing among customers and cause our sales and earnings to decrease. As a result of the impact of hurricanes Katrina, Rita and Wilma on our financial condition, both A.M. Best and S & P lowered our ratings from A+ to A.

Ratings are an important factor in establishing the competitive position of reinsurance companies. IPCRe and IPCRe Europe have an insurer financial strength rating of “A (Excellent; 3rd of 15 categories)” from A.M. Best and are rated “A (Strong; 6^th of 18 categories)” for financial strength and counter-party credit by S & P.  A.M. Best and S & P ratings reflect their opinions of a reinsurance company’s financial strength, operating performance, strategic position and ability to meet its obligations to policyholders, but are not evaluations directed to investors in our securities and are not recommendations to buy, sell or hold our securities. Our ratings are subject to periodic review by A.M. Best and S & P, and we cannot assure you that we will be able to retain those ratings. In November 2005, as a result of the devastation brought by hurricane Katrina and the adverse effect on our financial condition, A.M. Best lowered our rating from A+ to A. Shortly thereafter, S & P also lowered their rating from A+ to A. If these ratings are

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reduced from their current levels by A.M. Best and/or S & P, our competitive position in the insurance industry could suffer and it would be more difficult for us to market our products. A significant downgrade could result in a substantial loss of business as ceding companies move to other reinsurers with higher ratings, and a significant downgrade to a rating below “A-” by A.M. Best or S & P could trigger provisions allowing some cedants to opt to cancel their reinsurance contracts with us.

The reinsurance business is historically cyclical, and we have experienced, and can expect to experience in the future, periods with excess underwriting capacity and unfavorable premiums.

Historically, property catastrophe reinsurers have experienced significant fluctuations in operating results due to competition, frequency of occurrence or severity of catastrophic events, levels of capacity, general economic conditions and other factors. Demand for reinsurance is influenced significantly by underwriting results of primary property insurers and prevailing general economic conditions. The supply of reinsurance is related to prevailing prices, the levels of insured losses and levels of industry capital which, in turn, may fluctuate in response to changes in rates of return on investments being earned in the reinsurance industry. As a result, the property catastrophe reinsurance business historically has been a cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity permits favourable premium levels. These cycles can be significantly affected by changes in the frequency and severity of losses suffered by insurers. We can expect to experience the effects of such cyclicality. Hurricanes Katrina, Rita and Wilma have resulted in additional capital being raised by our existing competitors and resulted in capital raising by new competitors, which may moderate premiums and/or premium increases for the reinsurance products we offer.

If IPC Holdings’ subsidiary, IPCRe, is unable to obtain the necessary credit we may not be able to offer reinsurance in the U.S.

IPCRe is a registered Bermuda insurance company and is not licensed or admitted as an insurer in any jurisdiction in the U.S. Because jurisdictions in the U.S. do not permit insurance companies to take credit for reinsurance obtained from unlicensed or non-admitted insurers on their statutory financial statements unless security is posted, IPCRe’s reinsurance contracts with U.S. clients generally require it to post a letter of credit or provide other security to cover potential liabilities to reinsureds. Currently IPCRe obtains letters of credit through three commercial banks. In turn, IPCRe provides the banks security by giving the banks a lien over certain of IPCRe’s investments in an amount up to 118% of the aggregate letters of credit outstanding. This maximum amount available to us under our letter of credit facilities is currently $800 million. If IPCRe were unable to obtain the necessary credit, IPCRe could be limited in its ability to write business for our clients in the United States.

Hurricane Katrina or other significant catastrophes may result in political, regulatory or industry initiatives which could adversely affect our business.

Hurricanes Katrina or other significant catastrophes may result in political, regulatory or industry initiatives that could adversely affect our business. Government regulators are generally concerned with the protection of policyholders to the exclusion of other constituencies, including shareholders of insurers and reinsurers. While we cannot predict whether hurricane Katrina or any other catastrophes will result in governmental initiatives which affect our business, such initiatives could adversely affect our business by:

•  Providing insurance and reinsurance capacity in markets that we target;

•  Requiring our participation in industry pools or guaranty associations;

•  Expanding the scope of coverage under existing insurance policies following hurricane Katrina;

•  Regulating the terms of insurance and/or reinsurance policies; or

•  Disproportionately benefiting the companies of one country over those of another.

The insurance industry is also affected by political, judicial and legal developments that may create new and expanded theories of liability.

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IPC Holdings is a holding company, and consequently, it is dependent on IPCRe’s and IPCUSL’s payments of cash dividends or making of loans.

IPC Holdings is a holding company and conducts no reinsurance operations of its own. Its cash flows are otherwise limited to distributions from IPCRe and IPCUSL by way of dividends or loans. We will rely on cash dividends or loans from IPCRe to pay cash dividends, if any, to our shareholders. The payment of dividends by IPCRe to us is limited under Bermuda law and regulations, including Bermuda insurance law. Under the Insurance Act 1978 of Bermuda, and related regulations, as amended, which we refer to as the “Insurance Act”, IPCRe is required to maintain a minimum solvency margin and a minimum liquidity ratio and is prohibited from declaring or paying any dividends if to do so would cause IPCRe to fail to meet its minimum solvency margin and minimum liquidity ratio. Under the Insurance Act, IPCRe is prohibited from paying dividends of more than 25% of its total statutory capital and surplus (as shown on its previous financial year’s statutory balance sheet) unless it files with the Bermuda Monetary Authority at least seven days before payment of such dividend an affidavit stating that the declaration of such dividends has not caused it to fail to meet its minimum solvency margin and minimum liquidity ratio. The Insurance Act also prohibits IPCRe from declaring or paying dividends without the approval of the Bermuda Monetary Authority if IPCRe failed to meet its minimum solvency margin and minimum liquidity ratio on the last day of the previous financial year. In addition, IPCRe is prohibited under the Insurance Act from reducing its opening total statutory capital by more than 15% without the approval of the Authority. The maximum dividend payable by IPCRe in accordance with the foregoing restrictions as of January 1, 2006 was approximately $277.1 million. Our $200 million credit facility, which we have entered into on July 1, 2003 and which expires by its terms on June 30, 2006, also imposes limits on the ability of IPC Holdings’ subsidiaries to pay dividends, although that limitation does not apply until we draw funds under the facility (which we have not done to date). In addition, Bermuda corporate law prohibits a company from declaring or paying a dividend if there are reasonable grounds for believing that (i) the Company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) the realizable value of the Company’s assets would thereby be less than the aggregate of its liabilities, its issued share capital and its share premium accounts.

Changes in the regulatory scheme under which we operate could result in material adverse effects on our operations.

IPCRe is a registered Class 4 Bermuda insurance company and is subject to regulation and supervision in Bermuda. Among other things, Bermuda statutes, regulations and policies of the Bermuda Monetary Authority require IPCRe to maintain minimum levels of capital, surplus and liquidity, impose restrictions on the amount and type of investments it may hold, prescribe solvency standards that it must meet, limit transfers of ownership of its shares, and to submit to certain periodic examinations of its financial condition. These statutes and regulations may, in effect, restrict the ability of IPCRe to write new business or, as indicated above, distribute funds to IPC Holdings.

Neither IPC Holdings nor IPCRe is registered or licensed as an insurance company in any jurisdiction in the U.S.; a substantial portion of IPCRe’s premiums, however, come from, and are expected to continue to come from, ceding insurers in the U.S. The insurance laws of each state in the U.S. regulate the sale of insurance and reinsurance within their jurisdiction by foreign insurers, such as IPCRe. IPCRe conducts its business through its offices in Bermuda and does not maintain an office, and its personnel do not solicit, advertise, settle claims or conduct other insurance activities, in the U.S. Accordingly, IPCRe does not believe it is in violation of insurance laws of any jurisdiction in the U.S. We cannot be certain, however, that inquiries or challenges to IPCRe’s insurance activities will not be raised in the future. IPCRe believes that its manner of conducting business through its offices in Bermuda has not materially adversely affected its operations to date. We cannot be certain, however, that IPCRe’s location, regulatory status or restrictions on its activities resulting therefrom will not adversely affect its ability to conduct its business in the future.

Recently, the insurance and reinsurance regulatory framework has been subject to increased scrutiny in many jurisdictions including the U.S., various states within the U.S., the U.K. and elsewhere. In the past, there have been Congressional and other initiatives in the U.S. regarding increased supervision and regulation of the insurance industry, including proposals to supervise and regulate alien reinsurers. It is not possible to predict the future impact of changing law or regulation on our operations, such changes could have a material adverse effect on us or the insurance industry in general.

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In some respects, the Bermuda statutes and regulations applicable to us are less restrictive than those that would be applicable to us were we subject to the insurance laws of any state in the U.S. No assurances can be given that if we were to become subject to any such laws of the U.S. or any state thereof at any time in the future, we would be in compliance with such laws.

We are dependent on the business provided to us by reinsurance brokers, and we may be exposed to liability for brokers’ failure to make payments to clients for their claims.

We market our reinsurance products virtually exclusively through reinsurance brokers. The reinsurance brokerage industry generally, and our sources of business specifically, are concentrated. Marsh & McLennan Companies and affiliates accounted for approximately 34%, and our four main brokers (including Marsh & McLennan Companies and affiliates) together accounted for approximately 88%, of our business based on premiums written, excluding reinstatement premiums, in the year ended December 31, 2005. Loss of all or a substantial portion of the business provided by such intermediaries could have a material adverse effect on us.

In accordance with industry practice, we frequently pay amounts owed in respect of claims under our policies to reinsurance brokers, for payment over to the ceding insurers. In the event that a broker failed to make such a payment, depending on the jurisdiction, we might remain liable to the client for the deficiency. Conversely, in certain jurisdictions when premiums for such policies are paid to reinsurance brokers for payment over to us, such premiums will be deemed to have been paid and the ceding insurer will no longer be liable to us for those amounts whether or not actually received by us. Consequently, we assume a degree of credit risk associated with brokers around the world during the payment process.

We are dependent on a small number of key employees.

We currently have only 15 full-time employees and depend on a very small number of key employees for the production and servicing of almost all of our business. We rely substantially on our President and Chief Executive Officer, James P. Bryce, and our Senior Vice Presidents, Stephen F. Fallon, and Peter J.A. Cozens. We have not entered into employment contracts with our key employees, and there can be no assurance that we can retain the services of these key employees. In January 2006, the Company entered into Special Retention Agreements with selected employees, including Messrs. Fallon and Cozens (together, “contracted employees”). In general, the Agreements reference a base salary increase effective January 1, 2006, and provide for incentives (Special Retention Bonuses) to the contracted employees to remain employed with the Company through January 31, 2007 (the “Retention Period”). Such bonuses are calculated as a percentage of the contracted employees’ base salaries. In addition, during the Retention Period, contracted employees who wish to terminate their employment must provide advance notice of termination, generally 180 days. Further, the Special Retention Agreements provide definitive information with respect to contracted employees’ obligations to the Company in regard to Proprietary Information, and Competitive Activities. Although we believe that we could replace key employees, we can give no assurance as to how long it would take. We do not currently maintain key man life insurance policies with respect to any of our employees.

Under Bermuda law, non-Bermudians (other than spouses of Bermudians and holders of permanent resident’s certificates) may not engage in any gainful occupation in Bermuda without an appropriate governmental work permit. Our success depends in part on the continued services of key employees in Bermuda. A work permit may be granted or renewed upon showing that, after proper public advertisement, no Bermudian (or spouse of a Bermudian or holder of a permanent resident’s certificate) is available who meets the minimum standards reasonably required by the employer. None of our executive officers is a Bermudian or a spouse of a Bermudian, and all such officers, with the exception of our Chief Financial Officer, who holds a permanent resident’s certificate, are working in Bermuda under work permits. These permits expire at various times over the next several years. We have no reason to believe that these permits would not be extended upon request at their respective expirations. However, the Bermuda government has announced a policy that places a six-year term limit on individuals with work permits, subject to specified exemptions for persons deemed to be key employees and persons holding positions recognized as key occupations where the particular business has a significant physical presence in Bermuda. It is possible that we could lose the services of one or more of these people if we are unable to renew their work permits, which could significantly and adversely affect our business.

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We may experience conflicts of interest with our principal shareholder that may be detrimental to our business.

AIG, which sponsored the establishment of IPC Holdings and IPCRe in 1993, owned 24.2% of our outstanding common shares as of December 31, 2005. In addition, we have provided AIG with three demand registration rights covering its existing common share ownership (including the common shares purchased in connection with the follow-on offering in November 2005) until December 31, 2012. AIG (directly or through its subsidiaries and affiliates) is engaged in certain transactions with us, which may give rise to conflicts of interest. A subsidiary of AIG provides administrative services to us which include tax, legal and accounting services, pursuant to an administrative services agreement, which we are in the process of renegotiating terms. In addition, a subsidiary of AIG serves as investment advisor (subject to compliance with our asset allocation guidelines) for our entire investment portfolio and another subsidiary of AIG serves as investment custodian and holds all the investments and a majority of our cash. In addition, certain AIG subsidiaries are clients of IPCRe and, in the year ended December 31, 2005, written premiums relating to these companies were $28 million (8% of premiums written during such period, excluding reinstatement premiums). AIG and other shareholders, and their subsidiaries and affiliates, may currently and from time to time compete with us, including by assisting or investing in the formation of other entities engaged in the insurance and reinsurance businesses. Conflicts of interest could also arise with respect to business opportunities that could be advantageous to AIG and any of its subsidiaries or affiliates, on the one hand, and us, on the other hand. AIG or its subsidiaries or affiliates have entered into agreements and maintain relationships with numerous companies that may directly compete with us. No agreement or understanding exists regarding the resolution of any of these potential conflicts of interest.

A significant amount of our assets is invested in fixed income and equity securities that are subject to market volatility.

Our investment portfolio consists substantially of fixed income securities and equity securities (including an investment in a fund of hedge funds). As of December 31, 2005, approximately 21% of our total investment portfolio consisted of equity investments. The fair market value of these fixed income and equity assets and the investment income from these assets fluctuate depending on general economic and market conditions. Therefore, market fluctuations and market volatility affect the value of our investments and could adversely affect the value of our portfolio and our liquidity.

Increases in interest rates or fluctuations in currency exchange rates may cause us to experience losses.

Because of the unpredictable nature of losses that may arise under property catastrophe policies, our liquidity needs can be substantial and can arise at any time. The market value of our fixed income investments is subject to fluctuation depending on changes in prevailing interest rates. We currently do not hedge our investment portfolio against interest rate risk. Accordingly, increases in interest rates during periods when we sell fixed income securities to satisfy liquidity needs may result in losses.

Our functional currency is the U.S. dollar. Our operating currency is generally also the U.S. dollar. However, the 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 substantial exchange gains and losses that could affect our financial position and results of operations. We currently do not — and as a practical matter cannot — hedge our foreign currency exposure with respect to potential claims until a loss payable in a foreign currency occurs (after which we may purchase a currency hedge in some cases).

Risks Related to Our Shares

We are a Bermuda company and it may be difficult for you to enforce judgments against us or our directors and executive officers.

We are a Bermuda exempted company. Certain of our officers and directors are residents of various jurisdictions outside the U.S. All or a substantial portion of our assets and those of our officers and directors, at any one time, are or may be located in jurisdictions outside the U.S. Although we have appointed an agent in New York, New York to receive service of process with respect to actions against us arising out of violations of the

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U.S. federal securities laws in any federal or state court in the U.S. relating to the transactions covered by this annual report on Form 10-K, it may be difficult for investors to effect service of process within the U.S. on our directors and officers who reside outside the U.S. or to enforce against us or our directors and officers judgments of U.S. courts, including judgments predicated upon civil liability provisions of the U.S. federal securities laws.

The rights of holders of our shares are governed by Bermuda law, which differs from U.S. law, and our bye-laws restrict shareholders from bringing legal action against our officers and directors.

The rights of holders of our shares are governed by Bermuda law and our memorandum of association and bye-laws. The rights of shareholders and holders of other securities under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions.

Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any willful negligence, willful default, fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves, willful negligence, willful default, fraud or dishonesty.

There are limitations on the ownership, transfers and voting rights of our shares.

Under our bye-laws, our directors are required to decline to register any transfer of any shares that would result in a person (or any group of which such person is a member), other than AIG and its subsidiaries, beneficially owning, directly or indirectly, 10% or more of the shares, or in AIG and its subsidiaries beneficially owning, directly or indirectly, more than 25% of the shares. Similar restrictions apply to our ability to issue or repurchase shares. The directors also may, in their absolute discretion, decline to register the transfer of any shares if they have reason to believe (i) that the transfer may expose us, any of our subsidiaries, any shareholder or any person ceding insurance to us or any of our subsidiaries to adverse tax or regulatory treatment in any jurisdiction or (ii) that registration of the transfer under the U.S. federal securities laws or under any U.S. state securities laws or under the laws of any other jurisdiction is required and such registration has not been duly effected. These restrictions would apply to a transfer of shares even if the transfer has been executed on the Nasdaq National Market System. A transferor of shares will be deemed to remain the holder of those shares until a transfer of those shares has been registered on our Register of Members. Our bye-laws authorize our board to request information from any holder or prospective acquiror of shares as necessary to give effect to the transfer restrictions referred to above, and may decline to effect any transaction if complete and accurate information is not received as requested.

In addition, our bye-laws provide that any person (or any group of which such person is a member) holding, directly, indirectly or by attribution, or otherwise beneficially owning common shares carrying 10% or more of the total voting rights attached to all of our outstanding common shares, will have the voting rights attached to its issued common shares reduced so that it may not exercise more than approximately 9.9% of such total voting rights. Because of the attribution provisions of the U.S. Internal Revenue Code, which we sometimes refer to as the “Code”, and the rules of the SEC regarding determination of beneficial ownership, this 10%-voting power limitation may have the effect of reducing the voting rights of a shareholder whether or not such shareholder directly holds 10% or more of our common shares. Further, the directors have the authority to request from any shareholder certain information for the purpose of determining whether that shareholder’s voting rights are to be reduced. Failure to respond to such a notice, or submitting incomplete or inaccurate information, gives the directors (or their designee) discretion to disregard all votes attached to that shareholder’s common shares.

Notwithstanding the foregoing, in certain circumstances our bye-laws exclude from the transfer restrictions and the calculation of the 10%-voting power limitation described above any common shares owned by specified banks, brokers, dealers or investment advisers if (i) any such holder is the beneficial owner of those shares solely because it has discretionary authority to vote or dispose of them in a fiduciary capacity on behalf of that holder’s client who is also the beneficial owner of those shares, (ii) the voting rights carried by those shares are not being exercised (and the client is informed that they are not being exercised) by that holder and are being exercised (if they are exercised at all) by that holder’s client, and (iii) that holder would meet the “passive investment intent” test for

33

the filing of Schedule 13-G under Rule 13d-1(b)(1) under the Exchange Act with respect to the entirety of its common share ownership. This bye-law provision thereby permits certain passive investor intermediaries to increase their share ownership above 10% in specified circumstances without being subject to the voting cut back.

Shareholders’ investment could be materially adversely affected if we are deemed to be engaged in business in the U.S.

IPC Holdings and IPCRe are Bermuda companies; neither company files U.S. tax returns. We believe that IPCRe operates in such a manner that it is not subject to U.S. tax (other than U.S. excise tax on reinsurance premiums and withholding tax on certain investment income from U.S. sources), because it does not engage in a trade or business in the U.S. However, because definitive identification of activities which constitute being engaged in a trade or business in the U.S. is not provided by the Code or regulations or court decisions, there can be no assurance that the U.S. Internal Revenue Service will not contend that IPC Holdings and/or IPCRe is engaged in a trade or business in the U.S. If IPC Holdings and/or IPCRe were engaged in a trade or business in the U.S. (and — if IPCRe were to qualify for benefits under the income tax treaty between the U.S. and Bermuda — such trade or business were attributable to a “permanent establishment” in the U.S.), IPC Holdings and/or IPCRe would be subject to U.S. tax at regular corporate rates on the income that is effectively connected with the U.S. trade or business, plus an additional 30% “branch profits” tax on such income remaining after the regular tax, in which case our earnings and shareholders’ investment could be materially adversely affected.

Currently, IPCRe pays reinsurance premium excise taxes in the U.S. (at a rate of 1%).

If you acquire more than 10% of our shares, CFC rules may apply to you.

Each “United States shareholder” of a “controlled foreign corporation” (“CFC”) who owns shares in the CFC on the last day of the CFC’s taxable year must include in its gross income for United States federal income tax purposes its pro-rata share of the CFC’s “subpart F income”, even if the subpart F income is not distributed. For these purposes, any U.S. person who owns, directly or indirectly through foreign persons, or is considered to own under applicable constructive ownership rules of the Code (including by holding a security convertible into or exchangeable for our common shares), 10% or more of the total combined voting power of all classes of stock of a foreign corporation will be considered to be a “United States shareholder”. In general, a foreign insurance company such as IPCRe or IPCRe Europe is treated as a CFC only if such “United States shareholders” collectively own more than 25% of the total combined voting power or total value of its stock for an uninterrupted period of 30 days or more during the tax year. As of December 20, 2005, AIG owned 24.2% of our common shares, although, pursuant to our bye-laws, the combined voting power of these shares is limited to less than 10% of the combined voting power of all shares. Because of the dispersion of IPC Holdings’ share ownership among holders other than AIG; because of the restrictions on transfer, issuance or repurchase of our shares; because under the Bye-laws no single beneficial shareholder (except for certain passive investor intermediaries) is permitted to exercise as much as 10% of the total combined voting power of IPC Holdings; and because the terms of our series A mandatory convertible preferred shares prohibit any person from converting the shares in a situation where such conversion would cause any person to own (or be treated as owning under applicable provisions of the Code) 10% or more of our common shares, we believe that shareholders of IPC Holdings should not be treated as “United States shareholders” of a CFC for purposes of these rules. There can be no assurance, however, that these rules will not apply to shareholders of IPC Holdings, including as a result of their indirect ownership of the stock of IPC Holdings’ subsidiaries. Accordingly, U.S. persons who might, directly or through attribution, acquire 10% or more of the shares of IPC Holdings or any of its subsidiaries should consider the possible application of the CFC rules.

Under certain circumstances, you may be required to pay taxes on your pro-rata share of IPCRe’s or IPCRe Europe’s related party insurance income.

If IPCRe’s related person insurance income (“RPII”) were to equal or exceed 20% of IPCRe’s gross insurance income in any taxable year, any U.S. person who owns shares directly or indirectly on the last day of the taxable year would likely be required to include in its income for U.S. federal income tax purposes its pro-rata share of IPCRe’s RPII for the taxable year, determined as if such RPII were distributed proportionately to such U.S. shareholders at that date regardless of whether such income is distributed. RPII is defined in Code Section 953(c)(2) as any

34

“insurance income” attributable to policies of insurance or reinsurance with respect to which the person (directly or indirectly) insured is a “United States shareholder” or a “related person” to such a shareholder. A U.S. shareholder’s pro-rata share of IPCRe’s RPII for any taxable year, however, will not exceed its proportionate share of IPCRe’s earnings and profits for the year (as determined for U.S. federal income tax purposes). The amount of RPII earned by IPCRe (generally, premium and related investment income from the direct or indirect insurance or reinsurance of any direct or indirect U.S. shareholder of IPCRe or any person related to such shareholder, including IPC Holdings) will depend on a number of factors, including the geographic distribution of IPCRe’s business and the identity of persons directly or indirectly insured or reinsured by IPCRe. Although we do not believe that the 20% threshold was met in taxable years from 1994 to 2004, some of the factors which determine the extent of RPII in any period may be beyond our control. Consequently, there can be no assurance that IPCRe’s RPII will not equal or exceed 20% of its gross insurance income in any taxable year.

The RPII rules described above also apply to IPCRe Europe. We do not believe that U.S. persons who owned shares were required to include any amount of RPII in income for the taxable years 1998 to 2004 in respect of their indirect ownership of IPCRe Europe, but there can be no assurance that IPCRe Europe’s RPII will not equal or exceed 20% of its gross insurance income in any taxable year and/or that IPCRe Europe will have no earnings and profits (as determined for U.S. federal income tax purposes) in any taxable year.

The RPII rules provide that if a shareholder who is a U.S. person disposes of shares in a foreign insurance corporation that has RPII (even if the amount of RPII is less than 20% of the corporation’s gross insurance income) and in which U.S. persons own 25% or more of the shares, any gain from the disposition will generally be treated as ordinary income to the extent of the shareholder’s share of the corporation’s undistributed earnings and profits that were accumulated during the period that the shareholder owned the shares (whether or not such earnings and profits are attributable to RPII). In addition, such a shareholder will be required to comply with certain reporting requirements, regardless of the amount of shares owned by the shareholder. These rules should not apply to dispositions of shares because IPC Holdings is not itself directly engaged in the insurance business and because proposed U.S. Treasury regulations appear to apply only in the case of shares of corporations that are directly engaged in the insurance business. There can be no assurance, however, that the IRS will interpret the proposed regulations in this manner or that the applicable regulations will not be promulgated in final form in a manner that would cause these rules to apply to the disposition of shares.

We may become subject to taxes in Bermuda after 2016, which may have a material adverse effect on our financial condition.

The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966, as amended, of Bermuda, has given us an assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to us or any of our operations or our shares, debentures or other obligations, except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda until March 28, 2016. We cannot assure you that we will not be subject to any Bermuda tax after that date.

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

Pursuant to an administrative services agreement with AICL, IPC Holdings and IPCRe are allocated office space in AICL’s building in Bermuda and our executive offices are located there. The address of our executive offices is 29 Richmond Road, Pembroke HM 08, Bermuda and our telephone number is (441) 298-5100.

Item 3.   Legal Proceedings

We will be subject to litigation and arbitration in the ordinary course of our business. We are not currently involved in any material pending litigation or arbitration proceedings.

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Item 4.   Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our shareholders during the fourth quarter of the year ended December 31, 2005.

A Special General Meeting of Shareholders was called for February 21, 2006 for the following purposes:

•  To amend the Company’s Bye Laws to increase the maximum number of Directors from seven to nine, or such larger number as may be determined by the Board of Directors to be necessary to comply with the terms of any issued and outstanding class or series of Preferred Shares.

•  To authorize the Board of Directors to fill unfilled vacancies existing on the Board of Directors.

•  To approve an increase in the number of authorized Common Shares from 75,000,000 to 150,000,000, and to amend the Bye Laws to reflect that increase.

•  To approve an increase in the number of authorized Preferred Shares from 25,000,000 to 35,000,000, and to amend the Bye Laws to reflect that increase.

All resolutions were duly passed by a show of hands and became effective as of February 21, 2006. No other business of substance was transacted.

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PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common shares are quoted on the Nasdaq National Market under the symbol “IPCR”. The following table sets out the high and low prices for our common shares for the periods indicated as reported by the Nasdaq National Market. Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and do not necessarily represent actual transactions.

	High		Low
Year ended December 31, 2005
First Quarter	$	43.90	$	38.20
Second Quarter		40.25		36.75
Third Quarter		42.31		28.25
Fourth Quarter		32.70		25.01
Year ended December 31, 2004
First Quarter	$	43.10	$	37.80
Second Quarter		40.95		34.78
Third Quarter		39.00		36.04
Fourth Quarter		45.00		36.50

Our common shares are also listed on the Bermuda Stock Exchange

As of January 31, 2006, there were 73 holders of record of common shares.

In March, June and September, 2005 we paid a dividend of $0.24 per common share, and in December, 2005 we paid a dividend of $0.16 per common share. In March and June, 2004 we paid a dividend of $0.20 per common share, and in September and December, 2004 we paid a dividend of $0.24 per common share. In March and June, 2003 we paid a dividend of $0.16 per common share, and in September and December, 2003 we paid a dividend of $0.20 per common share. The amount and timing of dividends is at the discretion of our Board of Directors and is dependent upon our profits and financial requirements, as well as loss experience, business opportunities and any other factors that the Board deems relevant. In addition, if we have funds available for distribution, we may nevertheless determine that such funds should be retained for the purposes of replenishing capital, expanding premium writings or other purposes. We are a holding company, whose principal source of income is cash dividends and other permitted payments from IPCRe and IPCUSL. The payment of dividends from IPCRe to us is restricted under Bermuda law and regulation, including Bermuda insurance law.

Under the Insurance Act, IPCRe is required to maintain a solvency margin and a minimum liquidity ratio and is prohibited from declaring or paying any dividends if to do so would cause IPCRe to fail to meet its solvency margin and 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 it to fail to meet its solvency margin and minimum liquidity ratio. The Insurance Act also prohibits IPCRe from declaring or paying dividends requirements without the approval of the Authority if IPCRe failed to meet its solvency margin and minimum liquidity ratio on the last day of the previous fiscal year. In addition, IPCRe is prohibited under the Insurance Act from reducing its opening total statutory capital by more than 15% without the approval of the Authority. The maximum amount of dividends which could be paid by IPCRe to IPC Holdings at January 1, 2006 without such notification is approximately $277.1 million. As a result of these factors, there can be no assurance that our dividend policy will not change or that we will declare or pay any dividends.

On February 15, 2006, we paid a preference dividend of $0.533932 per series A Mandatory Convertible preferred share, to shareholders of record on January 31, 2006.

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On February 21, 2006 we declared a dividend of $0.16 per share, payable on March 23, 2006 to shareholders of record on March 7, 2006.

For a description of the use of proceeds from our public equity offering in November 2005, see “Item 1. Business — General Development of the Business — Overview” in this Report.

Information relating to compensation plans under which equity securities of IPC are authorised for issuance is set forth in Part III, Item 12 of this Annual Report on Form 10-K.

Item 6.   Selected Financial Data

The historical consolidated financial data presented below as of and for each of the periods ended December 31, 2005, 2004, 2003, 2002 and 2001 were derived from our consolidated financial statements which are incorporated herein by reference to the Annual Report. The selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes thereto, and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” also contained in the Annual Report and incorporated herein by reference.

	Year Ended December 31,
	2005			2004			2003			2002			2001
	(In thousands, except per share amounts)
Statement of (Loss) Income Data:
Gross premiums written	$	472,387		$	378,409		$	322,762		$	259,685		$	133,057
Net premiums earned		452,522			354,882			298,901			226,404			123,375
Net investment income		71,757			51,220			47,089			49,320			32,245
Other income		5,234			4,296			3,348			2,684			—
Net loss and loss adjustment expenses incurred		1,072,662			215,608			54,382			38,775			137,551
Net acquisition costs		39,249			37,682			30,867			24,521			12,686
General and administrative expenses		27,466			23,151			19,103			13,893			9,381
Net foreign exchange loss (gain)		2,979			1,290			(1,910	)		(1,554	)		551
Net realized (losses) gains, on investments		(10,556	)		5,946			13,733			(44,867	)		616
Net (loss) income	$	(623,399	)	$	138,613		$	260,629		$	157,906		$	(3,933	)
Preferred dividend		2,664			—			—			—			—
Net (loss) income, available to common shareholders		(626,063	)	$	138,613		$	260,629		$	157,906		$	(3,933	)
Net income (loss) per common share(1)	$	(12.30	)	$	2.87		$	5.40		$	3.27		$	(0.15	)
Weighted average shares outstanding(1)		50,901,296			48,376,865			48,302,579			48,266,444			26,266,019
Cash dividend per common share	$	0.88		$	0.88		$	0.72		$	—		$	0.16
Other Data:
Loss and loss adjustment expense ratio(2)		237.0	%		60.8	%		18.2	%		17.1	%		111.5	%
Expense ratio(2)		14.8	%		17.1	%		16.7	%		17.0	%		17.9	%
Combined ratio(2)		251.8	%		77.9	%		34.9	%		34.1	%		129.4	%
Return on average equity(3)		(38.0	)%		8.6	%		18.2	%		16.6	%		(0.7	)%

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	Year Ended December 31,
	2005		2004		2003		2002		2001
	(In thousands, except per share amounts)
Balance Sheet Data (at end of period):
Total cash and investments	$	2,560,146	$	1,901,094	$	1,671,423	$	1,387,162	$	1,232,301
Reinsurance premiums receivable		180,798		85,086		61,194		50,328		42,356
Total assets		2,778,281		2,028,290		1,769,458		1,473,975		1,301,716
Reserve for losses and loss adjustment expenses		1,072,056		274,463		123,320		119,355		162,207
Unearned premiums		66,311		68,465		61,795		51,902		24,440
Total shareholders’ equity	$	1,616,400	$	1,668,439	$	1,569,159	$	1,291,483	$	1,105,794
Diluted book value per common share(4)	$	22.26	$	34.44	$	32.46	$	26.75	$	22.92

(1)	Net income per common share is calculated upon the weighted average number of common shares outstanding during the relevant year. The weighted average number of shares includes common shares and the dilutive effect of employee stock options and stock grants, using the treasury stock method. The net loss per common share for the years ended December 31, 2001 and 2005, respectively, are calculated on the weighted average number of shares outstanding during the year, excluding the anti-dilutive effect of employee stock options, stock grants and convertible preferred shares.
(2)	The loss and loss adjustment expense ratio is calculated by dividing the net losses and loss expenses incurred by the net premiums earned. The expense ratio is calculated by dividing the sum of acquisition costs and general and administrative expenses by net premiums earned. The combined ratio is the sum of the loss and loss expense ratio and the expense ratio.
(3)	Return on average equity is calculated as the annual net (loss) income divided by the average of the shareholders’ equity on the first and last day of the respective year.
(4)	Diluted book value per common share is calculated as shareholders’ equity divided by the number of common shares outstanding on the balance sheet date, after considering the dilutive effects of stock grants, options granted to employees and convertible preferred shares, calculated using the treasury stock method. At December 31, 2005 the average weighted number of shares outstanding, including the dilutive effect of employee stock options, stock grants and convertible preferred shares using the treasury stock method was 72,617,755.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information required for this item is incorporated herein by reference to the narrative contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

The information required for this item is incorporated herein by reference to the section entitled “Management’s Discussion and Analysis — Quantitative and Qualitative Disclosure about Market Risk” in the Annual Report.

Item 8.   Financial Statements and Supplementary Data

The information required for this item is incorporated herein by reference to the consolidated financial statements of the Company contained in the Annual Report.

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item 9A.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures — We have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation as of December 31, 2005, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective.

Management’s Report on Internal Control Over Financial Reporting — Our management is responsible for establishing and maintaining internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2005, based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on an evaluation under the framework in Internal Control — Integrated Framework issued by COSO, our management concluded that our internal control over financial reporting was effective as of December 31, 2005. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by KPMG, an independent registered public accounting firm, as stated in their unqualified report which is included herein.

No significant changes were made in our internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f)) or in other factors during the fourth quarter or our year ended December 31, 2005 that has materially affected, or is likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of IPC Holdings, Ltd.

We have audited management’s assessment, included in the accompanying Form 10-K, that IPC Holdings, Ltd. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). IPC Holdings, Ltd. management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of IPC Holdings, Ltd.’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that IPC Holdings, Ltd. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, IPC Holdings, Ltd. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of IPC Holdings, Ltd. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of (loss) income, comprehensive (loss) income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated February 24, 2006 expressed, an unqualified opinion on those consolidated financial statements.

/s/  KPMG

Chartered Accountants

Hamilton, Bermuda

February 24, 2006

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Item 9B.   Other Information

None.

PART III

Item 10.   Directors and Executive Officers of the Registrant

The information concerning directors and executive officers required for this item is incorporated herein by reference to the information contained under the captions “Election of Directors”, “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement. We have adopted a Code of Conduct that applies to all IPC officers, directors and employees, including our principal executive officer, principal financial officer and principal accounting officer. We have also adopted a separate Code of Ethics for our Chief Executive Officer and Senior Financial Officers. These documents are posted on our website at www.ipcre.bm, under the “Corporate Governance” tab within the “Financial Information” section, and we will post any amendments to or waivers from those documents at that location.

Item 11.   Executive Compensation

The information required for this item is incorporated herein by reference to the information contained under the caption “Executive Compensation” in the Proxy Statement.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required for this item is incorporated herein by reference to the information contained under the captions “Beneficial Ownership of Common Shares” and “Executive Compensation” in the Proxy Statement.

The Company currently maintains an option plan that provides for the issuance of common shares to officers and other employees. This compensation plan was approved by the Company’s shareholders on February 15, 1996 and was amended in 1999, 2003 and 2005. The following table sets forth information regarding outstanding options and shares available for future issuance under this plan as of December 31, 2005:

Option Plan Information

					(C)
					Number of Securities
					Remaining Available
	(A)				for Future Issuance
	Number of Securities		(B)		Under Equity
	to be Issued Upon		Weighted-Average		Compensation Plans
	Exercise of		Exercise Price of		(Excluding Securities
	Outstanding Options,		Outstanding Options,		Reflected in Column
Plan Category	Warrants and Rights		Warrants and Rights		(A))
Option Plan approved by security holders		452,125	$	36.47		1,493,330
Equity compensation plans not approved by security holders		—		—		—
Total		452,125	$	36.47		1,493,330

Item 13.   Certain Relationships and Related Transactions

The information required for this item is incorporated herein by reference to the information contained under the caption “Certain Relationships and Related Transactions” in the Proxy Statement.

Item 14.   Principal Accountant Fees and Services

The information required for this item is incorporated herein by reference to the information contained under the caption “Fees to Independent Registered Public Accountants for Fiscal 2005 and 2004” in the Proxy Statement.

42

PART IV

Item 15.   Exhibits and Financial Statement Schedules

(a)  Financial Statements and Exhibits

1. Financial Statements

The following Consolidated Financial Statements of IPC Holdings and Report of Independent Registered Public Accounting Firm are incorporated herein by reference to the Annual Report:

Report of Independent Registered Public Accounting Firm

Consolidated balance sheets as of December 31, 2005 and 2004

Consolidated statements of (loss) income for the years ended December 31, 2005, 2004 and 2003

Consolidated statements of comprehensive (loss) income for the years ended December 31, 2005, 2004 and 2003

Consolidated statements of shareholders’ equity for the years ended December 31, 2005, 2004 and 2003

Consolidated statements of cash flows for the years ended December 31, 2005, 2004 and 2003

Notes to the consolidated financial statements

2. Financial Statement Schedules

Report of Independent Registered Public Accounting Firm on Schedules

Schedule I — Summary of Investments — Other than Investments in Related Parties

Schedule II — Condensed Financial Information of Registrant

Schedule III — Supplementary Insurance Information of Subsidiary for the years ended December 31, 2005, 2004 and 2003

Schedule IV — Supplementary Information concerning Reinsurance for the years ended December 31, 2005, 2004 and 2003

Certain schedules have been omitted, either because they are not applicable, or because the information is included in our consolidated financial statements incorporated by reference to the Annual Report.

3. Exhibits

Exhibit
Number			Description	Method of Filing
	3	.1	Memorandum of Association of the Company	*
	3	.2	Amended and Restated Bye-Laws of the Company	§
	3	.3	Form of Memorandum of Increase of Share Capital	*
	3	.4	Certificate of Designations for the preferred shares
	4	.1	Form of certificate for the common shares of the Company	*
	4	.2	Form of certificate for the preferred shares of the Company (included in Exhibit 3.4)
	4	.3	Letter Agreement, dated October 31, 2005 between the Company and AIG	∆
	4	.4	Registration Rights Agreement, dated as of March 13, 1996, among AIG, other shareholders names therein and the Company

43

Exhibit
Number			Description	Method of Filing
	10	.1	Termination Agreement among the Company and the shareholders named therein	*
	10	.2†	Amended and Restated IPC Holdings, Ltd. Stock Option Plan
	10	.3†	Amended and Restated IPC Holdings, Ltd. Deferred Compensation Plan
	10	.4†	IPCRe Defined Contribution Retirement Plan	*
	10	.5	Amended and Restated Administrative Services Agreement among the Company, IPCRe and American International Company, Limited	*
	10	.6	Investment Management Agreement between IPCRe and AIG Global Investment Corp. (Ireland) Limited (“AIGIC”), as amended	**
	10	.7	Investment Sub-Advisory Agreement between AIGIC and AIGIC (Europe) (formerly known as Dempsey & Company International Limited)	*
	10	.8	Custodial Agreement between AIG Global Trust Services and IPCRe	*
	10	.9†	Retirement Agreement between IPCRe and James P. Bryce	*
	10	.10†	Retirement Agreement between IPCRe and Peter J.A. Cozens	*
	10	.11	Credit Agreement between IPCRe Limited, Bank One NA, and other Lenders named therein	+
	10	.12	Underwriting Agency Agreement between Allied World Assurance Company, Ltd and IPCUSL	¶
	10	.13	Amended and Restated Amendment No. 1 to Underwriting Agency Agreement, dated December 1, 2001	¶¶
	10	.14	Amended Schedule I (Investment Policy Guideline) to Investment Management Agreement between IPCRe and AIGIC	++
	10	.15†	IPC Holdings, Ltd. 2003 Stock Incentive Plan	§§
	10	.16	Form of Stock Option Agreement	l
	10	.17	Form of Restricted Stock Unit Award	l
	10	.18†	The IPCRe Limited International Retirement Plan Level 2 Trust, as of December 31, 2003	l
	10	.19	Letters of Credit Master Agreement between Citibank N.A. and IPCRe Limited	l
	10	.20	Letter of Credit Agreement between a) Barclays Bank PLC and IPCRe, and letter of credit agreement b) between Bayerische Hypo- und Vereinsbank and IPCRe
	10	.21†	Form of Special Retention Agreements
	11	.1	Statement regarding Computation of Per Share Earnings	Filed herewith
	12	.1	Statement of Computation of Ratios of Earnings to Fixed Charges	Filed herewith
	13	.1	Portions of the Annual Report incorporated herein by reference	Filed herewith
	21	.1	Subsidiaries of the Registrant	Filed herewith
	23	.1	Consent of KPMG	Filed herewith
	31	.1	Certification by Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

44

Exhibit
Number			Description	Method of Filing
	31	.2	Certification by Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
	32	.1©	Certification by Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith
	32	.2©	Certification by Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith

*	Incorporated by reference to the corresponding exhibit in our Registration Statement on Form S-1 (No. 333-00088).
+	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended June 30, 2003 (File No. 0-27662).
**	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended June 30, 1997 (File No. 0-27662).
	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended September 30, 1999 (File No. 0-27662).
	Incorporated by reference to Exhibit 4.1 to our filing on Form S-8 of July 15, 2003 (No. 333-107052).
¶	Incorporated by reference to Exhibit 10.15 to our Form 10-K for the year ended December 31, 2001 (File No. 0-27662).
§	Incorporated by reference to Exhibit 3.2 to our Form 8-A of July 13, 2003 (File No. 0-27662).
§§	Incorporated by reference to Exhibit 4.2 to our filing on Form S-8 of July 15, 2003.
++	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended March 31, 2004 (File No. 0-27662).
¶¶	Incorporated by reference to Exhibit 10.2 to our Form 10-Q for the quarter ended March 31, 2004 (File No. 0-27662).
l	Incorporated by reference to Exhibit 10.2 to our Form 10-K for the year ended December 31, 2004 (File No. 0-27662).
∆	Incorporated by reference to Exhibit 1.3 of our Form 8-K filed on November 3, 2005 (File No. 0-27662).
	Incorporated by reference to Exhibit 1.4 of our Form 8-K filed on November 3, 2005 (File No. 0-27662).
	Incorporated by reference to Exhibit 3.3 of our Form 8-K filed on November 3, 2005 (File No. 0-27662).
	Incorporated by reference to Exhibits 99.1 and 99.2 to our Form 8-K filed on January 13, 2006 (File No. 0-27662).
	Incorporated by reference to Exhibit 10.20 to our Form 8-K filed on January 25, 2006 (File No. 0-27662).
†	Management contract or compensatory plan, contract or arrangement.
©	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.

45

IPC HOLDINGS, LTD.

INDEX TO SCHEDULES

Schedule/Report		Page
Report of Independent Registered Public Accounting Firm on Schedules			47
Schedule I	Summary of Investments — Other than Investments in Related Parties		48
Schedule II	Condensed Financial Information of the Registrant		49
Schedule III	Supplementary Insurance Information of Subsidiary for the years ended December 31, 2005, 2004 and 2003		52
Schedule IV	Supplementary Information concerning Reinsurance for the years ended December 31, 2005, 2004 and 2003		53

46

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Under date of February 24, 2006, we reported on the consolidated balance sheets of IPC Holdings, Ltd. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of (loss) income, comprehensive (loss) income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2005, as contained in the December 31, 2005 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K. In connection with our audits of the 2005, 2004 and 2003 consolidated financial statements, we have also audited the related consolidated financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the related 2005, 2004 and 2003 financial statement schedules based on our audits.

In our opinion, the related 2005, 2004 and 2003 financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/  KPMG

Chartered Accountants

Hamilton, Bermuda

February 24, 2006

47

SCHEDULE I

IPC HOLDINGS, LTD.

SUMMARY OF INVESTMENTS — OTHER THAN INVESTMENTS IN RELATED PARTIES
(Expressed in thousands of United States Dollars)

	Year Ended				Amount at
	December 31, 2005				which shown
	Amortized		Market		in the
	Cost		Value		Balance Sheet
Type of investment:
Fixed maturities
U.S. Government and government agencies	$	326,916	$	324,175	$	324,175
Other governments		296,823		293,962		293,962
Corporate		1,188,004		1,179,317		1,179,317
Supranational entities		202,992		201,152		201,152
Total fixed maturities		2,014,735		1,998,606		1,998,606
Equity investments		420,910		530,127		530,127
Cash and cash equivalents		31,113		31,113		31,113
Total investments, cash and cash equivalents	$	2,466,758	$	2,559,846	$	2,559,846

See Report of Independent Registered Public Accounting Firm

48

SCHEDULE II

IPC HOLDINGS, LTD.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEET
(PARENT COMPANY)
(Expressed in thousands of United States Dollars)

	As of December 31,
	2005			2004
ASSETS:
Cash	$	100		$	100
Investment in wholly-owned subsidiaries*		1,622,946			1,670,324
Other assets		345			278
	$	1,623,391		$	1,670,702
LIABILITIES:
Payable to subsidiaries	$	3,970		$	1,923
Dividends payable		2,664			—
Other liabilities		357			340
		6,991			2,263
SHAREHOLDERS’ EQUITY:
Share capital — 2005: 63,666,368 shares outstanding, par value $0.01; 2004: 48,407,203 shares outstanding, par value $0.01		637			484
Preferred shares — 2005: 9,000,000 shares outstanding, par value $0.01; 2004: 0 shares outstanding, par value $0.01		90			—
Additional paid in capital		1,473,257			854,797
Deferred stock grant compensation		(2,492	)		(2,899	)
Retained earnings		52,126			724,907
Accumulated other comprehensive income		92,782			91,150
		1,616,400			1,668,439
	$	1,623,391		$	1,670,702

* eliminated on consolidation

See Report of Independent Registered Public Accounting Firm

49

SCHEDULE II

continued

IPC HOLDINGS, LTD.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT — continued

STATEMENT OF (LOSS) INCOME
(PARENT COMPANY)
(Expressed in thousands of United States Dollars)

	Year Ended December 31,
	2005			2004			2003
Interest income	$	115		$	—		$	—
Expenses:
Operating costs and expenses, net		2,057			2,168			1,568
(Loss) before equity in net (loss) income of wholly-owned subsidiaries*		(1,938	)		(2,168	)		(1,568	)
Equity in net (loss) income of wholly-owned subsidiaries*		(621,461	)		140,781			262,197
Preferred dividend		2,664			—			—
Net (loss) income available to common shareholders	$	(626,063	)	$	138,613		$	260,629

STATEMENT OF COMPREHENSIVE (LOSS) INCOME
(PARENT COMPANY)
(Expressed in thousands of United States Dollars)

	Year Ended December 31,
	2005			2004			2003
Net (loss) income	$	(623,399	)	$	138,613		$	260,629
Other comprehensive income:
Holding (losses) gains, net on investments during period		(8,618	)		5,989			64,581
Reclassification adjustment for losses (gains) included in net income		10,556			(5,946	)		(13,733	)
		1,938			43			50,848
Comprehensive (loss) income	$	(621,461	)	$	138,656		$	311,477

* eliminated on consolidation

See Report of Independent Registered Public Accounting Firm

50

SCHEDULE II

continued

IPC HOLDINGS, LTD.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT — continued

STATEMENT OF CASH FLOWS
(PARENT COMPANY)
(Expressed in thousands of United States Dollars)

	Year Ended December 31,
	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(623,399	)	$	138,613		$	260,629
Adjustments to reconcile net income to cash provided by:
Equity in net loss (income) from subsidiaries*		621,461			(140,781	)		(262,197	)
Stock compensation		2,640			2,461			842
Changes in, net:
Other assets		(67	)		17			(67	)
Receivable from subsidiaries*		—			2,429			(2,429	)
Payable to subsidiaries*		2,047			(684	)		1,297
Other liabilities		17			133			60
		2,699			2,188			(1,865	)
CASH FLOWS FROM FINANCING ACTIVITIES
Additional share capital received		614,731			645			67
Additional investment in subsidiaries*		(616,200	)		—			—
Dividends received from subsidiaries*		43,750			39,650			36,500
Dividends paid to shareholders		(44,980	)		(42,482	)		(34,709	)
		(2,699	)		(2,187	)		1,858
Net increase (decrease) in cash and cash equivalents		—			1			(7	)
Cash and cash equivalents, beginning of year		100			99			106
Cash and cash equivalents, end of year	$	100		$	100		$	99

* eliminated on consolidation

See Report of Independent Registered Public Accounting Firm

51

SCHEDULE III

IPC HOLDINGS, LTD. AND SUBSIDIARIES

SUBSIDIARY SUPPLEMENTARY INSURANCE INFORMATION

(Expressed in thousands of United States Dollars)

													Amortization
			Future policy								Benefits,		of
			benefits,								claims,		deferred
	Deferred		losses, claims						Net		losses and		policy		Other		Gross
	policy acquisition		and loss		Unearned		Premium		investment		settlement		acquisition		operating		premiums
Segment	costs		expenses		premiums		revenue		income		expenses		costs		expenses		written
2005: Property & Similar	$	7,843	$	1,072,056	$	66,311	$	452,522	$	71,757	$	1,072,662	$	39,249	$	25,408	$	472,387
2004: Property & Similar	$	8,424	$	274,463	$	68,465	$	354,882	$	51,220	$	215,608	$	37,682	$	20,983	$	378,409
2003: Property & Similar	$	8,035	$	123,320	$	61,795	$	298,901	$	47,089	$	54,382	$	30,867	$	17,532	$	322,762

See Report of Independent Registered Public Accounting Firm

52

SCHEDULE IV

REINSURANCE
(Expressed in thousands of United States Dollars)

			Ceded to		Assumed from				Percentage of
			other		other				amount
	Gross Amount		companies		companies		Net Amount(1)		assumed to net
2005: Property & Similar	$	—	$	21,581	$	472,387	$	450,806		105	%
2004: Property & Similar	$	—	$	20,098	$	378,409	$	358,311		106	%
2003: Property & Similar	$	—	$	14,466	$	322,762	$	308,296		105	%

(1) Premiums Written

See Report of Independent Registered Public Accounting Firm

53

IPC HOLDINGS, LTD.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in Pembroke, Bermuda, on the 28^th day of February, 2006.

IPC Holdings, LTD.

/s/  James P. Bryce

By: James P. Bryce

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated and on the dates indicated.

Signature	Title	Date
/s/  Frank Mutch Frank Mutch	Chairman of the Board of Directors	February 28, 2006
/s/  James P. Bryce James P. Bryce	President, Chief Executive Officer and Director	February 28, 2006
/s/  John R. Weale John R. Weale	Senior Vice President, Chief Financial Officer and principal accounting officer	February 28, 2006
/s/  George Cubbon George Cubbon	Deputy Chairman of the Board of Directors	February 28, 2006
/s/  Clarence James Dr. The Honourable Clarence E. James	Director	February 28, 2006
/s/  Kenneth Hammond Kenneth Hammond	Director	February 28, 2006

54

EXHIBIT INDEX

Exhibit
Number			Description	Method of Filing
	3	.1	Memorandum of Association of the Company	*
	3	.2	Amended and Restated Bye-Laws of the Company	§
	3	.3	Form of Memorandum of Increase of Share Capital	*
	3	.4	Certificate of Designations for the preferred shares
	4	.1	Form of certificate for the common shares of the Company	*
	4	.2	Form of certificate for the preferred shares of the Company (included in Exhibit 3.4)
	4	.3	Letter Agreement, dated October 31, 2005 between the Company and AIG	∆
	4	.4	Registration Rights Agreement, dated as of March 13, 1996, among AIG, other shareholders names therein and the Company
	10	.1	Termination Agreement among the Company and the shareholders named therein	*
	10	.2†	Amended and Restated IPC Holdings, Ltd. Stock Option Plan
	10	.3†	Amended and Restated IPC Holdings, Ltd. Deferred Compensation Plan
	10	.4†	IPCRe Defined Contribution Retirement Plan	*
	10	.5	Amended and Restated Administrative Services Agreement among the Company, IPCRe and American International Company, Limited	*
	10	.6	Investment Management Agreement between IPCRe and AIG Global Investment Corp. (Ireland) Limited (“AIGIC”), as amended	**
	10	.7	Investment Sub-Advisory Agreement between AIGIC and AIGIC (Europe) (formerly known as Dempsey & Company International Limited)	*
	10	.8	Custodial Agreement between AIG Global Trust Services and IPCRe	*
	10	.9†	Retirement Agreement between IPCRe and James P. Bryce	*
	10	.10†	Retirement Agreement between IPCRe and Peter J.A. Cozens	*
	10	.11	Credit Agreement between IPCRe Limited, Bank One NA, and other Lenders named therein	+
	10	.12	Underwriting Agency Agreement between Allied World Assurance Company, Ltd and IPCUSL	¶
	10	.13	Amended and Restated Amendment No. 1 to Underwriting Agency Agreement, dated December 1, 2001	¶¶
	10	.14	Amended Schedule I (Investment Policy Guideline) to Investment Management Agreement between IPCRe and AIGIC	+ +
	10	.15	IPC Holdings, Ltd. 2003 Stock Incentive Plan	§§
	10	.16	Form of Stock Option Agreement	l
	10	.17	Form of Restricted Stock Unit Award	l
	10	.18†	The IPCRe Limited International Retirement Plan Level 2 Trust, as of December 31, 2003	l
	10	.19	Letters of Credit Master Agreement between Citibank N.A. and IPCRe Limited	l
	10	.20	Letter of Credit Agreement between a) Barclays Bank PLC and IPCRe, and letter of credit agreement b) between Bayerische Hypo- und Vereinsbank and IPCRe
	10	.21†	Form of Special Retention Agreements
	11	.1	Statement regarding Computation of Per Share Earnings	Filed herewith
	12	.1	Statement of Computation of Ratios of Earnings to Fixed Charges	Filed herewith
	13	.1	Portions of the Annual Report incorporated herein by reference	Filed herewith
	21	.1	Subsidiaries of the Registrant	Filed herewith
	23	.1	Consent of KPMG	Filed herewith

55

Exhibit
Number			Description	Method of Filing
	31	.1	Certification by Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
	31	.2	Certification by Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
	32	.1©	Certification by Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith
	32	.2©	Certification by Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith

*	Incorporated by reference to the corresponding exhibit in our Registration Statement on Form S-1 (No. 333-00088).
+	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended June 30, 2003 (File No. 0-27662).
**	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended June 30, 1997 (File No. 0-27662).
	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended September 30, 1999 (File No. 0-27662).
	Incorporated by reference to Exhibit 4.1 to our filing on Form S-8 of July 15, 2003 (No. 333-107052).
¶	Incorporated by reference to Exhibit 10.15 to our Form 10-K for the year ended December 31, 2001 (File No. 0-27662).
§	Incorporated by reference to Exhibit 3.2 to our Form 8-A of July 13, 2003 (File No. 0-27662).
§§	Incorporated by reference to Exhibit 4.2 to our filing on Form S-8 of July 15, 2003 (No. 333-107052).
++	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended March 31, 2004 (File No. 0-27662).
¶¶	Incorporated by reference to Exhibit 10.2 to our Form 10-Q for the quarter ended March 31, 2004 (File No. 0-27662).
l	Incorporated by reference to Exhibit 10.2 to our Form 10-K for the year ended December 31, 2004 (File No. 0-27662).
∆	Incorporated by reference to Exhibit 1.3 of our Form 8-K filed on November 3, 2005 (File No. 0-27662).
	Incorporated by reference to Exhibit 1.4 of our Form 8-K filed on November 3, 2005 (File No. 0-27662).
	Incorporated by reference to Exhibit 3.3 of our Form 8-K filed on November 3, 2005 (File No. 0-27662).
	Incorporated by reference to Exhibits 99.1 and 99.2 to our Form 8-K filed on January 13, 2006 (File No. 0-27662).
	Incorporated by reference to Exhibit 10.20 to our Form 8-K filed on January 25, 2006 (File No. 0-27662).
†	Management contract or compensatory plan, contract or arrangement.
©	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.

56

EX-11.1

Exhibit 11.1

IPC HOLDINGS, LTD. AND SUBSIDIARIES
CALCULATION OF NET INCOME PER COMMON SHARE

(Expressed in thousands of United States dollars, except per share amounts)

	Year ended December 31,
	2005			2004		2003
	(audited)			(audited)		(audited)
BASIC
Net (loss) income, available to common shareholders	$	(626,063	)	$	138,613	$	260,629
Common shares outstanding at January 1		48,323,329			48,245,395		48,179,805
Common shares outstanding at December 31		63,612,198			48,323,329		48,245,395
Weighted average common shares outstanding		50,901,382			48,287,261		48,205,554
Net (loss) income available to common shareholders, per common share	$	(12.30	)	$	2.87	$	5.41
DILUTED
Net (loss) income	$	(623,399	)	$	138,613	$	260,629
Weighted average common shares outstanding		50,901,382			48,287,261		48,205,554
Dilutive effect of share options (except where anti-dilutive)		—			89,604		97,025
Total		50,901,382			48,376,865		48,302,579
Net (loss) income per common share	$	(12.30	)	$	2.87	$	5.40

EX-12.1

Exhibit 12.1

IPC HOLDINGS, LTD. AND SUBSIDIARIES
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS

     Our consolidated ratios of earnings to fixed charges for each of the five fiscal years ended December 31, 2005 are as follows:

	Year ended December 31,
	2005			2004		2003		2002		2001
	($ in thousands)
Net (loss) income	$	(623,399	)	$	138,613	$	260,629	$	157,906	$	(3,933	)
Preferred share dividends		2,644			—		—		—		—
Fixed charges		—			—		—		—		—
Ratio of earnings to combined fixed charges and preferred share dividends		(1	)		—		—		—		—

     (1) Earnings for the year ended December 31, 2005 were insufficient to cover combined fixed charges and preferred share dividends by $626.0 million.

EX-13.1

Exhibit 13.1

PORTIONS OF ANNUAL REPORT

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

The following is a discussion of the results of operations and financial position of IPC Holdings, Ltd. References to the “Company” mean IPC Holdings and references to “we”, “us”, “our” or “IPC” mean IPC Holdings together with its wholly-owned subsidiaries, IPCRe Limited (“IPCRe”), and IPCRe Underwriting Services Limited (“IPCUSL”). This discussion should be read in conjunction with our Consolidated Financial Statements and related notes for the year ended December 31, 2005.

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” as set forth in our report on Form 10-K for the fiscal year ended December 31, 2005. Property catastrophe reinsurers tend to experience significant fluctuations in operating results primarily because of the unpredictable 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 the annual 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. After significant catastrophic events, rating agencies may also require that insurance companies reduce the level of their exposures in relationship to the amount of their shareholders’ funds. This can be achieved by writing less business, buying more reinsurance, or raising more capital, or any combination thereof. The same rating agency pressures have also been applied to reinsurance companies, who have similar options. Thus 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 or 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 2005 demonstrated the cyclicality and 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, 2001, 2004 and 2005 in many parts of the world, including numerous hurricanes, hail storms, tornadoes, cyclones and the terrorist attacks that were carried out in the U.S. on September 11, 2001. Most recently, during 2004 and 2005, the combined insured property losses from all catastrophic events set new consecutive annual records. Events in 2004 included the four hurricanes that made landfall in Florida and affected other parts of the south-eastern United States and the Caribbean in the third quarter, and a record

number of typhoons which made landfall in Japan, several of which resulted in significant insured losses. Published estimates of the aggregated industry losses from these third quarter, 2004 events range from $30 billion to $35 billion. During 2005, there was a record number (27) of named storms in the north Atlantic, including hurricanes Katrina, Rita and Wilma. In addition, cyclone Erwin affected parts of northern Europe in January, 2005 and floods impacted parts of central Europe in August, 2005. Hurricane Katrina and the flooding that subsequently affected New Orleans and other parts of Louisiana are estimated to have resulted in the largest amount of insured losses from associated events. Estimates of the aggregated industry losses from 2005 events range from $60 billion to $80 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”), which tracks 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 2000 renewal cycle, due to the increased levels of claim activity, premium rates were at a similar level to 1999. Significant claims incurred by many reinsurers during 2000 as a result of events in late 1999, followed by several catastrophic events in 2001, resulted in a contraction of capacity. Consequently, renewals during the fourth quarter of 2000 and throughout 2001 and 2002 saw premium rates increasing by between 10% and 25%, on average, for contracts which had not suffered losses, with significantly higher increases for those contracts which had suffered losses. During the fourth quarter of 2001, in response to the reduction in the capacity and anticipated increased demand, many companies, including ourselves, raised additional capital. There were also a number of new insurance and reinsurance companies formed in Bermuda and elsewhere, hoping to satisfy demand and benefit from improved market terms and conditions. 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 and 2004, the rate of increase moderated over time, such that pricing in the second half of 2004 was generally leveling off. Despite the level of catastrophe activity in 2004, pricing of our business renewing in the first half of 2005 was generally flat or with modest declines of around 5% for contracts that had not incurred any losses, while loss-impacted contracts had increases of between 10% and 25%. Renewals of contracts with U. S. cedants from July 1, 2005 onwards saw the return of modest increases in premium rates, generally as a result of additional development of claims from events in the third quarter of 2004. Because of the unprecedented level of insured losses from events which occurred in the second half of 2005, pricing for contracts with U.S. cedants saw significant increases, especially contracts with coastal exposures, during negotiations for business renewing January 1, 2006. Generally, renewals of contracts with U.S. cedants who had not had claims arising from events in 2004 or 2005 saw price increases in the range of 10% to 25%, while contracts that had incurred losses in 2005 saw increases of between 50% and 100%, or more. Pressure on the amount of reinsurance capacity available not only resulted from the significant financial impact of catastrophic events in 2005, but also because of changes in rating agency requirements in respect of insurance/reinsurance companies’ capital levels. In response to these new requirements, as well as to meet anticipated increased demand, many companies, including ourselves, raised capital, to at least replenish what had been lost as a result of 2005 catastrophes. Similar to events in the fourth quarter of 2001, a number of new reinsurance companies formed in Bermuda and elsewhere. From 2002 to 2005, we believe that we were 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. In addition, we were able 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 from 2002 to 2005, in comparison to 2001. As a result of the impact of catastrophes occurring in 2005 on our shareholders’ funds, offset in part by our capital raising, the amount of capacity we are able to offer at the beginning of 2006 is approximately 3% less than at the beginning of 2005. However, we believe that because of price increases, the amount of premiums that we will generate from the capacity offered will increase in comparison to 2005.

     With respect to terms and conditions other than pricing, for renewals in the period 2002 to 2005 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. Between 2002 and 2005, IPCRe has 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. It expired at the end of 2005, but was renewed in modified form for 2006 and 2007. TRIA, which does not apply to reinsurance companies such as IPCRe, established 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. In its revised form, the insurers’ deductible level is raised from 15% of earned premiums in covered lines in 2005, to 17.5% for 2006, and 20% in 2007. 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. The trigger for federal outlays has been raised from $5 million in insured losses arising from a terrorist act, to $50 million in 2006, and $100 million in 2007. As a result of TRIA, our participation in coverage for terrorism within the United States declined during 2003, 2004 and 2005. 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, 2006.

Critical Accounting Policies

     Our significant accounting policies are described in 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 (loss) 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 therefore 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 December 31, 2005 the amount of premium accrued resulting from managements’ estimates for proportional treaties was approximately 2% of total gross premiums written for the year then ended. Reinstatement premiums are recognized and accrued at the time we incur a loss and where coverage of the original contract is reinstated under pre-defined contract terms and are earned pro-rata over the reinstated coverage period. Such accruals are based upon actual contractual terms applied to the amount of loss reserves expected to be paid, and the only element of management judgement involved is with respect to the amount of loss reserves as described below, and associated rates on line (i.e. price). The amount accrued at December 31, 2005 for estimated reinstatement premiums on Reported But Not Enough losses (“RBNE”) and Incurred But Not Reported (“IBNR”) loss reserves was $37.8 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 are 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, including initial estimates of aggregate industry losses, 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 and the industry as a whole, as a result of the event and a specific estimate of the portion of such loss we have

reinsured. Management’s estimates are used for IBNR or RBNE loss amounts. For catastrophic events there is often 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 policy coverage issues, multiple events affecting one geographic area and the resulting impact on claims adjusting (including allocation of claims to event and the effect of demand surge on the cost of building materials and labour) by, and communications from, ceding companies, can cause delays to the timing with which 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 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 December 31, 2005 management’s estimates for IBNR/RBNE represented approximately 33% of total loss reserves. The majority of the estimate relates to reserves for claims from hurricanes Katrina, Rita and Wilma, which affected various parts of Gulf coast states between August and October 2005. If our estimate of IBNR/RBNE loss reserves at December 31, 2005 was inaccurate by a factor of 10%, our results of operations would be impacted by a positive or negative movement of approximately $35 million. If our total reserve for losses at December 31, 2005 was inaccurate by a factor of 10%, our incurred losses would be impacted by approximately $107 million, which represents approximately 7% of shareholders’ equity at December 31, 2005. 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 investments in mutual funds 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 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 (loss) 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 December 31, 2005 our equity investments mostly comprised investments in the following: a north American 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 December 31, 2005 we did not hold any fixed maturity securities that are not investment grade or not rated.

     At December 31, 2005 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,
	2005
	$000
Gross unrealized (losses):
Fixed maturity investments		(17,406	)
Equity investments		(735	)
		(18,141	)
Gross unrealized gains:
Fixed maturity investments		1,277
Equity investments		109,952
		111,229
Total net unrealized gains		93,088

     The following table summarizes the unrealized loss position at December 31, 2005 by length of time those securities have been continuously in an unrealized loss position:

	Less than 12 months					12 months or longer
	Gross					Gross
	unrealized					unrealized
2005 Unrealized Losses	losses			Fair Value		losses			Fair Value
Length of time with unrealized loss:
Fixed maturity investments	$	(12,115	)	$	1,447,839	$	(5,291	)	$	232,745
Equity investments	$	(735	)	$	156,183	$	—		$	—

Results of Operations

     Years Ended December 31, 2005, 2004 and 2003

     Although the second half of 2004 saw a significant number of catastrophic events, including the four hurricanes that made landfall in Florida, and a record number of typhoons making landfall in Japan, these events were comparatively minor compared to the devastation resulting from hurricane Katrina and the flooding that followed, affecting large parts of Louisiana, Alabama and Mississippi in August of 2005. Hurricane Katrina was followed by two other severe storms, hurricane Rita which affected Texas in September, and hurricane Wilma, which affected Mexico and Florida in October, 2005. As a result of the record amount of aggregate insured losses resulting from these and other events that occurred in 2005, we incurred net losses and loss adjustment expenses of almost $1.1 billion in the year ended December 31, 2005, and our net loss before preference dividend was $(623.4) million in 2005, compared to net income of $138.6 million earned in 2004, and $260.6 million net income earned in 2003. To offset the impact of the losses in 2005 on our shareholders’ equity, and on the amount of reinsurance capacity that we offer to our clients, we raised additional capital. On November 4, 2005, we completed a follow-on public offering in which 11,527,000 common shares were sold (including the exercise of the over-allotment option of 1,048,000 shares) at $26.25 per share. On the same date, 3,675,000 common shares were sold directly to AIG at a price equal to the public offering price. In addition, on November 4, 2005, we also completed a public offering in which 9,000,000 7.25% Series A mandatory convertible

preferred shares were sold, with a liquidation preference of $26.25 per share. Total net proceeds from these transactions (together, the “Offerings”) were approximately $614 million. We intend to use the net proceeds from the public offerings of common shares and series A mandatory convertible preferred shares to provide additional capital for reinsurance operations and general corporate purposes.

     In the twelve months ended December 31, 2005, we wrote gross premiums of $472.4 million, compared to $378.4 million and $322.8 million written in the years ended December 31, 2004 and 2003, respectively. The components of these premium volumes were as follows:

$(000)	2005		2004		2003
Annual (deposit) premiums		335,856		333,106		294,444
Reinstatement premiums		129,149		32,507		7,233
Adjustment premiums		7,382		12,796		21,085
Total premiums		472,387		378,409		322,762

     Annual or deposit premiums are the basic premiums for excess of loss treaties reported at the inception of the contracts, which are paid in installments over the contract period, or are estimated or actual reported premiums from proportional treaties. Reinstatement premiums are premiums paid by ceding companies to reinstate reinsurance coverage following a claim. Adjustment premiums are adjustments generally arising from differences between cedants’ actual premium income and their original estimates thereof, on which annual deposit premiums are based. Adjustment premiums were higher in 2003 because original estimates of 2002 primary property insurance premiums advised by cedants did not anticipate the significant increases in their pricing that occurred. The significant increases in reinstatement premiums in 2004 and 2005, respectively, were due to the volume of claims relating to the hurricanes and other catastrophic events which occurred in the respective years. In both 2003 and 2004, we had increased participation and additional business from existing clients and selectively wrote business for new clients. In 2003 and the first half of 2004, we benefitted from rate increases of 3% to 10% during the first half of the period, but pricing generally flattened during the latter half of 2004, principally due to the absence of significant catastrophic events until the third quarter of 2004, as well as increased competition. In 2005, there were rate increases for U.S. and Japanese contracts that had suffered losses from third quarter, 2004 windstorms. These increases were offset in part by small rate reductions given on European business. In addition, during all three years, we decided not to renew some contracts with unsatisfactory rates or terms, premiums related to which totaled $21.4 million, $19.0 million and $23.8 million for the years ended December 31, 2005, 2004 and 2003, respectively. Offsetting this was new business that was written in each of the three years, amounting to $24.8 million, $24.7 million and $45.0 million, for the years ended December 31, 2005, 2004 and 2003, respectively.

     We purchase reinsurance to reduce our exposure to large non-U.S. losses. (See Note 5 to the Consolidated Financial Statements — “Ceded Reinsurance”.) In the years ended December 31, 2005, 2004 and 2003, premiums ceded to these facilities were $21.6 million, $20.1 million and $14.5 million, respectively, reducing net premium writings for those years to $450.8 million, $358.3 million and $308.3 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 60.5% in 2003 to 74.5% in 2004 and 83.33% for 2005.

     We earned net premiums of $452.5 million, $354.9 million and $298.9 million in the years ended December 31, 2005, 2004 and 2003, respectively, representing increases of 27.5% and 18.7%, respectively. Earned premiums increased from 2003 to 2005 because of the increase in written premiums, as well as the substantial increases in reinstatement premiums recorded in 2005 and 2004, respectively. Excluding adjustment and reinstatement premiums, net premiums earned increased by 14.4% from $270.5 million in 2003 to $309.6 million in 2004, and then by a further 2.0% to $316.0 million in 2005.

     We earned net investment income of $71.8 million in the year ended December 31, 2005 compared to $51.2 million earned in the year ended December 31, 2004, and $47.1 million in the year ended December 31, 2003. After two years of decline, the overall yield of the fixed income portfolio improved in the year ended December 31, 2005, due to rising interest rates. In 2005, this factor was augmented by the increase in the average balance of invested assets, which was 25% higher than in 2004, because of positive operating cash flow in the year and because of the proceeds of the Offerings, which took place in early November, 2005. In addition, we benefitted from $8.8 million of dividends from our investment in a fund of hedge funds in the year ended December 31, 2005, compared to $3.1 million of such dividends in the year ended December 31, 2004. This investment was made in January, 2004. Such dividends are expected to be declared periodically, provided the performance of the fund is positive. Investment income is net of

investment expenses, which were primarily investment management and custodial fees payable to subsidiaries of American International Group, Inc. (“AIG”). (See Note 8 to the Consolidated Financial Statements — “Related Party Transactions”.) These fees totaled $3.2 million in 2005, $3.0 million in 2004 and $3.2 million in 2003. 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 $2.3 million, $2.4 million and $1.9 million, for the years ended December 31, 2005, 2004 and 2003, respectively.

     At December 31, 2005 our investment portfolio consisted mostly of cash and cash equivalents, high quality fixed maturity investments, and equity investments in a north American 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.

     We recorded a net realized loss of $(10.6) million on the sale of investments for the year ended December 31, 2005, compared to net realized gains of $5.9 million and $13.7 million for the years ended December 31, 2004 and 2003, respectively. Generally, net gains and losses fluctuate from period to period, depending on the securities sold. Net unrealized gains on our investment portfolio (see Note 3 to the Consolidated Financial Statements — “Investments”) were $93.1 million at December 31, 2005, compared to $91.1 million at December 31, 2004.

     We incurred net losses and loss adjustment expenses of $1,072.7 million, $215.6 million and $54.4 million in the years ended December 31, 2005, 2004 and 2003, respectively. The level of insured losses from catastrophic events around the world was significantly lower in 2003 compared to the relatively high frequency and severity of events during 2004 and 2005, which set consecutive records in terms of annual aggregate insured losses from catastrophic events.

     In 2005 we incurred losses from cyclone Erwin ($20.6 million) which affected parts of northern Europe in January 2005, hurricane Katrina and subsequent flooding which affected many parts of Louisiana, Alabama and Mississippi in August 2005 ($810.0 million), hurricane Rita, which made landfall in Texas in September 2005 ($53.8 million), and hurricane Wilma which affected parts of Mexico and crossed Florida in October, 2005 ($112.8 million). In the first half of 2005, we also recorded adverse development of claims arising from various windstorms that occurred in the third quarter of 2004, totaling approximately $40 million, primarily as a result of a number of cedants significantly revising their loss estimates. The estimate for hurricane Katrina has been based on industry insured loss estimates, output from both industry and proprietary models, a review of contracts potentially affected by the events, information received from both clients and brokers and management judgement. It has also been assumed that underlying policy terms and conditions are upheld during the loss adjustment process. The unique circumstances and severity of this devastating catastrophe, including the extent of flooding and limited access by claims adjusters, introduce additional uncertainty to the normally difficult process of estimating catastrophe losses. This is compounded by the potential for legal and regulatory issues arising regarding the scope of coverage. Consequently, the ultimate net impact of losses from this event on our net income might differ substantially from the foregoing estimate. The estimates for hurricanes Rita and Wilma were prepared following the same process.

     In 2004 we recorded losses of $168.6 million from hurricanes Charley, Frances, Ivan and Jeanne, all of which made landfall in Florida and affected other parts of the south-east United States and the Caribbean in the third quarter. We also incurred net losses from typhoons Chaba and Songda which made landfall in Japan in the third quarter, totalling $47.7 million. We also incurred a loss of $4.8 million from a fire at an oil refinery in Algeria, which occurred in January, 2004. Offsetting the impact of these losses were net reductions in losses from a variety of events in prior accident years, totalling $13.5 million.

     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 recorded 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 a 2003 unfavourable court ruling regarding an insurance policy coverage dispute between a cedant and the original insured under the policy.

     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 $39.2 million, $37.7 million and $30.9 million for the years ended December 31, 2005, 2004 and

2003, respectively, after deferring those costs related to the unearned portion of premiums written. The increases from 2003 to 2004, and from 2004 to 2005 are primarily due to the increase in earned premiums, but they have not increased proportionately, because the brokerage on reinstatement premiums is generally less than that paid on annual premiums.

     General and administrative expenses were $27.5 million, $23.2 million and $19.1 million for the years ended December 31, 2005, 2004 and 2003, respectively. These figures include fees paid to subsidiaries of AIG for administrative services, which are based on a percentage of gross premiums written, but deferred to the extent of the unearned portion of those premiums, and were $11.9 million, $9.3 million and $7.8 million for the years ended December 31, 2005, 2004 and 2003, 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 8 to the Consolidated Financial Statements — “Related Party Transactions”.) In addition to this significant increase, other expense categories which saw increases in each year included salaries and benefits, which include the impact of expensing stock grants and stock options granted to certain employees, and professional fees resulting from corporate governance requirements under the Sarbanes-Oxley Act of 2002. In 2005, additional expenses resulted from increased costs of letters of credit (see “Liquidity and Capital Resources’’, below), due to the significantly increased requirements of our U.S. cedants, and fees paid to the United States Securities and Exchange Commission (“SEC”) with respect to the filing of an S-3 Registration Statement. In 2003, additional expense resulted from the non-recurring set-up costs of our revolving credit facility.

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 IPCUSL, which currently acts as an underwriting agent for a company in which AIG has an ownership interest. (See Note 8 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. In addition, IPCRe is prohibited under the Insurance Act from reducing its opening total statutory capital by more than 15% without the approval of the Authority. The maximum dividend payable by IPCRe in accordance with the foregoing restrictions as of January 1, 2006 was approximately $277.1 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. 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. From September 30, 2005 to the time of filing, following the establishment of reserves for hurricanes Katrina, Rita and Wilma, we have been unable to draw funds as we do not satisfy the net worth covenant within the agreement. If we had funds drawn under the facility, IPCRe would not be able to pay dividends unless a waiver or amendment to the net worth covenant was agreed. The facility expires on June 30, 2006. At the time of filing, we are in discussions with a number of banks with respect to replacing the facility.

     On October 7, 2005, IPC Holdings filed an S-3 Registration statement with the SEC in the amount of $1,250,000,000, which became effective on October 17, 2005. As noted above, on November 4, 2005, we completed offerings of both common shares and mandatory convertible preferred shares, from which total net proceeds were approximately $614 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 $105.7 million, $279.2 million and $269.5 million in the years ended December 31, 2005, 2004 and 2003, respectively. These amounts represent the difference between premiums collected and investment earnings realized, losses and loss adjustment expenses paid, and underwriting and other expenses paid. Cash flows from operations differ, and may continue to differ, substantially from net income. To date, we have invested all cash flows not required for operating purposes or payment of dividends. The potential for 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, 2005, 2004 and 2003 were $274.7 million, $73.4 million and $57.1 million, respectively. During 2006, we expect to pay a significant proportion of the $1,072 million of loss reserves we have accrued at December 31, 2005 (see “Aggregate Contractual Obligations” below), 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 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).

     At December 31, 2005, 79.3% 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 80.9% of the portfolio at December 31, 2004. The primary rating source is Moody’s Investors Services Inc. (See Note 3 (f) to the Consolidated Financial Statements — “Investments”.) At December 31, 2005 the portfolio had an average maturity of 3.1 years and an average modified duration of 2.7 years (compared to 2.3 years and 2.1 years, respectively, at December 31, 2004).

     Net cash outflows used for investing activities in the years ended December 31, 2005, 2004 and 2003 were $672.3 million, $301.4 million and $159.6 million, respectively. At December 31, 2005 our cash and cash equivalents were $31.1 million, compared to $27.9 million at December 31, 2004. In addition, $310 million of our fixed maturity investment portfolio was invested in relatively short-dated fixed income instruments, to provide additional liquidity to meet the anticipated significant increase in claims payments resulting from hurricanes Katrina, Rita and Wilma.

     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, 2005 and 2004, we incurred foreign exchange losses of $(3.0) million and $(1.3) million, respectively, compared to a foreign exchange gain of $1.9 million in the year ended December 31, 2003. The losses in 2005 and 2004 were partly due to the impact of changing exchange rates on non-U.S. dollar loss reserves, whereas the gains in 2003 were primarily the result of the strengthening of the Euro and British pound. We currently do not — and as a practical matter cannot — hedge our U.S. dollar currency exposure with respect to potential claims until a loss payable in a non-U.S. dollar currency occurs, after which we may match such liability with assets denominated in the same currency, as we have done on three occasions, or enter forward purchase contracts for specific currencies, which we did during 2000. This type of exposure could be substantial. We also have not hedged our non-U.S. dollar currency exposure with respect to premiums receivable, which generally are collected over the relevant contract term. (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, 2005, we had no forward contract hedges outstanding.

     Our investment portfolio does not directly 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 directly contain any investments in real estate or mortgage loans.

     Ratings are an important factor in establishing the competitive position of reinsurance companies. IPCRe and IPCRe Europe have an insurer financial strength rating of “A (Excellent; 3^rd of 15 categories)” from A.M. Best and are rated

“A (Strong; 6_th of 18 categories)” for financial strength and counter-party credit by S & P. A.M. Best and S & P ratings reflect their opinions of a reinsurance company’s financial strength, operating performance, strategic position and ability to meet its obligations to policyholders, but are not evaluations directed to investors in our securities and are not recommendations to buy, sell or hold our securities. Our ratings are subject to periodic review by A.M. Best and S & P, and we cannot assure you that we will be able to retain those ratings. Prior to October, 2005, both A.M. Best and S & P had given IPCRe and IPCRe Europe insurer financial strength ratings of A+. In November 2005, both rating agencies lowered the ratings to their current levels as a result of the impact on our net income and shareholders’ equity resulting from the devastation brought by hurricanes Katrina and Rita. If these ratings are reduced from their current levels by A.M. Best and/or S & P, our competitive position in the reinsurance industry could suffer and it may be more difficult for us to market our products. A downgrade could result in a loss of business as ceding companies move to other reinsurers with higher ratings, and a significant downgrade to a rating below “A-” by A.M. Best or S & P could trigger provisions allowing some cedants to opt to cancel their reinsurance contracts with us.

     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 three commercial banks pursuant to three bilateral facilities in amounts of $350 million, $250 million and $200 million, respectively. In turn, IPCRe provides the banks security by giving them liens over certain of IPCRe’s investments in an amount not to exceed 118% of the aggregate letters of credit outstanding. Effective December 31, 2005 and 2004, there were outstanding letters of credit of $606.3 million and $98.7 million, respectively. The significantly higher amount at the end of 2005 was due to the increased requirements of our clients as a result of claims arising from hurricanes Katrina, Rita and Wilma. 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 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
	(expressed in millions of U.S. dollars)
			Less than 1						More than
Contractual Obligations	Total		year		1 - 3 Years		3 -5 years		5 years
Purchase Obligations	$	0.1	$	0.1	$	—	$	—	$	—
Losses and Loss Adjustment Expenses		1,072.1		571.1		328.8		107.4		64.8

     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 2005 was $11.9 million. At the time of filing, a new administrative services agreement to be effective July 1, 2006, is being negotiated with AICL.

2. Credit Facility: As described above, we renewed a credit facility in the amount of $200 million for a period of three years, ending on June 30, 2006. 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% of the amount of the facility. 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, 2005 no amounts have been drawn under this facility, and no drawings are currently permitted under the facility, as IPCRe is in default of the facility’s net worth covenant at the time of filing. At the time of filing, a new facility is being discussed with a number of banks.

3. Letters of credit: As noted above, we currently obtain letters of credit through three commercial banks pursuant to three bilateral facilities in amounts of $350 million, $250 million and $200 million. The last two facilities are 364 day facilities. We pay fees to the banks based on the amounts of letters of credit they issue on our behalf. Because these amounts change during the course of the year, the total amount we will pay in aggregate is not known until the end of the year, and therefore not included in the table above. Effective December 31, 2005 the aggregate amount of letters of credit issued were $606.3 million, and if this amount remained unchanged throughout 2006, we would pay fees totaling $1.4 million. If we were to utilize the full limits of the three facilities, we would pay $1.9 million in 2006. With respect to one facility, we pay a commitment fee to the extent it is unused. Effective December 31, 2005, the amount of the facility unused was $43 million. The amount of the commitment fee that could be paid is not material.

     Losses and Loss adjustment expenses

     The reserve for losses and loss adjustment expenses represent management’s estimate of the ultimate cost of settling reinsurance claims. As more fully discussed in our “Critical Accounting Policies — Loss Reserves” above, the estimation of losses and loss adjustment expense reserves is based on various complex and subjective judgements. Actual losses and loss adjustment expenses paid may differ, perhaps substantially, from the reserve estimates reflected in our financial statements. Similarly, the timing for payment of our estimated losses is not fixed and is not determinable on an individual or aggregate basis. 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, or are asked to make payments. The assumptions used in estimating the likely payments due by periods are based on the Company’s historical claims payment experience, but due to the inherent uncertainty in the process of estimating the timing of such payments, there is a risk that the amounts paid in any such period can be significantly different than the amounts disclosed above. Part of the uncertainty stems from the variability of payment pattern by type of catastrophic event that caused the losses. For example, earthquake and hailstorm losses typically take longer to be reported and paid compared to losses from windstorms. In addition, there is no prior history of payment patterns for events such as the attack on the World Trade Center or for the flooding which followed hurricane Katrina.

     Furthermore, the amounts in this table represent our gross estimated known liabilities as of December 31, 2005 and do not include any allowance for claims from future events within the time periods specified. As such, it is highly likely that the total amounts paid out in the time periods shown will be greater than that indicated in the table.

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.

Quantitative and Qualitative Disclosure about Market Risk

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

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

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

     Our investment managers performed a VaR analysis, to estimate the maximum potential loss of fair value for each segment of market risk, as of December 31, 2005 and 2004. 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, 2005 and 2004 using historical simulation methodology. At December 31, 2005 the VaR of IPCRe’s investment portfolio was approximately $37.7 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, 2005 and 2004, respectively, the quarterly points during 2005 and the average for the year ended December 31, 2005, 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 31,			ended Dec. 31,
Market Risk	2005			2005			2005			2005			2004			2005
Currency	$	2,445		$	2,183		$	2,184		$	2,477		$	2,660		$	2,391
Interest Rate		36,626			30,594			28,605			29,505			23,067			29,679
Equity (incl. hedge fund)		19,821			19,794			21,433			24,775			25,323			22,229
Sum of Risk		58,892			52,571			52,222			56,757			51,050			54,299
Diversification Benefit		(21,188	)		(20,360	)		(22,618	)		(21,437	)		(21,866	)		(21,494	)
Total Net Risk	$	37,704			32,211		$	29,604		$	35,320		$	29,184		$	32,805

     VaR in total has increased because of the increased size of the total investment portfolio. The impact of the size increase on VAR has been reduced in part by a fall in equity volatility and the reduction in average fixed income duration due to the large allocation to shorter duration assets, following receipt of funds from the Offerings of securities in November 2005. Approximately $310 million of the proceeds of the Offerings was invested in highly liquid securities, to provide liquidity for the anticipated high volume of claims payments, resulting from hurricanes Katrina, Rita and Wilma.

     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, 2005, an estimated $22 million of reinsurance premiums receivable, and an estimated $34 million of loss reserves, were denominated in currencies other than the U.S. dollar. At December 31, 2005 we held U.S.$1.0 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, 2005 to be material.

Transactions with Non-Independent Parties

     All of our related party transactions have been disclosed in Note 8 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.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Consolidated Financial Statements
(With Independent Registered Public Accountants’ Report thereon)

Years Ended December 31, 2005 and 2004

INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS’ REPORT

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, 2005 and 2004, and the related consolidated statements of (loss) income, comprehensive (loss) income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005. 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.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of IPC Holdings, Ltd.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 24, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

KPMG
Chartered Accountants
Hamilton, Bermuda
February 24, 2006

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2005 and 2004
(Expressed in thousands of United States Dollars, except for per share amounts)

	2005			2004
Assets
Fixed maturity investments, available for sale, at fair value (amortized cost 2005: $2,014,735; 2004: $1,446,327)	$	1,998,606		$	1,444,576
Equity investments, available for sale, at fair value (cost 2005: $420,910; 2004: $335,719)		530,127			428,620
Cash and cash equivalents		31,113			27,898
Reinsurance premiums receivable		180,798			85,086
Deferred premiums ceded		4,120			4,558
Loss and loss adjustment expenses recoverable		1,054			5,006
Accrued investment income		19,885			20,695
Deferred acquisition costs		7,843			8,424
Prepaid expenses and other assets		4,735			3,427
Total assets	$	2,778,281		$	2,028,290
Liabilities
Reserve for losses and loss adjustment expenses	$	1,072,056		$	274,463
Unearned premiums		66,311			68,465
Reinsurance premiums payable		4,991			3,387
Deferred fees and commissions		1,363			1,475
Accounts payable and accrued liabilities		17,160			12,061
Total liabilities		1,161,881			359,851
Shareholders’ equity
Common shares - 2005: 63,666,368 shares outstanding, par value $0.01; 2004: 48,407,203 shares outstanding, par value $0.01		637			484
Preferred shares – Series A mandatory convertible preferred shares 2005: 9,000,000 shares outstanding, par value $0.01; 2004: nil shares outstanding, par value $0.01		90			—
Additional paid-in capital		1,473,257			854,797
Deferred stock grant compensation		(2,492	)		(2,899	)
Retained earnings		52,126			724,907
Accumulated other comprehensive income		92,782			91,150
Total shareholders’ equity		1,616,400			1,668,439
Total liabilities and shareholders’ equity	$	2,778,281		$	2,028,290

See accompanying notes to consolidated financial statements

Signed on behalf of the Board

                                             Director

                                             Director

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Consolidated Statements of (Loss) Income

For each of the years in the three year period ended December 31, 2005
(Expressed in thousands of United States Dollars, except for per share amounts)

	2005			2004			2003
Revenue
Gross premiums written	$	472,387		$	378,409		$	322,762
Change in unearned premiums		2,154			(6,670	)		(9,893	)
Premiums earned		474,541			371,739			312,869
Reinsurance premiums ceded		21,581			20,098			14,466
Change in deferred premiums ceded		438			(3,241	)		(498	)
Premiums ceded		22,019			16,857			13,968
Net premiums earned		452,522			354,882			298,901
Net investment income		71,757			51,220			47,089
Other income		5,234			4,296			3,348
Net realized (losses) gains on investments		(10,556	)		5,946			13,733
Total income		518,957			416,344			363,071
Expenses
Net losses and loss adjustment expenses		1,072,662			215,608			54,382
Net acquisition costs		39,249			37,682			30,867
General and administrative expenses		27,466			23,151			19,103
Net foreign exchange loss (gain)		2,979			1,290			(1,910	)
Total expenses		1,142,356			277,731			102,442
Net (loss) income		(623,399	)		138,613			260,629
Dividend on preferred shares		2,664			—			—
Net (loss) income available to common shareholders	$	(626,063	)	$	138,613		$	260,629
Basic net (loss) income per common share	$	(12.30	)	$	2.87		$	5.41
Diluted net (loss) income per common share	$	(12.30	)	$	2.87		$	5.40
Weighted average number of common shares — basic		50,901,382			48,287,261			48,205,554
Weighted average number of common shares — diluted		50,901,282			48,376,865			48,302,579

See accompanying notes to consolidated financial statements

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Consolidated Statements of Comprehensive (Loss) Income

For each of the years in the three year period ended December 31, 2005
(Expressed in thousands of United States Dollars)

	2005			2004			2003
Net (loss) income	$	(623,399	)	$	138,613		$	260,629
Other comprehensive income
Additional accumulated benefit pension obligation		(306	)		—			—
Net holding (losses) gains on investments during year		(8,618	)		5,989			64,581
Reclassification adjustment for losses (gains) included in net (loss) income		10,556			(5,946	)		(13,733	)
		1,632			43			50,848
Comprehensive (loss) income	$	(621,767	)	$	138,656		$	311,477

See accompanying notes to 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, 2005
(Expressed in thousands of United States Dollars, except for per share amounts)

	2005			2004			2003
Common shares par value $0.01
Balance, beginning of year	$	484		$	483		$	482
Additional shares issued		153			1			1
Balance, end of year	$	637		$	484		$	483
Preferred shares par value $0.01
Balance, beginning of year	$	—		$	—		$	—
Additional shares issued		90			—			—
Balance, end of year	$	90		$	—		$	—
Additional paid-in capital
Balance, beginning of year	$	854,797		$	850,133		$	846,397
Additional paid-in capital on shares issued		617,561			941			2,719
Reduction in paid-in capital on share repurchase		(1,334	)		(142	)		(1,321	)
Stock options and grants		2,233			3,865			2,338
Balance, end of year	$	1,473,257		$	854,797		$	850,133
Deferred stock grant compensation
Balance, beginning of year	$	(2,899	)	$	(1,495	)	$	—
Stock grants awarded		(1,316	)		(2,928	)		(2,011	)
Stock grants forfeited		454			—			—
Amortization		1,269			1,524			516
Balance, end of year	$	(2,492	)	$	(2,899	)	$	(1,495	)
Retained earnings
Balance, beginning of year	$	724,907		$	628,931		$	404,345
Net (loss) income		(623,399	)		138,613			260,629
Reduction on share repurchase		(1,738	)		(155	)		(1,334	)
Dividends paid and accrued		(47,644	)		(42,482	)		(34,709	)
Balance, end of year	$	52,126		$	724,907		$	628,931
Accumulated other comprehensive income
Balance, beginning of year	$	91,150		$	91,107		$	40,259
Other comprehensive income		1,632			43			50,848
Balance, end of year	$	92,782		$	91,150		$	91,107
Total shareholders’ equity	$	1,616,400		$	1,668,439		$	1,569,159

See accompanying notes to 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, 2005
(Expressed in thousands of United States Dollars)

	2005			2004			2003
Cash flows from operating activities
Net (loss) income	$	(623,399	)	$	138,613		$	260,629
Adjustments to reconcile net income to cash provided by operating activities:
Amortization of fixed maturity premiums (discounts), net		8,128			13,661			15,194
Net realized losses (gains) on investments		10,556			(5,946	)		(13,733	)
Stock compensation		2,640			2,461			842
Changes in:
Reinsurance premiums receivable		(95,712	)		(23,892	)		(10,866	)
Deferred premiums ceded		438			(3,241	)		(498	)
Loss and loss adjustment expenses recoverable		3,952			(3,196	)		(1,405	)
Accrued investment income		810			(874	)		4,342
Deferred acquisition costs		581			(389	)		(1,940	)
Prepaid expenses and other assets		(1,308	)		2,431			(855	)
Reserve for losses and loss adjustment expenses		797,593			151,143			3,965
Unearned premiums		(2,154	)		6,670			9,893
Reinsurance premiums payable		1,604			(490	)		2,322
Deferred fees and commissions		(112	)		641			707
Accounts payable and accrued liabilities		2,129			1,588			920
Cash provided by operating activities		105,746			279,180			269,517
Cash flows from investing activities
Purchases of fixed maturity investments		(2,410,649	)		(1,632,680	)		(1,429,322	)
Proceeds from sales of fixed maturity investments		1,726,564			1,398,678			1,212,858
Proceeds from maturities of fixed maturity investments		91,740			14,862			88,246
Purchases of equity investments		(96,938	)		(102,254	)		(31,364	)
Proceeds from sales of equity investments		17,000			20,000			—
Cash used in investing activities		(672,283	)		(301,394	)		(159,582	)
Cash flows from financing activities
Proceeds from share issuance, net of repurchases		614,732			645			67
Cash dividends paid to shareholders		(44,980	)		(42,482	)		(34,709	)
Cash provided by (used in) financing activities		569,752			(41,837	)		(34,642	)
Net increase (decrease) in cash and cash equivalents		3,215			(64,051	)		75,293
Cash and cash equivalents, beginning of year		27,898			91,949			16,656
Cash and cash equivalents, end of year	$	31,113		$	27,898		$	91,949

See accompanying notes to consolidated financial statements

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(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 through the sponsorship of American International Group, Inc. (“AIG”). AIG purchased 24.4% of the initial share capital of the Company and an option to obtain up to an additional 10% of the share capital. In December 2001, the Company completed a follow-on public offering and AIG exercised its option. Concurrent with that offering, the Company also sold shares in a private placement to AIG which retained their approximate holding at 24.3%. In November 2005, (Note 6) the Company completed a further follow-on public offering in which AIG participated and subsequent to the offering AIG owned, and continues to own, 24.2% of the common shares of the Company.

Through its wholly-owned subsidiary, IPCRe Limited (“IPCRe”), the Company provides reinsurance of property catastrophe risks worldwide, substantially on an excess of loss basis. Property catastrophe reinsurance covers unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, volcanic eruptions, fires, freezes, industrial explosions and other man-made or natural disasters. IPCRe’s loss experience will generally include infrequent events of great severity. IPCRe’s clients include many of the leading insurance companies in the world. IPCRe also writes, to a limited extent, aviation, property per-risk excess and other short-tail reinsurance in various parts of the world. Approximately 40% of underlying exposure premiums written (being total premiums written excluding reinstatement premiums) in 2005 related to U.S. risks (2004: 38%; 2003: 43%). The balance of IPCRe’s covered risks are located principally in Europe, Japan, Australia and New Zealand.

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

On November 7, 2001, the Company incorporated a subsidiary in Bermuda named IPCRe Underwriting Services Limited. (“IPCUSL”), which currently acts as an Underwriting Agent for Allied World Assurance Company, Ltd (“AWAC”), a Bermuda-based Class 4 insurer (Note 8).

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

a) Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, IPCRe and IPCUSL. All significant intercompany transactions have been eliminated in consolidation.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

2.         Significant Accounting Policies (continued)

b) Premiums and acquisition costs

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 therefore no management judgement is necessary in accounting for this. Subsequent premium adjustments, if any, are recorded in the period in which they are determined. For proportional treaties, the amount of premium is normally estimated at inception by the ceding company. IPCRe accounts for such premium using initial estimates, which are reviewed regularly with respect to the actual premium reported by the ceding company. Reinstatement premiums are recognized and accrued at the time losses are incurred and where coverage of the original contract is reinstated under pre-defined contract terms and are earned pro-rata over the reinstated coverage period. Such accruals are based upon actual contractual terms applied to the amount of loss reserves expected to be paid, and the only element of management judgement involved is with respect to the amount of loss reserves as described below, and associated rates on line (i.e. price). Premiums are earned on a pro-rata basis over the coverage period and unearned premiums represent the portion of premiums written which is applicable to the unexpired terms of the policies in force. Ceded reinsurance premiums are similarly pro-rated over the terms of the contracts with the unexpired portion deferred in the balance sheet.

Acquisition costs, consisting primarily of commissions and brokerage expenses incurred at policy issuance, are deferred and amortized to income over the period in which the related premiums are earned. Deferred acquisition costs are limited to estimated realizable value based on related unearned premium, anticipated claims and expenses and investment income.

c) Reserve for losses and loss adjustment 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, including initial estimates of aggregate industry losses, individual case estimates received from ceding companies and brokers, output from commercially available catastrophe loss models and management’s estimates. For certain catastrophic events there is considerable uncertainty underlying the assumptions and associated estimated reserves for losses and loss adjustment expenses. Reserves are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. It is reasonably possible that changes in the near term could require a material change in the amount estimated. Such adjustments, if any, are reflected in results of operations in the period in which they become known. For proportional treaties, an estimated loss and loss expense ratio (the ratio of losses and loss adjustment expenses incurred to premiums earned) is initially used, based upon information provided by the ceding company and/or their broker and IPCRe’s historical experience of that treaty, if any. The estimate is adjusted as actual experience becomes known.

Amounts recoverable from reinsurers are estimated in a manner consistent with the underlying liabilities.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(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. Fixed maturity investments are stated at fair value as determined by the quoted market price of these securities as provided by either 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. 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)	Other income
	Other income consists of agency commission earned by IPCUSL. The commission is based on the gross premiums written under an agency agreement and is earned pro-rata over the underlying reinsurance contract coverage periods. Unearned commission represents the portion of commission which is applicable to the unexpired terms of the underlying contracts. The unearned commission is included in “prepaid expenses and other assets”.
f)	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. Realized and unrealized exchange gains and losses are included in the determination of net income.
g)	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.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

2.           Significant Accounting Policies (continued)

h)	Net (loss) or income per common share
	Net (loss) income per common share is calculated by dividing net (loss) or income available to common shareholders by the weighted average common shares outstanding during the year. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares and common stock equivalents outstanding during the year. Convertible preferred shares, stock options and unvested stock grants are considered common stock equivalents for the purpose of calculating diluted net income per common share, and are included in the weighted average number of shares outstanding using the Treasury Stock method. In a period where there is a net loss, the dilutive effect of convertible preferred shares, stock options and unvested stock grants are not included in the weighted average number of shares, as this would be anti-dilutive.
i)	Stock incentive compensation plan
	In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement No. 148, “Accounting for Stock-Based Compensation and Disclosure” (“SFAS 148”), which was effective for fiscal years ending after December 31, 2002. SFAS 148 amends FASB 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. In accordance with SFAS 148, management 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, 2005 was $1,371 (2004: $937; 2003: $326).
	On June 13, 2003, the shareholders approved a 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, 2005 was $1,269 (2004: $1,524; 2003: $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,
	2005			2004			2003
Net (loss) income available to common shareholders, as reported	$	(626,063	)	$	138,613		$	260,629
Add: Stock-based employee expense		2,640			2,461			842
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards		(2,875	)		(2,972	)		(1,536	)
Pro forma net (loss) income	$	(626,298	)	$	138,102		$	259,935

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

2.           Significant Accounting Policies (continued)

i) Stock incentive compensation plan (continued)

	Year ended December 31,
	2005			2004		2003
Earnings per share:
Basic – as reported	$	(12.30	)	$	2.87	$	5.41
Basic – proforma	$	(12.30	)	$	2.86	$	5.40
Diluted – as reported	$	(12.30	)	$	2.87	$	5.40
Diluted – proforma	$	(12.30	)	$	2.85	$	5.40

j)	Accounting pronouncements
	In December 2004, the FASB revised the previously issued SFAS 123, with SFAS 123 (Revised 2004) “Share-Based Payment” (“SFAS 123R”). This also supersedes Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees”. 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. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. The Company has been expensing compensation costs for stock options since 2003 on a prospective basis for all awards granted, modified or settled after January 1, 2003 in accordance with SFAS 148. SFAS 123R will require the expensing of 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. SFAS 123R will also require the estimation of forfeitures when calculating the compensation cost expense of stock options. The Company will adopt SFAS 123R effective January 1, 2006. Management do not believe that the adoption of this new accounting pronouncement will have a material impact on the Company’s financial position or results of operations.
	In November 2005 the FASB released FASB Staff Position (“FSP”) FAS 115-1 entitled “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. FSP FAS 115-1 proposed a three step process as guidance for application and involves firstly assessing each investment to determine whether it is impaired by comparing cost against fair value. Secondly, an evaluation is then undertaken to assess whether the impairment is other-than-temporary utilising the extent of decline in value, length of time below cost, whether cause is issuer specific or market/interest rate related, future prospects of issuer and likelihood of payment at maturity, IPCRe’s intent and ability to hold the investment and the timing of decisions to sell investments. The third step would be the recognition of an impairment loss equal to the difference between the investment’s cost and its fair value if it was determined that the impairment was other-than-temporary. The Company’s accounting policy for recognition of other-than-temporary impairment is consistent with FSP 115-1.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

3.           Investments

a) The cost or amortized cost, gross unrealized gains, gross unrealized losses and fair value of investments classified as available for sale by category as of December 31, 2005 and 2004 are as follows:

	Cost or		Gross		Gross
	amortized		unrealized		unrealized			Fair
December 31, 2005	cost		gains		losses			value
Fixed maturity investments
U.S. Government and government agencies	$	326,916	$	64	$	(2,805	)	$	324,175
Other governments		296,823		165		(3,026	)		293,962
Corporate		1,188,004		1,048		(9,735	)		1,179,317
Supranational entities		202,992		—		(1,840	)		201,152
	$	2,014,735	$	1,277	$	(17,406	)	$	1,998,606
Equity investments	$	420,910	$	109,952	$	(735	)	$	530,127

	Cost or		Gross		Gross
	amortized		unrealized		unrealized			Fair
December 31, 2004	cost		gains		losses			value
Fixed maturity investments
U.S. Government and government agencies	$	320,158	$	—	$	(2,802	)	$	317,356
Other governments		157,314		230		(1,469	)		156,075
Corporate		776,186		7,252		(4,552	)		778,886
Supranational entities		192,669		30		(440	)		192,259
	$	1,446,327	$	7,512	$	(9,263	)	$	1,444,576
Equity investments	$	335,719	$	92,901	$	—		$	428,620

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

3.      Investments (continued)

The following table summarizes, for all securities in an unrealized loss position at December 31, 2005 and 2004, the unrealized loss and fair value by length of time the security has continuously been in an unrealized loss position.

	Less than 12 months					12 months or longer
	Gross					Gross
	unrealized					unrealized
December 31, 2005	losses			Fair value		losses			Fair value
Fixed maturity investments
U.S. Government and government agencies	$	(2,686	)	$	272,899	$	(119	)	$	5,849
Other governments		(1,152	)		119,225		(1,874	)		89,167
Corporate		(6,525	)		876,583		(3,210	)		115,708
Supranational entities		(1,752	)		179,132		(88	)		22,020
	$	(12,115	)	$	1,447,839	$	(5,291	)	$	232,744
Equity investments	$	(735	)	$	156,183	$	—		$	—

	Less than 12 months					12 months or longer
	Gross					Gross
	unrealized					unrealized
December 31, 2004	losses			Fair value		losses			Fair value
Fixed maturity investments
U.S. Government and government agencies	$	(1,793	)	$	239,990	$	(1,009	)	$	77,366
Other governments		(1,040	)		86,097		(429	)		37,688
Corporate		(3,891	)		414,268		(661	)		49,243
Supranational entities		(440	)		184,367		—			—
	$	(7,164	)	$	924,722	$	(2,099	)	$	164,297
Equity investments	$	—		$	—	$	—		$	—

     Unrealized losses on investments held at December 31, 2005 and 2004 comprise an accumulation of relatively small unrealized losses on a security by security basis caused by general interest rate movements rather than credit events. There are no amounts in respect of declines in the value of individual securities considered to be other than temporary included in gross realized losses on fixed maturity or equity investments for the years ended December 31, 2005, 2004 and 2003.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(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, 2005 are as follows:

	Amortized		Fair
	cost		value
Due in one year or less	$	407,434	$	406,649
Due after one year through five years		1,307,252		1,293,991
Due after five years through ten years		300,049		297,966
	$	2,014,735	$	1,998,606

	Actual 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. At December 31, 2005 IPCRe has three letter of credit facilities. Under an agreement effective September 20, 1994 (amended in 1999, 2001, 2004 and 2005) 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. Under two agreements effective December 30, 2005, IPCRe provides the banks security by giving the banks a lien over certain of IPCRe’s investments in an amount not to exceed approximately 110% of the aggregate letters of credit outstanding. The total amount of security required by the banks under the three facilities at December 31, 2005 was approximately $689,971 (2004: $116,455). Effective December 31, 2005 outstanding letters of credit were $606,329 (2004: $98,691).
d)	Net investment income

	2005			2004			2003
Interest on fixed maturity investments	$	69,125		$	60,253		$	61,809
Interest on cash and cash equivalents		4,038			2,839			346
Net amortization of (premiums) discounts on investments		(8,128	)		(13,661	)		(15,194	)
		65,035			49,431			46,961
Net income from equities		9,873			4,765			3,307
Less: investment expenses		(3,151	)		(2,976	)		(3,179	)
Net investment income	$	71,757		$	51,220		$	47,089

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

3.           Investments (continued)

e) Proceeds from sales of available for sale securities for the year ended December 31, 2005, were $1,743,564, (2004: $1,418,678; 2003: $1,212,858). Components of net realized gains and losses on investments are summarized in the following table:

	2005			2004			2003
Fixed maturity investments
Gross realized gains	$	343		$	7,032		$	16,404
Gross realized losses		(16,153	)		(6,372	)		(2,671	)
Net realized (losses) gains		(15,810	)		660			13,733
Equity investments
Gross realized gains		5,254			5,286			—
Gross realized losses		—			—			—
Net realized gains		5,254			5,286			—
Total net realized (losses) gains		(10,556	)		5,946			13,733
Change in net unrealized appreciation (depreciation) on investments
Fixed maturity investments		(14,378	)		(22,030	)		(19,898	)
Equity investments		16,316			22,073			70,746
Change in net unrealized appreciation on investments		1,938			43			50,848
Total net realized (losses) gains and change in net unrealized appreciation on investments	$	(8,618	)	$	5,989		$	64,581

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

3.           Investments (continued)

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

	2005			2004
Cash and cash equivalents		1.5	%		1.9	%
U.S. Government and government agencies		16.0	%		21.6	%
AAA		32.3	%		31.7	%
AA		29.5	%		25.7	%
A		20.2	%		18.5	%
BBB		0.5	%		0.6	%
		100.0	%		100.0	%

	The primary rating source is Moody’s Investors Service Inc. (“Moody’s”). When no Moody’s rating is available, Standard & Poor’s Corporation (“S & P”) ratings are used and where split-ratings exist, the higher of Moody’s and S & P is used.
g)	IPCRe holds the following equity investments:

	2005		2004
	Fair value		Fair value
AIG Global Equity Fund	$	176,737	$	153,643
AIG American Equity Fund		97,780		89,333
AIG Select Hedge Fund		156,183		99,920
Vanguard Institutional Index Fund		93,494		81,855
Other equity funds		5,933		3,869
	$	530,127	$	428,620

The AIG Global Equity Fund, AIG American Equity Fund, and AIG Select Hedge Fund are all managed by AIG/Sun America. The AIG Global Equity Fund invests predominantly in large capitalized companies operating in diverse sectors of global equity markets, the AIG American Equity Fund invests predominantly in large capitalized companies operating across diverse sectors of North America and the AIG Select Hedge Fund invests in approximately 30-40 third party hedge funds utilizing a broad range of alternative investment strategies. Net asset values of the AIG Global Equity Fund, the AIG American Equity Fund and the AIG Select Hedge Fund as at December 31, 2005 are $534,745, $340,415 and $1,049,450 respectively, as reported by our investment managers. The Company’s maximum exposure to loss as a result of these investments is limited to the fair values of the Company’s investment in these funds.

The Vanguard Institutional Index Fund invests in large capitalized companies across diverse sectors of North America and aims for returns similar to those of the S & P 500 Index.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(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. Fixed maturity investments are stated at fair value as determined by the quoted market price of these securities as provided by either 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. The fair value of other assets and liabilities, consisting of reinsurance premiums receivable, accrued investment income, other assets, reinsurance premiums payable and accounts payable approximates their carrying value due to their relative short term nature.

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

5.     Ceded Reinsurance

IPCRe utilizes reinsurance to reduce its exposure to large losses. Effective January 1, 1999, IPCRe arranged a proportional reinsurance facility covering property catastrophe business written by IPCRe. For the six year period to December 31, 2004, the facility provided coverage of up to $50,000 in each of at least 5 named zones, and potentially other zones of IPCRe’s choosing, provided that the risks in those zones do not accumulate with those in the named zones. The United States and the Caribbean are excluded zones. The named zones are the United Kingdom; Europe (excluding the U.K.); Australia / New Zealand; Japan and Other. Effective January 1, 2005, the facility provides coverage of up to $75,000 in each of the named zones, with the exception of Europe (excluding the U.K.), where the coverage remains limited to $50,000. Business ceded to the facility is solely at IPCRe’s discretion. Within these limitations, IPCRe may designate the treaties to be included in the facility, subject to IPCRe retaining at least 50% of the risk. The premium ceded is pro rata, less brokerage, taxes and an override commission. A subsidiary of AIG, as a participating reinsurer, has a 10% participation on a direct basis. Most reinsurers participating in the facility have financial strength ratings issued by S & P and/or A.M. Best of A or above, and the minimum rating is A- at the time of acceptance.

Effective January 1, 2002, IPCRe arranged a Property Catastrophe Excess of Loss Reinsurance facility in respect of certain property catastrophe business written by IPCRe. This facility covers first losses only for the business ceded to this facility. All subsequent events are retained by IPCRe. Business ceded to this facility includes worldwide business excluding the United States and Canada. IPCRe can cede up to $50,000 (2004: $50,000; 2003: $30,000) 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

(Expressed in thousands of United States Dollars, except for per share amounts)

6.     Share Capital and Additional Paid-in Capital

On November 4, 2005, shareholders contributed approximately $614,628, net of underwriting discounts of $19,191 and costs of $1,484 in additional funds through a public offering of 15,202,000 common shares and 9,000,000 preferred shares.

The share capital of the Company as of December 31, 2005 and 2004 consisted of the following:

							Additional
	Authorised		Shares issued		Share		paid-in
	shares		and fully paid		capital		capital
December 31, 2005
Voting common shares, par value U.S. $0.01 each		75,000,000		63,666,368	$	637	$	1,244,926
Preferred shares, par value U.S. $0.01 each		25,000,000		9,000,000	$	90	$	228,331
December 31, 2004
Voting common shares, par value U.S. $0.01 each		75,000,000		48,407,203	$	484	$	854,797
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 common shares as certain shares were acquired through private placement and are presently unregistered. Registration rights were granted for all AIG common shares, both previously held and new shares purchased during the 2005 offering.

In 2005, the Company paid dividends of $0.24 per share in each of March, June and September, and $0.16 per share in December, to holders of its common shares. In 2004, the Company paid dividends of $0.20 per share in each of March and June, and $0.24 per share in each of September and December, to holders of its common shares. 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.

The 9,000,000 preferred shares issued in November 2005 are 7.25% Series A Mandatory Convertible Preferred Shares, with a liquidation preference of $26.25 per share, will automatically convert on November 15, 2008 into between 0.8333 and 1.0000 common shares, subject to anti-dilution adjustments, depending on the average closing price per share of the common shares over the 20 trading day period ending on the third trading day prior to such date. The preferred shares are non-voting except under certain limited prescribed circumstances. The holder may elect, at any time prior to November 15, 2008, to convert each preferred share into 0.8333 common shares, subject to anti-dilution adjustments. The Company may, at any time prior to November 15, 2008, accelerate the conversion date of all of the outstanding preferred shares under certain prescribed circumstances at a maximum conversion rate of 1.0000 common share for each preferred share. Dividends on the preferred shares are cumulative from the date of original issuance and are payable quarterly in arrears when, if, and as declared by the Board of Directors. At December 31, 2005, the Company has accrued dividends on its preferred shares of $0.296042 per share. The first dividend date for the preferred shares is February 15, 2006 with further dividends due on May 15, August 15 and November 15.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

7.    Share Purchase Options

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 and 2005. Under the last amended Option Plan, approved by shareholders in June 2005, at the discretion of the Compensation Committee of the Board of Directors (the “Committee”), the Company may grant to certain employees up to 2,327,500 common shares, $0.01 par value. The exercise price of the options granted under the Option Plan shall be as determined by the Committee in its sole discretion, including, but not limited to, the book value per share or the publicly traded market price per share.

In June 2003, the shareholders also approved a Stock Incentive Plan (the “Stock Plan”). Under the Stock Plan, at the discretion of 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 subject to the terms and conditions of the Stock Plan. During 2005, the Company awarded 33,218 restricted stock units (2004: 79,250) to officers and certain other employees. In 2005 there were forfeitures of 12,659 units (2004: nil). 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, 2005, the Company granted options to acquire common shares to officers and management employees at exercise prices ranging from $13.375 to $43.03 per common share, which equaled the opening market prices on the dates of grant. Such options vest at a rate of 25% annually and lapse on the tenth anniversary of issue.

The effect on net (loss) income and net (loss) income per common share of recording compensation expense under the fair value provisions of SFAS 123, versus compensation expense under the provisions of SFAS 148, is shown in Note 2 (i).

A summary of the status of the Company’s Option Plan as of December 31, 2005, 2004 and 2003 and changes during the years then ended is presented in the tables and narrative below:

	2005				2004				2003
			Weighted				Weighted				Weighted
			average				average				average
	Number of		exercise		Number of		exercise		Number of		exercise
	shares		price		shares		price		shares		price
Outstanding, beginning of year		474,625	$	31.43		350,375	$	29.38		362,944	$	23.41
Granted		169,000	$	43.03		168,000	$	38.90		112,500	$	31.54
Exercised		123,625	$	25.70		43,750	$	21.52		125,069	$	21.76
Forfeited		67,875	$	37.19		—	$	—		—	$	—
Outstanding, end of year		452,125	$	36.47		474,625	$	31.43		350,375	$	29.38
Exercisable, end of year		127,750	$	30.19		140,750	$	25.37		87,250	$	23.72
Weighted average fair value of options granted (per share)			$	15.07			$	14.62			$	11.52

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(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 3, 2005 was estimated using the Black-Scholes option pricing model, using assumed risk-free rates of interest of 3.93%; expected dividend yield of 2.231%; an expected life of 7 years; and an expected volatility of 36.7%.

The fair value of options granted on January 2, 2004 was estimated using the Black-Scholes option pricing model, using assumed risk-free rates of interest of 3.79%; expected dividend yield of 2.073%; an expected life of 7 years; and an expected volatility of 39.5%.

The 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 2.200%; an expected life of 7 years; and an expected volatility of 39.2%.

			Weighted
			average		Weighted				Weighted
	Outstanding at		contractual		average		Exercisable at		average
Range of	December 31,		period in		exercise		December 31,		exercise
exercise price	2005		years		price		2005		price
$13-19		7,500		3.30		15.61		7,500		15.61
$19-25		11,500		3.78		21.83		11,500		21.83
$25-31		68,125		6.00		27.85		41,250		27.85
$31-37		83,750		6.18		31.65		40,000		31.76
$37-43		128,750		8.00		38.90		27,500		38.90
$43-49		152,500		9.00		43.03		—		—
Total		452,125						127,750

8.           Related Party Transactions

	In addition to the related party transactions discussed elsewhere in the notes to the financial statements, the Company and its subsidiaries have entered into the following transactions and agreements with related parties:
a)	Administrative 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 1.0% thereafter). These fees are included in general and administrative expenses in the accompanying consolidated statements of (loss) 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. This agreement is currently being renegotiated. 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 $50 per annum. This agreement may be terminated by either party subject to three months’ written notice.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

8.            Related Party Transactions (continued)

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. Up until the end of 2003, IPCRe paid an overall fee based on the month end market value of the total portfolio. In 2004, a new arrangement was agreed whereby IPCRe pays different levels of fees based on the month end market values of the individual portfolios (fixed maturity, equity funds and hedge fund).
	Rebates are received on the management fees charged by AIG/Sun America for two of the equity funds, the AIG Global Equity Fund and the AIG American Equity Fund. These fees and rebates are included in net investment income in the accompanying consolidated statements of (loss) 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 (loss) income. This agreement may be terminated by either party upon 90 days’ written notice.
	The following amounts were incurred (received) for services provided by indirect wholly-owned subsidiaries of AIG:

			Investment		Equity			Investment
	Administrative		management		funds fee			custodian
	services		services		rebate			services
Year ended December 31, 2005	$	11,862	$	2,370	$	(2,325	)	$	781
Year ended December 31, 2004	$	9,292	$	2,227	$	(2,426	)	$	749
Year ended December 31, 2003	$	7,821	$	2,506	$	(1,939	)	$	673

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

December 31, 2005	$	4,835
December 31, 2004	$	4,205

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

8.            Related Party Transactions (continued)

d)	Underwriting services
	IPCUSL is party to an agreement with AWAC, a Bermuda-based multi-line insurance and reinsurance company, which is wholly-owned by Allied World Assurance Holdings, Ltd, a company in which AIG has a 23.3% ownership interest. Under this agreement, IPCUSL provides underwriting services on property catastrophe treaty reinsurance written by AWAC. IPCUSL receives an agency commission of 6.5% of gross premiums written under this agreement, which is on a rolling three year basis. IPCUSL has received notice of the intent of AWAC to cancel the underwriting agreement effective November 30, 2007.
	Business written under this agreement during the year was $80,234 (2004: $65,150; 2003: $61,246). Agency commission earned was $5,234 (2004: $4,296; 2003: $3,348). The amounts are recorded as other income in the accompanying consolidated statements of (loss) income. The balance due from AWAC as at December 31, 2005 was $1,017 (2004: $339) and deferred commissions relating to the unearned premiums written under this agreement were $739 (2004: $759).
e)	Related party reinsurance business
	IPCRe assumed premiums (including reinstatement premiums) from companies who are majority-owned by shareholders of the Company. Premiums assumed during the year were $44,283 (2004: $34,767; 2003: $41,136). IPCRe did not assume any premiums through brokers related to shareholders of the Company during the year ended December 31, 2005 (2004: $nil; 2003: $3,186) and therefore did not incur any brokerage fees and commissions in respect of this business (2004: $nil; 2003: $319). IPCRe ceded premiums to a company which is wholly-owned by a shareholder (Note 5). Premiums ceded during the year were $1,524 (2004: $1,348; 2003: $982). All such transactions were undertaken on normal commercial terms. Reinsurance premiums receivable due from related parties as of December 31, 2005 were $20,097 (2004: $7,261). Reinsurance premiums payable to related parties as of December 31, 2005 were $469 (2004: $188).
f)	A director and executive officer of various AIG subsidiaries and affiliates served as the Chairman of the Board of Directors of the Company and IPCRe until his retirement from the Boards effective December 31, 2005. A new director appointed effective January 1, 2006 is also a director and executive officer of various AIG subsidiaries. In addition, the managing director of AIMS serves as a director of IPCRe Europe Limited.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

9.     Reserve for Losses and Loss Adjustment Expenses

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

	2005			2004			2003
Gross loss reserves, beginning of the year	$	274,463		$	123,320		$	119,355
Loss reserves recoverable, beginning of the year		(5,006	)		(1,810	)		(405	)
Total net reserves, beginning of year		269,457			121,510			118,950
Net losses incurred related to:
Current year		1,017,495			229,112			40,334
Prior years		55,167			(13,504	)		14,048
Total incurred		1,072,662			215,608			54,382
Net paid losses related to:
Current year		(96,705	)		(33,967	)		(8,007	)
Prior years		(170,399	)		(34,740	)		(47,803	)
Total paid		(267,104	)		(68,707	)		(55,810	)
Effect of foreign exchange movements		(4,013	)		1,046			3,988
Total net reserves, end of year		1,071,002			269,457			121,510
Loss reserves recoverable, end of year		1,054			5,006			1,810
Gross loss reserves, end of year	$	1,072,056		$	274,463		$	123,320

Losses incurred in the year ended December 31, 2005 are predominantly due to hurricanes Katrina, Rita and Wilma which struck Louisiana, Texas and Florida, respectively. Losses from these events total $976,500. Losses incurred in the year ended December 31, 2005 in respect of prior years primarily result from development of 2004 reserves relating to three of the four hurricanes which struck Florida, two of the typhoons which struck Japan and the Indonesian tsunami.

For certain catastrophic events there is considerable uncertainty underlying the assumptions and associated estimated reserves for losses and loss adjustment expenses. Reserves are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments could require a material change in the amount estimated. However, complexity resulting from problems such as policy coverage issues, multiple events affecting one geographic area and the resulting impact on claims adjusting (including allocation of claims to event and the effect of demand surge on the cost of building materials and labour) by, and communications from, ceding companies, can cause delays to the timing with which IPCRe is notified of changes to loss estimates. In particular the estimate for hurricane Katrina has been based on industry insured loss estimates, output from both industry and proprietary models, a review of contracts potentially affected by the events, information received from both clients and brokers and management judgement. It has also been assumed that underlying policy terms and conditions are upheld during the loss adjustment process. The unique circumstances and severity of this devastating catastrophe, including the extent of flooding and limited access by claims adjusters, introduce additional uncertainty to the normally difficult process of estimating catastrophe losses. This is compounded by the potential for legal and regulatory issues arising regarding the scope of coverage. Consequently, the ultimate net impact of losses from this event on the Company’s net income might differ substantially from the foregoing estimate. Such adjustments, if necessary, are reflected in results of operations in the period in which they become known.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

9.	Reserve for Losses and Loss Adjustment Expenses (continued)
	Losses incurred in the year ended December 31, 2004 are predominantly due to the four hurricanes which struck Florida and two of the typhoons which struck Japan in the third quarter of 2004. Amounts recorded for these events were $223,600. Losses incurred in the year ended December 31, 2004 in respect of prior years include favourable development on 2003 losses for the May hailstorms/tornadoes, Hurricane Isabel and the California brush fires, and 2002 losses for the eastern European floods.
	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 occurred 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.
	Net losses and loss adjustment expenses in the consolidated statements of (loss) income are presented net of reinsurance recoveries during the year ended December 31, 2005 were $3,872 (2004: $7,765; 2003: $2,338).

10.	Written Premium by Geographic Region
	Financial information relating to reinsurance premiums (excluding reinstatement premiums) written by geographic region is as follows:

	December 31, 2005					December 31, 2004					December 31, 2003
	Premiums					Premiums					Premiums
	written		%			written		%			written		%
Geographic Area (1)
United States	$	136,331		39.7	%	$	130,327		37.7	%	$	134,128		42.5	%
Europe		94,183		27.4	%		108,377		31.3	%		86,693		27.5	%
Japan		24,395		7.1	%		20,439		5.9	%		15,595		4.9	%
Australia/New Zealand		14,647		4.3	%		20,418		5.9	%		9,946		3.2	%
Worldwide (2)		66,260		19.3	%		56,115		16.2	%		50,550		16.0	%
Worldwide (excluding the U.S.) (3)		5,419		1.6	%		7,082		2.1	%		15,416		4.9	%
Other		2,003		0.6	%		3,144		0.9	%		3,200		1.0	%
		343,238		100.0	%		345,902		100.0	%		315,528		100.0	%
Reinstatement premiums		129,149					32,507					7,234
	$	472,387				$	378,409				$	322,762

(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.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

11.	Concentration 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 34%, (2004: 33%; 2003: 35%), of premiums written, excluding reinstatement premiums, for the year ended December 31, 2005. Five broker groups accounted for approximately 88% of premiums written, excluding reinstatement premiums, in each of the years ended December 31, 2005, 2004 and 2003. In accordance with industry practice, IPCRe frequently pays amounts owed in respect of claims under its policies to reinsurance brokers, for payment over to the ceding insurers. In the event that a broker failed to make such a payment, depending on the jurisdiction, IPCRe might remain liable to the client for the deficiency. Conversely, in certain jurisdictions when premiums for such policies are paid to reinsurance brokers for payment over to IPCRe, such premiums will be deemed to have been paid and the ceding insurer will no longer be liable to IPCRe for those amounts whether or not actually received by them. Consequently, IPCRe assumes a degree of credit risk associated with brokers around the world during the payment process.
12.	Credit Facility
	In July, 2003 a 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, 2005 no amounts have been drawn and could not be drawn as IPCRe was not in compliance with the net worth and other financial covenants under this facility. The Company is presently in discussions with various banks concerning replacing the facility.
13.	Statutory Capital and Surplus
	IPCRe is registered under the Bermuda Insurance Act 1978 and Related Regulations as amended (the “Act”) and is obliged to comply with various provisions of the Act regarding solvency and liquidity. Under the Act, IPCRe is required to maintain minimum statutory capital and surplus equal to the 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:

	2005		2004
Actual statutory capital and surplus	$	1,611,940	$	1,659,115
Minimum statutory capital and surplus	$	225,342	$	179,114

IPCRe’s statutory net (loss) income for the year ended December 31, 2005 was $(626,141) (2004: $136,450; 2003: $256,738).

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, 2006 without such notification is approximately $277,142.

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

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

14.	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 $276 in 2005 (2004: $264; 2003: $234).
	IPCRe has also entered into individual pension arrangements with specific employees that are non-contributory defined benefit plans. These defined benefit plans are currently unfunded. Benefits are based upon a percentage of average final compensation multiplied by years of credited service. During 2004 one of these employees retired from the Company and an independent actuarial calculation was obtained. The projected future benefits were settled through a lump sum payment. Independent actuarial reviews of the ongoing benefit obligations were undertaken at December 31, 2005, 2004 and 2003. A summary of the status of the deferred benefit plans is provided below:

	2005			2004			2003
Change in benefit obligation
Benefit obligation at beginning of the year	$	1,377		$	1,506		$	1,196
Service cost		180			174			126
Interest cost		91			84			58
Settlement loss		—			193			—
Benefits paid		—			(524	)		—
Actuarial loss (gain)		256			(56	)		126
Total net reserves, beginning of year	$	1,904		$	1,377		$	1,506
Reconciliation of funded status
Funded status	$	(1,904	)	$	(1,377	)	$	(1,142	)
Unrecognized actuarial loss		581			451			224
Net amount recognized as year-end	$	(1,323	)	$	(926	)	$	(918	)
Amounts recognized in the statement of financial position
Accrued benefit liability	$	(1,629	)	$	(926	)	$	(918	)
Accumulated other comprehensive income		306			—			—
Net amount recognized as year-end	$	(1,323	)	$	(926	)	$	(918	)
Component of net periodic benefit cost
Service cost	$	180		$	174		$	126
Interest cost		91			84			58
Recognized actuarial loss		126			80			3
Net periodic benefit cost		397			338			187
Additional loss due to settlement		—			193			—
Net amount recognized in year	$	397		$	531		$	187

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

14.	Pension Plan (continued)
	In accordance with SFAS 87 “Employers’ Accounting for Pensions”, an additional amount of $306 was recorded in 2005 in accumulated other comprehensive income in shareholders’ equity in the accompanying consolidated financial statements as the unfunded accrued benefit liability exceeded the accrued pension cost. Actuarial assumptions used in estimating obligations are a discount rate of 5.50% (2004: 6.00%; 2003: 6.00%) and average compensation increases of 3.75% (2004: 3.75%; 2003: 4.00%).
15.	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 Europe Limited is a tax-paying entity subject to the jurisdiction of the Government of Ireland. The amount of taxes incurred for 2005, 2004 and 2003 is not material to the consolidated financial statements.
16	Unaudited Quarterly Financial Data

	Quarter			Quarter		Quarter			Quarter
	ended			ended		ended			ended
	March 31,			June 30		Sept. 30,			Dec. 31,
	2005			2005		2005			2005
Gross premiums written	$	205,841		$	86,994	$	165,980		$	13,572
Net premiums earned		82,038			87,129		207,291			76,064
Net investment income		17,515			14,857		15,731			23,654
Net realized (losses) gains on investments		(3,210	)		1,032		(2,002	)		(6,376	)
Net losses and loss adjustment expenses		37,936			24,434		855,977			154,315
Net income (loss)		43,955			64,050		(656,570	)		(74,835	)
Net income (loss) per common share — basic	$	0.91		$	1.32	$	(13.57	)	$	(1.28	)
Net income (loss) per common share — diluted	$	0.91		$	1.32	$	(13.57	)	$	(1.28	)

	Quarter		Quarter		Quarter			Quarter
	ended		ended		ended			ended
	March 31,		June 30		Sept. 30,			Dec. 31,
	2004		2004		2004			2004
Gross premiums written	$	210,157	$	72,906	$	60,688		$	34,658
Net premiums earned		83,561		78,145		99,956			93,220
Net investment income		11,563		14,082		11,958			13,617
Net realized gains (losses) on investments		5,663		2,002		(404	)		(1,315	)
Net losses and loss adjustment expenses		13,548		4,860		115,993			81,207
Net income (loss)		73,628		74,148		(17,798	)		8,635
Net income (loss) per common share — basic	$	1.53	$	1.54	$	(0.37	)	$	0.18
Net income (loss) per common share — diluted	$	1.52	$	1.53	$	(0.37	)	$	0.18

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Expressed in thousands of United States Dollars, except for per share amounts)

17.	Summarized Subsidiary Financial Data
	Summarized consolidated financial data of IPCRe Limited and subsidiary, is as follows:

	2005			2004			2003
Gross premiums written	$	472,387		$	378,409		$	322,762
Net premiums earned		452,522			354,882			298,901
Net investment income		71,641			51,220			47,089
Net realized (losses) gain on investments		(10,556	)		5,946			13,733
Net losses and loss adjustment expenses		(1,072,662	)		(215,608	)		(54,382	)
Net acquisition costs		(39,249	)		(37,682	)		(30,867	)
General & administration expenses		(25,407	)		(20,981	)		(17,532	)
Net foreign exchange (loss) gain		(2,979	)		(1,290	)		1,910
Net (loss) income	$	(626,690	)	$	136,487		$	258,852
Loss ratio (1)		237.0	%		60.8	%		18.2	%
Expense ratio (2)		14.3	%		16.5	%		16.2	%
Combined ratio (3)		251.3	%		77.3	%		34.4	%
Cash & investments	$	2,559,736		$	1,900,984
Balances receivable from reinsureds		180,798			85,086
Other assets		39,179			41,633
Total assets	$	2,779,713		$	2,027,703
Unearned premiums	$	66,311		$	68,465
Reserves for losses		1,072,056			274,463
Other liabilities		19,753			15,824
Total liabilities		1,158,120			358,752
Common stock		250,000			250,000
Additional paid-in capital		1,211,609			595,409
Retained earnings		67,202			732,392
Accumulated other comprehensive income		92,782			91,150
Total shareholder’s equity		1,621,593			1,668,951
Total liabilities and shareholder’s equity	$	2,779,713		$	2,027,703

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

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF IPC HOLDINGS, Ltd.:

IPCRe Limited
IPCRe Underwriting Services Limited

SUBSIDIARIES OF IPCRe Limited:

IPCRe Europe Limited

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
IPC Holdings, Ltd.

We consent to the incorporation by reference in the registration statement No. 333-128905 on Form S-3 and registration statement No. 333-107052 on Form S-8 of IPC Holdings, Ltd. of our reports dated February 24, 2006, with respect to the consolidated balance sheets of IPC Holdings, Ltd. as of December 31, 2005 and 2004, and the related consolidated statements of (loss) income, comprehensive (loss) income, shareholders’ equity and cash flows for each of the years in the three year period ended December 31, 2005, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005 annual report on Form 10-K of IPC Holdings, Ltd.

	/s/ KPMG
Chartered Accountants
Hamilton, Bermuda
February 28, 2006

EX-31.1

Exhibit 31.1

CERTIFICATION

I, James P. Bryce, certify that:

1. I have reviewed this annual report on Form 10-K of IPC Holdings, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2006
	/s/ James P. Bryce
	James P. Bryce
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, John R. Weale, certify that:

1. I have reviewed this annual report on Form 10-K of IPC Holdings, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2006
	/s/ John R. Weale
	John R. Weale
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), the undersigned officer of IPC Holdings, Ltd. (the “Company”), hereby certifies, to such officer’s knowledge, that:

     The Company’s Annual Report on Form 10-K for the year ended December 31, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 28, 2006	/s/ James P. Bryce
	Name: James P. Bryce
	Title: Chief Executive Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report.

EX-32.2

Exhibit 32.2

CERTIFICATION

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), the undersigned officer of IPC Holdings, Ltd. (the “Company”), hereby certifies, to such officer’s knowledge, that:

     The Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 28, 2006	/s/ John R. Weale
	Name: John R. Weale
	Title: Chief Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report.