10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2006
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) (Zip Code)

(441) 298-5100

Registrant’s telephone number,

including area code:

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Shares, par value $0.01 per share	NASDAQ Global Select Market

Securities registered pursuant to section 12(g) of the Act:

Series A Mandatory Convertible Preferred Shares, par value $0.01 per share

(Title of class)

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

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 þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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. þ

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 þ     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 Act).  Yes o     No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of June 30, 2006 was $1,188,841,091.

The number of shares outstanding of each of the registrant’s classes of common stock, as of February 27, 2007 was 63,646,378.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Registrant’s 2006 Annual Report to Shareholders (the “Annual Report”) to be mailed to shareholders on or about April 30, 2007 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 on June 22, 2007 (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		36
	2.	Properties		36
	3.	Legal Proceedings		36
	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		39
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations .		40
	7A.	Quantitative and Qualitative Disclosures about Market Risk		40
	8.	Financial Statements and Supplementary Data.		40
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		41
	9A.	Controls and Procedures		41
	9B.	Other Information		43
PART III
	10.	Directors and Executive Officers of the Registrant		43
	11.	Executive Compensation		43
	12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		43
	13.	Certain Relationships and Related Transactions		44
	14.	Principal Accountant Fees and Services		44
PART IV
	15.	Exhibits and Financial Statement Schedules		44
EX-11.1: STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
EX-12.1: STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
EX-13.1: PORTIONS OF THE ANNUAL REPORT
EX-21.1: SUBSIDIARIES
EX-23.1: CONSENT OF KPMG
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
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, 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 reinsurers offering property catastrophe coverage; (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 United States; (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

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 2006, approximately 83% of our gross premiums written, excluding reinstatement premiums, covered property catastrophe reinsurance risks. We believe that by showing gross premiums excluding reinstatement premiums, the comparison of underlying business can be more meaningfully interpreted. 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 2006, we had approximately 249 clients from whom we received either annual/deposit or adjustment premiums, including many of the leading insurance companies around the world. In 2006, approximately 40% of those clients were based in the United States, and approximately 49% 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 2006, no single ceding insurer accounted for more than 3.4% of our gross premiums written, excluding reinstatement premiums. At

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December 31, 2006, IPC Holdings had total shareholders’ equity of $1,991 million and total assets of $2,645 million.

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”). 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”) a subsidiary of IPC Holdings, incorporated in Bermuda, was also a director and officer of various subsidiaries and affiliates of AIG. Since January 1, 2006 one of the directors of IPC Holdings, IPCRe and IPCUSL, is also the president and chief executive officer of American International Company, Ltd. (“AICL”), an indirect, wholly-owned subsidiary of AIG. On August 15, 2006 AIG sold its entire shareholding in an underwritten public offering. As from August 15, 2006 AIG no longer has any ownership interest in the Company. See “Item 13. Certain Relationships and Related Transactions.”

IPC Holdings’ common shares are quoted on the Nasdaq National Market under the ticker symbol “IPCR”.

IPCRe Europe Limited, a subsidiary of IPCRe incorporated in Ireland, underwrites select reinsurance business, primarily in Europe. Currently, IPCRe Europe retrocedes 90% of the business it underwrites to IPCRe.

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, 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

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reinsurance companies that they provide coverage for, such that the reinsurance company can also write third party retrocessional business on their behalf. These vehicles have become commonly known as “sidecars”. Furthermore, in late 2005 and through 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.

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. For business renewing January 1, 2006 the unprecedented level of insured losses from events which occurred in the second half of 2005 resulted in significant increases in pricing for U.S. cedents, especially for contracts with coastal exposures. 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, and other improved terms and conditions. As 2006 progressed, a number of reinsurance companies recognized increased losses arising from hurricanes Katrina, Rita and Wilma, some to the extent of having to cease active underwriting operations. Several of these companies had previously written a significant proportion of their business providing retrocessional coverage to reinsurance companies. Because of this additional pressure on market capacity, as well as the increased impact of rating agency requirements, pricing for business renewing at April 1, June 1 and July 1, 2006 saw even greater increases than those experienced at January 1, 2006. Because of the lack of significant catastrophe activity during 2006, many reinsurance companies have generated considerable earnings, which has allowed them to offer more capacity at January 1, 2007. In addition, some of the reinsurance companies formed in late 2005 and early 2006 now have more established underwriting teams, and have been more active in seeking and quoting terms and conditions for new business than in early 2006. As a result of these factors, pricing of January 1, 2007 renewals for U.S. business, while up 15-20% over January 2006 renewals, did not reach the level of pricing seen in the middle of 2006. In the event that there are no significant catastrophes in the United States during 2007, it is anticipated that pricing for subsequent renewals may decrease between 5% and 10%.

As a result of the terrorist acts of September 11, 2001, for renewals in the period 2002 to 2006 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 2006, 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. insurers 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 a percentage of losses above the deductible. In its revised form, the insurers’ deductible level was 17.5% in 2006 and is 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 was $50 million in 2006 and is $100 million in 2007.

As a result of TRIA, our participation in coverage for terrorism within the United States declined from 2003 onwards. 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, 2007.

On January 22, 2007 Florida legislators passed a bill aimed at reducing hurricane-related insurance costs for Florida homeowners and businesses. This legislation makes significant changes to the Florida Hurricane Catastrophe Fund (“FHCF”) and the Citizens Property Insurance Corporation (“Citizens”). The FHCF and Citizens were

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both formed in late 1992, following hurricane Andrew, to ensure the continuing provision of insurance in the state. FHCF was formed to provide reinsurance to insurers, and Citizens was created as a state-run insurer of last resort. Prior to the legislative changes passed in January 2007, FHCF provided coverage for 90% of aggregate industry losses in excess of $6 billion, up to an amount of $24 billion. As a result of the legislative changes, coverage is now being offered for aggregate industry losses in excess of $3 billion, up to an amount of $40 billion. Rates charged by FHCF for such reinsurance protection are significantly lower than can be obtained in the general reinsurance market. Furthermore, insurance companies that buy reinsurance protection from the general reinsurance market are not permitted to pass on the additional cost excess of the cost of protection offered by FHCF, to their customers. There are also a number of other changes impacting the way in which insurers will be able to do business in Florida, and the prices that they can charge for the coverage provided. Taken in aggregate, this legislation has potentially far-reaching implications for both insurers and reinsurers providing coverage in Florida. Some commentators believe that this will result in insurers buying significantly less coverage from the general reinsurance market, which in turn will offer its capacity in other parts of the United States, possibly resulting in downward pressure on pricing as a result of the increased competition. With one exception, IPCRe’s coverage for Florida risks generally does not emanate from Florida-based insurance companies who only operate in that state, but results from the reinsurance of the larger U.S.-based insurance companies, such as Chubb, Hartford, Zurich, AIG and others, who operate throughout the United States and elsewhere. Currently, such companies mostly buy catastrophe reinsurance protection for their entire U.S. nationwide portfolio, for all perils, rather than for specific perils in single states or zones. It is not currently known whether the new legislation will result in changes in the buying habits of our clients and whether it will result in a reduction in the amount of premium IPCRe receives from these clients.

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, and occasionally do underwrite 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.

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 and this basis 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

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believe our financial stability, ratings from Standard & Poor’s (“S & P”) and A.M. Best Company (“A.M. Best”) and maintaining optimum levels 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 to optimize IPC’s capital to protect it from major catastrophes, to ensure ongoing customer relationships and to support premium growth opportunities, when beneficial.

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, 2006 our equity and hedge fund investments consisted of four managed funds: a U.S. futures fund, which aims for returns similar to those 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 23.2% of the total fair value of our investment portfolio on December 31, 2006. On that date, 77.7% 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 2006, 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 is 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 five year period from 2002 to 2006, IPCRe has participated in a number of underwriting pools which cover property losses arising from terrorist acts as a separate hazard.

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

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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. Our clients generally purchase their excess of loss protection in defined layers, with each layer having a specified aggregate limit of liability. We also control our underwriting results by assessing the premiums versus exposure for each individual layer and offering our capacity accordingly.

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 other lines, including marine, and kidnap and ransom and related exposures.

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

	Year Ended December 31,
	2006					2005					2004
			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	$	349,861		82.7	%	$	285,264		83.1	%	$	291,087		84.2	%
Risk excess of loss		11,289		2.7	%		10,040		2.9	%		9,851		2.8	%
Retrocessional reinsurance		44,576		10.5	%		26,458		7.7	%		20,552		5.9	%
Aviation		7,833		1.8	%		9,618		2.8	%		15,099		4.4	%
Other		9,579		2.3	%		11,858		3.5	%		9,313		2.7	%
Total	$	423,138		100.0	%	$	343,238		100.0	%	$	345,902		100.0	%

For more detailed information on our income (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

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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 2006, this includes business written in two pro rata satellite contracts, where the underlying insurance is written on an excess of loss basis.

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 and 2006), 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. 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.

Underwriting Services.  Beginning on December 1, 2001, IPCUSL commenced providing underwriting services to Allied World Assurance Company, Ltd. (“AWAC”), a multi-line insurance and reinsurance company in which AIG owned 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 5, 2006, IPCUSL and AWAC executed an amendment to the Underwriting Agency agreement, terminating the arrangement, effective November 30, 2006. IPCUSL will continue to service business it bound on AWAC’s behalf, until November 30, 2009, and will receive an early termination fee of $400 thousand, as well as any agency commissions due under the agreement for any and all business bound on AWAC’s behalf prior to November 30, 2006.

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.

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. During 2006, we reduced the maximum limit of exposure per geographic zone, as we sought to implement a number of risk management policies following the losses we incurred as a result of hurricane Katrina.

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,

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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,
	2006					2005					2004
			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	$	205,866		48.7	%	$	136,331		39.7	%	$	130,327		37.7	%
Worldwide(2)		58,293		13.8	%		66,260		19.3	%		56,115		16.2	%
Worldwide (excluding the U.S.)(3)		9,106		2.1	%		5,419		1.6	%		7,082		2.1	%
Europe		107,920		25.5	%		94,183		27.4	%		108,377		31.3	%
Japan		22,907		5.4	%		24,395		7.1	%		20,439		5.9	%
Australia and New Zealand		15,595		3.7	%		14,647		4.3	%		20,418		5.9	%
Other		3,451		0.8	%		2,003		0.6	%		3,144		0.9	%
Total	$	423,138		100.0	%	$	343,238		100.0	%	$	345,902		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, 2007, 2006 and 2005. 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	2007		2006		2005
	(In thousands)		(In thousands)		(In thousands)
United States
New England	$	1,170,011	$	1,062,731	$	1,087,617
Atlantic		1,168,499		1,084,192		1,098,190
Gulf		1,082,124		1,040,028		1,053,427
North Central		1,124,824		1,050,960		1,075,801
Mid West		1,087,171		1,015,877		1,034,271
West		1,113,517		1,029,394		1,048,816
Alaska		944,022		719,948		669,674
Hawaii		909,927		645,433		601,819
Total United States(1)		1,247,219		1,215,760		1,301,813
Canada		396,461		202,807		216,977
Worldwide(2)		39,000		261,541		272,039
Worldwide (excluding the U.S.)(3)		29,065		68,388		81,417
Northern Europe		970,220		1,055,449		992,525
Japan		315,925		291,190		275,210
Australia and New Zealand		326,535		309,225		312,950

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. During 2006, we reduced the program limit to $50 million, as we sought to implement a number of risk management policies following the losses we incurred as a result of hurricane Katrina. 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

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borne by the ceding insurer before our reinsurance coverage applies. Attachment points vary and are based upon 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

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$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 Other. Effective January 1, 2005, the facility provided coverage of up to $75 million in each of the named zones, with the exception of Europe (excluding the U.K.), where the coverage remained limited to $50 million. Effective January 1, 2006, the facility provided coverage of up to $75 million in each of the named zones. 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 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 2006 was 60.5% and IPCRe participates on the balance. The bound participation for 2007 is 45.0% and the limits of the treaty remain unchanged, with the exception of the U.K., where the expiring limit of $75 million has been increased to $100 million.

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. For 2006 this was decreased to $30 million excess of $10 thousand in the aggregate. At January 1, 2007 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 optimization 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 2006, no single ceding insurer accounted for more than 3.4% 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, 2006, the four broker groups from which we derived the largest portions of our business in 2006 (with the approximate percentage of our premium volume derived from such group, excluding reinstatement premiums) are Marsh & McLennan Companies, Inc. (30.3%), Aon Corp. and affiliates (27.7%), Willis Group (16.4%), and Benfield Group (12%). For the years ended December 31, 2005 and 2004, respectively, the approximate percentages on a comparative basis were: Marsh — 34.3% and 32.2%; Aon — 28.5% and 32.6%; Willis — 14.6% and 12.8%; and Benfield — 9.4% and 9.4%. During the year ended December 31, 2006, we had in force reinsurance contracts with only thirteen 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

13

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 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 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.

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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:

	2006			2005			2004
	(In thousands)			(In thousands)			(In thousands)
Gross loss reserves, beginning of the year	$	1,072,056		$	274,463		$	123,320
Loss reserves recoverable, beginning of the year		(1,054	)		(5,006	)		(1,810	)
Total net reserves, beginning of year		1,071,002			269,457			121,510
Net losses incurred related to:
Current year		24,697			1,017,495			229,112
Prior years		33,808			55,167			(13,504	)
Total incurred losses		58,505			1,072,662			215,608
Net paid losses related to:
Current year		(3,248	)		(96,705	)		(33,967	)
Prior years		(582,248	)		(170,399	)		(34,740	)
Total paid losses		(585,496	)		(276,104	)		(68,707	)
Effect of foreign exchange movements		2,627			(4,013	)		1,046
Total net reserves, end of year		546,638			1,071,002			269,457
Loss reserves recoverable, end of year		1,989			1,054			5,006
Gross loss reserves, end of year	$	548,627		$	1,072,056		$	274,463

Losses incurred in the year ended December 31, 2006 are predominantly due to cyclone Larry which struck Queensland, Australia and super-typhoon Shanshan, which struck Japan. Amounts recorded for these events were $13 million. Losses incurred in the year ended December 31, 2006 in respect of prior years are primarily the result of development in reserves relating to the major windstorms of 2005, primarily hurricane Wilma. In addition there were two additional losses recorded which occurred in 2005: a U.K. explosion and a train wreck and associated chemical spill which took place in South Carolina. For certain catastrophic events there is considerable uncertainty underlying the assumptions and associated estimated reserves for losses and loss adjustment expenses. Reserves are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments could require a material change in the amount estimated. However, complexity resulting from problems such as policy coverage issues, multiple events affecting one geographic area and the resulting impact on claims adjusting (including allocation of claims to event and the effect of demand surge on the cost of building materials and labour) by, and communications from, ceding companies, can cause delays to the timing with which IPCRe is notified of changes to loss estimates. In particular the estimate for hurricane Katrina has been based on industry insured loss estimates, output from industry and proprietary models, a review of contracts potentially affected by the events, information received from both clients and brokers and management judgement. It has also been assumed that underlying policy terms and conditions are upheld during the loss adjustment process. The unique circumstances and severity of this devastating catastrophe, including the extent of flooding and limited access by claims adjusters, introduce additional uncertainty to the normally difficult process of estimating catastrophe losses. This is compounded by the potential for legal and regulatory issues arising regarding the scope of coverage. Consequently, the ultimate net impact of losses from this event on the Company’s net income might differ substantially from the foregoing estimate. Such adjustments, if necessary, are reflected in results of operations in the period in which they become known.

Losses incurred in the year ended December 31, 2005 were predominantly due from hurricanes Katrina, Rita and Wilma which struck Louisiana, Texas and Florida, respectively. Losses from these events totalled $977 million. 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.

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Losses incurred in the year ended December 31, 2004 were 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 totalled $224 million. 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.

The following table represents the development of our GAAP balance sheet reserves for the period 1996 to 2006. 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,	1996		1997			1998			1999			2000		2001			2002			2003		2004			2005			2006
	(In millions of U.S. dollars)
Gross reserve for losses & loss adjustment expenses		28.5		27.5			52.0			111.8			60.1		162.1			119.5			123.3		274.4			1,072.1			548.6
1 year later		28.1		33.7			65.2			146.9			62.4		169.0			136.9			110.7		327.1			1,107.9
2 years later		26.1		33.3			65.2			143.1			60.3		178.1			131.0			111.1		323.9
3 years later		25.3		31.5			60.8			142.6			60.8		174.4			128.3			105.7
4 years later		24.2		29.3			60.9			143.1			60.2		172.5			124.2
5 years later		23.8		29.2			60.8			143.3			59.5		169.2
6 years later		23.6		29.3			62.2			142.6			58.5
7 years later		23.7		30.8			61.3			141.9
8 years later		23.6		30.1			61.5
9 years later		23.6		30.0
10 years later		23.6
Cumulative gross paid losses
1 year later		13.9		15.2			37.3			97.7			24.4		79.7			47.9			35.7		176.7			582.5
2 years later		18.7		23.0			50.0			116.7			39.5		115.2			75.7			59.2		229.6
3 years later		21.1		25.0			52.0			126.9			44.3		130.6			89.9			69.2
4 years later		21.3		25.8			53.6			130.6			49.4		143.5			98.0
5 years later		21.9		26.0			54.4			134.2			51.4		150.4
6 years later		22.1		26.2			56.8			136.0			52.2
7 years later		22.2		27.9			57.2			136.4
8 years later		22.3		27.9			57.3
9 years later		22.3		27.9
10 years later		22.4
Gross reserve for losses and loss adjustment expenses		28.5		27.5			52.0			111.8			60.1		162.1			119.5			123.3		274.4			1,072.1
Gross liability re-estimated		23.6		30.0			61.5			141.9			58.5		169.2			124.2			105.7		323.9			1,107.9
Cumulative redundancy (deficiency) on gross reserves		4.9		(2.5	)		(9.5	)		(30.1	)		1.6		(7.1	)		(4.7	)		17.6		(49.5	)		(35.8	)

See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — 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 reasons for the deficiencies of 1999, 2004 and 2005.

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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 investments. At December 31, 2006, other than cash, our investments consisted of fixed maturity securities, only one of which had a rating of less than A and investments in mutual funds. Corporate bonds represented 60% of total fixed maturity investments at December 31, 2006, and of these 47% were issued by non-U.S. corporations and 53% by U.S. corporations. Our investment policy also stresses diversification and at December 31, 2006 we had 104 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, 2006 and 2005:

	December 31,
Type of Investment	2006		2005
	(In thousands)
Fixed Maturities available for sale
U.S. Government and government agencies	$	281,921	$	324,175
Other governments		205,963		293,961
Corporate		1,084,010		1,179,317
Supranational entities		247,667		201,153
		1,819,561		1,998,606
Equities, available for sale		577,549		530,127
Cash and cash equivalents		88,415		31,113
	$	2,485,525	$	2,559,846

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

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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 maturities of individual securities vary from less than one year to a maximum of ten years for fixed maturity securities. At December 31, 2006 the fixed maturity portfolio (including cash and cash equivalents within such portfolio) had an average maturity of 3.9 years and an average modified duration of 3.2 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, 2006 and 2005. For this purpose, maturities reflect contractual rights to put or call the securities; actual maturities may be longer.

	December 31,
	2006		2005
	(In thousands)
Due in one year or less	$	146,864	$	406,649
Due after one year through five years		1,161,390		1,293,991
Due after five years through ten years		511,307		297,966
	$	1,819,561	$	1,998,606

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 are 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,
	2006			2005
Cash and cash equivalents		4.6	%		1.5	%
U.S. Government and government agencies		14.8	%		16.0	%
AAA		35.2	%		32.3	%
AA		23.1	%		29.5	%
A		21.8	%		20.2	%
BBB		0.5	%		0.5	%
		100	%		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 Global Investment Fund Management Limited 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 Global Investment Fund Management Limited and invests predominantly in large capitalized companies operating in diverse sectors of North America. During the year, we sold $41 million from our investment in the Global Equity Fund and we invested a further $21 million in the American Equity Fund. In June 2006, we sold our investment in an equity fund with attributes similar to those of the S & P 500 Index, realizing a $28 million gain. The proceeds were used to invest $94 million in the Vanguard US Futures Fund, an Ireland-based fund with similar attributes. Any dividends received from these funds are reinvested in the respective fund.

On January 2, 2004, we invested an initial $75 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,

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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. Any dividends received are reinvested in the fund.

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

Foreign Currency Exposure.  At December 31, 2006 and 2005, 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 of Financial Condition and Results of Operations — 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 2006, and there were no open positions at December 31, 2006.

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 United States, 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 continue to 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 (sidecars) funded by hedge funds, to write various types

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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.

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. Both ratings were affirmed during 2006. 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 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 loss reserves 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 27, 2007, we employed twenty-eight people on a full-time basis including our Chief Executive Officer, Chief Financial Officer and four underwriters. During the year ended December 31, 2006, the headcount increased from sixteen to twenty-eight because some of the personnel and services that were previously provided under the Administrative Services Agreement were brought in-house. 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. In addition, the Authority is required by the Insurance Act to determine whether a person who proposes to control 10 percent, 20 percent, 33 percent or 50 percent (as applicable) of the voting powers of a Bermuda registered insurer or its parent company is a fit and proper person to exercise such degree of control. The continued 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.

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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.

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

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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 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 million,

(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.

As part of the Authority’s ongoing review of Bermuda’s insurance supervisory framework, consultations are currently underway with the Class 4 insurance sector regarding the further enhancement of the capital adequacy framework for Class 4 insurers, using a risk-based capital model. The results of the consultations may affect capital requirements in the future.

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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.

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, (7) to limit its premium income and/or (8) to remove a controller or officer.

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.

Notification by shareholder controller of new or increased control.  Any person who, directly or indirectly, becomes a holder of at least 10 percent, 20 percent, 33 percent or 50 percent of IPC Holdings’ common shares must notify the Authority in writing within 45 days of becoming such a holder or 30 days from the date they have knowledge of having such a holding, whichever is later. The Authority may, by written notice, object to such a person if it appears to the Authority that the person is not fit and proper to be such a holder. The Authority may require the holder to reduce their holding of the common shares in IPC Holdings and direct, among other things, that voting rights attaching to such shares shall not be exercisable. A person that does not comply with such a notice or direction from the Authority will be guilty of an offence.

Objection to existing shareholder controller.  For so long as IPC Holdings has as a subsidiary an insurer registered under the Insurance Act, the Authority may at any time, by written notice, object to a person holding 10 percent or more of IPC Holdings’ common shares if it appears to the Authority that the person is not or is no longer fit and proper to be such a holder. In such a case, the Authority may require the shareholder to reduce its holding of common shares in IPC Holdings and direct, among other things, that such shareholder’s voting rights attaching to such shares shall not be exercisable. A person who does not comply with such a notice or direction from the Authority will be guilty of an offence.

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

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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 thousand; 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 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 believe that IPCRe does not violate 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.

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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 file 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 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

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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. Until August 15, 2006, AIG owned 24.2% of the common shares, although, pursuant to our Bye-laws, the combined voting power of these shares was limited to less than 10% of the combined voting power of all shares. Because of the dispersion of IPC Holdings’ share ownership among holders; 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 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 2006, 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 2006 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

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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 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

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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 (a basis which limits our ultimate exposure per contract and permits us to determine and monitor our aggregate loss exposure), 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 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, 2006, we estimated that the ultimate aggregate losses

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from hurricanes Katrina, Rita and Wilma was $1,005 million. The impact of these events may materially increase as our ultimate liability is adjusted.

Based upon an analysis of the information available, as of December 31, 2006 we estimated that the ultimate aggregate losses and loss adjustment expenses from hurricanes Katrina, Rita and Wilma, were $1,005 million, compared to $977 million as of December 31, 2005. This estimated amount is based on amounts reported by ceding companies, 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.

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. 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. Both of these ratings were affirmed during 2006. If these ratings are 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

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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. In addition, recent legislative changes in the state of Florida will likely reduce the level of demand for reinsurance for exposures in that state from the general market, which may in turn result in an increased supply of reinsurance capacity in other U.S. geographic areas.

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

IPCRe is a registered Bermuda insurance company and is not licensed or admitted as an insurer in any jurisdiction in the United States. Because jurisdictions in the United States 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 loss reserves to reinsureds. Currently IPCRe obtains letters of credit through bilateral facilities with two commercial banks, and a syndicated facility. 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 $700 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 recent legislative changes in Florida may significantly impact the insurance and reinsurance markets covering risks in that state. The insurance industry is also affected by political, judicial and legal developments that may create new and expanded theories of liability.

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, 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

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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, 2007 was approximately $495.4 million. Our $500 million credit facility, which we have entered into on April 13, 2006, also imposes limits on the ability of IPC Holdings’ subsidiaries to pay dividends. 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 United States; a substantial portion of IPCRe’s premiums, however, come from, and are expected to continue to come from, ceding insurers in the United States. The insurance laws of each state in the United States 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 United States. Accordingly, IPCRe does not believe it is in violation of insurance laws of any jurisdiction in the United States. However we cannot be certain, 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. However we cannot be certain, 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 United States, various states within the United States, the U.K. and elsewhere. In the past, there have been Congressional and other initiatives in the United States 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.

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 United States. No assurances can be given that if we were to become subject to any such laws of the United States 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 30%, and our four main brokers (including Marsh & McLennan Companies and affiliates) together accounted for approximately 86%, of our business based on premiums written, excluding reinstatement premiums, in the year ended December 31, 2006. Loss of all or a substantial portion of the business provided by such intermediaries could have a material adverse effect on us.

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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 28 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. 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.

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, 2006, approximately 23% 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

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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 judgements 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 United States. 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 United States. 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 U.S. federal securities laws in any federal or state court in the United States relating to the transactions covered by our registration statements, it may be difficult for investors to effect service of process within the United States on our directors and officers who reside outside the United States or to enforce against us or our directors and officers judgements of U.S. courts, including judgements 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), beneficially owning, directly or indirectly, 10% or more 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 Code, and the rules of the Securities and Exchange Commission (“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

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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 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 United States.

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 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 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 United States. If IPC Holdings and/or IPCRe were engaged in a trade or business in the United States (and — if IPCRe were to qualify for benefits under the income tax treaty between the United States and Bermuda — such trade or business were attributable to a “permanent establishment” in the United States), 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 United States (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 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. Because of the dispersion of IPC Holdings’ share ownership; 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

34

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 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 “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 2006, 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 2006 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.

35

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 are 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.

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, 2006.

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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 ticker 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, 2006
First Quarter	$	28.70	$	25.71
Second Quarter		28.25		23.81
Third Quarter		30.63		24.50
Fourth Quarter		31.97		29.11
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

Our common shares are also listed on the Bermuda Stock Exchange.

As of January 31, 2007, there were 65 holders of record of common shares.

In March, June, September and December 2006 we paid a dividend of $0.16 per common share. 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. 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.

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. We paid preferred dividends of $0.533932 per Series A Mandatory Convertible preferred share, in February 2006, and $0.475781 per Series A Mandatory Convertible preferred share, in each of May, August and November 2006, to holders of our Series A Mandatory Convertible preferred shares.

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, 2007 without such notification is approximately $495.4 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.

37

On February 15, 2007, we paid a preference dividend of $0.475781 per Series A Mandatory Convertible preferred share, to shareholders of record on January 31, 2007.

On February 20, 2007 we declared a dividend of $0.20 per share, payable on March 22, 2007 to shareholders of record on March 6, 2007.

On October 7, 2005, IPC Holdings filed an S-3 Registration statement with the SEC in the amount of $1,250 million, 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. Also on that date, we 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 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.

On February 21, 2006 our shareholders approved an increase in the number of the Company’s authorized common shares from 75,000,000 to 150,000,000, and an increase in the number of the Company’s authorized preferred shares from 25,000,000 to 35,000,000.

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.

38

Item 6.   Selected Financial Data

The historical consolidated financial data presented below as of and for each of the periods ended December 31, 2006, 2005, 2004, 2003, and 2002 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,
	2006			2005			2004			2003			2002
	(In thousands, except per share amounts)
Statement of Income (Loss) Data:
Gross premiums written	$	429,851		$	472,387		$	378,409		$	322,762		$	259,685
Net premiums earned		397,132			452,522			354,882			298,901			226,404
Net investment income		109,659			71,757			51,220			47,089			49,320
Other income		3,557			5,234			4,296			3,348			2,684
Net loss and loss adjustment expenses incurred		58,505			1,072,662			215,608			54,382			38,775
Net acquisition costs		37,542			39,249			37,682			30,867			24,521
General and administrative expenses		34,436			27,466			23,151			19,103			13,893
Net foreign exchange (gain) loss		(2,635	)		2,979			1,290			(1,910	)		(1,554	)
Net realized gains (losses), on investments		12,085			(10,556	)		5,946			13,733			(44,867	)
Net income (loss)	$	394,585		$	(623,399	)	$	138,613		$	260,629		$	157,906
Preferred dividend		17,176			2,664			—			—			—
Net income (loss), available to common shareholders	$	377,409		$	(626,063	)	$	138,613		$	260,629		$	157,906
Net income (loss) per common share(1)	$	5.54		$	(12.30	)	$	2.87		$	5.40		$	3.27
Weighted average shares outstanding(1)		71,212,287			50,901,296			48,376,865			48,302,579			48,266,444
Cash dividend per common share	$	0.64		$	0.88		$	0.88		$	0.72		$	—
Other Data:
Loss and loss adjustment expense ratio(2)		14.7	%		237.0	%		60.8	%		18.2	%		17.1	%
Expense ratio(2)		18.1	%		14.8	%		17.1	%		16.7	%		17.0	%
Combined ratio(2)		32.8	%		251.8	%		77.9	%		34.9	%		34.1	%
Return on average equity(3)		24.0	%		(38.0	)%		8.6	%		18.2	%		16.6	%

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	Year Ended December 31,
	2006		2005		2004		2003		2002
	(In thousands, except per share amounts)
Balance Sheet Data (at end of period):
Total cash and investments	$	2,485,525	$	2,560,146	$	1,901,094	$	1,671,423	$	1,387,162
Reinsurance premiums receivable		113,811		180,798		85,086		61,194		50,328
Total assets		2,645,429		2,778,281		2,028,290		1,769,458		1,473,975
Reserve for losses and loss adjustment expenses		548,627		1,072,056		274,463		123,320		119,355
Unearned premiums		80,043		66,311		68,465		61,795		51,902
Total shareholders’ equity	$	1,990,955	$	1,616,400	$	1,668,439	$	1,569,159	$	1,291,483
Diluted book value per common share(4)	$	27.94	$	22.26	$	34.44	$	32.46	$	26.75

(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 and convertible preferred shares. The net loss per common share for the year ended December 31, 2005, is 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 income (loss), available to common shareholders divided by the average of the common shareholders’ equity, which is total shareholders’ equity, excluding mandatory convertible preferred shares, 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, 2006 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 71,248,479.

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 of Financial Condition and Results of Operations — 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.

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

None.

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, 2006, 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, 2006, 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, 2006. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 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, 2006 that has materially affected, or is likely to materially affect, our internal control over financial reporting.

41

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, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). IPC Holdings, Ltd.’s 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 the Company’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, 2006, 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, 2006, 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, 2006 and 2005, and the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2006, and our report dated February 27, 2007 expressed an unqualified opinion on those consolidated financial statements.

/s/  KPMG

Chartered Accountants

Hamilton, Bermuda

February 27, 2007

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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.

Until February 20, 2007, the Company maintained an option plan that provided 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. On June 13, 2003, the shareholders approved a stock incentive plan, which allows for the issuance of up to 500,000 common shares, $0.01 par value, as grants of restricted stock to selected employees to compensate them for their contributions to the long-term growth and profits of the Company.

The following table sets forth information regarding outstanding options and shares available for future issuance under these plans as of December 31, 2006:

Equity Compensation 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		611,625	$	34.30		1,330,830
Incentive Plan approved by security holders		—		—		309,990
Equity compensation plans not approved by security holders		—		—		—
Total		611,625	$	34.30		1,640,820

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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 2006 and 2005” in the Proxy Statement.

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, 2006 and 2005

Consolidated statements of income (loss) for the years ended December 31, 2006, 2005 and 2004

Consolidated statements of comprehensive income (loss) for the years ended December 31, 2006, 2005 and 2004

Consolidated statements of shareholders’ equity for the years ended December 31, 2006, 2005 and 2004

Consolidated statements of cash flows for the years ended December 31, 2006, 2005 and 2004

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, 2006, 2005 and 2004

Schedule IV — Supplementary Information concerning Reinsurance for the years ended December 31, 2006, 2005 and 2004

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.

44

3. Exhibits

Exhibit
Number			Description	Method of Filing
	3	.1	Memorandum of Association of the Company	(1)
	3	.2	Amended and Restated Bye-Laws of the Company	(6)
	3	.3	Form of Memorandum of Increase of Share Capital	(1)
	3	.4	Certificate of Designations for the preferred shares	(15)
	4	.1	Form of certificate for the common shares of the Company	(1)
	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	(14)
	10	.1 †	IPC Holdings, Ltd. Stock Option Plan, as amended effective June 10, 2005	(4)
	10	.2 †	Amended and Restated IPC Holdings, Ltd. Deferred Compensation Plan	(3)
	10	.3 †	IPCRe Defined Contribution Retirement Plan	(1)
	10	.4	Investment Management Agreement between IPCRe and AIG Global Investment Corp. (Ireland) Limited (“AIGIC”), as amended	(2)
	10	.5	Investment Sub-Advisory Agreement between AIGIC and AIGIC (Europe) (formerly known as Dempsey & Company International Limited)	(1)
	10	.6	Custodial Agreement between AIG Global Trust Services and IPCRe	(1)
	10	.7 †	Retirement Agreement between IPCRe and James P. Bryce	(1)
	10	.8 †	Retirement Agreement between IPCRe and Peter J.A. Cozens	(1)
	10	.9	Underwriting Agency Agreement, dated December 1, 2001, between Allied World Assurance Company, Ltd (“AWAC”) and IPCUSL	(5)
	10	.10	Amended and Restated Amendment No. 1, dated April 19, 2004, to Underwriting Agency Agreement, effective as of December 1, 2001	(9)
	10	.11	Amended Schedule I (Investment Policy Guideline) to Investment Management Agreement between IPCRe and AIGIC	(8)
	10	.12 †	IPC Holdings, Ltd. 2003 Stock Incentive Plan	(7)
	10	.13 †	Form of Stock Option Agreement	(10)
	10	.14 †	Form of Restricted Stock Unit Award	(11)
	10	.15 †	The IPCRe Limited International Retirement Plan Level 2 Trust, as of December 31, 2003	(12)
	10	.16	Letters of Credit Master Agreement between Citibank N.A. and IPCRe Limited	(13)
	10	.17	Letter of Credit Facility between IPCRe and Bayerische Hypo- und Vereinsbank AG, and Credit Agreement between IPCRe and Barclays Bank PLC	(16)
	10	.18 †	Form of Special Retention Agreements	(11)

45

Exhibit
Number			Description	Method of Filing
	10	.19	Amendments to Letter of Credit Agreements between IPCRe and Barclays Bank PLC, and between IPCRe and Bayerische Hypo-und Vereinsbank, effective March 31, 2006 and amendment to Letter of Credit Agreement between IPCRe and Bayerische Hypo-und Vereinsbank, effective April 13, 2006	(19)
	10	.20	Credit Agreement between IPC Holdings, Ltd., Wachovia Bank and other Lenders named therein.	(18)
	10	.21	Administrative Services Agreement among IPC Holdings, Ltd., IPCRe Limited and American International Company, Limited, dated September 1, 2006.	(20)
	10	.22	Amendment No. 5, dated as of December 1, 2006, to the Underwriting Agency Agreement, dated as of December 1, 2001, as amended, by and between AWAC and IPCUSL	(21)
	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
	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

(1)	Incorporated by reference to the corresponding exhibit in our Registration Statement on Form S-1 (File No. 333-00088).
(2)	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended June 30, 1997 (File No. 0-27662).
(3)	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended September 30, 1999 (File No. 0-27662).
(4)	Incorporated by reference to Exhibit 10.1 to our filing on Form 8-K of June 14, 2005 (File No. 0-27662)
(5)	Incorporated by reference to Exhibit 10.15 to our Form 10-K for the year ended December 31, 2001 (File No. 0-27662).
(6)	Incorporated by reference to Exhibit 3.2 to our Form S-3 of April 27, 2006 (File No. 333-133605).
(7)	Incorporated by reference to Exhibit 4.2 to our filing on Form S-8 of July 15, 2003.
(8)	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended March 31, 2004 (File No. 0-27662).
(9)	Incorporated by reference to Exhibit 10.2 to our Form 10-Q for the quarter ended March 31, 2004 (File No. 0-27662).
(10)	Incorporated by reference to Exhibit 10.16 to our Form 10-K for the year ended December 31, 2004 (File No. 0-27662).

46

(11)	Incorporated by reference to Exhibit 10.17 to our Form 10-K for the year ended December 31, 2004 (File No. 0-27662).
(12)	Incorporated by reference to Exhibit 10.18 to our Form 10-K for the year ended December 31, 2004 (File No. 0-27662).
(13)	Incorporated by reference to Exhibit 10.19 to our Form 10-K for the year ended December 31, 2004 (File No. 0-27662).
(14)	Incorporated by reference to Exhibit 1.3 of our Form 8-K filed on November 3, 2005 (File No. 0-27662).
(15)	Incorporated by reference to Exhibit 3.3 of our Form 8-K filed on November 3, 2005 (File No. 0-27662).
(16)	Incorporated by reference to Exhibits 99.1 and 99.2 to our Form 8-K filed on January 13, 2006 (File No. 0-27662).
(17)	Incorporated by reference to Exhibit 10.20 to our Form 8-K filed on January 25, 2006 (File No. 0-27662).
(18)	Incorporated by reference to Exhibit 10.22 to our Current Report on Form 8-K filed on April 20, 2006 (File No. 0-27662).
(19)	Incorporated by reference to Exhibits 99.1 and 99.2 to our Current Report on Form 8-K filed on April 6, 2006 and Exhibit 99.1 to our Current Report on Form 8-K filed on April 24, 2006, respectively (File No. 0-27662).
(20)	Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on September 6, 2006 (File No. 0-27662).
(21)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 7, 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.

47

IPC HOLDINGS, LTD.

INDEX TO SCHEDULES

Schedule/Report		Page
Report of Independent Registered Public Accounting Firm on Schedules			49
Schedule I	Summary of Investments — Other than Investments in Related Parties		50
Schedule II	Condensed Financial Information of the Registrant		51
Schedule III	Supplementary Insurance Information of Subsidiary for the years ended December 31, 2006, 2005 and 2004		54
Schedule IV	Supplementary Information concerning Reinsurance for the years ended December 31, 2006, 2005 and 2004		55

48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Under date of February 27, 2007, we reported on the consolidated balance sheets of IPC Holdings, Ltd. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2006, as contained in the 2006 annual report to shareholders on Form 10-K. 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 aforementioned consolidated financial statements, we 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 these financial statement schedules based on our audits.

In our opinion, such 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 27, 2007

49

SCHEDULE I

IPC HOLDINGS, LTD.

SUMMARY OF INVESTMENTS — OTHER THAN INVESTMENTS IN RELATED PARTIES

(Expressed in thousands of United States Dollars)

	Year Ended December 31, 2006				Amount at
	Amortized		Fair		which shown in
	Cost		Value		the Balance Sheet
Type of investment:
Fixed maturities
U.S. Government and government agencies	$	279,963	$	281,921	$	281,921
Other governments		205,362		205,963		205,963
Corporate		1,076,778		1,084,010		1,084,010
Supranational entities		246,814		247,667		247,667
Total fixed maturities		1,808,917		1,819,561		1,819,561
Equity investments		460,197		577,549		577,549
Cash and cash equivalents		88,415		88,415		88,415
Total investments, cash and cash equivalents	$	2,357,529	$	2,485,525	$	2,485,525

See Report of Independent Registered Public Accounting Firm

50

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,
	2006			2005
ASSETS:
Cash	$	174		$	100
Investment in wholly-owned subsidiaries*		1,992,606			1,622,946
Due from subsidiaries*		358			—
Other assets		402			345
		1,993,540		$	1,623,391
LIABILITIES:
Payable to subsidiaries*	$	—		$	3,970
Dividends payable		2,189			2,664
Other liabilities		396			357
		2,585			6,991
SHAREHOLDERS’ EQUITY:
Share capital — 2006: 63,706,567 shares outstanding, par value $0.01; 2005: 63,666,368 shares outstanding, par value $0.01		637			637
Preferred shares — 2006: 9,000,000 shares outstanding, par value $0.01; 2005: 9,000,000 shares outstanding, par value $0.01		90			90
Additional paid in capital		1,475,533			1,473,257
Deferred stock grant compensation		(1,441	)		(2,492	)
Retained earnings		388,826			52,126
Accumulated other comprehensive income		127,310			92,782
		1,990,955			1,616,400
	$	1,993,540		$	1,623,391

* eliminated on consolidation

See Report of Independent Registered Public Accounting Firm

51

SCHEDULE II
continued

IPC HOLDINGS, LTD.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT — continued

STATEMENT OF INCOME (LOSS)

(PARENT COMPANY)

(Expressed in thousands of United States Dollars)

	Year Ended December 31,
	2006			2005			2004
Interest income	$	1		$	115		$	—
Expenses:
Operating costs and expenses, net		2,948			2,057			2,168
(Loss) before equity in net income (loss) of wholly-owned subsidiaries*		(2,947	)		(1,938	)		(2,168	)
Equity in net income (loss) of wholly-owned subsidiaries*		397,532			(621,461	)		140,781
Preferred dividend		17,176			2,664			—
Net income (loss) available to common shareholders	$	377,409		$	(626,063	)	$	138,613

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

	Year Ended December 31,
	2006			2005			2004
Net income (loss)	$	394,585		$	(623,399	)	$	138,613
Other comprehensive income:
Additional accumulated benefit pension obligation		(686	)		—			—
Holding gains (losses), net on investments during period		46,993			(8,618	)		5,989
Reclassification adjustment for (gains) losses included in net income		(12,085	)		10,556			(5,946	)
		34,222			1,938			43
Comprehensive income (loss)	$	428,807		$	(621,461	)	$	138,656

* eliminated on consolidation

See Report of Independent Registered Public Accounting Firm

52

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,
	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	394,585		$	(623,399	)	$	138,613
Adjustments to reconcile net income to cash provided by:
Equity in net (income) loss from subsidiaries*		(397,532	)		621,461			(140,781	)
Stock compensation		3,296			2,640			2,461
Changes in, net:
Other assets		(57	)		(67	)		17
Receivable from subsidiaries*		(358	)		—			2,429
Payable to subsidiaries*		(3,970	)		2,047			(684	)
Other liabilities		39			17			133
		(3,997	)		2,699			2,188
CASH FLOWS FROM FINANCING ACTIVITIES
Additional share capital received		31			614,731			645
Additional investment in subsidiaries*		0			(616,200	)		—
Dividends received from subsidiaries*		62,400			43,750			39,650
Dividends paid to shareholders		(58,360	)		(44,980	)		(42,482	)
		4,071			(2,699	)		(2,187	)
Net increase in cash and cash equivalents		74			—			1
Cash and cash equivalents, beginning of year		100			100			99
Cash and cash equivalents, end of year	$	174		$	100		$	100

* eliminated on consolidation

See Report of Independent Registered Public Accounting Firm

53

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
2006: Property & Similar	$	9,551	$	548,627	$	80,043	$	397,132	$	109,659	$	58,505	$	37,542	$	31,421	$	429,851
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

See Report of Independent Registered Public Accounting Firm

54

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
2006: Property & Similar	$	—	$	17,690	$	429,851	$	412,161		104	%
2005: Property & Similar	$	—	$	21,581	$	472,387	$	450,806		105	%
2004: Property & Similar	$	—	$	20,098	$	378,409	$	358,311		106	%

(1) Premiums Written

See Report of Independent Registered Public Accounting Firm

55

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 27th day of February, 2007.

IPC Holdings, LTD.

/s/  James 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 27, 2007
/s/  James Bryce James P. Bryce	President, Chief Executive Officer and Director	February 27, 2007
/s/  John Weale John R. Weale	Senior Vice President, Chief Financial Officer and principal accounting officer	February 27, 2007
/s/  George Cubbon S. George Cubbon	Deputy Chairman of the Board of Directors	February 27, 2007
/s/  Peter Christie Peter S. Christie	Director	February 27, 2007
/s/  Antony Lancaster Antony P.D. Lancaster	Director	February 27, 2007
/s/  Clarence James Dr. The Honourable Clarence E. James	Director	February 27, 2007
/s/  Kenneth Hammond Kenneth Hammond	Director	February 27, 2007

56

EXHIBIT INDEX

Exhibit
Number			Description	Method of filing
	3	.1	Memorandum of Association of the Company	(1)
	3	.2	Amended and Restated Bye-Laws of the Company	(6)
	3	.3	Form of Memorandum of Increase of Share Capital	(1)
	3	.4	Certificate of Designations for the preferred shares	(15)
	4	.1	Form of certificate for the common shares of the Company	(1)
	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	(14)
	10	.1†	IPC Holdings, Ltd. Stock Option Plan, as amended effective June 10, 2005	(4)
	10	.2†	Amended and Restated IPC Holdings, Ltd. Deferred Compensation Plan	(3)
	10	.3†	IPCRe Defined Contribution Retirement Plan	(1)
	10	.4	Investment Management Agreement between IPCRe and AIG Global Investment Corp. (Ireland) Limited (“AIGIC”), as amended	(2)
	10	.5	Investment Sub-Advisory Agreement between AIGIC and AIGIC (Europe) (formerly known as Dempsey & Company International Limited)	(1)
	10	.6	Custodial Agreement between AIG Global Trust Services and IPCRe	(1)
	10	.7†	Retirement Agreement between IPCRe and James P. Bryce	(1)
	10	.8†	Retirement Agreement between IPCRe and Peter J.A. Cozens	(1)
	10	.9	Underwriting Agency Agreement, dated December 1, 2001, between Allied World Assurance Company, Ltd (“AWAC”) and IPCUSL	(5)
	10	.10	Amended and Restated Amendment No. 1, dated April 19, 2004, to Underwriting Agency Agreement, effective as of December 1, 2001	(9)
	10	.11	Amended Schedule I (Investment Policy Guideline) to Investment Management Agreement between IPCRe and AIGIC	(8)
	10	.12	IPC Holdings, Ltd. 2003 Stock Incentive Plan	(7)
	10	.13†	Form of Stock Option Agreement	(10)
	10	.14†	Form of Restricted Stock Unit Award	(11)
	10	.15†	The IPCRe Limited International Retirement Plan Level 2 Trust, as of December 31, 2003	(12)
	10	.16	Letters of Credit Master Agreement between Citibank N.A. and IPCRe Limited	(13)
	10	.17	Letter of Credit Facility between IPCRe and Bayerische Hypo- und Vereinsbank AG, and Credit Agreement between IPCRe and Barclays Bank PLC	(16)
	10	.18†	Form of Special Retention Agreements	(17)
	10	.19	Amendments to Letter of Credit Agreements between IPCRe and Barclays Bank PLC, and between IPCRe and Bayerische Hypo-und Vereinsbank, effective March 31, 2006, and amendment to Letter of Credit Agreement between IPCRe and Bayerische Hupo-und Vereinsbank, effective April 13, 2006	(19)
	10	.20	Credit Agreement between IPC Holdings, Ltd., Wachovia Bank and other Lenders named therein	(18)
	10	.21	Administrative Services Agreement among IPC Holdings, Ltd., IPCRe Limited and American International Company, Limited, dated September 1, 2006	(20)
	10	.22	Amendment No. 5, dated as of December 1, 2006, to the Underwriting Agency Agreement, dated as of December 1, 2001, as amended, by and between AWAC and IPCUSL	(21)
	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

57

Exhibit
Number			Description	Method of filing
	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
	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

(1)	Incorporated by reference to the corresponding exhibit in our Registration Statement on Form S-1 (File No. 333-00088).
(2)	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended June 30, 1997 (File No. 0-27662).
(3)	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended September 30, 1999 (File No. 0-27662).
(4)	Incorporated by reference to Exhibit 10.1 to our filing on Form 8-K of June 14, 2005 (File No. 0-27662).
(5)	Incorporated by reference to Exhibit 10.15 to our Form 10-K for the year ended December 31, 2001 (File No. 0-27662).
(6)	Incorporated by reference to Exhibit 3.2 to our Form S-3 of April 27, 2006 (File No. 333-133605).
(7)	Incorporated by reference to Exhibit 4.2 to our filing on Form S-8 of July 15, 2003 (No. 333-107052).
(8)	Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended March 31, 2004 (File No. 0-27662).
(9)	Incorporated by reference to Exhibit 10.2 to our Form 10-Q for the quarter ended March 31, 2004 (File No. 0-27662).
(10)	Incorporated by reference to Exhibit 10.16 to our Form 10-K for the year ended December 31, 2004 (File No. 0-27662).
(11)	Incorporated by reference to Exhibit 10.17 to our Form 10-K for the year ended December 31, 2004 (File No. 0-27662).
(12)	Incorporated by reference to Exhibit 10.18 to our Form 10-K for the year ended December 31, 2004 (File No. 0-27662).
(13)	Incorporated by reference to Exhibit 10.19 to our Form 10-K for the year ended December 31, 2004 (File No. 0-27662).
(14)	Incorporated by reference to Exhibit 1.3 of our Form 8-K filed on November 3, 2005 (File No. 0-27662).
(15)	Incorporated by reference to Exhibit 3.3 of our Form 8-K filed on November 3, 2005 (File No. 0-27662).
(16)	Incorporated by reference to Exhibits 99.1 and 99.2 to our Form 8-K filed on January 13, 2006 (File No. 0-27662).
(17)	Incorporated by reference to Exhibit 10.20 to our Form 8-K filed on January 25, 2006 (File No. 0-27662).
(18)	Incorporated by reference to Exhibit 10.22 to our Current Report on Form 8-K filed on April 20, 2006 (File No. 0-27662).
(19)	Incorporated by reference to Exhibits 99.1 and 99.2 to our Current Report on Form 8-K filed on April 6, 2006 and Exhibit 99.1 to our Current Report on Form 8-K filed on April 24, 2006, respectively (File No. 0-27662).
(20)	Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on September 6, 2006 (File No. 0-27662)

58

(21)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 7, 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.

59

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,
	2006		2005			2004
	(audited)		(audited)			(audited)
BASIC
Net income (loss), available to common shareholders	$	377,409	$	(626,063	)	$	138,613
Common shares outstanding at January 1		63,612,198		48,323,329			48,245,395
Common shares outstanding at December 31		63,664,217		63,612,198			48,323,329
Weighted average common shares outstanding		63,636,935		50,901,382			48,287,261
Net income (loss) available to common shareholders, per common share	$	5.93	$	(12.30	)	$	2.87
DILUTED
Net income (loss)	$	394,585	$	(623,399	)	$	138,613
Weighted average common shares outstanding		63,636,935		50,901,382			48,287,261
Dilutive effect of share options and mandatory convertible preferred shares (except where anti-dilutive)		7,575,352		—			89,604
Total		71,212,287		50,901,382			48,376,865
Net income (loss) per common share	$	5.54	$	(12.30	)	$	2.87

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, 2006 are as follows:

	Year ended December 31,
	2006		2005			2004		2003		2002
	($ in thousands)
Net income (loss)	$	394,585	$	(623,399	)	$	138,613	$	260,629	$	157,906
Preferred share dividends		17,176		2,644			—		—		—
Fixed charges		—		—			—		—		—
Ratio of earnings to combined fixed charges and preferred share dividends		23.0 : 1		(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, 2006.

General Overview

     We commenced operations in June 1993. An overview of our principal lines of business is provided under “Item 1 Business — Overview” as set forth in our report on Form 10-K for the fiscal year ended December 31, 2006. 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 that 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 that 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 that 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, 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 is a function of 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 2006 demonstrated the cyclicality and volatility of catastrophe reinsurance business. In 1996, 1997, 2000, 2002, 2003 and 2006, 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 United States 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 that 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.

     During the fourth quarter of 2001, in response to the reduction in the capacity following the terrorist attacks of September 11, 2001 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. For business renewing January 1, 2006 the unprecedented level of insured losses from events which occurred in the second half of 2005 resulted in significant increases in pricing for U.S. cedents, especially for contracts with coastal exposures. 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. In addition, many companies increased the levels at which their reinsurance programs attached, in some cases by significant amounts. 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. In addition, during 2006, a number of hedge funds and other investors invested in new reinsurance companies which do not have their own underwriting personnel, but which utilize the underwriting expertise of existing reinsurers. These vehicles have been commonly termed “sidecars”. Some sidecars were formed to provide retrocessional coverage for the entity providing underwriting resources; others were formed to satisfy demand and benefit from improved market terms and conditions in the general reinsurance and retrocessional markets. As 2006 progressed, a number of reinsurance companies recognized increased losses arising from hurricanes Katrina, Rita and Wilma, some to the extent of having to cease active underwriting operations. Several of these companies had previously written a significant proportion of their business reinsuring reinsurance companies, which is known as retrocession. Because of this additional pressure on market capacity, as well as the increased impact of rating agency requirements, pricing for business renewing at April 1, June 1 and July 1, 2006 saw even greater increases than those experienced at January 1, 2006. 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. These factors were reflected in the significant increase in our written premium volume from 2002 to 2006, in comparison to 2001. During 2006, increases in premium volume were achieved despite the fact that we utilized less of our capital (i.e. aggregate limits offered) in many geographic zones, particularly in the United States, as we sought to implement a number of risk management policies following the losses we incurred as a result of hurricane Katrina.

     As a result of the terrorist attacks of September 11, 2001, for renewals in the period 2002 to 2006 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 2006, IPCRe has participated in a number of underwriting pools that 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. insurers 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 to policyholders all losses resulting from a covered terrorist act, retaining a defined “deductible” and a percentage of losses above the deductible. In its revised form, the insurers’ deductible level was 17.5% in 2006 and is 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 was $50 million in 2006 and is $100 million in 2007. As a result of TRIA, our participation in coverage for terrorism within the United States declined during the years 2003 to 2006. 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, 2007.

     On January 22, 2007, Florida legislators passed a bill aimed at reducing hurricane-related insurance costs for Florida homeowners and businesses. This legislation makes significant changes to the Florida Hurricane Catastrophe Fund (“FHCF”) and the Citizens Property Insurance Corporation (“Citizens”). The FHCF and Citizens were both formed in late 1992, following hurricane Andrew, to ensure the continuing provision of insurance in the state. FHCF was formed to provide reinsurance to insurers, and Citizens was created as a state-run insurer of last resort. Prior to the legislative changes passed in January 2007, FHCF provided coverage for 90% of industry losses in excess of $6 billion, up to an amount of $24 billion. As a result of the legislative changes, coverage is now being offered for industry losses in excess of $3 billion, up to an amount of $40 billion. Rates charged by FHCF for such reinsurance protection are significantly lower than can be obtained in the general reinsurance market. Furthermore, insurance companies that buy reinsurance protection from the general reinsurance market are not permitted to pass on the additional cost excess of the cost of protection offered by FHCF to their customers. There are also a number of other changes impacting the way in which insurers will be able to do business in Florida, and the prices that they can charge for the coverage provided. Taken in aggregate, this legislation has potentially far-reaching implications for both insurers and reinsurers providing coverage in Florida. Some commentators believe that this will result in insurers buying significantly less coverage from the general reinsurance market, which in turn will offer its capacity in other parts of the United States, possibly resulting in downward pressure on pricing as a result of the increased competition. With one exception, IPCRe’s coverage for Florida risks generally does not emanate from Florida-based insurance companies that only operate in that state, but mostly results from the reinsurance of the larger U.S.-based insurance companies, such as Chubb, Hartford, Zurich, AIG and others, who operate throughout the United States and elsewhere. Currently, such companies mostly buy catastrophe reinsurance protection for their entire U.S. nationwide portfolio, for all perils, rather than for specific perils in single states or zones. It is not currently known whether the new legislation will result in changes in the buying habits of our clients and if so, whether it will result in a reduction in the amount of premium IPCRe receives from these clients.

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 income (loss): premiums, losses (claims), including reserves and investments / investment income.

     Premiums

     Premiums are recorded as written at the beginning of each policy, based upon information received from ceding companies and their brokers, and are earned over the policy period. For excess of loss contracts, the amount of deposit premium is contractually documented at inception, and thus 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, 2006 the amount of premium accrued resulting from management’s estimates for proportional treaties was approximately 3% 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, 2006 for estimated reinstatement premiums on Reported But Not Enough losses (“RBNE”) and Incurred But Not Reported (“IBNR”) loss reserves was $16.8 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 that 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.

     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. 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, and the estimate is adjusted as actual experience becomes known.

     We establish reserves based upon estimates of losses incurred by the ceding companies, including 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 RBNE reserves. We also establish reserves for losses incurred as a result of an event known but not reported to us. These IBNR reserves, together with RBNE reserves, are established for both catastrophe and other losses. To estimate the portion of losses 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. 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. 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 reserves for IPC as a whole. Our reserving methodology uses a process that calculates a point estimate, as opposed to a methodology that develops a range of estimates.

     As a broker market reinsurer, we are reliant on loss information reported to brokers by primary insurers who must estimate their own losses at the policy level. These estimates are sometimes derived from the output of computer-based modelling systems, and often based upon incomplete and changing information, especially during the period immediately following a catastrophic event. The information we receive varies by cedant and broker and may include paid losses and estimated case reserves. We may also receive an estimated provision for IBNR reserves, especially when the cedant is providing data in support of a request for collateral for reserves ceded. Information can be received on a monthly, quarterly or transactional basis. As a reinsurer, our reserve estimates may be inherently less reliable than the reserve estimates of our primary insurer cedants.

     There is a time lag inherent in reporting from the original claimant to the primary insurer to the broker and then to the reinsurer. Reporting of property claims arising from catastrophes in general tends to be prompt (as compared to reporting of claims for casualty or other “long-term” lines of business). However, the timing of claims reporting can vary depending on various factors, including: the nature of the event (e.g. hurricane, earthquake, hail, man-made events such as terrorism or rioting); the geographic area involved; the quality of the cedant’s claims management and reserving practices; and whether the claims arise under reinsurance contracts for primary companies, or reinsurance of other reinsurance companies (i.e. retrocession). Because the events from which claims arise are typically prominent, public

occurrences, we are often able to use independent reports of such events to augment our loss reserve estimation process. Because of the degree of reliance that we place on ceding companies for claims reporting, the associated time lag, the low frequency/high severity nature of the business we underwrite and the varying reserving practices among ceding companies, our reserve estimates are highly dependent on management judgement and are therefore subject to significant variability. During the loss settlement period, additional facts regarding individual claims and trends may become known, and current laws and case laws may change.

     IPC’s controls in place require that claim payments and reserves must be authorized by the underwriter upon processing. Large claims must also be approved by senior management prior to a claims payment being made. While we have the right to audit client data, most of our claims result from events that are well known such as hurricanes or earthquakes; our claims processors and underwriters ask follow-up questions as necessary, in assessing the reasonableness of reported claims. We also cross reference and verify amounts requested as collateral by ceding companies, in comparison to amounts previously reported to us.

     For certain catastrophic events there is greater uncertainty underlying the assumptions and associated estimated reserves for losses and loss adjustment expenses reported by our cedants. 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 greater uncertainty in the reserve estimates reported to us by our cedants, as well as delays to the timing with which we are notified of cedants’ changes to their loss estimates, resulting in greater uncertainty in our reserve estimates. In particular, the estimate for hurricane Katrina has been based on estimates by cedants of their exposure, 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, which includes consideration of the physical factors noted above, in aggregate. It has been assumed that underlying policy terms and conditions are upheld during our clients’ loss adjustment process. However, the unique circumstances and severity of this devastating catastrophe, including the extent of flooding and resultant initial limited access by claims adjusters, introduce additional uncertainty to the normally difficult process of estimating catastrophe losses, which is compounded by the potential for legal and regulatory issues arising regarding the scope of coverage.

     To illustrate the potential variability of estimates for individual catastrophe losses, the following table outlines the percent changes from IPC’s first reported estimates for certain specific catastrophes, over specified time horizons:

	Cumulative percentage increase of development from initial report
																Total Development –
	After 6			After 1			After 2			After 3			Latest /			initial report to latest
	months			year			years			years			Final %			$(000)
Cyclones Lothar / Martin		61	%		66	%		71	%		73	%		69	%		24,100
Cat # 48 (WTC)		6	%		7	%		9	%		9	%		3	%		3,000
2004 Florida hurricanes		113	%		137	%		145	%					144	%		117,500
Hurricane Katrina		1	%		2	%								2	%		13,000

     Generally, the most significant development arises within six to nine months of an event, due to the limited amount of information usually available immediately after the event.

     Cyclones Lothar and Martin struck France and other parts of Europe in the last week of 1999. As such, many parts of the affected areas were still devastated, inaccessible and without power at the time we were attempting to establish reserves for 1999 year-end reporting. In many cases, our French cedants were unable to provide us with much information regarding their potential claims, and we relied more heavily on industry loss estimates, which themselves were based on very limited information. Consequently, there was significant development of our own loss, as well as for the reported industry loss. As an example, the reported industry loss for cyclone Martin increased 150% from the original estimate.

     Similarly, for the four hurricanes that struck Florida over a six-week period concluding in late September 2004, not only was the initial estimation process made difficult by the proximity to the end of the third quarter 2004 reporting

period, there were the added complexities of multiple events affecting one geographic area and the resulting impact on claims adjusting (as noted above) by, and communications from, ceding companies.

     Sometimes, for extreme events such as the attack on the World Trade Center and hurricane Katrina, many excess of loss contracts that are impacted by the event incur full limit losses, on which there can be no adverse development. However, because of the uncertainties associated with hurricane Katrina noted above, there can be no assurance that significant development will not occur on contracts where the limits have not been exhausted, or that losses are reported for contracts for which we have not previously established a reserve. Generally, the size of a catastrophe is not necessarily an indicator of the amount of potential development that might occur. However, for larger catastrophes, a small percentage of development can result in a larger dollar impact on a company’s results of operations, than a larger percentage development on a smaller event.

     As noted above, our methodology provides us with an overall estimate of loss reserves for IPC as a whole. For information on historical development of IPC’s overall loss reserves, please refer to the tables provided in Item 1, Business, Reserve for Losses and Loss Adjustment Expenses, in our Report on Form 10-K for the year ended December 31, 2006.

     At December 31, 2006 management’s estimates for IBNR/RBNE represented approximately 36% 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. As discussed above, our reserve estimates are not mathematically or formulaically derived from factors such as numbers of claims or demand surge impact. If our estimate of IBNR/RBNE loss reserves at December 31, 2006 was inaccurate by a factor of 10%, our results of operations would be impacted by a positive or negative movement of approximately $20 million. If our total reserve for losses at December 31, 2006 was inaccurate by a factor of 10%, our incurred losses would be impacted by approximately $55 million, which represents approximately 3% of shareholders’ equity at December 31, 2006. 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 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, and our intent and ability to hold the security for a sufficient period of time to permit recovery, which could be until maturity for debt instruments. 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 equity securities whose market value is less than 75% of their cost, and fixed income securities whose market value has been less than amortized cost for a period of nine months, irrespective of the extent of the decline. 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, 2006 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, 2006 we did not hold any fixed maturity securities that are not investment grade or not rated.

     During the year ended December 31, 2006 we determined that there were other-than-temporary impairments in a number of fixed income securities totalling $27.7 million, which resulted from increased interest rates.

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

	At December 31,
	2006
	$000
Gross unrealized (losses):
Fixed maturity investments		(2,020	)
Equity investments		—
		(2,020	)
Gross unrealized gains:
Fixed maturity investments		12,664
Equity investments		117,352
		130,016
Total net unrealized gains		127,996

     The following table summarizes the unrealized loss position at December 31, 2006 by length of time those securities have been continuously in an unrealized loss position (expressed in thousands of U.S. dollars):

	Less than 12 months					12 months or longer
	Gross					Gross
	unrealized					unrealized
	losses			Fair Value		losses		Fair Value
Length of time with unrealized loss:
Fixed maturity investments	$	(2,020	)	$	499,792	$	—	$	—
Equity investments	$	—		$	—	$	—	$	—

Results of Operations

     Years Ended December 31, 2006, 2005 and 2004

     Following two years of significant catastrophic activity, especially the record amount of aggregate insured losses resulting primarily from hurricanes Katrina, Rita and Wilma that occurred in 2005, 2006 was a marked contrast by comparison, with very few catastrophes, particularly in the United States. In addition, we benefitted from significant increases in pricing for catastrophe reinsurance in the United States, and were able to increase our premium volume, excluding reinstatement premiums, despite offering smaller program limits to our clients, and cutting back the amount of aggregate exposure per geographic zone, as we sought to implement a number of risk management policies following the losses we incurred as a result of hurricane Katrina. As a result, having suffered our worst operating performance in 2005 since the inception of the company, we followed it in 2006 with record earnings, with net income, before preference dividends, of $394.6 million for the year ended December 31, 2006, compared to a net loss, before preference dividend, of $623.4 million in the year ended December 31, 2005, and net income of $138.6 million in the year ended December 31, 2004.

     In the twelve months ended December 31, 2006, we wrote gross premiums of $429.9 million, compared to $472.4 million and $378.4 million written in the years ended December 31, 2005 and 2004, respectively. The components of these premium volumes were as follows:

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

     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. The significant amounts of reinstatement premiums in 2004 and 2005, respectively, were due to the higher volume of claims relating to the hurricanes and other catastrophic events which occurred in the respective years as compared to 2006. In 2006, we benefited from price increases for U.S. contracts that had suffered losses from 2005 windstorms, and in particular as a result of claims from hurricane Katrina. The decrease in reinstatement premiums in 2006, as compared to 2004 and 2005, was partially offset by the effect of changes to business written for existing clients, including pricing, changes to program structure and/or renewal dates, as well as changes to foreign exchange rates, which totalled an increase of $77.8 million. 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, due to unsatisfactory rates or terms, we decided not to renew some contracts with expiring premiums which totaled $25.9 million, $21.4 million and $19.0 million for the years ended December 31, 2006, 2005 and 2004, respectively. Offsetting this was new business that was written in each of the three years, amounting to $26.1 million, $24.8 million and $24.7 million, for the years ended December 31, 2006, 2005 and 2004, 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, 2006, 2005 and 2004, premiums ceded to these facilities were $17.7 million, $21.6 million, and $20.1 million, respectively, reducing net premium writings for those years to $412.2 million, $450.8 million and $358.3 million, respectively. The actual contracts ceded are at IPC’s underwriters’ judgement in optimizing the risk profile of the portfolio, which can cause premiums ceded to vary as a proportion of our gross writings, from year to year. The change in ceded premiums also reflects fluctuating transfers of exposure to our Property Catastrophe Aggregate Excess of Loss Reinsurance facility, as well as the changes to retrocessionaires’ participation in our proportional reinsurance facility, which has varied from 74.5% in 2004 to 83.33% in 2005 to 60.5% in 2006.

     We earned net premiums of $397.1 million, $452.5 million and $354.9 million in the years ended December 31, 2006, 2005 and 2004, respectively, representing an increase of 27.5% from 2004 to 2005, and a decrease of 12.2% from 2005 to 2006. The primary reason for the decrease from 2005 to 2006 was the reduction in reinstatement premiums which were $122.4 million lower for the year ended December 31, 2006, compared to 2005. The reduction due to the impact of last year’s reinstatement premiums was partly offset by the effect of higher annual deposit premiums written during the past twelve months, as noted above. Earned premiums increased from 2004 to 2005

because of the increase in written premiums, as well as the substantial increases in reinstatement premiums recorded in 2005. Excluding adjustment and reinstatement premiums, net premiums earned increased by 2% from $309.6 million in 2004 to $316.0 million in 2005 and then by a further 20.5% to $380.9 million in 2006.

     We earned net investment income of $109.7 million in the year ended December 31, 2006 compared to $71.8 million earned in the year ended December 31, 2005, and $51.2 million in the year ended December 31, 2004. In the year ended December 31, 2006, we benefited from an increase in the average yield of our fixed income investment portfolio, primarily due to an increase in interest rates. In addition, there was an increase in the average balance of invested assets of 13%, which primarily resulted from the full effect of the capital-raising which took place in November 2005. For the year ended December 31, 2006, net investment income also included dividends of $12.7 million from the equity investments, compared to $9.9 million from dividends in 2005 and $4.8 million from dividends in 2004. In the year ended December 31, 2005, the overall yield of the fixed income portfolio improved, 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. 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 $3.9 million in 2006, $3.2 million in 2005 and $3.0 million in 2004. We received refunds of management fees of $2.8 million, $2.3 million and $2.4 million, for the years ended December 31, 2006, 2005 and 2004, respectively, 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 Global Investment Fund Management Limited.

     At December 31, 2006 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 gain of $12.1 million on the sale of investments for the year ended December 31, 2006, compared to a net realized loss of $10.6 million for the year ended December 31, 2005, and a net realized gain of $5.9 million for the year ended December 31, 2004. Generally, net gains and losses fluctuate from period to period, depending on the securities sold. Our net realized gain for the year ended December 31, 2006 includes a write-down of $27.7 million in the cost basis of certain fixed income securities where management has determined there had been a decline in value which was other than temporary, caused by changes in interest rates. In June 2006, we sold our investment in an equity fund with attributes similar to those of the S & P 500 Index, realizing a $27.8 million gain. The proceeds were used to invest in an Ireland-based Undertaking for Collective Investment in Transferable securities (“UCIT”) fund with similar attributes. In addition, we sold a portion from our investment in a global equity fund, also realizing a gain. Net unrealized gains on our investment portfolio (see Note 3 to the Consolidated Financial Statements – “Investments”) were $128.0 million at December 31, 2006, compared to $93.1 million at December 31, 2005.

     We incurred net losses and loss adjustment expenses of $58.5 million, $1,072.7 million and $215.6 million in the years ended December 31, 2006, 2005 and 2004, respectively. The level of insured losses from catastrophic events around the world was significantly lower in 2006 compared to the relatively high frequency and severity of events during 2004 and 2005, which had set consecutive records in terms of annual aggregate insured losses from catastrophic events.

     In 2006, we incurred losses from cyclone Larry, which struck Queensland, Australia on March 20, 2006 ($7.5 million), super-typhoon Shanshan, which struck Japan in September 2006 ($5.6 million), European snow losses ($2.1 million), Cat.# 67, a tornado system which hit the mid-west United States ($2.7 million), and a reserve established for the storms which struck the north-west U.S ($1.6 million). Incurred losses in 2006 relating to prior years totaled approximately $33.8 million. This includes claims from two accidents which occurred in 2005: an explosion which occurred in the U.K. in December 2005, and a train wreck and associated chemical spill which took place in South Carolina in January 2005, reserves established for pro rata treaty business and some increases for prior year events, especially hurricane Wilma. A major component of the increase for hurricane Wilma resulted from Industry Loss Warranty contracts being triggered by both the announcement from PCS in May that the industry loss for the event exceeded $10 billion and the level of the cedants’ own losses.

     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.

     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 $37.5 million, $39.2 million and $37.7 million for the years ended December 31, 2006, 2005 and 2004, respectively, after deferring those costs related to the unearned portion of premiums written. The decrease from 2005 to 2006 is the result of the reduction in earned premiums for the period, primarily caused by the reduced level of reinstatement premiums during 2006. The increase from 2004 to 2005 is 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 $34.4 million, $27.5 million and $23.2 million for the years ended December 31, 2006, 2005 and 2004, respectively. These figures include fees paid to subsidiaries of AIG for administrative services of $11.5 million, $11.9 million and $9.3 million for the years ended December 31, 2006, 2005 and 2004, 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”.) The increase in 2006 is the result of increases in the amounts of salaries and other compensation, fees for letters of credit provided to cedants as collateral for loss reserves, legal fees in connection with our shelf registration statement filed in April 2006, the set-up costs of our new syndicated revolving credit/letter of credit facility, and professional fees connected with various activities. The expense categories which saw increases from 2004 to 2005 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.

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, 2007 was approximately $495.4 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, renewed in July 2003 for a three-year term in the amount of $200 million, and was terminated in March 2006. Effective April 13, 2006 the Company and IPCRe entered into a five-year, $500 million credit agreement with a syndicate of lenders. The credit agreement consists of a $250 million senior unsecured credit facility available for revolving borrowings and letters of credit, and a $250 million senior secured credit facility available for letters of credit. The revolving line of credit will be available for the working capital, liquidity and general corporate requirements of the Company and its subsidiaries. Under the terms of the new $500 million credit agreement, the Company is permitted to declare and pay dividends provided there are no defaults or unmatured defaults pending. One of the significant covenants of the facility requires the Company to maintain a minimum net worth, of $1 billion, plus 25% of any positive net income for each fiscal year, beginning with the fiscal year ended December 31, 2006, plus 25% of the net proceeds of any equity issuance or other capital contributions.

     On October 7, 2005, IPC Holdings filed an S-3 registration statement with the SEC in the amount of $1,250 million, which became effective on October 17, 2005. 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. On February 21, 2006 our shareholders approved an increase in the number of the Company’s authorized common shares from 75,000,000 to 150,000,000, and an increase in the number of the Company’s authorized preferred shares from 25,000,000 to 35,000,000. On April 27, 2006, IPC filed an omnibus registration statement with the SEC for the sale of securities including debt securities, common and preferred shares and other securities that IPC may wish to offer from time to time.

     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. In the year ended December 31, 2006 we used cash flows in operations amounting to $72.5 million, primarily for the increase in loss payments made as detailed below, whereas we generated cash flows from operations of $105.7 million and $279.2 million in the years ended December 31, 2005 and 2004, 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 used in or 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. Gross loss payments during the years ended December 31, 2006, 2005 and 2004 were $586.2 million, $274.7 million and $73.4 million, respectively. During 2007, we expect to pay a significant proportion of the $548.6 million of loss reserves we have accrued at December 31, 2006 (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 United States 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, 2006, 77.7% 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 79.3% of the portfolio at December 31, 2005. The primary rating source is Moody’s Investors Services Inc. (See Note 3 (f) to the Consolidated Financial Statements – “Investments”.) At December 31, 2006 the portfolio had an average maturity of 3.9 years and an average modified duration of 3.2 years (compared to 3.1 years and 2.7 years, respectively, at December 31, 2005).

     For the year ended December 31, 2006, cash provided by investing activities amounted to $188.1 million. Net cash used for investing activities in the years ended December 31, 2005 and 2004 was $672.3 million and $301.4 million, respectively. At December 31, 2006 our cash and cash equivalents were $88.4 million, compared to $31.1 million at December 31, 2005. The significant increase from 2005 is to provide additional liquidity to continue to meet the claims payments resulting from hurricanes Katrina, Rita and Wilma. We continue to keep a proportion of our fixed maturity investment portfolio invested in relatively short-dated fixed income instruments, to provide additional liquidity to meet anticipated 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 year ended December 31, 2006, we generated a net foreign exchange gain of $2.6 million compared to foreign exchange losses of $3.0 million and $1.3 million in the years ended December 31, 2005 and 2004. The gains in 2006 were primarily the result of the strengthening of the Euro and British pound, whereas the losses in 2005 and 2004 were partly due to the impact of changing exchange rates on non-U.S. dollar loss reserves. 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, 2006, 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; 6th 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 loss reserves 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 two bilateral facilities in amounts of $350 million and $100 million, respectively as well as through the $250 million senior secured syndicated facility discussed above. 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, 2006 and 2005, there were outstanding letters of credit of $375.9 million and $606.3 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	$	5.9	$	2.2	$	3.4	$	0.3	$	—
Losses and Loss Adjustment Expenses		548.6		221.6		220.8		52.7		53.5

     Purchase Obligations are made up of the following contractual obligations:

1.	Administrative Services Agreement: Effective July 1, 2006, the Company and IPCRe are parties to an agreement with American International Company, Limited (“AICL”), an indirect wholly-owned subsidiary of AIG, under which AICL provides administrative services – as described above — for a fee of $2 million for the first $200 million annual gross written premiums and 0.5% for annual gross written premiums in excess of $200 million. This administrative services agreement terminates on June 30, 2009 and is automatically renewed thereafter for successive three-year terms unless prior written notice to terminate is delivered by or to AICL at least 180 days prior to the end of such three-year term. As the fee payable (in excess of $2 million) is based on annual gross written premiums the actual annual amount is unknown until the end of the year and therefore the minimum payment of $2 million per annum until June 30, 2009 is included in the table above. The amount incurred for 2006 was $11.5 million, which includes fees based on a prior agreement, under which IPCRe paid fees based on 2.5% of gross annual premiums written (up to $500 million of premiums).
2.	Credit Facility: As described above, effective April 13, 2006, we entered a new syndicated credit facility in the amount of $500 million for a period of five years, ending on April 13, 2011. The credit agreement consists of a $250 million senior unsecured credit facility available for revolving borrowings and letters of credit, and a $250 million senior secured credit facility available for letters of credit. The revolving line of credit will be available for the working capital, liquidity and general corporate requirements of the Company and its subsidiaries. The level of the facility fee payable is dependent upon the S & P debt rating of the Company and therefore a change in this rating would affect the amount paid. The applicable fee rate based upon the Company’s present debt rating is 0.08% of the amount of the unsecured facility and is included in the table above. A margin fee would be payable on amounts drawn under this agreement with the fee payable also dependent upon the S & P debt rating of the Company at that time. At December 31, 2006, the outstanding letters of credit issued under the secured facility were $160 million and no amounts have been drawn under the unsecured facility.
3.	Letters of credit: As noted above, we currently obtain letters of credit through three facilities in amounts of $350 million, $250 million and $100 million. We pay fees to the banks based on the amounts of letters of credit they issue on our behalf and also a facility fee for the unused portion of the syndicated secured facility. Because these amounts change during the course of the year, the total amount we will pay in aggregate is not known until the end of the year, and therefore not included in the table above. Effective December 31, 2006 the aggregate amount of letters of credit issued were $375.9 million, and if this amount remained unchanged throughout 2007, we would pay fees totaling $1.0 million. If we were to utilize the full limits of the three facilities, we would pay $1.8 million in 2007. With respect to the syndicated secured facility, we pay a commitment fee to the extent it is unused. Effective December 31, 2006, the amount of the facility unused was $90.3 million. The amount of the commitment fee that could be paid is not material.

     Losses and Loss adjustment expenses

     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, 2006 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, 2006 and 2005. 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, 2006 and 2005 using historical simulation methodology. At December 31, 2006 the VaR of IPCRe’s investment portfolio was approximately $33.0 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, 2006 and 2005, respectively, the quarterly points during 2006 and the average for the year ended December 31, 2006, 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
Market Risk	December 31,			September 30,			June 30,			March 31,			December 31,			ended Dec. 31,
	2006			2006			2006			2006			2005			2006
Currency	$	2,628		$	2,749		$	3,097		$	3,188		$	2,445		$	2,821
Interest Rate		27,270			31,210			35,593			37,363			36,626			33,612
Equity (incl. hedge fund)		18,963			17,793			17,879			18,786			19,821			18,648
Sum of Risk		48,861			51,752			56,569			59,337			58,892			55,081
Diversification Benefit		(15,885	)		(18,757	)		(18,690	)		(19,657	)		(21,188	)		(18,836	)
Total Net Risk	$	32,976		$	32,995		$	37,879		$	39,680		$	37,704		$	36,247

     From December 2005 to June 2006, the overall VaR increased primarily due to the increase in exposure to non-U.S. dollar denominated securities within our investment in a global equity fund, as well as a small increase in spread duration within the fixed income portfolio. This was offset in part by a small reduction in the overall size of the investment portfolio, combined with a small decrease in volatility. Thereafter, VaR decreased generally due to the decrease in bond market yields, as well as a fall in fixed income volatility. In addition, both currency and equity VaR declined following the sale of a portion of our investment in a global equity fund. In the last quarter of 2006 interest rates remained steady and we saw a reduction in volatility combined with a reduction in the market value of fixed maturity assets. Equity VaR increased due to an increase in the market value of equity positions.

     IPCRe’s premiums receivable and liabilities for losses from reinsurance contracts it has written, are also exposed to the risk of changes in value resulting from fluctuations in foreign currency exchange rates. To an extent, the impact on loss reserves of a movement in an exchange rate, will be partly offset by the impact on assets (receivables and cash/investments) denominated in the same currency, or vice versa. As of December 31, 2006 an estimated $25 million (December 31, 2005 — $22 million) of reinsurance premiums receivable, and an estimated $46 million (December 31, 2005 — $34 million) of loss reserves, were denominated in non-U.S. currencies. The currencies to which IPC has the most net exposure are the Euro, Japanese Yen, UK sterling, and Australian dollar. If the U.S. dollar strengthened 10% against sterling, our net adverse exchange exposure would be approximately $0.5 million; if the U.S. dollar weakened 10% against the Euro, Yen and Australian dollar, our net adverse exchange exposure would be approximately $0.8 million, $0.7 million and $0.7 million respectively.

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, 2006 and 2005

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, 2006 and 2005, and the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2006. 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, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, 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, 2006, 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 27, 2007 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 27, 2007

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2006 and 2005
(Expressed in thousands of United States Dollars, except for per share amounts)

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

See accompanying notes to consolidated financial statements

Signed on behalf of the Board

                         Director

                         Director

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Consolidated Statements of Income (Loss)

For each of the years in the three-year period ended December 31, 2006
(Expressed in thousands of United States Dollars, except for per share amounts)

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

See accompanying notes to consolidated financial statements

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

For each of the years in the three-year period ended December 31, 2006
(Expressed in thousands of United States Dollars)

	2006			2005			2004
Net income (loss)	$	394,585		$	(623,399	)	$	138,613
Other comprehensive income
Additional accumulated benefit pension obligation		(380	)		(306	)		—
Net holding gains (losses) on investments during year		46,993			(8,618	)		5,989
Reclassification adjustment for (gains) losses included in net income (loss)		(12,085	)		10,556			(5,946	)
		34,528			1,632			43
Comprehensive income (loss)	$	429,113		$	(621,767	)	$	138,656

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, 2006
(Expressed in thousands of United States Dollars, except for per share amounts)

	2006			2005			2004
Common shares par value $0.01
Balance, beginning of year	$	637		$	484		$	483
Additional shares issued		—			153			1
Balance, end of year	$	637		$	637		$	484
Preferred shares par value $0.01
Balance, beginning of year	$	90		$	—		$	—
Additional shares issued		—			90			—
Balance, end of year	$	90		$	90		$	—
Additional paid-in capital
Balance, beginning of year	$	1,473,257		$	854,797		$	850,133
Additional paid-in capital on shares issued		59			617,561			941
Reduction in paid-in capital on share repurchase		—			(1,334	)		(142	)
Stock options and grants		2,217			2,233			3,865
Balance, end of year	$	1,475,533		$	1,473,257		$	854,797
Deferred stock grant compensation
Balance, beginning of year	$	(2,492	)	$	(2,899	)	$	(1,495	)
Stock grants awarded		(682	)		(1,316	)		(2,928	)
Stock grants forfeited		—			454			—
Amortization		1,733			1,269			1,524
Balance, end of year	$	(1,441	)	$	(2,492	)	$	(2,899	)
Retained earnings
Balance, beginning of year	$	52,126		$	724,907		$	628,931
Net income (loss)		394,585			(623,399	)		138,613
Reduction on share repurchase		—			(1,738	)		(155	)
Dividends paid and accrued		(57,885	)		(47,644	)		(42,482	)
Balance, end of year	$	388,826		$	52,126		$	724,907
Accumulated other comprehensive income
Balance, beginning of year	$	92,782		$	91,150		$	91,107
Other comprehensive income		34,528			1,632			43
Balance, end of year	$	127,310		$	92,782		$	91,150
Total shareholders’ equity	$	1,990,955		$	1,616,400		$	1,668,439

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, 2006
(Expressed in thousands of United States Dollars)

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

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 its approximate holding at 24.3%. In November 2005, (Note 6) the Company completed a further follow-on public offering in which AIG participated and subsequent to the offering AIG owned 24.2% of the common shares of the Company. On August 15, 2006 AIG sold its entire shareholding in an underwritten public offering. The Company did not receive any proceeds from the sale of AIG’s shares in the Company.
	Through its wholly-owned subsidiary, IPCRe Limited (“IPCRe”), the Company provides reinsurance of property catastrophe risks worldwide, substantially on an excess of loss basis. Property catastrophe reinsurance covers unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, volcanic eruptions, fires, freezes, industrial explosions and other man-made or natural disasters. IPCRe’s loss experience will generally include infrequent events of great severity. IPCRe’s clients include many of the leading insurance companies in the world. IPCRe also writes, to a limited extent, aviation, property per-risk excess and other short-tail reinsurance in various parts of the world. Approximately 49% of underlying exposure premiums written (being total premiums written excluding reinstatement premiums) in 2006 related to U.S. risks (2005: 40%; 2004: 38%). The balance of IPCRe’s covered risks is located principally in Europe, Japan, Australia and New Zealand.
	On September 10, 1998, IPCRe incorporated a subsidiary in Ireland, named IPCRe Europe Limited. This company underwrites selected reinsurance business primarily in Europe.
	On November 7, 2001, the Company incorporated a subsidiary in Bermuda named IPCRe Underwriting Services Limited. (“IPCUSL”), which provides underwriting services and acts as an Underwriting Agent for Allied World Assurance Company, Ltd (“AWAC”), a Bermuda-based Class 4 insurer (Note 8) and a subsidiary of Allied World Assurance Company Holdings, Ltd.. Effective December 1, 2006, IPCUSL ceased actively underwriting on behalf of AWAC but will continue to service business previously written on their behalf, for a period of three years.
2.	Significant Accounting 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:

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)

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.
b)	Premiums and acquisition costs
	Premiums are recorded as written at the inception of each policy, based upon information received from ceding companies and their brokers, and are earned over the policy period. For excess of loss contracts, the amount of deposit premium is contractually documented at inception, and therefore no management judgement is necessary in accounting for this. Subsequent premium adjustments, if any, are recorded in the period in which they are reported. Reinstatement premiums are recognized and accrued at the time losses are incurred and where coverage of the original contract is reinstated under pre-defined contract terms and are earned pro-rata over the reinstated coverage period. Such accruals are based upon actual contractual terms applied to the amount of loss reserves expected to be paid, and the only element of management judgement involved is with respect to the amount of loss reserves as described below, and associated rates on line (i.e. price). For proportional treaties, the amount of premium is normally estimated at inception by the ceding company. IPCRe accounts for such premium using initial estimates, which are reviewed regularly with respect to the actual premium reported by the ceding company. Premiums are earned on a pro-rata basis over the coverage period and unearned premiums represent the portion of premiums written which is applicable to the unexpired terms of the policies in force. Ceded reinsurance premiums are similarly pro-rated over the terms of the contracts with the unexpired portion deferred in the balance sheet.
	Acquisition costs, consisting primarily of commissions and brokerage expenses incurred at policy issuance, are deferred and amortized to income over the period in which the related premiums are earned. Deferred acquisition costs are limited to estimated realizable value based on related unearned premium, anticipated claims and expenses and investment income.
c)	Reserve for losses and loss adjustment 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 adjustment expense ratio (the ratio of losses and loss adjustment expenses incurred to premiums earned) is initially used, based upon information provided by the ceding company and/or their broker and IPCRe’s historical experience of that treaty, if any. The estimate is adjusted as actual experience becomes known.
	Amounts recoverable from reinsurers are estimated in a manner consistent with the underlying liabilities.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

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 and investments in mutual funds. Fixed maturity investments are stated at fair value as determined by the quoted market price of the securities as provided by either independent pricing services or, when such prices are not available, by reference to broker or underwriter bid indications. Investments in mutual funds are stated at fair value as determined by either the most recently traded price or the net asset value as advised by the fund. By policy, IPCRe invests in high-grade marketable securities. All investments are classified as available-for-sale securities under the provisions of Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). Investment transactions are recorded on a trade date basis. Realized gains and losses on sales of investments are determined on the basis of first-in, first-out. Investment income is recognized on the accrual basis and includes the amortization of premiums and accretion of discounts on investments.
	Unrealized gains and losses are included within “Accumulated other comprehensive income” as a separate component of shareholders’ equity. Unrealized depreciation in the value of individual securities considered by management to be other-than-temporary is charged to income in the period it is determined. IPCRe’s assessment of a decline in value includes judgement as to the financial position and future prospects of the entity that issued the security. If that judgement changes in the future, IPCRe may ultimately record a realized loss after originally concluding that the decline in value was temporary. Factors which management considers in evaluating other-than-temporary declines in value include the extent of decline, the length of time the security is below cost, IPCRe’s intent and ability to hold the security, the future prospects of the issuer and other qualitative and quantitative factors.
e)	Other 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 deferred fees and commissions on the balance sheet.
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 (loss).
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)	Basic net income (loss) per common share
	Basic net income (loss) per common share is calculated by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding during the year. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares and common stock equivalents outstanding during the year. Convertible preferred shares, stock options and unvested stock grants are considered common stock equivalents for the purpose of calculating diluted net income per common share, and are included in the weighted average number of shares outstanding using the Treasury Stock method. In a period where there is a net loss, the dilutive effect of convertible preferred shares, stock options and unvested stock grants are not included in the weighted average number of shares, as this would be anti-dilutive.
i)	Stock incentive compensation plan
	Effective January 1, 2006, management adopted the fair value method of accounting for stock-based employee compensation as prescribed by Financial Accounting Standards Board (“FASB”) Statement No. 123 (Revised 2004) “Share-Based Payment” (“SFAS 123R”). SFAS 123R requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost of such services will be recognized over the period during which an employee is required to provide service in exchange for the award. Since 2003 the Company has expensed compensation costs for stock options on a prospective basis for all awards granted, modified or settled after January 1, 2003 in accordance with Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation and Disclosure”.
	SFAS 123R requires expected forfeitures to be included in determining share-based employee compensation expense. Prior to the adoption of SFAS 123R, forfeiture benefits were recorded as a reduction to compensation expense when an employee left the Company and forfeited the award. The transition impact of adopting SFAS 123R as of January 1, 2006, including the effect of accruing for expected forfeitures on outstanding share-based awards, was not material to our results of operations for the year ended December 31, 2006. In addition, SFAS 123R requires the immediate expensing of share-based awards granted to retirement-eligible employees. Share-based awards granted to retirement-eligible employees prior to the adoption of SFAS 123R must continue to be amortized over the stated service period of the award (and accelerated if the employee actually retires). Consequently, our compensation and benefits expenses in the year ended December 31, 2006 include both the amortization of awards granted to retirement-eligible employees prior to the adoption of SFAS 123R as well as the full grant-date fair value of new awards granted to such employees under SFAS 123R.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

2. Significant Accounting Policies (continued)

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

IPC HOLDINGS, LTD. AND SUBSIDIARIES

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, 2006 and 2005 are as follows:

	Cost or		Gross		Gross
	amortized		unrealized		unrealized			Fair
December 31, 2006	cost		gains		losses			value
Fixed maturity investments
U.S. Government and government agencies	$	279,963	$	2,649	$	(692	)	$	281,920
Other governments		205,362		683		(82	)		205,963
Corporate		1,076,778		8,189		(956	)		1,084,011
Supranational entities		246,814		1,143		(290	)		247,667
	$	1,808,917	$	12,664	$	(2,020	)	$	1,819,561
Equity investments	$	460,197	$	117,352	$	—		$	577,549

	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

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, 2006 and 2005, the unrealized loss and fair value by length of time the security has continuously been in an unrealized loss position.

	Less than 12 months					12 months or longer
	Gross					Gross
	unrealized					unrealized
December 31, 2006	losses			Fair value		losses		Fair value
Fixed maturity investments
U.S. Government and government agencies	$	(692	)	$	90,996	$	—	$	—
Other governments		(82	)		62,330		—		—
Corporate		(956	)		288,049		—		—
Supranational entities		(290	)		58,417		—		—
	$	(2,020	)	$	499,792	$	—	$	—
Equity investments	$	—		$	—	$	—	$	—

	Less than 12 months					12 months or 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	$	—		$	—

The decline in the value of individual securities considered to be other than temporary included in gross realized losses on fixed maturity or equity investments for the year ended December 31, 2006 was $27,695 (2005: $nil; 2004: $nil).

IPC HOLDINGS, LTD. AND SUBSIDIARIES

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, 2006 are as follows:

	Amortized		Fair
	cost		value
Due in one year or less	$	146,792	$	146,864
Due after one year through five years		1,156,425		1,161,390
Due after five years through ten years		505,700		511,307
	$	1,808,917	$	1,819,561

	Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.
c)	Pledged 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, 2006 IPCRe has three letter of credit facilities. Under three separate agreements effective September 20, 1994 (amended in 1999, 2001, 2004 and 2005), December 30, 2005 and April 13, 2006, IPCRe provides the banks security by giving the banks a lien over certain of IPCRe’s investments in an amount not to exceed 118% of the aggregate letters of credit outstanding. The total amount of security required by the banks under the three facilities at December 31, 2006 was approximately $435,811 (2005: $689,971). Effective December 31, 2006 outstanding letters of credit were $375,948 (2005: $606,329).
d)	Net investment income

	2006			2005			2004
Interest on fixed maturity investments	$	86,345		$	69,125		$	60,253
Interest on cash and cash equivalents		4,949			4,038			2,839
Net amortization of discounts (premiums) on investments		9,512			(8,128	)		(13,661	)
		100,806			65,035			49,431
Net income from equity investments		12,713			9,873			4,765
Less: investment expenses		(3,860	)		(3,151	)		(2,976	)
Net investment income	$	109,659		$	71,757		$	51,220

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, 2006, were $1,548,431 (2005: $1,743,564; 2004: $1,418,678). Components of net realized gains and losses and change in net unrealized appreciation on investments are summarized in the following table:

	2006			2005			2004
Fixed maturity investments
Gross realized gains	$	3,385		$	343		$	7,032
Gross realized losses		(36,662	)		(16,153	)		(6,372	)
Net realized (losses) gains		(33,277	)		(15,810	)		660
Equity investments
Gross realized gains		45,362			5,254			5,286
Gross realized losses		—			—			—
Net realized gains		45,362			5,254			5,286
Total net realized gains (losses)		12,085			(10,556	)		5,946
Change in net unrealized appreciation on investments
Fixed maturity investments		26,773			(14,378	)		(22,030	)
Equity investments		8,135			16,316			22,073
Change in net unrealized appreciation on investments		34,908			1,938			43
Total net realized gains (losses) and change in net unrealized appreciation on investments	$	46,993		$	(8,618	)	$	5,989

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:

	2006			2005
Cash and cash equivalents		4.6	%		1.5	%
U.S. Government and government agencies		14.8	%		16.0	%
AAA		35.2	%		32.3	%
AA		23.1	%		29.5	%
A		21.8	%		20.2	%
BBB		0.5	%		0.5	%
		100.0	%		100.0	%

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

	2006		2005
	Fair value		Fair value
AIG Global Equity Fund	$	159,299	$	176,737
AIG American Equity Fund		127,960		97,780
AIG Select Hedge Fund		174,272		156,183
Vanguard Institutional Index Fund		—		93,494
Vanguard US Futures Fund		108,180		—
Other equity funds		7,838		5,933
	$	577,549	$	530,127

The AIG Global Equity Fund, AIG American Equity Fund, and AIG Select Hedge Fund are all managed by AIG Global Investment Fund Management Limited. The AIG Global Equity Fund invests predominantly in large capitalized companies operating in diverse sectors of global equity markets, the AIG American Equity Fund invests predominantly in large capitalized companies operating across diverse sectors of North America and the AIG Select Hedge Fund invests in approximately 30-40 third party hedge funds utilizing a broad range of alternative investment strategies. Net asset values of the AIG Global Equity Fund, the AIG American Equity Fund and the AIG Select Hedge Fund as at December 31, 2006 are $159,299, $127,960 and $174,272 respectively, as reported by our investment managers. The Company’s maximum exposure to loss as a result of these investments is limited to the fair values of the Company’s investment in these funds.

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

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 the securities as provided by either independent pricing services, or when such prices are not available, by reference to broker or underwriter bid indications. Investments in mutual funds are stated at fair value as determined by either the most recently traded price or the net asset value as advised by the fund. The fair value of other assets and liabilities, consisting of reinsurance premiums receivable, accrued investment income, other assets, reinsurance premiums payable and accounts payable, approximates to their carrying value due to their relative short term nature.
	The estimates of fair value of assets and liabilities are subjective in nature and are not necessarily indicative of the amounts that the Company would actually realize in a current market exchange. However, any differences would not be expected to be material. Certain instruments such as deferred premiums ceded, loss and loss adjustment expenses recoverable, deferred acquisition costs, prepaid expenses, reserve for loss and loss adjustment expenses, unearned premiums and deferred fees and commissions are excluded from fair value disclosure. Thus, the total fair value amounts cannot be aggregated to determine the underlying economic value of the Company.
5.	Ceded Reinsurance
	IPCRe utilizes reinsurance to reduce its exposure to large losses, outside the United States. Effective January 1, 1999, IPCRe arranged a proportional reinsurance facility covering property catastrophe business written by IPCRe. For the six year period to December 31, 2004, the facility provided coverage of up to $50,000 in each of at least 5 named zones, and potentially other zones of IPCRe’s choosing, provided that the risks in those zones do not accumulate with those in the named zones. The United States and the Caribbean are excluded zones. The named zones are the United Kingdom; Europe (excluding the U.K.); Australia / New Zealand; Japan and Other. Effective January 1, 2005, the facility provided coverage of up to $75,000 in each of the named zones, with the exception of Europe (excluding the U.K.), where the coverage remained limited to $50,000. Effective January 1, 2006, the facility provided coverage of up to $75,000 in each of the named zones. Business ceded to the facility is solely at IPCRe’s discretion. Within these limitations, IPCRe may designate the treaties to be included in the facility, subject to IPCRe retaining at least 50% of the risk. The premium ceded is pro rata, less brokerage, taxes and an override commission. A subsidiary of AIG, as a participating reinsurer, has a 10% participation on a direct basis. Most reinsurers participating in the facility have financial strength ratings issued by S & P and/or A.M. Best of A or above, and the minimum rating is A- at the time of acceptance.
	Effective January 1, 2002, IPCRe arranged a Property Catastrophe Excess of Loss Reinsurance facility in respect of certain property catastrophe business written by IPCRe. This facility covers first losses only for the business ceded to this facility. All subsequent events are retained by IPCRe. Business ceded to this facility includes worldwide business excluding the United States and Canada. IPCRe can cede up to $30,000 (2005: $50,000; 2004: $50,000) ultimate net loss in the aggregate per contract year to the facility. IPCRe’s retention is $10 in the aggregate per contract. Business ceded to this facility is solely at IPCRe’s discretion. The sole reinsurer participating in this facility has a rating of AA-.
	Although reinsurance agreements contractually obligate the reinsurers to reimburse IPCRe for the agreed upon portion of its gross paid losses, they do not discharge IPCRe’s primary liability. Management believes that the risk of non-payment by the reinsurers is minimal.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

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 February 21, 2006 our shareholders approved an increase in the number of the Company’s authorized common shares from 75,000,000 to 150,000,000, and an increase in the number of the Company’s authorized preferred shares from 25,000,000 to 35,000,000.
	On November 4, 2005, shareholders contributed approximately $614,628, net of underwriting discounts of $19,191 and costs of $1,484 in additional funds through a public offering of 15,202,000 common shares and 9,000,000 preferred shares.
	The share capital of the Company as of December 31, 2006 and 2005 consisted of the following:

							Additional
	Authorised		Shares issued		Share		paid-in
	shares		and fully paid		capital		capital
December 31, 2006
Voting common shares, par value U.S. $0.01 each		150,000,000		63,706,567	$	637	$	1,247,202
Preferred shares, par value U.S. $0.01 each		35,000,000		9,000,000	$	90	$	228,331
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

In 2006, the Company paid dividends of $0.16 per share in each of March, June, September and December to holders of its common shares. In 2005, the Company paid dividends of $0.24 per share in each of March, June and September and $0.16 per share in December to holders of its common shares. In 2004, the Company paid dividends of $0.20 per share in each of March and June and $0.24 per share in each of September and December to holders of its common shares.

The 9,000,000 preferred shares issued in November 2005 are 7.25% Series A Mandatory Convertible Preferred Shares, with a liquidation preference of $26.25 per share, will automatically convert on November 15, 2008 into between 0.8333 and 1.0000 common shares, subject to anti-dilution adjustments, depending on the average closing price per share of the common shares over the 20 trading day period ending on the third trading day prior to such date. The preferred shares are non-voting except under certain limited prescribed circumstances. The holder may elect, at any time prior to November 15, 2008, to convert each preferred share into 0.8333 common shares, subject to anti-dilution adjustments. The Company may, at any time prior to November 15, 2008, accelerate the conversion date of all of the outstanding preferred shares under certain prescribed circumstances at a maximum conversion rate of 1.0000 common share for each preferred share. Dividends on the preferred shares are cumulative from the date of original issuance and are payable quarterly in arrears when, if, and as declared by the Board of Directors. The Company paid preferred dividends of $0.533932 per Series A Mandatory Convertible preferred share, in February 2006, and $0.475781 per Series A Mandatory Convertible preferred share, in each of May, August and November 2006, to holders of its Series A Mandatory Convertible preferred shares.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

7.	Stock-based compensation
	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.
	On February 15, 1996 and July 25, 1996, the Company granted options to acquire 85,249 common shares to officers and management employees at an exercise price of $16.54 per common share which equaled the book value per common share as of December 31, 1995. Between January 2, 1997 and December 30, 2006, the Company granted options to acquire common shares to officers and management employees at exercise prices ranging from $13.375 to $43.03 per common share, which equaled the opening market prices on the dates of grant. Such options vest at a rate of 25% annually, are recorded on the straight line basis and lapse on the tenth anniversary of issue. The amount of the charge recorded in net income in the year ended December 31, 2006 for awards of stock options was $1,563 (2005: $1,371, 2004: $937).
	On June 13, 2003, the shareholders approved a stock incentive plan. The plan allows for the issuance of up to 500,000 common shares, $0.01 par value, as grants of restricted stock to selected employees to compensate them for their contributions to the long-term growth and profits of the Company. Pursuant to SFAS 123R, compensation expense is recorded ratably based on the fair value of the grants at the date of grant (i) over the vesting period (ii) immediately for grants awarded to retirement-eligible employees or (iii) over the period from the grant date until the date when retirement-eligibility is achieved if earlier than the vesting date. Such units vest at a rate of 25% annually, but are recorded as outstanding upon issuance (regardless of the vesting period). The charge recorded in net income for the year ended December 31, 2006 was $1,733 (2005: $1,269; 2004: $1,524). The estimated annual non-cash expense in the year ended December 31, 2006 associated with the continued amortization of share-based awards granted to retirement-eligible employees prior to the adoption of SFAS 123R was $676.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

7.	Stock-based compensation (continued)
	The activity related to these restricted stock units is set forth below:

					Weighted average grant-date fair
	Restricted stock units				value of restricted stock units
	outstanding				outstanding
	Future		No future		Future		No future
	service		service		service		service
	required		required(2)		required		required(2)
Outstanding, beginning of year		49,984		54,375		36.44		36.04
Granted (1)		15,477		12,224		23.10		26.55
Forfeited		—		—		—		—
Vested		17,277		19,125		36.41		36.02
Outstanding, end of year		48184		47,474		32.91		35.06

(1)	The weighted average grant-date fair value of restricted stock units granted for the year ended December 31, 2006 was $24.62 per unit, (2005: $39.42; 2004: $36.98).
(2)	Restricted stock units for retirement-eligible employees are deemed not to require future service.

The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period in accordance with SFAS 123R.

	Year ended December 31,
	2006			2005			2004
Net income (loss), as reported	$	394,585		$	(623,399	)	$	138,613
Add: Stock-based employee expense		3,296			2,640			2,461
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards		(3,296	)		(2,875	)		(2,972	)
Pro forma net income (loss)	$	394,585		$	(623,634	)	$	138,102
Dividends on preferred shares		17,176			2,664			—
Pro forma net income (loss) available to common shareholders	$	377,409		$	(626,298	)	$	138,102

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

7. Stock-based compensation (continued)

	Year ended December 31,
	2006		2005			2004
Earnings per share:
Basic — as reported	$	5.93	$	(12.30	)	$	2.87
Basic — proforma	$	5.93	$	(12.30	)	$	2.86
Diluted — as reported	$	5.54	$	(12.30	)	$	2.87
Diluted — proforma	$	5.54	$	(12.30	)	$	2.85

A summary of the status of the Company’s Option Plan as of December 31, 2006, and changes during the year then ended is presented in the tables and narrative below:

	Number of		Weighted average exercise		Weighted average remaining contractual		Aggregate Intrinsic Value
	shares		price		period		(in thousands)
Outstanding, beginning of year		452,125	$	36.47
Granted		162,500	$	28.00
Exercised		3,000	$	19.52
Forfeited		—	$	—
Outstanding, end of year		611,625	$	34.30		7.2	$	999.6
Exercisable, end of year		245,375	$	33.38		5.7	$	439.0

The weighted average fair value of options granted (per share) for the year ended December 31, 2006 was $8.99 (2005: $15.07; 2004: $14.62). The total intrinsic value of stock options exercised was $26, $1,837 and $697 for the years ended December 31, 2006, 2005 and 2004, respectively.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

7.	Stock-based compensation (continued)
	The fair value of options granted on March 17, 2006 was estimated using the Black-Scholes option pricing model, using assumed risk-free rates of interest of 4.71%; expected dividend yield of 2.286%; an expected life of 7 years; an expected volatility of 31.0%; and a forfeiture rate of 16%.
	The fair value of options granted on January 3, 2005 was estimated using the Black-Scholes option pricing model, using assumed risk-free rates of interest of 3.93%; expected dividend yield of 2.231%; an expected life of 7 years; and an expected volatility of 36.7%.
	The fair value of options granted on January 2, 2004 was estimated using the Black-Scholes option pricing model, using assumed risk-free rates of interest of 3.79%; expected dividend yield of 2.073%; an expected life of 7 years; and an expected volatility of 39.5%.
	The assumed risk-free interest rate is the market yield on U.S. Treasury securities at 7-year constant maturity to match the expected life. The expected life is estimated based on a 4 year vesting period and a 10-year exercising period together with a review of actual historic exercising patterns of the Company. The expected dividend yield is calculated using the share price and the last dividend per share amount at the date of grant. The expected volatility is calculated using the Company’s own historic price volatility over the last 5.6 years. The forfeiture rate is obtained from the Company’s actual historic experience.

			Weighted
			average		Weighted				Weighted
	Outstanding at		contractual		average		Exercisable at		average
Range of	December 31,		period in		exercise		December 31,		exercise
exercise price	2006		years		price		2006		price
$13-19		6,000		3.00		15.38		6,000		15.38
$19-25		10,000		3.20		21.73		10,000		21.73
$25-31		230,625		7.82		27.96		68,125		27.85
$31-37		83,750		5.18		31.65		61,875		31.68
$37-43		128,750		7.00		38.90		61,250		38.90
$43-49		152,500		8.00		43.03		38,125		43.03
Total		611,625						245,375

As of December 31, 2006, there was $4,003 of total unrecognized compensation cost related to unvested share-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 1.76 years.

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
		AIG sold all of its shares in the Company in August 2006, but for the purpose of the related party transactions disclosure we have treated AIG as a related party through December 31, 2006. In addition to the related party transactions discussed elsewhere in the notes to the financial statements, the Company and its subsidiaries have entered into the following transactions and agreements with related parties:
	a)	Administrative 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. This agreement provides that AICL make available to the Company and IPCRe certain office space, certain information and technology services, payroll and administrative services, human resource personnel and other ancillary services. Up until June 30, 2006, the services were provided for a fee of 2.5% of the first $500,000 annual gross written premiums (1.5% of the next $500,000 and 1.0% thereafter). Effective July 1, 2006, a new arrangement was agreed whereby IPCRe pays an annual fee of $2,000 in the event the Company’s annual gross written premiums equal or are less than $200,000 and 0.5% of any additional gross written premiums in excess of $200,000. This administrative services agreement terminates on June 30, 2009 and is automatically renewed thereafter for successive three-year terms unless prior written notice to terminate is delivered by or to AICL at least 180 days prior to the end of such three-year term.
		In addition, IPCRe Europe Limited is party to an agreement with AIG Insurance Management Services (Europe) Limited (“AIMS”), an indirect wholly-owned subsidiary of AIG, under which AIMS provides administrative services. The services were provided for an annual fee of approximately $60 per annum (2005: $50, 2004: $50). This agreement is in effect to June 30, 2007 and thereafter may be terminated with three months’ written notice.

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. IPCRe pays different levels of fees based on the month end market values of the individual portfolios (fixed maturity, equity funds and hedge fund).
		Rebates are received on the management fees charged by AIG Global Investment Fund Management Limited for two of the equity funds, the AIG Global Equity Fund and the AIG American Equity Fund. These fees and rebates are included in net investment income in the accompanying consolidated statements of income (loss).
	c)	Investment custodian services
		IPCRe is party to an agreement with AIG Trust Services Limited (“AIGTS”), an indirect wholly-owned subsidiary of AIG, under which AIGTS provides investment custodian services. IPCRe has agreed to pay fees of 0.04% per annum based on the month end market value of investments held under custody, plus reimbursement of fees and out-of-pocket expenses. These fees are included in net investment income in the accompanying consolidated statements of income (loss). This agreement may be terminated by either party upon 90 days’ written notice.
		The following amounts were incurred (received) for services provided by indirect wholly-owned subsidiaries of AIG:

			Investment		Equity			Investment
	Administrative		management		funds fee			custodian
	services		services		rebate			services
Year ended December 31, 2006	$	11,546	$	2,824	$	(2,843	)	$	1,036
Year ended December 31, 2005	$	11,862	$	2,370	$	(2,325	)	$	781
Year ended December 31, 2004	$	9,292	$	2,227	$	(2,426	)	$	749

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

December 31, 2006	$	2,291
December 31, 2005	$	4,835

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

IPC HOLDINGS, LTD. AND SUBSIDIARIES

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 are summarized as follows:

	2006			2005			2004
Gross loss reserves, beginning of the year	$	1,072,056		$	274,463		$	123,320
Loss reserves recoverable, beginning of the year		(1,054	)		(5,006	)		(1,810	)
Total net reserves, beginning of year		1,071,002			269,457			121,510
Net losses incurred related to:
Current year		24,697			1,017,495			229,112
Prior years		33,808			55,167			(13,504	)
Total incurred		58,505			1,072,662			215,608
Net paid losses related to:
Current year		(3,248	)		(96,705	)		(33,967	)
Prior years		(582,248	)		(170,399	)		(34,740	)
Total paid		(585,496	)		(267,104	)		(68,707	)
Effect of foreign exchange movements		2,627			(4,013	)		1,046
Total net reserves, end of year		546,638			1,071,002			269,457
Loss reserves recoverable, end of year		1,989			1,054			5,006
Gross loss reserves, end of year	$	548,627		$	1,072,056		$	274,463

Losses incurred in the year ended December 31, 2006 are predominantly due to cyclone Larry which struck Queensland, Australia and super-typhoon Shanshan, which struck Japan. Amounts recorded for these events were $13,148. Losses incurred in the year ended December 31, 2006 in respect of prior years are primarily the result of development in reserves relating to the major windstorms of 2005, primarily hurricane Wilma. In addition there were two losses recorded in 2006 which occurred in 2005: a U.K. explosion and a train wreck and associated chemical spill which took place in South Carolina.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

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

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

	December 31, 2006					December 31, 2005					December 31, 2004
	Premiums					Premiums					Premiums
	written		%			written		%			written		%
Geographic Area (1)
United States	$	205,866		48.7	%	$	136,331		39.7	%	$	130,327		37.7	%
Europe		107,920		25.5	%		94,183		27.4	%		108,377		31.3	%
Japan		22,907		5.4	%		24,395		7.1	%		20,439		5.9	%
Australia/New Zealand		15,595		3.7	%		14,647		4.3	%		20,418		5.9	%
Worldwide (2)		58,293		13.8	%		66,260		19.3	%		56,115		16.2	%
Worldwide (excluding the U.S.)(3)		9,106		2.1	%		5,419		1.6	%		7,082		2.1	%
Other		3,451		0.8	%		2,003		0.6	%		3,144		0.9	%
		423,138		100.0	%		343,238		100.0	%		345,902		100.0	%
Reinstatement premiums		6,713					129,149					32,507
	$	429,851				$	472,387				$	378,409

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

The Company operates in a single segment from a segmental-reporting perspective.

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

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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 greatest of $100,000, 50% of net premiums written or 15% of the net reserve for losses and loss adjustment expenses. These provisions have been met as shown in the following table:

	2006		2005
Actual statutory capital and surplus	$	1,981,780	$	1,611,634
Minimum statutory capital and surplus	$	205,973	$	225,342

IPCRe’s statutory net income (loss) for the year ended December 31, 2006 was $393,730 (2005: $(626,141); 2004: $136,450).

The Act limits the maximum amount of annual dividends or distributions payable by IPCRe to the Company, without notification to the Supervisor of Insurance (“Supervisor”) of such payments (and in certain cases, the prior approval of the Supervisor). The maximum amount of dividends which could be paid by IPCRe to the Company at January 1, 2007 without such notification is approximately $495,445.

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

IPC HOLDINGS, LTD. AND SUBSIDIARIES

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 base salary and IPCRe will contribute an amount equal to 5% of each participant’s base salary. In 2003, IPCRe adopted an additional defined contribution plan, a Supplementary Executive Retirement Plan (“SERP”), which is applicable to senior employees. Pursuant to the SERP, IPCRe contributes an amount equal to 10% of each participant’s base salary to a maximum of $20 per employee. IPCRe contributions in respect of these plans amounted to approximately $349 (2005: $276; 2004: $264).
	IPCRe has also entered into individual pension arrangements with specific employees that are non-contributory defined benefit plans. These defined benefit plans are currently unfunded. Benefits are based upon a percentage of average final compensation multiplied by years of credited service. During 2004 one of these employees retired from the Company and an independent actuarial calculation was obtained. The projected future benefits were settled through a lump sum payment. Independent actuarial reviews of the ongoing benefit obligations were undertaken at December 31, 2006, 2005 and 2004. A summary of the status of the defined benefit plans is provided below:

	2006			2005			2004
Change in benefit obligation
Projected benefit obligation, beginning of year	$	1,904		$	1,377		$	1,506
Service cost		239			180			174
Interest cost		129			91			84
Settlement loss		—			—			193
Benefits paid		—			—			(524	)
Actuarial loss (gain)		366			256			(56	)
Projected benefit obligation, end of year	$	2,638		$	1,904		$	1,377
Reconciliation of funded status
Funded status, end of year	$	(2,638	)	$	(1,904	)	$	(1,377	)
Accumulated loss, end of year		686			581			451
Net amount recognized, end of year	$	(1,952	)	$	(1,323	)	$	(926	)
Amounts recognized in the balance sheet
Unfunded net period benefit cost	$	(1,952	)	$	(1,323	)	$	(926	)
Accumulated other comprehensive income		(686	)		(306	)		—
Accrued benefit liability, end of year	$	(2,638	)	$	(1,629	)	$	(926	)
Change in Accumulated Other Comprehensive Income due to application of SFAS 158
Accumulated other comprehensive income	$	686		$	306		$	—
Additional minimum liability (before SFAS 158)		(202	)		—			—
Net increase in Accumulated Other Comprehensive Income due to application of SFAS 158	$	484		$	306		$	—

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

14. Pension Plan (continued)

Components of net periodic benefit cost
Service cost	$	239	$	180	$	174
Interest cost		129		91		84
Actuarial loss		261		126		80
Net periodic benefit cost		629		397		338
Additional loss due to settlement		—		—		193
Net amount recognized in net periodic benefit cost		629		397		531
Total recognized in other comprehensive income		380		306		—
Total recognized in net periodic benefit cost and other comprehensive income during year	$	1,009	$	703	$	531
Projected benefit obligation, end of year	$	2,638	$	1,904	$	1,377
Accumulated benefit obligation	$	2,154	$	1,629	$	926
Fair value of plan assets	$	—	$	—	$	—

In accordance with SFAS 158 an additional liability of $686 (2005: $306) is recorded in accumulated other comprehensive income in shareholders’ equity in the accompanying consolidated financial statements as the unfunded accrued benefit liability exceeded the accrued pension cost. Actuarial assumptions used in estimating obligations are a discount rate of 6.00% (2005: 5.50%, 2004: 6.00%) and average compensation increases of 3.75% (2005: 3.75%, 2004: 3.75%). The benefits are expected to be paid in 2008, at an expected amount of $3,395.

IPC HOLDINGS, LTD. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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 2006, 2005 and 2004 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,
	2006			2006		2006		2006
Gross premiums written	$	235,593		$	120,325	$	56,288	$	17,645
Net premiums earned		86,943			100,770		107,840		101,579
Net investment income		24,604			31,064		25,383		28,608
Net realized (losses) gains on investments		(12,614	)		4,521		9,072		11,106
Net losses and loss adjustment expenses		22,096			13,387		7,918		15,104
Net income		62,647			108,822		114,965		108,151
Net income per common share — basic	$	0.92		$	1.64	$	1.74	$	1.63
Net income per common share — diluted	$	0.86		$	1.50	$	1.60	$	1.52

	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	)	$	(1.32	)
Net income (loss) per common share — diluted	$	0.91		$	1.32	$	(13.57	)	$	(1.32	)

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:

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

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

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 statements No. 333-128905 and No. 333-133605 on Form S-3 and registration statements No. 333-107052 and No. 333-126434 on Form S-8 of IPC Holdings, Ltd. of our reports dated February 27, 2007, with respect to the consolidated balance sheets of IPC Holdings, Ltd. as of December 31, 2006 and 2005, and the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2006, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 annual report on Form 10-K of IPC Holdings, Ltd.

     /s/ KPMG

Chartered Accountants

Hamilton, Bermuda

February 27, 2007

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 27, 2007

/s/ James 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 27, 2007

/s/ John 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, 2006 (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 27, 2007	/s/ James 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, 2006 (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 27, 2007	/s/ John 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.