S&P Affirms IPCRe Ltd. ‘A+’ Ratings

April 23, 2004

Standard & Poor’s Ratings Services announced that it has affirmed its ‘A+’ counterparty credit and financial strength ratings on IPCRe Ltd. and its ‘A+’ financial strength rating on IPCRe Europe Ltd., collectively referred to as IPCRe, with a stable outlook.

The ratings on IPCRe reflect its competitive position within the Bermuda reinsurance market, its very strong operating performance, and strong capitalization,” said S&P. “Financial flexibility is also strong – highlighted by IPCRe’s ability to raise additional capital following The World Trade Center (WTC) disaster.”

S&P noted, however, that “these positive factors are partly offset by IPCRe’s narrow business line focus on property catastrophe excess of loss reinsurance and low reinsurance utilization. Also differentiating IPCRe from its peers is its equity allocation (19 percent of total invested assets).”

The report said the stable outlook on IPCRe “is based on the view that earnings will be very strong in 2004. IPCRe is expected to remain a property-catastrophe focused company and therefore high volatility is possible due to this narrow product profile. IPCRe is expected to maintain capital adequacy above the rating to compensate for potential volatility and to maintain capital adequacy of more than 160 percent at year-end 2004 in support of the current ratings, while earnings are very strong.”

S&P listed the following as “Major Rating Factors:

— Strong competitive position. IPCRe’s competitive position is viewed as strong based on its market position, relationships with brokers, and service quality.

— Very strong operating performance. IPCRe’s operating performance is viewed as very strong, and prospectively should remain a strength to the rating. IPCRe recorded net income in 2003 of $261 million, the highest net earnings since the company’s inception (June 1993). IPCRe has realized combined ratios in 2003 of 35 percent and in 2002 of 34 percent, but operating performance will remain volatile as was exhibited in 1999 (159 percent combined ratio–multiple billion dollar plus events) and 2001 (129 percent combined ratio–WTC). IPCRe’s combined ratio from inception is 61.4 percent.
— Strong capitalization. IPCRe’s capital adequacy is viewed as strong, and expected to be 162 percent at year-end 2004 based on Standard & Poor’s model. This includes a charge for property-catastrophe exposure; however, capital adequacy has declined from 178 percent in 2002 as increased asset charges and exposure charges have outpaced growth in total adjusted capital.

— Experienced management. IPCRe benefits from an experienced and stable management team that has a proven track record.

— Narrow business line focus. In 2003, IPCRe generated the majority of its written premiums (84 percent) from excess of loss property-catastrophe reinsurance, which is characterized by low-frequency high-severity events that generate more volatile earnings, and this is a weakness to the rating.

— Low reinsurance utilization. IPCRe’s reinsurance utilization ratio was 5 percent in 2003 and 2 percent in 2002. The resulting increase in earnings volatility is mitigated by the strong capital base.”

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