S&P Assigns IPC Holdings ‘BBB+’ Rating – CreditWatch/Negative

October 12, 2005

Standard & Poor’s Rating Services announced that it has assigned its “BBB+” counterparty credit rating to IPC Holdings Ltd. and placed the rating on CreditWatch with negative implications. The action, S&P said in a later clarification, affects only IPC Holdings. The “A+” ratings on the Group’s operating companies IPCRe Ltd. and IPCRe Europe Ltd. were not affected, but “remain on CreditWatch where they were placed on Sept. 27, 2005.”

S&P also said it has assigned its preliminary “BBB+” senior debt, “BBB” subordinated debt, and “BBB-” preferred stock ratings to IPC Holdings’ recently filed $1.25 billion universal shelf and has placed the ratings on CreditWatch negative.

“The ratings on IPCRe reflect the company’s competitive position in the Bermuda reinsurance market, its very strong operating performance, a strong and consistent management team, and strong capitalization,” noted S&P credit analyst Damien Magarelli. “Financial flexibility is also strong—highlighted by IPCRe’s ability to raise additional capital following the World Trade Center disaster.”

S&P said, however, that “these positive factors are partly offset by IPCRe’s narrow business line focus, low reinsurance utilization, and equity allocation greater than some of its peers. In 2004, IPCRe generated the majority of its written premiums (87percent) from excess of loss property-catastrophe reinsurance, which is characterized by low-frequency high-severity events. Also differentiating IPCRe from its peers is its equity allocation (23 percent of total invested assets including hedge funds).”

“The CreditWatch on IPCRe reflects that hurricane Katrina losses are expected to measure a significant portion of capital and likely well above two years worth of earnings,” Magarelli added.

S&P further noted that “the recent shelf filing and potential capital issuance might mitigate these concerns.” The rating agency said it “will review the ratings following the issuance of capital, focusing on the company’s ability to renew business, its competitive position, and capital adequacy. The CreditWatch is expected to be resolved within 90 days or potentially sooner.

“The ratings might be affirmed based on a successful capital issuance or they might be lowered by one notch if catastrophe risk (potentially compounded by IPCRe’s concentrated profile) places IPCRe’s capital adequacy and earnings in a more volatile position, prospectively.”

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