S&P Keeps IPC on CreditWatch

October 27, 2005

Standard & Poor’s Ratings Services announced that its “BBB+” counterparty credit rating on IPC Holdings Ltd. (IPCR), and its “BBB-” preliminary preferred stock rating on IPCR’s recently filed $1.25 billion universal shelf, “would remain on CreditWatch with negative implications where they were placed Oct. 11, 2005.”

S&P also said: “The ‘A+’ counterparty credit and financial strength ratings on IPCRe Ltd. and IPCRe Europe Ltd. (collectively, IPCRe) also remain on CreditWatch with negative implications.”

“The CreditWatch on IPCRe and IPCR reflects the uncertainty of hurricane Katrina losses given the very early stages of the actual claim adjusting process and concerns that current estimates will deplete a significant portion of capital representing more than three years worth of earnings,” explained S&P credit analyst Damien Magarelli.

S&P indicated that the “ratings might be affirmed 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. The capital issuance will partially mitigate these concerns, but it remains possible that the holding and operating company ratings may be lowered by one notch, which could result in the preferred stock rating being lowered to non-investment grade on resolution of the CreditWatch.”

The rating agency also said it “will review the ratings in the next 60 days, following discussions with the company on its Katrina loss estimates and the company’s plan for 2006 writings of catastrophe exposures relative to its level of capital.

“The ratings on IPCRe reflect the company’s competitive position in the Bermuda reinsurance market as a long-term provider of high-severity low-frequency property catastrophe coverage, its historically very strong (but volatile) operating performance, strong and stable management team with a low financial risk tolerance, and strong capitalization.

“Financial flexibility is also viewed as a strength, highlighted by IPCRe’s ability to raise additional capital following the World Trade Center disaster and this new issuance.

“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 (87 percent) 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).”

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