Negative outlook caused by delayed ERM scheme

AM Best has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of the reinsurance subsidiaries of IPC Holdings Ltd (IPCRe).

These affirmations apply to IPCRe Limited (Bermuda) and IPCRe Europe Limited (Dublin, Ireland).

AM Best has also affirmed the ICR of “bbb” and the indicative ratings for securities available under shelf registration, which include the “bb+” on the preferred stock, the “bbb” on the senior unsecured debt and the “bbb-” on the subordinated debt of IPCRe. The outlook for all ratings is negative.

The rating affirmations reflect IPCRe’s strong balance sheet and well established presence within the property catastrophe reinsurance market.

The company has maintained a strong position in the property catastrophe reinsurance market since inception, retains many long-term client relationships and has had strong employee retention.

IPCRe had a relatively strong underwriting year compared to its peers through the first nine months of 2008 and continues to maintain a strong risk-adjusted capital position.

The negative outlook is reflective of IPCRe’s delayed initiative regarding a formal enterprise risk management (ERM) framework, which in AM Best’s view has affected the company’s ability to optimise its capital resources. Long-term return on equity measures for IPCRe remain in the mid single-digit range. While many of IPCRe’s metrics are skewed as a result of the unprecedented losses associated with hurricanes Katrina, Rita and Wilma in 2005, in the three years since the storms it does not appear that IPCRe has optimized its use of capital, which could have resulted in stronger, consistent and sustainable returns.

Partially offsetting some of these concerns is the progress that IPCRe has made with regards to implementing a comprehensive ERM framework, including the hiring of a risk officer to expedite these initiatives.

In addition, the company has a clean balance sheet, which is absent of latent liabilities due to its focus on short-tail property catastrophe business.

Moreover, IPCRe has maintained strong client relationships and sources its premiums from a global book of business. IPCRe maintains a low expense ratio, lean organizational structure and a business profile that should place the company in a good position to benefit from the hardening property catastrophe market in 2009.