Pending approval from the shareholders, IPC holdings Ltd. (IPCR) exclusively pointed to the storm-proof pact before selling itself to Validus (VR) for $1.65 billion stock and cash.

With the onset of hurricane season, IPCR wants to make sure that losses from hurricanes and tornadoes do not let Validus walk away from the deal. However, the risk-reward ratio is balanced. IPCR is well capitalized against the risk arising from hurricane losses.

Though there were more than a dozen bidders vying for ownership of IPC, most of them were unwilling to take the potential risk arising from the alliance. Validus took the bet.

Hurricane losses can severely impact the insurer’s profitability. Though IPCR’s second-quarter net income improved, storm losses can eat into the company’s profitability in the coming quarters. Depending upon the intensity of the hurricane, losses may outweigh the value of business underwritten.

Earlier in June, IPC’s amalgamation

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IPC Holdings’ (IPCR) announced its second-quarter financial results after the markets closed on July 23. Earnings of $3.11 per common share were well ahead of both the Street's estimate and our expectations, driven by a significantly better-than-expected loss ratio in the quarter.

From a "catastrophe" perspective, the second quarter was a quiet one. Premium writings were also up in the quarter, driven by rate increases.

For the quarter, the company reported net income of $173.9 million or $3.11 per common share, compared to $47.5 million, or $0.78 per common share, in the year-ago period. Operating EPS for the quarter was $1.72 versus $1.62, a year earlier.

Gross premiums writings were up 21.2% year-over-year, driven by new business and improvements in pricing which more than offset the business which was not renewed. Management said that price increases were on an average 5% to 15% in the quarter.

The company

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On July 1, Wednesday, Flagstone Reinsurance Holdings Limited (FSR) offered to buy IPC Holdings Ltd. (IPCR), which Flagstone said is superior to the Validus (VR) offer.Flagstone has offered 2.638 of its common shares for each IPC common share plus $5.50 per share in cash, valuing IPCR at $33.62 per share. This results in a premium of 21.1% over IPCR's Wednesday closing price of $27.77. The Validus bid was 1.1234 of its shares plus $3.75 in cash, valuing IPCR at $28.86 a share. Following the announcement by Flagstone, Validus has "reaffirmed" its offer today.Last week, IPCR's Board had opposed the Validus offer, stating that it is at a discount to its book value. However, Validus refused to budge in economic terms, considering the offer to be "full and fair." IPCR had been negotiating with Validus ...