SCPIE HOLDINGS INC, S-1/A, 1996-08-28

SCPIE HOLDINGS INC
S-1/A, 1996-08-28
INSURANCE CARRIERS, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1996

REGISTRATION NO. 333-4450
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SCPIE HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
DELAWARE 6719 95-4557980
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE IDENTIFICATION NO.)
ORGANIZATION) NUMBER)
</TABLE>

9441 WEST OLYMPIC BOULEVARD, BEVERLY HILLS, CALIFORNIA 90213-4015
(310) 551-5900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

DONALD J. ZUK, PRESIDENT
9441 WEST OLYMPIC BOULEVARD
P.O. BOX 4015
BEVERLY HILLS, CALIFORNIA 90213-4015
(310) 551-5900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:

<TABLE>
<S> <C>
DONALD P. NEWELL, ESQ. ALEXANDER M. DYE, ESQ.
LATHAM & WATKINS LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
701 "B" STREET, SUITE 2100 125 WEST 55TH STREET
SAN DIEGO, CA 92101-1234 NEW YORK, NY 10019-5389
(619) 236-1234 (212) 424-8000
</TABLE>

------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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<PAGE> 2

SCPIE HOLDINGS INC.

CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)

<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN LOCATION OR HEADING
FORM S-1 REGISTRATION STATEMENT IN PROSPECTUS
- ------------------------------------------------------- -------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Facing Page; Cross Reference Sheet;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page of
Prospectus; Outside Back Cover Page
of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.................. Outside Front Cover Page of
Prospectus; Underwriting
6. Dilution......................................... Not Applicable
7. Selling Security Holders......................... Not Applicable
8. Plan of Distribution............................. Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be Registered....... Description of Capital Stock
10. Interests of Named Experts and Counsel........... Not Applicable
11. Information with Respect to the Registrant....... Prospectus Summary; Risk Factors; The
Company; The Reorganization; Dividend
Policy; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Ownership of Common
Stock; Shares Eligible for Future
Sale; Index to Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION

AUGUST 28, 1996

PROSPECTUS [LOGO]

2,000,000 SHARES

SCPIE HOLDINGS INC.

COMMON STOCK

($.0001 PAR VALUE)

All of the shares of Common Stock offered hereby are being sold by SCPIE
Holdings Inc. (the "Company").

The shares of Common Stock offered hereby constitute a portion of the shares of
the Company being issued in connection with a plan of reorganization pursuant to
which Southern California Physicians Insurance Exchange, a California reciprocal
insurer (the "Exchange"), will reorganize as a stock insurer and become a wholly
owned subsidiary of the Company (the "Reorganization"). In connection with the
Reorganization, approximately 10,000,000 shares of Common Stock will be issued
to members of the Exchange. See "The Reorganization."

Prior to the Offering, there has been no public market for the Common Stock. It
is anticipated that the initial public offering price will be between $
and $ per share. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price.

The Common Stock has been approved for listing, subject to official notice of
issuance, on the New York Stock Exchange under the symbol " _____ ."

SEE "RISK FACTORS" COMMENCING ON PAGE 7 HEREIN FOR CERTAIN FACTORS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRICE
TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(2)...................................... $ $ $
</TABLE>

- --------------------------------------------------------------------------------

(1) Before deducting expenses of the Offering payable by the Company, estimated
to be $ .

(2) The Company has granted to the Underwriters an option, exercisable within 30
days after the date hereof, to purchase up to an aggregate of 300,000
additional shares of Common Stock at the Price to Public, less Underwriting
Discount, solely to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."

The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the shares of Common Stock will be made at the
offices of Salomon Brothers Inc, Seven World Trade Center, New York, New York,
or through the facilities of The Depository Trust Company, on or about ,
1996.

- --------------------------------------------------
SALOMON BROTHERS INC
- --------------------------------------------------------------------------------

The date of this Prospectus is , 1996.
<PAGE> 4

FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS DOCUMENT.

STATE INSURANCE HOLDING COMPANY LAWS AND REGULATIONS APPLICABLE TO THE
COMPANY IN GENERAL PROVIDE THAT NO PERSON MAY ACQUIRE CONTROL OF THE COMPANY,
AND THUS INDIRECT CONTROL OF ITS INSURANCE SUBSIDIARIES, UNLESS SUCH PERSON HAS
PROVIDED CERTAIN REQUIRED INFORMATION TO, AND SUCH ACQUISITION IS APPROVED (OR
NOT DISAPPROVED) BY, THE APPROPRIATE INSURANCE REGULATORY AUTHORITIES.
GENERALLY, ANY PERSON ACQUIRING BENEFICIAL OWNERSHIP OF 10% OR MORE OF THE
COMMON STOCK WOULD BE PRESUMED TO HAVE ACQUIRED SUCH CONTROL, UNLESS THE
APPROPRIATE INSURANCE REGULATORY AUTHORITIES UPON ADVANCE APPLICATION DETERMINE
OTHERWISE.

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------

AVAILABLE INFORMATION

The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements reported upon by its
independent auditors and quarterly reports containing unaudited consolidated
financial information for each of the first three quarters of each fiscal year.

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement"), on Form S-1
(Registration No. 333-4450) under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the shares of Common Stock to be issued in the
Offering. As permitted by the rules and regulations of the Commission, this
Prospectus, which constitutes a part of the Registration Statement, does not
contain all information set forth in the Registration Statement. For further
information, please refer to the Registration Statement, including the exhibits
thereto. The Registration Statement, including exhibits and schedules thereto,
can be inspected and copied at the Commission's Public Reference Room, Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
public reference facilities maintained by the Commission at its regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials can be obtained from the Commission at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Additionally, material filed by the
Company can be inspected at the offices of the New York Stock Exchange at 20
Broad Street, New York, New York 10005. In addition, the Commission maintains a
Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission, including the Company. Statements contained in this
Prospectus relating to the contents of any contract or other document referred
to herein are not necessarily complete, and reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified by such
reference.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Financial data and ratios set forth in
this Prospectus have been presented in accordance with generally accepted
accounting principles, unless otherwise indicated. Except as otherwise
specified, all information in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised. See "Glossary of Selected Insurance
Terms" for definitions of certain terms used in this Prospectus.

For purposes of this Prospectus, the terms "SCPIE" and the "Company" refer,
at all times prior to the effective date of the Reorganization, to Southern
California Physicians Insurance Exchange (the "Exchange") and its subsidiaries,
collectively, and at all times on or after such effective date, to SCPIE
Holdings Inc. and its subsidiaries, collectively; the term "SCPIE Holdings"
refers at all times to SCPIE Holdings Inc., excluding its subsidiaries; and the
term "Insurance Subsidiaries" refers, at all times prior to such effective date,
to the Exchange, SCPIE Indemnity Company, a California stock insurer ("SCPIE
Indemnity"), and two currently inactive insurance companies, and at all times on
or after such effective date, to SCPIE Indemnity and such inactive insurance
companies. The offering of the common stock of SCPIE Holdings is referred to
herein as the "Offering" and will be consummated substantially concurrent with
the effective date of the Reorganization.

THE COMPANY

The Company is the largest provider of medical malpractice insurance in
California, based on net premiums written in 1994. SCPIE currently insures
approximately 10,200 California physicians and oral and maxillofacial surgeons
practicing alone or in medical groups or clinics or other healthcare
organizations. The Company also insures a variety of other healthcare providers,
including hospitals, emergency department facilities, outpatient surgery centers
and hemodialysis, clinical and pathology laboratories.

The Company's total revenues and net income were $165.0 million and $24.4
million, respectively, for the year ended December 31, 1995 and were $93.7
million and $19.9 million, respectively, for the six months ended June 30, 1996.
As of June 30, 1996, the Company had $786.6 million of total assets and $264.8
million of total equity.

Medical malpractice insurance, or medical professional liability insurance,
insures the physician, hospital or other healthcare provider against liabilities
arising from the rendering of or failure to render professional medical
services. Under the typical medical malpractice insurance policy, the insurer
also defends the insured against potentially covered claims. Based on data
compiled by A.M. Best Company, Inc. ("A.M. Best"), in 1994, total medical
malpractice premiums in the United States exceeded $5.8 billion. In California,
the second largest market for medical malpractice insurance based on premiums
written, more than $557.0 million of medical malpractice premiums were written
in 1994. The Company's share of the medical malpractice premiums written in
California in 1994 was approximately 21%. The Company's market share is
substantially higher in Southern California where more than 95% of the Company's
insureds are located.

The Company believes that its leading market share for medical malpractice
insurance in California is, in large part, due to the loyalty of its insured
physicians. The Company attributes this loyalty to the high quality,
personalized service it provides and its traditional focus on the California
physician marketplace. The medical malpractice insurance offered by the Company
has been endorsed by twelve county medical associations and specialty societies
in California.

The Company believes that the growth in managed healthcare and the
emergence of multi-state integrated healthcare providers and delivery systems
will lead to major changes in the medical malpractice insurance industry.
Practice management organizations, hospitals, administrators of large group
practices and managed care organizations have an increasing influence over the
purchasing decision for the medical malpractice insurance coverages of their
affiliated physicians. As the consolidation of healthcare providers continues,
the number of physicians insured through such organizations will increase and
the Company believes that such organizations increasingly will seek
well-capitalized

3
<PAGE> 6

medical malpractice insurers that can provide a full range of products and a
high level of service in each state in which such organizations conduct
business.

To position the Company to compete and grow its business successfully in
this changing environment, the Company has adopted a strategy that includes: (i)
expanding the types of products offered to include hospital coverage, directors
and officers liability insurance for healthcare professional organizations and
errors and omissions insurance for managed care and related organizations; (ii)
diversifying geographically by increasing writings of medical malpractice
insurance in states other than California; (iii) positioning the Company to take
advantage of acquisition and consolidation opportunities relating to medical
malpractice insurance; (iv) maintaining the Company's relationship with its
primary policyholder base of California physician and medical group insureds;
and (v) maintaining sufficient capital to take advantage of future market
opportunities and to retain strong insurance ratings.

The Company has taken the following steps to implement its strategy:

New Product Introductions. In 1994, the Company began offering malpractice
insurance to California hospitals and, in 1995, began offering errors and
omissions coverage to managed care organizations. The Company currently insures
six hospitals and 19 managed care organizations. The Company believes that such
organizations represent an increasing share of the market for malpractice
insurance and provide the Company with a significant area for future growth.

Relationship with Sullivan, Kelly. The Company has entered into an
exclusive marketing agreement with Sullivan, Kelly and Associates, Inc. ("SKA"),
one of the leading hospital malpractice insurance brokers in the Western United
States. SKA has relationships with approximately 600 healthcare entities in 15
states which generated more than $80.0 million of malpractice insurance premiums
for a large insurance group in 1995. Following the recent termination by the
insurance group of this relationship, SKA and SCPIE are actively working to
obtain all or a significant portion of this business for SCPIE. In addition, SKA
has the exclusive right to market SCPIE's malpractice coverage for hospitals in
all states and medical group coverage in all states other than California, and
SCPIE has the exclusive right to underwrite such business generated by SKA.

The Company believes that its marketing relationship with SKA will provide
(i) a significant advantage in marketing to hospitals and other healthcare
entities and (ii) a cost-effective means of entering new geographic markets.

Entering New States. To facilitate its geographic expansion, in March 1995,
SCPIE acquired the outstanding stock of two inactive property and casualty
insurance companies, one of which is licensed in 44 states plus the District of
Columbia and the other of which is licensed in one state. The Company will
capitalize these companies with a portion of the proceeds of this offering, and
will attempt to ensure that they are fully licensed and able to underwrite
medical malpractice insurance as quickly as possible. In the meantime, the
Company has entered into a fronting arrangement to allow the Company to
accommodate SKA in all of the markets in which SKA operates.

The Company believes that the medical malpractice insurance industry in
California is currently experiencing a "soft insurance market," that is, an
insurance market in which the underwriting capacity exceeds current demand and
premium rates are relatively low. The Company believes that its strategy will
position it to expand premium writings and market share when the market
"hardens," that is, when demand coincides more closely with capacity and premium
rates increase to more appropriate levels.

In addition to its current direct insurance operations, SCPIE also assumes
reinsurance of medical malpractice insurance. The Company intends to expand its
reinsurance business and believes participation in reinsurance and excess
casualty insurance programs will become an increasingly important aspect of its
operations as healthcare entities become larger and obtain higher policy limits.

THE REORGANIZATION

The Exchange is a California reciprocal insurer. The business of the
Exchange has been managed by SCPIE Management Company, the attorney-in-fact for
the Exchange, which is a wholly owned subsidiary of the Exchange. Prior to July
1996, SCPIE Management Company was a wholly owned subsidiary of

4
<PAGE> 7

Organization of Southern California Physicians, Inc., a California mutual
benefit corporation indirectly controlled by the Exchange ("OSCAP").

On March 21, 1996, the Board of Governors of SCPIE adopted a Plan and
Agreement of Merger and on August 8, 1996 the Board of Governors adopted an
Amended and Restated Plan and Agreement of Merger (the "Merger Agreement")
whereby the Exchange will reorganize from a reciprocal insurer to a stock
insurance company and become a wholly owned subsidiary of SCPIE Holdings.
Pursuant to the Reorganization, the Exchange will merge (the "Merger") with and
into SCPIE Indemnity, a newly organized California stock insurer and a wholly
owned subsidiary of SCPIE Holdings that will be the surviving corporation of the
Reorganization. SCPIE Indemnity is licensed to write property and casualty
insurance in the State of California, but has not conducted business prior to
the Reorganization. In connection with the Reorganization, in July 1996, OSCAP
was liquidated into the Exchange and SCPIE Management Company became a
subsidiary of the Exchange.

The principal purpose of the Reorganization is to improve the Company's
access to the capital markets and to raise capital to permit the growth of
existing business and develop new business opportunities in the professional
liability insurance industry. The Reorganization will also provide members of
the Exchange with shares of Common Stock in exchange for their membership
interests in the Exchange.

The Merger Agreement will be submitted to the members of the Exchange for
approval at a special meeting (the "Special Meeting") to be held on ,
1996. The Reorganization is expected to be consummated substantially concurrent
with closing of the Offering. In connection with the Reorganization, 10,000,000
shares of Common Stock (less fractional shares, which will be paid in cash) will
be issued to members of the Exchange and 500,000 shares of Common Stock will be
issued to SCPIE Indemnity. See "Shares Eligible for Future Sale."

The Company has requested a ruling from the Internal Revenue Service (the
"Service") that the Merger, which is a part of the Reorganization, will
constitute a tax-free reorganization for Federal income tax purposes. In the
event the Service does not so rule or does not issue the ruling prior to the
time the Merger becomes effective, Latham & Watkins, tax counsel to the Exchange
("Tax Counsel"), will render its opinion to the Company to the effect that the
Merger will constitute a tax-free reorganization for Federal income tax
purposes. See "The Reorganization -- Federal Tax Consequences to the Company."

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered hereby.................. 2,000,000 shares
Common Stock to be outstanding after the
Offering(1)................................ 12,000,000 shares
Use of Proceeds.............................. Of the $ million estimated net proceeds
from the Offering, approximately $34.0
million will be contributed to the Insurance
Subsidiaries to support the continued growth
of the Company's business and the balance
will be retained by SCPIE Holdings for
general corporate purposes.
Dividend Policy.............................. Subject to declaration by the Board of
Directors of the Company, the Company
currently intends to pay a quarterly cash
dividend of $ per share of Common
Stock commencing
. See "Dividend
Policy."
New York Stock Exchange Symbol............... " ___ "
</TABLE>

- ---------------

(1) Excludes 300,000 shares subject to the Underwriters' over-allotment option
and 500,000 shares to be issued to SCPIE Indemnity. See "Underwriting."

RISK FACTORS

Potential investors should carefully consider the factors set forth herein
under "Risk Factors" commencing on page 7, as well as the other information
contained in this Prospectus.

5
<PAGE> 8

SUMMARY FINANCIAL AND OPERATING DATA

The following table sets forth selected combined financial data for the
Exchange and OSCAP. The selected combined income statement data set forth below
for each of the years in the three year period ended December 31, 1995 and the
selected combined balance sheet data as of December 31, 1995 and 1994 are
derived from the combined financial statements audited by Ernst & Young LLP,
independent auditors, included elsewhere herein and should be read in
conjunction with, and are qualified by reference to such statements and the
related notes thereto. The selected combined income statement data for the years
ended December 31, 1992 and 1991 and for the six months ended June 30, 1996 and
1995 and the selected combined balance sheet data as of December 31, 1993, 1992
and 1991 and as of June 30, 1996 and 1995, are derived from unaudited combined
financial statements of the Exchange and OSCAP which management believes
incorporate all of the adjustments necessary for the fair presentation of the
financial condition and results of operations for such periods.

<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS
ENDED JUNE 30, AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED INCOME STATEMENT DATA:
Direct premiums written................. $ 62,659 $ 62,216 $122,277 $120,024 $112,459 $107,126 $112,085
======== ======== ======== ======== ======== ======== ========
Premiums earned......................... $ 61,128 $ 59,453 $116,354 $111,659 $113,194 $112,122 $108,895
Net investment income................... 20,939 20,032 40,424 39,663 39,738 44,044 47,091
Realized investment gains and other
revenue............................... 11,620 4,801 8,231 755 16,254 18,950 11,946
-------- -------- -------- -------- -------- -------- --------
Total revenues........................ 93,687 84,286 165,009 152,077 169,186 175,116 167,932
-------- -------- -------- -------- -------- -------- --------
Losses and loss adjustment expenses..... 58,247 57,533 118,023 108,720 125,354 135,959 124,280
Other operating expenses................ 6,764 6,270 12,561 11,844 9,734 8,520 8,394
-------- -------- -------- -------- -------- -------- --------
Total expenses........................ 65,011 63,803 130,584 120,564 135,088 144,479 132,674
-------- -------- -------- -------- -------- -------- --------
Income before policyholder dividends and
Federal income taxes.................. 28,676 20,483 34,425 31,513 34,098 30,637 35,258
Policyholder dividends(1)............... 9,000 0 0 0 0 2,366 31,726
Federal income taxes (benefit).......... 5,599 6,167 10,056 9,212 8,618 7,899 (1,375)
-------- -------- -------- -------- -------- -------- --------
Net income............................ $ 14,077 $ 14,316 $ 24,369 $ 22,301 $ 25,480 $ 20,372 $ 4,907
======== ======== ======== ======== ======== ======== ========
COMBINED BALANCE SHEET DATA:
Total investments(2).................... $685,562 $674,564 $695,021 $636,909 $679,257 $629,289 $592,192
Total assets............................ 786,620 763,052 781,358 751,605 775,667 722,563 694,347
Total liabilities....................... 521,798 510,192 507,539 542,069 548,268 540,920 534,294
Equity(2)............................... 264,822 252,860 273,819 209,536 227,399 181,643 160,053
ADDITIONAL DATA:
Earnings per share(3)................... $ 1.41 $ 1.43 $ 2.44 $ 2.23 $ 2.55 $ 2.04 $ 0.49
Book value per share(3)................. 26.48 25.29 27.38 20.95 22.74 18.16 16.01
GAAP ratios:
Loss ratio............................ 95.3% 96.8% 101.4% 97.4% 110.7% 121.3% 114.1%
Expense ratio......................... 11.1 10.5 10.8 10.6 8.6 7.6 7.7
Combined ratio........................ 106.4 107.3 112.2 108.0 119.3 128.9 121.8
Statutory combined ratio................ 106.8 108.0 112.8 108.2 120.2 129.6 122.6
Statutory surplus....................... $246,555 $208,742 $235,352 $187,299 $171,589 $154,675 $146,765
</TABLE>

- ---------------

(1) Includes $31.0 million of Proposition 103 refunds in 1991. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General." In the second quarter of 1996, the Company estimated
an additional $9.0 million of policyholder dividends would be paid due to
favorable loss experience related to policy years 1987 through 1992. This
$9.0 million policyholder dividend will be paid to members of the Exchange
("Members") in the form of premium credits in 1997. Except for this final
dividend, after the Reorganization, the Company will cease paying such
dividends to its policyholders.

(2) Due to the adoption of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," on
December 31, 1993, total investments and equity were adjusted to reflect
changes in market values. This change resulted in a decrease to total
investments of $5.2 million, an increase of $10.8 million, an increase of
$24.0 million, a decrease of $28.8 million and an increase of $30.1 million
as of June 30, 1996 and 1995 and as of December 31, 1995, 1994 and 1993,
respectively, and which resulted in a decrease to equity of $3.4 million, an
increase of $7.0 million, an increase of $15.6 million, a decrease of $18.7
million and an increase of $19.6 million as of June 30, 1996 and 1995 and as
of December 31, 1995, 1994 and 1993, respectively.

(3) Gives effect in all periods to the Reorganization (including the issuance of
approximately 10,000,000 shares of Common Stock to members of the Exchange
in connection therewith). Does not give effect to the sale of Common Stock
in the Offering. The 500,000 shares of Common Stock issued to SCPIE
Indemnity are not considered outstanding for purposes of determining the per
share amounts.

6
<PAGE> 9

RISK FACTORS

In addition to other information set forth in this Prospectus, the
following factors should be carefully considered by potential investors in
making an investment decision regarding the Common Stock.

CONCENTRATION OF BUSINESS

Substantially all of the Company's premiums written are generated from
medical malpractice insurance policies issued to physicians and medical groups.
As a result, negative developments in the economic, competitive or regulatory
conditions affecting the medical malpractice insurance industry, particularly as
such developments might affect medical malpractice insurance for physicians,
could have a material adverse effect on the Company's results of operations.

Substantially all of the Company's direct premiums written are generated in
Southern California. The revenues and profitability of the Company are therefore
subject to prevailing regulatory, economic and other conditions in Southern
California. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations."

The Company's strategy includes expanding and diversifying its insurance
products and geographic operations. There can be no assurance that the Company
will be successful in implementing this strategy. See "-- Entry into New
Markets."

INDUSTRY FACTORS

Many factors influence the financial results of the medical malpractice
insurance industry, several of which are beyond the control of the Company.
These factors include, among other things: changes in severity and frequency of
claims; changes in applicable law and regulatory reform; changes in judicial
attitudes toward liability claims; and changes in inflation, interest rates and
general economic conditions.

The availability of medical malpractice insurance, or the industry's
underwriting capacity, is determined principally by the industry's level of
capitalization, historical underwriting results, returns on investment and
perceived premium rate adequacy. Historically, the financial performance of the
medical malpractice industry has tended to fluctuate in cyclical patterns
characterized by periods of greater competition in pricing and underwriting
terms and conditions (a "soft insurance market") followed by periods of capital
shortage and lesser competition (a "hard insurance market"). In a soft insurance
market, competitive conditions could result in premium rates and underwriting
terms and conditions which may be below profitable levels. For a number of
years, the medical malpractice insurance industry in California has faced a soft
insurance market. There can be no assurance as to whether or when industry
conditions will improve or the extent to which any improvement in industry
conditions may improve the Company's results of operations.

COMPETITION

The Company competes with numerous insurance companies in the California
market. The Company's principal competitors for physicians and medical groups
consist of three physician-owned mutual or reciprocal insurance companies,
several commercial companies and a physicians' mutual protection trust, which
levies assessments primarily on a "claims paid" basis. In addition, commercial
insurance companies such as Farmers Group, Inc. and MMI Companies, Inc. compete
for the medical malpractice insurance business of larger medical groups,
hospitals and other healthcare providers. Several of these competitors have
greater financial resources than the Company. In the last several years, the
Company has increased premium rates, while its competitors have maintained their
rates or instituted smaller increases. The Company has lost some of its
policyholders, in part due to these rate increases, but has realized a modest
increase in its premium volume and improved its underwriting results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General -- Competitive Environment" and "Business -- Rates and
Dividends." In addition to pricing, competitive factors may include dividend
policy, financial stability, breadth and flexibility of coverage and the quality
and level

7
<PAGE> 10

of services provided. The Company paid dividends to its members of $9.5 million,
$11.2 million and $18.6 million in 1995, 1994 and 1993, respectively, in the
form of premium credits. Such dividends were paid primarily to insureds who were
members of the Exchange in 1990 and prior policy years and were based primarily
on underwriting results in such years. The Board of Governors has declared a
final dividend to its Members of $9.0 million which will be paid in the form of
premium credits in 1997. Except for this final dividend, after the
Reorganization, the Company will cease paying such premium credit dividends to
its policyholders. Therefore, the Company may find it more difficult to compete
with other insurance companies offering such dividends. The competitive
environment could also result in lower premium rates and fees, reduced
profitability and loss of market share. As the Company expands into new product
lines and new geographic markets, it will need to compete with established
companies in such markets, many of which will have existing relationships with
the doctors and medical groups that the Company will be seeking to insure. See
"Business -- Competition."

LOSS AND LAE RESERVES

The reserves for losses and loss adjustment expenses ("LAE") established by
the Company are estimates of amounts needed to pay reported and unreported
claims and related LAE. The estimates are based on assumptions related to the
ultimate cost of settling such claims based on facts and interpretation of
circumstances then known, predictions of future events, estimates of future
trends in claims frequency and severity and judicial theories of liability,
legislative activity and other factors. However, establishment of appropriate
reserves is an inherently uncertain process involving estimates of future losses
and there can be no assurance that currently established reserves will prove
adequate in light of subsequent actual experience. The inherent uncertainty is
greater for certain types of insurance, such as medical malpractice, where a
longer period may elapse before a definite determination of ultimate liability
is made, and where the judicial, political and regulatory climates are changing.
Medical malpractice claims and expenses may be paid over a period of ten or more
years, which is longer than most property and casualty claims. Trends in losses
on long-tail lines of business such as medical malpractice may be slow to
appear, and accordingly, the Company's reaction in terms of modifying
underwriting practices and changing premium rates may lag underlying loss
trends. In addition, emerging changes in the practice of medicine such as the
emergence of new, larger medical groups that do not have an established claims
history and additional claims resulting from restrictions on treatment by
managed care organizations, may require the Company to adjust its underwriting
and reserving practices. See "-- Changes in Healthcare." While the Company
believes that its reserves for losses and LAE are adequate, there can be no
assurance that the Company's ultimate losses and LAE will not deviate, perhaps
substantially, from the estimates reflected in the Company's financial
statements. If the Company's reserves should prove inadequate, the Company will
be required to increase reserves, which could have a material adverse effect on
the Company's financial condition or results of operations.

The Company believes it has been conservative in establishing loss and LAE
reserves. In recent years, the Company has revised estimates of loss severity
and determined that certain of its reserves were redundant. Redundant reserves,
which have been released in every year since 1985, have contributed
significantly to reported earnings in 1995, 1994 and 1993. The Company reduced
reserves for prior years by $57.8 million, $60.4 million and $43.4 million in
the years ending December 31, 1995, 1994 and 1993, respectively, and by $27.9
million for the six months ended June 30, 1996. See Note 3 of Notes to Combined
Financial Statements. The Company cannot predict whether similar redundancies
will be experienced in future years. The Company continues to establish its loss
and LAE reserves at what it believes is the upper end of a reasonable range of
reserve estimates, but there is no assurance that such reserves will ultimately
prove to be redundant. If reserves ultimately prove redundant, then the
redundant amount will become income in the period such amount is released from
reserves and will be included in stockholder's equity. If such redundancies do
not occur or loss and LAE experience does not improve, the Company's net income
could be significantly reduced or a net loss could occur. To the extent that
reserves prove to be inadequate in the future, the Company would have to
increase such reserves and incur a charge to earnings in the period that such
reserves are increased, which could have a material adverse effect on the
Company's results of operations and financial condition. See "Management's

8
<PAGE> 11

Discussion and Analysis of Financial Condition and Results of
Operations -- General -- Loss and LAE Reserves" and "-- Results of Operations"
and "Business -- Loss Reserves."

CHANGES IN HEALTHCARE

Significant attention has recently been focused on reforming the healthcare
system at both the Federal and state levels. A broad range of healthcare reform
measures have been suggested, and public discussion of such measures will likely
continue in the future. Proposals have included, among others, spending limits,
price controls, limits on increases in insurance premiums, limits on the
liability of doctors and hospitals for tort claims and changes in the healthcare
insurance system. The Company cannot predict which, if any, reform proposals
will be adopted, when they may be adopted or what impact they may have on the
Company. While some of these proposals could be beneficial to the Company, the
adoption of others could have a material adverse effect on the Company's
financial condition or results of operations.

In addition to regulatory and legislative efforts, there have been
significant market driven changes in the healthcare environment. In recent
years, a number of factors related to the emergence of "managed care" have
negatively impacted or threatened to impact the medical practice and economic
independence of physicians. Physicians have found it more difficult to conduct a
traditional fee for service practice and many have been driven to join or
contractually affiliate with managed care organizations, healthcare delivery
systems or practice management organizations. This consolidation could result in
the elimination or significant decrease in the role of the physician and the
medical group from the medical professional liability purchasing decision. In
addition, the consolidation could reduce primary medical malpractice insurance
premiums paid by healthcare systems, as larger healthcare systems generally
retain more risk by accepting higher deductibles and self-insured retentions or
form their own captive insurance companies.

ENTRY INTO NEW MARKETS

The Company's strategy is to expand and diversify its products and
operations to meet the insurance needs of large healthcare organizations, while
maintaining its traditional personalized service for physicians and medical
groups, both large and small. SCPIE has recently introduced policies providing
hospital professional liability, managed care organization errors and omissions
and directors and officers liability insurance for healthcare organizations.
SCPIE has also participated in recent years as a reinsurer in the excess medical
professional liability market. There is no assurance, however, that this
diversification will be successful.

Another aspect of the Company's strategy is to expand its markets by
offering a variety of healthcare related liability insurance products to
hospitals, large medical groups and managed care and other healthcare systems
outside California. In August 1995, SCPIE entered into an agreement with SKA, a
leading healthcare insurance broker in the Western United States, to exclusively
market the Company's hospital and medical group professional and related
liability policies outside California. The agreement with SKA has been renewed
until October 1997 and will continue to renew on an annual basis unless
terminated by either party on 90 days' notice. SKA has offices in the states of
California, Arizona, Florida, Hawaii, Illinois, Maryland, Oregon, Tennessee,
Texas and Washington. After the Reorganization, the Company will be licensed to
write liability insurance in California and intends to apply for licenses to
write such insurance in Nevada and Oregon. In March 1995, SCPIE Holdings
acquired two inactive insurance companies, one of which is licensed in 44 states
plus the District of Columbia and the other of which is licensed in one state.
The licenses will have to be modified in a number of states and certain rate
filings will need to be made to permit the writing of medical malpractice
insurance. The Company could encounter delays in meeting such regulatory
requirements, and there is no assurance that SKA will be successful in marketing
SCPIE's products. SKA has historically offered competing programs, including a
well-established hospital professional liability insurance program for a large
insurance group which involved approximately 600 healthcare entities and which
generated more than $80.0 million of malpractice insurance premiums in 1995.
Following the recent termination by the insurance group of this relationship,
SKA and SCPIE are actively working to obtain all or a significant portion of
this business for

9
<PAGE> 12

SCPIE. In addition, SKA has the exclusive right to market SCPIE's malpractice
coverage for hospitals in all states and medical group coverage in all states
other than California, and SCPIE has the exclusive right to underwrite such
business generated by SKA. The Company believes that its marketing relationship
with SKA will provide (i) a significant advantage in marketing to hospitals and
other healthcare entities and (ii) a cost-effective means of entering new
geographic markets. There is no assurance that SCPIE will obtain any of such
business or that any business written pursuant to such arrangements will
ultimately be profitable for the Company. Through June 30, 1996, the Company had
issued one policy through SKA. If SKA is not successful in marketing SCPIE's
products, or if the SKA arrangement is not renewed, SCPIE may have difficulty in
directly marketing its own products in other states or developing an alternative
marketing relationship.

PHYSICIAN AND MEDICAL ASSOCIATION RELATIONSHIPS

The Exchange was organized in 1976 by physicians, received the exclusive
endorsement and active support of a number of local county medical associations
in building its physician and medical group policyholder base and, as a
reciprocal insurance company, has been wholly owned and governed by its members.
The Exchange has relied on its relationship with physicians and medical
associations in marketing its policies in competition with commercial insurance
companies and other physician-owned companies. The Company will endeavor to
maintain its medical association endorsements and to continue its close
relationship with physicians and medical groups through personalized service.
There can be no assurance that the Company will be able to maintain these
relationships.

IMPORTANCE OF RATINGS

Ratings have become an increasingly important factor in establishing the
competitive position of insurance companies. SCPIE is rated "A (Excellent)" by
A.M. Best, the third highest rating of 13 ratings assigned to solvent insurance
companies, which currently range from "A++ (Superior)" to "D (Very Vulnerable)."
A.M. Best's ratings reflect its opinion of an insurance company's financial
strength, operating performance and ability to meet its obligations to
policyholders and are not evaluations directed to purchasers of an insurance
company's securities. In June 1996, A.M. Best reduced the Company's rating from
"A+ (Superior)," citing significant uncertainty in the medical malpractice
marketplace, caused, in part, by evolving managed care issues, the Company's
narrow product line and geographic concentration, and intense competition and
weakening premium rates in the medical malpractice industry. A.M. Best similarly
reduced the ratings of three other medical malpractice insurance companies
domiciled in California. The Company's ability to maintain or improve its rating
by A.M. Best may depend on its ability to implement successfully its business
strategy. See "Business -- A.M. Best Rating." If SCPIE's rating is materially
reduced from its current level by A.M. Best, the Company's results of operations
could be adversely affected. The Insurance Subsidiaries have entered into a
reinsurance pooling arrangement and each of the Insurance Subsidiaries has been
assigned the same "pooled" "A (Excellent)" A.M. Best rating based on their
consolidated performance.

REINSURANCE

The amount and cost of reinsurance available to companies specializing in
medical professional liability insurance are subject, in large part, to
prevailing market conditions beyond the control of the Company. The Company's
ability to provide professional liability insurance at competitive premium rates
and coverage limits on a continuing basis will depend in part upon its ability
to secure adequate reinsurance in amounts and at rates that are commercially
reasonable. Although the Company anticipates that it will continue to be able to
obtain such reinsurance, there can be no assurance that this will be the case.
Further, the Company is subject to a credit risk with respect to its reinsurers
because reinsurance does not relieve the Company of liability to its insureds
for the risks ceded to reinsurers. Although the Company places its reinsurance
with reinsurers it believes to be financially stable, a significant reinsurer's
inability to make payment under the terms of a reinsurance treaty could have a
material adverse effect on the Company. See "Business -- Reinsurance."

10
<PAGE> 13

HOLDING COMPANY STRUCTURE; LIMITATION ON DIVIDENDS

SCPIE Holdings is an insurance holding company whose assets consist of all
of the outstanding capital stock of the Insurance Subsidiaries and, following
the Offering, will include a portion of the net proceeds of the Offering. As an
insurance holding company, SCPIE Holdings' ability to meet its obligations and
to pay dividends, if any, may depend upon the receipt of sufficient funds from
its subsidiaries. The payment of dividends to SCPIE Holdings by the Insurance
Subsidiaries is subject to general limitations imposed by applicable insurance
laws. See "Business -- Regulation -- Regulation of Dividends from Insurance
Subsidiaries."

ANTI-TAKEOVER PROVISIONS

SCPIE Holdings' amended and restated certificate of incorporation (the
"Restated Certificate") and amended and restated bylaws (the "Bylaws") include
provisions that may be deemed to have anti-takeover effects and may delay, defer
or prevent a takeover attempt that stockholders may consider to be in their best
interests. These provisions include: a Board of Directors consisting of three
classes; authorization to issue up to 5,000,000 shares of preferred stock, par
value $1.00 per share (the "Preferred Stock"), in one or more series with such
rights, obligations, powers and preferences as the Board of Directors of SCPIE
Holdings (the "SCPIE Holdings Board") may provide; a limitation which permits
only the SCPIE Holdings Board, or the Chairman or the President of SCPIE
Holdings to call a special meeting of stockholders; a prohibition against
stockholders acting by written consent; provisions which provide that directors
may be removed only for cause and only by the affirmative vote of holders of
two-thirds (66 2/3%) of the outstanding shares of voting securities; provisions
which provide that the SCPIE Holdings Board may increase the size of the Board
and may fill vacancies and newly created directorships; and certain advance
notice procedures for nominating candidates for election to the SCPIE Holdings
Board and for proposing business before a meeting of stockholders. In addition,
California law prohibits a person from acquiring control of SCPIE Holdings
without the prior approval of the Insurance Commissioner. The Company will also
be subject to insurance holding company laws in other states that contain
similar regulatory approval requirements. See "Management" and "Description of
Capital Stock -- Delaware Law and Certain Charter and Bylaw Provisions."

REGULATORY AND RELATED MATTERS

Insurance companies are subject to supervision and regulation by the state
insurance authority in each state in which they transact business. Such
supervision and regulation relate to numerous aspects of an insurance company's
business and financial condition, including limitations on lines of business,
underwriting limitations, the setting of premium rates, the establishment of
standards of solvency, statutory surplus requirements, the licensing of insurers
and agents, concentration of investments, levels of reserves, the payment of
dividends, transactions with affiliates, changes of control and the approval of
policy forms. Such regulation is concerned primarily with the protection of
policyholders' interests rather than stockholders' interests. See
"Business -- Regulation."

State regulatory oversight and various proposals at the Federal level may
in the future adversely affect the Company's results of operations. In recent
years, the state insurance regulatory framework has come under increased Federal
scrutiny, and certain state legislatures have considered or enacted laws that
alter and, in many cases, increase state authority to regulate insurance
companies and insurance holding company systems. Further, the National
Association of Insurance Commissioners (the "NAIC") and state insurance
regulators are reexamining existing laws and regulations, which in many states
has resulted in the adoption of certain laws that specifically focus on
insurance company investments, issues relating to the solvency of insurance
companies, risk-based capital ("RBC") guidelines, interpretations of existing
laws, the development of new laws and the definition of extraordinary dividends.
See "Business -- Regulation -- Regulation of Dividends from Insurance
Subsidiaries," "-- Risk-Based Capital" and "-- Regulation of Investments."

11
<PAGE> 14

SHARES ELIGIBLE FOR FUTURE SALE

Substantially all of the 10,000,000 shares of Common Stock issued to
members of the Exchange in connection with the Reorganization (less fractional
shares, which will be paid in cash) will be eligible for immediate sale in the
public market. No prediction can be made as to the effect, if any, that future
sales of shares, or the availability of shares for future sale, will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of such shares of Common Stock in the public market
following effectiveness of the Reorganization and the Offering or the perception
that such sales could occur could adversely affect the market price of the
Common Stock and could impair the Company's future ability to raise capital
through an offering of its equity securities. See "Shares Eligible for Future
Sale."

LACK OF PRIOR PUBLIC MARKET FOR COMMON STOCK

Prior to the Reorganization and the Offering, there has been no public
market for the Common Stock and there can be no assurance that an active trading
market will develop or be sustained. The shares of Common Stock have been
approved for listing, subject to official notice of issuance, on the New York
Stock Exchange. The initial public offering price will be determined by
agreement between the Company and the Underwriters. The price at which the
Common Stock is sold in the Offering may not be indicative of the market price
of the Common Stock after completion of the Offering. In addition, factors such
as the variations in the Company's financial results or other developments
affecting the Company could cause the market price of the Common Stock to
fluctuate significantly after the Offering. See "Underwriting."

THE COMPANY

The Company's total revenues and net income were $165.0 million and $24.4
million, respectively, for the year ended December 31, 1995 and were $93.7
million and $19.9 million, respectively, for the six months ended June 30, 1996.
As of June 30, 1996, the Company had $786.6 million in total assets and $270.7
million of total equity.

SCPIE Holdings was incorporated in the State of Delaware in September 1995
and was organized in February 1996. The Company's principal offices are located
at 9441 West Olympic Boulevard, Beverly Hills, California 90213-4015, and its
telephone number is (310) 551-5900.

THE REORGANIZATION

The following discussion of the Reorganization is qualified in its entirety
by reference to the Merger Agreement, a copy of which is filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.

In connection with the Reorganization, the Exchange will merge with and
into SCPIE Indemnity, a wholly owned subsidiary of SCPIE Holdings. As a result
of the Reorganization, membership rights in the Exchange will be extinguished
and members of the Exchange will receive shares of Common Stock of SCPIE
Holdings as consideration for the extinguishment of such rights. SCPIE
Indemnity, the surviving corporation of the Merger, will remain a wholly owned
subsidiary of SCPIE Holdings, and will have access to the capital markets
through SCPIE Holdings.

12
<PAGE> 15

PURPOSE

The principal purpose of the Reorganization is to improve the Company's
access to the capital markets and to raise capital to permit the growth of
existing business and develop new business opportunities in the professional
liability insurance industry. The Reorganization provides members of the
Exchange with an opportunity to convert their interests as members of the
Exchange into publicly traded shares of Common Stock.

APPROVAL OF THE REORGANIZATION; EFFECTIVE DATE

The Board of Governors of the Exchange, the SCPIE Holdings Board and the
Board of Directors of SCPIE Indemnity approved the Reorganization on
[ ], 1996.

On , 1996, the Insurance Commissioner of the State of
California (the "Insurance Commissioner") issued an order approving the
Reorganization. In the order, the Insurance Commissioner found that the Merger
Agreement was fair, just and equitable to the members of the Exchange, the
parties to the Merger Agreement, their respective creditors, and the public.

On , 1996, the Merger Agreement will be submitted to the
members of the Exchange for approval. The Reorganization is expected to be
consummated substantially concurrent with the closing of the Offering.

SHARES OF COMMON STOCK ISSUED IN THE REORGANIZATION

10,000,000 shares of Common Stock (less fractional shares, which will be
paid in cash), will be issued to members of the Exchange and 500,000 shares of
Common Stock will be issued to SCPIE Indemnity in connection with the
Reorganization. See "Shares Eligible for Future Sale." The shares of Common
Stock issued to SCPIE Indemnity will be issued in consideration of the
cancellation of the outstanding shares of Common Stock of SCPIE Holdings
currently held by the Exchange which will be cancelled in the Reorganization.
Such shares will not be entitled to vote, but will be entitled to receive
dividends.

FEDERAL TAX CONSEQUENCES TO THE COMPANY

The Company has requested a ruling from the Service that the Merger, which
is a part of the Reorganization, will constitute a tax-free reorganization for
Federal income tax purposes. In the event the Service does not so rule or does
not issue the ruling prior to the time the Merger becomes effective, Tax Counsel
will render its opinion to the Exchange to the effect that the Merger will
constitute a tax-free reorganization for Federal income tax purposes pursuant to
which the Exchange, SCPIE Indemnity and SCPIE Holdings will not realize any
significant income or loss for Federal income tax purposes and the Federal
income tax attributes of the Exchange, including its basis and holding period in
its assets, earnings and profits and tax accounting methods will not be
significantly affected by the Merger. If the Merger were not to qualify as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"), the Exchange would recognize, in a taxable
transaction, gain equal to the excess of the fair market value of the total
number of shares of Common Stock that the members of the Exchange are entitled
to receive pursuant to the Merger over the Exchange's aggregate tax basis in its
assets transferred to SCPIE Indemnity in the Merger.

There is a pending project at the Service dealing with the tax consequences
of transactions involving the "inversion" of members of an affiliated group
(i.e., the positions of such members are inverted or otherwise reversed). The
Service has announced in Notice 94-93 that any Treasury Regulations addressing
inversion transactions will apply to certain transactions occurring on or after
September 22, 1994. Notice 94-93 provides that future Treasury Regulations may
require, where appropriate, "recognition of income or gain at the time of an
inversion transaction" or "reductions to the basis (or increases in gain on the
sale or other disposition) of the stock of one or more corporations that are
involved in inversion transactions." While the potential scope of any future
Treasury Regulations or other Service

13
<PAGE> 16

positions applicable to inversion transactions is unclear, Tax Counsel does not
believe that income or gain recognition should be required in connection with
the Merger and the related transactions.

SCPIE Indemnity will be taxed as a stock insurance company, which is
generally taxed as a corporation subject to certain special rules. Under the
Internal Revenue Code, an insurance company's Federal taxable income
incorporates all income, including premiums, investment income and underwriting
income. The Internal Revenue Code currently establishes the maximum corporate
tax rate of 35% and imposes a corporate alternative minimum tax rate of 20%.

USE OF PROCEEDS

Based upon an assumed public offering price of $ per share, the net
proceeds to the Company from the Offering are estimated to be approximately
$ million (or $ million if the Underwriters' over-allotment option
is exercised in full) after deducting the underwriting discount and estimated
Offering expenses payable by the Company. The Company expects to contribute
approximately $34.0 million to the Insurance Subsidiaries to support the
continued growth of the Company's business and the balance will be retained by
the Company for general corporate purposes. The Company will not receive any
proceeds from the issuance of the Common Stock to members of the Exchange
pursuant to the Reorganization.

DIVIDEND POLICY

The Company currently intends to pay regular quarterly cash dividends. The
Company initially expects to pay a quarterly cash dividend of $ per
share commencing . The declaration and payment of dividends to
holders of Common Stock will be at the discretion of the SCPIE Holdings Board
and will be dependent upon SCPIE Holdings' financial condition, results of
operations, cash requirements, future prospects, regulatory restrictions on the
payment of dividends to SCPIE Holdings by the Insurance Subsidiaries and other
factors deemed relevant by the SCPIE Holdings Board. There can be no assurance
that SCPIE Holdings will declare and pay any dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

SCPIE Holdings is an insurance holding company whose assets consist
primarily of all of the outstanding shares of the common stock of the Insurance
Subsidiaries. Although SCPIE Holdings intends to retain approximately $
million of the net proceeds from the Offering for general corporate purposes,
SCPIE Holdings' ability to pay dividends to its stockholders and meet its other
obligations, including operating expenses and any debt service, will depend
primarily upon the receipt of sufficient funds from the Insurance Subsidiaries.
The payment of dividends by the Insurance Subsidiaries to SCPIE Holdings will be
restricted by applicable insurance law. See "Risk Factors -- Holding Company
Structure; Limitation on Dividends," "Business -- Regulation -- Regulation of
Dividends from Insurance Subsidiaries" and "Description of Capital Stock."

14
<PAGE> 17

CAPITALIZATION

The information set forth in the table presented below is derived from the
combined financial statements and the related notes thereto included elsewhere
in this Prospectus. The table presents the capitalization at June 30, 1996 of:
(i) the Exchange and OSCAP on a combined basis; (ii) SCPIE Holdings, adjusted to
reflect, on a pro forma basis, the Reorganization and the issuance of 10,000,000
shares of Common Stock (less fractional shares, which will be paid in cash) in
connection therewith to members of the Exchange and 500,000 shares of Common
Stock issued to SCPIE Indemnity; and (iii) SCPIE Holdings as adjusted further to
reflect the sale of 2,000,000 shares of Common Stock in the Offering at an
assumed public offering price of $ per share and the application of the
estimated net proceeds therefrom as set forth under "Use of Proceeds." See "The
Reorganization." The table should be read in conjunction with the historical
combined financial statements and the related notes thereto appearing elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
AT JUNE 30, 1996
------------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total debt............................................. $ -- $ -- $ --
Equity:
Preferred Stock, $1.00 par value, 5,000,000 shares
authorized; no shares issued and outstanding...... -- -- --
Common Stock, $0.0001 par value, 30,000,000 shares
authorized; 0 shares issued and outstanding;
10,500,000 issued and 10,000,000 outstanding, as
adjusted; and 12,500,000 issued and 12,000,000
outstanding, as further adjusted.................. -- 1 1
Additional paid-in capital........................... -- 264,672 (1)
Surplus.............................................. 264,673 -- --
Net unrealized appreciation of invested assets....... 149 149 149
-------- -------- ----
Total equity................................. 264,822 264,822
-------- -------- ----
Total capitalization................................... $264,822 $264,822 $
======== ======== ====
</TABLE>

- ---------------

(1) Reflects estimated expenses of the Reorganization and related transactions
of $ incurred after June 30, 1996.

15
<PAGE> 18

SELECTED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS
ENDED JUNE 30, AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED INCOME STATEMENT DATA:
Direct premiums written.............................. $ 62,659 $ 62,216 $122,277 $120,024 $112,459 $107,126 $112,085
======== ======== ======== ======== ======== ======== ========
Premiums earned...................................... $ 61,128 $ 59,453 $116,354 $111,659 $113,194 $112,122 $108,895
Net investment income................................ 20,939 20,032 40,424 39,663 39,738 44,044 47,091
Realized investment gains and other revenue.......... 11,620 4,801 8,231 755 16,254 18,950 11,946
-------- -------- -------- -------- -------- -------- --------
Total revenues................................... 93,687 84,286 165,009 152,077 169,186 175,116 167,932
-------- -------- -------- -------- -------- -------- --------
Losses and loss adjustment expenses.................. 58,247 57,533 118,023 108,720 125,354 135,959 124,280
Other operating expenses............................. 6,764 6,270 12,561 11,844 9,734 8,520 8,394
-------- -------- -------- -------- -------- -------- --------
Total expenses................................... 65,011 63,803 130,584 120,564 135,088 144,479 132,674
-------- -------- -------- -------- -------- -------- --------
Income before policyholder dividends and Federal
income taxes....................................... 28,676 20,483 34,425 31,513 34,098 30,637 35,258
Policyholder dividends(1)............................ 9,000 0 0 0 0 2,366 31,726
Federal income taxes (benefit)....................... 5,599 6,167 10,056 9,212 8,618 7,899 (1,375)
-------- -------- -------- -------- -------- -------- --------
Net income....................................... $ 14,077 $ 14,316 $ 24,369 $ 22,301 $ 25,480 $ 20,372 $ 4,907
======== ======== ======== ======== ======== ======== ========
COMBINED BALANCE SHEET DATA:
Total investments(2)................................. $685,562 $674,564 $695,021 $636,909 $679,257 $629,289 $592,192
Total assets......................................... 786,620 763,052 781,358 751,605 775,667 722,563 694,347
Total liabilities.................................... 521,798 510,192 507,539 542,069 548,268 540,920 534,294
Equity(2)............................................ 264,822 252,860 273,819 209,536 227,399 181,643 160,053
ADDITIONAL DATA:
Earnings per share(3)................................ $ 1.41 $ 1.43 $ 2.44 $ 2.23 $ 2.55 $ 2.04 $ 0.49
Book value per share(3).............................. 26.48 25.29 27.38 20.95 22.74 18.16 16.01
GAAP ratios:
Loss ratio......................................... 95.3% 96.8% 101.4% 97.4% 110.7% 121.3% 114.1%
Expense ratio...................................... 11.1 10.5 10.8 10.6 8.6 7.6 7.7
Combined ratio..................................... 106.4 107.3 112.2 108.0 119.3 128.9 121.8
Statutory combined ratio............................. 106.8 108.0 112.8 108.2 120.2 129.6 122.6
Statutory surplus.................................... $246,555 $208,742 $235,352 $187,299 $171,589 $154,675 $146,765
</TABLE>

- ---------------

(1) Includes $31.0 million of Proposition 103 refunds in 1991. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General." In the second quarter of 1996, the Company estimated
an additional $9.0 million of policyholder dividends would be paid due to
favorable loss experience related to policy years 1987 through 1992. This
$9.0 million policyholder dividend will be paid to Members in the form of
premium credits in 1997. Except for this final dividend, after the
Reorganization, the Company will cease paying such dividends to its
policyholders.

16
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the combined
financial statements and the related notes thereto appearing elsewhere in this
Prospectus.

GENERAL

Cyclical Nature of Medical Malpractice Insurance Industry. Many factors
influence the financial results of the medical malpractice insurance industry,
several of which are beyond the control of the Company. These factors include,
among other things, changes in severity and frequency of claims; changes in
applicable law and regulatory reform; changes in judicial attitudes toward
liability claims; and changes in inflation, interest rates and general economic
conditions.

The availability of medical malpractice insurance, or the industry's
underwriting capacity, is determined principally by the industry's level of
capitalization, historical underwriting results, returns on investment and
perceived premium rate adequacy. Historically, the financial performance of the
medical malpractice industry has tended to fluctuate between a soft insurance
market and a hard insurance market. In a soft insurance market, competitive
conditions could result in premium rates and underwriting terms and conditions
which may be below profitable levels. For a number of years, the medical
malpractice insurance industry in California has faced a soft insurance market.
There can be no assurance as to whether or when industry conditions will improve
or the extent to which any improvement in industry conditions may improve the
Company's financial condition and results of operations.

Changing Nature of SCPIE's Business. The vast majority of the Company's
business is professional liability insurance for physicians written on a claims
made and reported basis. The Company believes that the integration of healthcare
delivery in recent years, particularly in California, will result in the growing
importance of large medical groups and other healthcare entities, and a
corresponding change in the entities that make professional liability purchasing
decisions. The Company believes that these changes have created a need for the
Company to further diversify. As a result, the Company has adopted a strategy
that includes expanding the type of products offered by the Company and
diversifying geographically by offering products in states other than
California. The Company began to implement its strategy in 1994 by offering
professional liability insurance to hospitals in California and, in 1995, began
offering errors and omissions coverage for managed care organizations. In
addition, the Company has entered into a marketing arrangement with SKA to
expand its business to other states. See "Business -- Overview."

Competitive Environment. The California medical malpractice insurance
market for medical groups and physicians has become extremely competitive in
recent years. SCPIE's principal competitors are three other physician-owned
companies and a physicians' mutual protection trust. In addition, commercial
insurance companies have recently returned to the California market to insure
medical groups and physicians.

In the late 1980s many medical malpractice insurance companies began to
experience significantly improved claims cost trends and attempted to attract
medical groups and physicians insured by other companies by reducing premium
rates. Beginning in 1990, the Company implemented annual rate decreases
aggregating more than 25% during the next three years, which resulted in a
reduction in premium volume to approximately $107.1 million in 1992, and a
deterioration of underwriting results. Since 1993, however, SCPIE has instituted
annual overall rate increases ranging from 4.4% to 9.2% in order to improve its
underwriting results. These rate increases have been higher than those
implemented by most of its competitors. As a result, the Company has lost some
of its policyholders, in part due to these rate increases, but has realized a
modest increase in its premium volume and has improved its underwriting results.
See "Risk Factors -- Competition" and "Business -- Rates and Dividends."

Policyholder Dividends. Since 1981, SCPIE has followed a practice of paying
discretionary dividends to its physician and other healthcare provider members
in the form of premium credits on the basis

17
<PAGE> 20

of the results of prior policy years, as the actual experience for such years
becomes known. The Company paid dividends to its members of $9.5 million, $11.2
million and $18.6 million in 1995, 1994 and 1993, respectively, in the form of
premium credits. Such dividends were paid primarily to insureds who were members
of the Exchange in 1990 and prior policy years and were based primarily on
underwriting results in such years. These dividends have been accrued as an
expense for the year in which the related premiums were earned and not the year
paid or declared. The Board of Governors has declared a final dividend of $9.0
million to Members of record on the earlier of the date of the Special Meeting
or November 5, 1996, which will be paid in the form of premium credits in 1997.
This dividend is reflected as an expense in the six month period ended June 30,
1996. See "-- Results of Operations -- Six Months Ended June 30, 1996 Compared
to Six Months Ended June 30, 1995." Except for this final dividend, after the
Reorganization, the Company will cease paying such premium credit dividends to
its policyholders. Therefore, the Company may find it more difficult to compete
with other insurance companies offering such dividends. See "Risk
Factors -- Competition."

Loss and LAE Reserves. Medical malpractice and other property and casualty
loss and LAE reserves are established based on known facts and interpretation of
circumstances, including the Company's experience with similar cases and
historical trends involving claim payment patterns, loss payments and pending
levels of unpaid claims, as well as court decisions and economic conditions. The
effects of inflation are considered in the reserving process. Establishment of
appropriate reserves is an inherently uncertain process, and there can be no
assurance that currently established reserves will prove adequate in light of
subsequent actual experience. The Company follows a practice of conservatively
estimating its future liabilities relating to losses already incurred and has
attempted to establish its loss and LAE reserves at the upper end of a
reasonable range of reserve estimates. The Company believes that it has been
particularly difficult to make such estimates for medical malpractice claims in
California because of the uncertain benefits of tort reform measures and more
recently a change in the judicial process. The tort reform measures, known as
the Medical Injury Compensation Reform Act of 1975 ("MICRA"), were not declared
constitutional by the California Supreme Court until the mid-1980s and their
impact on settlements was difficult to evaluate until some years later. The
change in judicial process, known as "fast-track," became fully effective for
most California counties in 1992 and requires, among other things, that all
non-complex civil actions, including most medical malpractice actions, proceed
to trial within approximately one year after filing. Prior to this rule, in some
of California's larger counties, a trial typically did not occur until more than
four years after the related complaint had been filed. "Fast-track" has
accelerated costs and expenses of investigation and defense, but has also led to
more rapid settlements, judicial resolutions and, the Company believes, overall
cost reductions. The Company believes that it has now realized virtually all of
the benefits from the past tort reform legislation and from the institution of
"fast-track."

Beginning in 1988, the Company implemented several changes to its claims
procedures including the establishment of increased levels of authority within
the claims department for approval of reserves and settlement of claims. The
Company believes that these changes resulted in (i) earlier recognition of
liability, and therefore higher case reserves and (ii) faster settlement of
claims, ultimately resulting in lower indemnity payments and reduced legal
expenses.

The Company believes that a combination of the factors discussed above and
other factors have contributed to the recent redundancies in reserves
established by SCPIE for prior years. The original reserves were established
without full knowledge of the effect of these factors. Redundant reserves, which
have been released in every year since 1985, have contributed significantly to
reported earnings in 1995, 1994 and 1993. The Company reduced reserves for prior
years by $57.8 million, $60.4 million and $43.4 million in the years ended
December 31, 1995, 1994 and 1993, respectively. See Note 3 of Notes to Combined
Financial Statements. The Company cannot predict whether similar redundancies
will be experienced in future years. The Company continues to establish its loss
and LAE reserves at what it believes is the upper end of a reasonable range of
reserve estimates, but there is no assurance that such reserves will ultimately
prove to be redundant. The Company believes that some reduction in the amount of
the redundancies recently experienced is reasonably likely. If such redundancies
do not occur or loss and LAE experience does not improve, the Company's net
income could be significantly reduced or a net loss could occur. See
"Business -- Loss Reserves."

18
<PAGE> 21

Operating Expenses. The Company's planned expansion into other states and
markets may increase operating expense levels to achieve and service this
expansion. The Company believes that its relationship with SKA will increase its
marketing expenses, but it also believes that this relationship will reduce the
need to make other significant expenditures in order to expand into other
states. Commissions for hospital and other healthcare provider liability
policies, which are sold on a brokerage basis through SKA and other brokers,
typically range from 7.5% to 15.0% of premiums, whereas the Company does not
incur commissions on products sold directly. To the extent that hospital and
other healthcare provider policies represent an increased percentage of the
Company's business in the future, expense ratios will increase. See
"Business -- Marketing and Policyholder Services."

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995.

Premiums Earned. Premiums earned increased approximately $1.6 million, or
2.8%, to $61.1 million for the six months ended June 30, 1996 from $59.5 million
for the same period in 1995. The increase was principally attributable to an
average 4.4% increase in premium rates in effect during the 1996 period, which
was partially offset by a 3.9% decrease in the average number of policies in
force during the 1996 period as compared to the 1995 period. Medical malpractice
premiums from physicians and medical groups were approximately $58.3 million for
the six months ended June 30, 1996 compared to $58.1 million for the same period
in 1995. Hospital medical malpractice premiums were approximately $0.8 million
for the six months ended June 30, 1996 compared to $0.5 million for the same
period in 1995. Assumed reinsurance premiums were approximately $1.6 million for
the six months ended June 30, 1996 compared to $0.4 million for the same period
in 1995.

Net Investment Income. Net investment income increased approximately $0.9
million, or 4.5%, to $20.9 million for the six months ended June 30, 1996 from
$20.0 million for the same period in 1995. Average invested assets increased to
$690.0 million during the six months ended June 30, 1996 compared to $653.6
million for the same period in 1995. The average pre-tax yield on the investment
portfolio increased to 6.3% for the six months ended June 30, 1996 compared to
5.9% for the same period in 1995. See "Business -- Investment Portfolio."

Realized Investment Gains and Other Revenue. Realized investment gains were
approximately $11.5 million for the six months ended June 30, 1996 compared to
$4.7 million for the same period in 1995. Approximately $10.0 million of the
gains from 1996 resulted from the sale of equity securities in connection with
the Company's decision in the first quarter to increase the focus of its
investment portfolio on fixed maturity securities. The remainder were
attributable to sales made in the fixed maturity portion of the investment
portfolio to take advantage of more favorable yields or to reposition the
maturity of the portfolio.

Losses and LAE. Losses and LAE increased $0.7 million, or 1.2%, to $58.2
million for the six months ended June 30, 1996 from $57.5 million for the same
period in 1995. As a percentage of premiums earned, losses and LAE decreased to
95.3% for the six months ended June 30, 1996 from 96.8% for the same period in
1995. In the six months ended June 30, 1996, the Company increased its reserves
by $1.1 million for free tail coverage to be provided by the Company to
currently insured physicians at the time of their death, disability or
retirement. See "Business -- Products." This additional expense was more than
offset by a decrease of approximately $27.9 million in loss and LAE reserves for
the six months ended June 30, 1996 for claims incurred in prior policy years,
compared to a decrease of reserves of $31.7 million for the same period in 1995
for claims incurred in prior policy years.

Other Operating Expenses. Other operating expenses increased $0.5 million,
or 7.9%, to $6.8 million for the six months ended June 30, 1996 from $6.3
million for the same period in 1995. This increase was principally attributable
to increases in acquisition policy expenses and payroll of $0.4 million and $0.2
million, respectively. The ratio of other operating expenses to premiums earned
is referred to as the expense ratio, which was 11.1% for the six months ended
June 30, 1996 and 10.5% for the same period in 1995.

19
<PAGE> 22

Policyholder Dividends. In the second quarter of 1996, the Company
estimated an additional $9.0 million of policyholder dividends would be paid due
to favorable loss experience related to policy years 1987 through 1992. The
Board of Governors declared a final dividend of $9.0 million to Members of
record on the earlier of the date of the Special Meeting or November 5, 1996 who
were also Members during policy years 1987 through 1992. Such dividend will be
paid in the form of premium credits during 1997. This dividend is reflected as
an expense for the six months ended June 30, 1996. Dividends declared in prior
years have been accrued as an expense for the period in which the related
premiums were earned and not the year paid or declared. Accordingly, there is no
expense reflected for the comparable period in 1995.

Federal Income Taxes. Federal income taxes decreased $0.6 million, or 9.2%,
to $5.6 million for the six months ended June 30, 1996 from $6.2 million for the
same period in 1995. The effective tax rate increased to 28.5% for the six
months ended June 30, 1996 from 30.1% for the same period in 1995, due primarily
to an increase in tax-exempt interest for the six months ended June 30, 1996.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Premiums Earned. Premiums earned increased $4.7 million, or 4.2%, to $116.4
million in 1995 from $111.7 million in 1994. The increase was principally
attributable to an average 8.9% increase in premium rates in effect throughout
1995, which was partially offset by a 3.4% decrease in the average number of
policies in force during 1995. Medical malpractice premiums from physicians and
medical groups were approximately $113.3 million in 1995 compared to $109.7
million in 1994, while the Company had hospital medical malpractice premiums of
$1.3 million in 1995 compared to $0.3 million in 1994. Assumed reinsurance
premiums were less than $1.0 million in both years.

Net Investment Income. Net investment income increased approximately $0.7
million, or 1.9%, to $40.4 million in 1995 from $39.7 million in 1994. Average
invested assets increased $7.9 million, or 1.2%, to $666.0 million in 1995 from
$658.1 million in 1994. The average pre-tax yield on the investment portfolio
was virtually unchanged at 5.9% in both 1995 and 1994. The increase in
investment income resulted from additional interest of approximately $1.9
million on a Federal income tax refund due the Company and was partially offset
by lower rates available on fixed maturity investments purchased since 1994.

Realized Investment Gains and Other Revenue. Net realized gains were
approximately $8.0 million in 1995 compared to $0.5 million in 1994.
Approximately $4.6 million of the 1995 gains were net gains realized from the
sale of equity securities to take advantage of appreciation in the market price
of those securities. The remainder of the net gains were attributable to sales
made in the fixed maturities portion of the investment portfolio to take
advantage of more favorable yields or to reposition the maturity of the
portfolio.

Losses and LAE. Losses and LAE increased $9.3 million, or 8.6%, to $118.0
million in 1995 from $108.7 million in 1994. As a percentage of premiums earned,
losses and LAE increased to 101.4% in 1995 from 97.4% in 1994. In 1995, SCPIE
increased its prior accident years' reserves by $23.9 million for free tail
coverage to be provided by the Company to currently insured physicians at the
time of their death, disability or retirement. The increase was the result of a
refinement in the actuarial methodology used to calculate this reserve. See
"Business -- Products." This additional expense was more than offset by a
decrease of approximately $81.7 million in loss and LAE reserves in 1995 for
claims incurred in prior accident years, compared to a reserve decrease of $60.4
million in 1994 for claims incurred in prior accident years.

Other Operating Expenses. Other operating expenses increased $0.8 million,
or 6.1%, to $12.6 million in 1995 from $11.8 million in 1994. This increase was
principally attributable to legal and consulting fees incurred in 1995 relating
to an employment law matter in litigation, which the Company successfully
defended, and a small increase in personnel and compensation levels. The expense
ratio was 10.8% in 1995 and 10.6% in 1994.

Federal Income Taxes. Federal income taxes increased $0.9 million, or 9.2%,
to $10.1 million in 1995 from $9.2 million in 1994. The effective tax rate was
29.2% in both years.

20
<PAGE> 23

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Premiums Earned. Premiums earned decreased by $1.5 million, or 1.4%, to
$111.7 million in 1994 from $113.2 million in 1993. The decrease in premiums
earned is due to the fact that reinsurance premiums ceded in 1994 were
approximately $7.5 million, while they were negligible in 1993. Reinsurance
premiums in 1993 included an offset of $7.2 million in profits realized on the
1993 commutation of certain reinsurance by SCPIE attributable to prior years.
There was no comparable offset in 1994. Direct premiums written in 1994
increased by approximately $7.5 million, or 6.7%, to $120.0 million in 1994 from
$112.5 million in 1993, due primarily to an average 9.0% rate increase in effect
during 1994, which was partially offset by a 3.3% decrease in the number of
policyholders.

Net Investment Income. Net investment income was virtually unchanged in
1994 as compared to 1993, remaining at approximately $39.7 million. Average
invested assets decreased $5.0 million, or 0.8%, to $658.1 million in 1994 from
$663.1 million in 1993. The average pre-tax yield on the investment portfolio
decreased to 5.9% in 1994 from 6.2% in 1993.

Realized Investment Gains and Other Revenue. Net realized gains were $0.5
million in 1994 compared to $16.0 million in 1993. The Company realized
significant gains in 1993 primarily due to changes in investment mix that
occurred as the Company changed its investment allocation in response to market
conditions and the Company's expected Federal income tax position based on its
underwriting results. These changes were in the fixed maturities portion of the
portfolio, which produced a net gain of $13.2 million. Sales of equity
securities produced a gain of approximately $2.8 million.

Losses and LAE. Losses and LAE decreased $16.7 million, or 13.3%, to $108.7
million in 1994 from $125.4 million in 1993. As a percentage of premiums earned,
losses and LAE also decreased to 97.4% in 1994 from 110.7% in 1993. In 1994,
there was a decrease of approximately $60.4 million in estimated losses and LAE
incurred in prior years compared to a decrease of $43.4 million in 1993. Both
years reflect favorable changes in reserve estimates made in prior years, as
more experience became available for analysis by management.

Other Operating Expenses. Other operating expenses increased $2.1 million,
or 21.7%, to $11.8 million in 1994 from $9.7 million in 1993. This increase was
attributable to general increases in most expense categories, as SCPIE expanded
into hospital liability insurance and other products. The expense ratio was
10.6% in 1994 and 8.6% in 1993.

Federal Income Taxes. Federal income taxes increased $0.6 million, or 6.9%,
to $9.2 million in 1994 from $8.6 million in 1993. The effective tax rate
increased to 29.2% in 1994 from 25.3% in 1993, principally due to an increase in
the Federal income tax marginal rate to 35.0% in 1994 from 34.0% in 1993.

LIQUIDITY AND CAPITAL RESOURCES

The primary sources of the Company's liquidity are insurance premiums, net
investment income, recoveries from reinsurers and proceeds from the maturity or
sale of invested assets. Funds are used to pay claims, LAE, operating expenses,
reinsurance premiums and taxes. SCPIE has also paid significant dividends, in
the form of premium credits, to its members in each year since 1980. These
premium credit dividends paid to members have totalled more than $160.0 million,
of which SCPIE paid approximately $9.5 million, $11.2 million and $18.6 million
during the years ended December 31, 1995, 1994 and 1993, respectively and $4.7
million during the first six months of 1996. The Board of Governors has declared
a final dividend to Members of $9.0 million, which will be paid in the form of
premium credits during 1997. Except for this final dividend, after the
Reorganization, the Company will cease paying such dividends to its
policyholders.

SCPIE had positive cash flow from operations in each of the last three
years. Positive cash flow has resulted from long-term timing differences between
the collection of premiums and payment of claims. Because of uncertainty related
to the timing of the payment of claims, cash from operations for a property and
casualty insurance company can vary substantially from year to year. Cash
provided by operating

21
<PAGE> 24

activities for SCPIE, before the payment of dividends to policyholders, was
$21.0 million in 1995 and $14.9 million in 1994. The smaller amount of cash flow
from operations in 1994 compared to 1995 was due to significantly higher
payments of losses and LAE in that year. The Company believes that the greater
amount of paid claims and LAE in 1994 was the result of accelerated payout
patterns due principally to developments in California's "fast-track" rules and
changes in the Company's claims management procedures, emphasizing early
resolution of claims. The Company believes that the trend in accelerated payout
patterns may, over time, favorably impact results of operations, as claims
settled relatively quickly may result in lower losses and LAE. Any such
reductions in loss and LAE payments, however, may be offset entirely or
partially by lower investment income, as loss and LAE reserves are held for
shorter periods.

The Company invests its positive cash flow from operations in both fixed
maturity securities and equity securities. A change in SCPIE's investment
philosophy in 1993 resulted in an increase in the purchase of equity securities
and a reduction in the purchase of fixed maturity securities. The Company's
current policy is to limit its investment in equity securities and real estate
to no more than 8.0% of the total market value of its investments. Accordingly,
the SCPIE portfolio of unaffiliated equity securities was reduced from $61.1
million at December 31, 1995 to less than $21.0 million at June 30, 1996. The
Company plans to continue this focus on fixed maturity securities investments
for the indefinite future. The Company has made limited investments in real
estate, which is used almost entirely in the Company's operating activities,
with the remainder leased to third parties.

The Company maintains a portion of its investment portfolio in high
quality, short-term securities to meet short-term operating liquidity
requirements, including the payment of losses and LAE. Short-term investments
totalled $27.8 million, or 4.0% of invested assets at December 31, 1995. The
Company believes that all of its short-term and fixed maturity securities are
readily marketable.

SCPIE Holdings is an insurance holding company whose assets consist of all
of the capital stock of the Insurance Subsidiaries and, following the Offering,
will include a portion of the net proceeds of the Offering. Its principal
sources of funds will be dividends from its subsidiaries and proceeds from the
issuance of debt and equity securities. The Insurance Subsidiaries are
restricted by state regulation in the amount of dividends they can pay in
relation to earnings or surplus, without the consent of the applicable state
regulatory authority. See "Business -- Regulation -- Regulation of Dividends
from Insurance Subsidiaries." SCPIE Holdings' direct subsidiary, SCPIE
Indemnity, may pay dividends to SCPIE Holdings in any year, without regulatory
approval, to the extent of the greater of (i) 10% of its statutory surplus at
the end of the preceding year or (ii) its net income for the preceding year. If
SCPIE had been a stock insurer on December 31, 1995, the amount of dividends it
would be able to pay during 1996 without approval from the California Insurance
Department would have been approximately $23.5 million.

Based on historical trends, market conditions and its business plans, the
Company believes that its sources of funds will be sufficient to meet its
liquidity needs over the next 18 months and beyond. However, because economic,
market and regulatory conditions may change, there can be no assurance that the
Company's sources of funds will be sufficient to meet these liquidity needs. The
short- and long-term liquidity requirements of the Company may vary because of
the uncertainties regarding the settlement dates for unpaid claims.

The Company has no planned material expenditures for property or equipment.

EFFECT OF INFLATION

The primary effect of inflation on the Company is considered in pricing and
estimating reserves for unpaid losses and LAE for claims in which there is a
long period between reporting and settlement, such as medical malpractice
claims. The actual effect of inflation on the Company's results cannot be
accurately known until claims are ultimately settled. Based on actual results to
date, the Company believes that loss and LAE reserve levels and the Company's
ratemaking process adequately incorporate the effects of inflation.

22
<PAGE> 25

BUSINESS
OVERVIEW

The Company's total revenues and net income were $93.7 million and $19.9
million, respectively, for the year ended December 31, 1995 and were $54.9
million and $13.7 million, respectively, for the six months ended June 30, 1996.
As of June 30, 1996, the Company had $786.6 million of total assets and $264.8
million of total equity.

Medical malpractice insurance, or medical professional liability insurance,
insures the physician, hospital or other healthcare provider against liabilities
arising from the rendering of, or failure to render, professional medical
services. Under the typical medical malpractice insurance policy, the insurer
also defends the insured against potentially covered claims. Based on data
compiled by A.M. Best, in 1994, total medical malpractice premiums in the United
States exceeded $5.8 billion. In California, the second largest market for
medical malpractice insurance based on premiums written, more than $557.0
million of medical malpractice premiums were written in 1994. The Company's
share of the medical malpractice premiums written in California in 1994 was
approximately 21%. The Company's market share is substantially higher in
Southern California where more than 95% of the Company's insureds are located.

The Company believes that its leading market share for medical malpractice
insurance in California is in large part due to the loyalty of its insured
physicians. The Company attributes this loyalty to the high quality,
personalized service it provides and its traditional focus on the California
physician marketplace. The medical malpractice insurance offered by the Company
has been endorsed by twelve county medical associations and specialty societies
in California.

The Company has taken the following steps to implement its strategy:

23
<PAGE> 26

PRODUCTS

SCPIE underwrites professional and related liability policy coverages for
physicians (including oral and maxillofacial surgeons), physician medical groups
and clinics, hospitals, managed care organizations and other providers in the
healthcare industry. The following table summarizes, by product, the direct
premiums written by the Company for the periods indicated:

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------
1996 1995 1995 1994 1993
------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Physician and medical group
liability:
Physician and medical group
standard professional
liability.................... $59,121 $60,251 $116,894 $116,425 $110,154
Special risk physicians......... 769 181 674 261 164
Emergency medicine program...... 294 275 596 322 113
Urgent care centers............. 119 104 224 263 226
------- ------- -------- -------- --------
Subtotal medical liability... 60,303 60,811 118,388 117,271 110,657
Excess personal liability....... 416 456 877 957 1,012
------- ------- -------- -------- --------
Subtotal physician and
medical group liability.... 60,719 61,267 119,265 118,228 111,669
Hospital liability................ 1,171 528 2,103 960 --
Healthcare provider liability..... 399 351 757 800 790
Managed care organization errors
and omissions................... 182 34 105 -- --
Directors and officers
liability....................... 188 36 47 36 --
------- ------- -------- -------- --------
Total........................... $62,659 $62,216 $122,277 $120,024 $112,459
======= ======= ======== ======== ========
</TABLE>

24
<PAGE> 27

An affiliated insurance agency allows the Company to meet a wide range of
insurance needs of its customers by offering, on a brokerage basis, coverages
not underwritten by SCPIE, including a comprehensive property protection program
and stop loss insurance related to the provision of managed care services. The
Company intends, in the future, to directly underwrite its own property lines as
part of its overall strategy to meet the principal insurance needs of healthcare
providers.

Physician and Medical Group Liability. SCPIE offers separate policy forms
for physicians who are sole practitioners and for those who practice as part of
a medical group or clinic. The policy issued to sole practitioners includes
coverage for professional liability that arises in the medical practice and also
for certain other "premises" liabilities that may arise in the non-professional
operations of the medical practice, such as slip and fall accidents, and a
limited defense reimbursement benefit for proceedings by governmental
disciplinary boards. The professional liability insurance for sole practitioners
and for medical groups provides protection against the legal liability of the
insureds for such things as injury caused by or as a result of the performance
of patient treatment, failure to treat and failure to diagnose.

The policy issued to medical groups and their physician members includes
not only professional liability coverage and defense reimbursement benefits, but
also substantially more comprehensive coverages for commercial general liability
and employee benefit program liability and also provides a small medical
payments benefit to injured persons. The comprehensive general liability
coverage included in the medical group policy does not exclude coverage for
certain employment related liabilities and for pollution, which are normally
excluded under a standard commercial general liability form. SCPIE also offers,
as part of its standard policy forms for both sole and group practitioners,
optional excess personal liability for the insured physicians. Excess personal
liability insurance provides coverage to the physician for personal liabilities
in excess of amounts covered under the physician's homeowners and automobile
policies.

The professional liability coverages are issued primarily on a "claims made
and reported" basis. Coverage is provided for claims reported to the Company
during the policy period arising from incidents that occurred at any time the
insured was covered by the policy. The Company also offers "tail coverage" for
claims reported after the expiration of the policy for occurrences during the
coverage period. The price of the tail coverage is based on the length of time
the insured has been covered under the Company's claims made and reported form.
SCPIE provides free tail coverage for insured physicians who die or become
disabled during the coverage period of the policy and those who have been
insured by SCPIE for at least five consecutive years and retire completely from
the practice of medicine. Free tail coverage is automatically provided to
physicians with at least five consecutive years of coverage who are also at
least 65 years old.

Comprehensive general liability coverage for medical groups and clinics and
the excess personal liability insurance is underwritten on an occurrence basis.
Under occurrence coverage, the coverage is provided for incidents that occur at
any time the policy is in effect, regardless of when the claim is reported. With
occurrence coverage, there is no need to purchase tail coverage.

The Company offers limits of insurance up to $5.0 million per claim or
occurrence, with up to a $10.0 million aggregate policy limit for all claims
reported or occurrences for each calendar year or other 12-month policy period.
The most common limit is $1.0 million per claim or occurrence, subject to a $3.0
million aggregate policy limit. The Company's limit of liability under the
excess personal liability insurance coverage is $1.0 million per occurrence with
no aggregate limit. The defense reimbursement benefit for governmental
disciplinary proceedings is $25,000, and the medical payments benefit for
persons injured in non-professional activities is $10,000.

25
<PAGE> 28

The following table summarizes the Company's physician and medical group
professional liability direct premiums written for the year ended December 31,
1995:

<TABLE>
<CAPTION>
DIRECT
PREMIUMS PERCENTAGE
GROUP SIZE WRITTEN OF TOTAL
---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Sole practitioner physicians..................... $ 73,436 62.0%
Group with less than five physicians............. 17,322 14.6
Group with five through eight physicians......... 8,890 7.5
Group with nine or more physicians............... 18,740 15.9
-------- -----
Total.................................. $118,388 100.0%
======== =====
</TABLE>

Hospital Liability. The Company writes primary liability insurance on both
a claims made and reported basis and a modified occurrence basis that in effect
includes tail coverage for up to seven years after the policy terminates. The
policy issued to hospitals provides protection for professional liabilities
related to the operation of a hospital and its various staff committees,
together with the same comprehensive general liability, medical payments and
employee benefit program liability coverages included in the policy for large
medical groups. The limits of coverage under the hospital policies issued by
SCPIE, net of reinsurance, are $500,000 for each claim or occurrence, with no
aggregate limit.

Healthcare Provider Liability. SCPIE offers its professional liability
coverage to a variety of specialty provider organizations, including hospital
emergency departments, outpatient surgery centers, medical urgent care
facilities and hemodialysis, clinical and pathology laboratories. These policies
include the standard professional liability coverage provided to physicians and
medical groups, with certain modifications to meet the special needs of these
healthcare providers. The policies are generally issued on a claims made and
reported basis with the limits of liability up to those offered to larger
medical groups. The limits of coverage under the current healthcare provider
policies issued by SCPIE are between $1.0 million and $5.0 million per incident,
subject to $3.0 million to $10.0 million aggregate policy limits.

Managed Care Organization Errors and Omissions. SCPIE has recently
introduced a policy for managed care organizations that provides coverage for
liability arising from the errors and omissions in managed care operations, for
the vicarious liability of a managed care organization for the acts or omissions
of non-employed physician providers and for liability of directors and officers
of a managed care organization. These policies are generally issued on a claims
made and reported basis. The annual aggregate limits of coverage under the
current managed care organization policies issued by SCPIE are between $1.0
million and $5.0 million.

Directors and Officers Liability. The Company historically has brokered
directors and officers liability coverage through its affiliated agency, which
will become a wholly owned subsidiary of the Company after the Reorganization.
This agency produced approximately $293,000, $271,000 and $240,000 in premiums
for other insurers in 1995, 1994 and 1993, respectively. In 1995, the Company
directly wrote one directors and officers liability policy, accounting for
approximately $47,000 of direct premiums written. Currently, the Company is
seeking to write renewals of the business it produced for other insurers and is
marketing its product to prospective new insureds. The directors and officers
liability policies are generally issued on a claims made and reported basis. The
limits of coverage on directors and officers liability policies written by SCPIE
are between $1.0 million and $5.0 million.

MARKETING AND POLICYHOLDER SERVICES

The Company markets directly to its insureds through a marketing
organization with approximately 25 employees providing sales solicitation and
communications services. SCPIE markets to sole practitioner physicians and other
prospective policyholders through its relationships with medical associations,
referrals by existing policyholders, advertisements in medical journals, the
presentation of seminars on timely topics for physicians, telemarketing and
direct mail solicitation to licensed physicians and members of specialty group
organizations. SCPIE attracts new physicians through special rates for medical
residents and discounts for physicians just entering medical practice. In
addition, SCPIE

26
<PAGE> 29

participates as a sponsor and participant in various medical group and hospital
administrators' programs, medical association and specialty society conventions
and similar programs. The Company believes that this personal, comprehensive
approach to marketing is essential to providing professional liability
insurance, where special knowledge and experience is a prerequisite.

The SCPIE professional liability program is endorsed by ten Southern
California county medical associations and the statewide associations of oral
and maxillofacial surgeons and osteopathic physicians. SCPIE considers these
endorsements to be helpful in its marketing efforts. The county medical
associations also perform certain limited information verification services for
SCPIE.

SCPIE commenced marketing its own hospital professional liability policies
during 1994 and currently underwrites coverage for six hospitals. In August
1995, SCPIE entered into an agreement with SKA, one of the leading insurance
brokers of hospital and large medical group coverages in the Western United
States. SKA has historically offered competing programs, including a
well-established hospital professional liability insurance program for a large
insurance group which involved approximately 600 healthcare entities and which
generated more than $80.0 million of malpractice insurance premiums in 1995.
Following the recent termination by the insurance group of this relationship,
SKA and SCPIE are actively working to obtain all or a significant portion of
this business for SCPIE. In addition, SKA has the exclusive right to market
SCPIE's malpractice coverage for hospitals in all states and medical group
coverage in all states other than California, and SCPIE has the exclusive right
to underwrite such business generated by SKA. The Company believes that its
marketing relationship with SKA will provide (i) a significant advantage in
marketing to hospitals and other healthcare entities and (ii) a cost-effective
means of entering new geographic markets. Through June 30, 1996, the Company had
issued one policy through SKA. SKA is responsible for marketing and the
collection and remittance of premiums. SCPIE provides all claims management
under this agreement. Both SCPIE and SKA participate in account servicing,
including the providing of risk management services.

SCPIE also has a policyholder services department that provides account
information to all insureds and maintains relationships with the small medical
groups and sole practitioners insured by SCPIE. Each of these smaller insureds
has a designated client service representative who can answer most inquiries
and, in other instances, can provide the insured with immediate access to the
person with expertise in a particular department. For hospitals and large and
mid-size medical groups, SCPIE has an account manager assigned to each group who
heads a service team comprised of underwriting, risk management and claims
management representatives, each of whom may be contacted directly by the
policyholder for prompt response. SCPIE also provides online computer access to
the large groups and hospitals so that loss and LAE information can be accessed
immediately.

SCPIE provides comprehensive risk management services designed to heighten
its insureds' awareness of situations giving rise to potential loss exposures,
to educate its insureds as to ways to improve their medical practice procedures,
and to assist its insureds in implementing risk modification measures. The
Company maintains a 24-hour hotline to provide immediate access to its risk
management personnel. SCPIE conducts surveys for hospitals and large medical
groups both to review their practice procedures generally and to focus on
specific areas in which there may be some concern. Complete reports that specify
areas of the insured's medical practice that may need attention are provided to
the policyholder. SCPIE also provides an annual program review for each of its
medical groups. SCPIE presents periodic seminars and evening "town hall"
meetings at medical societies at which pertinent subjects are presented. SCPIE
risk management representatives also regularly participate in programs presented
by healthcare related societies. These educational offerings are designed to
increase risk awareness and the effectiveness of various healthcare
professionals. Additionally, the Company provides risk management and claims
administration services to certain entities on a fee-for-service basis.

UNDERWRITING

The underwriting department consists of a vice president in charge of
underwriting, an assistant underwriting manager, six other underwriters and five
technical and administrative assistants. Certain of these underwriters
specialize in underwriting hospitals, managed care organizations and directors
and officers liability products. The Company's underwriting department is
responsible for the evaluation of

27
<PAGE> 30

applicants for professional liability and other coverages, the issuance of
policies and the establishment and implementation of underwriting standards for
all of the coverages underwritten by SCPIE.

The Company follows a strict procedure with respect to the issuance of all
physician professional liability policies. Each applicant or member of an
applicant medical group is required to complete a detailed application that
provides a personal and professional history, the type and nature of the
applicant's professional practice, certain information relating to specific
practice procedures, hospital and professional affiliations and a complete
history of any prior claims and incidents. The application is forwarded to the
county medical association for verification of educational and professional
information. The Company performs its own independent verification of these
matters and conducts an investigation to determine if there are any lawsuits
that may not have been disclosed in the application.

SCPIE performs a continuous process of reunderwriting its insured
physicians. Information concerning physicians with large losses, a high
frequency of claims or unusual practice characteristics is developed through
online claims and risk management reports. Each year, SCPIE also sends current
practice questionnaires to approximately 15% of its insured physicians. These
questionnaires request information similar to that submitted in connection with
the physician's original application for insurance, and are designed to detect
any changes in the specialty or practice characteristics of the physician that
may require a higher or lower premium rate or possible removal from the program.

The underwriting department submits all recommendations for premium
surcharges or non-renewal to the underwriting committee of SCPIE, which is
comprised solely of physicians many of whom are insureds or retired insureds of
the Company and members of the Board of Directors. Members of the committee are
not employees of the Company, but receive compensation for their services on the
committee. Physicians have the right to seek reconsideration of surcharges from
the committee. SCPIE has found that physician interchange with the committee is
often helpful in improving the practice characteristics of the insured.

Although SKA performs the principal hospital marketing functions for the
Company, SCPIE makes all underwriting and rating decisions on this and all of
its direct business. Each hospital is required to submit an application that
provides detailed information on operations, financial position and risk
factors. The Company reviews loss experience for at least the past five years,
prior insurance policies and endorsements, financial reports and reports from
the principal accreditation agencies for the hospital industry. Risk management
surveys are performed as needed to supplement this information.

RATES AND DIVIDENDS

SCPIE establishes, through its own actuarial staff and independent
actuaries, rates and rating classifications for its physician and medical group
insureds based on the loss and LAE experience it has developed over the past 20
years and upon rates charged by its competitors. The Company has various rating
classifications based on practice location, medical specialty and other factors.
SCPIE utilizes various discounts, including discounts for part-time practice,
physicians just entering medical practice and large medical groups. SCPIE has
developed a special risk program for physicians who have unfavorable loss
history or practice characteristics, but whom SCPIE considers insurable.
Policies issued in this program have significant surcharges. SCPIE has
established its premium rates and rating classifications for hospitals and
managed care organizations utilizing data publicly filed by other insurers. The
data for managed care organization errors and omissions liability is extremely
limited, as tort exposures for these organizations are only recently beginning
to develop. All rates for liability insurance in California are subject to the
prior approval of the Insurance Commissioner.

SCPIE instituted annual average rate increases of 4.4%, 8.9%, 9.2% and 7.3%
in 1996, 1995, 1994 and 1993, respectively, on its physician professional
liability policies in order to improve its underwriting results. These rate
increases have been higher than those implemented by most of its competitors.
The number of policyholders insured by the Company has declined by a small
percentage in each of these years, in part due to these rate increases, but the
Company has realized a modest increase in its premium volume and has improved
its underwriting results. See "Risk Factors -- Competition" and "Manage-

28
<PAGE> 31

ment's Discussion and Analysis of Financial Condition and Results of
Operations -- General -- Competitive Environment."

The Company paid dividends of $9.5 million, $11.2 million and $18.6 million
in 1995, 1994 and 1993, respectively, in the form of premium credits. Such
dividends were paid primarily to insureds who were members of the Exchange in
1990 and prior years and were based primarily on underwriting results in such
years. After the Reorganization, the Company will cease paying such dividends to
its policyholders. Therefore, the Company may find it more difficult to compete
with other insurance companies offering such dividends.

CLAIMS

The claims department of the Company is responsible for claims
investigation, establishment of appropriate case reserves for loss and LAE,
defense planning and coordination, control of attorneys engaged by the Company
to defend a claim and negotiation of the settlement or other disposition of a
claim. Under most of the Company's policies, except managed care organization
errors and omissions policies and directors and officers liability policies, the
Company is obligated to defend its insureds, which is in addition to the limit
of liability under the policy. Medical malpractice claims often involve the
evaluation of highly technical medical issues, severe injuries and conflicting
expert opinions. In almost all cases, the person bringing the claim against the
physician is already represented by legal counsel when SCPIE learns of the
potential claim.

The claims department staff includes managers, litigation supervisors,
investigators and other experienced professionals trained in the evaluation and
resolution of medical professional liability and general liability claims. The
claims department staff consists of approximately 48 employees, including twelve
clerical personnel. SCPIE has five unit managers responsible for specific
geographic areas, and additional units for specialty areas such as hospitals,
birth injuries and policy coverage issues. The Company also occasionally uses
independent claims adjusters, primarily to investigate claims in remote
locations. SCPIE selects legal counsel from among a group of law firms in the
geographic area in which the action is filed.

California has adopted a standard of judicial administration that requires
its trial courts to set goals to dispose of 90% of all cases within twelve
months after filing and 100% of cases within 24 months. The courts in the
various counties in which SCPIE defends claims have sought to comply with these
"fast-track" standards during the past few years. The effect of this change has
been significant. Before this requirement was implemented, cases in certain
counties did not proceed to trial for many years after filing. The claims
department staff now must make earlier evaluations and reserve estimates,
authorize discovery expenses early in the litigation process and be prepared to
settle the case or proceed to trial within one year.

SCPIE emphasizes early evaluation and aggressive management of claims.
Claims department professionals complete a full evaluation and reserving of
claims under "fast-track" within six months of the filing of a claim and on all
other cases within twelve months after filing. The Company has established
different levels of authority within the claims department for approval of
reserves and settlement of claims. SCPIE has a claims committee comprised solely
of physicians which meets bi-monthly with the vice president in charge of claims
and other claims managers to consider and evaluate cases that have complex
medical issues and subject the Company to large exposures. At June 30, 1996, the
Company had 3,368 open claims.

SCPIE vigorously defends its insureds against claims, but seeks to resolve
expediently cases with high exposure potential. The defense of a medical
professional liability claim requires significant cooperation between the
litigation supervisor or claims department manager responsible for the claim and
the insured physician. California law requires that a medical professional
liability claim cannot be settled for an amount in excess of $30,000 without the
consent of the physician insured. California law further requires that the
insurer report all such settlements to a medical disciplinary board, and Federal
law requires that any claim payment, regardless of amount, be reported to a
national data bank which can

29
<PAGE> 32

be accessed by various state licensing and disciplinary boards and medical peer
evaluation committees. Thus, the physician is often placed in a difficult
position of knowing that a settlement may result in the initiation of a
disciplinary proceeding or some other impediment to the physician's ability to
practice. The claims department supervisor must be able to fully evaluate
considerations of settlement or trial and to communicate effectively SCPIE's
recommendation to its insured. If the insured will not consent to a settlement
offer, the Company may be exposed to a larger judgment if the case proceeds to
trial.

The claims department staff utilizes structured settlements to resolve
certain large claims. In a structured settlement, the Company will typically
purchase an annuity from another insurance company that will satisfy periodic
payments owed to the claimant as part of the settlement. The Company typically
obtains a release from the claimant for its insured and itself and assigns the
annuity to a third party for payment. The Company purchased annuities during the
early 1980s from a life insurance company that subsequently became insolvent and
could not satisfy its obligations. In some instances, SCPIE has concluded that
it is obligated to satisfy any shortfall in these periodic payments and is
making these shortfall payments. The Company has established a reserve to cover
these expected shortfall obligations. See Note 8 of Notes to Combined Financial
Statements.

LOSS RESERVES

The determination of loss reserves is a projection of ultimate losses
through an actuarial analysis of the claims history of the Company and other
professional liability insurers, subject to adjustments deemed appropriate to
the Company due to changing circumstances. Included in its claims history are
losses and LAE paid by the Company in prior periods and case reserves for
anticipated losses and LAE developed by the Company's claims department as
claims are reported and investigated. Actuaries rely primarily on such
historical loss experience in determining reserve levels on the assumption that
historical loss experience provides a good indication of future loss experience
despite the uncertainties in loss cost trends and the delays in reporting and
settling claims. As additional information becomes available, the estimates
reflected in earlier loss reserves may be revised. Any increase in the amount of
reserves, including reserves for insured events of prior years, could have an
adverse effect on the Company's results for the period in which the adjustments
are made.

The uncertainties inherent in estimating ultimate losses on the basis of
past experience have grown significantly in recent years principally as a result
of judicial expansion of liability standards and expansive interpretations of
insurance contracts. These uncertainties may be further affected by, among other
factors, changes in the rate of inflation and changes in the propensities of
individuals to file claims. The inherent uncertainty of establishing reserves is
relatively greater for companies writing long-tail casualty insurance, including
medical malpractice insurance, due primarily to the longer-term nature of the
resolution of claims.

The Company utilizes both its internal actuarial staff and independent
actuaries in establishing its reserves. The Company's independent actuaries
review the Company's reserves for losses and LAE at the end of each fiscal year
and prepare a report that includes a recommended level of reserves. The Company
considers this recommendation as well as other factors, such as known,
anticipated or estimated changes in frequency and severity of claims, loss
retention levels and premium rates, in establishing the amount of its reserves
for losses and LAE. The Company continually refines reserve estimates as
experience develops and further claims are reported and settled. The Company
reflects adjustments to reserves in the results of the periods in which such
adjustments are made. Since medical malpractice insurance is a long-tail line of
business for which the initial loss and LAE estimates may be adversely impacted
by events occurring long after the reporting of the claim, such as sudden severe
inflation or adverse judicial or legislative decisions, SCPIE has attempted to
establish its loss and LAE reserves at the upper end of a reasonable range of
reserve estimates.

30
<PAGE> 33

SCPIE's loss reserve experience is shown in the following table, which sets
forth a reconciliation of beginning and ending reserves for unpaid losses and
LAE for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserves for losses and LAE at
beginning of period............... $466,187 $468,743 $468,743 $490,773 $492,004
Less reinsurance recoverables....... 19,560 19,177 19,177 18,644 26,580
-------- -------- -------- -------- --------
Net reserves for losses and LAE at
beginning of period............... 446,627 449,556 449,566 472,129 465,424
-------- -------- -------- -------- --------
Provision for losses and LAE for
claims, net of reinsurance,
occurring in:
The current period................ 86,160 89,203 175,856 169,143 168,784
Prior periods(1).................. (27,913) (31,670) (57,833) (60,423) (43,430)
-------- -------- -------- -------- --------
Total incurred losses and LAE..... 58,247 57,533 118,023 108,720 125,354
-------- -------- -------- -------- --------
Less loss and LAE payments for
claims, net of reinsurance,
occurring in:
The current period................ 1,257 988 11,481 10,178 12,971
Prior periods..................... 51,305 59,538 109,481 121,105 105,678
-------- -------- -------- -------- --------
Total payments.................... 52,562 60,526 120,962 131,283 118,649
-------- -------- -------- -------- --------
Net reserves for losses and LAE at
end of period..................... 452,312 446,573 446,627 449,566 472,129
Add reinsurance recoverables........ 22,086 17,112 19,560 19,177 18,644
-------- -------- -------- -------- --------
Reserves for losses and LAE at end
of period......................... $474,398 $463,685 $466,187 $468,743 $490,773
======== ======== ======== ======== ========
</TABLE>

- ---------------

(1) Consists of a reduction in estimated losses and LAE for prior years of $52.0
million at June 30, 1995 and $81.7 million at December 31, 1995 and an
increase in prior years' reserves for free tail coverage provided by the
Company in the amount of $20.3 million at June 30, 1995 and $23.9 million at
December 31, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- Year Ended
December 31, 1995 Compared to Year Ended December 31, 1994 -- Losses and
LAE."

31
<PAGE> 34

The following table reflects the development of losses and LAE reserves for
the periods indicated at the end of that year and each subsequent year. The
first line shows the reserves, net of reinsurance recoverables, as originally
reported at the end of the stated year. Each calendar year-end reserve includes
the estimated unpaid liabilities for that report or accident year and for all
prior report or accident years. The section under the caption "Liability
reestimated as of" shows the original recorded reserve as adjusted as of the end
of each subsequent year to reflect the cumulative amounts paid and all other
facts and circumstances discovered during each year. The line "Cumulative
redundancy" reflects the difference between the latest reestimated reserve
amount and the reserve amount as originally established. The section under the
caption "Cumulative amount of liability paid through" shows the cumulative
amounts paid related to the reserve as of the end of each subsequent year.

In evaluating the information in the table below, it should be noted that
each amount includes the effects of all changes in amounts of prior periods. For
example, if a loss determined in 1993 to be $100,000 was first reserved in 1985
at $150,000, the $50,000 redundancy (original estimate minus actual loss) would
be included in the cumulative redundancy in each of the years 1985 through 1995
shown below. This table presents development data by calendar year and does not
relate the data to the year in which the claim was reported or the accident
actually occurred. Conditions and trends that have affected the development of
these reserves in the past will not necessarily recur in the future.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loss and
LAE
reserves.. $218,988 $282,805 $329,369 $389,404 $412,679 $427,049 $439,908 $465,423 $472,129 $449,566 $446,627
Liability
reestimated
as
of:
One
year
later... 205,016 261,970 327,627 362,058 375,764 401,878 409,966 421,994 411,915 391,733
Two
years
later... 194,668 269,855 312,956 337,901 348,781 368,124 364,105 368,521 363,562
Three
years
later... 204,583 260,089 295,438 315,718 320,319 324,370 316,220 325,073
Four
years
later... 198,365 248,613 278,339 299,308 294,992 284,628 282,291
Five
years
later... 191,809 234,449 267,880 284,972 266,649 264,582
Six
years
later... 185,373 228,628 260,544 266,423 256,900
Seven
years
later... 180,714 229,152 249,644 262,642
Eight
years
later... 182,897 223,055 248,595
Nine
years
later... 181,127 222,460
Ten
years
later... 180,221
Cumulative
redundancy.. 38,767 60,345 80,774 126,762 155,779 162,467 157,617 140,350 108,567 57,833
Cumulative
amount
of
liability
paid
through:
One
year
later... 41,764 59,435 78,951 93,607 85,771 103,983 101,001 105,678 121,106 109,481
Two
years
later... 84,979 121,037 147,865 155,505 162,264 171,327 171,429 184,883 192,519
Three
years
later... 126,658 167,331 188,038 206,413 204,129 206,499 205,829 219,649
Four
years
later... 156,074 190,148 220,575 232,777 221,479 221,654 221,884
Five
years
later... 167,783 205,362 233,807 242,140 228,922 230,606
Six
years
later... 171,861 211,665 236,809 244,587 234,202
Seven
years
later... 173,446 214,314 238,105 248,319
Eight
years
later... 174,117 215,155 239,652
Nine
years
later... 174,699 215,647
Ten
years
later... 175,121
Net
reserves --
December
31..... $449,566 $446,627
Reinsurance
recoverables... 19,177 19,560
-------- --------
Gross
reserves... $468,743 $466,187
======== ========
</TABLE>

32
<PAGE> 35

SCPIE has historically experienced favorable loss and LAE reserve
development. The Company believes that the favorable loss and LAE reserve
development since 1985 has resulted from four factors: (i) SCPIE's conservative
approach to establishing reserves for medical malpractice insurance losses and
LAE; (ii) the continuing benefits from MICRA, the California tort reform
legislation that was declared constitutional in a series of decisions by the
California Supreme Court in the mid-1980s; (iii) benefits from California's
"fast-track" legislation; and (iv) improved results from a restructuring of
SCPIE's internal claims process. See "-- Regulation -- Medical Malpractice Tort
Reform" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General." The Company believes, based on its analysis
of annual statements filed with state regulatory authorities, that its principal
California competitors have experienced similar favorable loss and LAE reserve
development in past years.

General liability losses have been less than 2.9% of medical malpractice
losses in the last five years. The Company does not have material reserves for
pollution claims and the Company's claims experience for pollution coverage has
been negligible.

While the Company believes that its reserves for losses and LAE are
adequate, there can be no assurance that the Company's ultimate losses and LAE
will not deviate, perhaps substantially, from the estimates reflected in the
Company's financial statements. If the Company's reserves should prove
inadequate, the Company will be required to increase reserves, which could have
a material adverse effect on the Company's financial condition or results of
operation.

REINSURANCE

Reinsurance Ceded. SCPIE follows customary industry practice by reinsuring
a portion of its risks. SCPIE cedes to reinsurers a portion of its risks and
pays a fee based upon premiums received on all policies subject to such
reinsurance. Insurance is ceded principally to reduce net liability on
individual risks and to provide protection against large losses. Although
reinsurance does not legally discharge the ceding insurer from its primary
liability for the full amount of the policies reinsured, it does make the
reinsurer liable to the insurer to the extent of the reinsurance ceded. SCPIE
determines how much reinsurance to purchase based upon its evaluation of the
risks it has insured, consultations with its reinsurance brokers and market
conditions, including the availability and pricing of reinsurance. In 1995,
SCPIE ceded $8.5 million of its earned premiums to reinsurers.

SCPIE's reinsurance arrangements are generally placed through its exclusive
reinsurance broker, Willcox Incorporated Reinsurance Intermediaries. The Company
retains the first $1.0 million of loss incurred per incident and has various
reinsurance treaties covering losses in excess of $1.0 million up to $20.0
million per incident. Losses in excess of $20.0 million would be retained by the
Company. SCPIE often has more than one insured named as a defendant in a lawsuit
or claim arising from the same incident, and, therefore, multiple policies and
limits of liability may be involved. The Company's reinsurance program is
purchased in several layers, the limits of which may be reinstated under certain
circumstances at the Company's option subject to the payment of additional
premium. SCPIE also reinsures a portion of the reinstatement premiums under a
separate treaty, together with certain other miscellaneous liability exposures,
including retroactive liability for two insurance layers from several past years
and aggregate extension coverage which provides additional aggregate loss limits
for the layer $1.0 million excess of $1.0 million, each occurrence, for
specified years. The reinsurers also bear their proportionate share of loss
expenses for claims in which they have an indemnity obligation.

The Company has a separate quota share reinsurance treaty for 1996 with
respect to its managed care organization errors and omissions policies and any
directors and officers liability policies it may write. Under this treaty, the
reinsurers bear 80% of all losses and LAE incurred under these policies.

Reinsurance is placed under reinsurance treaties and agreements with a
number of individual companies and syndicates at Lloyd's of London ("Lloyd's")
to avoid concentrations of credit risk. The following table identifies the
Company's most significant reinsurers, their percentage participation in the
Company's aggregate reinsured risk based upon premiums paid by the Company and
their rating as of

33
<PAGE> 36

December 31, 1995. No other single reinsurer's percentage participation in 1995
exceeded 5% of total reinsurance premiums.

<TABLE>
<CAPTION>
PREMIUMS CEDED PERCENTAGE OF TOTAL
FOR YEAR ENDED REINSURANCE
DECEMBER 31, 1995 RATING(1) PREMIUMS
----------------- --------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Hannover Ruckversicherungs........ $ 2,389 A+ 30.6%
Lloyd's Syndicates................ 2,075 NR 26.5
Transatlantic Reinsurance Co...... 705 A+ 9.0
Eisen und Stahl
Ruckversicherungs............... 597 A+ 7.6
Swiss Reinsurance Co. U.S.
Branch.......................... 547 A+ 7.0
Zurich Reinsurance (UK) Ltd....... 417 BBB 5.3
Underwriters Reinsurance Co....... 408 A 5.2
------ -----
$ 7,138 91.2%
====== =====
</TABLE>

- ---------------

(1) All ratings are assigned by A.M. Best, except for Zurich Reinsurance (UK)
Ltd., which is a rating by Insurance Services International ("ISI"). The
Company's minimum requirement for ratings of its reinsurers is B or better
from A.M. Best and BB or better from ISI.

The Company analyzes the credit quality of its reinsurers and relies on its
brokers and intermediaries to assist it in such analysis. To date, the Company
has not experienced any material difficulties in collecting reinsurance
recoverables. No assurance can be given, however, regarding the future ability
of any of the Company's reinsurers to meet their obligations. Among the
reinsurers to which the Company cedes reinsurance are certain Lloyd's
syndicates. In recent years, Lloyd's has reported substantial aggregate losses
which have had adverse effects on Lloyd's in general and on certain syndicates
in particular. In addition, there has been a decrease in the underwriting
capacity of Lloyd's syndicates in recent years. The substantial losses and other
adverse developments could affect the ability of certain syndicates to continue
to trade and the ability of insureds to continue to place business with
particular syndicates. It is not possible to predict what effects the
circumstances described above may have on Lloyd's and the Company's contractual
relationship with Lloyd's syndicates in future years.

Reinsurance and Excess Liability Insurance Assumed. SCPIE assumes a small
amount of reinsurance covering medical professional liability risks primarily in
the United States. The principal reinsurance treaty, which has been in effect
since 1988, is with a Lloyd's syndicate. Under this surplus share treaty, the
Company assumes 50% of one or more layers of coverage above $1.0 million, which
must be retained by the primary insurer. The reinsured receives a ceding
commission and a profit share. The maximum amount of SCPIE's liability for any
one risk is $500,000, and SCPIE does not participate as a reinsurer in any of
its own policies. The annual premiums earned under this treaty have ranged from
$106,000 in 1989 to $674,000 in 1995. In 1996, this treaty will also include
reinsurance of excess layers of workers' compensation and clash casualty
liability risks. SCPIE's liability for any one risk is limited to $500,000 above
a $1.5 million layer assumed by other members of the syndicate.

The Company also entered into a reinsurance treaty for 1995 with Hannover
Ruckversicherungs ("Hannover Re"). The treaty is a quota share treaty, under
which SCPIE reinsures up to $500,000 for each physician medical malpractice
claim and up to $750,000 for each hospital professional liability claim on
policies or contracts with limits in excess of $2.0 million. The reinsured
receives an override commission and is required to retain not less than 20% of
the risk, subject to a minimum retention of $1.0 million. Premiums earned under
this treaty were $106,000 for 1995.

SCPIE is a participant in a program for which SKA is the exclusive broker
that provides excess liability insurance for approximately 700 healthcare
facilities throughout the United States. The program provides excess coverage in
various layers up to $40.0 million above a primary insurance layer of

34
<PAGE> 37

$500,000. SCPIE has assumed, as a reinsurer, a 2% share of each loss above
$500,000 up to $2.0 million and 3% of all losses in the higher layers of
coverage.

SCPIE has an indirect quota share participation in a reinsurance program of
Hannover Re that provides high layer excess of loss property catastrophe
coverage for international risks, other than in the United States and Japan.
SCPIE has participated in this program since 1994 through the purchase of a $5.0
million Credit Note issued by a limited liability company organized by Hannover
Re to underwrite a portion of this coverage. SCPIE purchased this note through
the issuance of a letter of credit, which can be drawn to cover SCPIE's
proportionate share of losses in this program. Interest on the note is based
upon profits, if any, of the limited liability company. The outstanding Credit
Note is held by SCPIE in its investment portfolio, and the amount of the letter
of credit is included in "Other Liabilities in the Combined Balance Sheets." See
"-- Investment Portfolio."

The Company intends to seek additional assumed reinsurance arrangements in
future years. The Company believes that as more managed care organizations and
integrated healthcare delivery systems retain a larger part of their own
exposure directly or through captive insurance arrangements, they will need to
obtain excess insurance or reinsurance for the potentially larger losses.

INVESTMENT PORTFOLIO

An important component of the Company's operating results has been the
return on its invested assets. Investments of the Company are made by investment
managers under policies established and supervised by the Board of Directors.
The Company's investment policy has placed primary emphasis on investment grade,
fixed maturity securities and maximization of after-tax yields. The investment
manager since 1978 for the portfolio of fixed maturity securities is Brown
Brothers Harriman & Co., and the investment manager for the equity securities
portion of the portfolio is Hotchkis & Wiley.

The following table sets forth the composition of the investment portfolio
of the Company at the dates indicated. All of the fixed maturity securities are
held as available-for-sale.

<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------- ---------------------- ----------------------
COST OR COST OR COST OR
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed maturity securities:
Bonds:
U.S. Government and
Agencies................. $334,341 $331,034 $304,091 $319,119 $300,131 $281,931
State, municipalities and
political subdivisions... 220,771 219,322 149,693 155,118 110,423 109,392
Mortgage-backed securities,
U.S. Government.......... 88,586 88,240 80,279 81,898 51,175 47,033
Corporate.................. 12,696 12,635 46,951 48,889 120,353 115,256
Other...................... 105 105 105 105 2,644 2,284
-------- -------- -------- -------- -------- --------
Total bonds........... 656,499 651,336 581,119 605,129 584,726 555,896
Redeemable preferred stock... -- -- 996 1,026 3,018 3,018
-------- -------- -------- -------- -------- --------
Total fixed maturity
securities.......... 656,499 651,336 582,115 606,155 587,744 558,914
-------- -------- -------- -------- -------- --------
Equity securities:
Non-redeemable preferred
stock...................... -- -- -- -- 1,061 1,036
Common stock................. 15,099 20,491 49,396 61,083 42,228 45,404
-------- -------- -------- -------- -------- --------
Total equity
securities.......... 15,099 20,491 49,396 61,083 43,289 46,440
-------- -------- -------- -------- -------- --------
Total.......................... $671,598 $671,827 $631,511 $667,238 $631,033 $605,354
======== ======== ======== ======== ======== ========
</TABLE>

In February 1996, the Company sold all equity securities in the portfolio
with the exception of approximately $20.0 million of publicly traded common
stocks. The Board of Directors has adopted a

35
<PAGE> 38

policy that no more than 8% of the total market value of invested assets may be
held in equity securities and real estate.

The Company's investment portfolio of fixed maturity securities consists
primarily of intermediate-term, investment-grade securities. The Company's
investment policy provides that fixed maturity investments are limited to
purchases of investment-grade securities or unrated securities which, in the
opinion of a national investment advisor, should qualify for such rating. The
table below contains additional information concerning the investment ratings of
the Company's fixed maturity investments at June 30, 1996:

<TABLE>
<CAPTION>
AMORTIZED FAIR PERCENTAGE OF
TYPE/RATING OF INVESTMENT(1) COST VALUE FAIR VALUE
---------------------------- --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
AAA (including U.S. Government and
Agencies)................................... $ 534,023 $529,490 81.3%
AA............................................ 78,323 77,504 11.9
A............................................. 39,048 39,237 6.0
Non rated(2).................................. 5,105 5,105 .8
-------- -------- -----
$ 656,499 $651,336 100.0%
======== ======== =====
</TABLE>

- ---------------

(1) The ratings set forth above are based on the ratings, if any, assigned by
Standard & Poor's Corporation ("S&P"). If S&P's ratings were unavailable,
the equivalent ratings supplied by Moody's Investors Services, Inc. were
used.

(2) Includes a credit note received from a catastrophe reinsurance limited
liability company controlled by Hannover Re with an amortized cost and fair
value of $5.0 million and redeemable preferred stock with an amortized cost
of $1.0 million and fair value of $1.0 million. See "-- Reinsurance."

The following table sets forth certain information concerning the
maturities of fixed maturity securities in the Company's investment portfolio as
of June 30, 1996:

<TABLE>
<CAPTION>
AMORTIZED FAIR PERCENTAGE OF
COST VALUE FAIR VALUE
--------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Years to maturity:
One or less................................. $ 13,637 $ 13,504 2.1%
After one through five...................... 118,488 118,530 18.2
After five through ten...................... 194,668 194,434 29.9
After ten................................... 241,120 236,628 36.3
Mortgage-backed securities.................... 88,586 88,240 13.5
-------- -------- -----
Totals.............................. $ 656,499 $651,336 100.0%
======== ======== =====
</TABLE>

The average maturity of the securities in the Company's fixed maturity
portfolio as of June 30, 1996 was 6.4 years. The average duration of the
Company's fixed maturity portfolio as of June 30, 1996 was 5.1 years.

The Company also maintains cash and highly liquid equivalent short-term
investments, which at June 30, 1996 totalled $20.3 million.

36
<PAGE> 39

The following table summarizes the Company's investment results for the
three years ended December 31, 1995 and for the six months ended June 30, 1996
and 1995.

<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
MONTHS ENDED AS OF OR FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
--------------------- ----------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FIXED MATURITY SECURITIES:
Average invested assets (includes short-
term cash investments)(1)............. $639,730 $612,653 $614,492 $614,005 $595,192
Net investment income:
Before income taxes................... 20,817 18,968 37,471 37,705 38,148
After income taxes.................... 14,845 13,344 26,481 26,379 27,017
Average annual return on investments:
Before income taxes................... 6.51% 6.19% 6.10% 6.14% 6.41%
After income taxes.................... 4.64% 4.36% 4.31% 4.30% 4.54%
Net realized investment gains after
income tax............................ $ 1,000 $ 1,655 $ 2,202 $ 165 $ 8,579
Net increase (decrease) in unrealized
gains on all fixed maturity
investments after income taxes........ (18,982) 25,781 34,366 (38,546) 8,276

EQUITY SECURITIES:
Average invested assets(2).............. $ 37,952 $ 47,123 $ 50,927 $ 43,338 $ 43,983
Net investment income:
Before income taxes................... 530 328 1,506 1,063 1,042
After income taxes.................... 480 306 1,189 972 952
Average annual return on investments:
Before income taxes................... 5.58% 2.79% 2.96% 2.45% 2.37%
After income taxes.................... 5.05% 2.60% 2.33% 2.24% 2.17%
Net realized investment gains after
income tax............................ $ 6,473 $ 1,390 $ 2,965 $ 191 $ 1,812
Net increase in unrealized gains on all
equity investments after income
taxes................................. (4,092) 3,257 5,548 1,618 4,028
</TABLE>

- ---------------

(1) Fixed maturity securities at cost.

(2) Equities at market.

COMPETITION

The physician professional liability insurance market in California is
highly competitive. The Company competes principally with three physician-owned
mutual or reciprocal insurance companies, Norcal Mutual Insurance Company, The
Doctors' Company and Medical Insurance Exchange of California, with several
commercial insurers, including CNA Insurance Companies and Fremont Indemnity
Company, and also with a physicians' mutual protection trust, Mutual Protection
Trust. The physician-owned insurance companies were organized at approximately
the same time as SCPIE and all of these companies have expanded their operations
in California. Each of these companies is actively engaged in soliciting
insureds in Southern California, SCPIE's primary area of operations, and each
has offered assessments or premiums at very competitive rates during the past
few years. The Company believes that the principal competitive factors, in
addition to pricing, include dividend policy, financial stability, breadth and
flexibility of coverage and the quality and level of services provided. In
addition, commercial insurance companies such as Farmers Group, Inc. and MMI
Companies, Inc. now actively compete for larger medical groups in the California
market, and companies endorsed by specialty medical societies are also entering
the market.

The Company believes that SCPIE's dividend policy has been an important
competitive factor in the past. On August , 1996, the Board of Governors
declared a dividend to its Members of $9.0 million which will be paid in the
form of premium credits in 1997. However, other than this $9.0 million dividend,
after the Reorganization, the Company will cease paying dividends in the form of
premium credits to its

37
<PAGE> 40

policyholders. Therefore, the Company may find it more difficult to compete with
other insurance companies offering such dividends. See "Risk
Factors -- Competition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General -- Policyholder Dividends."

The hospital professional liability insurance market is also extremely
competitive. Most of the Company's principal insurance company competitors for
physicians and medical groups, as well as a hospital industry sponsored captive
insurance company, actively compete in the hospital professional liability
insurance market. The largest writer of malpractice insurance for hospitals in
California is an affiliate of Farmers Group, Inc., which until recently
underwrote its coverage through SKA. The Company believes that the Company's
current relationship with SKA will enable it to expand its hospital
policyholders in California and other states.

The Company expects to encounter similar competition from local
doctor-owned insurance companies and commercial companies in other states as it
carries out its expansion plans. The Company plans to compete in other states
principally through its relationship with SKA and by offering superior
policyholder services. All markets in which the Company now writes insurance and
in which it expects to enter have certain competitors with substantially greater
financial and operating resources than the Company. See "Risk
Factors -- Competition."

REGULATION

General. Insurance companies are regulated by government agencies in states
in which they transact insurance. The extent of regulation varies by state, but
such regulation usually includes: (i) regulating premium rates and policy forms;
(ii) setting minimum capital and surplus requirements; (iii) regulating guaranty
fund assessments; (iv) licensing companies and agents; (v) approving accounting
methods and methods of setting statutory loss and expense reserves; (vi) setting
requirements for and limiting the types and amounts of investments; (vii)
establishing requirements for the filing of annual statements and other
financial reports; (viii) conducting periodic statutory examinations of the
affairs of insurance companies; (ix) approving proposed changes of control; and
(x) limiting the amounts of dividends that may be paid without prior regulatory
approval. Such regulation and supervision are primarily for the benefit and
protection of policyholders and not for the benefit of investors.

The Company has written all of its insurance in California, and SCPIE
Indemnity will be domiciled in that state. California laws and regulations,
including the tort liability laws, and laws relating to professional liability
exposures and reports, have the most significant impact on the Company and its
operations.

Insurance Guaranty Associations. Most states, including California, require
admitted property and casualty insurers to become members of insolvency funds or
associations which generally protect policyholders against the insolvency of
such insurers. Members of the fund or association must contribute to the payment
of certain claims made against insolvent insurers. Maximum contributions
required by law in any one year vary by state, and California permits a maximum
assessment of 1% of annual premiums written by a member in that state during the
preceding year. The largest assessment paid by SCPIE was $697,000 in 1994.
However, such payments are recoverable through policy surcharges.

Holding Company Regulation. SCPIE Holdings is subject to the California
Insurance Holding Company System Regulatory Act (the "Holding Company Act"). The
Holding Company Act requires the Company periodically to file information with
the Department of Insurance of the State of California ("California Department")
and other state regulatory authorities, including information relating to its
capital structure, ownership, financial condition and general business
operations. Certain transactions between an insurance company and its
affiliates, including sales, loans or investments which in any twelve-month
period aggregate at least 5% of its admitted assets or 25% of its statutory
capital and surplus, whichever is less, also are subject to prior approval by
the California Department.

The Holding Company Act also provides that the acquisition or change of
"control" of a California insurance company or of any person or entity that
controls such an insurance company cannot be consummated without the prior
approval of the Insurance Commissioner. There is legislation pending in
California which, if adopted, would require 30 days advance notice to the
California Department of a

38
<PAGE> 41

material transaction, rather than prior approval, and would increase the types
of transactions subject to the notice requirement. In general, a presumption of
"control" arises from the ownership of voting securities and securities that are
convertible into voting securities, which in the aggregate constitute 10% or
more of the voting securities of a California insurance company or of a person
or entity that controls a California insurance company, such as SCPIE Holdings.
A person or entity seeking to acquire "control," directly or indirectly, of the
Company is generally required to file with the Insurance Commissioner an
application for change of control containing certain information required by
statute and published regulations and provide a copy of the application to the
Company. The Holding Company Act also effectively restricts the Company from
consummating certain reorganizations or mergers without prior regulatory
approval.

The Company will also be subject to insurance holding company laws in other
states that contain similar provisions and restrictions.

Regulation of Dividends from Insurance Subsidiaries. The Holding Company
Act also limits the ability of SCPIE Indemnity to pay dividends to the Company.
Without prior notice to and approval of the Insurance Commissioner, SCPIE
Indemnity may not declare or pay an extraordinary dividend, which is defined as
any dividend or distribution of cash or other property whose fair market value
together with other dividends or distributions made within the preceding twelve
months exceeds the greater of such subsidiary's statutory net income of the
preceding calendar year or 10% of statutory surplus as of the preceding December
31. Applicable regulations further require that an insurer's statutory surplus
following a dividend or other distribution be reasonable in relation to its
outstanding liabilities and adequate to meet its financial needs, and permit the
payment of dividends only out of statutory earned (unassigned) surplus unless
the payment out of other funds is approved by the Insurance Commissioner. In
addition, an insurance company is required to give the California Department
notice of any dividend after declaration, but prior to payment.

The other Insurance Subsidiaries will be subject to similar provisions and
restrictions under the insurance holding company laws of other states.

Risk-Based Capital. The NAIC has developed a new methodology for assessing
the adequacy of statutory surplus of property and casualty insurers which
includes a risk-based capital ("RBC") formula that attempts to measure statutory
capital and surplus needs based on the risks in a company's mix of products and
investment portfolio. The formula is designed to allow state insurance
regulators to identify potentially under-capitalized companies. Under the
formula, a company determines its RBC by taking into account certain risks
related to the insurer's assets (including risks related to its investment
portfolio and ceded reinsurance) and the insurer's liabilities (including
underwriting risks related to the nature and experience of its insurance
business). The RBC rules provide for different levels of regulatory attention
depending on the ratio of a company's total adjusted capital to its "authorized
control level" of RBC. At December 31, 1995, SCPIE's RBC was $87.7 million,
exceeding the threshold requiring the least regulatory attention, which was
$39.4 million.

NAIC-IRIS Ratios. The NAIC Insurance Regulatory Information System ("IRIS")
was developed by a committee of state insurance regulators and is primarily
intended to assist state insurance departments in executing their statutory
mandates to oversee the financial condition of insurance companies operating in
their respective states. IRIS identifies twelve ratios for the property and
casualty insurance industry and specifies a range of "usual values" for each
ratio. Departure from the "usual value" range on four or more ratios may lead to
increased regulatory oversight from individual state insurance commissioners. In
1993, SCPIE had one ratio outside the usual value range, which resulted from a
large Proposition 103 refund. No ratios outside the usual value range resulted
in 1994 or 1995.

Regulation of Investments. The Insurance Subsidiaries are subject to state
laws and regulations that require diversification of their investment portfolios
and limit the amount of investments in certain investment categories such as
below investment grade fixed income securities, real estate and equity
investments. Failure to comply with these laws and regulations would cause
investments exceeding regulatory limitations to be treated as nonadmitted assets
for purposes of measuring statutory surplus

39
<PAGE> 42

and, in some instances, would require divestiture of such non-qualifying
investments over specified time periods unless otherwise permitted by the state
insurance authority under certain conditions.

Prior Approval of Rates and Policies. Pursuant to the California Insurance
Code, the Company must submit rating plans, rates, policies and endorsements to
the Insurance Commissioner for prior approval. The possibility exists that the
Company may be unable to implement desired rates, policies, endorsements, forms
or manuals if such items are not approved by the Insurance Commissioner. See
"Risk Factors -- Regulatory and Related Matters." In the past, all of the
Company's rate applications have been approved in the normal course of review.
The Company recently acquired two inactive insurance companies, one of which is
licensed in 44 states plus the District of Columbia and the other of which is
licensed in one state. The licenses will have to be modified in certain states
and certain rate filings will need to be made to permit the writing of medical
malpractice insurance.

Medical Malpractice Tort Reform. MICRA, enacted in 1975, has been one of
the most comprehensive medical malpractice tort reform measures in the United
States. MICRA currently provides for limitations on damages for pain and
suffering of $250,000, limitations on fees for plaintiffs' attorneys according
to a specified formula, periodic payment of medical malpractice judgments and
the introduction of evidence of collateral source benefits payable to the
injured plaintiff. The Company believes that this legislation has brought
stability to the medical malpractice insurance marketplace in California by
making it more feasible for insurers to assess the risks involved in
underwriting this line of business.

The constitutionality of the various provisions of MICRA were judicially
challenged soon after its enactment, and California trial courts and
intermediate appellate courts reached conflicting decisions. The California
Supreme Court, in a series of decisions rendered during 1984 and 1985, upheld
the constitutionality of MICRA. Bills have been introduced in the California
Legislature from time to time to modify or limit certain of the tort reform
benefits provided to physicians and other healthcare providers by MICRA. In
1987, the principal proponents and opponents of MICRA signed an agreement under
which the parties agreed to a five-year moratorium on amendments to MICRA,
except for an increase in the limits on plaintiffs' attorneys' fees, which was
enacted at the time of this agreement. This moratorium expired by its terms on
December 31, 1992. Neither the proponents or opponents have attempted to enact
significant changes since that time. The Company cannot predict what changes, if
any, to MICRA may be enacted during the next few years or what effect such
changes might have on the Company's medical malpractice insurance operations.

Medical Malpractice Reports. SCPIE is required to report detailed
information with regard to settlements or judgments against its California
physician insureds in excess of $30,000 to the Medical Board of California,
which has responsibility for investigations and initiation of proceedings
relating to professional medical conduct in California. In addition, all
payments must also be reported to the Federal National Practitioners' Data Bank
and such reports are accessible by state licensing and disciplinary authorities,
hospital and other peer review committees and other providers of medical care. A
California statute also requires that defendant physicians must consent to all
medical professional liability settlements in excess of $30,000, unless the
physician waives this requirement. The SCPIE policy provides the physician with
the right to consent to any such settlement, regardless of the amount, but that
the matter of consent may be submitted to a county medical review board by
either party. In virtually all instances, the Company must obtain the consent of
the insured physician prior to any settlement.

A.M. BEST RATING

A.M. Best, which rates insurance companies based on factors of concern to
policyholders, currently assigns SCPIE an "A (Excellent)" rating. Such rating is
the third highest rating of 13 ratings that A.M. Best assigns to solvent
insurance companies, which currently range from "A++ (Superior)" to "D (Very
Vulnerable)." Publications of A.M. Best indicate that the A rating is assigned
to those companies that in A.M. Best's opinion have a strong ability to meet
their obligations to policyholders over a long period of time. In evaluating a
company's financial and operating performance, A.M. Best reviews the company's
profitability, leverage and liquidity, as well as its book of business, the
adequacy and soundness of its reinsurance, the quality and estimated market
value of its assets, the adequacy of its loss reserves, the

40
<PAGE> 43

adequacy of its surplus, its capital structure, the experience and competence of
its management and its market presence. A.M. Best's ratings reflect its opinion
of an insurance company's financial strength, operating performance and ability
to meet its obligations to policyholders and are not evaluations directed to
purchasers of an insurance company's securities.

In June 1996, A.M. Best reduced the Company's rating from "A+ (Superior),"
citing significant uncertainty in the medical malpractice marketplace, caused,
in part, by evolving managed care issues, the Company's narrow product line and
geographic concentration, and intense competition and weakening premium rates in
the medical malpractice industry. A.M. Best similarly reduced the ratings of
three other medical malpractice insurance companies domiciled in California. See
"Risk Factors -- Importance of Ratings." A.M. Best also noted, however, the
Company's "strong capitalization, favorable loss reserve development and
leadership position in its principal market." No assurance can be given that
A.M. Best will not reduce its current rating of the Company in the future. The
Insurance Subsidiaries have entered into a pooling arrangement and each of the
Insurance Subsidiaries has been assigned the same "pooled" "A (Excellent)" A.M.
Best rating based on their consolidated performance.

EMPLOYEES

As of June 30, 1996, the Company employed 161 persons. None of the
employees is covered by a collective bargaining agreement. The Company believes
that its employee relations are good.

PROPERTIES

The Company is the owner of two office buildings, both located in Beverly
Hills, California. One building contains approximately 25,000 square feet of
office space and is used by the Company and its subsidiaries as a home office.
The other office building contains approximately 24,000 square feet, of which
the Company and its subsidiaries occupy approximately 17,000 square feet and the
remaining 7,000 square feet of space in this office building are leased to
unaffiliated persons. Both office buildings owned by the Company are currently
unencumbered. The Company leases office space for a claims office in San Diego,
California and a sales office in Oakland, California. The Company believes that
its office space is adequate for its present purposes and that it will be able
to secure additional office space in the future if necessary.

LITIGATION

The Company is a defendant in one material litigation, currently on appeal
by SCPIE in the California District Court of Appeal, in which an adverse
judgment was rendered for $4.21 million of compensatory damages and $14.0
million of punitive damages. The case involves an action against SCPIE by the
bankruptcy estate of an uninsured physician who incurred an adverse jury verdict
in a medical malpractice case. The physician's bankruptcy estate alleged that
SCPIE had an undisclosed conflict of interest when it provided the physician
with a free courtesy defense by an attorney who had represented the interests of
SCPIE insureds in other cases. The plaintiff in the malpractice action was an
infant who had suffered severe injuries at birth, and had obtained a judgment
against two SCPIE insured physicians as well as the uninsured physician. The
jury originally rendered a verdict that included $65.0 million in punitive
damages, which was reduced to $14.0 million by the trial judge. SCPIE believes
that the action is entirely without merit and plans to pursue aggressively its
rights on appeal.

The Company is from time to time named as a defendant in various lawsuits
incidental to its insurance business. In many of these actions, plaintiffs
assert claims for exemplary and punitive damages which are not insurable under
California judicial decisions. The Company vigorously defends these actions,
unless a reasonable settlement appears appropriate. The Company believes that
adverse results, if any, in the actions currently pending should not have a
material adverse effect on the Company's consolidated financial condition.

41
<PAGE> 44

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning the individuals who
serve as directors and executive officers of SCPIE Holdings:

<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Mitchell S. Karlan, M.D. Chairman of the Board
Donald J. Zuk President, Chief Executive Officer and Director
Patrick S. Grant Senior Vice President, Marketing
Joseph P. Henkes Senior Vice President, Operations and Actuarial
Services
Patrick T. Lo Vice President and Chief Financial Officer
Jack E. McCleary, M.D. Treasurer and Director
Wendell L. Moseley, M.D. Secretary and Director
Allan K. Briney, M.D. Director
Willis T. King, Jr. Director
Charles B. McElwee, M.D. Director
Donald P. Newell Director
Harriet M. Opfell, M.D. Director
William A. Renert, M.D. Director
Henry L. Stoutz, M.D. Director
Reinhold A. Ullrich, M.D. Director
</TABLE>

The Company's Board of Directors consists of twelve persons, divided into
three classes of directors and elected for staggered terms as follows: Class I,
comprised of four persons and elected for a term expiring at the 1997 Annual
Meeting of stockholders; Class II, comprised of four persons and elected for a
term expiring at the 1998 Annual Meeting of stockholders; and Class III,
comprised of four persons and elected for a term expiring at the 1999 Annual
Meeting of stockholders. Class I directors are Messrs. Briney, King, Ullrich and
Ms. Opfell. Class II directors are Messrs. Karlan, Moseley, McCleary and Newell.
Class III directors are Messrs. Zuk, McElwee, Renert and Stoutz. Following
expiration of the initial term as described above, directors will serve for
three-year terms.

Mitchell S. Karlan, M.D., 68, Chairman of the Board, was a member of the
Board of Governors of the Exchange from 1986 until the time of the
Reorganization. He has been a board-certified general surgeon in Beverly Hills,
California, for more than five years. He is a former President of the Los
Angeles County Medical Association ("LACMA"), a former Chairman of the LACMA's
Board of Trustees and a recent past member of the California Medical
Association's ("CMA") Board of Trustees.

Donald J. Zuk, 59, Director, has been President and Chief Executive Officer
of SCPIE Management Company since 1989. Prior to joining SCPIE Management
Company, he served 22 years with Johnson & Higgins, insurance brokers. His last
position there was Senior Vice President in charge of its Los Angeles Health
Care operations, which included the operations of SCPIE under a contract that
then existed with SCPIE Management Company. Since 1993, Mr. Zuk has served on
the Board of Directors of GCR Holdings Limited, a catastrophe property
reinsurance company.

Patrick S. Grant, 53, has been with SCPIE since 1990 serving initially as
Vice President, Marketing. He was named Senior Vice President, Marketing in
1992. Prior to that time, he spent almost 20 years with the insurance brokerage
firm of Johnson & Higgins. His last position there was Vice President,
Professional Liability. Mr. Grant has worked on SCPIE operations since 1976.

Joseph P. Henkes, 46, has been with SCPIE since 1990 serving initially as
Vice President, Operations and Actuarial Services. He was named Senior Vice
President, Operations and Actuarial Services in 1992. Prior to that time he
spent almost five years with Johnson & Higgins, where his services

42
<PAGE> 45

were devoted primarily to SCPIE. He has been an Associate of the Casualty
Actuarial Society since 1975, and a member of the American Academy of Actuaries
since 1980.

Patrick T. Lo, 44, has been Vice President and Chief Financial Officer of
SCPIE since 1993. From 1990 to 1993 he served as Vice President and Controller
of SCPIE. Prior to that time, he spent nine years as Assistant Controller,
Assistant Vice President and Vice President at The Doctors' Company, a
California medical malpractice insurance company.

Jack E. McCleary, M.D., 69, Director, was a member of the Board of
Governors of the Exchange from 1982 until the time of the Reorganization. He has
been a board-certified dermatologist in Sherman Oaks, California, for more than
five years. Dr. McCleary is currently the President of the CMA. He is a former
LACMA President and Speaker of the CMA House of Delegates.

Wendell L. Moseley, M.D., 68, Director, was a member of the Board of
Governors of the Exchange from 1983 until the time of the Reorganization. He has
been a board-certified family practitioner in San Bernardino, California, for
more than five years, and is on the clinical faculty of the Loma Linda
University School of Medicine. Dr. Moseley is a past President of the San
Bernardino County Medical Society. Dr. Moseley has served as a CMA delegate for
26 years.

Allan K. Briney, M.D., 74, Director, was Chairman of the Board of Governors
of the Exchange from 1976 until the time of the Reorganization. He has been a
board-certified radiologist in Whittier, California, for more than five years.
He is a past President of the LACMA, and is a former Chairman of the LACMA's
Board of Trustees.

Willis T. King, Jr., 52, Director, has been a director and officer of
Johnson & Higgins for more than five years, and since 1986 has been Chairman and
Chief Executive Officer of Willcox Incorporated Reinsurance Intermediaries, a
subsidiary of Johnson & Higgins engaged in reinsurance.

Charles B. McElwee, M.D., 66, Director, was a member of the Board of
Governors of the Exchange from 1995 until the time of the Reorganization. He has
been a board-certified orthopedic surgeon in Covina, California, for more than
five years, and is also affiliated with the University of Southern California
School of Medicine. Dr. McElwee is a former President of the LACMA, Chairman of
the Board of Trustees of the LACMA and a member of the Board of Trustees of the
CMA. He is also Vice-Chairman of the CALPAC, the legislative arm of the CMA.

Donald P. Newell, 58, Director, has been a partner at the law firm of
Latham & Watkins in San Diego, California, for more than five years. Mr. Newell
is also a director of Mercury General Corporation, an insurance holding company.

Harriet M. Opfell, M.D., 71, Director, was a member of the Board of
Governors of the Exchange from 1981 until the time of the Reorganization. She
has been a board-certified pediatrician in Orange, California, for more than
five years, and is a clinical professor of pediatrics at the University of
California at Irvine. Dr. Opfell is a former President of the Orange County
Medical Association and served as President of the medical staff at Children's
Hospital of Orange County.

William A. Renert, M.D., 56, Director, was a member of the Board of
Governors of the Exchange from 1990 until the time of the Reorganization. He has
been a board-certified radiologist in La Mesa, California, for more than five
years. Dr. Renert is a past President of the San Diego County Medical Society,
and is a CMA delegate and an American Medical Association delegate.

Henry L. Stoutz, M.D., 63, Director, was a member of the Board of Governors
of the Exchange from 1976 until the time of the Reorganization. He has been a
board-certified urologist in Ventura, California, for more than five years, and
is a clinical instructor, Department of Urology, at the University of California
at Los Angeles ("UCLA") School of Medicine. He is Chairman of the Ventura County
Medical Society Professional Liability Committee.

Reinhold A. Ullrich, M.D., 69, Director, was a member of the Board of
Governors of the Exchange from 1991 until the time of the Reorganization. He has
been a board-certified obstetrician and

43
<PAGE> 46

gynecologist in Torrance, California, for more than five years, and has been on
the clinical faculty at the UCLA School of Medicine since 1954. Dr. Ullrich is a
former President of the LACMA, and is the immediate past Chairman of its Board
of Trustees. He served on the CMA Board of Trustees from 1989 to 1995.

COMMITTEES OF THE SCPIE HOLDINGS BOARD

The SCPIE Holdings Board has the following standing committees:

Executive Committee. The Executive Committee has the authority to exercise
all powers of the SCPIE Holdings Board between meetings of the SCPIE Holdings
Board, except in cases where action of the entire SCPIE Holdings Board is
required by the Restated Certificate, the Bylaws or applicable law. The
Executive Committee consists of four members, one of whom is required to be the
Chairman of the SCPIE Holdings Board. The members of the Executive Committee are
Messrs. Karlan (Chairman), Briney, Moseley and Zuk.

Audit Committee. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews the scope of audit
engagement, reviews letter of comments of such accountants and management's
response thereto, approves professional services provided by such accountants,
reviews the independence of such accountants, reviews any major accounting
changes made or contemplated, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting controls. The
Audit Committee consists of three members, all of whom are independent
directors. The members of the Audit Committee are Messrs. Moseley (Chairman),
Karlan and McCleary.

Compensation Committee. The Compensation Committee establishes remuneration
levels for the Chief Executive Officer, Chief Financial Officer and Senior Vice
Presidents of the Company, reviews significant employee benefit programs and
establishes, as it deems appropriate, and administers executive compensation
programs, including bonus plans, stock option and other equity-based programs,
deferred compensation plans and any other such cash or stock incentive programs.
The Chief Executive Officer of the Company establishes remuneration levels for
other employees of the Company. The Compensation Committee consists of three
members. The members of the Compensation Committee are Messrs. Karlan
(Chairman), Moseley and King.

The SCPIE Holdings Board may from time to time establish certain other
committees to facilitate the management of SCPIE Holdings.

DIRECTOR COMPENSATION

Each non-employee Director will receive an annual retainer of $25,000. The
Chairman of the Board of Directors of SCPIE Holdings will be paid $1,500 per
Board meeting and other non-employee Directors will be paid $1,000 per Board
meeting. Fees to non-employee Directors for participation on committees of the
Board of Directors will be $1,000 per meeting. The Chairman of the Executive
Committee will receive an additional annual retainer of $24,000. All
non-employee Directors will be reimbursed for reasonable travel and other
expenses incurred to attend meetings of the SCPIE Holdings Board and committees
thereof.

44
<PAGE> 47

EXECUTIVE COMPENSATION

SCPIE Holdings was organized as a Delaware corporation in February 1996 and
consequently did not pay any cash compensation to its executive officers for the
year ended December 31, 1995. The following Summary Compensation Table sets
forth information concerning the compensation of (i) the Company's President and
Chief Executive Officer and (ii) the three other most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers"), for the year ended December 31, 1995. During such time period, the
Named Executive Officers were compensated by SCPIE Management Company.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION(S) YEAR(1) SALARY BONUS COMPENSATION(2) COMPENSATION(3)
- ------------------------- ------- -------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Donald J. Zuk 1995 $391,378 $52,085 $ 1,581 $28,970
President and Chief
Executive Officer
Joseph P. Henkes 1995 $190,000 $ 5,000 -- $11,400
Senior Vice President,
Operations and
Actuarial Services
Patrick S. Grant 1995 $165,000 $15,000 -- $ 9,990
Senior Vice President,
Marketing
Patrick T. Lo 1995 $131,000 $10,000 -- $ 7,860
Vice President and Chief
Financial Officer
</TABLE>

- ---------------

(1) Under the rules promulgated by the Commission, since the Company was not a
reporting company during the three immediately preceding fiscal years, only
the information with respect to the most recent completed fiscal year is
reported in the Summary Compensation Table.

(2) Other Annual Compensation for Mr. Zuk consists of payments for medical
expenses that are in addition to those covered by the Company's medical
benefit plans.

(3) All Other Compensation consists of contributions to the SMC Cash
Accumulation Plan of SCPIE (the "401(k) Plan") for each Named Executive
Officer and expenses related to a vehicle provided to Mr. Zuk by the
Company.

EMPLOYMENT AGREEMENT

SCPIE Management Company has in effect an employment agreement (the
"Employment Agreement") with Mr. Zuk, which is guaranteed by SCPIE. The
Employment Agreement will be assumed by the Company. The Employment Agreement
provides for a term expiring on December 31, 2000, at a current salary of
$413,409 per annum, with annual increases indexed to increases in the Consumer
Price Index for the preceding calendar year. The Employment Agreement also
provides for payment of bonuses at the discretion of the Board of Directors of
SCPIE Management Company, subject to the approval of SCPIE. In the event of
termination of the Employment Agreement by SCPIE Management Company, severance
pay of up to two years' salary is due under certain circumstances. Mr. Zuk may
also terminate the Employment Agreement at any time, with or without cause, upon
90 days' written notice to SCPIE Management Company. No other employment
agreements currently exist.

45
<PAGE> 48

COMPENSATION PLANS

401(k) Plan. Following the Reorganization, the Company will assume the
401(k) Plan. The 401(k) Plan offers eligible employees of SCPIE Management
Company an opportunity to contribute to the 401(k) Plan on a regular basis
through payroll deductions in amounts equal to but not greater than 15% of their
compensation. The 401(k) Plan's benefits are based on amounts contributed and
individual account investment performance. All full-time employees of SCPIE
Management Company (defined as employees whose work week constitutes at least
38 3/4 hours) who are over age 21 years are eligible to participate in the
401(k) Plan.

The Company matches 100% of an employee's contribution to the 401(k) Plan
up to 6% of such employee's compensation. The amount of matching contributions
made by the Company for the fiscal years ended December 31, 1995, 1994 and 1993
were $436,000, $350,000 and $304,000, respectively. In addition, the Company may
make discretionary contributions to the 401(k) Plan to be allocated among the
employees' accounts on the basis of their relative levels of compensation.

Pension Benefits. Following the Reorganization, the Company will assume two
retirement plans that provide pensions for employees of SCPIE. The SCPIE
Management Company Retirement Income Plan (the "Retirement Plan") is an employee
non-contributory tax qualified defined benefit plan that provides each employee
with a basic annual benefit at normal retirement (age 65) equal to 1.15% of the
employee's earnings for each year of service after 1989 (subject to applicable
law limitations on the amount of earnings which may be considered for benefit
accrual purposes under tax qualified plans) while with the Company and the
employee's benefit accrued under a prior plan of SCPIE Management Company.
Employees attaining age 35 or attaining age 21 and having completed one year of
service are eligible to participate in the Retirement Plan. Benefits vest after
five years of service. The Supplemental Retirement Plan for Selected Employees
of SCPIE Management Company (the "Supplemental Plan") enhances the benefits
under the Retirement Plan for selected employees of the Company (currently all
15 Vice Presidents and the President of SCPIE Management Company). The enhanced
benefit under the Supplemental Plan provides an annual benefit at normal
retirement age (age 65) equal to 1.5% of the average annual rate of earnings
during the employee's 36 highest consecutive months in his or her last ten years
of service immediately prior to retirement, multiplied by the employee's years
of service with the Company or SCPIE Management Company, less the employee's
benefits under the Retirement Plan and under the Johnson & Higgins Retirement
Income Plan. In addition, the Supplemental Plan provides for a lump sum payment
equal to the difference between (i) the amount of the benefits that the employee
would have accrued under the 401(k) Plan if the Company's contribution allocated
to the employee's account had not been limited by certain provisions of the Code
that limit the amount which can be allocated to the employee's account under the
401(k) Plan and the amount of each employee's annual compensation which can be
taken into account under the 401(k) Plan and (ii) the amount of the benefits
accrued by the employee under the 401(k) Plan. The period of service under both
the Retirement Plan and the Supplemental Plan includes any period of service
with Johnson & Higgins, which formerly managed the business of SCPIE.

46
<PAGE> 49

The following table shows the estimated annual benefits payable under the
Supplemental Plan and the Retirement Plan to Company employees in the higher
salary classifications upon retirement:

<TABLE>
<CAPTION>
SUPPLEMENTAL PLAN
REMUNERATION
(AVERAGE OF 36 ESTIMATED ANNUAL BENEFIT ($)
HIGHEST -------------------------------------------------------------------
CONSECUTIVE
MONTHS IN FINAL YEARS OF CREDITED SERVICE AT AGE 65
TEN YEARS OF -------------------------------------------------------------------
SERVICE) 10 15 20 25 30 35
----------------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
$150,000 22,500 33,750 45,000 56,250 67,500 78,750
$200,000 30,000 45,000 60,000 75,000 90,000 105,000
$250,000 37,500 56,250 75,000 93,750 112,500 131,250
$300,000 45,000 67,500 90,000 112,500 135,000 157,500
$350,000 52,500 78,750 105,000 131,250 157,500 183,750
$400,000 60,000 90,000 120,000 150,000 180,000 210,000
$450,000 67,500 101,250 135,000 168,750 202,500 236,250
$500,000 75,000 112,500 150,000 187,500 225,000 262,500
</TABLE>

The amounts shown in the table are straight life annuities payable under
the plans without reduction for the joint and survivor annuity. Retirement
benefits listed in the table are not subject to any deduction for Social
Security benefits, but are reduced by any pension amounts payable to the
employee under a Johnson & Higgins retirement plan.

The earnings subject to the retirement plans for each of the executive
officers in the Summary Compensation Table is determined from the compensation
amounts shown under "Salary," but not the amounts shown under "Bonus." As of
December 31, 1995, the years of service of Messrs. Zuk, Henkes, Grant and Lo are
29 years, 9 years, 24 years and 5 years, respectively.

Frozen Retirement Plan for Members of the SCPIE Board of Governors. SCPIE
has maintained the SCPIE Retirement Plan for Outside Governors and Affiliated
Directors (the "Board of Governors' Retirement Plan"), a nonqualified
supplemental retirement plan that provides a $12,000 annual retirement benefit
for members of the SCPIE Board of Governors and directors of affiliated entities
who have at least five years of service as defined in the Board of Governors'
Retirement Plan. After the Reorganization, SCPIE's obligations under the Board
of Governors' Retirement Plan will become the obligations of SCPIE Indemnity.
Participation in the Board of Governors' Retirement Plan will be frozen on
December 31, 1996. Any persons receiving benefits on that date will continue to
receive them. All other eligible persons under the Board of Governors'
Retirement Plan will, on that date, become 100% vested in the benefits accrued
prior to that date and no additional benefits will accrue in the future. No
additional individuals, including directors of SCPIE Indemnity or directors of
SCPIE Holdings, will be eligible to participate in the Board of Governors'
Retirement Plan.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The DGCL permits a Delaware corporation to include in its charter and
bylaws certain provisions to eliminate the personal liability of directors for
monetary damages and to indemnify its directors and officers. The SCPIE Holdings
Bylaws provide that SCPIE Holdings shall indemnify its directors and officers
and may indemnify its employees and agents, who are parties or threatened to be
made parties to any action, suit or proceeding by reason of such person's
capacity as a director, officer, employee or agent of SCPIE Holdings, from and
against expenses (including legal fees), judgments, fines and settlements
arising from such action, suit or proceeding to the fullest extent permitted by
applicable law. Section 145(a) of the DGCL provides that a corporation may
indemnify a director, officer, employee or agent if such person acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe the conduct was unlawful. In addition, effective
upon consummation of the Reorganization, SCPIE Holdings will enter into
indemnification agreements with each of its directors and certain of its

47
<PAGE> 50

executive officers that generally provide for similar indemnification. See
"Description of Capital Stock -- Delaware Law and Certain Charter and Bylaw
Provisions -- Indemnification."

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company has employed in the past, and intends to employ in the future,
the law firm of Latham & Watkins, to perform legal services. Donald P. Newell, a
director of the Company, is a partner of Latham & Watkins.

The Company has entered into in the past, and intends to enter into in the
future, certain contracts with the firms of Willcox Incorporated Reinsurance
Intermediaries and Johnson & Higgins, for whom Willis T. King, Jr., a director
of the Company, serves as a director and officer. Johnson & Higgins serves as an
insurance broker for the Company and received commissions for these services of
$46,142, $81,658 and $114,559, in 1995, 1994 and 1993, respectively. The Company
has six reinsurance contracts that are placed by Willcox Incorporated
Reinsurance Intermediaries, which is the reinsurance division of Johnson &
Higgins. Willcox Incorporated Reinsurance Intermediaries received commissions on
the placement of these policies of $679,825, $571,615 and $717,807 in 1995, 1994
and 1993, respectively.

OWNERSHIP OF COMMON STOCK

The following table sets forth certain information regarding beneficial
ownership of Common Stock as of the closing of the Offering by (i) each person
who will own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director and executive officer named in the Summary
Compensation Table and (iii) all directors and executive officers of SCPIE
Holdings as a group. The number of shares of Common Stock beneficially owned by
each director represents the number of shares each director and certain persons
and entities affiliated with each director will receive as members of the
Exchange pursuant to the Reorganization. This estimate does not include any
shares which any director or executive officer may purchase in the Offering.
Except as noted below, each holder listed below will have sole investment and
voting power with respect to the shares beneficially owned by the holder. The
address for all stockholders listed in the table is c/o SCPIE Holdings Inc.,
9441 West Olympic Boulevard, Beverly Hills, California 90213-4015.

<TABLE>
<CAPTION>
NUMBER OF SHARES
TO BE PERCENT
NAME BENEFICIALLY OWNED OF TOTAL
------------------------------------------------- ------------------ ---------
<S> <C> <C>
Mitchell S. Karlan, M.D.......................... *
Donald J. Zuk.................................... -- --
Patrick S. Grant................................. -- --
Joseph P. Henkes................................. -- --
Patrick T. Lo.................................... -- --
Jack E. McCleary, M.D............................ *
Wendell L. Moseley, M.D.......................... *
Allan K. Briney, M.D............................. *
Willis T. King, Jr............................... -- --
Charles B. McElwee, M.D.......................... *
Donald P. Newell................................. -- --
Harriet M. Opfell, M.D........................... *
William A. Renert, M.D........................... *
Henry L. Stoutz, M.D............................. *
Reinhold A. Ullrich, M.D......................... *
------ ---------
All directors and executive officers as a group
(15 persons)................................... *
</TABLE>

- ---------------

* Less than 1%.

48
<PAGE> 51

DESCRIPTION OF CAPITAL STOCK
GENERAL

The authorized capital stock of the Company as of the completion of the
Reorganization will consist of 30,000,000 shares of Common Stock, $.0001 par
value per share, and 5,000,000 shares of Preferred Stock, the rights,
preferences and powers of which may be designated by the SCPIE Holdings Board.
At present, there are no shares of Preferred Stock issued or outstanding. Upon
completion of the Reorganization and the Offering, there will be approximately
12,500,000 shares (12,800,000 shares if the Underwriters' over-allotment option
is exercised in full) of Common Stock issued and outstanding (less fractional
shares, which, pursuant to the Merger Agreement, will be paid in cash).

The following description of the capital stock of SCPIE Holdings does not
purport to be complete or to give full effect to Delaware statutory or common
law and is, in all respects, qualified by reference to the applicable provisions
of the Delaware General Corporation Law ("DGCL"), the Restated Certificate and
the Bylaws.

COMMON STOCK

Holders of shares of Common Stock are entitled to one vote per share on
matters to be voted upon by the stockholders and, subject to the prior rights of
the holders of Preferred Stock, to receive dividends ratably when and as
declared by the SCPIE Holdings Board with funds legally available therefor and
to share ratably in the assets of the Company legally available for distribution
to the stockholders in the event of liquidation or dissolution, after payment of
all debts and other liabilities. Holders of the Common Stock are not entitled to
preemptive rights and will have no subscription, redemption or conversion
privileges. The Common Stock does not have cumulative voting rights, which means
the holder or holders of more than one-half of the shares of Common Stock voting
for the election of directors can elect all of the directors then being elected.
All of the outstanding shares of Common Stock are, and the shares to be issued
in the Reorganization when issued and paid for will be, fully paid and
nonassessable. The rights, preferences and powers of holders of Common Stock are
subject to the rights of the holders of shares of any series of Preferred Stock
which the Company may issue in the future. Pursuant to Section 160 of the DGCL,
SCPIE Indemnity will not be entitled to vote the shares of Common Stock issued
to it in the Reorganization. See "The Reorganization -- Shares of Common Stock
Issued in the Reorganization."

PREFERRED STOCK

The SCPIE Holdings Board has the authority, without further stockholder
approval, to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to determine the dividend rights, any conversion rights or rights of
exchange, voting powers, rights and terms of redemption (including sinking fund
provisions), liquidation preferences and any other rights, preferences, powers
and restrictions. The number of shares constituting a series of Preferred Stock
and the designation thereof shall be stated in a resolution or resolutions
providing for the issuance of such series of Preferred Stock all in accordance
with the laws of the State of Delaware.

The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company, making removal of the present
management of the Company more difficult, restricting the payment of dividends
and other distributions to the holders of Common Stock, diluting the voting
power of the Common Stock to the extent that the Preferred Stock has voting
rights or diluting the equity interests of the Common Stock to the extent that
the Preferred Stock is convertible into Common Stock. In addition, issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could make it more difficult
for a third party to acquire a majority of the outstanding shares of voting
stock. Accordingly, the issuance of Preferred Stock may be used as an
"anti-takeover" device without further action on the part of the stockholders of
SCPIE Holdings.

49
<PAGE> 52

DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

The following is a description of certain provisions of the DGCL and the
Restated Certificate and the Bylaws. This summary does not purport to be
complete and is qualified in its entirety by reference to the DGCL, the Restated
Certificate and the Bylaws.

SCPIE Holdings is subject to the provisions of Section 203 of the DGCL.
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless the business combination is approved
in a prescribed manner. A "business combination" includes certain mergers, asset
sales and other transactions resulting in a financial benefit to the "interested
stockholder." Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within the past
three years did own, 15% of the corporation's voting stock.

Certain provisions of the Restated Certificate and the Bylaws could have
anti-takeover effects. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the policies formulated by the
SCPIE Holdings Board. In addition, these provisions also are intended to ensure
that the SCPIE Holdings Board will have sufficient time to act in what the Board
of Directors believes to be in the best interests of the Company and its
stockholders. These provisions also are designed to reduce the vulnerability of
SCPIE Holdings to an unsolicited proposal for a takeover of SCPIE Holdings that
does not contemplate the acquisition of all of its outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of SCPIE
Holdings. The provisions are also intended to discourage certain tactics that
may be used in proxy fights. However, these provisions could delay or frustrate
the removal of incumbent directors or the assumption of control of SCPIE
Holdings by the holder of a large block of Common Stock, and could also
discourage or make more difficult a merger, tender offer or proxy contest, even
if such event would be favorable to the interest of stockholders.

Classified Board of Directors. The Restated Certificate provides for the
SCPIE Holdings Board to be divided into three classes of directors, with each
class as nearly equal in number as possible, serving staggered three-year terms
(other than directors which may be elected by holders of Preferred Stock). As a
result, approximately one-third of the SCPIE Holdings Board will be elected each
year. The classified board provision will help to assure the continuity and
stability of the SCPIE Holdings Board and the business strategies and policies
of SCPIE Holdings as determined by the SCPIE Holdings Board. The classified
board provision could have the effect of discouraging a third party from making
an unsolicited tender offer or otherwise attempting to obtain control of SCPIE
Holdings without the approval of the Board. In addition, the classified board
provision could delay stockholders who do not like the policies of the SCPIE
Holdings Board from electing a majority of the SCPIE Holdings Board for two
years.

No Stockholder Action by Written Consent; Special Meetings. The Restated
Certificate provides that stockholder action can only be taken at an annual or
special meeting of stockholders and prohibits stockholder action by written
consent in lieu of a meeting. The Bylaws provide that special meetings of
stockholders may be called only by the SCPIE Holdings Board, or the Chairman or
President of SCPIE Holdings. Stockholders are not permitted to call a special
meeting of stockholders or to require that the SCPIE Holdings Board call a
special meeting.

Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of SCPIE Holdings (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that
only persons who are nominated by, or at the direction of, the SCPIE Holdings
Board or its Chairman, or by a stockholder who has given timely written notice
to the Secretary of SCPIE Holdings prior to the meeting at which directors are
to be elected, will be eligible for election as directors of SCPIE Holdings. The
Stockholder Notice Procedure also provides that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the SCPIE Holdings Board or its Chairman or by a stockholder who
has given timely written notice to the Secretary of SCPIE Holdings of such
stockholder's

50
<PAGE> 53

intention to bring such business before such meeting. Under the Stockholder
Notice Procedure, if a stockholder desires to submit a proposal or nominate
persons for election as directors at an annual meeting, the stockholder must
submit written notice to SCPIE Holdings not less than 60 days nor more than 90
days prior to the first anniversary of the previous year's annual meeting. In
addition, under the Stockholder Notice Procedure, a stockholder's notice to
SCPIE Holdings proposing to nominate a person for election as a director or
relating to the conduct of business other than the nomination of directors must
contain certain specified information. If the chairman of a meeting determines
that business was not properly brought before the meeting, in accordance with
the Stockholder Notice Procedure, such business shall not be discussed or
transacted.

Number of Directors; Removal; Filling Vacancies. The Restated Certificate
and the Bylaws provide that the SCPIE Holdings Board will consist of between
seven and thirteen members (other than directors elected by holders of Preferred
Stock), the exact number to be fixed from time to time by resolution adopted by
the directors of SCPIE Holdings. The SCPIE Holdings Board currently consists of
twelve directors. Further, subject to the rights of the holders of any series of
Preferred Stock then outstanding, the Restated Certificate authorizes the SCPIE
Holdings Board to fill newly created directorships. If a number of vacancies
existed in the SCPIE Holdings Board, this provision could delay the ability of a
stockholder from obtaining majority representation on the SCPIE Holdings Board
by permitting the SCPIE Holdings Board to enlarge the SCPIE Holdings Board in
certain circumstances and fill the new directorships with its own nominees. A
director so elected by the SCPIE Holdings Board holds office until the next
election of the class for which such director has been chosen and until his
successor is elected and qualified. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, the Restated Certificate and the
Bylaws also provide that directors may be removed only for cause and only by the
affirmative vote of holders of two-thirds (66 2/3%) of the outstanding shares of
voting securities. The effect of these provisions is to preclude a stockholder
from removing incumbent directors without cause and simultaneously gaining
control of the SCPIE Holdings Board by filling the vacancies created by such
removal with its own nominees.

Indemnification. The Company has included in its Restated Certificate and
Bylaws provisions to (i) eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by the DGCL and (ii) indemnify its directors and officers to the
fullest extent permitted by Section 145 of the DGCL, including circumstances in
which indemnification is otherwise discretionary. The Company believes that
these provisions are necessary to attract and retain qualified persons as
directors and officers.

Bylaws. The Restated Certificate provides that the Bylaws are subject to
adoption, amendment, alteration, repeal or rescission either by (i) a majority
of the authorized number of directors or (ii) the affirmative vote of the
holders of not less than two-thirds (66 2/3%) of the outstanding shares of
voting securities. This provision makes it more difficult for stockholders to
make changes in the Bylaws by allowing the holders of a minority of the voting
securities to prevent the holders of a majority of voting securities from
amending the Bylaws.

TRANSFER AGENT AND REGISTRAR

ChaseMellon Shareholder Services L.L.C. has been appointed as the transfer
agent and registrar for the Company's Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Reorganization and the Offering, the Company will
have approximately 12,500,000 shares (12,800,000 shares if the Underwriters'
over-allotment option is exercised in full) of Common Stock outstanding (less
fractional shares, which, pursuant to the Merger Agreement, will be paid in
cash). The 10,000,000 shares distributed to members of the Exchange in the
Reorganization (less fractional shares paid in cash), and the 2,000,000 shares
to be sold in the Offering (2,300,000 shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable without

51
<PAGE> 54

restriction or further registration under the Securities Act, except to the
extent that such shares are held by an affiliate of the Company. The Company and
holders of of these shares have entered into agreements with the
Underwriters not to offer, sell or otherwise dispose of any equity securities of
the Company for 180 days after the date of this Prospectus without the prior
written consent of Salomon Brothers Inc.

In general, Rule 144 of the Securities Act ("Rule 144"), as currently in
effect, provides that any person who has beneficially owned restricted shares
for at least two years, including an "affiliate" (as defined in Rule 144), is
entitled to sell, within any three-month period, a number of restricted shares
that does not exceed the greater of (i) the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the sale or (ii) 1% of the
shares of Common Stock then outstanding. Sales under Rule 144 are subject to
certain manner of sale restrictions, notice requirements and availability of
current public information concerning the Company. A person who is not an
affiliate of the Company, and who has not been an affiliate within three months
prior to the sale, generally may sell shares without regard to the limitations
of Rule 144 provided that the person has held such shares for a period of at
least three years.

Prior to the Reorganization and the Offering, there has been no public
market for the Common Stock and no prediction can be made as to the effect, if
any, that the sale or availability for sale of shares of Common Stock will have
on the market price of the Common Stock. Sales of substantial amounts of such
shares in the public market could adversely affect the market price of the
Common Stock.

52
<PAGE> 55

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Salomon Brothers Inc is acting as representative (the "Representative"),
has severally agreed to purchase from the Company, the respective number of
shares of Common Stock set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER TO BE PURCHASED
----------- ----------------
<S> <C>
Salomon Brothers Inc........................................

---------
Total............................................. 2,000,000
=========
</TABLE>

In the Underwriting Agreement, the several Underwriters have agreed,
subject to certain conditions precedent set forth therein, to purchase all of
the shares of Common Stock offered hereby (other than the shares of Common Stock
covered by the Underwriters' over-allotment option described below) if any such
shares are purchased. In the event of a default by any Underwriter, the
Underwriting Agreement provides that, in certain circumstances, the purchase
commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated. The Company has been advised by the
Representative that the several Underwriters propose initially to offer such
shares to the public at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to other dealers.
After the shares are released for sale to the public, the offering price and
other selling terms may be changed.

The Company has granted to the Underwriters an option to purchase up to an
additional 300,000 shares of Common Stock at the public offering price less the
aggregate underwriting discount, solely to cover over-allotments. The option may
be exercised at any time up to 30 days after the date of this Prospectus. To the
extent that the Underwriters exercise such option, each of the several
Underwriters will be obligated, subject to certain conditions, to purchase such
additional shares of Common Stock in approximately the same proportion as the
number of shares to be purchased by such Underwriter in the above table bears to
the total number of shares initially offered by the Underwriters hereby.

The Underwriting Agreement provides that SCPIE Holdings and SCPIE Indemnity
will indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act, or contribute to payments the Underwriters
may be required to make in respect thereof.

Subject to certain exceptions, the Company and the Company's officers and
directors have agreed that they will not, without prior consent of the
Representative, sell, offer or contract to sell, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or options or other rights to
acquire, or any securities convertible into or exchangeable for Common Stock,
for a period of 180 days after the date of this Offering.

The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange.

The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the shares of Common Stock will be
determined by negotiation between the Company and the Representative. Among the
factors to be considered in determining the initial public offering

53
<PAGE> 56

price, in addition to prevailing market conditions, will be the historical
performance of the Company, estimates of the business potential and earning
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuations of other
insurance companies. There can, however, be no assurances that the prices at
which the Common Stock will sell in the public market after the Reorganization
and the Offering will not be lower than the price at which they are sold by the
Underwriters.

The Representative is also acting as financial advisor to the Exchange in
connection with the Reorganization and has received fees for performing this
service.

LEGAL MATTERS

The validity of the Common Stock to be offered hereby will be passed upon
for the Company by Latham & Watkins, San Diego, California, counsel for the
Company. Certain legal matters will be passed upon for the Underwriters by
LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability partnership
including professional corporations, New York, New York. LeBoeuf, Lamb, Greene &
MacRae, L.L.P. represents the Company from time to time in connection with
certain other legal matters.

EXPERTS

The combined financial statements of Southern California Physicians
Insurance Exchange and Subsidiaries and Organization of Southern California
Physicians, Inc. and Subsidiary at December 31, 1995 and 1994, and for each of
the three years in the period ended December 31, 1995, and the balance sheet of
SCPIE Holdings Inc. at February 29, 1996, appearing in this Prospectus and
Registration Statement are included and have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon, appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
reports given the authority of such firm as experts in accounting and auditing.

54
<PAGE> 57

GLOSSARY OF SELECTED INSURANCE TERMS

Accident year.............. The annual accounting period in which loss events
occurred, regardless of when the losses are
actually reported, booked or paid.

Calendar year basis........ The matching of all losses incurred within a given
period of time as reported in an income statement
including estimated losses and LAE, IBNR and
changes in estimates of losses and LAE incurred in
prior periods, with premiums earned during that
same period of time. Once calculated for a given
time period, calendar year experience never
changes.

Cede....................... To transfer risk and related premium in connection
with a reinsurance transaction.

Claims made and reported
basis.................... A liability insurance policy written on a basis
that generally insures only claims that are
reported to the insurer during the policy period,
or reported during any extended reporting period
provided in the policy or any endorsement thereto,
but only if the claims arise from incidents that
occurred after a retroactive date stated in the
policy. A claims made and reported policy is to be
distinguished from an "occurrence policy."

Combined ratio............. The sum of the loss ratio and the expense ratio
expressed as a percentage. Generally, a combined
ratio below 100% indicates an underwriting profit
and a combined ratio above 100% indicates an
underwriting loss.

Direct premiums written.... Total premiums written by an insurer other than
premiums for reinsurance assumed by an insurer.

Excess insurance........... Insurance which covers the insured only for losses
in excess of a stated amount or a specific primary
policy.

Excess of loss
reinsurance................ A generic term describing reinsurance that
indemnifies the reinsured against all or a
specified portion of losses on underlying insurance
policies in excess of a specified dollar amount,
called a "layer" or "retention."

Expense ratio.............. Policy acquisition costs and other underwriting
expenses, divided by net premiums earned under GAAP
accounting or by net premiums written under
statutory accounting, expressed as a percentage.

Frequency.................. Refers to the rate of occurrence. The number of
times a claim or a loss by a specific peril occurs
to a given body of exposures or insureds during a
particular time period.

GAAP....................... Generally accepted accounting principles in use
throughout the United States in the preparation of
financial statements, including the financial
statements presented in this Prospectus.

Gross premiums written..... Total of (i) direct premiums written, plus (ii)
reinsurance assumed premiums.

Incurred but not reported
("IBNR") reserves........ The estimated liabilities for future payments of
losses and LAE that have occurred but have not yet
been reported to the insurer.

55
<PAGE> 58

Loss Adjustment Expenses
("LAE").................. Expenses incurred in the settlement of claims,
including outside adjustment expenses, legal fees
and internal administration costs associated with
the claims adjustment process, but not including
general overhead expenses.

Loss Adjustment Expense
("LAE") reserves......... Liabilities established for LAE. LAE includes an
estimated provision for IBNR.

Loss ratio................. The ratio of net incurred losses and LAE to net
premiums earned. Net incurred losses include an
estimated provision for IBNR.

Net premiums written....... Gross premiums written less premiums ceded.

Occurrence basis........... A liability insurance policy written on a basis
that generally insures claims that arise from
incidents that occurred during the policy period
irrespective of when the claims are reported.

Premiums ceded............. The consideration paid to reinsurers in connection
with reinsurance transactions.

Premiums earned............ The portion of premiums written applicable to the
expired period of policies and, accordingly,
recognized as revenue during a given period.

Primary insurance.......... Insurance which covers an insured from the first
dollar of loss, after any deductible or
self-insured retention, as distinguished from
umbrella or excess insurance.

Quota share basis.......... Reinsurance wherein the insurer cedes an agreed
fixed percentage of liabilities, premiums and
losses for each policy covered on a pro rata basis.

Redundancy (deficiency).... Estimates in reserves change as more information
becomes known about the frequency and severity of
claims for each year. A redundancy (deficiency)
exists when the original liability estimate is
greater (less) than the reestimated liability. The
cumulative redundancy (deficiency) is the aggregate
net change in estimates over time subsequent to
establishing the original liability estimate.

Reinsurance................ A procedure whereby an original insurer cedes a
portion of the premium to a reinsurer as payment
for the reinsurer's assumption of a portion of the
risk; referred to as reinsurance ceded by the
original insurer and as reinsurance assumed by the
reinsurer.

Reserves................... Liabilities established by insurers to reflect the
estimated cost of claims and the related LAE that
the insurer will ultimately be required to pay in
respect of insurance it has written.

Retention.................. The amount or portion of risk that an insurer
retains for its own account. Losses in excess of
the retention level are paid by the reinsurer. In
quota share treaties, the retention may be a
percentage of the original policy's limit. In
excess of loss reinsurance, the retention is a
dollar amount of loss, a loss ratio or a percentage
of loss.

56
<PAGE> 59

Risk-Based Capital
Requirements ("RBC")..... Regulatory and rating agency targeted surplus based
on the relationship of statutory surplus, with
certain adjustments, to the sum of slated
percentages of each element of a specified list of
company risk exposures.

Severity................... The average claim cost, statistically determined by
dividing dollars of losses by the number of claims.

Statutory Accounting
Practices ("SAP").......... The accounting rules and procedures promulgated or
permitted by the National Association of Insurance
Commissioners ("NAIC") for financial reporting by
insurers licensed in one or more states of the
United States.

Statutory surplus.......... Total assets less total liabilities as determined
in accordance with SAP.

Underwriting............... The process whereby an insurer, directly or through
its agent, reviews applications submitted for
insurance coverage and determines whether it will
accept all or part of the coverage being requested,
and the applicable premium.

57
<PAGE> 60

INDEX TO FINANCIAL STATEMENTS

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
AND
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Combined Balance Sheets as of December 31, 1995 and 1994 and as of June 30, 1996 and
1995................................................................................ F-3
Combined Statements of Income for the years ended December 31, 1995, 1994 and 1993 and
for the six months ended June 30, 1996 and 1995..................................... F-4
Combined Statements of Policyholders' Equity for the years ended December 31, 1995,
1994, and 1993 and for the six months ended June 30, 1996 and 1995.................. F-5
Combined Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
and for the six months ended June 30, 1996 and 1995................................. F-6
Notes to Combined Financial Statements................................................ F-7
</TABLE>

SCPIE HOLDINGS INC.

<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-20
Balance Sheets as of February 29, 1996 and June 30, 1996.............................. F-21
Statement of Income for the four months ended June 30, 1996........................... F-21
Note to Balance Sheets................................................................ F-22
</TABLE>

F-1
<PAGE> 61

REPORT OF INDEPENDENT AUDITORS

Board of Governors
Southern California Physicians Insurance Exchange

Board of Trustees
Organization of Southern California Physicians, Inc.

We have audited the accompanying combined balance sheets as of December 31,
1995 and 1994, of Southern California Physicians Insurance Exchange and
Organization of Southern California Physicians, Inc. and the related combined
statements of income, policyholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position at December 31, 1995
and 1994, of Southern California Physicians Insurance Exchange and Organization
of Southern California Physicians, Inc. and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

At December 31, 1993, Southern California Physicians Insurance Exchange and
Organization of Southern California Physicians, Inc. adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, as described in Note 1.

ERNST & YOUNG LLP

Los Angeles, California
March 5, 1996, except
for Note 9, as to which
the date is July 12, 1996

F-2
<PAGE> 62

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

DECEMBER 31,
JUNE 30, ---------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Securities available-for-sale (Note 2):
Fixed maturity investments, at fair value (amortized
cost: 1996 -- $656,499, 1995 -- $582,115,
1994 -- $587,744).................................. $ 651,336 $606,155 $558,914
Equity investments, at fair value (cost:
1996 -- $15,729, 1995 -- $49,396,
1994 -- $43,289)................................... 20,491 61,083 46,440
-------- -------- --------
Total securities available-for-sale........... 671,827 667,238 605,354
Short-term investments.................................. 13,735 27,783 31,555
-------- -------- --------
Total investments............................. 685,562 695,021 636,909
Cash.................................................... 6,548 3,053 5,180
Accrued investment income............................... 10,970 9,835 11,136
Reinsurance recoverable on paid losses (Note 4)......... 23 27 170
Reinsurance recoverable on unpaid losses (Note 4)....... 22,086 19,560 19,177
Federal income taxes recoverable (Note 5)............... -- 20,363 23,941
Deferred Federal income taxes (Note 5).................. 25,349 11,992 33,635
Deferred policy acquisition costs....................... 531 468 515
Property and equipment, net............................. 19,161 19,145 19,648
Other assets............................................ 16,390 1,894 1,294
-------- -------- --------
Total assets.................................. $ 786,620 $781,358 $751,605
======== ======== ========
LIABILITIES
Reserves:
Losses and loss adjustment expenses (Note 3).......... $ 474,398 $466,187 $468,743
Unearned premiums..................................... 22,629 19,916 21,928
-------- -------- --------
Total reserves................................ 497,027 486,103 490,671
Policyholders' dividends payable........................ 12,951 8,646 18,147
Other liabilities....................................... 11,820 12,790 33,251
-------- -------- --------
Total liabilities............................. 521,798 507,539 542,069
Commitments and contingencies (Note 8)
POLICYHOLDERS' EQUITY
Surplus................................................. 264,673 250,596 226,227
Unrealized appreciation (depreciation) on
available-for-sale securities, net of deferred
taxes................................................. 149 23,223 (16,691)
-------- -------- --------
Total policyholders' equity................... 264,822 273,819 209,536
-------- -------- --------
Total liabilities and policyholders' equity... $ 786,620 $781,358 $751,605
======== ======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE> 63

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------
1996 1995 1995 1994 1993
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums earned (Note 4)........ $61,128 $59,453 $116,354 $111,659 $113,194
Net investment income (Note
2)........................... 20,989 20,032 40,424 39,663 39,738
Realized investment gains (Note
2)........................... 11,496 4,684 7,950 548 15,987
Other revenue................... 124 117 281 207 267
------- ------- -------- -------- --------
Total revenues.......... 93,687 84,286 165,009 152,077 169,186
Expenses:
Losses and loss adjustment
expenses (Note 3)............ 58,247 57,533 118,023 108,720 125,354
Other operating expenses........ 6,764 6,270 12,561 11,844 9,734
------- ------- -------- -------- --------
Total expenses.......... 65,011 63,803 130,584 120,564 135,088
------- ------- -------- -------- --------
Income before policyholder
dividends and Federal income
taxes........................... 28,676 20,483 34,425 31,513 34,098
Policyholder dividends............ 9,000 0 0 0 0
Federal income taxes (Note 5)..... 5,599 6,167 10,056 9,212 8,618
------- ------- -------- -------- --------
Net income.............. $14,077 $14,316 $ 24,369 $ 22,301 $ 25,480
======= ======= ======== ======== ========
Pro forma net income per share of
common stock (Note 9)........... $ 1.41 $ 1.43 $ 2.44 $ 2.23 $ 2.55
======= ======= ======== ======== ========
</TABLE>

See accompanying notes.

F-4
<PAGE> 64

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

COMBINED STATEMENTS OF POLICYHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION TOTAL
(DEPRECIATION) OF POLICYHOLDERS'
INVESTMENTS SURPLUS EQUITY
----------------- -------- --------------
<S> <C> <C> <C>
Balance at January 1, 1993....................... $ 3,197 $178,446 $181,643
Cumulative effect of change in accounting for
investments at December 31.................. 19,555 -- 19,555
Net income..................................... -- 25,480 25,480
Net unrealized appreciation.................... 721 -- 721
-------- -------- --------
Balance at December 31, 1993..................... 23,473 203,926 227,399
Net income..................................... -- 22,301 22,301
Net unrealized depreciation.................... (40,164) -- (40,164)
-------- -------- --------
Balance at December 31, 1994..................... (16,691) 226,227 209,536
Net income..................................... -- 24,369 24,369
Net unrealized appreciation.................... 39,914 -- 39,914
-------- -------- --------
Balance at December 31, 1995..................... $ 23,223 $250,596 $273,819
-------- -------- --------
Net income (unaudited)......................... -- 14,077 14,077
Net unrealized depreciation (unaudited)........ (23,074) -- (23,074)
-------- -------- --------
Balance at March 31, 1996 (unaudited)............ $ 149 $264,673 $264,822
======== ======== ========
</TABLE>

See accompanying notes.

F-5
<PAGE> 65

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- -------------------------------------
1996 1995 1995 1994 1993
--------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................. $ 14,077 $ 14,316 $ 24,369 $ 22,301 $ 25,480
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Unpaid losses and loss
adjustment expenses,
and reinsurance
recoverables.......... 5,689 (3,498) (2,796) (21,402) 5,609
Accrued investment
income................ (1,135) 699 1,301 (98) 645
Provision for deferred
Federal income
taxes................. (446) 1,686 158 6,050 4,777
Unearned premiums........ 2,713 (1,426) (2,012) 1,398 614
Policyholders' dividends
payable............... 4,305 (4,770) (9,501) (11,179) (18,588)
Realized investments
gains................. (11,496) (4,684) (7,950) (548) (15,987)
Provisions for
amortization and
depreciation.......... 933 2,685 4,504 4,940 4,542
Accrued expenses and
other liabilities..... (970) 621 430 4,717 (23)
Changes in other
assets................ 5,780 898 3,029 (2,496) (1,278)
--------- -------- --------- --------- ---------
Net cash provided
by operating
activities..... 19,450 6,527 11,532 3,683 5,791
INVESTING ACTIVITIES
Purchases -- fixed
maturities............... (298,305) (91,711) (269,149) (193,618) (353,972)
Sales -- fixed
maturities............... 211,974 85,555 235,332 174,705 321,699
Maturities -- fixed
maturities............... 9,476 8,554 15,909 15,211 30,200
Purchases -- equities...... (569) (8,824) (37,033) (42,581) (38,812)
Sales -- equities.......... 47,421 14,108 37,510 35,901 49,993
Change in short-term
investments, net......... 14,048 (15,240) 3,772 8,230 (15,940)
--------- -------- --------- --------- ---------
Net cash used in
investing
activities..... (15,955) (7,558) (13,659) (2,152) (6,832)
--------- -------- --------- --------- ---------
Increase (decrease) in
cash..................... 3,495 (1,031) (2,127) 1,531 (1,041)
Cash at beginning of
period................... 3,053 5,180 5,180 3,649 4,690
--------- -------- --------- --------- ---------
Cash at end of
period......... $ 6,548 $ 4,149 $ 3,053 $ 5,180 $ 3,649
========= ======== ========= ========= =========
</TABLE>

See accompanying notes.

F-6
<PAGE> 66

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements have been combined using the consolidated balance
sheets and results of operations of the Southern California Physicians Insurance
Exchange (the Exchange) and the Organization of Southern California Physicians,
Inc. (OSCAP), collectively the "Company." The Exchange formed two wholly owned
subsidiaries in 1995, SCPIE Indemnity Company (SCPIE Indemnity) and SCPIE
Holdings Inc. (SCPIE Holdings). Neither subsidiary had any operations since its
formation. OSCAP is the holding company of SCPIE Management Company (SMC), the
Exchange's attorney-in-fact, and is indirectly controlled by the Exchange. SMC
has two wholly owned subsidiaries, SCPIE Insurance Services, Inc. (SIS) and
SCPIE Management Services, Inc. (SMS). All transactions between the Exchange and
OSCAP have been eliminated in the preparation of the combined financial
statements.

The Company writes professional liability insurance for physicians, oral
and maxillofacial surgeons, hospitals and other healthcare providers.
Substantially all of the Company's coverage is written on a "claims made and
reported" basis. Generally, coverage is provided only for claims which are first
reported to the Company during the insured's coverage period and which arise
from occurrences during the insured's coverage period. The Company also makes
"tail" coverage available for purchase by members in order to cover claims which
arise from occurrences during the insured's coverage period, but which are first
reported to the Company after the insured's coverage period and during the term
of the applicable tail coverage.

The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known which could impact
the amounts reported and disclosed herein.

The accompanying combined financial statements have been prepared in
conformity with generally accepted accounting principles which differ from
statutory accounting practices prescribed or permitted by regulatory
authorities. The significant accounting policies followed by the Company that
materially affect financial reporting are summarized below:

Investments

In 1993, the Financial Accounting Standards Board (FASB) issued Statement
115 (Statement 115), Accounting for Certain Investments in Debt and Equity
Securities. Statement 115 requires that fixed maturity securities are to be
classified as either held-to-maturity, available-for-sale, or trading. The
Company adopted Statement 115 as of December 31, 1993, which had no effect on
net income and increased policyholders' surplus by $19,555,000 (net of deferred
income taxes of $10,500,000) to reflect the net unrealized holding gains on
securities previously carried at amortized cost; there was no effect on net
income.

Recognizing the need for the ability to respond to changes in market
conditions and in tax positions, the Company has designated its entire
investment portfolio as available-for-sale. As required by Statement 115, the
Company adjusted the carrying value of its fixed maturity investments that are
classified as investments available-for-sale to fair value at December 31, 1993.
The Company has no securities classified as "trading" or "held-to-maturity."
Transfers between categories are severely restricted.

F-7
<PAGE> 67

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

Changes in fair values of available-for-sale securities, after adjustment
of deferred income taxes, are reported as unrealized appreciation or
depreciation directly in policyholders' equity and, accordingly, have no effect
on net income.

Prior to the adoption of Statement 115, the Company carried all of its
equity securities, including non-redeemable preferred stock, at fair value with
the unrealized gains and losses reported as a separate component of
policyholders' equity. Fixed maturity securities, including redeemable preferred
stock, were previously carried at amortized cost.

For the mortgage-back bond portion of the fixed maturity securities
portfolio, the Company recognizes income using a constant effective yield based
on anticipated prepayments and the estimated economic life of securities.
Prepayment assumptions are obtained from dealer surveys or internal estimates
and are based on the current interest rate and economic environment. When actual
prepayments differ significantly from anticipated prepayments, the effective
yield is recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the security is adjusted to the amount that
would have existed had the new effective yield been applied since the
acquisition of the security. That adjustment is included in net investment
income.

In October 1994, the FASB issued Statement 119 (Statement 119), Derivative
Financial Instruments and Fair Value of Financial Instruments. The Company
currently holds no derivative financial instruments subject to Statement 119
disclosure requirements.

Premiums and discounts on investments are amortized to investment income
using the interest method over the contractual lives of the investments.
Short-term investments are carried at cost, which approximates market value.
Realized investment gains and losses are included as a component of revenues
based on specific identification of the investment sold.

Premiums

Premiums are earned on a pro rata basis over the terms of the respective
policies. The reserve for unearned premiums is determined on a monthly pro rata
basis.

Deferred Policy Acquisition Costs

Premium taxes are capitalized and amortized as premiums are earned over the
terms of the related policies. The deferred policy acquisition costs are
amortized over the effective period of the related policies. Anticipated
investment income is considered in determining if premium deficiencies exist.

Reserves for Losses and Loss Adjustment Expenses

Reserves for losses and loss adjustment expenses represent the estimated
liability for reported claims plus those incurred but not yet reported and the
related estimated adjustment expenses. The reserve for unpaid claims and related
adjustment expenses is determined using case-basis evaluations and statistical
analyses and represents estimates of the ultimate cost of all unpaid losses
incurred through December 31 of each year. Although considerable variability is
inherent in such estimates, management believes that the reserve for unpaid
losses and related loss adjustment expenses (LAE) is adequate. The estimates are
continually reviewed and adjusted as necessary; such adjustments are included in
current operations and are accounted for as changes in estimates.

F-8
<PAGE> 68

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

Reinsurance

Reinsurance premiums, losses and loss adjustment expenses are accounted for
on bases consistent with those used in accounting for the original policies
issued and the terms of the reinsurance contracts.

On January 1, 1993, the Company adopted the provisions of FASB Statement
113 (Statement 113), Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts. At that date, the only effect of adopting Statement
113 was to reclassify as assets those reinsurance ceded amounts that previously
had been reported as reductions of loss and LAE reserves.

Dividends to Policyholders

Dividends to policyholders are accrued during the period in which the
related premiums are earned. Estimates of policyholder dividends are reviewed
and adjusted as necessary; such adjustments are included in current operations
and accounted for as changes in estimates. In the second quarter of 1996, the
Company estimated an additional $9,000,000 of policyholder dividends would be
paid due to favorable loss experience related to policy years 1987 through 1993.
Except for this final dividend, after the Reorganization, the Company will cease
paying such dividends to its policyholders.

Property and Equipment

Property and equipment, principally the Company's home office building and
land, are recorded at cost and depreciated principally under the straight-line
method over the useful life of the assets.

Income Taxes

Effective January 1, 1993, the Company changed its method of accounting for
income taxes to the liability method prescribed in FASB Statement 109 (Statement
109), Accounting for Income Taxes. Under that method, deferred tax assets and
liabilities are determined based on differences among financial reporting and
tax basis of assets and liabilities and are measured using the enacted tax rates
and laws. The provisions of Statement 109 have been retroactively applied to the
financial statements of the Company for all years beginning in 1990.

Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments,
fixed maturities and reinsurance recoverables. The Company places its temporary
cash investments with high credit quality financial institutions and limits the
amounts of credit exposure to any one financial institution. Concentrations of
credit risk with respect to fixed maturities are limited due to the large number
of such investments and their distributions across many different industries and
geographics.

Reinsurance is placed with a number of individual companies and syndicates
at Lloyd's of London to avoid concentration of credit risk. For the year ended
December 31, 1995, approximately 59.4%, of total reinsurance premiums ceded were
placed with reinsurance companies with an A.M. Best rating of A or better and
26.5%, of total reinsurance premiums ceded were ceded to Lloyd's of London
syndicates. No other single reinsurer's percentage participation in 1995
exceeded 5.3%.

Segment Information

The Company operates in the United States of America and in only one
reportable industry segment which provides professional liability insurance for
physicians, oral and maxillofacial surgeons, hospitals and other health care
providers principally in California.

F-9
<PAGE> 69

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

2. INVESTMENTS

The Company's investments in available-for-sale securities are summarized
as follows:

<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
JUNE 30, 1996 (UNAUDITED)
Fixed maturity securities:
Bonds:
U.S. Government and Agencies............ $ 384,341 $ 3,789 $ 7,096 $331,034
State, municipalities and political
subdivisions.......................... 220,771 1,724 3,173 219,322
Mortgage-backed securities, U.S.
Government............................ 88,586 713 1,059 88,240
Corporate............................... 12,696 3 64 12,635
Other................................... 105 -- -- 105
Redeemable preferred stocks................ -- -- -- --
-------- ------- ------- --------
Total fixed maturity securities.............. 656,499 6,229 11,392 651,336
Common stock................................. 15,099 5,033 446 20,491
-------- ------- ------- --------
Total.............................. $ 271,598 $ 12,067 $ 11,838 $671,827
======== ======= ======= ========
DECEMBER 31, 1995
Fixed maturity securities:
Bonds:
U.S. Government and Agencies............ $ 304,091 $ 15,458 $ 430 $319,119
State, municipalities and political
subdivisions.......................... 149,693 5,569 144 155,118
Mortgage-backed securities, U.S.
Government............................ 80,279 1,896 277 81,898
Corporate............................... 46,951 2,035 97 48,889
Other................................... 105 -- -- 105
Redeemable preferred stocks................ 996 30 -- 1,026
-------- ------- ------- --------
Total fixed maturity securities.............. 582,115 24,988 948 606,155
Common stocks................................ 49,396 13,530 1,843 61,083
-------- ------- ------- --------
Total.............................. $ 631,511 $ 38,518 $ 2,791 $667,238
======== ======= ======= ========
</TABLE>

F-10
<PAGE> 70

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Fixed maturity securities:
Bonds:
U.S. Government and Agencies............ $ 300,131 $ 512 $ 18,712 $281,931
State, municipalities and political
subdivisions.......................... 110,423 767 1,798 109,392
Mortgage-backed securities, U.S.
Government............................ 51,175 153 4,295 47,033
Corporate............................... 120,353 358 5,455 115,256
Other................................... 2,644 109 469 2,284
Redeemable preferred stocks................ 3,018 -- -- 3,018
-------- ------- ------- --------
Total fixed maturity securities.............. 587,744 1,899 30,729 558,914
Non-redeemable preferred stocks.............. 1,061 17 42 1,036
Common stocks................................ 42,228 5,563 2,387 45,404
-------- ------- ------- --------
Total.............................. $ 631,033 $ 7,479 $ 33,158 $605,354
======== ======= ======= ========
</TABLE>

The fair values for fixed maturity securities are based on quoted market
prices, where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing services.
The fair values for equity securities are based on quoted market prices.

The amortized cost and estimated fair value of the Company's investments in
fixed maturity securities, are summarized by stated maturities as follows:

<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
--------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Years to maturity:
One or less............... $ 13,637 $ 13,504 $ 168 $ 172
After one through five.... 118,488 118,530 111,332 114,096
After five through ten.... 194,668 194,434 167,105 177,626
After ten................. 241,120 236,628 223,231 232,363
Mortgage-backed
securities................ 88,586 88,240 80,279 81,898
-------- -------- -------- --------
Totals...................... $656,499 $651,338 $582,115 $606,155
======== ======== ======== ========
</TABLE>

The foregoing data is based on the stated maturities of the securities.
Actual maturities will differ for some securities because borrowers may have the
right to call or prepay obligations.

F-11
<PAGE> 71

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

The ratings of the Company's fixed maturity securities, using Moody's
Investors Services, Inc. or Standard & Poor's Corporation rating service, are
summarized as follows:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------- ------------
(UNAUDITED)
<S> <C> <C>
AAA................. 81% 79%
AA.................. 12 12
A................... 6 8
Not rated........... 1 1
--------- -----
100% 100%
======== ===========
</TABLE>

Major categories of the Company's investment income are summarized as
follows:

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, -------------------------------
1996 1995 1994 1993
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Fixed maturities.................. $ 20,415 $36,987 $37,968 $38,620
Equities.......................... 552 1,627 1,148 1,126
Other............................. 899 4,250 2,862
------- ------- ------- -------
Total investment income........... 21,866 42,864 41,978 41,924
Investment expenses............... 927 2,440 2,315 2,186
------- ------- ------- -------
Net investment income............. $ 20,939 $40,424 $39,663 $39,738
======= ======= ======= =======
</TABLE>

Realized gains and losses from sales of investments are summarized as
follows:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1996 1995 1994 1993
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Fixed maturities:
Gross realized gains.............. $ 5,337 $ 4,946 $ 3,440 $13,520
Gross realized losses............. 3,799 1,558 3,186 321
-------- -------- -------- -------
Net realized gains................ $ 1,538 $ 3,388 $ 254 $13,199
======== ======== ======== =======
Equities:
Gross realized gains.............. $ 11,674 $ 6,649 $ 2,430 $ 5,337
Gross realized losses............. 1,716 2,087 2,136 2,549
-------- -------- -------- -------
Net realized gains................ $ 9,958 $ 4,562 $ 294 $ 2,788
======== ======== ======== =======
</TABLE>

The change in the Company's unrealized appreciation (depreciation) on fixed
maturity securities was $52,870,000, ($58,915,000) and $12,615,000 for the years
ended December 31, 1995, 1994 and 1993, respectively; the corresponding amounts
for equity securities were $8,536,000, ($2,877,000) and $984,000.

At December 31, 1995, the Company's investments in fixed maturity
securities with a carrying amount of $533,000 were on deposit with state
insurance departments to satisfy regulatory requirements.

No investment in any person or its affiliates exceeded 10% of the Company's
policyholders' equity at December 31, 1995.

F-12
<PAGE> 72

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

3. LOSSES AND LOSS ADJUSTMENT EXPENSES

The following table provides a reconciliation of the beginning and ending
reserve balances, net of reinsurance recoverable.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserve for losses and LAE, net of
related reinsurance recoverable, at
beginning of period................... $446,627 $449,566 $449,566 $472,129 $465,424
Provision for losses and LAE for claims
occurring in the current period, net
of reinsurance........................ 86,160 89,203 175,856 169,143 168,784
Decrease in estimated losses and LAE for
claims occurring in prior periods, net
of reinsurance........................ (27,913) (31,670) (57,833) (60,423) (43,430)
-------- -------- -------- -------- --------
Incurred losses during the period, net
of reinsurance........................ 58,247 57,533 118,023 108,720 125,354
-------- -------- -------- -------- --------
Deduct losses and LAE payments for
claims, net of reinsurance, occurring
during:
Current period........................ 1,257 988 11,481 10,178 12,971
Prior periods......................... 51,305 59,538 109,481 121,105 105,678
-------- -------- -------- -------- --------
52,562 60,526 120,962 131,283 118,649
-------- -------- -------- -------- --------
Reserve for losses and LAE, net of
related reinsurance recoverable, at
end of period......................... 452,312 446,573 446,627 449,566 472,129
Reinsurance recoverable for losses and
LAE, at end of period................. 22,086 17,112 19,560 19,177 18,644
-------- -------- -------- -------- --------
Reserves for losses and LAE, gross of
reinsurance recoverable, at end of
period................................ $474,398 $463,685 $466,187 $468,743 $490,773
======== ======== ======== ======== ========
</TABLE>

The Company's reserves for unpaid losses and LAE, net of related
reinsurance recoverable, at December 31, 1994, 1993 and 1992 were decreased in
the following year by $57,833,000, $60,423,000 and $43,430,000, respectively,
for claims that had occurred on or prior to those balance sheet dates. Those
redundancies resulted primarily from settling case basis reserves established in
prior years for amounts that were less than expected. The 1995 redundancies were
offset, in part, by a $23.9 million increase in the loss reserves carried for
physicians who receive free tail coverage in the event of death, disability or
retirement from the medical profession. The increase was the result of a
refinement in the actuarial methodology used to calculate the reserve for this
tail coverage.

The anticipated effect of inflation is implicitly considered when
estimating liabilities for losses and LAE. While anticipated price increases due
to inflation are considered in estimating the ultimate claim costs, the increase
in average severities of claims is caused by a number of factors that vary with
the individual type of insurance written. Future average severities are
projected based on historical trends adjusted for implemented changes in
underwriting standards, policy provisions and general economic trends. Those
anticipated trends are monitored based on actual development and are modified if
necessary.

F-13
<PAGE> 73

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

4. REINSURANCE

Certain premiums and benefits are ceded to other insurance companies under
various reinsurance agreements. These reinsurance agreements provide the Company
with increased capacity to write additional risks and maintain its exposure to
loss within its capital resources. Amounts recoverable from reinsurers are
estimated in a manner consistent with the claim liability associated with the
reinsured policy.

Reinsurance contracts do not relieve the Company from its obligations to
policyholders. The failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition and economic
characteristics of its reinsurers to minimize its exposure to significant losses
from reinsurer insolvencies.

The effect of assumed and ceded reinsurance on premiums is summarized in
the following tables.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------
1996 1995
------------------ ------------------
WRITTEN EARNED WRITTEN EARNED
------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Direct................................................ $62,659 $63,979 $62,216 $63,294
Assumed............................................... 6,008 1,559 397 397
Ceded................................................. 4,372 4,410 3,961 4,238
-------- -------- -------- --------
Net Premiums.......................................... $64,295 $61,128 $58,652 $59,453
======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
(IN THOUSANDS)
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Direct...................... $122,277 $124,118 $120,024 $118,449 $112,459 $112,428
Assumed..................... 780 780 736 736 782 782
Ceded....................... 8,544 8,544 7,526 7,526 16 16
-------- -------- -------- -------- -------- --------
Net premiums................ $114,513 $116,354 $113,234 $111,659 $113,225 $113,194
======== ======== ======== ======== ======== ========
</TABLE>

Reinsurance premiums ceded reduced loss and loss adjustment expenses by
$1,019,000 in 1995, $2,685,000 in 1994 and $2,501,000 in 1993.

5. FEDERAL INCOME TAXES

The components of the Federal income tax provision in the accompanying
statements of income are summarized as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Current........................... $6,045 $4,481 $ 9,898 $3,162 $3,841
Deferred.......................... (446) 1,686 158 6,050 4,777
------ ------ ------- ------ ------
Total................... $5,599 $6,167 $10,056 $9,212 $8,618
====== ====== ======= ====== ======
</TABLE>

F-14
<PAGE> 74

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation of income tax computed at the U.S. Federal statutory tax
rates to total income tax expense is as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -------------------------------
1996 1995 1995 1994 1993
------- ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Federal income tax at 35%............. $ 6,887 $7,169 $12,049 $11,029 $11,934
Increase (decrease) in taxes resulting
from:
Tax-exempt interest................... (1,276) (1,029) (2,125) (1,825) (1,986)
Dividends received deduction.......... (96) (116) (216) (290) (323)
Tax rate change....................... -- -- -- -- (1,021)
Other................................. 84 143 348 298 14
------- ------ ------- ------- -------
Total Federal income tax
expense................... $ 5,599 $6,167 $10,056 $ 9,212 $ 8,618
======= ====== ======= ======= =======
</TABLE>

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
JUNE 30, ------- -------
-----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Discounting of loss reserves.................... $25,477 $24,771 $25,557
Policyholder dividends.......................... 138 138 3,500
Unrealized investment losses.................... -- -- 8,987
------- ------- -------
Total deferred tax assets............... 25,615 24,909 38,044
Deferred tax liabilities:
Deferred policy acquisition costs............... 186 164 180
Unrealized investment gains..................... 80 12,498 --
Interest receivable -- IRS audit................ -- -- 3,953
Other........................................... -- 255 276
------- ------- -------
Total deferred tax liabilities.......... 266 12,917 4,409
======= ======= =======
Net deferred tax assets................. $25,349 $11,992 $33,635
======= ======= =======
</TABLE>

Federal income taxes paid during 1995, 1994 and 1993 were $9,900,000,
$3,250,000 and $3,816,000, respectively.

The Internal Revenue Service (IRS) had proposed adjustments to increase the
Company's tax liability for 1986 and 1987 by $60,815,000 as a result of its
examinations. The Company's management disagreed with the deficiencies proposed
by the IRS and worked with the IRS Appeals Office. The Appeals Office reversed
the $60,815,000 proposed adjustment and concluded that there would be no change
in the 1986 or 1987 tax amounts. The Appeals Office has allowed the Company's
refund claim for $9,120,000 in tax which arose from issues in the 1985 IRS
examination which the IRS previously disallowed. The Appeals Office has also
approved an outstanding claim for refund of $3,563,000 in tax resulting from an
amended filing of the 1988 return. Both the 1985 and 1988 refunds were paid by
the

F-15
<PAGE> 75

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

IRS with interest of $13,220,000 in January 1996. At December 31, 1995 the
Company has recorded these refunds totaling $25,903,000 in Federal income taxes
recoverable.

In November 1995, the IRS proposed a $13,023,000 adjustment to increase the
Company's 1991 tax liability and in June 1996, proposed a $3,673,000 adjustment
to increase the Company's 1992 tax liability for the same issue asserted in the
1986 and 1987 examinations. The Company's management disagrees with the proposed
adjustment and intends to pursue all administrative and judicial remedies
available to satisfactorily settle this dispute. The Company filed a petition in
Tax Court to contest the 1991 tax deficiency in February 1996, and will file a
similar petition related to the 1992 deficiency. Based on the results of the
1986 and 1987 IRS examinations, the Company's management believes that the
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations and no accrual has been
recorded in the accompanying financial statements. Because this matter may have
to be appealed or litigated, the Company's management believes that it is
unlikely that this issue will be resolved in the foreseeable future.

6. STATUTORY ACCOUNTING PRACTICES

The Company is domiciled in California and prepares its statutory-basis
financial statements in accordance with accounting practices prescribed or
permitted by the California Department of Insurance. "Prescribed" statutory
accounting practices include state laws, regulations and general administrative
rules, as well as a variety of publications of the National Association of
Insurance Commissioners (NAIC). "Permitted" statutory accounting practices
encompass all accounting practices that are not prescribed; such practices may
differ from state to state, may differ from company to company within a state,
and may change in the future. The NAIC currently is in the process of codifying
statutory accounting practices, the result of which is expected to constitute
the only source of "prescribed" statutory accounting practices. Policyholders'
surplus and net income, as reported to the domiciliary state insurance
department in accordance with its prescribed or permitted statutory accounting
practices, for the Company are summarized as follows:

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income for the year............... $ 24,393 $ 17,730 $ 16,886
Statutory surplus at year end................... 235,352 187,299 171,589
</TABLE>

The Company offers its insureds free tail coverage in the event of death,
total and permanent disability and complete and permanent retirement. In 1993,
the NAIC published guidelines for establishing a reserve for future free tail
policies when the claims-made policy includes a provision for waiving a premium
charge in the event of death, disability or retirement of the insured. Based on
the NAIC guidelines, this reserve should be recorded as an unearned premium
reserve. Alternatively, it can be considered an unpaid loss with the permission
of the insurance entity's state insurance department. In 1995, the Company
received written approval from the California Department of Insurance to record
this reserve as an unpaid loss. The Company's statutory surplus would be
unaffected if the California Department of Insurance were to rescind its
permission for this treatment.

7. BENEFIT PLANS

The Company has a 401(k) defined contribution plan and a non-contributory
defined benefit plan which provide retirement benefits to all its employees.
Under the 401(k) plan, the Company presently matches the employees'
contribution. The contribution expense for the 401(k) plan was $436,000,
$350,000 and $304,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. An

F-16
<PAGE> 76

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

additional defined contribution plan that no longer accepts contributions will
remain with the trustee as funded at December 31, 1989 until retirement or
termination of all employees vested in the plan.

SMC also maintains a defined benefit pension plan whose benefits are based
on years of service and salary levels. The Company's policy is to fund the
pension plan up to the maximum deductible contributions the Federal laws and
regulations permit. Plan assets consist of investment funds and cash held in a
bank money market account.

Net pension expense consists of the following components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
----- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the year............... $ 223 $252 $191
Interest on projected benefit obligation................... 73 55 44
Actual return on plan assets............................... (282) (60) (51)
Net amortization and deferral.............................. 201 1 25
----- ---- ----
Net pension expense........................................ $ 215 $248 $209
===== ==== ====
</TABLE>

The following table sets forth the funding status of the plan:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of
$759,000 in 1995 and $489,000 in 1994........................ $(1,078) $ (694)
======= =======
Projected benefit obligation................................... $(1,370) $ (910)
Plan assets.................................................... 1,423 863
------- -------
Plan assets in excess of (less than) projected benefit
obligations.................................................. 53 (47)
Unrecognized net loss from past experience different from that
assumed...................................................... 31 48
Unrecognized past service cost................................. (15) (16)
Unrecognized net asset at January 1............................ (35) (39)
------- -------
Prepaid (accrued) pension expense.............................. $ 34 $ (54)
======= =======
</TABLE>

The projected benefit obligation for 1995, 1994 and 1993 was determined
using an assumed discount rate of 7%, 8% and 7%, respectively, and an assumed
rate of compensation increase of 5% for 1995, 1994 and 1993. The expected
long-term rate of return on plan assets was 8% in 1995, 1994 and 1993.

The Company also has enacted a non-qualified supplemental employee
retirement agreement for selected employees which provides benefits
retroactively from January 1, 1990. At December 31, 1995, the projected benefit
obligation for this plan was $1,891,000 of which the accumulated benefit
obligation of $1,101,000 is accrued as a liability in the combined balance
sheet. Pension expense for this plan was approximately $258,000 in 1995,
$291,000 in 1994 and $19,000 in 1993.

F-17
<PAGE> 77

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES

The Company leases certain facilities under lease agreements expiring from
1996 to 2001. Future minimum payments under noncancellable operating leases at
December 31, 1995 consisted of the following (in thousands):

<TABLE>
<S> <C>
1996................................. $195
1997................................. 195
1998................................. 185
1999................................. 175
2000................................. 175
Thereafter........................... 9
----
Total minimum payments
due...................... $934
====
</TABLE>

Rent expense for the years ended December 31, 1995, 1994 and 1993 was
$46,000, $42,000 and $39,000, respectively.

The Company is a defendant in an action brought by the bankruptcy estate of
an uninsured physician. The bankruptcy estate alleged that the Company had an
undisclosed conflict of interest when it provided the physician with a free
courtesy defense by an attorney who had represented the interests of the
Company's insureds in other cases. The punitive damages rendered by the jury
were reduced to $14,000,000 by the trial judge. The Company believes that the
action is entirely without merit and plans to aggressively pursue its rights on
appeal. However, the ultimate resolution of this matter cannot be determined at
this time and could result in a loss to the Company.

The Company is named as defendant in various legal actions primarily
arising from claims made under insurance policies and contracts. These actions
are considered by the Company in estimating the loss and loss adjustment expense
reserves. The Company's management believes that the resolution of these actions
will not have a material adverse effect on the Company's financial position or
results of operations.

Since 1981, the Company has purchased annuities from life insurance
companies to fund obligations under structured settlement agreements with
certain medical malpractice claimants. Annuities having an aggregate purchase
price of $12,294,000 were purchased from Executive Life Insurance Company (ELIC)
which was placed in conservatorship during 1991 by the California Insurance
Commissioner. On August 13, 1993, the California Superior Court for Los Angeles
County approved a Rehabilitation Plan (the Plan) under which the annuities were
restructured to reduce their account values and amounts payable to
beneficiaries. Under the Plan, substantially all of the assets of ELIC have been
transferred to another insurer, which has assumed the restructured annuities and
is obligated to pay varying percentages of the original annuity benefits as they
become due. Certain state insurance guaranty associations have agreed to enhance
the annuity benefits up to the monetary limits permitted by applicable state
laws. Under many of the annuities purchased by the Company, there remains a
significant shortfall from the benefits provided in the original contracts.
Certain creditors of ELIC have appealed the court's decision approving the Plan
and the Plan was upheld in all material respects by the Court of Appeals. The
Company has determined that it is contractually obligated for the shortfall
amounts under certain of these annuities and at December 31, 1995, included in
losses incurred a reserve in the amount of $7,036,000 and included in
reinsurance recoverables expected recoverables of $3,036,000 related to these
expected shortfall payments. During 1995, the Company made shortfall payments
totaling $93,000 ($260,000 in 1994). The shortfall amounts paid by the Company
in 1995 were reduced by a distribution to all annuitants of certain ELIC assets
held in trust, pending the completion of various

F-18
<PAGE> 78

SOUTHERN CALIFORNIA PHYSICIANS INSURANCE EXCHANGE
ORGANIZATION OF SOUTHERN CALIFORNIA PHYSICIANS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

transactions and claims. The Company has been advised that there will be at
least two additional distributions of assets from the ELIC Trusts, which will
further reduce the shortfall under the ELIC annuities. The extent of the
Company's obligations with respect to these and other ELIC annuities purchased
by the Company cannot be determined until various transactions under the Plan
are completed and claims with respect to the annuities and the pending appeal
are resolved including claims on the remaining assets held in the ELIC Trusts.
The Company believes that the amount of its obligations in excess of the
existing reserves, if any, is not material to its financial position or results
of operations.

9. REORGANIZATION

On March 21, 1996, the Board of Governors of the Exchange adopted a Plan
and Agreement of Merger (the Merger Agreement) whereby the Exchange will
reorganize from a reciprocal insurer to a stock insurance company and become a
wholly owned subsidiary of SCPIE Holdings (the Reorganization). Pursuant to the
Reorganization, the Exchange will merge with and into SCPIE Indemnity, a newly
organized California stock insurer and a wholly owned subsidiary of SCPIE
Holdings that will be the surviving corporation of the Reorganization. The
assets and liabilities of the Exchange that will be merged into SCPIE Indemnity
will be accounted for at a historical cost in a manner similar to that in a
pooling of interests. SCPIE Indemnity is licensed to write property and casualty
insurance lines in the state of California, but has not conducted business prior
to the Reorganization. Prior to the Reorganization, OSCAP will be liquidated
into the Exchange, so that SCPIE Management Company will become a subsidiary of
SCPIE Indemnity after the Reorganization. The Reorganization also involves the
consolidation of certain other affiliated entities and SCPIE Holdings.

The principal purpose of the Reorganization is to improve SCPIE's access to
the capital markets and to raise capital to permit the growth of existing
business and develop new business opportunities in the professional liability
insurance industry. The Reorganization will also provide Members of the Exchange
with shares of Common Stock in exchange for their membership interests in the
Exchange.

A special meeting of SCPIE Members will be held to approve the Merger
Agreement.

Unaudited pro forma net income per share generated in the Combined
Statements of Income gives effect in all periods to the Reorganization and the
issuance of 10,000,000 shares of Common Stock (less fractional shares, which
will be paid in cash) to Eligible Members of the Exchange.

On July 12, 1996, OSCAP was liquidated into the Exchange and SMC and its
subsidiaries became subsidiaries of the Exchange.

F-19
<PAGE> 79

REPORT OF INDEPENDENT AUDITORS

Board of Directors
SCPIE Holdings Inc.

We have audited the accompanying balance sheet of SCPIE Holdings Inc. as of
February 29, 1996. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of SCPIE Holdings Inc. as of February
29, 1996, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Los Angeles, California
May 1, 1996

F-20
<PAGE> 80

SCPIE HOLDINGS INC.

BALANCE SHEETS

JUNE 30, FEBRUARY 29,
1996 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Assets
Cash........................................................... $ 415,331 $ 600,010
Deposit........................................................ -- 400,000
Investment in Subsidiaries..................................... 13,569,300 --
Other.......................................................... 418,472 --
----------- ------------
Total assets................................................ $14,403,103 $ 1,000,010
============ ============
Liabilities
Due to affiliates.............................................. $ 392,843 --
Other.......................................................... 3,591 --
----------- ------------
Total liabilities........................................... 396,434 --
Stockholder's Equity
Common stock -- $.01 par value, 1,000 shares authorized,
500 shares issued and outstanding........................... $ 5 $ 5
Additional Paid-in capital....................................... 13,999,995 999,995
Retained earnings................................................ 6,669 10
----------- ------------
Total stockholder's equity.................................. 14,006,669 $ 1,000,010
----------- ------------
Total liabilities and stockholder's equity.................. $14,403,103 --
============ ============
</TABLE>

STATEMENT OF INCOME

<TABLE>
<CAPTION>
FOUR MONTHS ENDED
JUNE 30, 1996
-----------------
(UNAUDITED)
<S> <C>
Net investment income...................................................... $10,361
Federal income taxes....................................................... 3,692
--------
Net income............................................................... $ 6,669
--------
--------
</TABLE>

See accompanying note.

F-21
<PAGE> 81

SCPIE HOLDINGS INC.

NOTE TO BALANCE SHEETS

1. ORGANIZATION

SCPIE Holdings Inc. (SCPIE Holdings) is a Delaware corporation which is a
wholly owned subsidiary of Southern California Physicians Insurance Exchange
(the Exchange). SCPIE Holdings has no historic operations and was organized in
February 1996, as part of the Exchange's plan to reorganize its corporate
structure.

In March 1996, SCPIE Holdings acquired the outstanding stock of two
inactive property and casualty insurance companies, FG Insurance Corporation and
FG Casualty Company for $12.5 million, and an additional contribution of $1.05
million was made during the second quarter of 1996. The transaction will be
accounted for as a purchase and the excess of the purchase price over the net
book value of the underlying assets will be recorded as goodwill and amortized
over a period of 10 years. SCPIE Holdings plans to utilize these companies to
enter geographic markets outside California.

F-22
<PAGE> 82

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 12
The Reorganization.................... 12
Use of Proceeds....................... 13
Dividend Policy....................... 14
Capitalization........................ 15
Selected Financial and Operating
Data................................ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 23
Management............................ 42
Ownership of Common Stock............. 48
Description of Capital Stock.......... 49
Shares Eligible for Future Sale....... 51
Underwriting.......................... 53
Legal Matters......................... 54
Experts............................... 54
Glossary of Selected Insurance Terms.. 55
Index to Financial Statements......... F-1
------------------------
UNTIL , 1996, ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
</TABLE>

2,000,000 SHARES

SCPIE HOLDINGS INC.

COMMON STOCK
($.0001 PAR VALUE)

[LOGO]

- ------------------------------------------

SALOMON BROTHERS INC
- ----------------------------------------------------
PROSPECTUS

DATED , 1996
<PAGE> 83

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following is an itemized statement of the expenses to be incurred by
the Company in connection with the issuance and distribution of the Common Stock
being registered. Each amount, except for the SEC registration fee, the NASD
filing fee and the NYSE listing fee, is estimated.

<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
SEC registration fee........................................ $ 16,656.00
NASD filing fee............................................. 5,330.00
New York Stock Exchange listing fee......................... 10,500
Printing and engraving costs................................ 27,500
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 52,500
Blue Sky fees and expenses.................................. 10,000
Transfer agent and registrar fees........................... 20,000
Miscellaneous............................................... 5,000
-----------
TOTAL............................................. $447,486
===========
</TABLE>

- ---------------

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Article Seventh of the Restated Certificate of Incorporation of SCPIE
Holdings Inc. (the "Registrant") provides with respect to the indemnification of
directors that no director shall be liable to Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent that such exemption from liability or limitation thereof is not permitted
under the DGCL. Article V of Registrant's Bylaws provides that Registrant shall
indemnify every person who was or is a party or is or was threatened to be made
a party to any action, suit, or proceeding, whether civil, criminal,
administrative or investigative, (an "Action") by reason of the fact that he is
or was a director or officer of Registrant or, while a director or officer of
Registrant, is or was serving at the request of Registrant as a director or
officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including counsel fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, to the full extent
permitted by applicable law. Article V further provides that Registrant shall be
required to indemnify a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was authorized
by the Board of Directors of Registrant. Article VI of Registrant's Bylaws
provides that Registrant may, at its option, indemnify every person who was or
is a party or is or was threatened to be made a party to any Action, by reason
of the fact that he is or was an employee or agent of Registrant or, while an
employee or agent of Registrant, is or was serving at the request of Registrant
as an employee or agent or trustee of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including counsel fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, to the extent permitted by applicable law. In addition to the
foregoing, Registrant intends to enter into indemnification agreements with each
of its directors and certain of its executive officers. The information
contained in the Prospectus under the caption "Description of Capital
Stock -- Delaware Law and Certain Charter and Bylaw Provisions" is incorporated
by reference herein. It is the position of the Commission that indemnification
of officers and directors of liabilities arising under the Securities Act is
against public policy and is unenforceable pursuant to Section 14 of the
Securities Act.

II-1
<PAGE> 84

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

(a) Securities sold.

<TABLE>
<CAPTION>
DATE OF SALE TITLE AMOUNT
------------ ------------- ------------
<S> <C> <C>
February, 1996................................ Common Stock 500 shares
</TABLE>

(b) Underwriters and other purchasers.

Underwriters were not retained in connection with the sale of any of the
Company's currently outstanding securities.

As part of the Company's formation, 500 shares of Common Stock were issued
to the Exchange for cash in the amount of $2,000 per share.

(d) Exemption from registration claimed.

The transaction is exempt from registration pursuant to Section 4(2) of the
Securities Act.

II-2
<PAGE> 85

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

A. EXHIBITS

<TABLE>
<CAPTION>
NUMBER DOCUMENT
----------- ----------------------------------------------------------------------------
<S> <C>
1. Form of Underwriting Agreement.*
2. Form of Amended and Restated Plan and Agreement of Merger by and among SCPIE
Holdings Inc., SCPIE Indemnity Company and Southern California Physicians
Insurance Exchange dated August 8, 1996.
3.1 Form of Amended and Restated Certificate of Incorporation.**
3.2 Form of Amended and Restated Bylaws.**
5. Opinion of Latham & Watkins.*
10.1 Amended and Restated Employment Agreement dated January 2, 1996, between
SCPIE Management Company and Donald J. Zuk.**
10.2 Operational Agreement between Southern California Physicians Insurance
Exchange and Sullivan, Kelly and Associates, Inc. dated August 25, 1995.**
10.2.1 Amendment to Operational Agreement between Southern California Physicians
Insurance Exchange and Sullivan, Kelly and Associates, Inc. dated August 1,
1996.
10.3 Letter of Credit Agreement dated January 11, 1995 between First Interstate
Bank and Southern California Physicians Insurance Exchange in the amount of
$27,368,087.**
10.4 Letter of Credit Agreement dated January 26, 1995 between First Interstate
Bank and Southern California Physicians Insurance Exchange for a $5,000,000
Secured Standby Letter of Credit Facility.**
10.5 First Excess of Loss Treaty No. 01-95-0020 with various subscribing
reinsurers.**
10.6 Second Excess of Loss Treaty No. 01-95-0021 with various subscribing
reinsurers.**
10.7 Third Excess of Loss Treaty No. 01-95-0022 with various subscribing
reinsurers.**
10.8 Fourth Excess of Loss Treaty No. 01-95-0599 with various subscribing
reinsurers.**
10.9 Per Policy Excess of Loss Treaty No. 01-94-0365 with various subscribing
reinsurers.**
10.10 Reinstatement/Retroactive/Aggregate Extension Excess of Loss Treaty No.
01-95-0879 with various subscribing reinsurers.**
10.11 Medical Malpractice Surplus Reinsurance Treaty between SCPIE and Lloyd's
Syndicate No. 1010 and Syndicates Comprising 1007 Group underwritten for by
CW Spreckley, Esq. and others, effective date January 1, 1996, Treaty No.
01-95-0374.**
10.12 Physician Medical Malpractice/Hospital Professional Liability Quota Share
Reinsurance Agreement between Hannover Ruckversicherungs-
Aktiengesellschaft/Eisen Und Stahl Ruckversicherungs-Aktiengesellschaft,
Hannover, Germany, and various subscribing reinsurers, effective date
January 1, 1995, Treaty No. 01-95-0694.*
10.13 SCPIE Management Company Retirement Income Plan, as amended and restated,
effective January 1, 1989.**
10.14 Supplemental Employee Retirement Plan for Selected Employees of SCPIE
Management Company dated January 1, 1995.**
10.15 Retirement Plan for Outside Governors and Affiliated Directors, effective
January 1, 1994 as amended.**
10.16 The SMC Cash Accumulation Plan, dated July 1, 1991, as amended.**
10.17 Inter-Company Pooling Agreement as of April 1, 1996.**
10.18 Form of Indemnification Agreement.**
11. Statement re computation of per share earnings, reference is made to page
F-4.
21. Subsidiaries of the registrant.**
24.1 Consent of Ernst & Young LLP, reference is made to page S-1.
24.2 Consent of Latham & Watkins, reference is made to Exhibit 5.*
25. Power of Attorney, reference is made to page II-4.
27. Financial Data Schedule.**
</TABLE>

- ---------------

(*) To be filed by Amendment.
(**) Previously filed.

II-3
<PAGE> 86

B. FINANCIAL STATEMENT SCHEDULES

Schedules I, II, III, IV and VI have been omitted as all required data is
included in the financial statements and corresponding footnotes.

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and therefore have
been omitted.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

The undersigned registrant hereby undertakes:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-4
<PAGE> 87

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement
(Registration No. 333-4450) to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Beverly Hills, State of California, on
August 28, 1996.

SCPIE HOLDINGS INC.

By: /s/
------------------------------
Donald J. Zuk
President

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement (Registration No. 333-4450) has
been signed by the following persons in the capacities and on the dates
indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
* Chairman of the Board August 28, 1996
- ---------------------------------------
Mitchell S. Karlan, M.D.

/s/
- --------------------------------------- President, Principal August 28, 1996
Donald J. Zuk Executive Officer,
Director

*
- --------------------------------------- Vice President, Chief August 28, 1996
Patrick T. Lo Financial Officer,
(Principal Financial
Officer and Principal
Accounting Officer)

*
- -------------------------------------- Director August 28, 1996
Allan K. Briney, M.D.

*
- -------------------------------------- Director August 28, 1996
Willis T. King, Jr.

*
- ------------------------------------- Treasurer and Director August 28, 1996
Jack E. McCleary, M.D.

* Director August 28, 1996
- -------------------------------------
Charles B. McElwee, M.D.
</TABLE>

II-5
<PAGE> 88
W

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Secretary and Director August 28, 1996
- -----------------------------------------
Wendell L. Moseley, M.D.

* Director August 28, 1996
- -----------------------------------------
Donald P. Newell

* Director August 28, 1996
- -----------------------------------------
Harriet M. Opfell, M.D.

* Director August 28, 1996
- ----------------------------------------
William A. Renert, M.D.

* Director August 28, 1996
- ----------------------------------------
Henry L. Stoutz, M.D.

* Director August 28, 1996
- ----------------------------------------
Reinhold A. Ullrich, M.D.

*By /s/
- ----------------------------------------
Donald J. Zuk
Attorney-in-Fact
</TABLE>

II-6
<PAGE> 89

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 5, 1996, except for Note 9, as to which the date
is July 12, 1996, and May 1, 1996, in Amendment No. 2 to Registration Statement
(Form S-1 No. 333-4450) and related Prospectus of SCPIE Holdings Inc. for the
registration of 2,300,000 shares of its common stock.

ERNST & YOUNG LLP

Los Angeles, California

August 28, 1996

S-1
<PAGE> 90

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------------
<S> <C> <C>
1. Form of Underwriting Agreement*............................................
2. Form of Amended and Restated Plan and Agreement of Merger by and among
SCPIE Holdings Inc., SCPIE Indemnity Company and Southern California
Physicians Insurance Exchange dated August 8, 1996.........................
3.1 Form of Amended and Restated Certificate of Incorporation**................
3.2 Form of Amended and Restated Bylaws**......................................
5. Opinion of Latham & Watkins*...............................................
10.1 Amended and Restated Employment Agreement dated January 2, 1996, between
SCPIE Management Company and Donald J. Zuk**...............................
10.2 Operational Agreement between Southern California Physicians Insurance
Exchange and Sullivan, Kelly and Associates, Inc. dated August 25,
1995**.....................................................................
10.2.1 Amendment to Operational Agreement between Southern California Physicians
Insurance Exchange and Sullivan, Kelly and Associates, Inc. dated August 1,
1996.......................................................................
10.3 Letter of Credit Agreement dated January 11, 1995 between First Interstate
Bank and Southern California Physicians Insurance Exchange in the amount of
$27,368,087**..............................................................
10.4 Letter of Credit Agreement dated January 26, 1995 between First Interstate
Bank and Southern California Physicians Insurance Exchange for a $5,000,000
Secured Standby Letter of Credit Facility**................................
10.5 First Excess of Loss Treaty No. 01-95-0020 with various subscribing
reinsurers**...............................................................
10.6 Second Excess of Loss Treaty No. 01-95-0021 with various subscribing
reinsurers**...............................................................
10.7 Third Excess of Loss Treaty No. 01-95-0022 with various subscribing
reinsurers**...............................................................
10.8 Fourth Excess of Loss Treaty No. 01-95-0599 with various subscribing
reinsurers**...............................................................
10.9 Per Policy Excess of Loss Treaty No. 01-94-0365 with various subscribing
reinsurers**...............................................................
10.10 Reinstatement/Retroactive/Aggregate Extension Excess of Loss Treaty No.
01-95-0879 with various subscribing reinsurers**...........................
10.11 Medical Malpractice Surplus Reinsurance Treaty between SCPIE and Lloyd's
Syndicate No. 1010 and Syndicates Comprising 1007 Group underwritten for by
CW Spreckley, Esq. and others, effective date January 1, 1996, Treaty No.
01-95-0374**...............................................................
10.12 Physician Medical Malpractice/Hospital Professional Liability Quota Share
Reinsurance Agreement between Hannover
Ruckversicherungs-Aktiengesellschaft/Eisen Und Stahl
Ruckversicherungs-Aktiengesellschaft, Hannover, Germany, and various
subscribing reinsurers, effective date January 1, 1995, Treaty No.
01-95-0694*................................................................
10.13 SCPIE Management Company Retirement Income Plan, as amended and restated,
effective January 1, 1989**................................................
10.14 Supplemental Employee Retirement Plan for Selected Employees of SCPIE
Management Company dated January 1, 1995**.................................
10.15 Retirement Plan for Outside Governors and Affiliated Directors, effective
January 1, 1994 as amended**...............................................
10.16 The SMC Cash Accumulation Plan, dated July 1, 1991, as amended**...........
10.17 Inter-Company Pooling Agreement as of April 1, 1996**......................
10.18 Form of Indemnification Agreement**........................................
11. Statement re computation of per share earnings, reference is made to page
F-4........................................................................
21. Subsidiaries of the registrant**...........................................
24.1 Consent of Ernst & Young LLP, reference is made to page S-1................
24.2 Consent of Latham & Watkins, reference is made to Exhibit 5*...............
25. Power of Attorney, reference is made to page II-4..........................
27. Financial Data Schedule**..................................................
</TABLE>

- ---------------

(*) To be filed by Amendment.
(**) Previously filed.

<PAGE> 1
EXHIBIT 2

FORM OF AMENDED AND RESTATED
PLAN AND AGREEMENT OF MERGER
<PAGE> 2

FORM OF AMENDED AND RESTATED
PLAN AND AGREEMENT OF MERGER

BY AND AMONG

SCPIE HOLDINGS INC.
A DELAWARE CORPORATION,

AND

SCPIE INDEMNITY COMPANY
A CALIFORNIA CORPORATION,

AND

SOUTHERN CALIFORNIA PHYSICIANS
INSURANCE EXCHANGE
A CALIFORNIA INTER-INSURANCE EXCHANGE
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I THE MERGER...................................................................... 1
1.1 The Merger................................................................. 1
1.2 Effective Time of the Merger............................................... 2
1.3 Effect of the Merger....................................................... 2
1.4 Subsequent Actions......................................................... 2
1.5 Governing Documents........................................................ 2
1.6 Directors and Officers..................................................... 2
II CONVERSION OF MEMBERSHIP INTERESTS, ALLOCATION AND PAYMENT OF MERGER
CONSIDERATION................................................................... 3
2.1 Certain Definitions........................................................ 3
2.2 Conversion of Membership Interests......................................... 4
2.3 Allocation of Merger Shares................................................ 4
2.4 Adjustment of Share Numbers................................................ 5
2.5 Fractional Shares.......................................................... 5
2.6 Cancellation and Issuance of Holdings Stock................................ 5
2.7 Issuance of Consideration.................................................. 5
2.8 No Further Interest in the Company......................................... 5
III APPROVAL BY THE COMMISSIONER.................................................... 5
3.1 Commissioner's Approval.................................................... 5
IV REPRESENTATIONS AND WARRANTIES BY THE COMPANY................................... 5
4.1 Organization and Qualification............................................. 5
4.2 Authority Relative to this Plan; Recommendation to Eligible Members........ 5
4.3 Compliance................................................................. 6
V REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND NEW INSURER...................... 6
5.1 Organization and Qualification............................................. 6
5.2 Capitalization............................................................. 7
5.3 Authority Relative to this Plan............................................ 7
5.4 Compliance................................................................. 7
VI ADDITIONAL AGREEMENTS........................................................... 7
6.1 Cooperation................................................................ 7
6.2 Special Meeting of Eligible Members of the Company......................... 8
6.3 Officers' and Directors' Insurance; Indemnification........................ 9
6.4 Continuity of Obligations Regarding Policyholders.......................... 9
VII CONDITIONS PRECEDENT............................................................ 10
7.1 Conditions to Obligations of Each Party to Effect the Merger............... 10
VIII TERMINATION..................................................................... 10
8.1 Termination................................................................ 10
8.2 Effect of Termination...................................................... 11
</TABLE>

i
<PAGE> 4

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
IX GENERAL PROVISIONS.............................................................. 11
9.1 Amendment.................................................................. 11
9.2 Extension; Waiver.......................................................... 11
9.3 Nonsurvival of Representations and Warranties.............................. 11
9.4 Entire Plan................................................................ 11
9.5 Counterparts............................................................... 11
9.6 Severability............................................................... 11
9.7 Notices.................................................................... 12
9.8 Public Announcements....................................................... 12
9.9 Section Headings........................................................... 12
9.10 Benefits and Assignment.................................................... 12
9.11 Applicable Law............................................................. 12
</TABLE>

ii
<PAGE> 5

THIS AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER (the "Plan"), dated
as of August 8, 1996, is among SCPIE HOLDINGS INC., a Delaware corporation
("Holdings"), SCPIE INDEMNITY COMPANY, a California corporation and a wholly
owned subsidiary of Holdings ("New Insurer"), and SOUTHERN CALIFORNIA PHYSICIANS
INSURANCE EXCHANGE, a California inter-insurance exchange (the "Company").

RECITALS

WHEREAS, the Company is a California reciprocal or inter-insurance exchange
organized pursuant to the provisions of Division I, Part 2, Chapter 3
(commencing with Section 1280) of the Insurance Code of the State of California
(the "California Insurance Law").

WHEREAS, New Insurer is a corporation of the State of California authorized
to transact insurance under the California Insurance Law.

WHEREAS, Holdings is a corporation of the State of Delaware and a wholly
owned subsidiary of the Company.

WHEREAS, the General Corporations Law of the State of California (the
"California Corporations Law") and the California Insurance Law permit a merger
of a California reciprocal or inter-insurance exchange with and into a
corporation authorized to transact insurance in California.

WHEREAS, in furtherance of such merger, it is contemplated that the
Membership Interests (as hereinafter defined) of Eligible Members (as
hereinafter defined) of the Company will be exchanged for the consideration
described herein.

WHEREAS, the Board of Governors of the Company (the "Board of Governors")
and the respective Boards of Directors of New Insurer and Holdings have each
duly approved the merger contemplated by this Plan (the "Merger") upon the terms
and subject to the conditions set forth in this Plan and in accordance with
California Corporations Law and the California Insurance Law, with the result
that the Company shall be merged with and into New Insurer and the Eligible
Members of the Company shall receive, pursuant to the Merger, shares of the
Common Stock, par value $.0001 per share, of Holdings (the "Common Stock").

WHEREAS, the Company intends to prepare and mail to all Eligible Members of
the Company a proxy statement with respect to a special meeting (the "Special
Meeting") of Members of the Company at which Eligible Members will be asked to
approve this Plan.

WHEREAS, the parties entered into a plan and agreement of merger, dated
March 21, 1996, relating to the Merger (the "Original Plan"); and

WHEREAS, the parties desire to amend and restate the Original Plan by
entering into this Plan, and the parties intend for the terms and conditions of
this Plan to supersede all terms and conditions of the Original Plan.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, Holdings, New Insurer and the Company
hereby agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger. Subject to the conditions of Article VII being satisfied
or duly waived, and in accordance with and subject to (i) the provisions of this
Plan, (ii) the California Corporations Law and

1
<PAGE> 6

(iii) the California Insurance Law, the Company shall be merged with and into
New Insurer in the Merger. At and after the Effective Time, the separate
existence of the Company (except as may be continued by operation of law) shall
cease, and the New Insurer shall continue as the surviving corporation under the
corporate name it possesses immediately prior to the Effective Time. The Company
and the New Insurer are sometimes hereinafter referred to as the "Constituent
Entities" and New Insurer is sometimes hereinafter referred to as the "Surviving
Corporation."

1.2 Effective Time of the Merger. The Merger shall become effective at the
time (herein called the "Effective Time") this Plan is filed with the Secretary
of State of the State of California in the manner provided under Section 1113(g)
of the California Corporations Law and Section 1556(a) of the California
Insurance Law. The day on which the Effective Time occurs is hereinafter called
the "Effective Date." The Effective Date shall be such date as the Board of
Governors and the Boards of Directors of Holdings and New Insurer determine is
appropriate after the conditions set forth herein have been satisfied or waived.

1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the California Corporations
Law and the California Insurance Law, including, without limitation, Section
1107 of California Corporations Law and Section 1557 of the California Insurance
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the rights and property of the Company shall accrue to,
and become the rights and properties of, the Surviving Corporation, which shall
succeed to and assume all the obligations and liabilities (including
policyholder obligations and liabilities) of the Company; and all rights of
creditors (including policyholders) and liens of the Company shall become the
rights of creditors (including policyholders) and liens of the Surviving
Corporation. After the Effective Time, any reference to the Company in any
writing, including but not limited to any power or powers of attorney or agency
agreement or agreements authorizing the execution of any surety bonds or
contracts or policies of insurance, or authorizing the acceptance of service of
process or any other act on behalf of the Constituent Entities and any and all
other contracts, policies, agreements, instruments and documents to which either
Constituent Entity is a party, whether executed or taking effect before or after
the Merger, shall be deemed a reference to the Surviving Corporation if not
inconsistent with the other provisions of such writing, and all such writings
are hereby ratified, confirmed and approved by the Surviving Corporation, and
the Surviving Corporation shall be deemed to be substituted in the place and
stead of either Constituent Entity as a party thereto.

1.4 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Plan, the officers and directors of the Surviving Corporation
shall be authorized to execute and deliver, in the name and on behalf of the
Company, all such deeds, bill of sale, assignments and assurances and to take
and do, in the name and on behalf of such corporation or otherwise, all such
other actions and things as may be necessary or desirable to vest, perfect or
confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out this
Plan.

1.5 Governing Documents. The Articles of Incorporation and Bylaws of New
Insurer shall be the Articles of Incorporation and Bylaws of the Surviving
Corporation, as in effect immediately prior to the Effective Time, until
thereafter amended as provided therein and under California Corporations Law.

1.6 Directors and Officers. The members of the Board of Directors of the
New Insurer immediately prior to the Effective Time will be the initial
directors of the Surviving Corporation, and the officers of the New Insurer
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation, in each case until their successors are duly elected and
qualified.

2
<PAGE> 7

ARTICLE II

CONVERSION OF MEMBERSHIP INTERESTS,
ALLOCATION AND PAYMENT OF MERGER CONSIDERATION

2.1 Certain Definitions. As used in this Article II and elsewhere in this
Plan, the terms listed below shall have the following meanings:

"Approval Date" means the date that the Commissioner, pursuant to Section
1552 of the California Insurance Law, approves this Plan for submission to the
Eligible Members for approval.

"Attorney-in-Fact" means SCPIE Management Company, a California corporation
that is the Company's attorney-in-fact.

"California Department" means the Department of Insurance of the State of
California.

"Commissioner" means the Commissioner of Insurance of the California
Department, or such governmental officer, body or authority as may succeed such
Commissioner as the primary regulator of the Company's insurance business under
applicable law.

"Earned Premiums" means, for the applicable period, earned premiums in
respect of a Policy.

"Eligible Member" means a Person who is a Member of the Company on the
Approval Date.

"Eligible Policy" means a Policy issued to an Eligible Member on which
premiums were earned at any time, provided, however, that with respect to a
Policy issued to an Eligible Member who was not a Member on March 21, 1996,
Earned Premiums for such a Policy shall consist only of earned premiums
following March 21, 1996, and not earned premiums at any point prior to such
date.

"Fair Market Value" means (i) the average closing price of a share of the
Common Stock on the principal exchange on which the Common Stock is then
trading, if any, on the first five trading days following the Effective Date; or
(ii) if the Common Stock is not traded on an exchange but is quoted on Nasdaq or
a successor quotation system, (1) the average last sales price (if the Common
Stock is then listed as a National Market Issue under the NASD National Market
System) or (2) the average of the mean between the closing representative bid
and asked prices (in all other cases) for the Common Stock on the first five
trading days following the Effective Date as reported by Nasdaq or such
successor quotation system.

"Initial Public Offering" means the initial public offering by Holdings of
shares of Common Stock pursuant to an effective registration statement on Form
S-1.

"Initial Stock Price" means the price per share to the public at which the
Common Stock is sold in the Initial Public Offering.

"Member," "subscriber" and "insured person." A Person is a Member of the
Company if such Person is a subscriber who is an "insured person" under the name
of the Company through the facilities of the Attorney-in-Fact acting on behalf
of the several subscribers. The term "subscriber" shall include those Persons
who have executed a Subscription Agreement and Power of Attorney or any like
agreement of the Company. The term "insured person" shall include (a) each
individual physician, surgeon, nurse anesthetist, professional medical
partnership, professional medical corporation or other health care provider to
whom or which a policy of insurance has been issued by the Company as "named
insured," and (b) each physician, surgeon, nurse anesthetist or other health
care provider to whom a certificate insert (naming such person as a "physician
member" or "certificate holder") has been issued as part of a policy of
insurance issued by the Company to a professional medical partnership,
professional medical corporation or other health care provider. A "named
insured" under a policy of insurance ceases to be an insured person, subscriber
and Member when the "policy period" of such policy terminates by expiration of
time, cancellation or any other reason and a "physician member" or "certificate
holder" ceases to be an insured person, subscriber and Member when the "coverage
period" or "certificate period" under the applicable policy terminates by
expiration of time cancellation, or any other reason.

3
<PAGE> 8

"Merger Shares" means the shares of Common Stock to be delivered (i) to
Members upon conversion of their Membership Interests by virtue of the Merger
and (ii) to New Insurer as consideration for the cancellation of the shares of
Common Stock held by the Company, which cancellation shall occur immediately
prior to the Merger as set forth in Section 2.5.

"Person" means an individual, corporation, joint venture, limited liability
company, partnership, association, trust, trustee, unincorporated entity,
organization or government or any department or agency thereof.

"Policy" means an insurance policy issued by the Company but does not
include (i) any agreement pursuant to which the Company has ceded or assumed
insurance or (ii) a reporting endorsement.

2.2 Conversion of Membership Interests. At the Effective Time, by virtue
of the Merger and without any action on the part of the Company, New Insurer,
Holdings, the Surviving Corporation or the holder of any of the following
securities:

(a) The rights of Members of the Company arising under the
subscription agreements between Members and the Company (the "Subscription
Agreements"), the Company's Bylaws, the California Insurance Law and
otherwise, including, without limitation, the right to vote for members of
the Board of Governors and on other matters and to participate in any
distribution of surplus on liquidation of the Company (but not including
contractual rights arising under Policies (the "Membership Interests"), in
existence immediately prior to the Effective Time shall be cancelled and
extinguished and be converted into the right to receive shares of Common
Stock as set forth in this Agreement.

(b) The Members entitled to receive Merger Shares shall be the
Eligible Members. The Merger Shares shall be allocated among the Eligible
Members as described in this Article II.

(c) Each share of common stock of New Insurer issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation.

2.3 Allocation of Merger Shares.

(a) The number of Merger Shares allocable to each Eligible Member
shall be determined as follows:

(i) Each Eligible Member shall be allocated a number of shares of
Common Stock equal to the product of x and y, where

"x" equals 9,000,000 shares of Common Stock and

"y" equals the ratio of the Earned Premiums of such Eligible Member
on Eligible Policies to the total Earned Premiums of all Eligible
Members on Eligible Policies during the period beginning on January 1,
1993 and ending on but including the Approval Date,

plus

(ii) Each Eligible Member who was also a Member on March 21, 1996
shall be allocated a number of shares of Common Stock equal to 1,000,000
shares of Common Stock divided by the total number of Eligible Members who
were also Members on March 21, 1996.

(b) The number of Merger Shares allocable to New Insurer shall be (i)
500,000 or (ii) such other number as the Board of Directors of Holdings and
the Board of Governors of the Company determine is appropriate in order to
insure that the Merger Shares issued to New Insurer pursuant to the Merger
have a fair market value equivalent to the fair market value of the shares
of Common Stock held by the Company which are to be cancelled in the Merger
pursuant to Section 2.5 hereof.

4
<PAGE> 9

2.4 Fractional Shares. No fractional shares of Common Stock shall be
issued to any Eligible Member upon surrender of Membership Interests. In lieu of
any fractional shares, each Eligible Member shall be paid an amount in cash
(without interest) rounded to the nearest cent, determined (i) by multiplying
(a) the Initial Stock Price by (b) the fractional interest to which such
Eligible Member would otherwise be entitled or (ii) in the event that the
Initial Public Offering does not occur on the Effective Date, by multiplying (a)
the Fair Market Value by (b) the fractional interest to which such Eligible
Member would otherwise be entitled.

2.5 Cancellation and Issuance of Holdings Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of the Company, New
Insurer, Holdings or the Surviving Corporation:

(a) the Common Stock of Holdings held by the Company shall be
cancelled; and

(b) the Merger Shares allocable to New Insurer pursuant to Section
2.3(b) shall be issued.

2.6 Issuance of Consideration. As soon as reasonably practicable after the
Effective Date, Holdings shall prepare and issue (i) stock certificates
representing the Merger Shares allocated to each Eligible Member and to New
Insurer, and (ii) checks representing the cash paid in lieu of fractional
shares, as calculated pursuant to Section 2.4 hereof.

2.7 No Further Interest in the Company. As of the Effective Time, each
Member of the Company shall cease to be a Member, and shall have no further
interest in the Company or the Surviving Corporation, except for such interest
that each such Member may have as a holder of Common Stock.

ARTICLE III

APPROVAL BY THE COMMISSIONER

3.1 Commissioner's Approval. This Plan is subject to the approval of the
Commissioner pursuant to Sections 1552 et. seq. of the California Insurance Law.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES BY THE COMPANY

The Company represents and warrants to Holdings that, as of the date of
this Plan and as of the Effective Time:

4.1 Organization and Qualification. The Company is a reciprocal or
inter-insurance exchange duly organized, validly existing and in good standing
under the laws of the State of California. The Company has all requisite power
and authority required for it to own (or lease) and use its properties and carry
on its business as presently conducted. The Company is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction where the
nature of business or the character of its properties makes necessary such
qualifications or licensing, except where the failure to so qualify would not
materially adversely affect the condition (financial or otherwise), results of
operations, business, properties or prospects of the Company taken as a whole.

5
<PAGE> 10

4.2 Authority Relative to this Plan; Recommendation to Eligible
Members. The Company has full right, power, and authority to execute, deliver
and perform the terms of this Plan. Subject only to favorable action by the
Company's Eligible Members at the Special Meeting referred to in Section 6.2,
the execution, delivery and performance of this Plan by the Company have been
duly and validly authorized and approved by all required action on the part of
the Company. The Company's Board of Governors has unanimously approved the
execution, delivery and performance of this Plan. Subject only to approval of
the Company's Eligible Members as described above, this Plan constitutes the
valid and binding agreement of the Company and is enforceable in accordance with
its terms.

4.3 Compliance. Neither the execution and delivery of this Plan by the
Company nor the consummation of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) violate,
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company under any of the
terms, conditions or provisions of (a) the management agreement between the
Company and the Attorney-in-Fact, or the Company's Bylaws or (b) any material
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any direct or indirect
subsidiary of the Company is a party, or to which any of them, or any of their
respective properties or assets, may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any direct or indirect subsidiary of the Company or
any of their respective properties or assets, except, in the case of each of
clauses (i) and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests, charges
or encumbrances, which, in the aggregate, would not have a material adverse
effect on the transactions contemplated hereby or on the condition (financial or
other), business or operations of the Company and its subsidiaries taken as a
whole.

Other than in connection with or in compliance with the provisions of the
California Corporations Law, the California Insurance Law, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of
1933, as amended (the "Securities Act"), and the "takeover" or "blue sky" laws
of various states, no notice to, filing with, or authorization, consent or
approval of, any domestic or foreign public body or authority is necessary for
the consummation the Company of the transactions contemplated by this Plan,
except where failure to give such notice, make such filings, or obtain
authorizations, consents or approvals would, in the aggregate, not have a
material adverse effect on the transactions contemplated hereby or on the
condition (financial or other), business or operations of the Company taken as a
whole.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND NEW INSURER

Each of Holdings and New Insurer each, jointly and severally, represents
and warrants to the Company as follows:

5.1 Organization and Qualification. Holdings is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. New Insurer is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of Holdings and
New Insurer is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the nature of their respective businesses
or the character of their respective properties makes necessary such
qualifications or licensing, except where the failure to so qualify would not
materially adversely affect the condition (financial or otherwise), results of
operations, business, properties or prospects of Holdings and New Insurer, taken
as a whole. New Insurer holds a certificate of authority from the

6
<PAGE> 11

Commissioner to transact specified classes of insurance in the State of
California, and such certificate of authority is in full force and effect.

5.2 Capitalization. As of the date of this Plan, Holdings has an
authorized capital stock of 1,000 shares of Common Stock, par value $.0001 per
share, of which 500 shares are duly and validly issued and outstanding, fully
paid and nonassessable, all of which are held by the Company. As of the date of
this Plan, New Insurer has an authorized capital stock of 100,000 shares of
common stock, par value $260.00 per share, of which 10,000 shares are duly and
validly issued and outstanding, fully paid, nonassessable, all of which are held
by the Company.

5.3 Authority Relative to this Plan. Each of Holdings and New Insurer has
full corporate power and authority to execute and deliver this Plan and to
perform its respective obligations hereunder. All corporate action required on
the part of Holdings and New Insurer in order to authorize such execution,
delivery and performance has been taken. This Plan constitutes the valid and
binding obligation of each of Holdings and New Insurer, enforceable against each
in accordance with its terms.

5.4 Compliance. Neither the execution and delivery of this Plan by
Holdings and New Insurer nor the consummation of the transactions contemplated
hereby nor compliance by Holdings and New Insurer with any of the provisions
hereof will (i) violate, conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Holdings or New
Insurer or any other direct or indirect subsidiary under any of the terms,
conditions or provisions of (a) the respective charters or bylaws of Holdings or
New Insurer or (b) any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Holdings or
New Insurer is a party, or to which either of them, or any of their respective
properties or assets, may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Holdings or New Insurer or any of their respective properties or
assets, except, in the case of each of clauses (i) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances, which, in the
aggregate, would not have a material adverse effect on the transactions
contemplated hereby or on the condition (financial or other), business or
operations of Holdings and its subsidiaries taken as a whole.

Other than in connection with or in compliance with the provisions of the
California Corporations Law, the California Insurance Law, the Exchange Act, the
Securities Act, and the "takeover" or "blue sky" laws of various states, no
notice to, filing with, or authorization, consent or approval of, any domestic
or foreign public body or authority is necessary for the consummation by
Holdings or New Insurer of the transactions contemplated by this Plan, except
where failure to give such notice, make such filings, or obtain authorizations,
consents or approvals would, in the aggregate, not have a material adverse
effect on the transactions contemplated hereby or on the condition (financial or
other), business or operations of Holdings and New Insurer taken as a whole.

ARTICLE VI

ADDITIONAL AGREEMENTS

6.1 Cooperation. Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Plan and to cooperate with each other in
connection with the foregoing, including using its best efforts to:

(a) prepare and file with the California Department as soon as is
reasonably practicable all necessary permit applications and other
necessary registrations and filings, including, but not limited

7
<PAGE> 12

to, all filings and other submissions of information to governmental
authorities with respect to the transactions contemplated by this Plan, and
use its best efforts to obtain such permits and approvals as promptly as
possible;

(b) prepare and file with the SEC as soon as is reasonably practicable
a Registration Statement, including a proxy statement/prospectus (the
"Registration Statement") with respect to the transactions contemplated by
this Plan, and use its best efforts to have such Registration Statement
declared effective by the SEC under the Securities Act as promptly as
possible;

(c) mail, as soon as is reasonably practicable after receiving any
required regulatory approvals, a proxy statement, together with a form of
proxy, with respect to the meeting of the Company's Eligible Members at
which the Eligible Members of the Company will vote upon this Plan and the
Merger (the "Proxy Statement"). The term "Proxy Statement" shall mean such
proxy or information statement at the time it initially is mailed to the
Company's Eligible Members and all amendments or supplements thereto, if
any, similarly filed and mailed. The information provided and to be
provided by the Company, Holdings and New Insurer, respectively, for use in
the Proxy Statement shall, on the date the Proxy Statement is first mailed
to the Company's Eligible Members and on the date of the meeting of the
Company's Eligible Members referred to in Section 6.2, be true and correct
in all material respects and shall not omit to state any material fact
necessary in order to make such information not misleading, and each of the
Company, Holdings and New Insurer agrees to correct any information
provided by it for use in the Proxy Statement that shall have become false
or misleading;

(d) take all such actions as may be required under state blue sky or
securities laws in connection with the transactions contemplated by this
Plan;

(e) arrange for the listing of the Common Stock on a national
securities exchange;

(f) obtain all necessary waivers, consents and approvals from other
parties to material loan agreements, leases and other contracts;

(g) obtain all necessary consents, approvals and authorizations as are
required to be obtained under any Federal, state or foreign law or
regulations;

(h) defend all lawsuits or other legal proceedings, formal or
informal, challenging this Plan or the consummation of the transactions
contemplated hereby; and

(i) lift, rescind or mitigate the effect of any injunction or
restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby.

6.2 Special Meeting of Eligible Members of the Company. (a) After approval
by the Commissioner of this Plan pursuant to Section 1552 of the California
Insurance Law, the Company shall take all action necessary, in accordance with
California Corporations Law, the California Insurance Law, the Subscription
Agreements and the Company's Bylaws, to convene the Special Meeting of the
Eligible Members as promptly as practicable to consider and vote upon this Plan
and the Merger.

(b) The record date for the Special Meeting shall be the Approval Date.

(c) Each Eligible Member shall be entitled to vote in person or by proxy in
a manner to be prescribed by the Commissioner and the Company's Bylaws;
provided, however, that any vote cast shall be by ballot and not viva voce.

(d) The Proxy Statement shall contain the recommendation of the Board of
Governors that the Eligible Members of the Company vote to adopt and approve the
Merger and this Plan.

(e) The Company shall use its best efforts to solicit from Eligible Members
proxies in favor of such adoption and approval and to take all other action
necessary or, in the reasonable judgment of the Company, helpful to secure the
vote or consent of the Eligible Members.

8
<PAGE> 13

(f) The Company shall mail notice of the Special Meeting to all Eligible
Members. Such notice shall set forth the reasons for the Special Meeting and the
time and place of the Special Meeting, and shall enclose a proxy for each
Eligible Member. Such notice and proxy shall be mailed by first class mail to
the address of each Eligible Member, as such address appears on the records of
the Company, at least 35 days prior to the Special Meeting, and such notice and
proxy shall be in a form satisfactory to the Commissioner. Notice of the Special
Meeting shall be accompanied by information relevant to the Special Meeting.

(g) Notice of the Special Meeting also shall be given by the Company
through publication in a newspaper of general circulation in Los Angeles County,
State of California, the county of the Company's principal place of business.
Such publication shall be made at least twice and shall be published in a
business day edition of the newspaper. Such publication shall be made at least
30 days prior to the Special Meeting.

(h) The affirmative vote of the Eligible Members required for adoption and
approval of this Plan and the Merger shall be 66 2/3% of the Eligible Members.

6.3 Officers' and Directors' Insurance; Indemnification. It is understood
and agreed that the Company shall indemnify and hold harmless and, after the
Effective Time, the Surviving Corporation will indemnify and hold harmless, each
present and former member of the Board of Governors and officer of the Company,
and each director and officer of the Attorney-in-Fact (the "Indemnified
Parties") to the full extent permitted by applicable law against any losses,
claims, damages, liabilities, costs, expenses, judgments and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to any action or omission which
arises out of or relates to the transactions contemplated by this Plan, and the
Company and the Surviving Corporation, as the case may be, will advance expenses
to each such person upon receipt of an undertaking to: (i) repay such amount if
it shall be determined ultimately that such person is not entitled to
indemnification under the applicable law; and (ii) reasonably cooperate with the
Company (of, after the Effective Time, the Surviving Corporation) concerning the
action, suit, proceeding or investigation. In the event any such claim, action,
suit, proceeding or investigation is brought against any Indemnified Party
(whether arising before or after the Effective Time), (a) the Indemnified
Parties may retain counsel satisfactory to them and the Company (or them and the
Surviving Corporation after the Effective Time), (b) the Company (or after the
Effective Time, the Surviving Corporation) shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received, and (c) the Company (or after the Effective Time, the
Surviving Corporation) will use its best efforts to assist in the vigorous
defense of any such matter, provided, that neither the Company nor the Surviving
Corporation shall be liable for any such settlement effected without their
written consent, which consent, however, shall not be unreasonably withheld. Any
Indemnified Party wishing to claim indemnification under this Section 6.3, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify the Company or the Surviving Corporation thereof and shall deliver to the
Company or the Surviving Corporation an undertaking to repay any amounts
advanced pursuant hereto when and if a court of competent jurisdiction shall
ultimately determine, after exhaustion of all avenues of appeal, that such
Indemnified Party was not entitled to indemnification under this Section. In
addition, upon the occurrence of the Effective Time, New Insurer shall be deemed
expressly to have assumed any obligations of the Company to its directors and
officers for indemnification, whether under the Company's Bylaws or the
Subscription Agreements, or otherwise, for acts or occurrences prior to the
Effective Time. This Section 6.3 shall survive the consummation of the Merger.

6.4 Continuity of Obligations Regarding Policyholders. It is understood
and agreed that after the Effective Time: (i) the Surviving Corporation shall be
a corporation of the State of California authorized to transact insurance under
the California Insurance Law, (ii) the policyholders of the Company prior to the
Effective Time shall become policyholders of the Surviving Corporation; (iii)
the Surviving Corporation shall, as required by Section 1070.6(b) of the
California Insurance Law, be available to such policyholders to obtain policy
changes and endorsements, to receive payment of premiums and refund unearned
premiums, to serve notice of claim, proof of loss, summons, process and other
papers, and for purposes

<PAGE> 14

of suit; and (iv) the Surviving Corporation shall timely file with the
Commissioner the financial statements and tax returns required by Section
1070.6(c) of the California Insurance Law, and shall timely pay all taxes found
to be due relating to the business of the Company in the State of California
during the calendar year of the Merger, in accordance with said Section
1070.6(c).

ARTICLE VII

CONDITIONS PRECEDENT

7.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:

(a) the Registration Statement shall have become effective under the
Securities Act and no stop order with respect to the Registration Statement
shall have been issued;

(b) all consents, authorizations, orders or approvals of the
California Department and any other governmental commission, board or other
regulatory body that the parties mutually agree are essential to effect the
Merger and for New Insurer to conduct the business of New Insurer and the
Company in substantially the same matter as now conducted shall have been
received;

(c) this Plan and the Merger shall have been approved and adopted by
the requisite vote or consent of the Eligible Members of the Company
required by California Corporations Law and California Insurance Law, by
the requisite vote or consent of the shareholders of New Insurer required
by California Corporations Law; and by the requisite vote or consent of the
stockholder of Holdings;

(d) the Company shall have received either a private letter ruling
from the Internal Revenue Service, or an opinion from a law firm of
recognized standing, to the effect that for Federal income tax purposes,
the Eligible Members generally will recognize no gain or loss on the
exchange of their Membership Interests for shares of Common Stock pursuant
to the Merger;

(e) the Company shall have contributed, for no consideration, all of
the outstanding shares of Common Stock of New Insurer to Holdings;

(f) no preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority shall be in effect, which would prevent the consummation of the
Merger or make the consummation of the Merger illegal; and

(g) prior to the Effective Time, the Company and Holdings shall have
received from an investment banking firm of recognized standing an opinion
that the exchange of the aggregate Membership Interests for the Merger
Shares and the cash in lieu of fractional shares to be paid to the Eligible
Members in the Merger in the aggregate is fair, from a financial point of
view, to the Eligible Members as a group.

ARTICLE VIII

TERMINATION

8.1 Termination. This Plan may be terminated, and the Merger contemplated
herein may be abandoned, at any time prior to the Effective Time, whether prior
to or after approval of the Merger by the Eligible Members:

(a) by mutual written consent of the Board of Directors of Holdings,
the Board of Directors of New Insurer and the Board of Governors of the
Company; or

10
<PAGE> 15

(b) by the Company, if New Insurer or Holdings breaches in any
material respect any of its covenants or agreements contained in this Plan;
or

(c) by Holdings, if the Company breaches in any material respect any
of its covenants or agreements contained in this Plan; or

(d) by either Holdings or the Company:

(i) if the Merger has not been consummated prior to December 31,
1996; or

(ii) if any court of competent jurisdiction or other governmental
body shall have issued an order, decree or ruling, or taken any other
action restraining, enjoining or otherwise prohibiting the Merger and
such order, decree, ruling or other action shall have become final and
non-appealable.

8.2 Effect of Termination. In the event of the termination of this Plan as
provided in Section 7.1, this Plan shall forthwith become void, and there shall
be no liability on the part of the Company, Holdings or New Insurer, except as
described in Section 6.3 and as set forth in the last sentence of this Section
8.2. Nothing contained in this Section 8.2 shall relieve the Company, Holdings
or New Insurer from liability for any breach of this Plan.

ARTICLE IX

GENERAL PROVISIONS

9.1 Amendment. This Plan may be amended by an instrument in writing signed
on behalf of each of the parties hereto; provided, however, that after approval
of the Merger by the Eligible Members, no amendment may be made which under
applicable law requires further approval of Eligible Members without such
further approval of Eligible Members.

9.2 Extension; Waiver. At any time prior to the Effective Time any party
hereto may (i) extend the time for the performance of any of the obligations or
other acts of any other party hereto; (ii) waive any inaccuracies in the
representations and warranties contained in this Plan and (iii) waive compliance
with any of the agreements of the other parties or conditions to its own
obligations contained in this Plan. Any agreement on the part of a party hereto
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party by a duly authorized
officer.

9.3 Nonsurvival of Representations and Warranties. The respective
representations and warranties of the Company, New Insurer and Holdings
contained herein shall expire with, and be terminated and extinguished upon,
consummation of the Merger, and thereafter none of the Company, New Insurer and
Holdings or any officer, director or principal thereof shall be under any
liability whatsoever with respect to any such representation or warranty. This
Section 9.3 shall have no effect upon any other obligation of the parties
hereto, whether to be performed before or after the consummation of the Merger.

9.4 Entire Plan. This Plan contains the entire agreement among the
Company, New Insurer and Holdings with respect to the subject matter hereof and
supersedes all prior arrangements and understandings, both written and oral,
among such parties with respect thereto.

9.5 Counterparts. This Plan may be executed in one or more counterparts,
all of which shall be considered one and same agreement and shall become binding
when one or more counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.

9.6 Severability. It is the desire and intent of the parties that the
provisions of this Plan be enforced to the fullest extent permissible under the
law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Plan would be held
in any jurisdiction to be invalid, prohibited or unenforceable for any reason,
such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Plan or affecting the

11
<PAGE> 16

validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Plan or affecting the validity or enforceability of
such provision in any other jurisdiction.

9.7 Notices. Any notice given by any party under this Plan (each, a
"notice") shall be in writing and shall be deemed duly given (i) when personally
delivered, or (ii) when five days have elapsed after its transmittal by
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party to whom directed at that party's address as it appears
below or another address of which that party has given notice as provided
herein, or (iii) when transmitted by telex or telecopy (or equivalent service),
the sender's receiving apparatus having printed the answerback (if any) of the
addressee on a copy of the telex or telecopy message. Notices of address change
shall be effective only upon receipt notwithstanding the previous sentence.

If to the Company, to:

Southern California Physicians Insurance Exchange
9441 W. Olympic Boulevard
P.O. Box 4015
Beverly Hills, California 90213-4015
Telecopy No.: (310) 551-5924

If to Holdings to:

SCPIE Holdings Inc.
9441 W. Olympic Boulevard
P.O. Box 4015
Beverly Hills, California 90213-4015
Telecopy No.: (310) 551-5924

If to New Insurer, to:

SCPIE Indemnity Company
9441 W. Olympic Boulevard
P.O. Box 4015
Beverly Hills, California 90213-4015
Telecopy No.: (310) 551-5924

In each case, with copy to:

Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
Attention: Donald P. Newell, Esq.
Telecopy No.: (619) 696-7419

9.8 Public Announcements. Unless otherwise required by law, prior to the
Effective Time, no news release or other public announcement pertaining to the
transactions contemplated by this Plan will be made by any party without the
prior written consent of the other party hereto.

9.9 Section Headings. The section headings contained in this Plan are
inserted for reference purposes only and shall not affect the meaning or
interpretation of this Plan.

9.10 Benefits and Assignment. This Plan is not intended to convey upon any
person other than the parties any rights or remedies hereunder. This Plan shall
not be assigned by operation of law or otherwise.

12
<PAGE> 17

9.11 Applicable Law. This Plan and the legal relations between the parties
hereto shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and to be performed therein.

IN WITNESS WHEREOF, each of the parties has caused this Plan to be executed
as of the date first above written, which is sometimes referred to herein as
"the date of this Plan."

SOUTHERN CALIFORNIA PHYSICIANS
INSURANCE EXCHANGE, by SCPIE
Management Company, its
Attorney-in-Fact

By /s/
------------------------------------
Donald J. Zuk
President and Chief Executive
Officer

By /s/
------------------------------------
Wendell L. Moseley, M.D.
Secretary

SCPIE INDEMNITY COMPANY

By /s/

------------------------------------
Donald J. Zuk
President and Chief Executive
Officer

By /s/
------------------------------------
Wendell L. Moseley, M.D.
Secretary

SCPIE HOLDINGS INC.

By /s/
------------------------------------
Donald J. Zuk
President and Chief Executive
Officer

By /s/
------------------------------------
Wendell L. Moseley, M.D.
Secretary

<PAGE> 1
EXHIBIT 10.2.1

[LOGO]

August 1, 1996

Sullivan, Kelly & Associates, Inc.
135 North Los Robles Avenue
Pasadena, California 91101

Attn: Mr. James E. Kelly,
President and Chief Executive Officer

Re: Amendment to Operational Agreement between Southern California
Physicians Insurance Exchange and Sullivan, Kelly & Associates,
Inc. dated August 25, 1995
---------------------------------------------------------------

Dear Sir:

You ("SKA") and the undersigned ("SCPIE") are parties to the
above-referenced "Agreement" which was entered into for a term expiring October
1, 1996. SKA and SCPIE desire to modify and clarify certain provisions of the
Agreement and to extend the Agreement as so modified for an additional one-year
term expiring October 1, 1997.

The provisions of the Agreement are hereby amended and clarified in the
following respects:

1. The term "exclusive" in the first line of page 2 of the
Agreement, with reference to medical groups and clinics, is changed to
"non-exclusive," it being understood that SCPIE may offer professional
liability and related liability coverages directly to medical groups and
clinics located outside the state of California. SCPIE, however, will
not offer such coverages to medical groups or clinics outside the state
of California through brokers other than SKA, unless SCPIE acquires,
merges with or otherwise affiliates with another insurance company that
has existing broker relationships or arrangements, in which case such
relationships or arrangements may be continued.

2. SCPIE may enter into reinsurance treaties or agreements
under which SCPIE assumes risks of any type or nature whatsoever insured
by primary insurers or other reinsurers, even though such risks may
include hospitals, hospital healthcare systems, medical groups and
clinics, and managed care organizations located within or outside the
State of California. The purpose of this addition is to clarify that
reinsurance is not part of the Agreement between SCPIE and SKA.

3. Under "Commissions" on page 4, items 3 and 4 are amended to
provide that the standard excess commission to be paid to SKA will be as
established annually by those underwriters who have granted the excess
market Binding Authority to SKA.

<PAGE> 2
4. The second sentence of the second paragraph under "Renewal of
Agreement" on page 9 is amended to provide that the term of the Agreement will
expire October 1, 1997. The first sentence of said paragraph is amended to
provide that if the Agreement, as amended, is not superseded by a new agreement
or is not otherwise terminated, the Agreement will renew automatically on an
annual basis at the expiration of its term.

5. Any business opportunity not covered by the Agreement that SKA
brings to SCPIE (that is accepted and written by SCPIE) shall be compensated at
a negotiated commission or fee. This will allow SKA to submit business related
to other products and services not covered in the Agreement to SCPIE for its
consideration.

6. Except as set forth above, the terms and conditions of the
Agreement shall remain in full force and effect.

If the foregoing reflects our agreement, please sign this amendment and
extension in the space provided below.

SOUTHERN CALIFORNIA PHYSICIANS
INSURANCE EXCHANGE

By: SCPIE Management Company,
Attorney-in-Fact

By: /s/ DONALD J. ZUK
------------------------------------
Donald J. Zuk, President and
Chief Executive Officer

The foregoing amendment and extension
is hereby agreed:

Sullivan, Kelly & Associates, Inc.

By: /s/ JAMES E. KELLY
--------------------------------
James E. Kelly, President and
Chief Executive Officer