<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998 COMMISSION FILE NO. 1-12449
SCPIE HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4457980
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9441 WEST OLYMPIC BOULEVARD 90212
BEVERLY HILLS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICE)
(310) 551-5900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at May 14, 1998
----- ---------------------------
<S> <C>
Common stock, $.0001 par value 12,705,191 shares
</TABLE>
================================================================================
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCPIE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Securities available-for-sale:
Fixed-maturity investments, at fair value
(amortized cost 1998-- $721,958; 1997-- $737,429 $708,860
$692,811)
Equity investments, at fair value
(cost 1998-- $17,678; 1997-- $17,052) 23,671 23,523
-------- --------
Total securities available-for-sale 761,100 732,383
Short-term investments 25,825 53,281
-------- --------
Total investments 786,925 785,664
Cash 16,025 13,252
Accrued investment income 11,064 12,202
Reinsurance recoverables 22,344 21,531
Deferred federal income taxes 15,149 16,158
Deferred policy acquisition costs 10,267 520
Property and equipment, net 19,598 19,534
Other assets 20,917 19,588
-------- --------
Total assets $902,289 $888,449
======== ========
LIABILITIES
Reserves:
Losses and loss adjustment expenses $489,166 $454,971
Unearned premiums 26,124 22,072
-------- --------
Total reserves 515,290 477,043
Other liabilities 19,814 50,291
-------- --------
Total liabilities 535,104 527,334
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00, 5,000,000 shares
authorized, no shares issued or outstanding
-- --
Common stock, par value $0.0001, 30,000,000
shares authorized, 12,792,091 shares issued
shares outstanding 1998 - 12,220,891 and 1997 - 1 1
12,276,691
Additional paid-in capital 36,386 36,386
Retained earnings 318,797 310,506
Treasury stock, at cost (71,200 shares) (1,950) (416)
Accumulated other comprehensive income 13,951 14,638
-------- --------
Total stockholders' equity 367,185 361,115
-------- --------
Total liabilities and stockholders' equity $902,289 $888,449
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Premiums earned $ 39,686 $ 36,424
Net investment income 10,503 10,572
Realized investment gains 2,320 1,212
Other revenue 38 139
-------- --------
Total revenues 52,547 48,347
Expenses:
Losses and loss adjustment expenses 33,431 33,543
Other operating expenses 7,099 4,195
-------- --------
Total expenses 40,530 37,738
-------- --------
Income before federal income taxes 12,017 10,609
Federal income taxes 2,993 2,488
-------- --------
Net income $ 9,024 $ 8,121
======== ========
Basic earnings per share of common stock $ 0.74 $ 0.70
====== ======
Diluted earnings per share of common stock $ 0.74 N/A
======
Cash dividend declared per share of common stock $ 0.06 $ 0.05
</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK INCOME EQUITY
------ ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 $ 1 $ 36,386 $310,506 $ (416) $ 14,638 $ 361,115
Comprehensive Income:
Net income -- -- 9,024 -- -- 9,024
Unrealized comprehensive
income, net of (687) (687)
reclassification ---------
adjustment of $831 for
realized gains included
in net income of $1,518
Comprehensive income 8,337
=========
Purchase of treasury stock -- -- -- (1,534) -- (1,534)
Cash dividend -- -- (733) -- -- (733)
---- -------- -------- -------- -------- ---------
BALANCE AT MARCH 31, 1998 $ 1 $ 36,386 $318,797 $(1,950) $ 13,951 $ 367,185
==== ======== ======== ======== ======== =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
SCPIE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
1998 1997
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,024 $ 8,121
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Unpaid losses and loss adjustment expenses, and
reinsurance recoverables 33,382 2,787
Accrued investment income 1,138 1,111
Policy acquisition costs (9,747) (3)
Provision for deferred federal income taxes 1,379 (250)
Unearned premiums 4,052 (271)
Policyholders' dividends payable -- (2,402)
Realized investments gains (2,320) (1,212)
Provisions for amortization and depreciation (1,447) 595
Accrued expenses and other liabilities (26,854) (2,866)
Changes in other assets (1,329) (6,936)
-------- -------
Net cash provided by (used in) operating activities 7,278 (1,326)
-------- -------
INVESTING ACTIVITIES
Purchases--fixed maturities (109,602) (97,195)
Sales - fixed maturities 62,943 80,619
Maturities-- fixed maturities 15,862 1,218
Purchases -- equities (1,915) (2,692)
Sales - equities 3,018 1,873
Changes in short-term investments 27,456 (14,367)
-------- -------
Net cash used in investing activities (2,238) (30,544)
-------- -------
FINANCING ACTIVITIES
Issuance of common stock, net of expenses -- 36,387
Purchase of treasury stock (1,534)
Cash dividends (733) (615)
-------- -------
Net cash provided by (used in) financing activities (2,267) 35,772
-------- -------
Increase in cash 2,773 3,902
Cash at beginning of period 13,252 4,212
-------- -------
Cash at end of period $ 16,025 $ 8,114
======== =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
SCPIE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
1. BASIS OF PRESENTATION AND REORGANIZATION
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and notes thereto included in SCPIE Holdings Inc.'s annual
report on Form 10-K for the year ended December 31, 1997.
The accompanying March 31, 1998 and 1997 consolidated financial statements
include the accounts and operations, after intercompany eliminations, of SCPIE
Holdings Inc. (SCPIE Holdings) and its wholly-owned subsidiaries, principally
SCPIE Indemnity Company (SCPIE Indemnity), American Healthcare Indemnity Company
(AHI), American Healthcare Specialty Insurance Company (AHSIC) and SCPIE
Management Company (SMC), collectively, the Company.
On January 29, 1997, the Southern California Physicians Insurance Exchange
(the Exchange) consummated its plan and agreement of merger whereby the Exchange
reorganized from a reciprocal insurer to a stock insurance company and became a
wholly-owned subsidiary of SCPIE Holdings. Pursuant to the Reorganization, the
Exchange merged with and into SCPIE Indemnity, a California stock company and a
wholly-owned subsidiary of SCPIE Holdings, the surviving corporation of the
Reorganization. The assets and liabilities of the Exchange that were merged into
SCPIE Indemnity were accounted for at historical cost in a manner similar to
that in a pooling of interests.
The principal purpose of the Reorganization was 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 also provided members of the
Exchange with shares of common stock in exchange for their membership interests
in the Exchange.
Concurrent with the Reorganization, SCPIE Holdings completed an initial
public offering which generated net proceeds to SCPIE Holdings of approximately
$36.4 million.
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
2. EARNINGS PER SHARE
Basic earnings per share for the periods ended March 31, 1998 and 1997 are
computed using the weighted average number of common shares outstanding during
the period of 12,228,331 and 11,555,264, respectively. At March 31, 1998, no
incremental shares related to stock options are included in the diluted average
number of shares outstanding as the impact would have been antidilutive.
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130 (FASB 130) "Reporting Comprehensive Income." FASB 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption had no impact on the Company's net income
or stockholders' equity. FASB 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were reported
separately in stockholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to the
requirements of FASB 130.
The components of comprehensive income net of related tax, for the
three-month periods ended March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net income $ 9,024 $ 8,121
Other comprehensive income:
Change in unrealized losses on securities (687) (9,768)
------- -------
Comprehensive income (loss) $ 8,337 $(1,647)
======= =======
</TABLE>
5
<PAGE> 6
4. INVESTMENTS
The Company's investments in available-for-sale securities at March 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed-maturity investments:
U.S. Government and Agencies $330,007 $ 8,933 $ 651 $338,289
State, Municipalities and 336,531 8,689 1,373 343,847
Political Subdivisions
Mortgage-backed securities 50,077 149 276 49,950
Corporate 5,343 -- -- 5,343
-------- ------- ------- --------
Total fixed-maturity investments 721,958 17,771 2,300 737,429
Equity investments 17,678 6,172 179 23,671
-------- ------- ------- --------
Total investments $739,636 $23,943 $ 2,479 $761,100
======== ======= ======= ========
</TABLE>
5. FEDERAL INCOME TAXES
The components of the federal income tax provision in the accompanying
statements of income are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current $ 1,614 $ 2,738
Deferred 1,379 (250)
------- -------
Total $ 2,993 $ 2,488
======= =======
</TABLE>
A reconciliation of income tax computed at the federal statutory tax rate to
total income tax expense is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Federal income tax at 35% $4,206 $3,713
Increase (decrease) in taxes resulting from:
Tax-exempt interest (1,259) (1,163)
Dividends received deduction (39) (27)
Goodwill 30 49
Other 55 (84)
------ ------
Total $2,993 $2,488
====== ======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a California 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. In 1995, a jury made a damage award against
the Company of $4.2 million in compensatory damages, and punitive damages which
were reduced to $14.0 million by the trial judge. The Company appealed these
awards to the California district court of appeal. On May 8, 1998, the appellate
court reversed the judgment against the Company in its entirety. The bankruptcy
estate may now petition the appellate court for a rehearing or petition the
California Supreme Court for a hearing. The petition to the California Supreme
Court must be filed by approximately June 18, 1998. The Company believes that
the action is entirely without merit and will continue to aggressively pursue
its rights on appeal.
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 approximately $12.3 million were purchased from Executive Life
Insurance Company (ELIC) which was placed in conservatorship during 1991 by the
California Insurance Commissioner. 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. The Company has determined that it is contractually
obligated for the shortfall amounts under certain of these annuities. At
December 31, 1997, a reserve of $4.0 million (net of expected reinsurance
recoveries of $3.0 million) was recorded to cover these expected shortfall
payments. 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.
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.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For purposes of this Quarterly Report on Form 10-Q, the terms "SCPIE" and
the "Company" refer, at all times prior to January 29, 1997, to Southern
California Physicians Insurance Exchange (the "Exchange") and its subsidiaries,
collectively, and at all times on or after such date, to SCPIE Holdings Inc. and
its subsidiaries, collectively; and the term "SCPIE Holdings" refers at all
times to SCPIE Holdings Inc., excluding its subsidiaries.
GENERAL
Certain statements in this report on Form 10-Q that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results of the Company to be materially different from historical
results or from any results expressed or implied by such forward-looking
statements. Such risks, uncertainties and other factors include, but are not
limited to, the Company's concentration of business in a single line in a single
state; the Company's entry into new markets; competition and other industry
factors, including uncertainties inherent in the estimate of loss and loss
adjustment expense (LAE) reserves, reinsurance, importance of ratings,
regulatory matters, and changes in healthcare; the availability of bank
financing; and certain structural matters, including the Company's holding
company structure and anti-takeover measures. These risks and uncertainties are
discussed in more detail under "Business--Risk Factors," and "Management's
Discussion and Analysis --General" in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Premiums Earned. Premiums earned increased approximately $3.3 million, or
9.0%, to $39.7 million for the three months ended March 31, 1998 from $36.4
million for the same period in 1997. The increase was principally due to a $5.4
million increase in medical malpractice premiums of physicians and medical
groups to approximately $35.8 million for the three months ended March 31, 1998
compared to $30.4 million for the same period in 1997. This increase was the
result of the Company's acquisition of the medical malpractice book of business
of Fremont Indemnity Company (Fremont Indemnity) on January 1, 1998, and the
initial premiums attributable to an agency relationship with Poe & Brown, Inc.,
which commenced on January 1, 1998 principally in Florida, Connecticut and
Georgia. Hospital medical malpractice premiums were approximately $2.4 million
for the three months ended March 31,1998 compared to $4.4 million for the same
period in 1997. The decrease in 1998 hospital medical malpractice premiums was
due principally to the loss of one large integrated hospital account in Florida
in late 1997. Assumed reinsurance premiums were approximately $1.1 million for
the three months ended March 31, 1998 compared to $1.3 million for the same
period in 1997.
Net Investment Income. Net investment income was unchanged at approximately
$10.5 million for the three months ended March 31, 1998 and $10.6 million for
the same period in 1997. Average assets increased to $786.3 million during the
three months ended March 31, 1998 compared to $724.1 million for the same period
in 1997. The investment portfolio has a higher percentage of lower yielding tax
exempt bonds at March 31, 1998 than the corresponding period in the prior year.
Realized Investment Gains. Realized investment gains were approximately $2.3
million for the three months ended March 31, 1998 compared to $1.2 million for
the same period in 1997.
Losses and LAE. Losses and LAE were level at $33.4 million for the three
months ended March 31, 1998 from $33.5 million for the same period in 1997. As a
percentage of premiums earned, losses and LAE decreased to 84.2% for the three
months ended March 31, 1998 from 92.1% for the same period in 1997 due to
continued improvement in trends, such as a decrease in the frequency of claims
reporting. For the three months ended March 31, 1998, the Company reduced loss
and LAE reserves for claims incurred in prior policy years approximately $17.6
million as compared to a reserve reduction of $15.0 million for the same period
in 1997 for claims incurred in prior policy years.
Other Operating Expenses. Other operating expenses increased $2.9 million,
or 69.2%, to $7.1 million for the three months ended March 31, 1998 from $4.2
million for the same period in 1997. The ratio of other operating expenses to
premiums earned was 17.9% for the three months ended March 31, 1998 and 11.5%
for the same period in 1997. The increase in the expense ratio is due primarily
to the amortization of costs of $1.3 million related to the Fremont Indemnity
acquisition. Additionally, other operating expenses includes certain one-time
charges related to the Fremont Indemnity acquisition and higher expenses
associated with the higher premium volume and general personnel increases.
Federal Income Taxes. Federal income tax expense increased $0.5 million, to
$3.0 million for the three months ended March 31, 1998 from $2.5 million for the
same period in 1997. The effective tax rate is 24.9% for the three months ended
March 31, 1998 compared to 23.5% for the same period in 1997 due to higher
realized gains in 1998.
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
7
<PAGE> 8
dividends, in the form of premium credits, to its members in each year since
1980. In 1996 the Board of Governors declared a final dividend to members of the
Exchange of $9.0 million, which was paid principally in the form of premium
credits during 1997. Except for this final dividend, after the Reorganization,
the Company has ceased paying such premium credit dividends to its
policyholders.
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 period to period. During the first three months of 1998, the
cash provided by operating activities for the Company was $7.3 million compared
to $1.1 million during the corresponding 1997 period prior to the payment of
policyholder dividends.
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,
SCPIE's portfolio of unaffiliated equity securities has been reduced to $23.7
million at March 31, 1998. 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 totaled $25.8
million, or 3.3% of invested assets, at March 31, 1998. 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 its insurance subsidiaries and approximately $36.4
million of net proceeds from its January 1997 common stock offering. Along with
the proceeds from the January 1997 common stock offering and dividends from its
insurance subsidiaries, the Company has contributed $25.0 million to AHSIC and
has contributed another $23 million to AHI. SCPIE Holdings' principal sources of
funds will be dividends from its subsidiaries and proceeds from the issuance of
debt and equity securities. The insurance company 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,
principally the California Department of Insurance. SCPIE Holdings' principal
insurance subsidiary may pay dividends to SCPIE Holdings in any year, without
regulatory approval, to the extent such dividends do not exceed 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. 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. The amount of dividends the insurance subsidiaries
are able to pay to SCPIE Holdings during 1998 without prior regulatory approval
is approximately $27.5 million. Dividends of $15 million were paid after March
31, 1998.
The Company has received a commitment from a large lender for a bank
facility in the amount of $50.0 million. The commitment is subject to certain
terms and conditions as well as negotiation and completion of all documentation.
The Company expects to use this facility for general corporate purposes.
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 is in the process of seeking leased space to replace its
existing facilities. The Company has no commitments for such space to date.
During May 1997, the Board of Directors authorized the repurchase of up to
1,000,000 shares of its common stock in the open market until May 1998 and
purchased 86,900 shares pursuant to this program. The Board of Directors has
since extended the term of the stock repurchase program until the 1999 Annual
Meeting of Stockholders with respect to the remaining 913,100 shares of the
Company's common stock.
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.
PART II -- OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a California 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. In 1995, a jury made a damage award against
the Company of $4.2 million in compensatory damages, and punitive damages which
were reduced to $14.0 million by the trial judge. The Company appealed these
awards to the California district court of appeal. On May 8,
8
<PAGE> 9
1998, the appellate court reversed the judgment against the Company in its
entirety. The bankruptcy estate may now petition the appellate court for a
rehearing or petition the California Supreme Court for a hearing. The petition
to the California Supreme Court must be filed by approximately June 18, 1998.
The Company believes that the action is entirely without merit and will continue
to aggressively pursue its rights on appeal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herewith.
27 Financial Data Schedule
(b) Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCPIE HOLDINGS INC.
Date: May 14, 1998 By:
-----------------------------------
Patrick T. Lo
Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 737,429
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 23,671
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 786,925
<CASH> 16,025
<RECOVER-REINSURE> 22,344
<DEFERRED-ACQUISITION> 10,267
<TOTAL-ASSETS> 902,289
<POLICY-LOSSES> 489,166
<UNEARNED-PREMIUMS> 26,124
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 1
<OTHER-SE> 367,184<F1>
<TOTAL-LIABILITY-AND-EQUITY> 902,289
39,686
<INVESTMENT-INCOME> 10,503
<INVESTMENT-GAINS> 2,320
<OTHER-INCOME> 38
<BENEFITS> 33,431
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 7,099
<INCOME-PRETAX> 12,017
<INCOME-TAX> 2,993
<INCOME-CONTINUING> 9,024
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,024
<EPS-PRIMARY> .74
<EPS-DILUTED> .74<F2>
<RESERVE-OPEN> 464,652<F3>
<PROVISION-CURRENT> 50,659
<PROVISION-PRIOR> (17,228)
<PAYMENTS-CURRENT> 89
<PAYMENTS-PRIOR> 31,172
<RESERVE-CLOSE> 466,822
<CUMULATIVE-DEFICIENCY> (17,228)
<FN>
<F1>TREASURY STOCK OF $1,950 IS INCLUDED AS A REDUCTION OF OTHER STOCKHOLDERS'
EQUITY. NET UNREALIZED APPRECIATION OF $13,951 IS INCLUDED IN OTHER
STOCKHOLDERS' EQUITY.
<F2>AT MARCH 31, 1998, NO INCREMENTAL SHARES RELATED TO STOCK OPTIONS ARE INCLUDED
IN THE DILUTED AVERAGE NUMBER OF SHARES OUTSTANDING AS THE IMPACT WOULD HAVE
BEEN ANTIDILUTIVE. ADDITIONALLY, THE ADOPTION OF FASB 128 DID NOT HAVE AN
IMPACT ON THE PRIOR PERIOD PER SHARE CALCULATIONS AS THE COMPANY ONLY HAD
COMMON STOCK OUTSTANDING.
<F3>INCLUDES LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES THE COMPANY HAS ASSUMED
UNDER A REINSURANCE AGREEMENT FROM FREMONT INDEMNITY COMPANY AS OF JANUARY 1,
1998.
</FN>
</TABLE>
