<PAGE>
________________________________________________________________________________
________________________________________________________________________________
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, 2000 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.)
1888 CENTURY PARK EAST, STE. 800 90067-1712
LOS ANGELES, 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
stock, as of the latest practicable date.
Class Outstanding at May 11, 2000
Preferred stock, par value $l.00 per share No shares
outstanding 9,394,569 shares
Common stock, par value $0.0001 per share
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCPIE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Securities available-for-sale:
Fixed-maturity investments (Note 3), at fair value
(amortized cost 2000 -- $567,267; 1999 - $571,792) $547,407 $549,024
Equity investments, at fair value
(cost 2000 -- $27,547; 1999 - $33,428) 22,028 33,464
-------- --------
Total securities available-for-sale 569,435 582,488
Short-term investments 76,657 72,903
-------- --------
Total investments 646,092 655,391
Cash 1,712 6,858
Accrued investment income 8,334 9,080
Reinsurance recoverable on unpaid loss and loss
adjustment expense reserves 44,332 45,007
Deferred federal income taxes (Note 4) 25,357 25,434
Costs in excess of net assets acquired 6,775 6,983
Property and equipment, net 3,352 3,381
Real estate 16,396 16,485
Other assets 44,548 44,573
-------- --------
Total assets $796,898 $813,192
======== ========
LIABILITIES
Reserves:
Losses and loss adjustment expenses $443,941 $449,864
Unearned premiums 26,569 25,296
-------- --------
Total reserves 470,510 475,160
Bank loan payable 13,000 13,000
Other liabilities 20,891 30,332
-------- --------
Total liabilities 504,401 518,492
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,
2000 - 9,401,269 shares outstanding
1999 - 9,513,189 shares outstanding 1 1
Additional paid-in capital 36,386 36,386
Accumulated other comprehensive loss (16,507) (14,764)
Retained earnings 373,764 370,923
-------- --------
393,644 392,546
Treasury stock, at cost
(2000 - 2,890,822 shares; 1999 - 2,778,902 shares) (97,097) (93,796)
Stock subscription notes receivable (4,050) (4,050)
-------- --------
Total stockholders' equity 292,497 294,700
-------- --------
Total liabilities and stockholders' equity $796,898 $813,192
======== ========
</TABLE>
See accompanying notes.
2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
------- -------
<S> <C> <C>
Revenues:
Premiums earned $40,036 $41,018
Net investment income 8,339 9,476
Realized investment gains (losses) (915) 6,102
Other revenue 137 137
------- -------
Total revenues 47,597 56,733
Expenses:
Losses and loss adjustment expenses 34,132 33,563
Other operating expenses 8,728 7,194
------- -------
Total expenses 42,860 40,757
------- -------
Income before federal income taxes 4,737 15,976
Federal income taxes 946 4,384
------- -------
Net income $ 3,791 $11,592
======= =======
Basic earnings per share of common stock $ 0 .40 $ 0.98
Diluted earnings per share of common stock $ 0.40 $ 0.98
Cash dividend declared per share of common stock $ 0.10 $ 0.08
</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
STOCK ACCUMULATED TOTAL
ADDITIONAL SUBSCRIPTION OTHER STOCK-
COMMON PAID-IN RETAINED TREASURY NOTES COMPREHENSIVE HOLDERS'
STOCK CAPITAL EARNINGS STOCK RECEIVABLE INCOME EQUITY
------ ---------- ---------- ---------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 2000 $1 $36,386 $370,923 $(93,796) $(4,050) $(14,764) $294,700
Net income - - 3,791 - - 3,791
Other comprehensive loss for
unrealized loss on securities sold,
net of reclassification adjustments
of $80 for losses included in
net income. (1,743) (1,743)
---------
Comprehensive income 2,048
Purchase of treasury stock - - - (3,301) - (3,301)
Cash dividends - - (950) - - - (950)
------ ---------- -------- -------- ------------ -------- --------
BALANCE AT MARCH 31, 2000 $1 $36,386 $373,764 $(97,097) $(4,050) $(16,507) $292,497
====== ========== ======== ======== ============ ======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
SCPIE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,791 $ 11,592
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for amortization and depreciation 835 801
Provision for deferred federal income taxes 953 415
Realized investment (gains) losses 915 (6,102)
Changes in operating assets and liabilities:
Accrued investment income 746 915
Unearned premiums 1,273 (2,357)
Unpaid losses and loss adjustment expenses, and
reinsurance recoverables (5,248) (7,221)
Other liabilities (7,579) 4,131
Other assets (690) 4,754
-------- --------
Net cash provided by (used in) operating activities (5,004) 6,928
-------- --------
INVESTING ACTIVITIES
Purchases--fixed maturities (48,347) (94,426)
Sales - fixed maturities 50,319 89,988
Maturities-- fixed maturities 180 2,856
Purchases - equities - (12,662)
Sales - equities 5,711 24,755
Changes in short-term investments (3,754) (14,012)
-------- --------
Net cash provided by (used in) investing activities 4,109 (3,501)
-------- --------
FINANCING ACTIVITIES
Purchase of treasury stock (3,301) (4,073)
Cash dividends (950) (984)
-------- --------
Net cash used in financing activities (4,251) (5,057)
-------- --------
Decrease in cash (5,146) (1,630)
Cash at beginning of period $ 6,858 12,305
-------- --------
Cash at end of period $ 1,712 $ 10,675
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
SCPIE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
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 and with instructions to Form 10-Q and Article 7 of Regulation S-X.
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, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. 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, 1999. The balance sheet at December
31, 1999 has been derived from the audited financial statements at that date but
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
The accompanying March 31, 2000 and 1999 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.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999
------ -------
<S> <C> <C>
Numerator:
Net income $3,791 $11,592
Numerator for:
Basic earnings per share of common stock $3,791 $11,592
Diluted earnings per share of common stock $3,791 $11,592
Denominator:
Denominator for basic earnings per
share of common stock - weighted-average
shares outstanding 9,421 11,808
Effect of dilutive securities:
Stock options 23 - 0 -
------ -------
Denominator for diluted earnings
per share of common stock adjusted-
weighted-average shares outstanding 9,444 11,808
Basic earnings per share of common
stock $ 0.40 $ 0.98
====== =======
Diluted earnings per share of common
stock $ 0.40 $ 0.98
====== =======
</TABLE>
At March 31, 1999, no incremental shares related to stock options are
included in the diluted average number of shares outstanding as the impact would
have been antidilutive.
5
<PAGE>
3. INVESTMENTS
The Company's investments in available-for-sale securities at March 31,
2000 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 $163,866 $ 874 $ 5,870 $158,870
State, Municipalities and
Political Subdivisions 223,651 378 4,869 219,160
Mortgage-backed securities 43,624 46 683 42,987
Corporate 136,126 47 9,783 126,390
-------- ------ ------- --------
Total fixed-maturity investments 567,267 1,345 21,205 547,407
Equity investments 27,547 3 5,522 22,028
-------- ------ ------- --------
Total investments $594,814 $1,348 $26,727 $569,435
======== ====== ======= ========
</TABLE>
4. FEDERAL INCOME TAXES
The components of the federal income tax provision (benefit) in the
accompanying statements of income are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
----- ------
(IN THOUSANDS)
<S> <C> <C>
Current $ (7) $3,969
Deferred 953 415
----- ------
Total $ 946 $4,384
===== ======
</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,
-------------------
2000 1999
------ -------
(IN THOUSANDS)
<S> <C> <C>
Federal income tax at 35% $1,658 $ 5,592
Increase (decrease) in taxes resulting from:
Tax-exempt interest (842) (1,274)
Dividends received deduction (23) (36)
Goodwill 53 53
Other 100 49
------ -------
Total $ 946 $ 4,384
====== =======
</TABLE>
In July 1997, the Internal Revenue Service (IRS) completed its examination
of the Company's 1993 federal income tax return and issued notices of proposed
adjustment that would have increased the Company's 1993 tax liability. In June
1998, the IRS proposed similar adjustments with respect to the Company's 1994
and 1995 federal income tax returns. All three years (1993-1995) were the
subject of a settlement accepted by the IRS as of July 16, 1999, that did not
increase the Company's federal income tax liability.
5. COMMITMENTS AND CONTINGENCIES
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.
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 case was
remanded to the California Superior Court in which the judgement was originally
entered. The Company filed a motion in the Superior Court for entry of judgment
in its favor, which the bankruptcy estate opposed. The trial judge ruled in
favor of the Company, and judgment for the Company was entered on September 29,
1999. The bankruptcy estate filed a notice of appeal of this ruling with the
district court of appeal. The Company believes that the action is entirely
without merit and will continue to aggressively pursue its rights.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Premiums Earned. Premiums earned decreased approximately $1.0 million, or
2.4%, to $40.0 million for the three months ended March 31, 2000 from $41.0
million for the same period in 1999. Medical malpractice premiums from
physicians, medical groups and other healthcare providers were approximately
$35.0 million for the three months ended March 31, 2000 compared to $37.8
million for the same period in 1999, due primarily to the current competitive
pricing conditions in California. Hospital medical malpractice premiums were
essentially unchanged at $2.2 million for the three months ended March 31, 2000
from $2.2 million for the same period in 1999. Assumed reinsurance premiums
were approximately $3.2 million for the three months ended March 31, 2000
compared to $1.0 million for the same period in 1999.
Net Investment Income. Net investment income decreased to $8.3 million for the
three months ended March 31, 2000 from $9.5 million for the same period in 1999.
Average assets decreased to $650.7 million during the three months ended March
31, 2000 compared to $785.8 million for the same period in 1999. Invested
assets were reduced to provide the necessary funds to purchase 2.0 million
shares of the Company's common stock in November 1999.
Realized Investment Gains. Realized investment losses were approximately $0.9
million for the three months ended March 31, 2000 compared to gains of $6.1
million for the same period in 1999. During the first quarter of 1999 the
Company sold the majority of its equity portfolio, which resulted in significant
realized gains.
Losses and LAE. Losses and LAE increased to $34.1 million for the three months
ended March 31, 2000 from $33.6 million for the same period in 1999. As a
percentage of premiums earned, losses and LAE increased to 85.3% for the three
months ended March 31, 2000 from 81.8% for the same period in 1999. This
increase reflects adverse developments and strengthening of reserves in the
Company's professional liability programs for hospitals. For the three months
ended March 31, 2000, the Company reduced loss and LAE reserves for claims
incurred in prior policy years approximately $12.9 million as compared to a
reserve reduction of $16.1 million for the same period in 1999 for claims
incurred in prior policy years.
Other Operating Expenses. Other operating expenses increased by $1.5 million,
or 21.3%, to $8.7 million for the three months ended March 31, 2000 from $7.2
million for the same period in 1999. The ratio of other operating expenses to
premiums earned was 21.8% for the three months ended March 31, 2000 and 17.5%
for the same period in 1999. This increase reflects the elimination of
commissions on reinsurance ceded and greater employment-related expenses.
Federal Income Taxes. Federal income tax expense decreased $3.5 million, to
$0.9 million for the three months ended March 31, 2000 from $4.4 million for the
same period in 1999. The effective tax rate is 20.0% for the three months ended
March 31, 2000 compared to 27.4% for the same period in 1999 due to higher
realized gains in 1999.
Net Income. Net Income for the first quarter of $3.8 million, or $.40 per
share, compares with $11.6 million, or $.98 per share in 1999.
Other Comprehensive loss represents the changes in the unrealized gains and
losses of the company's investments occurring during the period. The company
incurred other comprehensive losses for the first quarter of 2000 (net of tax
benefit) of $1.7 million. The losses were primarily the result of increased
market rates that reduced the value of the company's investment portfolio. See
"Quantitative and Qualitative Disclosures About Market Risk" below.
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 losses, LAE, operating expenses,
reinsurance premiums and taxes.
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 2000, the
company had negative cash flow from operations of $5.0 million compared to a
positive cash flow of $6.9 million during the corresponding 1999 period.
7
<PAGE>
The Company invests its positive cash flow from operations in both fixed
maturity securities and equity 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 Company's
portfolio of unaffiliated equity securities was $22.0 million at March 31, 2000.
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 have been used
almost entirely in the Company's operating activities, with the remainder leased
to third parties. In July 1998, the Company entered into a lease covering
approximately 95,000 square feet of office space for new Company headquarters.
The lease is for a term of 10 years and the Company moved its headquarters and
principal operations to this space in early March 1999. One of the two former
headquarters buildings was leased to a third party effective May 1, 2000. The
Company also intends to lease the other building to a third party. The Company
expended $5.2 million for leasehold improvements and equipment through March 31,
2000.
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 $76.7
million, or 11.9% of invested assets, at March 31, 2000. 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 primarily consist
of all of the capital stock of its insurance company subsidiaries. Its
principal sources of funds are 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 company 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 receives regulatory approval. The amount of dividends that
the insurance company subsidiaries are able to pay SCPIE Holdings during 2000
without prior regulatory approval is approximately $30.6 million.
On August 31, 1999, the California Insurance Commissioner approved a special
dividend of $80.0 million from SCPIE Indemnity Company to SCPIE Holdings, which
was distributed on November 9, 1999. The proceeds from this dividend were used
by the Company to purchase 2,023,973 shares of its common stock at $35 per share
through a procedure referred to as a "Dutch Auction." Because of the large
amount of these dividends paid to SCPIE Holdings on November 9, 1999, additional
dividends in any material amount effectively may not be paid to SCPIE Holdings,
without regulatory approval, until 12 months after that date. The Company
believes that SCPIE Holdings has sufficient liquid assets and other resources of
cash that no dividends will be required until after November 9, 2000.
On May 25, 1999 the Company entered into a Credit Agreement with Union Bank of
California, N.A., First Union National Bank, and Dresdner Bank AG, as lenders.
Under the Credit Agreement, the Company may borrow up to $75,000,000, from time
to time, subject to certain conditions. The proceeds from the Credit Agreement
may be used by the Company for general corporate purposes and certain other
permitted uses. As of March 31, 2000, borrowings under the Credit Agreement
totaled $13.0 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.
During May 1999, the Board of Directors authorized the repurchase of up to
1,000,000 shares of its common stock on the open market. This authorization
replaced the company's prior program that expired in May 1999. Since 1997,
1,012,020 shares were repurchased under these programs. At May 11, 2000, 713,480
shares remained subject to purchase under the 1999 program. The Board of
Directors has since extended the term of the stock repurchase program until the
2001 Annual Meeting of Stockholders with respect to the remaining 713,480 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to various market risk exposures, including interest
rate risk and equity price risk.
The Company invests its assets primarily in fixed-maturity securities, which
at March 31, 2000 comprised 84.7% of total investments at market value. U.S.
government and tax-exempt bonds represent 69% of the fixed-maturity investments,
with the remainder consisting almost entirely of mortgage-backed securities and
corporate bonds. Equity securities, consisting primarily of common stocks,
account for 3% of total investment at market value. The remaining 12.3% of the
investment portfolio consists of highly liquid short-term investments, which are
primarily overnight bank repurchase agreements and short-term money market
funds.
The value of the fixed-maturity portfolio is subject to interest rate risk.
As market interest rates decrease, the value of the portfolio goes up with the
opposite holding true in rising interest rate environments. A common measure of
the interest sensitivity of fixed-maturity assets is modified duration, a
calculation that takes
8
<PAGE>
maturity, coupon rate, yield and call terms to calculate an average age of the
expected cash flows. The longer the duration, the more sensitive the asset is to
market interest rate fluctuations.
The value of the common stock equity investments is dependent upon general
conditions in the securities markets and the business and financial performance
of the individual companies in the portfolio. Values are typically based on
future economic prospects as perceived by investors in the equity markets.
Interest rates have risen substantially since December 31, 1998, resulting in
a decline in the value of the five year treasury bonds and adversely affecting
the carrying value of the company's fixed maturity portfolio. At March 31,
2000 the value of the Company's fixed maturities portfolio had declined to $19.9
million below amortized cost. If these securities were sold at their current
carrying values, the Company would record a realized loss.
PART II -- OTHER INFORMATION
ITEM 1. 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,
1998, the appellate court reversed the judgment against the Company in its
entirety. The case was remanded to the California Superior Court in which the
judgment was originally entered. The Company has filed a motion in the
Superior Court for the entry of judgment in its favor, which the bankruptcy
estate opposed. The trial judge ruled in favor of the company, and judgment for
the Company was entered on September 20, 1999. The bankruptcy estate filed a
notice of appeal of this ruling with the district court of appeal. The Company
believes that the action is entirely without merit and will continue to
aggressively pursue its rights.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herewith.
27 Financial Data Schedule
The Company did not file any reports on Form 8-K during the three months ended
March 31, 2000.
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 15, 2000 By: /s/ Patrick T. Lo
______________________________________
Patrick T. Lo
Senior Vice President
and Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-31-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 547,407
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 22,028
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 646,092
<CASH> 1,712
<RECOVER-REINSURE> 44,332
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 796,898
<POLICY-LOSSES> 443,941
<UNEARNED-PREMIUMS> 25,357
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 0
<OTHER-SE> 292,497<F1>
<TOTAL-LIABILITY-AND-EQUITY> 796,898
40,036
<INVESTMENT-INCOME> 8,339
<INVESTMENT-GAINS> (915)
<OTHER-INCOME> 137
<BENEFITS> 34,132
<UNDERWRITING-AMORTIZATION> 8,728
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 4,737
<INCOME-TAX> 946
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,791
<EPS-BASIC> .40
<EPS-DILUTED> .40
<RESERVE-OPEN> 449,864
<PROVISION-CURRENT> 47,048
<PROVISION-PRIOR> (12,916)
<PAYMENTS-CURRENT> 2,859
<PAYMENTS-PRIOR> 37,196
<RESERVE-CLOSE> 443,941
<CUMULATIVE-DEFICIENCY> (12,916)
<FN>
<F1>Treasury stock of $97,097 is included as a reduction of other stockholders'
equity. Accumulated other comprehensive income of $(16,507) is included as a
component of stockholders' equity.
</FN>
</TABLE>
