SCPIE Holdings Announces Third-Quarter and Nine-Month Results

November 13, 2003

SCPIE Holdings Inc., a provider of healthcare liability insurance, reported results for its third quarter and nine months ended Sept. 30, 2003.

For the 2003 third quarter, SCPIE reported a net loss of $14.8 million, or $1.58 per share, compared with a net loss of $11.4 million, or $1.23 per share, in the third quarter last year.

SCPIE’s core California and Delaware healthcare liability insurance business performed as anticipated in the third quarter and is expected to show improvement in the fourth quarter since a 9.9 percent rate increase in California took effect on Oct. 1, 2003.

An unexpected event in SCPIE’S assumed reinsurance business and a related investment, combined with marginal deterioration of SCPIE’s other assumed reinsurance and non-core healthcare programs in run-off, attributed to almost the entire loss for the quarter.

“Lloyd’s Syndicate 102 — owned by GoshawK Holdings plc, a company in which we have a common stock position and from which we had assumed reinsurance business — experienced sudden and unexpected deterioration late in the third quarter,” said Donald J. Zuk, SCPIE president and CEO. “The reported increases in losses caused Syndicate 102 to be placed in run-off on October 31, 2003, by regulators at Lloyd’s.

“The upward development in losses reported by Syndicate 102 and the accompanying fall in the market price of GoshawK stock required us to record approximately $8.5 million in assumed reinsurance losses in the third quarter and write down the value of our investment in Goshawk stock by $9.6 million. These two actions contributed $11.8 million to our after-tax loss.”

SCPIE has also ceded a significant portion of its reinsurance portfolio to GoshawK Re Bermuda, a subsidiary of GoshawK Holdings plc. GoshawK Re has an A- rating from A.M. Best. The run-off of Syndicate 102 should have a limited impact on GoshawK Re.

Core Operating Review

Net earned premium for the company’s core direct healthcare liability insurance business in the third quarter of 2003 totaled $31.1 million, up from $29.8 million a year earlier. Net written premiums increased to $9.8 million from $3.9 million in last year’s third quarter. The core business incurred an underwriting loss of $3.2 million compared with an underwriting loss of $0.9 million in the third quarter of 2002. The GAAP combined ratio stood at 110.1 percent, compared to 103.0% in 2002.

For the first nine months of 2003, net earned premium for the company’s core direct healthcare liability insurance business totaled $89.3 million, compared with $83.8 million for the same period a year earlier. Net written premiums for the core direct healthcare liability insurance business rose to $102.0 million from $91.5 million.

For the nine months, the core business incurred an underwriting loss of $9.2 million compared with a loss of $6.3 million for the same period last year. The GAAP combined ratio equaled 110.4 percent, compared to 107.6 percent in 2002.

“We believe the differential in the underwriting loss is primarily attributable to not being allowed to implement any rate increase in California for the first nine months of the year,” said Zuk. “We expect improvement in this area now that the increase has taken effect.”

Supplemental financial data relating to the performance of the company’s non-core direct healthcare liability operations and its assumed reinsurance business is contained in a detailed financial statement accompanying this news release.

Financial Summary

For the third quarter of 2003, SCPIE recorded total revenues of $31.0 million, including net earned premiums of $35.6 million, net investment income of $4.1 million and realized investment losses of $8.2 million. A year ago, SCPIE’s third-quarter revenues reached $88.1 million including $75.5 million of net earned premiums, net investment income of $8.4 million and realized investment gains of $4.0 million.

Net written premiums for the 2003 third quarter totaled $13.5 million. A year earlier, net written premiums totaled $48.6 million. The decline in earned and written premiums demonstrates the measures the company has taken to curtail business in the non-core direct healthcare liability and assumed reinsurance areas.

The company recorded a net pretax loss of $22.6 million for the three months ended September 30, 2003, compared with a net pretax loss of $18.1 million in the third quarter of 2002.

During the third quarter of 2003, SCPIE’s GAAP loss ratio equaled to 124.7 percent, compared with 116.6 percent for last year’s third quarter. The GAAP expense ratio for the 2003 third quarter was 26.0 percent versus 24.1 percent a year ago. The company’s GAAP combined ratio for the quarter was 150.7 percent compared with 140.7 percent a year ago.

For the nine months ended September 30, 2003, the company reported a net loss of $15.4 million or $1.65 diluted per share, compared with a net loss of $22.5 million, or $2.41 per diluted share, in the first nine months of 2002.

Total revenues for the first nine months of 2003 were $141.9 million. This included net earned premiums of $129.6 million, net investment income of $15.0 million and realized losses of $4.3 million. For the same period last year, total revenues equaled $267.1 million, including net earned premiums of $235.4 million, net investment income of $24.9 million and realized gains of $5.4 million.

SCPIE’s loss ratio for the first nine months of 2003 was 98.2 percent, versus 104.1 percent a year ago. The expense ratio for the first nine months of the year was 29.7 percent compared with 24.7 percent in the same 2002 period. The GAAP combined ratio for the first nine months of 2003 totaled 127.9 percent compared versus 128.8 percent in the comparable 2002 period.

Book value per share at Sept. 30, 2003, was $22.03 compared with $26.96 at Dec. 31, 2002.

New Policy, 2004 Rates

SCPIE recently announced it made two filings with the California Department of Insurance (CDI), which could benefit performance of the company’s core healthcare liability business in 2004. Both filings are expected to have Jan. 1, 2004, inception dates if approved by the CDI.

The company filed with the CDI for a new professional liability insurance policy, which would offer reduced benefits from SCPIE’s current policy at lower rates and would become an option for both current individual insureds as well as prospective insureds in California. Also, the company filed a request for an 8.9 percent overall rate increase for its California physician book of business.

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