Edgar Filing: SCPIE HOLDINGS INC

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED SEPTEMBER 30, 2003

Commission File No. 1-12449

SCPIE HOLDINGS INC.

(Exact name of registrant as specified in its charter)

DELAWARE

(State or other jurisdiction of incorporation or organization)

95-4557980

(I.R.S. Employer Identification No.)

1888 Century Park East, Los Angeles, California 90067

www.scpie.com

(Address of principal executive offices and internet site)

(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 by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.

Class		Outstanding at November 11, 2003
Preferred stock, par value $1.00 per share		No shares outstanding
Common stock, par value $0.0001 per share		9,864,610 shares

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SCPIE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

	SEPTEMBER 30, 2003			DECEMBER 31, 2002

	(unaudited)
ASSETS
Securities available-for-sale:
Fixed maturity investments, at fair value (amortized cost 2003 – $556,140; 2002 – $523,516)	$	568,823		$	538,675
Equity investments, at fair value (cost 2003 – $15,799; 2002 – $29,758)		19,273			34,237

Total securities available-for-sale		588,096			572,912
Other Investment		16,055			15,000
Mortgages and real estate		10,400			15,407
Cash and cash equivalents		47,529			115,787

Total investments		662,080			719,106
Accrued investment income		6,842			8,157
Premiums receivable		130,460			117,335
Reinsurance recoverable on paid and unpaid claims		184,996			153,589
Deferred policy acquisition costs		10,244			6,858
Federal income taxes receivable		5,645			10,944
Deferred federal income taxes		36,329			32,356
Property and equipment, net		4,146			5,305
Other assets		8,599			10,116

Total assets	$	1,049,341		$	1,063,766

LIABILITIES
Reserves:
Losses and loss adjustment expenses	$	673,191		$	650,671
Unearned premiums		56,888			67,556

Total reserves		730,079			718,227
Amounts held for reinsurance		95,292			87,701
Other liabilities		17,645			30,672

Total liabilities		843,016			836,600
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 $.0001, 30,000,000 shares authorized, 12,792,091 shares issued, 2003 – 9,364,610 shares outstanding 2002 – 9,333,807 shares outstanding		1			1
Additional paid-in capital		37,281			37,805
Retained earnings		262,230			280,609
Treasury stock, at cost 2003 – 2,927,481 shares and 2002 – 2,958,284 shares		(98,055	)		(98,830	)
Subscription notes receivable		(3,313	)		(3,592	)
Accumulated other comprehensive income		8,181			11,173

Total stockholders’ equity		206,325			227,166

Total liabilities and stockholders’ equity	$	1,049,341		$	1,063,766

See accompanying notes to Consolidated Financial Statements.

SCPIE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

	NINE MONTHS ENDED SEPTEMBER 30,						THREE MONTHS ENDED SEPTEMBER 30,

	2003			2002			2003			2002

Revenues:
Net premiums earned	$	129,602		$	235,377		$	35,602		$	75,498
Net investment income		15,050			24,903			4,130			8,448
Realized investment gains (loss)		(4,264	)		5,379			(8,191	)		4,003
Other revenue (expense)		1,528			1,396			(492	)		184

Total revenues		141,916			267,055			31,049			88,133
Expenses:
Losses and loss adjustment expenses		127,262			245,072			44,387			88,045
Other operating expenses		38,533			58,109			9,255			18,162
Interest expense					66

Total expenses		165,795			303,247			53,642			106,207

Loss before federal income taxes		(23,879	)		(36,192	)		(22,593	)		(18,074	)
Federal income tax benefit		(8,453	)		(13,684	)		(7,777	)		(6,629	)

Net loss	$	(15,426	)	$	(22,508	)	$	(14,816	)	$	(11,445	)

Basic loss per share	$	(1.65	)	$	(2.41	)	$	(1.58	)	$	(1.23	)
Diluted loss per share	$	(1.65	)	$	(2.41	)	$	(1.58	)	$	(1.23	)
Cash dividend declared and paid per share of common stock	$	0.30		$	0.30		$	0.10		$	0.10

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(DOLLARS IN THOUSANDS)

(UNAUDITED)

	COMMON STOCK		ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS			TREASURY STOCK			STOCK SUBSCRIPTION NOTES RECEIVABLE			ACCUMULATED OTHER COMPREHENSIVE INCOME			TOTAL STOCKHOLDERS’ EQUITY

BALANCE AT JANUARY 1, 2003	$	1	$	37,805		$	280,609		$	(98,830	)	$	(3,592	)	$	11,173		$	227,166
Net loss							(15,426	)											(15,426	)
Other comprehensive income for unrealized gains on securities sold, net of reclassification adjustments of $4,066 for gains included in net income																(913	)		(913	)
Unrealized foreign currency gain																(1,787	)		(1,787	)
Change in minimum pension liability																(292	)		(292	)

Comprehensive loss:																			(18,418	)
Treasury stock reissued				(524	)					775			279						530
Cash dividends							(2,953	)											(2,953	)

BALANCE AT SEPTEMBER 30, 2003	$	1	$	37,281		$	262,230		$	(98,055	)	$	(3,313	)	$	8,181		$	206,325

See accompanying notes to Consolidated Financial Statements.

SCPIE HOLDINGS INC. AND SUBISIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

(UNAUDITED)

	NINE MONTHS ENDED SEPTEMBER 30,

	2003			2002

OPERATING ACTIVITIES
Net loss	$	(15,426	)	$	(22,508	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provisions for amortization and depreciation		7,246			3,709
Provision for deferred federal income taxes		(8,453	)		(13,684	)
Realized investment (gains) loss		4,264			(5,379	)
Changes in operating assets and liabilities:
Deferred acquisition costs		(3,386	)		(1,857	)
Accrued investment income		1,315			(90	)
Federal income tax receivable		5,299			22,031
Unearned premiums		(10,668	)		5,703
Loss and loss adjustment expense reserves		22,520			54,532
Reinsurance recoverable on paid and unpaid claims		(31,407	)		(3,133	)
Amounts held for reinsurance		7,591
Other liabilities		(13,027	)		(4,416	)
Premiums receivable		(13,125	)		(36,167	)
Other		8,335			(4,144	)

Net cash used in operating activities		(38,922	)		(5,403	)
INVESTING ACTIVITIES
Purchases—fixed maturities		(449,160	)		(279,959	)
Sales—fixed maturities:		416,720			307,479
Maturities—fixed maturities		1,600
Sales—equities		3,926

Net cash provided by (used in) investing activities		(26,914	)		27,520
FINANCING ACTIVITIES
Reissue of treasury shares		252			329
Repayment of stock subscription note		279			279
Cash dividends		(2,953	)		(2,861	)
Bank loan payment					(9,000	)

Net cash used in financing activities		(2,422	)		(11,253	)

Increase (decrease) in cash and cash equivalents		(68,258	)		10,864
Cash and cash equivalents at beginning of period		115,787			95,151

Cash and cash equivalents at end of period	$	47,529		$	106,015

See accompanying notes to Consolidated Financial Statements.

SCPIE HOLDINGS INC. AND SUBISIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2003

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the accounts and operations, after intercompany eliminations, of SCPIE Holdings Inc. (SCPIE Holdings) and its direct and indirect wholly-owned subsidiaries, principally SCPIE Indemnity Company (SCPIE Indemnity), American Healthcare Indemnity Company (AHI), American Healthcare Specialty Insurance Company (AHSIC), SCPIE Underwriting Limited (SUL) and SCPIE Management Company (SMC), collectively, the Company.

These financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) 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 nine-month period ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the consolidated financial statements and notes thereto included in SCPIE Holdings’ Annual Report on Form 10-K for the year ended December 31, 2002.

Certain 2002 amounts have been reclassified to conform to the 2003 presentation.

2. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

	NINE MONTHS ENDED SEPTEMBER 30,						THREE MONTHS ENDED SEPTEMBER 30,

(IN THOUSANDS, EXCEPT PER SHARE DATA)	2003			2002			2003			2002

Numerator:
Net loss	$	(15,426	)	$	(22,508	)	$	(14,816	)	$	(11,445	)
Numerator for:
Basic loss per share of common stock	$	(15,426	)	$	(22,508	)	$	(14,816	)	$	(11,445	)
Diluated loss per share of common stock	$	(15,426	)	$	(22,508	)	$	(14,816	)	$	(11,445	)
Denominator
Denominator for basic loss per share of common stock – weighted-average shares outstanding		9,347			9,321			9,364			9,326
Effect of dilutive securities:
Stock option

Denominator for diluted loss per share of common stock adjusted – weighted-average shares outstanding		9,347			9,321			9,364			9,326
Basic loss per share of common stock	$	(1.65	)	$	(2.41	)	$	(1.58	)	$	(1.23	)
Diluted loss per share of common stock	$	(1.65	)	$	(2.41	)	$	(1.58	)	$	(1.23	)

For the nine months ended September 30, 2003, no incremental shares related to stock options are included in the diluted number of shares outstanding as the impact would have been antidilutive.

3. INVESTMENTS

The Company’s investments in available-for-sale securities at September 30, 2003 are summarized as follows:

	COST OR AMORTIZED COST		GROSS UNREALIZED GAINS		GROSS UNREALIZED LOSSES		FAIR VALUE

	(IN THOUSANDS)
Fixed-maturity securities:
Bonds:
U.S. Government and Agencies	$	190,582	$	7,905	$	982	$	197,505
Mortgage-backed securities, Collateralized mortgage obligations, and Asset-backed securities		94,014		1,706		455		95,265
Corporate		271,544		6,160		1,651		276,053

Total fixed-maturity securities		556,140		15,771		3,088		568,823
Equity securities		15,799		3,474				19,273

Total	$	571,939	$	19,245	$	3,088	$	588,096

4. FEDERAL INCOME TAXES

A reconciliation of income tax benefit in the accompanying statements of operations are summarized as follows:

	NINE MONTHS ENDED SEPTEMBER 30,

	2003			2002

	(IN THOUSANDS)
Federal income tax at 35%	$	(8,358	)	$	(12,668	)
Increase (decrease) in taxes resulting from:
Tax-exempt interest					(1,120	)
Other		(95	)		104

Total	$	(8,453	)	$	(13,684	)

5. COMPREHENSIVE INCOME (LOSS)

The following table reconciles net loss and comprehensive income (loss) for the periods presented:

	NINE MONTHS ENDED SEPTEMBER 30,						THREE MONTHS ENDED SEPTEMBER 30,

(IN THOUSANDS)	2003			2002			2003			2002

Net loss	$	(15,426	)	$	(22,508	)	$	(14,816	)	$	(11,445	)
Other comprehensive income (loss), before tax:
Unrealized gains (loss) on securities		1,008			25,898			(8,812	)		20,623
Unrealized foreign currency gains		(1,787	)					(2,007	)
Change in minimum pension liability		(450	)					(150	)

Other comprehensive income (loss) before tax		(1,229	)		25,898			(10,969	)		20,623
Income tax expense (benefit) related to securities		1,921			9,064			(856	)		7,218
Income tax benefit related to pension liability		(158	)					(53	)

Comprehensive income (loss)	$	(18,418	)	$	(5,674	)	$	(24,876	)	$	1,960

6. BUSINESS SEGMENTS

The Company classifies its business into two segments: Direct Healthcare Liability Insurance and Assumed Reinsurance. Segments are designated based on the types of products provided and based on the risks associated with the products. Direct healthcare liability insurance represents professional liability insurance for physicians, oral and maxillofacial surgeons and dentists, healthcare facilities and other healthcare providers. Assumed reinsurance represents the book of assumed worldwide reinsurance of professional, commercial and personal liability coverages, commercial and residential property risks and accident and health, workers’ compensation and marine coverages. Other includes items not directly related to the operating segments such as net investment income, realized investment gains and losses, and other revenue. In December 2002, the Company entered into a 100% quota share reinsurance agreement with a subsidiary of GoshawK Insurance Holdings plc, a publicly held London-based insurer and reinsurer (GoshawK), that divested substantially all of the Company’s ongoing assumed reinsurance operations. The Company has one ongoing assumed reinsurance treaty for the 2003 underwriting year.

The following table presents information about reportable segment income (loss) and segment assets as of and for the periods indicated (dollars in thousands):

NINE MONTHS ENDED SEPTEMBER 30, 2003	DIRECT HEALTHCARE LIABILITY INSURANCE			ASSUMED REINSURANCE			OTHER			TOTAL

Premiums written	$	107,350		$	12,410					$	119,760

Premiums earned	$	100,153		$	29,449					$	129,602
Net investment income							$	15,050			15,050
Realized investment losses								(4,264	)		(4,264	)
Other revenue								1,528			1,528

Total revenues		100,153			29,449			12,314			141,916
Losses and loss adjustment expenses		95,555			31,707						127,262
Underwriting and other operating expenses		21,001			17,532						38,533

Total expenses		116,556			49,239						165,795

Segment income (loss) before income taxes	$	(16,403	)	$	(19,790	)	$	12,314		$	(23,879	)

Combined ratio		116.4	%		167.2	%					127.9	%
Segment assets	$	40,667		$	285,032		$	723,642		$	1,049,341

NINE MONTHS ENDED SEPTEMBER 30, 2002	DIRECT HEALTHCARE LIABILITY INSURANCE			ASSUMED REINSURANCE			OTHER			TOTAL

Premiums written	$	112,831		$	128,249					$	241,080

Premiums earned	$	124,084		$	111,293					$	235,377
Net investment income							$	24,903			24,903
Realized investment gains								5,379			5,379
Other revenue								1,396			1,396

Total revenues		124,084			111,293			31,678			267,055
Losses and loss adjustment expenses		137,269			107,803						245,072
Underwriting and other operating expenses		26,257			31,852						58,109
Interest expense								66			66

Total expenses		163,526			139,655			66			303,247

Segment income (loss) before income taxes	$	(39,442	)	$	(28,362	)	$	31,612		$	(36,192	)

Combined ratio		131.8	%		125.5	%					128.8	%
Segment assets	$	176,098		$	103,303		$	737,139		$	1,016,540

THREE MONTHS ENDED SEPTEMBER 30, 2003	DIRECT HEALTHCARE LIABILITY INSURANCE			ASSUMED REINSURANCE			OTHER			TOTAL

Premiums written	$	9,683		$	3,838					$	13,521

Premiums earned	$	32,843		$	2,759					$	35,602
Net investment income							$	4,130			4,130
Realized investment losses								(8,191	)		(8,191	)
Other revenue / (expenses)								(492	)		(492	)

Total revenues		32,843			2,759			(4,553	)		31,049
Losses and loss adjustment expenses		30,692			13,695						44,387
Underwriting and other operating expenses		7,849			1,406						9,255

Total expenses		38,541			15,101						53,642

Segment loss before income taxes	$	(5,698	)	$	(12,342	)	$	(4,553	)	$	(22,593	)

Combined ratio		117.4	%		547.4	%					150.7	%
Segment assets	$	40,667		$	285,032		$	723,642		$	1,049,341

THREE MONTHS ENDED SEPTEMBER 30, 2002	DIRECT HEALTHCARE LIABILITY INSURANCE			ASSUMED REINSURANCE			OTHER		TOTAL

Premiums written	$	8,553		$	40,081				$	48,634

Premiums earned	$	38,730		$	36,768				$	75,498
Net investment income							$	8,448		8,448
Realized investment gains								4,003		4,003
Other revenue								184		184

Total revenues		38,730			36,768			12,635		88,133
Losses and loss adjustment expenses		48,979			39,066					88,045
Underwriting and other operating expenses		7,703			10,459					18,162

Total expenses		56,682			49,525					106,207

Segment income (loss) before income taxes	$	(17,952	)	$	(12,757	)	$	12,635	$	(18,074	)

Combined ratio		146.4	%		134.7	%				140.7	%
Segment assets	$	176,098		$	103,303		$	737,139	$	1,016,540

Premiums written represents the premiums charged on policies issued during a fiscal period. Premiums earned represents the portion of premiums written that is recognized as income in the financial statements for the periods presented and earned on a pro-rata basis over the term of the policies.

7. 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.

Highlands Insurance Group

Between January 1, 2000, and April 30, 2001, the Company issued endorsements to certain policyholders of the insurance company subsidiaries of Highlands Insurance Group, Inc. (HIG). Under these endorsements, the Company agreed to assume the policy obligations of the HIG insurance company subsidiaries, if the subsidiaries became unable to pay their obligations by reason of having been declared insolvent by a court of competent jurisdiction. The coverages included property, workers’ compensation, commercial automobile, general liability and umbrella. The gross premiums written by the HIG subsidiaries were approximately $88.0 million for the subject policies. In November 2001, HIG disclosed that its A.M. Best Company (A.M. Best) rating had been reduced to C- and that its financial plan might trigger some level of regulatory involvement. In December 2001, HIG announced that it would cease issuing any new or renewal policies as soon as practical. In February 2002, the Texas Department of Insurance placed the principal HIG insurance company subsidiaries under its supervision while they voluntarily liquidated their claim liabilities.

During 2002 and 2003, all of the HIG insurance company subsidiaries (with the exception of a California subsidiary) were merged into a single Texas domiciled subsidiary, Highlands Insurance Company (Highlands). Highlands has advised the Company that at September 30, 2003, the HIG insurance company subsidiaries had paid losses and LAE under the subject policies of $59.7 million and had established case loss reserves of $14.1 million, net of reinsurance. Incurred but not reported losses are expected to continue to emerge; however, the amount cannot be reasonably determined at this time. To the extent Highlands is declared insolvent at some future date by a court of competent jurisdiction and is unable to pay losses under the subject policies, the Company would be responsible to pay the amount of the losses incurred and unpaid at such date, and the Company would be entitled to indemnification of a portion of this loss from certain of the reinsurers of Highlands. The Company would also be subrogated to the rights of the policyholders as creditors of Highlands. The quarterly financial statement of Highlands filed with the Texas Department of Insurance as of June 30, 2003, showed $660.4 million in assets and policyholder surplus of $7.7 million.

Since 1994, Highlands and a number of other insurance companies have been defendants in an action in the Superior Court for the County of Los Angeles, California, brought by a corporation that installed and removed building materials containing asbestos, seeking to establish coverage for asbestos claims. The plaintiff subsequently entered a bankruptcy proceeding in which a statutory trust was created to fund asbestos claims. On August 1, 2003, the Los Angeles Superior Court, after a court and jury trial, entered a judgment against Highlands and other insurers totaling $190.7 million, of which Highlands’ share was $58.4 million. Highlands and the other insurers were ordered to immediately fund the trust in the amount of the judgment to cover potential future liabilities. The insurers have appealed this judgment to the California District Court of Appeal. Highlands also filed a petition in the appellate court for a judicial order that would in effect relieve Highlands from a requirement of posting an appellate bond in the amount of 150% of the judgment, or approximately $86.0 million. On November 4, 2003, the appellate court entered an order denying Highlands’ petition. Highlands filed a petition in the California Supreme Court for review of this decision, which was denied.

The effect of the November 4, 2003 appellate decision is that the plaintiff can now seek to execute on its $58.4 million judgment against Highlands, even though the appeal is pending. In its petition filed with the appellate court, Highlands disclosed that the Texas Department of Insurance had expressly denied Highlands’ request to post the appellate bond. Highlands further stated that the Texas Department of Insurance told Highlands that it would intervene to preserve Highlands’ assets in the event the plaintiff attempted to execute on its judgment. On November 6, 2003, the State of Texas obtained an order in the Texas District Court appointing the Texas Insurance Commissioner as the Receiver of Highlands and placing the Receiver in possession of all assets of Highlands. The order specifically enjoined various persons, including the plaintiff in the California action, from taking any action against the assets of Highlands. The order expressly provides that it does not constitute a finding of Highlands’ insolvency nor an authorization to liquidate Highlands. The ultimate impact to the Company of this additional regulatory action against Highlands, if any, is not currently determinable, but could be significant.

The California domiciled HIG subsidiary has been the subject of regulatory liquidation. On August 1, 2003, the Superior Court of for the County of Orange, California, upon an application filed by the California Insurance Commissioner, declared the California domiciled HIG insurance company subsidiary insolvent and appointed the Insurance Commissioner liquidator of the subsidiary. That subsidiary had established case loss reserves under the subject policies of approximately $450,000 at June 30, 2003.

Letters of Credit

The Company has a letter of credit facility in the amount of $50 million with Barclays Bank PLC. Letters of credit issued under the facility fulfill the requirements of Lloyd’s and guarantee loss reserves under reinsurance contracts. As of September 30, 2003, letter of credit issuance under the facility was approximately $47.3 million. Securities with an aggregate fair market value of $52.0 million are pledged as collateral under the facility.

California Franchise Tax Board

In the third quarter of 2002, the Company received a notice of assessment from the California Franchise Tax Board (FTB) for the 1997, 1998, 1999 and 2000 tax years in the total amount of $15.4 million, not including the federal tax benefits from the payment of such assessment or interest that might be included on amounts, if any, ultimately paid to the FTB. The assessment is the result of a memorandum issued by the FTB in April 2002. The memorandum, which is based partly on the California Court of Appeals Decision in Ceridian v. Franchise Tax Board, challenges the exclusion from the California income tax of dividends received by holding companies from their insurance company subsidiaries during the tax years ended on or after December 1, 1997. The Company has protested these assessments and while the Company intends to vigorously protest the current and any future assessments, there can be no assurance as to the ultimate outcome of these protests.

8. STOCK-BASED COMPENSATION

The following table illustrates the effect on net loss and loss per share if the Company applied the fair value recognition provision as defined in Financial Accounting Standards Board Statement (FASB) No. 123, Accounting of Stock-Based Compensation:

	NINE MONTHS ENDED SEPTEMBER 30,						THREE MONTHS ENDED SEPTEMBER 30,

(IN THOUSANDS, EXCEPT PER SHARE DATA)	2003			2002			2003			2002

Net loss as reported	$	(15,426	)	$	(22,508	)	$	(14,816	)	$	(11,445	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards net of related tax effects		(941	)		(917	)		(244	)		(428	)

Pro forma net loss	$	(16,367	)	$	(23,425	)	$	(15,060	)	$	(11,873	)
Loss per share:
Basic–as reported	$	(1.65	)	$	(2.41	)	$	(1.58	)	$	(1.22	)
Basic–pro forma	$	(1.75	)	$	(2.51	)	$	(1.61	)	$	(1.27	)
Diluted–as reported	$	(1.65	)	$	(2.41	)	$	(1.58	)	$	(1.22	)
Diluted–pro forma	$	(1.75	)	$	(2.51	)	$	(1.61	)	$	(1.27	)

For pro forma disclosure purposes, the fair value of stock options was estimated at each date of grant using a Black-Scholes option pricing model using the following assumptions: Risk-free interest rates ranging from 1.1% to 6.1%; dividend yields ranging from 0.66% to 2.72%; volatility factors of the expected market price of the Company’s common stock ranging from .273 to .871 and a weighted average expected life of the options ranging from three to ten years.

ITEM 2.

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

Overview

The Company currently conducts its insurance business in two segments: direct healthcare liability insurance and assumed reinsurance operations. Direct healthcare liability insurance represents professional liability insurance for physicians, oral and maxillofacial surgeons and dentists, healthcare facilities and other healthcare providers. The direct healthcare liability insurance segment is comprised of two components; core and non-core business. Core business represents direct healthcare liability insurance business in California and Delaware excluding a dental program managed by Brown and Brown, an independent insurance agency, and hospital business. Non-core business represents direct healthcare liability business outside of California and Delaware (principally managed by Brown & Brown), the Brown & Brown dental program and all hospital business. The non-core business is in run-off and no new or renewal policies have been issued since March 6, 2003.

Assumed reinsurance represents the book of assumed worldwide reinsurance of professional, commercial and personal liability coverages, commercial and residential property risks, accident and health and workers’ compensation coverages and marine coverages. The assumed reinsurance operations were significantly reduced in 2002. In December 2002, the Company entered into a quota share reinsurance transaction with GoshawK Reinsurance Limited (Goshawk Re), a Bermuda reinsurance subsidiary of GoshawK Insurance Holdings plc, a publicly held London-based Lloyd’s underwriter (GoshawK), under which the Company ceded to GoshawK Re almost all of its unearned assumed reinsurance premiums as of June 30, 2002, together with written reinsurance premiums after that date, in each case related to the assumed reinsurance business for the 2001 and 2002 underwriting years. The effect of this transaction was to retrocede to GoshawK $129.3 million of premiums in 2002 and an additional $39.4 million of premium in the first nine months of 2003. The Company retains certain losses related to the assumed reinsurance business, including those related to the World Trade Center, and the Company will continue to participate in one Lloyd’s syndicate for the 2003 underwriting year. Other than total estimated written premiums of $23 million from this syndicate, the Company will have no significant premiums written or earned from assumed reinsurance after December 31, 2002.

Third Quarter Loss Attributable to GoshawK

The Company has had an ongoing relationship with GoshawK, a public company with the two business operations, Syndicate 102 at Lloyds in London (Syndicate 102) and Goshawk Re (a reinsurance company) in Bermuda. In 1999 the Company made a common stock investment in Goshawk of $12.9 million (currently representing 4.1%), of the outstanding shares of GoshawK. In addition, the Company participated through its assumed reinsurance segment in two treaties reinsuring Syndicate 102 for the 2000 and 2001 underwriting years. One treaty is a marine excess of loss reinsurance treaty and the other treaty was a quota share treaty covering Syndicate 102’s net retained business.

In late 2002, the Company ceded substantially all of the assumed reinsurance segment’s 2002 underwriting activity and a substantial portion of the 2001 underwriting activity to GoshawK Re on an unlimited loss basis.

In late September 2003, GoshawK announced that Syndicate 102 had incurred significant losses in its 2000, 2001, 2002 and 2003 years of account. The losses stemmed primarily from two programs initiated in 1999. The losses were so significant GoshawK announced it would need to raise capital in Syndicate 102 and was reviewing its strategic options. GoshawK reported that GoshawK Re and its operations would not be materially affected by the financial problems of Syndicate 102. On October 31, 2003, Syndicate 102 was required to stop writing new business and was placed in run-off by regulators at Lloyds. GoshawK stated it would focus its further efforts on its GoshawK Re Bermuda operations.

The sudden GoshawK financial deterioration produced a significant loss to the Company in the quarter ended September 30, 2003. The market of value of the Company’s 4.1% ownership interest in the GoshawK common stock declined materially and the Company wrote down its investment by $9.6 million to $3.3 million. The Company holdings of 7.2 million shares of common stock in GoshawK, had a market value of approximately $4.4 million based on the closing price on the London Stock Exchange on November 11, 2003. The Company also reported an assumed reinsurance loss of $8.5 million in the third quarter as its share of the increased losses reported in GoshawK Syndicate 102 under its two reinsurance treaties.

Goshawk Re has an A- rating from A.M. Best and the cession of business to GoshawK Re is on a funds withheld basis whereby premiums ceded under the contract are kept in trust to collateralize GoshawK Re’s obligations to the Company.

Reduction in A.M. Best Rating

A.M. Best is the leading rating organization for the insurance industry. Since October 7, 2002, the Company’s insurance company subsidiaries have held a rating of B+ (Very Good) from A.M. Best. This is the sixth highest of thirteen rating classifications and is the lowest classification that A.M. Best rates as “Secure.” A.M. Best assigns this rating to companies that in its view have a good ability to meet their ongoing obligations to policyholders.

On November 14, 2003, A.M. Best notified the Company that, after a review of the Company’s third quarter financial results, A.M. Best is reducing the Company’s rating one level to B (Fair). A.M. Best assigns this rating to companies that in its view have a fair ability to meet their current obligations to policyholders, but are financially vulnerable to adverse changes in underwriting and economic conditions. A.M. Best stated in its news release that the rating action reflects the Company’s weakened overall capitalization, poor operating results and ongoing exposure to further adverse loss development in its assumed reinsurance and non-core healthcare liability business.

This reduction may materially impact the Company’s ability to attract new insureds, and to retain existing policyholders, in its core California and Delaware medical malpractice insurance business, particularly larger medial group policyholders. The action may also adversely effect the Company’s ability to raise additional capital.

Forward Looking Statements

Certain statements in this report on Form 10-Q that are not historical in 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 based on the Company’s estimates and expectations concerning future events that 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. Actuarial estimates of losses and loss adjustment expenses (LAE) and expectations concerning the Company’s ability to retain current insureds at profitable levels, expand its healthcare liability insurance business in its principal market, and successfully withdraw from its assumed reinsurance operations are dependent upon a variety of factors, including future economic, competitive and market conditions, frequency and severity of catastrophic events, future legislative and regulatory changes, uncertainties of success and potential delays in rate approval proceedings, the level of ratings established by A.M. Best and other national rating organizations, the inherent uncertainty of loss and loss expense estimates in both the core business and discontinued non-core business (including the contingent liability related to Highlands), and the cyclical nature of the property and casualty industry, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. The Company is also subject to certain structural risks, including statutory restrictions on dividends and other intercompany transactions within the Company’s holding structure. These risks and uncertainties, as well as the Company’s critical accounting policies, are discussed in more detail under “Business – Risk Factors,” “Management’s Discussion and Analysis – General,” and “Management’s Discussion and Analysis – Critical Accounting Policies” in the SCPIE Holdings’ Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2002

Consolidated Operating Results

Total revenues were $141.9 million for the nine months ended September 30, 2003, a decrease of 46.9% from total revenues of $267.1 million for the same period in 2002. Premiums earned decreased to $129.6 million in the first nine months of 2003 from $235.4 million for the same period in 2002, a decrease of $105.8 million, of which $81.9 million of the reductions occurred from the assumed reinsurance segment and $23.9 million in the direct healthcare liability segment.

Net investment income decreased to $15.1 million for the nine months ended September 30, 2003, a decrease of 39.6% from $24.9 million a year ago. The reduction in investment income is a result of a reduction in invested assets and a significant reduction in the average rate of return on invested assets. The decline in average rate of return resulted from the sales and corresponding investment gains recorded in late 2002, principally the fourth quarter, to strengthen statutory surplus, and the lower rates achievable upon the reinvestment of sales proceeds in new securities. The average rate of return on invested assets was 3.4% and 4.7% for the nine months ended September 30, 2003 and 2002, respectively.

The net realized investment loss of $4.3 million includes the $9.6 million write down in the value of the Company’s investment in the common stock of GoshawK and a $2.5 million on loss on the sale of its real estate holdings. The Company received a $10.4 million, 7-year mortgage note and cash as part of the sale of its real estate holdings.

Total expenses were $165.8 million for the nine months ended September 30, 2003, a decrease of $137.4 million over total expenses of $303.2 million for the same period in 2002. The combined ratios were 127.9% and 128.8% for the nine months ending 2003 and 2002, respectively.

The Company recorded a net loss of $15.4 million for the nine months ended September 30, 2003 as compared to $22.5 million for the corresponding period in 2002.

Direct Healthcare Liability Insurance Segment

The following table summarizes by core and non-core business the underwriting results of the direct healthcare liability insurance segment for the periods indicated (dollars in thousands):

Direct Healthcare Liability Insurance Segment

Underwriting Results

	CORE			NON-CORE			TOTAL

NINE MONTHS ENDED SEPTEMBER 30, 2003
Premiums written	$	102,364		$	4,986		$	107,350

Premiums earned	$	89,342		$	10,811		$	100,153
Losses and LAE incurred		80,996			14,559			95,555
Underwriting and other expenses		17,567			3,434			21,001

Underwriting loss		(9,221	)		(7,182	)		(16,403	)
Loss ratio		90.7	%		134.7	%		95.4	%
Expense ratio		19.7	%		31.8	%		21.0	%

Combined ratio		110.4	%		166.5	%		116.4	%

NINE MONTHS ENDED SEPTEMBER 30, 2002
Premiums written	$	91,544		$	21,287		$	112,831


Premiums earned	$	83,821		$	40,263		$	124,084

Losses and LAE incurred		74,232			63,037			137,269
Underwriting and other expenses		15,922			10,335			26,257

Underwriting loss		(6,333	)		(33,109	)		(39,442	)

Loss ratio		88.6	%		156.6	%		110.6	%
Expense ratio		19.0	%		25.7	%		21.2	%

Combined ratio		107.6	%		182.3	%		131.8	%

Core Business

Premiums written and earned increased 11.8% and 6.6%, respectively, in the nine months ended September 30, 2003 compared to the same period in 2002. Premiums written and earned increased primarily due to increases in schedule-rated or loss-rated large accounts.

The loss ratio (losses and LAE expenses related to premiums earned) for the nine months ended September 2003 was 90.7% compared to 88.6% in the same period in 2002. The increase in the loss ratio is due primarily to rising underlying cost trends between the periods.

The expense ratio (underwriting and other expenses related to premiums earned) increased to 19.7% in the nine months ended September 2003 from 19.0% in the same period in 2002. The increase is primarily attributable to increased non-acquisition expenses and the increasing proportion of core business in the total segment.

Non-Core Business

Premiums written decreased in the nine months ended September 30, 2003 to $5.0 million from $21.3 million for the same period in 2002. This resulted from a significant decline in the number of policies in the non-core business. Unearned premium related to the non-core business was $2.6 million as of September 30, 2003. After March 6, 2003, no new or renewal business was written in the non-core programs as the Company exited these markets. Premium earned in the non-core direct healthcare liability insurance business decreased as the written premium declined.

The lower loss ratio in the nine months ended September 30, 2003 of 134.7% compared to 156.6% for the same period a year ago is the result of smaller development of prior reserves in the nine months ended September 30, 2003 versus the same period in 2002.

The expense ratio increased in the nine months ended September 30, 2003 versus 2002 as the Company now expenses acquisition costs as incurred in 2003 in light of the unprofitability of the non-core business that was previously deferred.

Assumed Reinsurance Segment

The following table summarizes the underwriting results of the assumed reinsurance segment for the periods indicated (dollars in thousands):

	Assumed Reinsurance Segment Underwriting Results
FOR THE NINE MONTHS ENDED SEPTEMBER 30,	2003			2002

Premiums written	$	12,410		$	128,249

Premiums earned	$	29,449		$	111,293
Underwriting expenses
Losses		31,707			107,803
Underwriting and other operating expenses		17,532			31,852

Underwriting loss		(19,790	)		(28,362	)
Loss ratio		107.7	%		96.9	%
Expense ratio		59.5	%		28.6	%

Combined ratio		167.2	%		125.5	%

Premiums written decreased $115.8 million between the nine months ended September 2003 and the same period in 2002 because of reduction in programs for the 2003 underwriting year to one account and the cession of written premiums to GoshawK Re. The decrease in earned premium is a result of the decline in written premium.

The loss ratio increased in the nine months ended September 30, 2003 to 107.7% from 96.9% a year ago. 2003 was unfavorably impacted by adverse development on prior year reserves including Syndicate 102.

The GoshawK Re reinsurance treaty entered into in December 2002 effectively cedes all of the unearned premium and future reported premium after June 30, 2002, for the assumed reinsurance business written for underwriting years 2001 and 2002 by the Company. This treaty relieves the Company of significant underwriting risk and written premium leverage in 2002 and 2003 and significantly improves the Company’s risk-based capital adequacy ratios under both the A.M. Best and National Association of Insurance Commissioners (NAIC) models. The treaty has no limitations on loss recoveries and includes a profit-sharing provision should the combined ratios calculated on the base premium ceded be below 100%. The treaty requires GoshawK Re to reimburse the Company for its acquisition and administrative expenses. In addition, the Company is required to pay GoshawK Re additional premium in excess of the base premium ceded of 14.3%. The additional premium reduced the nine months ended September 30, 2003 written and earned premium by $5.6 million.

The GoshawK Re reinsurance treaty has both prospective and retroactive elements as defined in FASB No. 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts. As such, any gains under the contract will be deferred and amortized to income based upon the expected recovery. No gains are anticipated currently. Losses related to future earned premium ceded, as well as development on losses related to existing earned premium ceded after June 30, 2002, will ultimately determine whether a gain will be recorded under the contract. The retroactive accounting treatment required under FASB 113 requires that a charge to income be recorded to the extent premiums ceded under the contract are in excess of the estimated losses and expenses ceded under the contract.

The expense ratio was 59.5% in the nine months ended September 30, 2003 and 28.6% in the nine months ended September 30, 2002. The impact of the GoshawK Re additional premium as well as the retroactive treatment of a portion of the premium ceded to GoshawK Re added approximately 28.7 percentage points to the expense ratio for the nine months ended September 30, 2003.

THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2002

Consolidated Operating Results

Total revenues were $31.0 million for the three months ended September 30, 2003, a decrease of 64.8% from total revenues of $88.1 million for the same period in 2002. Premiums earned decreased to $35.6 million in the third quarter of 2003 from $75.5 million for the same period in 2002, a decrease of $39.9 million, of which $34.0 million of the reductions occurred from the assumed reinsurance segment and $5.9 million in the direct healthcare liability segment.

Net investment income decreased to $4.1 million for the three months ended September 30, 2003, a decrease of 51.1% from $8.4 million a year ago. The reduction in investment income is a result of a reduction in invested assets and a significant reduction in the average rate of return on invested assets. The decline in average rate of return resulted from the sales and corresponding investment gains recorded in late 2002, primarily the fourth quarter, to strengthen statutory surplus, and the lower rates achievable upon the reinvestment of sales proceeds in new securities. The average rate of return on invested assets was 2.8%and 4.8% for the three months ended September 30, 2003 and 2002, respectively.

The net realized investment loss of $8.2 million includes the $9.6 million write down in the value of the Company’s investment in the common stock of GoshawK.

Total expenses were $53.6 million for the three months ended September 30, 2003, a decrease of $52.6 million over total expenses of $106.2 million for the same period in 2002. The combined ratios were 150.7% and 140.7% in the third quarter of 2003 and 2002, respectively.

The Company recorded a net loss of $14.8 million for the three months ended September 30, 2003 as compared to a net loss of $11.4 million for the corresponding period in 2002.

Direct Healthcare Liability Insurance Segment

The following table summarizes by core and non-core business the underwriting results of the direct healthcare liability insurance segment for the periods indicated (dollars in thousands):

Direct Healthcare Liability Insurance Segment

Underwriting Results

	CORE			NON-CORE			TOTAL

THREE MONTHS ENDED SEPTEMBER 30, 2003
Premiums written	$	9,784		$	(101	)	$	9,683

Premiums earned	$	31,059		$	1,784		$	32,843
Losses and LAE incurred		26,745			3,947			30,692
Underwriting and other expenses		7,468			381			7,849

Underwriting loss gain		(3,154	)		(2,544	)		(5,698	)
Loss ratio		86.1	%		221.2	%		93.5	%
Expense ratio		24.0	%		21.4	%		23.9	%

Combined ratio		110.1	%		242.6	%		117.4	%
THREE MONTHS ENDED SEPTEMBER 30, 2002
Premiums written	$	3,875		$	4,678		$	8,553

Premiums earned	$	29,757		$	8,973		$	38,730
Losses and LAE incurred		25,965			23,014			48,979
Underwriting and other expenses		4,662			3,041			7,703

Underwriting loss		(870	)		(17,082	)		(17,952	)
Loss ratio		87.3	%		256.5	%		126.5	%
Expense ratio		15.7	%		33.9	%		19.9	%

Combined ratio		103.0	%		290.4	%		146.4	%

Core Business

Premiums written and earned increased 152.5% and 4.4%, respectively, in the three months ended September 30, 2003 compared to the same period in 2002. Premiums written and earned increased primarily due to increases in loss experience rated policies. A large majority of the Company’s core business has a January 1, inception date and therefore most written premiums occur in the first quarter of a fiscal year.

The loss ratio (losses and LAE expenses related to premiums earned) for the third quarter 2003 was 86.1% compared to 87.3% in the third quarter 2002. The decrease in the loss ratio is due primarily to changes in loss development between the periods.

The expense ratio (underwriting and other expenses related to premiums earned) increased to 24.0% in the third quarter 2003 from 15.7% in the third quarter 2002. The increase is primarily attributable to extra expenses associated with the Company’s 2003 rate filing hearings and the higher proportion of core business written to the total segment written in 2003.

Non-Core Business

After March 6, 2003, no new or renewal business was written in the non-core programs as the Company exited these markets. The written premium represented the sale of tail endorsements where the underlying policy was expiring. Premium earned in the non-core direct healthcare liability insurance business decreased as the written premium declined.

The lower loss ratio in the three months ended September 30, 2003 of 221.2% compared to 256.5% for the same period a year ago is the result of a small upward development of prior reserves in the third quarter of 2003 versus the upward development in 2002. The expense ratio decreased in the three months ended September 30, 2003 versus 2002 as all commission acquisition costs in 2003 were expensed previously.

As the non-core premium declines, the ratios become less meaningful.

Assumed Reinsurance Segment

The following table summarizes the underwriting results of the assumed reinsurance segment for the periods indicated (dollars in thousands):

	Assumed Reinsurance Segment
	Underwriting Results
FOR THE THREE MONTHS ENDED SEPTEMBER 30,	2003			2002

Premiums written	$	3,838		$	40,081

Premiums earned	$	2,759		$	36,768
Underwriting expenses
Losses		13,695			39,066
Underwriting and other operating expenses		1,406			10,459

Underwriting loss		(12,342	)		(12,757	)
Loss ratio		496.4	%		106.3	%
Expense ratio		51.0	%		28.4	%

Combined ratio		547.4	%		134.7	%

Premiums written decreased $36.2 million between the third quarter 2002 and the third quarter 2003 because of reduction in programs for the 2003 underwriting year to one and the cession of written premiums to GoshawK Re. The decrease in earned premium is a result of the decline in written premium.

The loss ratio increased in the three months ended September 30, 2003 to 496.4% from 106.3% a year ago. 2003 had been unfavorably impacted by adverse development primarily related to Syndicate 102 as previously discussed.

The GoshawK Re reinsurance treaty entered into in December 2002 effectively cedes all of the unearned premium and future reported premium after June 30, 2002, for the assumed reinsurance business written for underwriting years 2001 and 2002 by the Company. This treaty relieves the Company of significant underwriting risk and written premium leverage in 2002 and 2003 and significantly improves the Company’s risk-based capital adequacy ratios under both the A.M. Best and National Association of Insurance Commissioners (NAIC) models. The treaty has no limitations on loss recoveries and includes a profit-sharing provision should the combined ratios calculated on the base premium ceded be below 100%. The treaty requires GoshawK to reimburse the Company for its acquisition and administrative expenses. In addition, the Company is required to pay GoshawK Re additional premium in excess of the base premium ceded of 14.3%. The additional premium reduced the three months ended September 30, 2003 written and earned premium by $1.8 million.

The expense ratio was 51.0% in the three months ended September 30, 2003 and 28.4% in the three months ended September 30, 2002. The impact of the GoshawK Re additional premium as well as the retroactive treatment of a portion of the premium ceded to GoshawK added approximately 17.1 percentage points to the expense ratio in the second quarter 2003.

As the assumed reinsurance premiums decline, as well as the effect of retroactive accounting treatment for a portion of the GoshawK Re treaty on the expense ratio, the ratios become less meaningful.

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 nine months of 2003, the Company had negative cash flow from operations of $38.9 million compared to a negative cash flow of $5.4 million in 2002. The increase in negative cash flow in 2003 versus 2002 is primarily related to the decline in written premiums and claims payments associated with the non-core physician programs, which are now in run-off. The Company maintains sufficient liquidity in its investment portfolio to meet fluctuations in payment needs.

The Company invests its cash flow from operations in both fixed maturity securities and equity securities. The Company’s current policy is to limit its investment in unaffiliated equity securities and real estate to no more than 8% of the total market value of its investments. The Company’s portfolio of unaffiliated equity securities was $19.3 million at September 30, 2003. The Company plans to continue its emphasis on fixed maturity securities investments for the indefinite future.

The Company leases approximately 95,000 square feet of office space for its headquarters. The lease is for a term of 10 years ending in 2009, and the Company has two options to renew the lease for a period of five years each.

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 12-month period, 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 statutory 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 to SCPIE Holdings during 2003 without prior regulatory approval is approximately $15.6 million. As of September 30, 2003, no dividends had been paid by the insurance company subsidiary to SCPIE Holdings.

Common stock dividends paid to stockholders were $0.10 per share in the third quarter 2003. These dividends were funded through dividends from the Company’s insurance subsidiaries received in prior years. Payment of future dividends is subject to Board approval, earnings and the financial condition of the Company.

Based on historical trends, market conditions and its business plans, the Company believes that it has sufficient liquid investments to meet its 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.

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 rate-making 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 September 30, 2003 comprised 85.9% of total investments at market value. Corporate bonds represent 48.6% and U.S. government bonds represent 34.7% of the fixed-maturity investments, with the remainder consisting of mortgage-backed and asset-backed securities. Equity securities, consisting primarily of common stocks, account for 2.9% of total investments at market value. The other investment, which is comprised of a mutual fund investment that contains derivative instruments, accounts for 2.4% of total investments at market value. Mortgage note investments represent 1.6% of the investment portfolio. The remainder of the investment portfolio consists of cash and 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 increases 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 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.

At September 30, 2003, the carrying value of the investment portfolio included $16.2 million in net unrealized gains. At December 31, 2002, the investment portfolio included $19.6 million in net unrealized gains.

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

As required by the Securities and Exchange Commission Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II — OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are included herewith.

NUMBER		DOCUMENT

10.1		The 2003 Amended and Restated Equity Participation Plan of SCPIE Holdings Inc.
10.2		Form of Restricted Stock Agreement for Independent Directors for use under the 2003 Amended and Restated Equity Participation Plan of the Company.
31.1		Certifications of Registrant’s Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of Registrant’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. These certifications are being furnished solely to accompany this Quarterly Report on Form 10-Q and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company.

(b) None.

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: November 14, 2003:	By:	/s/ DONALD J. ZUK

		Donald J. Zuk President and Chief Executive Officer

Date: November 14, 2003	By:	/s/ ROBERT B. TSCHUDY

		Robert B. Tschudy Senior Vice President and Chief Financial Officer