SKP Merrill Lynch

SCPIE Holdings Inc. (NYSE:SKP), a major provider of healthcare liability insurance, today reported improved financial results for the year and fourth quarter ended December 31, 2006. In 2006, SCPIE had net income of $12.3 million, equal to $1.27 per diluted share � a significant improvement from 2005 when the Company had net income of $3.5 million, or $0.36 per diluted share. The improved performance in 2006 was attributable, primarily, to reduced losses in the Company�s assumed reinsurance business in run off. For the 2006 fourth quarter, SCPIE had net income of $4.0 million, or $0.41 per diluted share. For the same period in 2005, the Company had net income of $3.2 million, or $0.33 per diluted share. Core Operating Review Net earned premiums for SCPIE�s core healthcare liability insurance business in 2006 was $123.2 million, a slight decrease from the 2005 total of $127.6 million. Net written premiums for 2006 were $123.3 million, compared to $126.9 million the previous year. The decrease in premiums for 2006 is largely due to improvements in the claims experience related to loss-rated policies. The core business produced an underwriting profit in 2006 of $10.8 million, comparable to the underwriting profit of $11.2 million in 2005. The core operation loss and loss adjustment expense ratio decreased slightly to 70.6% from 70.9% in the previous year. The combined ratio for 2006 was 91.3%, nearly the same as 2005�s ratio of 91.2%. �Our 2006 results clearly demonstrate the strength of our core business and the diminishing impact of our segments in run off,� said Donald J. Zuk, SCPIE President and Chief Executive Officer. �The solid core business, combined with a 96% retention rate in 2006, provides solid momentum as we proceed into 2007.� For the 2006 fourth quarter, net earned premiums for SCPIE�s core healthcare liability insurance business decreased slightly to $30.1 million from $31.1 million. Net written premiums were largely unchanged with $24.5 million in the fourth quarter of 2006 versus $24.6 million a year earlier. In the final quarter of 2006, the core business produced an underwriting profit of $3.1 million, down from $5.1 million in 2005. The loss ratio in core operations for the 2006 fourth quarter was 69.2% compared to 65.1% in 2005, and the combined ratio for the 2006 fourth quarter increased to 89.7% from 83.6% in 2005. Non-Core Review SCPIE continued to run off its non-core healthcare liability operations. Outstanding reserves for this segment declined further in 2006 to $37.7 million from $60.6 million at year-end 2005. Open claims dropped to 136 at the end of 2006, compared to 229 at the end of 2005. The Company reported losses for 2006 of $11.2 million � $2.7 million in the fourth quarter � in the assumed reinsurance segment. The loss is attributable to upward development on reinsurance programs currently in run off. Financial Summary For 2006, SCPIE�s total revenues of $143.9 million include net earned premiums of $123.5 million, net investment income of $20.4 million and a realized investment loss of $493,000. For 2005, total revenues of $151.5 million included net earned premiums of $128.4 million, net investment income of $17.8 million and a realized investment gain of $4.0 million. Total revenues of $35.6 million for the 2006 fourth quarter include $30.3 million of earned premiums, $4.9 million of net investment income and $70,000 of realized investment losses. For the fourth quarter of 2005, revenues of $40.4 million included $32.0 million of earned premiums, $4.5 million of investment income and $4.3 million of realized investment gains. Net written premiums for the 2006 fourth quarter totaled $24.7 million, compared with $25.5 million a year earlier. SCPIE�s balance sheet remained debt-free at December 31, 2006. Book value per share was $21.63 at year end, up from $20.05 at December 31, 2005. 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 the detailed financial statement accompanying this news release. About SCPIE Holdings SCPIE Holdings Inc. is a leading provider of healthcare liability insurance for physicians, oral and maxillofacial surgeons, and other healthcare providers, as well as medical groups and healthcare facilities. Since the company was founded in 1976, it has carved out a significant niche in the insurance industry by providing innovative products and services specifically for the healthcare community. Investor Conference Call An investor conference call to discuss SCPIE�s 2006 and fourth-quarter results will be conducted today, March 8, 2007, at 9 am Pacific Time (noon Eastern Time). The call will be open to all interested investors through a live audio web broadcast via the Internet at www.scpie.com and www.earnings.com. Rebroadcast over the Internet will be available for one year on both websites. A telephonic playback of the call can be heard from approximately 11 am Pacific Time today to 5 pm Pacific Time, March 15, 2007. Listeners should call 888-286-8010 (domestic) or 617-801-6888 (international) and use Reservation Number 94476567. In addition to historical information, this news release contains forward-looking statements that are based upon the Company�s estimates and expectations concerning future events and are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Actuarial estimates of losses and loss expenses and expectations concerning the Company�s ability to retain current insureds at current levels of profitability, successful withdrawal from the assumed reinsurance business, continued solvency of the Company�s reinsurers, obtaining rate change regulatory approvals, expansion of liability insurance business in its principal market, and improved performance and profitability are dependent upon a variety of factors, including future economic, competitive and market conditions, frequency and severity of catastrophic events, future legislative and regulatory actions, uncertainties and potential delays in obtaining rate approvals, the level of ratings from recognized rating services, the importance of brokerage business to our growth, the inherent uncertainty of loss and loss expense estimates in both the core business and discontinued non-core business, and the cyclical nature of the property and casualty insurance 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 as an insurance holding company, including statutory restrictions on dividends and other intercompany transactions. In light of the significant uncertainties inherent in the forward-looking information herein, the inclusion of such information should not be regarded as representation by the Company or any other person that the Company�s objectives or plans will be realized. SCPIE Holdings Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in Thousands) � December 31, 2006 December 31, 2005 ASSETS Securities available-for-sale: Fixed maturities investments, at fair value (amortized cost 2006 - $397,553; 2005 - $469,350) $ 389,954� $ 461,480� Equity investments, at fair value (cost 2006 - $1,723; 2005 - $1,934) � 2,034� � 2,095� Total securities available-for-sale 391,988� 463,575� Cash and cash equivalents � 145,815� � 68,783� Total investments 537,803� 532,358� � Accrued investment income 5,330� 5,874� Premiums receivable 18,697� 18,731� Assumed Reinsurance Receivables 17,089� 24,160� Reinsurance recoverable 45,564� 55,933� Deferred policy acquisition costs 7,351� 7,120� Deferred federal income taxes, net 44,661� 51,214� Property and equipment, net 1,733� 2,449� Other assets � 7,281� � 6,325� Total assets $ 685,509� $ 704,164� � LIABILITIES Reserves: Loss and loss adjustment expenses $ 405,448� $ 429,315� Unearned premiums � 41,815� � 41,705� Total reserves 447,263� 471,020� Amounts held for reinsurance 13,317� 22,018� Other liabilities � 18,285� � 20,333� Total liabilities 478,865� 513,371� � 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, � 2006 - 9,553,906 shares outstanding 2005 - 9,456,916 shares outstanding 1� 1� Additional paid-in capital 37,127� 37,127� Retained earnings 271,925� 259,645� Treasury stock, at cost (95,278) (97,063) (2006 - 2,738,185 shares and 2005 - 2,835,175 shares) Subscription notes receivable (1,849) (2,649) Accumulated other comprehensive loss � (5,282) � (6,268) Total stockholders' equity � 206,644� � 190,793� Total liabilities and stockholders' equity $ 685,509� $ 704,164� SCPIE Holdings Inc. and Subsidiaries Consolidated Statements of Operations (Dollars in Thousands, except per-share data) � Twelve Months Ended Three Months Ended � December 31, 2006 � December 31, 2005 December 31, 2006 � December 31, 2005 Revenues: Net premiums earned $ 123,531� $ 128,436� $ 30,286� $ 32,028� Net investment income 20,410� 17,818� 4,934� 4,463� Realized investment gains/(losses) (493) 4,018� (70) 4,276� Other revenue/(loss) � 461� � 1,183� � 443� � (339) Total revenues 143,909� 151,455� 35,593� 40,428� Expenses: Losses & loss adjustment expenses incurred 98,088� 111,156� 23,504� 25,140� Other operating expenses � 27,465� � 34,807� � 6,394� � 10,306� Total expenses � 125,553� � 145,963� � 29,898� � 35,446� � Income before federal income taxes 18,356� 5,492� 5,695� 4,982� Income tax expense � 6,076� � 2,024� � 1,712� � 1,768� � Net income $ 12,280� $ 3,468� $ 3,983� $ 3,214� � Basic earnings per share of common stock $ 1.29� $ 0.37� $ 0.42� $ 0.34� Diluted earnings per share of common stock $ 1.27� $ 0.36� $ 0.41� $ 0.33� SCPIE Holdings Inc. and Subsidiaries Supplemental Financial Data (Dollars in Thousands) � Twelve Months Ended December 31, 2006 Twelve Months Ended December 31, 2005 Direct Healthcare Liability Assumed Direct Healthcare Liability Assumed Core(2) Non-Core (3)(4) Reinsurance (4)(5) Other(7) Total(6) Core(2) Non-Core (3)(4) Reinsurance (4)(5) Other Total(6) � Net written premium(1) $ 123,280� $ -� $ 361� $ 123,641� $ 126,872� $ 377� $ (918) $ 126,331� � � Net earned premium $ 123,170� $ -� $ 361� $ 123,531� $ 127,556� $ 393� $ 487� $ 128,436� � Net investment income $ 20,410� 20,410� $ 17,818� 17,818� Realized investment gains/(losses) (493) (493) 4,018� 4,018� Other revenue � � � � 461� � 461� � � � � 1,183� � 1,183� � Total revenue 123,170� -� 361� 20,378� 143,909� 127,556� 393� 487� 23,019� 151,455� � Incurred loss and LAE 86,928� -� 11,160� 98,088� 90,463� (2,297) 22,990� 111,156� Other expenses � 25,479� � -� � 377� � 1,609� � 27,465� � 25,900� � 78� � 8,829� � -� � 34,807� � Net underwriting income/(loss) $ 10,763� $ -� $ (11,176) (413) $ 11,193� $ 2,612� $ (31,332) (17,527) � Net investment income, other revenue & expense $ 18,769� � 18,769� $ 23,019� � 23,019� � Income before federal Income taxes $ 18,356� $ 5,492� � Net cash provided/(used) in operating activities $ 7,557� $ (30,233) � Loss ratio 70.6% 70.9% Expense ratio � 20.7% � 20.3% � Combined ratio (GAAP) � 91.3% � 91.2% � (1) Net written premium is a non-GAAP financial measure which represents the premiums charged on policies issued during a fiscal period less any reinsurance. Net written premium is a statutory measure of production levels. Net earned premium, a comparable GAAP measure, 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. A reconciliation of net written premium to net earned premium is provided herein. � (2) Core Direct Healthcare Liability Business represents California and Delaware excluding discontinued dental and hospital programs. � (3) Non-Core Direct Healthcare Liability Business represents other state business and dental and hospital programs in California. � (4) Ratios are not shown for the Non-Core Healthcare Liability and Assumed Reinsurance columns because their run-off status produces ratios which are not meaningful. � (5) The expense component for the Assumed Reinsurance segment includes the effect of the retrospective accounting treatment required by Financial Accounting Standards Board No. 113, more fully described in SCPIE's 2005 Annual Filing in Form 10K, page 41. � (6) Ratios are not shown for the Total column, because inclusion of the discontinued Non-Core Healthcare Liability and Assumed Reinsurance results produce ratios which are no longer meaningful. � (7) Other expenses in column relate to a proxy challenge instituted in January 2006. SCPIE Holdings Inc. and Subsidiaries Supplemental Financial Data (Dollars in Thousands) � Three Months Ended December 31, 2006 Three Months Ended December 31, 2005 Direct Healthcare Liability Assumed Direct Healthcare Liability Assumed Core(2) Non-Core (3)(4) Reinsurance (4)(5) Other Total(6) Core(2) Non-Core (3)(4) Reinsurance (4)(5) Other Total(6) � Net written premium(1) $ 24,523� $ -� $ 182� $ 24,705� $ 24,585� $ 321� $ 606� $ 25,512� � � Net earned premium $ 30,104� $ -� $ 182� $ 30,286� $ 31,082� $ 320� $ 626� $ 32,028� � Net investment income $ 4,934� 4,934� $ 4,463� 4,463� Realized investment gains/(losses) (70) (70) 4,276� 4,276� Other revenue/(loss) � � � -� � 443� � 443� � � � � (339) � (339) � Total revenue 30,104� -� 182� 5,307� 35,593� 31,082� 320� 626� 8,400� 40,428� � Incurred loss and LAE 20,845� -� 2,659� 23,504� 20,234� 315� 4,591� 25,140� Other expenses � 6,185� � -� � 209� � -� � 6,394� � 5,739� � 28� � 4,539� � -� � 10,306� � Net underwriting income/(loss) $ 3,074� $ -� $ (2,686) 388� $ 5,109� $ (23) $ (8,504) (3,418) � Net investment income, other revenue & expense $ 5,307� � 5,307� $ 8,400� � 8,400� � Income before federal Income taxes $ 5,695� $ 4,982� � Net cash provided in operating activities $ 5,207� $ 5,585� � Loss ratio 69.2% 65.1% Expense ratio � 20.5% � 18.5% � Combined ratio (GAAP) � 89.7% � 83.6% � (1) Net written premium is a non-GAAP financial measure which represents the premiums charged on policies issued during a fiscal period less any reinsurance. Net written premium is a statutory measure of production levels. Net earned premium, a comparable GAAP measure, 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. A reconciliation of net written premium to net earned premium is provided herein. � (2) Core Direct Healthcare Liability Business represents California and Delaware excluding discontinued dental and hospital programs. � (3) Non-Core Direct Healthcare Liability Business represents other state business and dental and hospital programs in California. � (4) Ratios are not shown for the Non-Core Healthcare Liability and Assumed Reinsurance columns because their run-off status produces ratios which are not meaningful. � (5) The expense component for the Assumed Reinsurance segment includes the effect of the retrospective accounting treatment required by Financial Accounting Standards Board No. 113, more fully described in SCPIE's 2005 Annual Filing in Form 10K, page 41. � (6) Ratios are not shown for the Total column, because inclusion of the discontinued Non-Core Healthcare Liability and Assumed Reinsurance results produce ratios which are not meaningful. SCPIE Holdings Inc. and Subsidiaries Supplemental Financial Data (Dollars in Thousands) � 12/31/2006� Fixed-maturity portfolio � U.S. government & agencies $ 173,320� 44.4% Mortgage & asset-backed 68,975� 17.7% Corporate � 147,659� 37.9% Total $ 389,954� 100.0% � Average quality AAA� Effective duration 2.5� Yield to maturity 5.0% Weighted average combined maturity 3.8� Twelve Months Ended Three Months Ended December 31, 2006 December 31, 2005 December 31, 2006 December 31, 2005 � Total premiums Net written premium $ 123,641� $ 126,331� $ 24,705� $ 25,512� Change in unearned premium � (110) � 2,105� � 5,581� � 6,516� � Net earned premium $ 123,531� $ 128,436� $ 30,286� $ 32,028�