SKP Merrill Lynch

SCPIE Holdings Inc. (NYSE:SKP), a major provider of healthcare liability insurance, today reported improved results for its second quarter and six months ended June 30, 2007. For the 2007 second quarter, net income rose 41% to $3.7 million, equal to $0.38 per diluted share, from $2.6 million, or $0.27 per diluted share, last year. Total revenues for the 2007 second quarter amounted to $35.5 million, compared with $36.6 million a year ago. Net income for the first half of 2007 increased to $7.4 million, equal to $0.77 per diluted share, from $5.0 million, or $0.52 per diluted share, for the corresponding period of 2006. Total revenues for the 2007 year-to-date period were $70.8 million, versus $73.2 million last year. Core Operating Review SCPIE�s direct healthcare liability operations posted an underwriting profit of $2.7 million for the 2007 second quarter, compared to $2.8 million in the corresponding prior-year period. Net earned premiums for direct healthcare operations totaled $29.8 million compared with $31.4 million a year earlier. The decrease is primarily attributable to decreased renewal premiums from loss-rated groups and a small decrease in the number of insureds. Net written premiums for the quarter increased to $4.0 million from $3.4 million in the 2006 second quarter. The combined ratio for SCPIE�s core business in the second quarter of 2007 improved to 90.7%, with a loss ratio of 69.1%. A year ago, the company�s combined ratio for the second quarter was 91.2%, including a loss ratio of 70.9%. The expense ratio for the core segment in the 2007 second quarter was 21.6%, compared with 20.3% at the same time last year. The increase in the expense ratio is primarily attributable to the decline in earned premium. For the first half of 2007, SCPIE�s healthcare liability operations registered an underwriting profit of $5.0 million, up from $4.9 million a year earlier. Net earned premiums business amounted to $60.0 million, compared with $62.6 million last year, and net written premiums totaled $87.8 million, compared with $92.1 million for the first half of 2006. The combined ratio for the first half of 2007 was 91.7%, including a loss ratio of 69.8%. This is improved from a combined ratio for the first half of last year of 92.2%, with a loss ratio of 71.0%. SCPIE�s retention rate for its direct healthcare liability business over the past 12 months totaled 96.5%. �Our core business remains solid and our balance sheet strong,� said Donald J. Zuk, SCPIE President and Chief Executive Officer. �As we proceed into the second half of 2007, the positive momentum is continuing.� Non-Core Review SCPIE continues to run off its healthcare liability operations in states other than California and Delaware. Outstanding net reserves in this area declined to $28.6 million at June 30, 2007, from $37.7 million at December 31, 2006. Open claims dropped to 100 at the end of the 2007 second quarter from 113 at the end of the preceding first quarter, 136 at year-end and 170 at the same time last year. In the assumed reinsurance area, also in run-off, increased reserves and commutation costs on some contracts produced an underwriting loss of $2.8 million for the quarter and $4.7 million for the first six months of 2007, compared to underwriting losses of $3.1 million and $5.9 million, respectively, for the same periods in 2006. Outstanding net reserves for this reinsurance segment declined 13% to $42.8 million at June 30, 2007, from $49.0 million at December 31, 2006, primarily as a result of the commutation of several contracts. Financial Summary Revenues for the second quarter of 2007 included net investment income of $5.5 million and a net realized investment loss of $50,000. Last year�s second-quarter totals included net investment income of $5.2 million and realized investment losses of $53,000. For the 2007 first half, net investment income totaled $10.8 million, with a net realized gain of $116,000, compared with net investment income of $10.2 million and realized investment losses of $164,000 for the first half of 2006. At June 30, 2007, SCPIE�s balance sheet remained debt-free. Book value at the close of the 2007 second quarter rose to $22.37 per share from $22.14 at the end of the preceding first quarter, $21.63 at December 31, 2006 and $20.15 per share, a year ago. Supplemental financial data relating to the Company�s performance is contained in the detailed statements 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 second-quarter 2007 results will be held today, August 2, 2007, at 9 am PDT (12 noon EDT). 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 will be available from approximately 11 am PDT, Thursday, August 2, 2007 to 5 pm PDT, Thursday, August 9, 2007. Listeners should call 888/286-8010 (domestic) or 617/801-6888 (international) and use Reservation Number 21034027. 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 profitable levels, 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 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) � June 30, 2007 December 31, 2006 ASSETS Securities available-for-sale: Fixed maturities investments, at fair value (amortized cost 2007 - $353,633; 2006 - $397,553) $ 345,263 $ 389,954 Equity investments, at fair value (cost 2007 - $1,604; 2006 - $1,723) � 1,972 � � 2,034 � Total securities available-for-sale 347,235 391,988 Cash and cash equivalents � 184,585 � � 145,815 � Total investments 531,820 537,803 � Accrued investment income 5,235 5,330 Premiums receivable 41,712 18,697 Assumed reinsurance receivables 20,456 17,089 Reinsurance recoverable 45,230 45,564 Deferred policy acquisition costs 9,437 7,351 Deferred federal income taxes, net 41,352 44,661 Property and equipment, net 1,321 1,733 Other assets � 5,893 � � 7,281 � Total assets $ 702,456 � $ 685,509 � � LIABILITIES Reserves: Loss and loss adjustment expenses $ 397,503 $ 405,448 Unearned premiums � 69,681 � � 41,815 � Total reserves 467,184 447,263 Amounts held for reinsurance 3,311 13,317 Other liabilities � 17,754 � � 18,285 � Total liabilities 488,249 478,865 � 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, 2007 - 9,575,333 shares outstanding 2006 - 9,553,906 shares outstanding 1 1 Additional paid-in capital 37,127 37,127 Retained earnings 279,120 271,925 Treasury stock, at cost (94,611 ) (95,278 ) (2007 - 2,716,758 shares and 2006 - 2,738,185 shares) Subscription notes receivable (1,569 ) (1,849 ) Accumulated other comprehensive loss � (5,861 ) � (5,282 ) Total stockholders' equity � 214,207 � � 206,644 � Total liabilities and stockholders' equity $ 702,456 � $ 685,509 � SCPIE Holdings Inc. and Subsidiaries Consolidated Statements of Operations (Dollars in Thousands, except per-share data) � Six Months Ended Three Months Ended � June 30, 2007 � June 30, 2006 June 30, 2007 � June 30, 2006 Revenues: Net premiums earned $ 59,711 $ 63,082 $ 29,837 $ 31,452 Net investment income 10,769 10,211 5,549 5,198 Realized investment gains/(losses) 116 (164 ) (50 ) (53 ) Other revenue � 194 � 59 � � 163 � � 6 � Total revenues 70,790 73,188 35,499 36,603 Expenses: Losses & loss adjustment expenses incurred 46,203 50,906 23,257 25,701 Other operating expenses � 13,280 � 14,737 � � 6,674 � � 7,130 � Total expenses � 59,483 � 65,643 � � 29,931 � � 32,831 � � Income before federal income taxes 11,307 7,545 5,568 3,772 Income tax expense � 3,885 � 2,531 � � 1,840 � � 1,136 � � Net income $ 7,422 $ 5,014 � $ 3,728 � $ 2,636 � � Basic earnings per share of common stock $ 0.78 $ 0.53 � $ 0.39 � $ 0.28 � Diluted earnings per share of common stock $ 0.77 $ 0.52 � $ 0.38 � $ 0.27 � SCPIE Holdings Inc. and Subsidiaries Supplemental Financial Data (Dollars in Thousands) � Six Months Ended June 30, 2007 Six Months Ended June 30, 2006 Direct Healthcare Liability Assumed Reinsurance (2)(3) Other Total(4) Direct Healthcare Liability Assumed Reinsurance (2)(3) Other(5) Total(4) � Net written premium(1) $ 87,797 $ (220 ) $ 87,577 $ 92,054 $ 510 $ 92,564 � � Net earned premium $ 59,931 $ (220 ) $ 59,711 $ 62,572 $ 510 $ 63,082 � Net investment income $ 10,769 10,769 $ 10,211 10,211 Realized investment gains/(losses) 116 116 (164 ) (164 ) Other revenue � � � 194 � 194 � � � � 59 � � 59 � � Total revenue 59,931 (220 ) 11,079 70,790 62,572 510 10,106 73,188 � Incurred loss and LAE 41,837 4,366 46,203 44,404 6,502 50,906 Other expenses � 13,140 � � 140 � � - � 13,280 � � 13,263 � � (92 ) � 1,566 � � 14,737 � � Net underwriting income/(loss) $ 4,954 � $ (4,726 ) 228 $ 4,905 � $ (5,900 ) (995 ) � Net investment income, other revenue & expense $ 11,079 � 11,079 � $ 8,540 � � 8,540 � � Income before federal Income taxes $ 11,307 � $ 7,545 � � Net cash used in operating activities $ (4,367 ) $ (1,397 ) � Loss ratio 69.8 % 71.0 % Expense ratio � 21.9 % � 21.2 % � Combined ratio (GAAP) � 91.7 % � 92.2 % � 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) Ratios are not shown for the Assumed Reinsurance columns, because their run-off status produces ratios which are not meaningful. � 3) 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 2006 Annual Filing in Form 10K, page 42. � 4) Ratios are not shown for the Total column, because inclusion of the discontinued Assumed Reinsurance results produce ratios which are no longer meaningful. � 5) Other expenses in column relate to a proxy challenge in 2006. SCPIE Holdings Inc. and Subsidiaries Supplemental Financial Data (Dollars in Thousands) � Three Months Ended June 30, 2007 Three Months Ended June 30, 2006 Direct Healthcare Liability Assumed Reinsurance (2)(3) Other Total(4) Direct Healthcare Liability Assumed Reinsurance (2)(3) Other(5) Total(4) � � Net written premium(1) $ 4,018 $ 81 $ 4,099 $ 3,428 $ 13 $ 3,441 � � Net earned premium $ 29,756 $ 81 $ 29,837 $ 31,440 $ 12 $ 31,452 � Net investment income $ 5,549 5,549 $ 5,198 5,198 Realized investment losses (50 ) (50 ) (53 ) (53 ) Other revenue � � - � � 163 � � 163 � � � � 6 � � 6 � � Total revenue 29,756 81 5,662 35,499 31,440 12 5,151 36,603 � Incurred loss and LAE 20,571 2,686 23,257 22,299 3,402 25,701 Other expenses � 6,441 � � 233 � � - � � 6,674 � � 6,367 � � (246 ) � 1,009 � � 7,130 � � Net underwriting income/(loss) $ 2,744 � $ (2,838 ) (94 ) $ 2,774 � $ (3,144 ) (370 ) � Net investment income, other revenue & expense $ 5,662 � � 5,662 � $ 4,142 � � 4,142 � � Income before federal Income taxes $ 5,568 � $ 3,772 � � Net cash used in operating activities $ (4,728 ) $ (7,073 ) � Loss ratio 69.1 % 70.9 % Expense ratio � 21.6 % � 20.3 % � Combined ratio (GAAP) � 90.7 % � 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) Ratios are not shown for the Assumed Reinsurance columns, because their run-off status produces ratios which are not meaningful. � 3) 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 2006 Annual Filing in Form 10K, page 42. � 4) 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. � 5) Other expenses in column relate to a proxy challenge in 2006. SCPIE Holdings Inc. and Subsidiaries Supplemental Financial Data (Dollars in Thousands) � 6/30/2007 Fixed-maturity portfolio � U.S. government & agencies $ 167,592 48.5 % Mortgage & asset-backed 43,482 12.6 % Corporate � 134,189 � 38.9 % Total $ 345,263 100.0 % � Average quality AAA Effective duration 2.3 Yield to maturity 5.2 % Weighted average combined maturity 3.5 Six Months Ended Three Months Ended June 30, 2007 � June 30, 2006 June 30, 2007 � June 30, 2006 � Total premiums Net written premium $ 87,577 $ 92,564 $ 4,099 $ 3,441 Change in unearned premium � (27,866 ) � � (29,482 ) � 25,738 � � 28,011 � Net earned premium $ 59,711 � � $ 63,082 � $ 29,837 � $ 31,452