SCPIE Holdings Reports Q4, Year-End Numbers

Los Angeles-based SCPIE Holdings Inc., a provider of healthcare liability insurance, reported results for the full year and fourth quarter ended Dec. 31, 2004.

For the year 2004, SCPIE reported a net loss of $7.9 million, or $0.84 per share, compared with a net loss in 2003 of $12.8 million, or $1.37 per share. For the 2004 fourth quarter, SCPIE had a net loss of $3.4 million, or $0.36 per share, compared with net income in the 2003 fourth quarter of $2.6 million, or $0.28 per share.

The losses in the 2004 full year and fourth quarter stemmed primarily from adverse developments in non-core healthcare and assumed reinsurance operations, which the company has been winding down, and were partially offset by improved performance in the company’s core direct healthcare liability operations.

Core operating review

For 2004, net earned premiums for SCPIE’s core direct healthcare liability insurance business totaled $123.2 million, up from $119.1 million in 2003. Net written premiums for 2004 rose to $128.6 million from $123.3 million in 2003.

The core business narrowed its underwriting loss to $1.9 million in 2004, contrasted to an underwriting loss of $10.8 million in 2003. The improvement is largely attributable to a 9.9% rate increase implemented on the company’s California policies in the final quarter of 2003, and to the application of stricter underwriting standards. For the 2005 year, SCPIE implemented an additional 6.5% rate increase in California as of Jan. 1.

Progress in the core business is also evident in the 2004 full-year combined ratio for SCPIE’s core operations which dropped to 101.5% and a loss ratio of 80.6%, from a combined ratio 109.1% a year earlier when the loss ratio was 88.6%.

Also, the retention rate for SCPIE’s core direct healthcare liability insurance was 92% in 2004.

For the 2004 fourth quarter, earned premiums for core direct healthcare liability operations totaled $29.9 million compared with $29.8 million a year earlier. Net written premiums rose to $25.1 million in the 2004 fourth quarter, up from $20.9 million in the 2003 fourth quarter.

For the final quarter of 2004, core direct healthcare liability posted an underwriting profit of $0.8 million, contrasted to an underwriting loss in the comparable year-earlier quarter of $1.5 million. The combined ratio for the company’s core business in the fourth quarter of 2004 totaled 97.2% with a loss ratio of 76.0%. This contrasts to the 2003 fourth quarter combined ratio of 105.1% with a loss ratio of 82.3%.

“Clearly, our core results for 2004 demonstrate the benefit of a full-year’s rate increase combined with the underwriting and risk management disciplines we have implemented as part of our turnaround strategy,” said Donald J. Zuk, SCPIE president and CEO. “We are especially pleased to see the improvement in our core loss ratios. With the new rate increase just implemented, we anticipate continued progress in 2005 in core operations.”

Non-core losses

SCPIE’s run-off of non-core healthcare liability operations in states other than California and Delaware continue. Outstanding reserves for the discontinued healthcare liability operations declined to $97.4 million at Dec. 31, 2004, from $145.3 million at Dec. 31, 2003. The 2004 underwriting loss for non-core healthcare liability operations was $13.4 million. No new policies were written in 2004, and open claims dropped to 431 at year-end 2004 from 739 at year-end 2003.

Outstanding reserves in discontinued assumed reinsurance operations continued to decline, totaling $87.8 million at year-end 2004 compared with $106.3 million for year-end 2003. The discontinued reinsurance operations segment incurred an underwriting loss of $13.8 million.

Financial summary

For 2004, total revenues were $157.3 million versus $187.0 million in 2003. Net earned premiums in 2004 totaled $136.1 million, with more than 90% from core direct healthcare liability operations, contrasted to net earned premiums of $163.9 million in 2003 when 27% of net earned premiums were attributable to non-core healthcare liability and assumed reinsurance operations that the company has been exiting. Net written premiums in 2004 were $129.2 million, compared with $147.0 million in 2003. Net investment income totaled $19.2 million in 2004 compared with $22.0 million in 2003. In 2004, the company had realized investment gains of $1.5 million, compared with realized investment gains of $0.2 million in 2003.

The company reported a loss before taxes for 2004 of $7.9 million, reduced from a loss before taxes in 2003 of $20.2 million.

Total revenues for the final quarter of 2004 equaled $36.4 million, including net earned premiums of $32.4 million, net investment income of $4.1 million and realized investment losses of $0.1 million. A year earlier, fourth-quarter revenues totaled $45.1 million, including net earned premiums of $34.3 million, net investment income of $6.9 million and realized investment gains of $4.5 million. Net written premiums for the 2004 fourth quarter totaled $27.0 million compared with net written premiums a year earlier of $27.3 million.

In the 2004 fourth quarter, the company’s net loss before taxes was $5.3 million, contrasted to net income before taxes in the fourth quarter of 2003 of $3.7 million. As mentioned previously, the 2004 fourth-quarter losses are primarily attributable to adverse results in the company’s non-core healthcare liability and assumed reinsurance operations.

“We are disappointed that developments in our discontinued operations detract from the improvements we are making in our core operations,” Zuk added. “The progress we are making is indicative of the long-term future and success we envision for our company.”

At Dec. 31, 2004, book value per share totaled $20.68 compared with $21.79 at year-end 2003. SCPIE’s balance sheet continues to be debt-free.