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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



QUARTERLY REPORT

PURSUANT TO SECTION
13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



FOR THE QUARTER ENDED MARCH 31, 2004



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Commission File No. 1-12449



SCPIE HOLDINGS
INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 95-4557980                          
|(State or other jurisdiction of incorporation or organization) |  | (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)



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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 May 12, 2004
|Preferred stock, par value $l.00 per share |  | No shares outstanding      
|Common stock, par value $0.0001 per share  |  | 9,871,933 shares           



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PART I  FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



SCPIE HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

(DOLLARS IN
THOUSANDS, EXCEPT SHARE DATA)



|                                                                                                                                                                |  |               |           |   |                  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                |  | MARCH 31,2004 |           |   | DECEMBER 31,2003 |  
|                                                                                                                                                                |  |               |          
|                                                                                                                                                                |  | (unaudited)   |           |   |                  |  
|ASSETS                                                                                                                                                          |  |               |           |   |                  |   |         |  
|Securities available-for-sale:                                                                                                                                  |  |               |           |   |                  |   |         |  
|Fixed maturity investments, at fair value (amortized cost 2004 - $547,415; 2003 - $550,794)                                                                     |  | $             | 558,900   |   |                  | $ | 554,141 |  
|Equity investments, at fair value (cost 2004 - $12,404; 2003 - $15,766)                                                                                         |  |               | 16,132    |   |                  |   | 20,543  |  
|                                                                                                                                                                |  |               |           |  
|Total securities available-for-sale                                                                                                                             |  |               | 575,032   |   |                  |   | 574,684 |  
|Mortgages and real estate                                                                                                                                       |  |               | 10,400    |   |                  |   | 10,400  |  
|Cash and cash equivalents                                                                                                                                       |  |               | 47,832    |   |                  |   | 62,095  |  
|                                                                                                                                                                |  |               |           |  
|Total investments and cash and cash equivalents                                                                                                                 |  |               | 633,264   |   |                  |   | 647,179 |  
|Accrued investment income                                                                                                                                       |  |               | 6,070     |   |                  |   | 7,526   |  
|Premiums receivable                                                                                                                                             |  |               | 159,476   |   |                  |   | 120,112 |  
|Reinsurance recoverable                                                                                                                                         |  |               | 157,961   |   |                  |   | 151,829 |  
|Deferred policy acquisition costs                                                                                                                               |  |               | 11,248    |   |                  |   | 9,416   |  
|Deferred federal income taxes                                                                                                                                   |  |               | 40,407    |   |                  |   | 43,725  |  
|Property and equipment, net                                                                                                                                     |  |               | 3,581     |   |                  |   | 3,816   |  
|Other assets                                                                                                                                                    |  |               | 7,524     |   |                  |   | 7,647   |  
|                                                                                                                                                                |  |               |           |  
|Total assets                                                                                                                                                    |  | $             | 1,019,531 |   |                  | $ | 991,250 |  
|                                                                                                                                                                |  |               |           |  
|LIABILITIES                                                                                                                                                     |  |               |           |   |                  |   |         |  
|Reserves:                                                                                                                                                       |  |               |           |   |                  |   |         |  
|Losses and loss adjustment expenses                                                                                                                             |  | $             | 636,282   |   |                  | $ | 643,046 |  
|Unearned premiums                                                                                                                                               |  |               | 103,750   |   |                  |   | 50,707  |  
|                                                                                                                                                                |  |               |           |  
|Total reserves                                                                                                                                                  |  |               | 740,032   |   |                  |   | 693,753 |  
|Amounts held for reinsurance                                                                                                                                    |  |               | 50,561    |   |                  |   | 67,223  |  
|Other liabilities                                                                                                                                               |  |               | 19,515    |   |                  |   | 26,086  |  
|                                                                                                                                                                |  |               |           |  
|Total liabilities                                                                                                                                               |  |               | 810,108   |   |                  |   | 787,062 |  
|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, 2004  9,371,933 shares outstanding 2003 
9,371,933 shares outstanding |  |               | 1         |   |                  |   | 1       |  
|Additional paid-in capital                                                                                                                                      |  |               | 37,281    |   |                  |   | 37,281  |  
|Retained earnings                                                                                                                                               |  |               | 264,890   |   |                  |   | 264,063 |  
|Treasury stock, at cost 2004  2,920,158 shares and 2003  2,920,158 shares                                                                                     |  |               | (98,006   | ) |                  |   | (98,006 | )
|Subscription notes receivable                                                                                                                                   |  |               | (3,312    | ) |                  |   | (3,312  | )
|Accumulated other comprehensive income                                                                                                                          |  |               | 8,569     |   |                  |   | 4,161   |  
|                                                                                                                                                                |  |               |           |  
|Total stockholders equity                                                                                                                                      |  |               | 209,423   |   |                  |   | 204,188 |  
|                                                                                                                                                                |  |               |           |  
|Total liabilities and stockholders equity                                                                                                                      |  | $             | 1,019,531 |   |                  | $ | 991,250 |  
|                                                                                                                                                                |  |               |           |  



See accompanying notes
to Consolidated Financial Statements.



2



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SCPIE HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)



|                                                          |  |                              |        |      |   |        |  
|--------------------------------------------------------- |  | ---------------------------- | ------ | ---- | - | ------ | -
|                                                          |  | THREE MONTHS ENDED MARCH 31, |       
|                                                          |  | 2004                         |        | 2003 |  
|                                                          |  |                              |       
|Revenues:                                                 |  |                              |        |      |   |        |  
|Net premiums earned                                       |  | $                            | 36,413 |      | $ | 54,256 |  
|Net investment income                                     |  |                              | 5,432  |      |   | 5,590  |  
|Realized investment gains                                 |  |                              | 2,346  |      |   | 3,090  |  
|Other revenue                                             |  |                              | 280    |      |   | 506    |  
|                                                          |  |                              |        |     
|Total revenues                                            |  |                              | 44,471 |      |   | 63,442 |  
|Expenses:                                                 |  |                              |        |      |   |        |  
|Losses and loss adjustment expenses                       |  |                              | 32,941 |      |   | 48,551 |  
|Underwriting and other operating expenses                 |  |                              | 10,230 |      |   | 17,434 |  
|                                                          |  |                              |        |     
|Total expenses                                            |  |                              | 43,171 |      |   | 65,985 |  
|                                                          |  |                             
|Income (loss) before federal income taxes                 |  |                              | 1,300  |      |   | (2,543 | )
|Federal income tax expense (benefit)                      |  |                              | 473    |      |   | (1,321 | )
|                                                          |  |                              |        |     
|Net income (loss)                                         |  | $                            | 827    |      | $ | (1,222 | )
|                                                          |  |                              |        |     
|Basic earnings (loss) per share                           |  | $                            | 0.09   |      | $ | (0.13  | )
|Diluted earnings (loss) per share                         |  | $                            | 0.09   |      | $ | (0.13  | )
|Cash dividend declared and paid per share of common stock |  | $                            |       |      | $ | 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 NOTESRECEIVABLE |         |   | ACCUMULATEDOTHER COMPREHENSIVE INCOME (LOSS) |   |        | TOTAL STOCKHOLDERS EQUITY | 
|                                                                                                                                                               | 
|BALANCE AT JANUARY 1, 2004                                                                                                                                     |  | $            | 1 |                            | $ | 37,281            |  | $              | 264,063 |  | $                                  | (98,006 | ) |                                              | $ | (3,312 | )                          |  | $ | 4,161 |   |  | $ | 204,188 |  
|Net income                                                                                                                                                     |  |              |  |                            |   |                  |  |                | 827     |  |                                    |        |   |                                              |   |       |                            |  |   |      |   |  |   | 827     |  
|Unrealized gains on securities, net of reclassification adjustments of $1,266 for gains included in net appreciation, net of applicable
income taxes of $2,385 |  |              |  |                            |   |                  |  |                |        |  |                                    |        |   |                                              |   |       |                            |  |   | 4,433 |   |  |   | 4,433   |  
|Change in minimum pension liability, net of applicable income taxes of ($52)                                                                                   |  |              |  |                            |   |                  |  |                |        |  |                                    |        |   |                                              |   |       |                            |  |   | (98   | ) |  |   | (98     | )
|Unrealized foreign currency gain                                                                                                                               |  |              |  |                            |   |                  |  |                |        |  |                                    |        |   |                                              |   |       |                            |  |   | 73    |   |  |   | 73      |  
|                                                                                                                                                               |  |              |   |                            |   |                   |  |                |         |  |                                    |         |   |                                              |   |        |                            |  |   |       |   | 
|Comprehensive income                                                                                                                                           |  |              |   |                            |   |                   |  |                |         |  |                                    |         |   |                                              |   |        |                            |  |   |      |   |  |   | 5,235   |  
|Treasury stock reissued                                                                                                                                        |  |              |  |                            |   |                  |  |                |        |  |                                    |        |   |                                              |   |       |                            |  |   |      |   |  |   |        |  
|Stock subscription notes repaid                                                                                                                                |  |              |  |                            |   |                  |  |                |        |  |                                    |        |   |                                              |   |       |                            |  |   |      |   |  |   |        |  
|                                                                                                                                                               |  |              |   |                           
|BALANCE AT MARCH 31, 2004                                                                                                                                      |  | $            | 1 |                            | $ | 37,281            |  | $              | 264,890 |  | $                                  | (98,006 | ) |                                              | $ | (3,312 | )                          |  | $ | 8,569 |   |  | $ | 209,423 |  
|                                                                                                                                                               |  |              |   |                           



See accompanying notes
to Consolidated Financial Statements.



3



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SCPIE HOLDINGS INC. AND SUBISIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

(UNAUDITED)



|                                                                                     |  |                              |          |   |      |   |          |  
|------------------------------------------------------------------------------------ |  | ---------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                     |  | THREE MONTHS ENDED MARCH 31, |         
|                                                                                     |  | 2004                         |          |   | 2003 |  
|                                                                                     |  |                              |         
|OPERATING ACTIVITIES                                                                 |  |                              |          |   |      |   |          |  
|Net income (loss)                                                                    |  | $                            | 827      |   |      | $ | (1,222   | )
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                              |          |   |      |   |          |  
|Provisions for amortization and depreciation                                         |  |                              | 2,035    |   |      |   | 2,953    |  
|Provision for deferred federal income taxes                                          |  |                              | 473      |   |      |   | (1,321   | )
|Realized investment gains                                                            |  |                              | (2,346   | ) |      |   | (3,090   | )
|Changes in operating assets and liabilities:                                         |  |                              |          |   |      |   |          |  
|Deferred acquisition costs                                                           |  |                              | (1,832   | ) |      |   | (3,056   | )
|Accrued investment income                                                            |  |                              | 1,456    |   |      |   | 847      |  
|Unearned premiums                                                                    |  |                              | 53,043   |   |      |   | 38,822   |  
|Loss and loss adjustment expense reserves                                            |  |                              | (6,764   | ) |      |   | (5,166   | )
|Reinsurance recoverable                                                              |  |                              | (6,132   | ) |      |   | 27,934   |  
|Amounts held for reinsurance                                                         |  |                              | (16,662  | ) |      |   | (15,531  | )
|Other liabilities                                                                    |  |                              | (6,571   | ) |      |   | (3,274   | )
|Premium receivable                                                                   |  |                              | (39,364  | ) |      |   | (54,326  | )
|Other assets                                                                         |  |                              | 358      |   |      |   | 4,745    |  
|                                                                                     |  |                              |          |  
|Net cash used in operating activities                                                |  |                              | (21,479  | ) |      |   | (11,685  | )
|INVESTING ACTIVITIES                                                                 |  |                              |          |   |      |   |          |  
|Purchasesfixed maturities                                                           |  |                              | (167,467 | ) |      |   | (137,672 | )
|Salesfixed maturities                                                               |  |                              | 165,979  |   |      |   | 140,365  |  
|Maturitiesfixed maturities                                                          |  |                              | 4,921    |   |      |   |         |  
|Shortterm purchases and sales  net                                                 |  |                              | 19       |   |      |   |         |  
|Salesequities                                                                       |  |                              | 3,764    |   |      |   |         |  
|                                                                                     |  |                              |          |  
|Net cash provided by investing activities                                            |  |                              | 7,216    |   |      |   | 2,693    |  
|FINANCING ACTIVITIES                                                                 |  |                              |          |   |      |   |          |  
|Reissue of treasury shares                                                           |  |                              |         |   |      |   | 3        |  
|Cash dividends                                                                       |  |                              |         |   |      |   | (983     | )
|                                                                                     |  |                              |          |  
|Net cash used in financing activities                                                |  |                              |         |   |      |   | (980     | )
|                                                                                     |  |                              |          |  
|Decrease in cash and cash equivalents                                                |  |                              | (14,263  | ) |      |   | (9,972   | )
|Cash and cash equivalents at beginning of period                                     |  |                              | 62,095   |   |      |   | 115,787  |  
|                                                                                     |  |                              |          |  
|Cash and cash equivalents at end of period                                           |  | $                            | 47,832   |   |      | $ | 105,815  |  
|                                                                                     |  |                              |          |  



See accompanying notes
to Consolidated Financial Statements.



4



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SCPIE HOLDINGS INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



MARCH 31, 2004



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 three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2004. For further information, refer to the consolidated financial statements and notes thereto included in the SCPIE Holdings Annual Report on Form 10-K for the year ended December 31, 2003.



Certain 2003 amounts have been reclassified to conform to the 2004 presentation.



2. EARNINGS (LOSS) PER SHARE



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



|                                                                                                                 |  |                                      |       |      |   |        |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | ---- | - | ------ | -
|                                                                                                                 |  | THREE MONTHS ENDEDMARCH 31,          |      
|                                                                                                                 |  | 2004                                 |       | 2003 |  
|                                                                                                                 |  |                                      |      
|                                                                                                                 |  | (IN THOUSANDS, EXCEPTPER SHARE DATA) |      
|Numerator                                                                                                        |  |                                      |       |      |   |        |  
|Net income (loss)                                                                                                |  | $                                    | 827   |      | $ | (1,222 | )
|Numerator for:                                                                                                   |  |                                      |       |      |   |        |  
|Basic earnings (loss) per share of common stock                                                                  |  |                                      | 827   |      |   | (1,222 | )
|Diluted earnings (loss) per share of common stock                                                                |  |                                      | 827   |      |   | (1,222 | )
|Denominator                                                                                                      |  |                                      |       |      |   |        |  
|Denominator for basic earnings (loss) per share of common stock  weighted-average shares outstanding            |  |                                      | 9,372 |      |   | 9,334  |  
|Effect of dilutive securities:                                                                                   |  |                                      |       |      |   |        |  
|Stock options                                                                                                    |  |                                      | 95    |      |   |       |  
|                                                                                                                 |  |                                      |       |     
|Denominator for diluted earnings (loss) per share of common stock adjusted  weighted-average shares outstanding |  |                                      | 9,467 |      |   | 9,334  |  
|Basic earnings (loss) per share of common stock                                                                  |  | $                                    | 0.09  |      | $ | (0.13  | )
|Diluted earnings (loss) per share of common stock                                                                |  | $                                    | 0.09  |      | $ | (0.13  | )





5



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3. INVESTMENTS



The Companys investments in available-for-sale securities at March 31, 2004 are summarized as follows:



|                                 |  |                      |         |                      |   |                       |  |           |       |  |   |        
|-------------------------------- |  | -------------------- | ------- | -------------------- | - | --------------------- |  | --------- | ----- |  | - | -------
|                                 |  | COST ORAMORTIZEDCOST |         | GROSSUNREALIZEDGAINS |   | GROSSUNREALIZEDLOSSES |  | FAIRVALUE
|                                 |  |                     
|                                 |  | (IN THOUSANDS)      
|Fixed-maturity securities:       |  |                      |         |                      |   |                       |  |           |       |  |   |        
|Bonds:                           |  |                      |         |                      |   |                       |  |           |       |  |   |        
|U.S. government and agencies     |  | $                    | 188,681 |                      | $ | 5,607                 |  | $         | 628   |  | $ | 193,660
|Mortgage-backed and asset-backed |  |                      | 93,377  |                      |   | 1,270                 |  |           | 511   |  |   | 94,136 
|Corporate                        |  |                      | 265,357 |                      |   | 6,022                 |  |           | 275   |  |   | 271,104
|                                 |  |                      |        
|Total fixed-maturity securities  |  |                      | 547,415 |                      |   | 12,899                |  |           | 1,414 |  |   | 558,900
|Common stocks                    |  |                      | 12,404  |                      |   | 3,728                 |  |           |      |  |   | 16,132 
|                                 |  |                      |        
|Total                            |  | $                    | 559,819 |                      | $ | 16,627                |  | $         | 1,414 |  | $ | 575,032
|                                 |  |                      |        



4.
FEDERAL INCOME TAXES



A reconciliation of income tax expense (benefit) in the
accompanying statements of income are summarized as follows:



|                                             |  |                             |     |      |   |        |  
|-------------------------------------------- |  | --------------------------- | --- | ---- | - | ------ | -
|                                             |  | THREE MONTHS ENDEDMARCH 31, |    
|                                             |  | 2004                        |     | 2003 |  
|                                             |  |                             |    
|                                             |  | (IN THOUSANDS)              |    
|Federal income tax expense (benefit) at 35%  |  | $                           | 455 |      | $ | (890   | )
|Increase (decrease) in taxes resulting from: |  |                             |     |      |   |        |  
|Tax-exempt interest                          |  |                             |    |      |   |       |  
|Other                                        |  |                             | 18  |      |   | (431   | )
|                                             |  |                             |     |     
|Total                                        |  | $                           | 473 |      | $ | (1,321 | )
|                                             |  |                             |     |     



5.
COMPREHENSIVE INCOME (LOSS)



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



|                                                |  |                             |       |   |      |   |        |  
|----------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ------ | -
|                                                |  | THREE MONTHS ENDEDMARCH 31, |      
|                                                |  | 2004                        |       |   | 2003 |  
|                                                |  |                             |      
|                                                |  | (IN THOUSANDS)              |      
|Net income (loss)                               |  | $                           | 827   |   |      | $ | (1,222 | )
|Other comprehensive income (loss) before tax:   |  |                             |       |   |      |   |        |  
|Unrealized gains on securities                  |  |                             | 6,818 |   |      |   | 820    |  
|Unrealized foreign currency gains               |  |                             | 73    |   |      |   |       |  
|Change in minimum pension liability             |  |                             | (150  | ) |      |   | (150   | )
|                                                |  |                             |       |  
|Other comprehensive income (loss) before tax    |  |                             | 7,568 |   |      |   | (552   | )
|Income tax expense related to securities        |  |                             | 2,385 |   |      |   | 287    |  
|Income tax benefit related to pension liability |  |                             | (52   | ) |      |   | (52    | )
|                                                |  |                             |       |  
|Comprehensive income (loss)                     |  | $                           | 5,235 |   |      | $ | (787   | )
|                                                |  |                             |       |  



6



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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 Rosemont Reinsurance Ltd. (Rosemont Re) (formerly known as GoshawK Re), a subsidiary of GoshawK Insurance Holdings plc, a publicly held London-based insurer and reinsurer, that divested substantially all of the
Companys ongoing assumed reinsurance operations. The Company had one ongoing assumed reinsurance treaty for the 2003 underwriting year.



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



|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |           |  
|----------------------------------------- |  | ------------------------------------ | ------ | - | ------------------ | - | ------- | ----- |  | ----- | ------- |  | - | --------- | -
|THREE MONTHS ENDED MARCH 31, 2004         |  | DIRECT HEALTHCARE LIABILITYINSURANCE |        |   | ASSUMEDREINSURANCE |   |         | OTHER |  | TOTAL |        
|                                          | 
|Premiums written                          |  | $                                    | 92,740 |   |                    | $ | (3,285  | )     |  |       |         |  | $ | 89,455    |  
|                                          |  |                                      |        |  
|Premiums earned                           |  | $                                    | 31,948 |   |                    | $ | 4,465   |       |  |       |         |  | $ | 36,413    |  
|Net investment income                     |  |                                      |       |   |                    |   |        |       |  | $     | 5,432   |  |   | 5,432     |  
|Realized investment gains                 |  |                                      |       |   |                    |   |        |       |  |       | 2,346   |  |   | 2,346     |  
|Other revenue                             |  |                                      |       |   |                    |   |        |       |  |       | 280     |  |   | 280       |  
|                                          |  |                                      |        |  
|Total revenues                            |  |                                      | 31,948 |   |                    |   | 4,465   |       |  |       | 8,058   |  |   | 44,471    |  
|Losses and loss adjustment expenses       |  |                                      | 30,609 |   |                    |   | 2,332   |       |  |       |        |  |   | 32,941    |  
|Other operating expenses                  |  |                                      | 6,399  |   |                    |   | 3,831   |       |  |       |        |  |   | 10,230    |  
|                                          |  |                                      |        |  
|Total expenses                            |  |                                      | 37,008 |   |                    |   | 6,163   |       |  |       |        |  |   | 43,171    |  
|                                          |  |                                      |        |  
|Segment income (loss) before income taxes |  | $                                    | (5,060 | ) |                    | $ | (1,698  | )     |  | $     | 8,058   |  | $ | 1,300     |  
|                                          |  |                                      |        |  
|Combined ratio                            |  |                                      | 115.8  | % |                    |   | 138.0   | %     |  |       |         |  |   | 118.6     | %
|Segment assets                            |  | $                                    | 89,140 |   |                    | $ | 239,545 |       |  | $     | 690,846 |  | $ | 1,019,531 |  



7



---

|                                          |  |                                      |         |   |                    |   |         |       |  |       |         |  |   |           |  
|----------------------------------------- |  | ------------------------------------ | ------- | - | ------------------ | - | ------- | ----- |  | ----- | ------- |  | - | --------- | -
|THREE MONTHS ENDED MARCH 31, 2003         |  | DIRECT HEALTHCARE LIABILITYINSURANCE |         |   | ASSUMEDREINSURANCE |   |         | OTHER |  | TOTAL |        
|                                          | 
|Premiums written                          |  | $                                    | 95,428  |   |                    | $ | (1,523  | )     |  |       |         |  | $ | 93,905    |  
|                                          |  |                                      |         |  
|Premiums earned                           |  | $                                    | 35,650  |   |                    | $ | 18,606  |       |  |       |         |  | $ | 54,256    |  
|Net investment income                     |  |                                      |        |   |                    |   |        |       |  | $     | 5,590   |  |   | 5,590     |  
|Realized investment gains                 |  |                                      |        |   |                    |   |        |       |  |       | 3,090   |  |   | 3,090     |  
|Other revenue                             |  |                                      |        |   |                    |   |        |       |  |       | 506     |  |   | 506       |  
|                                          |  |                                      |         |  
|Total revenues                            |  |                                      | 35,650  |   |                    |   | 18,606  |       |  |       | 9,186   |  |   | 63,442    |  
|Losses and loss adjustment expenses       |  |                                      | 37,561  |   |                    |   | 10,990  |       |  |       |        |  |   | 48,551    |  
|Other operating expenses                  |  |                                      | 7,725   |   |                    |   | 9,709   |       |  |       |        |  |   | 17,434    |  
|                                          |  |                                      |         |  
|Total expenses                            |  |                                      | 45,286  |   |                    |   | 20,699  |       |  |       |        |  |   | 65,985    |  
|                                          |  |                                      |         |  
|Segment income (loss) before income taxes |  | $                                    | (9,636  | ) |                    | $ | (2,093  | )     |  | $     | 9,186   |  | $ | (2,543    | )
|                                          |  |                                      |         |  
|Combined ratio                            |  |                                      | 127.0   | % |                    |   | 111.3   | %     |  |       |         |  |   | 121.6     | %
|Segment assets                            |  | $                                    | 128,148 |   |                    | $ | 179,082 |       |  | $     | 769,620 |  | $ | 1,076,850 |  



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. In February 2002, the Texas Department of Insurance placed the principal
HIG insurance company subsidiaries under its supervision while HIG 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 March 31, 2004, the HIG insurance company subsidiaries had paid losses and LAE under the subject policies of $65.0 million and had established case loss reserves of
$12.1 million, net of reinsurance. Based on a limited review of the exposures remaining, the Company estimates that incurred but not reported losses range from $6.7 million to $10.0 million for a total loss and loss expense reserve of $18.8 million
to $22.1 million. This estimate is not based on a full reserve analysis of the exposures. 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 would be subrogated to the rights of the policyholders as creditors of Highlands. The Company may also be entitled to indemnification of a portion
of this loss from certain of the reinsurers of Highlands. The quarterly financial statements of Highlands filed with the Texas Department of Insurance as of September 30, 2003, showed $660.4 million in assets and policyholder surplus of $5.2
million.



8



---

On November 6, 2003, the State of Texas obtained an order in the Texas District Court appointing the Texas Insurance
Commissioner as the permanent Receiver of Highlands and placing the Receiver in possession of all assets of Highlands. The order specifically enjoined various persons, including the plaintiff in a California asbestos action (against Highlands and
other insurers) who had obtained a $57.4 million judgment against Highlands, from taking any action against the assets of Highlands. The order expressly provided that it did not constitute a finding of Highlands insolvency nor an authorization
to liquidate Highlands. On December 1, 2003, however, the State of Texas filed an application to liquidate Highlands, to forestall certain actions taken by the plaintiff in the California action to perfect a judgment lien on certain assets of
Highlands. The State of Texas alleged that these actions would make it unfeasible to rehabilitate Highlands. The California plaintiff has disputed these allegations and filed an opposition to the entry of any liquidation order. A hearing on the
application for liquidation was scheduled for March 9, 2004 in the Texas District Court. On February 27, 2004, the State of Texas and the California plaintiff filed a stipulation with the Texas court postponing the liquidation hearing to no earlier
than August 9, 2004. If an order of liquidation is ultimately entered and becomes final, the Company would likely be required to assume Highlands then remaining obligations under the subject policies.



The California domiciled HIG subsidiary has been the subject of regulatory liquidation. On
August 1, 2003, the Superior Court of 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 HIG subsidiary had established case loss reserves under the subject policies of $450,000 at June 30, 2003.



Letters of Credit



In November 2001, the Company arranged a letter of credit facility in the amount of $50 million with Barclays Bank PLC. Letters of credit issued under the facility
fulfill the capital requirements of Lloyds and guarantee loss reserves under reinsurance contracts. As of March 31, 2004, letter of credit issuance under the facility was approximately $47.3 million. Securities of $50.1 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 to 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 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.



9



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8. STOCK-BASED COMPENSATION



The following table illustrates the effect on net income (loss) and earnings 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:



|                                                                                                                                           |  |                                      |      |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------ | ---- | - | ---- | - | ------ | -
|                                                                                                                                           |  | THREE MONTHS ENDED MARCH 31,         |     
|                                                                                                                                           |  | 2004                                 |      |   | 2003 |  
|                                                                                                                                           |  |                                      |     
|                                                                                                                                           |  | (IN THOUSANDS, EXCEPTPER SHARE DATA) |     
|Net income (loss) as reported                                                                                                              |  | $                                    | 827  |   |      | $ | (1,222 | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards net of related tax
effects |  |                                      | (142 | ) |      |   | (237   | )
|                                                                                                                                           |  |                                      |      |  
|Pro forma net income (loss)                                                                                                                |  | $                                    | 685  |   |      | $ | (1,459 | )
|Earnings (loss) per share:                                                                                                                 |  |                                      |      |   |      |   |        |  
|Basic  as reported                                                                                                                        |  | $                                    | 0.09 |   |      | $ | (0.13  | )
|Basic  pro forma                                                                                                                          |  | $                                    | 0.07 |   |      | $ | (0.13  | )
|Diluted  as reported                                                                                                                      |  | $                                    | 0.09 |   |      | $ | (0.13  | )
|Diluted  pro forma                                                                                                                        |  | $                                    | 0.07 |   |      | $ | (0.13  | )



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 3.625% to 4.25%; dividend yields ranging from 0.66% to 1.14%;
volatility factors of the expected market price of the Companys common stock of .5205 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



SCPIE Holdings is a holding company owning subsidiaries engaged in providing insurance and
reinsurance products. The Company is primarily a provider of medical malpractice insurance and related liability insurance products to physicians, healthcare facilities and others engaged in the healthcare industry in California and Delaware.
Previously, the Company had also been actively engaged in the medical malpractice insurance business and related products in other states and the assumed reinsurance business. During 2002 and 2003, the Company largely completed its withdrawal from
the assumed reinsurance market and medical malpractice insurance outside of California and Delaware.



The Companys insurance business is organized into two reportable business segments: direct healthcare liability insurance and assumed reinsurance operations. Primarily due to significant losses on medical
malpractice insurance outside of the state of California and assumed reinsurance business losses arising out of the September 11, 2001, World Trade Center terrorist attack, the Company incurred significant losses in the three fiscal years 2001, 2002
and 2003. The resulting reductions in surplus and corresponding decrease in capital adequacy ratios under both the A.M. Best and National Association of Insurance Commissioners (NAIC) capital adequacy models has required the Company to take actions
to improve its long-term capital adequacy position. The primary actions taken by the Company have been to effect an orderly withdrawal from healthcare liability insurance markets outside of California and Delaware and from the assumed reinsurance
market in its entirety. At December 31, 2003, the Company had only 379 healthcare liability insurance policies remaining in force in these other markets, all of which expired during the first quarter of 2004. In December 2002, the Company entered
into a 100% quota share reinsurance agreement to retrocede to another insurer the majority of reinsurance business written in 2002 and 2001. During 2003, the Company participated in only one ongoing reinsurance syndicate. The Company continues to
run-off claims in its non-core businesses.



Critical Accounting
Policies



The Companys discussion and analysis of its financial
condition and results of operations are based upon the Companys consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). Preparation of financial
statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related notes. Management believes that the following critical accounting
policies, among others, affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.



10



---

Premium Revenue Recognition



Direct healthcare liability insurance premiums written are primarily earned on a daily pro rata basis over the terms of the policies.
Accordingly, unearned premiums represent the portion of premiums written which is applicable to the unexpired portion of the policies in force. Reinsurance premiums assumed are estimated based on information provided by ceding companies. The
information used in establishing these estimates is reviewed and subsequent adjustments are recorded in the period in which they are determined. These premiums are earned over the terms of the related reinsurance contracts.



Loss and Loss Adjustment Expense Reserves



Unpaid losses and loss adjustment expenses are comprised of case reserves for known claims,
incurred but not reported reserves for unknown claims and any potential development for known claims, and reserves for the cost of administration and settlement of both known and unknown claims. Such liabilities are established based on known facts
and interpretation of circumstances, including the Companys experience with similar cases and historical trends involving claim payment patterns, loss payments and pending levels of unpaid claims, as well as court decisions and economic
conditions. The effects of inflation are considered in the reserving process. Establishing appropriate reserves is an inherently uncertain process; the ultimate liability may be in excess of or less than the amount provided. Any increase in the
amount of reserves, including reserves for insured events of prior years, could have an adverse effect on the Companys results for the period in which the adjustments are made. The Company utilizes both its internal actuarial staff and
independent consulting actuaries in establishing its reserves. The Company does not discount its loss and loss adjustment expense reserves.



The Company had a growing volume of assumed reinsurance between 1999 and 2002. Assumed reinsurance is a line of business with inherent volatility. Ultimate loss
experience for the assumed reinsurance operation is based primarily on reports received by the Company from the underlying ceding insurers. Many losses take several years to be reported through the system. The Company relies heavily on the ceding
entitys, especially Lloyds syndicates, estimates of ultimate incurred losses. Ceding entities, representing over 65% of the reinsurance assumed business for the 1999 to 2003 underwriting years (based on gross written premiums), submit
reports to the Company containing ultimate incurred loss estimates reviewed by independent or internal actuaries of the ceding entities. These reported ultimate incurred losses are the primary basis for the Companys reserving estimates. In
other cases, the Company relies on its own internal estimates determined primarily by experience to date, individual knowledge of the specific reinsurance contract, industry experience and other actuarial techniques to determine reserve
requirements.



Because the reserve establishment process is by definition an
estimate, actual results will vary from amounts established in earlier periods. The Company recognizes such differences in the periods they are determined. Since reserves accumulate on the balance sheet over several years until all claims are
settled, a determination of inadequacy or redundancy could easily have a significant impact on earnings and therefore stockholders equity. A 1% difference in the ultimate value of reserves, net of reinsurance recoverable, would decrease or
increase future pretax earnings by $4.8 million.



Deferred Policy
Acquisition Costs



Deferred policy acquisition costs include commissions,
premium taxes and other variable costs incurred in connection with writing business. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. If such costs are estimated to
be unrecoverable, they are expensed. Recoverability is analyzed based on the Companys assumptions related to the underlying policies written, including the lives of the underlying policies, future investment income, and level of expenses
necessary to maintain the policies over their entire lives. Deferred policy acquisition costs are amortized over the period in which the related premiums are earned.



Investments



The Company considers its fixed maturity and equity securities as available-for-sale securities. Available-for-sale securities are sold in response to a number of issues,
including the Companys liquidity needs, the Companys statutory surplus requirements and tax management strategies, among others. During the fourth quarters of 2002 and 2003, the Company sold significant amounts of its available-for-sale
securities to increase surplus for statutory accounting purposes. In late 2001 and 2002, the Company began to shift the character of its investment income to fully taxable as part of the Companys tax strategy. Available-for-sale securities are
recorded at fair value. The related unrealized gains and losses, net of income tax effects, are excluded from net income and reported as a component of stockholders equity.



11



---

The Company evaluates the securities in its available-for-sale investment portfolio on at least a quarterly basis for
declines in market value below cost for the purpose of determining whether these declines represent other than temporary declines. Some of the factors the Company considers in the evaluation of our investments are:



| |  | the extent to which the market value of the security is less than its cost basis;
| | - | ---------------------------------------------------------------------------------



| |  | the length of time for which the market value of the security has been less than its cost basis;
| | - | ------------------------------------------------------------------------------------------------



| |  | the financial condition and near-term prospects of the securitys issuer, taking into consideration the economic prospects of the issuers industry and geographical
region, to the extent that information is publicly available; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the Companys ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



A decline in the fair value of an available-for-sale security below cost that is judged to be
other than temporary is realized as a loss in the current period and reduces the cost basis of the security.



Income taxes



At March 31, 2004, the
Company had $40.4 million of net deferred income tax assets. Net deferred income tax assets consist of the net temporary differences created as a result of amounts deductible or revenue recognized in periods different for tax return purposes than
for accounting purposes. These deferred income tax assets include an asset of $14.3 million for a net operating loss carryforward that will expire in 2021. A net operating loss carryforward is a tax loss that may be carried forward into future
years. It reduces taxable income in future years and the tax liability that would otherwise be incurred.



The Company believes it is more likely than not that the deferred income tax assets will be realized through its future earnings. As a result, the Company has not recorded a valuation allowance. In relation to the net
operating loss carryforward, the Company has been historically profitable except for the last three years because of losses primarily related to the non-core healthcare liability and assumed reinsurance operations. Since those operations are now in
run-off, the Company believes it should return to a position of taxable income, thus utilizing the net operation loss carryforward.



The Companys estimate of future taxable income uses the same assumptions and projections as in its internal financial projections. These projections are subject to
uncertainties primarily related to future underwriting results. If the Companys results are not as profitable as expected, the Company may be required in future periods to record a valuation allowance for all or a portion of the deferred
income tax assets. That requirement would reduce the Companys earnings.



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 expenses (LAE), expectations concerning the Companys ability to retain current insureds at profitable levels, successful withdrawal from the assumed reinsurance
business, obtaining necessary rate change regulatory approvals, expansion of liability insurance business in its principal market and improved performance and continuing profitability in 2004 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 premium rate approvals, the level of ratings from recognized
rating services, the inherent uncertainty of loss and loss expense estimates in both the core and discontinued non-core business (including a contingent liability related to Highlands Insurance Company), 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 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 a representation by the Company
or any other person that the Companys objectives or plans will be realized. 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  Overview, and Managements Discussion and Analysis  Critical Accounting Policies in the Companys Annual Report on Form 10-K for the fiscal year ended December
31, 2003.



12



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RESULTS OF OPERATIONS



THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003



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 MARCH 31, 2004 |  |      |        |   |           |   |        |       |  |   |        |  
|Premiums written                  |  | $    | 92,482 |   |           | $ | 258    |       |  | $ | 92,740 |  
|                                  |  |      |        |  
|Premiums earned                   |  | $    | 31,596 |   |           | $ | 352    |       |  | $ | 31,948 |  
|Losses and LAE incurred           |  |      | 27,378 |   |           |   | 3,231  |       |  |   | 30,609 |  
|Underwriting expenses             |  |      | 6,288  |   |           |   | 111    |       |  |   | 6,399  |  
|                                  |  |      |        |  
|Underwriting loss                 |  | $    | (2,070 | ) |           | $ | (2,990 | )     |  | $ | (5,060 | )
|Loss ratio                        |  |      | 86.7   | % |           |   | n.m.   |       |  |   | 95.8   | %
|Expense ratio                     |  |      | 19.9   | % |           |   | n.m.   |       |  |   | 20.0   | %
|Combined ratio                    |  |      | 106.6  | % |           |   | n.m.   |       |  |   | 115.8  | %
|                                  |  |      |       
|THREE MONTHS ENDED MARCH 31, 2003 |  |      |        |   |           |   |        |       |  |   |        |  
|Premiums written                  |  | $    | 90,263 |   |           | $ | 5,165  |       |  | $ | 95,428 |  
|                                  |  |      |        |  
|Premiums earned                   |  | $    | 29,547 |   |           | $ | 6,103  |       |  | $ | 35,650 |  
|Losses and LAE incurred           |  |      | 27,695 |   |           |   | 9,866  |       |  |   | 37,561 |  
|Underwriting expenses             |  |      | 4,996  |   |           |   | 2,729  |       |  |   | 7,725  |  
|                                  |  |      |        |  
|Underwriting loss                 |  | $    | (3,144 | ) |           | $ | (6,492 | )     |  | $ | (9,636 | )
|Loss ratio                        |  |      | 93.7   | % |           |   | n.m.   |       |  |   | 105.4  | %
|Expense ratio                     |  |      | 16.9   | % |           |   | n.m.   |       |  |   | 21.6   | %
|Combined ratio                    |  |      | 110.6  | % |           |   | n.m.   |       |  |   | 127.0  | %

|* | The ratios for the non-core business are not meaningful due to their run-off status.
|- | ------------------------------------------------------------------------------------



Core Business



Premiums written were $92.5 million and premiums earned were $31.6 million in 2004; and $90.3 million and $29.6 million in the first quarter 2003. Premiums written and
earned increased primarily due to a 9.9% rate increase effective October 1, 2003. This increase was offset by a slight decline in policies in-force of 2.8%.



The loss ratio (losses and LAE expenses related to premiums earned) for the first quarter 2004 was 86.7% compared to 93.7% in the first quarter 2003. The decrease in the
loss ratio is due primarily to the full effect on earned premiums of the 9.9% rate increase effective October 1, 2003.



The underwriting expense ratio (expenses related to premiums earned) increased to 19.9 % in the first quarter 2004 from 16.9% in the first quarter 2003. The change is
primarily attributable to a decline in premium in the non-core business. As a result of that decline, more underwriting expenses are allocated to the core business. Total segment underwriting expenses declined as a percentage of earned premiums from
21.6% in 2003 to 20.0% in 2004.



13



---

Non-Core Business



Premiums written decreased in the three months ended March 31, 2004 to $258,000 from $5.2 million for the same period in 2003. This resulted from a significant decline in
the number of policies in the non-core business from 2,086 at March 2003 to zero at March 31, 2004. 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.



Losses incurred in the first quarter of 2004 are primarily due to adverse litigation decisions on a few cases and multiple losses related to one insured dentist. These losses are all from prior years activity and are
considered unusual circumstances not anticipated by the normal actuarial process.



As premium continues to decrease in this area, underwriting expenses will also continue to decrease.



Assumed Reinsurance Segment



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



|                                          |  |                                                 |        |   |      |   |        |  
|----------------------------------------- |  | ----------------------------------------------- | ------ | - | ---- | - | ------ | -
|                                          |  | Assumed Reinsurance SegmentUnderwriting Results |       
|FOR THE THREE MONTHS ENDED MARCH 31,      |  | 2004                                            |        |   | 2003 |  
|                                          | 
|Premiums written                          |  | $                                               | (3,285 | ) |      | $ | (1,523 | )
|                                          |  |                                                 |        |  
|Premiums earned                           |  | $                                               | 4,465  |   |      | $ | 18,606 |  
|Underwriting expenses                     |  |                                                 |        |   |      |   |        |  
|Losses                                    |  |                                                 | 2,332  |   |      |   | 10,990 |  
|Underwriting and other operating expenses |  |                                                 | 3,831  |   |      |   | 9,709  |  
|                                          |  |                                                 |        |  
|Underwriting loss                         |  | $                                               | (1,698 | ) |      | $ | (2,093 | )
|Loss ratio                                |  |                                                 | 52.2   | % |      |   | 59.1   | %
|Expense ratio                             |  |                                                 | 85.8   | % |      |   | 52.2   | %
|Combined ratio                            |  |                                                 | 138.0  | % |      |   | 111.3  | %



The earned premium in 2004 is a result
of one ongoing assumed reinsurance program for the 2003 underwriting year.



The
loss ratio declined in the three months ended March 31, 2004 to 52.2% from 59.1% a year ago due to favorable development on prior year reserves.



The Rosemont 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 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 Rosemont Re to reimburse the Company for its acquisition and administrative expenses. In addition, the Company is required to pay Rosemont Re additional premium in excess of the base premium ceded of 14.3%. The additional premium
decreased during the three months ended March 31, 2004 and therefore increased written and earned premium by $0.8 million.



The Rosemont 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.



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The expense ratio was 85.8% in the three months ended March 31, 2004 and 52.2% in the three months ended March 31, 2003.
The impact of the retroactive treatment of a portion to the Rosemont Re reinsurance treaty added approximately 30.7 percentage points to the expense ratio in the first quarter 2004.



Other Operations



Net investment income decreased to $5.4 million for the three months ended March 31, 2004, a decrease of 3.6% from $5.6 million for the three months ended March 31, 2003.
The reduction in investment income is a result of a reduction in invested assets offset by a slight 3.6% increase in the average rate of return. The decline in invested assets was as a result of the claim payments related to the non-core healthcare
liability and assumed reinsurance businesses. The average rate of return on invested assets was 3.7% for both the three months ended March 31, 2004 and 2003.



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 three months of
2004, the Company had negative cash flow from operations of $21.5 million compared to a negative cash flow of $11.7 million in 2003. The negative cash flow in 2004 is primarily related to claims payments associated with the non-core physician and
assumed reinsurance programs, which are now in run-off. The Company maintains a portion of its investment portfolio in high-quality short-term securities and cash to meet short-term operating liquidity requirements, including the payment of losses
and LAE. Cash and cash equivalents investments totaled $47.8 million or 7.6% of invested assets, at March 31, 2004. The Company believes that all of its short-term and fixed-maturity securities are readily marketable.



The Company invests its cash flow from operations principally in taxable fixed maturity
securities. The Companys current policy is to limit its investment in unaffiliated equity securities and mortgage loans to no more than 8% of the total market value of its investments. The market value of the Companys portfolio of
unaffiliated equity securities was $16.1 million at March 31, 2004. 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, SCPIE Indemnity, 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 SCPIE Indemnity is able to pay to SCPIE Holdings during 2004 without prior regulatory approval is approximately $14.0 million. As of March 31, 2004, no dividends
had been paid to SCPIE Holdings.



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Common stock dividends paid to stockholders were $0.10 per share in the first quarter 2003. These dividends were funded
through dividends from the Companys insurance subsidiaries received in prior years. In March 2004, the Board of Directors suspended the Companys quarterly dividends. The payment and amount of cash dividends will depend upon, among other
factors, the Companys operating results, overall financial condition, capital requirements and general business conditions. As of March 31, 2004, SCPIE Holdings held cash and short-term securities of $6.6 million. Based on historical trends,
market conditions and its business plans, the Company believes that its sources of funds (including dividends from the insurance company subsidiaries) will be sufficient to meet the liquidity needs of SCPIE Holdings over the next 18 months.



The Companys capital adequacy position has been weakened by the
continuing losses in the non-core business. On November 14, 2003, A.M. Best, after a review the third quarter results, reduced the rating of the Insurance Subsidiaries to B (Fair), with a negative outlook. A.M. Best assigns this rating to companies
that have, in its opinion, a fair ability to meet their current obligations to policyholders, but are financially vulnerable to adverse changes in underwriting and economic conditions. The NAIC has developed a methodology for measuring the adequacy
of an insurers surplus which includes a risk-based capital (RBC) formula designed to measure state statutory capital and surplus needs. The RBC rules provide for different levels of regulatory attention based on four thresholds determined
under the formula. At December 31, 2003, the RBC level of each insurance company subsidiary exceeded the threshold requiring the least regulatory attention. At December 31, 2003, SCPIE Indemnity exceeded this threshold by $47.6 million.



The Company believes that it has the ability to fund its continuing operations from its
premiums written and investment income. The Company plans to continue its focus on the efficient operation of its core business, while at the same time continuing to adjudicate and settle claims incurred in its discontinued non-core business. As the
Company continues to run-off the non-core loss and LAE reserves, its capital position should improve. The Company believes it has, at best, only limited opportunities to raise capital, if that becomes necessary. The Company may improve its capital
adequacy position through temporary reinsurance arrangements with highly rated insurers.



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 March 31,
2004 comprised 88.3% of total investments at market value. Corporate bonds represent 48.5% 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 2.5% of total investments at market value. Mortgage loans 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 March 31, 2004, the carrying value of the investment portfolio included $15.2 million in net unrealized gains. At December 31, 2003, the investment portfolio included
$8.1 million in net unrealized gains.



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ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES



The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in its reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange
Commission (SEC), 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 timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognized 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 Securities and Exchange Commission Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of its
management, including its Chief Executive Officer and 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 Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective at the reasonable assurance level.



There have been no significant changes in the Companys internal controls over financial
reporting during the Companys most recent fiscal quarter that may have materially affected, or are reasonably likely to materially affect the Companys internal controls over financial reporting.





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PART II  OTHER INFORMATION



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



(a) The following exhibits are included herewith.



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NUMBER |  | DOCUMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      
|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:  May 14, 2004 |  | By:                 |  | /s/ DONALD J. ZUK                                
|                    |  |                     |  | Donald J. Zuk                                    
|                    |  |                     |  | President and Chief Executive Officer            
|                    |  |                    
|Date:  May 14, 2004 |  | By:                 |  | /s/ ROBERT B. TSCHUDY                            
|                    |  |                     |  | Robert B. Tschudy                                
|                    |  |                     |  | Senior Vice President and Chief Financial Officer



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