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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 JUNE 30, 2005



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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 jurisdictionof incorporation or organization) |  | (I.R.S. EmployerIdentification 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 x    No ̈



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



|                                                                                    |  |                                      
|----------------------------------------------------------------------------------- |  | -------------------------------------
|Class                                                                               |  | Outstanding at August 4, 2005        
|Preferred stock, par value $1.00 per shareCommon stock, par value $0.0001 per share |  | No shares outstanding9,969,392 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)



|                                                                                                                                                                |  |              |         |   |                  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                |  | JUNE 30,2005 |         |   | DECEMBER 31,2004 |  
|                                                                                                                                                                |  | (unaudited)  |         |   |                  |  
|ASSETS                                                                                                                                                          |  |              |         |   |                  |   |         |  
|Securities available-for-sale:                                                                                                                                  |  |              |         |   |                  |   |         |  
|Fixed maturity investments, at fair value (amortized cost 2005 - $428,145; 2004 - $454,278)                                                                     |  | $            | 427,262 |   |                  | $ | 454,817 |  
|Equity investments, at fair value (cost 2005 - $12,028; 2004 - $12,100)                                                                                         |  |              | 16,340  |   |                  |   | 16,173  |  
|                                                                                                                                                                |  |              |         |   |                  |   |         |  
|Total securities available-for-sale                                                                                                                             |  |              | 443,602 |   |                  |   | 470,990 |  
|Mortgages                                                                                                                                                       |  |              | 10,400  |   |                  |   | 10,400  |  
|Cash and cash equivalents                                                                                                                                       |  |              | 83,195  |   |                  |   | 94,390  |  
|                                                                                                                                                                |  |              |         |   |                  |   |         |  
|Total investments and cash and cash equivalents                                                                                                                 |  |              | 537,197 |   |                  |   | 575,780 |  
|                                                                                                                                                                |  |             
|Accrued investment income                                                                                                                                       |  |              | 5,688   |   |                  |   | 5,849   |  
|Premiums receivable                                                                                                                                             |  |              | 44,503  |   |                  |   | 12,603  |  
|Assumed reinsurance receivable                                                                                                                                  |  |              | 75,857  |   |                  |   | 119,937 |  
|Reinsurance recoverable                                                                                                                                         |  |              | 138,162 |   |                  |   | 197,520 |  
|Deferred policy acquisition costs                                                                                                                               |  |              | 9,400   |   |                  |   | 9,063   |  
|Deferred federal income taxes                                                                                                                                   |  |              | 47,102  |   |                  |   | 48,454  |  
|Property and equipment, net                                                                                                                                     |  |              | 2,641   |   |                  |   | 2,954   |  
|Other assets                                                                                                                                                    |  |              | 7,179   |   |                  |   | 7,475   |  
|                                                                                                                                                                |  |              |         |   |                  |   |         |  
|Total assets                                                                                                                                                    |  | $            | 867,729 |   |                  | $ | 979,635 |  
|                                                                                                                                                                |  |              |         |   |                  |   |         |  
|LIABILITIES                                                                                                                                                     |  |              |         |   |                  |   |         |  
|Reserves:                                                                                                                                                       |  |              |         |   |                  |   |         |  
|Losses and loss adjustment expenses                                                                                                                             |  | $            | 552,014 |   |                  | $ | 638,747 |  
|Unearned premiums                                                                                                                                               |  |              | 73,459  |   |                  |   | 43,811  |  
|                                                                                                                                                                |  |              |         |   |                  |   |         |  
|Total reserves                                                                                                                                                  |  |              | 625,473 |   |                  |   | 682,558 |  
|Amounts held for reinsurance                                                                                                                                    |  |              | 27,331  |   |                  |   | 77,519  |  
|Other liabilities                                                                                                                                               |  |              | 17,739  |   |                  |   | 25,036  |  
|                                                                                                                                                                |  |              |         |   |                  |   |         |  
|Total liabilities                                                                                                                                               |  |              | 670,543 |   |                  |   | 785,113 |  
|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, 2005  9,469,392 shares outstanding 2004 
9,404,604 shares outstanding |  |              | 1       |   |                  |   | 1       |  
|Additional paid-in capital                                                                                                                                      |  |              | 37,127  |   |                  |   | 37,127  |  
|Retained earnings                                                                                                                                               |  |              | 259,553 |   |                  |   | 256,177 |  
|Treasury stock, at cost 2005  2,822,699 shares and 2004  2,887,487 shares                                                                                     |  |              | (97,517 | ) |                  |   | (97,654 | )
|Subscription notes receivable                                                                                                                                   |  |              | (2,928  | ) |                  |   | (3,018  | )
|Accumulated other comprehensive income                                                                                                                          |  |              | 950     |   |                  |   | 1,889   |  
|                                                                                                                                                                |  |              |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                      |  |              | 197,186 |   |                  |   | 194,522 |  
|                                                                                                                                                                |  |              |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                      |  | $            | 867,729 |   |                  | $ | 979,635 |  
|                                                                                                                                                                |  |              |         |   |                  |   |         |  



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)



|                                                          |  |                  |        |      |                    |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------- |  | ---------------- | ------ | ---- | ------------------ | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                          |  | SIX MONTHS ENDED |        |      | THREE MONTHS ENDED |       
|                                                          |  | JUNE 30,         |        |      | JUNE 30,           |       
|                                                          |  | 2005             |        | 2004 |                    |        | 2005 |  |   | 2004   |  
|Revenues:                                                 |  |                  |        |      |                    |        |      |  |   |        |   |  |   |        |  
|Net premiums earned                                       |  | $                | 65,037 |      | $                  | 67,641 |      |  | $ | 32,451 |   |  | $ | 31,228 |  
|Net investment income                                     |  |                  | 8,799  |      |                    | 10,550 |      |  |   | 4,132  |   |  |   | 5,118  |  
|Realized investment gains (loss)                          |  |                  | 6      |      |                    | 1,715  |      |  |   | (10    | ) |  |   | (631   | )
|Other revenue                                             |  |                  | 174    |      |                    | 365    |      |  |   | 60     |   |  |   | 85     |  
|                                                          |  |                  |        |      |                    |        |      |  |   |        |   |  |   |        |  
|Total revenues                                            |  |                  | 74,016 |      |                    | 80,271 |      |  |   | 36,633 |   |  |   | 35,800 |  
|                                                          |  |                  |        |     
|Expenses:                                                 |  |                  |        |      |                    |        |      |  |   |        |   |  |   |        |  
|Losses and loss adjustment expenses                       |  |                  | 53,058 |      |                    | 65,769 |      |  |   | 27,147 |   |  |   | 32,828 |  
|Underwriting and other operating expenses                 |  |                  | 15,719 |      |                    | 16,806 |      |  |   | 6,854  |   |  |   | 6,576  |  
|                                                          |  |                  |        |      |                    |        |      |  |   |        |   |  |   |        |  
|Total expenses                                            |  |                  | 68,777 |      |                    | 82,575 |      |  |   | 34,001 |   |  |   | 39,404 |  
|Income (loss) before income taxes                         |  |                  | 5,239  |      |                    | (2,304 | )    |  |   | 2,632  |   |  |   | (3,604 | )
|Income tax expense (benefit)                              |  |                  | 1,863  |      |                    | (815   | )    |  |   | 927    |   |  |   | (1,288 | )
|                                                          |  |                  |        |      |                    |        |      |  |   |        |   |  |   |        |  
|Net income (loss)                                         |  | $                | 3,376  |      | $                  | (1,489 | )    |  | $ | 1,705  |   |  | $ | (2,316 | )
|                                                          |  |                  |        |      |                    |        |      |  |   |        |   |  |   |        |  
|Basic earnings (loss) per share                           |  | $                | 0.36   |      | $                  | (0.16  | )    |  | $ | 0.18   |   |  | $ | (0.25  | )
|Diluted earnings (loss) per share                         |  | $                | 0.35   |      | $                  | (0.16  | )    |  | $ | 0.18   |   |  | $ | (0.25  | )
|Cash dividend declared and paid per share of common stock |  | $                |       |      | $                  |       |      |  | $ |       |   |  | $ |       |  



CONSOLIDATED STATEMENT
OF CHANGES IN STOCKHOLDERS EQUITY

(DOLLARS IN THOUSANDS)

(UNAUDITED)



|                                                                                 |  |              |   |                          |   |                  |  |                |         |  |                                    |         |   |                                              |   |        |                            |  |   |       |   |  |   |         |  
|-------------------------------------------------------------------------------- |  | ------------ | - | ------------------------ | - | ---------------- |  | -------------- | ------- |  | ---------------------------------- | ------- | - | -------------------------------------------- | - | ------ | -------------------------- |  | - | ----- | - |  | - | ------- | -
|                                                                                 |  | COMMON STOCK |   | ADDITIONALPAID-INCAPITAL |   | RETAINEDEARNINGS |  | TREASURY STOCK |         |  | STOCK SUBSCRIPTION NOTESRECEIVABLE |         |   | ACCUMULATEDOTHER COMPREHENSIVE INCOME (LOSS) |   |        | TOTAL STOCKHOLDERS EQUITY | 
|BALANCE AT JANUARY 1, 2005                                                       |  | $            | 1 |                          | $ | 37,127           |  | $              | 256,177 |  | $                                  | (97,654 | ) |                                              | $ | (3,018 | )                          |  | $ | 1,889 |   |  | $ | 194,522 |  
|                                                                                 |  |              |   |                          |   |                  | 
|Net income                                                                       |  |              |  |                          |   |                 |  |                | 3,376   |  |                                    |        |   |                                              |   |       |                            |  |   |      |   |  |   | 3,376   |  
|Unrealized losses on securities, net of applicable income tax benefit of $417    |  |              |  |                          |   |                 |  |                |        |  |                                    |        |   |                                              |   |       |                            |  |   | (774  | ) |  |   | (774    | )
|Change in minimum pension liability, net of applicable income tax benefit of $73 |  |              |  |                          |   |                 |  |                |        |  |                                    |        |   |                                              |   |       |                            |  |   | (137  | ) |  |   | (137    | )
|Unrealized foreign currency gain                                                 |  |              |  |                          |   |                 |  |                |        |  |                                    |        |   |                                              |   |       |                            |  |   | (28   | ) |  |   | (28     | )
|                                                                                 |  |              |   |                          |   |                  |  |                |         |  |                                    |         |   |                                              |   |        |                            |  |   |       |   |  |   |         |  
|Comprehensive income                                                             |  |              |   |                          |   |                  |  |                |         |  |                                    |         |   |                                              |   |        |                            |  |   |       |   |  |   | 2,437   |  
|Stock subscription notes repaid                                                  |  |              |   |                          |   |                  |  |                |         |  |                                    |         |   |                                              |   | 90     |                            |  |   |       |   |  |   | 90      |  
|Treasury stock reissued                                                          |  |              |  |                          |   |                 |  |                |        |  |                                    | 137     |   |                                              |   |       |                            |  |   |      |   |  |   | 137     |  
|                                                                                 |  |              |   |                          |   |                  |  |                |         |  |                                    |         |   |                                              |   |        |                            |  |   |       |   |  |   |         |  





|                                                                              |  |              |   |                          |   |        |                  |  |   |                |   |  |                                    |         |   |                                              |   |        |                            |  |   |        |   |  |   |         |  
|----------------------------------------------------------------------------- |  | ------------ | - | ------------------------ | - | ------ | ---------------- |  | - | -------------- | - |  | ---------------------------------- | ------- | - | -------------------------------------------- | - | ------ | -------------------------- |  | - | ------ | - |  | - | ------- | -
|                                                                              |  | COMMON STOCK |   | ADDITIONALPAID-INCAPITAL |   |        | RETAINEDEARNINGS |  |   | TREASURY STOCK |   |  | STOCK SUBSCRIPTION NOTESRECEIVABLE |         |   | ACCUMULATEDOTHER COMPREHENSIVE INCOME (LOSS) |   |        | TOTAL STOCKHOLDERS EQUITY | 
|BALANCE AT JUNE 30, 2005                                                      |  | $            | 1 |                          | $ | 37,127 |                  |  | $ | 259,553        |   |  | $                                  | (97,517 | ) |                                              | $ | (2,928 | )                          |  | $ | 950    |   |  | $ | 197,186 |  
|                                                                              |  |              |   |                          |   |        |                  |  |   |                |   |  |                                    |         |   |                                              |   |        |                            |  |   |        |   |  |   |         |  
|BALANCE AT JANUARY 1, 2004                                                    |  | $            | 1 |                          | $ | 37,281 |                  |  | $ | 264,063        |   |  | $                                  | (98,006 | ) |                                              | $ | (3,312 | )                          |  | $ | 4,161  |   |  | $ | 204,188 |  
|                                                                              |  |              |   |                          |   |        |                 
|Net loss                                                                      |  |              |  |                          |   |       |                  |  |   | (1,489         | ) |  |                                    |        |   |                                              |   |       |                            |  |   |       |   |  |   | (1,489  | )
|Unrealized losses on securities, net of applicable income taxes of $4,647     |  |              |  |                          |   |       |                  |  |   |               |   |  |                                    |        |   |                                              |   |       |                            |  |   | (8,625 | ) |  |   | (8,625  | )
|Change in minimum pension liability, net of applicable income taxes of ($105) |  |              |  |                          |   |       |                  |  |   |               |   |  |                                    |        |   |                                              |   |       |                            |  |   | (195   | ) |  |   | (195    | )
|Unrealized foreign currency gain                                              |  |              |  |                          |   |       |                  |  |   |               |   |  |                                    |        |   |                                              |   |       |                            |  |   | 120    |   |  |   | 120     |  
|                                                                              |  |              |   |                          |   |        |                  |  |   |                |   |  |                                    |         |   |                                              |   |        |                            |  |   |        |   |  |   |         |  
|Comprehensive income                                                          |  |              |   |                          |   |        |                  |  |   |                |   |  |                                    |         |   |                                              |   |        |                            |  |   |       |   |  |   | (10,189 | )
|Treasury stock reissued                                                       |  |              |  |                          |   | (531   | )                |  |   |               |   |  |                                    | 772     |   |                                              |   | (192   | )                          |  |   |       |   |  |   | 49      |  
|Stock subscription notes repaid                                               |  |              |  |                          |   |       |                  |  |   |               |   |  |                                    |        |   |                                              |   | 10     |                            |  |   |       |   |  |   | 10      |  
|                                                                              |  |              |   |                          |   |        |                  |  |   |                |   |  |                                    |         |   |                                              |   |        |                            |  |   |        |   |  |   |         |  
|BALANCE AT JUNE 30, 2004                                                      |  | $            | 1 |                          | $ | 36,750 |                  |  | $ | 262,574        |   |  | $                                  | (97,234 | ) |                                              | $ | (3,494 | )                          |  | $ | (4,539 | ) |  | $ | 194,058 |  
|                                                                              |  |              |   |                          |   |        |                  |  |   |                |   |  |                                    |         |   |                                              |   |        |                            |  |   |        |   |  |   |         |  



See accompanying notes
to Consolidated Financial Statements.



3



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SCPIE HOLDINGS INC. AND
SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

(UNAUDITED)



|                                                                              |  |                          |         |   |      |   |          |  
|----------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | -------- | -
|                                                                              |  | SIX MONTHS ENDEDJUNE 30, |        
|                                                                              |  | 2005                     |         |   | 2004 |  
|OPERATING ACTIVITIES                                                          |  |                          |         |   |      |   |          |  
|Net income (loss)                                                             |  | $                        | 3,376   |   |      | $ | (1,489   | )
|Adjustments to reconcile net income to net cash used in operating activities: |  |                          |         |   |      |   |          |  
|Provisions for amortization and depreciation                                  |  |                          | 2,543   |   |      |   | 3,788    |  
|Provision for deferred federal income taxes                                   |  |                          | 1,863   |   |      |   | (815     | )
|Realized investment gains                                                     |  |                          | (6      | ) |      |   | (1,715   | )
|Changes in operating assets and liabilities:                                  |  |                          |         |   |      |   |          |  
|Deferred acquisition costs                                                    |  |                          | (337    | ) |      |   | (1,533   | )
|Accrued investment income                                                     |  |                          | 161     |   |      |   | 992      |  
|Unearned premiums                                                             |  |                          | 29,648  |   |      |   | 24,575   |  
|Loss and loss adjustment expense reserves                                     |  |                          | (86,733 | ) |      |   | (17,860  | )
|Reinsurance recoverable                                                       |  |                          | 59,358  |   |      |   | (29,348  | )
|Amounts held for reinsurance                                                  |  |                          | (50,188 | ) |      |   | 12,599   |  
|Other liabilities                                                             |  |                          | (7,297  | ) |      |   | (8,763   | )
|Premium receivable                                                            |  |                          | 12,180  |   |      |   | (25,445  | )
|Other assets                                                                  |  |                          | 555     |   |      |   | 1,275    |  
|                                                                              |  |                          |         |   |      |   |          |  
|Net cash used in operating activities                                         |  |                          | (34,877 | ) |      |   | (43,739  | )
|                                                                              |  |                         
|INVESTING ACTIVITIES                                                          |  |                          |         |   |      |   |          |  
|Purchasesfixed maturities                                                    |  |                          | (45,295 | ) |      |   | (171,844 | )
|Salesfixed maturities                                                        |  |                          | 59,851  |   |      |   | 217,225  |  
|Maturitiesfixed maturities                                                   |  |                          | 8,899   |   |      |   | 7,391    |  
|Short-term purchases and sales  net                                          |  |                          |        |   |      |   | (195     | )
|Salesequities                                                                |  |                          |        |   |      |   | 3,764    |  
|                                                                              |  |                          |         |   |      |   |          |  
|Net cash provided by investing activities                                     |  |                          | 23,455  |   |      |   | 56,341   |  
|                                                                              |  |                         
|FINANCING ACTIVITIES                                                          |  |                          |         |   |      |   |          |  
|Reissuance of treasury shares                                                 |  |                          | 137     |   |      |   | 241      |  
|Repayment of stock subscriptions                                              |  |                          | 90      |   |      |   | (182     | )
|                                                                              |  |                          |         |   |      |   |          |  
|Net cash provided by financing activities                                     |  |                          | 227     |   |      |   | 59       |  
|                                                                              |  |                          |         |   |      |   |          |  
|Increase (decrease) in cash and cash equivalents                              |  |                          | (11,195 | ) |      |   | 12,661   |  
|Cash and cash equivalents at beginning of period                              |  |                          | 94,390  |   |      |   | 62,095   |  
|                                                                              |  |                          |         |   |      |   |          |  
|Cash and cash equivalents at end of period                                    |  | $                        | 83,195  |   |      | $ | 74,756   |  
|                                                                              |  |                          |         |   |      |   |          |  



See accompanying notes
to Consolidated Financial Statements.



4



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SCPIE HOLDINGS INC. AND
SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



JUNE 30, 2005



|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 U.S. 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 GAAP 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 six-month period ended
June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. 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, 2004.



Certain 2004 amounts have been reclassified to conform to the 2005 presentation.



|2. | NEW ACCOUNTING STANDARD
|-- | -----------------------



In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123R, Share-Based Payment (SFAS No. 123R) that will require compensation costs
related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity instrument issued. Compensation cost
will be recognized over the period that an employee provides service in exchange for the award. SFAS No. 123R replaces Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, the principles that the Company currently employs to account and report its employee stock option awards. SFAS No. 123R is effective for the first interim reporting period that begins
after June 15, 2005. The Company will implement this standard in the third quarter of 2005. The Company cannot estimate the impact of implementing this standard on future net income, but the standard would have decreased recent net income by
approximately $0.03 - $0.09 per diluted share.



|3. | EARNINGS PER SHARE
|-- | ------------------



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



|                                                                                                          |  |                                      |       |      |                            |        |      |  |      |       |  |   |        |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | ---- | -------------------------- | ------ | ---- |  | ---- | ----- |  | - | ------ | -
|                                                                                                          |  | SIX MONTHS ENDEDJUNE 30,             |       |      | THREE MONTHS ENDEDJUNE 30, |       
|                                                                                                          |  | 2005                                 |       | 2004 |                            |        | 2005 |  | 2004 |      
|                                                                                                          |  | (IN THOUSANDS,EXCEPT PER SHARE DATA) |      
|Net income (loss)                                                                                         |  | $                                    | 3,376 |      | $                          | (1,489 | )    |  | $    | 1,705 |  | $ | (2,316 | )
|Numerator for:                                                                                            |  |                                      |       |      |                            |        |      |  |      |       |  |   |        |  
|Basic earnings (loss) per share of common stock                                                           |  |                                      | 3,376 |      |                            | (1,489 | )    |  |      | 1,705 |  |   | (2,316 | )
|Diluted earnings (loss) per share of common stock                                                         |  |                                      | 3,376 |      |                            | (1,489 | )    |  |      | 1,705 |  |   | (2,316 | )
|Denominator                                                                                               |  |                                      |       |      |                            |        |      |  |      |       |  |   |        |  
|Denominator for basic earnings per share of common stock  weighted-average shares outstanding            |  |                                      | 9,417 |      |                            | 9,395  |      |  |      | 9,429 |  |   | 9,411  |  
|Effect of dilutive securities:                                                                            |  |                                      |       |      |                            |        |      |  |      |       |  |   |        |  
|Stock options                                                                                             |  |                                      | 163   |      |                            |       |      |  |      | 163   |  |   |       |  
|                                                                                                          |  |                                      |       |      |                            |        |      |  |      |       |  |   |        |  
|Denominator for diluted earnings per share of common stock adjusted  weighted-average shares outstanding |  |                                      | 9,580 |      |                            | 9,395  |      |  |      | 9,592 |  |   | 9,411  |  
|Basic earnings (loss) per share of common stock                                                           |  | $                                    | 0.36  |      | $                          | (0.16  | )    |  | $    | 0.18  |  | $ | (0.25  | )
|Diluted earnings (loss) per share of common stock                                                         |  | $                                    | 0.35  |      | $                          | (0.16  | )    |  | $    | 0.18  |  | $ | (0.25  | )



5



---

|4. | INVESTMENTS
|-- | -----------



The Companys investments in available-for-sale securities at June 30, 2005 are summarized as follows:



|                                 |  |                      |         |                      |   |                       |  |           |       |  |   |        
|-------------------------------- |  | -------------------- | ------- | -------------------- | - | --------------------- |  | --------- | ----- |  | - | -------
|                                 |  | COST ORAMORTIZEDCOST |         | GROSSUNREALIZEDGAINS |   | GROSSUNREALIZEDLOSSES |  | FAIRVALUE
|                                 |  | (IN THOUSANDS)      
|Fixed-maturity securities:       |  |                      |         |                      |   |                       |  |           |       |  |   |        
|Bonds:                           |  |                      |         |                      |   |                       |  |           |       |  |   |        
|U.S. government and agencies     |  | $                    | 131,530 |                      | $ | 1,786                 |  | $         | 878   |  | $ | 132,438
|Mortgage-backed and asset-backed |  |                      | 83,810  |                      |   | 245                   |  |           | 1,678 |  |   | 82,377 
|Corporate                        |  |                      | 212,805 |                      |   | 1,474                 |  |           | 1,832 |  |   | 212,447
|                                 |  |                      |         |                      |   |                       |  |           |       |  |   |        
|Total fixed-maturity securities  |  |                      | 428,145 |                      |   | 3,505                 |  |           | 4,388 |  |   | 427,262
|Common stocks                    |  |                      | 12,028  |                      |   | 4,312                 |  |           |      |  |   | 16,340 
|                                 |  |                      |         |                      |   |                       |  |           |       |  |   |        
|Total                            |  | $                    | 440,173 |                      | $ | 7,817                 |  | $         | 4,388 |  | $ | 443,602
|                                 |  |                      |         |                      |   |                       |  |           |       |  |   |        



The following table illustrates the
gross unrealized losses included in the Companys investment portfolio and the fair value of those securities, aggregated by investment category. The table also illustrates the length of time that they have been in a continuous unrealized loss
position as of June 30, 2005.



|                                 |  |                       |       |                   |   |                       |  |           |       |                       |   |           |  |   |       |  |   |        
|-------------------------------- |  | --------------------- | ----- | ----------------- | - | --------------------- |  | --------- | ----- | --------------------- | - | --------- |  | - | ----- |  | - | -------
|                                 |  | LESS THAN 12 MONTHS   |       | 12 MONTHS OR MORE |   | TOTAL                
|                                 |  | GROSSUNREALIZEDLOSSES |       | FAIRVALUE         |   | GROSSUNREALIZEDLOSSES |  | FAIRVALUE |       | GROSSUNREALIZEDLOSSES |   | FAIRVALUE
|                                 |  | (IN THOUSANDS)       
|Fixed-maturity securities:       |  |                       |       |                   |   |                       |  |           |       |                       |   |           |  |   |       |  |   |        
|Bonds:                           |  |                       |       |                   |   |                       |  |           |       |                       |   |           |  |   |       |  |   |        
|U.S. government and agencies     |  | $                     | 533   |                   | $ | 56,267                |  | $         | 346   |                       | $ | 14,035    |  | $ | 878   |  | $ | 70,302 
|Mortgage-backed and asset-backed |  |                       | 152   |                   |   | 9,151                 |  |           | 1,526 |                       |   | 64,086    |  |   | 1,678 |  |   | 73,237 
|Corporate                        |  |                       | 329   |                   |   | 63,677                |  |           | 1,504 |                       |   | 63,322    |  |   | 1,832 |  |   | 126,999
|                                 |  |                       |       |                   |   |                       |  |           |       |                       |   |           |  |   |       |  |   |        
|Total fixed-maturity securities  |  |                       | 1,014 |                   |   | 129,095               |  |           | 3,376 |                       |   | 141,443   |  |   | 4,388 |  |   | 270,538
|Total common stock               |  |                       |      |                   |   |                      |  |           |      |                       |   |          |  |   |      |  |   |       
|                                 |  |                       |       |                   |   |                       |  |           |       |                       |   |           |  |   |       |  |   |        
|Total                            |  | $                     | 1,014 |                   | $ | 129,095               |  | $         | 3,376 |                       | $ | 141,443   |  | $ | 4,388 |  | $ | 270,538
|                                 |  |                       |       |                   |   |                       |  |           |       |                       |   |           |  |   |       |  |   |        



The Company held 174 investment
positions with unrealized losses as of June 30, 2005. All of the investments are investment grade and the unrealized losses are primarily due to interest rate fluctuations. The Company held 64 securities that were in an unrealized loss position
for 12 months or more.



The Company has the ability and intent to hold
securities with unrealized losses until they recover their value. In the future, information may come to light or circumstances may change that would cause the Company to write-down or sell these securities and incur a realized loss. As of
June 30, 2005, the Company held $83,195 in cash and cash equivalents.



6



---

|5. | FEDERAL INCOME TAXES
|-- | --------------------



A reconciliation of income tax expense (benefit) computed at the federal statutory tax rate to total income tax expense is summarized as follows:



|                                            |  |                          |       |      |                            |      |      |  |      |     |  |   |        |  
|------------------------------------------- |  | ------------------------ | ----- | ---- | -------------------------- | ---- | ---- |  | ---- | --- |  | - | ------ | -
|                                            |  | SIX MONTHS ENDEDJUNE 30, |       |      | THREE MONTHS ENDEDJUNE 30, |     
|                                            |  | 2005                     |       | 2004 |                            |      | 2005 |  | 2004 |    
|                                            |  | (IN THOUSANDS)           |       |      | (IN THOUSANDS)             |     
|Federal income tax expense (benefit) at 35% |  | $                        | 1,834 |      | $                          | (806 | )    |  | $    | 922 |  | $ | (1,261 | )
|Increase in taxes resulting from:           |  |                          |       |      |                            |      |      |  |      |     |  |   |        |  
|Foreign and miscellaneous                   |  |                          | 29    |      |                            | (9   | )    |  |      | 5   |  |   | (27    | )
|                                            |  |                          |       |      |                            |      |      |  |      |     |  |   |        |  
|Total income tax expense (benefit)          |  | $                        | 1,863 |      | $                          | (815 | )    |  | $    | 927 |  | $ | (1,288 | )
|                                            |  |                          |       |      |                            |      |      |  |      |     |  |   |        |  



|6. | COMPREHENSIVE INCOME (LOSS)
|-- | ---------------------------



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



|                                                   |  |                          |        |   |                            |   |         |      |  |   |       |   |  |   |         |  
|-------------------------------------------------- |  | ------------------------ | ------ | - | -------------------------- | - | ------- | ---- |  | - | ----- | - |  | - | ------- | -
|                                                   |  | SIX MONTHS ENDEDJUNE 30, |        |   | THREE MONTHS ENDEDJUNE 30, |  
|                                                   |  | 2005                     |        |   | 2004                       |   |         | 2005 |  |   | 2004  |  
|                                                   |  | (IN THOUSANDS)           |       
|Net income (loss)                                  |  | $                        | 3,376  |   |                            | $ | (1,489  | )    |  | $ | 1,705 |   |  | $ | (2,316  | )
|Other comprehensive income (loss) before tax:      |  |                          |        |   |                            |   |         |      |  |   |       |   |  |   |         |  
|Unrealized gains (losses) on securities            |  |                          | (1,191 | ) |                            |   | (13,272 | )    |  |   | 6,446 |   |  |   | (20,090 | )
|Unrealized foreign currency gains (losses)         |  |                          | (28    | ) |                            |   | 120     |      |  |   | 17    |   |  |   | 47      |  
|Change in minimum pension liability                |  |                          | (210   | ) |                            |   | (300    | )    |  |   | (105  | ) |  |   | (150    | )
|                                                   |  |                          |        |   |                            |   |         |      |  |   |       |   |  |   |         |  
|Other comprehensive income (loss) before tax       |  |                          | 1,947  |   |                            |   | (14,941 | )    |  |   | 8,063 |   |  |   | (22,509 | )
|Income tax expense (benefit) related to securities |  |                          | (417   | ) |                            |   | (4,647  | )    |  |   | 2,255 |   |  |   | (7,032  | )
|Income tax benefit related to pension liability    |  |                          | (73    | ) |                            |   | (105    | )    |  |   | (36   | ) |  |   | (53     | )
|                                                   |  |                          |        |   |                            |   |         |      |  |   |       |   |  |   |         |  
|Comprehensive income (loss)                        |  | $                        | 2,437  |   |                            | $ | (10,189 | )    |  | $ | 5,844 |   |  | $ | (15,424 | )
|                                                   |  |                          |        |   |                            |   |         |      |  |   |       |   |  |   |         |  



|7. | 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 has one ongoing assumed reinsurance treaty for the 2003 underwriting year.



7



---

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



|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|----------------------------------------- |  | ------------------------------------ | ------ | - | ------------------ | - | ------- | ----- |  | ----- | ------- |  | - | ------- | -
|SIX MONTHS ENDED JUNE 30, 2005            |  | DIRECT HEALTHCARE LIABILITYINSURANCE |        |   | ASSUMEDREINSURANCE |   |         | OTHER |  | TOTAL |        
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Premiums written                          |  | $                                    | 95,534 |   |                    | $ | (849    | )     |  |       |         |  | $ | 94,685  |  
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Premiums earned                           |  | $                                    | 64,627 |   |                    | $ | 410     |       |  |       |         |  | $ | 65,037  |  
|Net investment income                     |  |                                      |       |   |                    |   |        |       |  | $     | 8,799   |  |   | 8,799   |  
|Realized investment gains                 |  |                                      |       |   |                    |   |        |       |  |       | 6       |  |   | 6       |  
|Other revenue                             |  |                                      |       |   |                    |   |        |       |  |       | 174     |  |   | 174     |  
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Total revenues                            |  |                                      | 64,627 |   |                    |   | 410     |       |  |       | 8,979   |  |   | 74,016  |  
|                                          |  |                                      |        |  
|Losses and loss adjustment expenses       |  |                                      | 48,754 |   |                    |   | 4,304   |       |  |       |        |  |   | 53,058  |  
|Other operating expenses                  |  |                                      | 14,107 |   |                    |   | 1,612   |       |  |       |        |  |   | 15,719  |  
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Total expenses                            |  |                                      | 62,861 |   |                    |   | 5,916   |       |  |       |        |  |   | 68,777  |  
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Segment income (loss) before income taxes |  | $                                    | 1,766  |   |                    | $ | (5,506  | )     |  | $     | 8,979   |  | $ | 5,239   |  
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Segment assets                            |  | $                                    | 54,319 |   |                    | $ | 213,603 |       |  | $     | 599,807 |  | $ | 867,729 |  
|                                          |  |                                      |        |  
|SIX MONTHS ENDED JUNE 30, 2004            |  | DIRECT HEALTHCARE LIABILITYINSURANCE |        |   | ASSUMEDREINSURANCE |   |         | OTHER |  | TOTAL |        
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Premiums written                          |  | $                                    | 95,493 |   |                    | $ | (3,278  | )     |  |       |         |  | $ | 92,215  |  
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Premiums earned                           |  | $                                    | 61,934 |   |                    | $ | 5,707   |       |  |       |         |  | $ | 67,641  |  
|Net investment income                     |  |                                      |       |   |                    |   |        |       |  | $     | 10,550  |  |   | 10,550  |  
|Realized investment gains                 |  |                                      |       |   |                    |   |        |       |  |       | 1,715   |  |   | 1,715   |  
|Other revenue                             |  |                                      |       |   |                    |   |        |       |  |       | 365     |  |   | 365     |  
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Total revenues                            |  |                                      | 61,934 |   |                    |   | 5,707   |       |  |       | 12,630  |  |   | 80,271  |  
|                                          |  |                                      |        |  
|Losses and loss adjustment expenses       |  |                                      | 55,833 |   |                    |   | 9,936   |       |  |       |        |  |   | 65,769  |  
|Other operating expenses                  |  |                                      | 12,671 |   |                    |   | 4,135   |       |  |       |        |  |   | 16,806  |  
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Total expenses                            |  |                                      | 68,504 |   |                    |   | 14,071  |       |  |       |        |  |   | 82,575  |  
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Segment income (loss) before income taxes |  | $                                    | (6,570 | ) |                    | $ | (8,364  | )     |  | $     | 12,630  |  | $ | (2,304  | )
|                                          |  |                                      |        |   |                    |   |         |       |  |       |         |  |   |         |  
|Segment assets                            |  | $                                    | 62,852 |   |                    | $ | 274,831 |       |  | $     | 653,988 |  | $ | 991,671 |  



8



---

|                                          |  |                                      |        |   |                    |   |         |       |  |   |         |   |  |   |         |  
|----------------------------------------- |  | ------------------------------------ | ------ | - | ------------------ | - | ------- | ----- |  | - | ------- | - |  | - | ------- | -
|THREE MONTHS ENDED JUNE 30, 2005          |  | DIRECT HEALTHCARE LIABILITYINSURANCE |        |   | ASSUMEDREINSURANCE |   |         | OTHER |  |   | TOTAL   |  
|Premiums written                          |  | $                                    | 4,040  |   |                    | $ | (291    | )     |  |   |         |   |  | $ | 3,749   |  
|                                          |  |                                      |        |   |                    |   |         |       |  |   |         |   |  |   |         |  
|Premiums earned                           |  | $                                    | 32,431 |   |                    | $ | 20      |       |  |   |         |   |  | $ | 32,451  |  
|Net investment income                     |  |                                      |       |   |                    |   |        |       |  | $ | 4,132   |   |  |   | 4,132   |  
|Realized investment gains                 |  |                                      |       |   |                    |   |        |       |  |   | (10     | ) |  |   | (10     | )
|Other revenue                             |  |                                      |       |   |                    |   |        |       |  |   | 60      |   |  |   | 60      |  
|                                          |  |                                      |        |   |                    |   |         |       |  |   |         |   |  |   |         |  
|Total revenues                            |  |                                      | 32,431 |   |                    |   | 20      |       |  |   | 4,182   |   |  |   | 36,633  |  
|Losses and loss adjustment expenses       |  |                                      | 24,112 |   |                    |   | 3,035   |       |  |   |        |   |  |   | 27,147  |  
|Other operating expenses                  |  |                                      | 6,736  |   |                    |   | 118     |       |  |   |        |   |  |   | 6,854   |  
|                                          |  |                                      |        |   |                    |   |         |       |  |   |         |   |  |   |         |  
|Total expenses                            |  |                                      | 30,848 |   |                    |   | 3,153   |       |  |   |        |   |  |   | 34,001  |  
|                                          |  |                                      |        |   |                    |   |         |       |  |   |         |   |  |   |         |  
|Segment income (loss) before income taxes |  | $                                    | 1,583  |   |                    | $ | (3,133  | )     |  | $ | 4,182   |   |  | $ | 2,632   |  
|                                          |  |                                      |        |   |                    |   |         |       |  |   |         |   |  |   |         |  
|Segment assets                            |  | $                                    | 54,319 |   |                    | $ | 213,603 |       |  | $ | 599,807 |   |  | $ | 867,729 |  
|                                          |  |                                      |        |  
|THREE MONTHS ENDED JUNE 30, 2004          |  | DIRECT HEALTHCARE LIABILITYINSURANCE |        |   | ASSUMEDREINSURANCE |   |         | OTHER |  |   | TOTAL   |  
|Premiums written                          |  | $                                    | 2,753  |   |                    | $ | 7       |       |  |   |         |   |  | $ | 2,760   |  
|                                          |  |                                      |        |   |                    |   |         |       |  |   |         |   |  |   |         |  
|Premiums earned                           |  | $                                    | 29,986 |   |                    | $ | 1,242   |       |  |   |         |   |  | $ | 31,228  |  
|Net investment income                     |  |                                      |       |   |                    |   |        |       |  | $ | 5,118   |   |  |   | 5,118   |  
|Realized investment gains                 |  |                                      |       |   |                    |   |        |       |  |   | (631    | ) |  |   | (631    | )
|Other revenue                             |  |                                      |       |   |                    |   |        |       |  |   | 85      |   |  |   | 85      |  
|                                          |  |                                      |        |   |                    |   |         |       |  |   |         |   |  |   |         |  
|Total revenues                            |  |                                      | 29,986 |   |                    |   | 1,242   |       |  |   | 4,572   |   |  |   | 35,800  |  
|Losses and loss adjustment expenses       |  |                                      | 25,224 |   |                    |   | 7,604   |       |  |   |        |   |  |   | 32,828  |  
|Other operating expenses                  |  |                                      | 6,272  |   |                    |   | 304     |       |  |   |        |   |  |   | 6,576   |  
|                                          |  |                                      |        |   |                    |   |         |       |  |   |         |   |  |   |         |  
|Total expenses                            |  |                                      | 31,496 |   |                    |   | 7,908   |       |  |   |        |   |  |   | 39,404  |  
|                                          |  |                                      |        |   |                    |   |         |       |  |   |         |   |  |   |         |  
|Segment income (loss) before income taxes |  | $                                    | (1,510 | ) |                    | $ | (6,666  | )     |  | $ | 4,572   |   |  | $ | (3,604  | )
|                                          |  |                                      |        |   |                    |   |         |       |  |   |         |   |  |   |         |  
|Segment assets                            |  | $                                    | 62,852 |   |                    | $ | 274,831 |       |  | $ | 653,988 |   |  | $ | 991,671 |  



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.



9



---

|8. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------



The Company is named as a 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 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 the HIG insurance company
subsidiaries have paid losses and loss adjustment expense (LAE) under the subject policies of more than $67 million and that at June 30, 2005 had established case loss reserves of $10 million, net of reinsurance. Based on a limited review of
the exposures remaining, the Company estimates that incurred but not reported losses are $5 million, for a total loss and LAE reserve of $15 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 Highlands reinsurers.



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 expressly provided that it did not constitute a finding of Highlands insolvency nor
an authorization to liquidate Highlands. The Receiver continues to resolve Highlands claim liabilities and otherwise conduct its business, as part of his efforts to rehabilitate Highlands. 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.



Letters of Credit



The Company has a letter of credit facility in the amount of $50 million with Barclays Bank PLC. Letters of credit issued under the facility fulfill the collateral
requirements of Lloyds and guarantee loss reserves under certain other reinsurance contracts. As of June 30, 2005, letter of credit issuance under the facility was approximately $44.5 million. Securities of $49 million are pledged as
collateral under the facility.



10



---

|9. | STOCK-BASED COMPENSATION
|-- | ------------------------



The following table illustrates the effect on net income 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:



|                                                                                                                                           |  |                                       |       |   |                            |   |        |      |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------- | ----- | - | -------------------------- | - | ------ | ---- |  | - | ----- | - |  | - | ------ | -
|                                                                                                                                           |  | SIX MONTHS ENDEDJUNE 30,              |       |   | THREE MONTHS ENDEDJUNE 30, |  
|                                                                                                                                           |  | 2005                                  |       |   | 2004                       |   |        | 2005 |  |   | 2004  |  
|                                                                                                                                           |  | (IN THOUSANDS, EXCEPT PER SHARE DATA) |      
|Net income (loss) as reported                                                                                                              |  | $                                     | 3,376 |   |                            | $ | (1,489 | )    |  | $ | 1,705 |   |  | $ | (2,316 | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards net of related tax
effects |  |                                       | (228  | ) |                            |   | (340   | )    |  |   | (112  | ) |  |   | (198   | )
|                                                                                                                                           |  |                                       |       |   |                            |   |        |      |  |   |       |   |  |   |        |  
|Pro forma net income                                                                                                                       |  | $                                     | 3,148 |   |                            | $ | (1,829 | )    |  | $ | 1,593 |   |  | $ | (2,514 | )
|Earnings per share:                                                                                                                        |  |                                       |       |   |                            |   |        |      |  |   |       |   |  |   |        |  
|Basic  as reported                                                                                                                        |  | $                                     | 0.36  |   |                            | $ | (0.16  | )    |  | $ | 0.18  |   |  | $ | (0.25  | )
|Basic  pro forma                                                                                                                          |  | $                                     | 0.33  |   |                            | $ | (0.20  | )    |  | $ | 0.17  |   |  | $ | (0.27  | )
|Diluted  as reported                                                                                                                      |  | $                                     | 0.35  |   |                            | $ | (0.16  | )    |  | $ | 0.18  |   |  | $ | (0.25  | )
|Diluted  pro forma                                                                                                                        |  | $                                     | 0.33  |   |                            | $ | (0.20  | )    |  | $ | 0.17  |   |  | $ | (0.27  | )



For pro forma disclosure purposes, the
fair value of stock options was estimated at each date of grant using a Black-Scholes option pricing model using the following assumptions: Risk-free interest rates ranging from 2.79% to 3.46%; dividend yields ranging from 0.66% to 1.14%; volatility
factors of the expected market price of the Companys common stock of .2287 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, its core healthcare liability markets. 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. The resulting reductions in surplus and corresponding decrease in capital
adequacy ratios under both the A.M. Best Company (A.M. Best) and National Association of Insurance Commissioners (NAIC) capital adequacy models required the Company to take actions to improve its long-term capital adequacy position. The primary
actions taken by the Company were to effect an orderly withdrawal from healthcare liability insurance markets outside of California and Delaware and from the assumed reinsurance market in its entirety. All of the healthcare liability insurance
policies in these other markets 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 settle and pay claims incurred in the non-core healthcare and assumed reinsurance operations.



The actions taken by the Company have reduced significantly capital requirements related to
premium writing to surplus ratios in both the A.M. Best and NAIC capital adequacy models. The capital requirements required by the reserve to surplus ratio continue to decline as the Company settles the claims in its non-core businesses.



11



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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 U.S. generally accepted accounting principles (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.



Premium Revenue Recognition



Direct healthcare liability insurance premiums written are 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 business 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 estimates of ultimate incurred losses, especially those of Lloyds syndicates.
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.



12



---

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. The Company has established net reserves of $447.8 million as of June 30, 2005, after considering both prospective and retrospective reinsurance. The net reserves
attributable to the operating segments of the Company are as follows:



Summary of Net Loss and LAE Reserves

By Segment



|                                      |  |               |       |                  |   |      
|------------------------------------- |  | ------------- | ----- | ---------------- | - | -----
|                                      |  | JUNE 30,2005  |       | DECEMBER 31,2004
|                                      |  | (IN MILLIONS)
|Direct Healthcare Liability Insurance |  |               |       |                  |   |      
|Core                                  |  | $             | 257.8 |                  | $ | 257.2
|Non-Core                              |  |               | 75.2  |                  |   | 97.4 
|Assumed Reinsurance Segment           |  |               | 114.8 |                  |   | 87.8 
|                                      |  |               |       |                  |   |      
|Total net loss and LAE reserves       |  |               | 447.8 |                  |   | 442.4
|Ceded loss reserves                   |  |               | 91.8  |                  |   | 183.6
|Retrospective reserves                |  |               | 12.4  |                  |   | 12.7 
|                                      |  |               |       |                  |   |      
|Loss and LAE reserves                 |  | $             | 552.0 |                  | $ | 638.7
|                                      |  |               |       |                  |   |      



The increase in the assumed
reinsurance segment net reserves at June 30, 2005 was attributable to the closing of the 2002 underwriting year of one Lloyds syndicate into the 2003 underwriting year of that same syndicate. The Company is the principal participant in
the 2003 underwriting year for this syndicate. As part of the closing, the Company assumed additional reserve liabilities and received assets in the same amount. This had the effect of increasing loss and LAE reserves, but had no effect on net
income, retained earnings or statutory surplus of the Company. This type of transaction, called reinsurance to close, is a normal event in the Lloyds market. The net reserves-to-statutory surplus ratio of the Company improved to 3.09 to 1 at
June 30, 2005 from 3.3 to 1 at December 31, 2004. The standard generally followed in the industry is 3.0 to 1. See Risk FactorsNecessary Capital and Surplus in the SCPIE Holdings Annual Report on Form 10-K for the year
ended December 31, 2004.



A 1% difference in the ultimate value of
reserves, net of reinsurance recoverable, would decrease or increase future pretax earnings by $4.5 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. 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.



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 its 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;
| | - |  | ------------------------------------------------------------------------------------------------



13



---

| |  |  | 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 June 30, 2005,
the Company had $47.1 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 $19.5 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. The Companys
core operations have historically been profitable on both a GAAP and tax basis. The losses incurred in 2001 to 2004 have been primarily caused by losses in the non-core healthcare and assumed reinsurance businesses. Since the core healthcare
liability operation has improved over the past years and the non-core healthcare liability and assumed operations are now in run-off, the Company believes it should return to a position of taxable income, thus enabling it to utilize the net
operating 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. Any valuation allowance would reduce the Companys earnings.



Statutory Accounting Matter



State insurance laws and regulations prescribe accounting practices for determining
statutory net income and equity for insurance companies. In addition, state regulators may permit statutory accounting practices that differ from prescribed practices. On June 21, 2005, the California Department of Insurance (CDI) issued a
report of examination of SCPIE Indemnity, a wholly-owned insurance company subsidiary of SCPIE Holdings, as of December 31, 2003. In the report, the CDI recommended that certain investments of SCPIE Indemnity be treated as non-admitted assets
for purposes of the statutory accounting statements filed with the CDI as of the date of the examination and subsequently. The investments at issue were pledged as security for the letter of credit used to support the Lloyds capital
requirement of SCPIE Underwriting Limited (SUL), another wholly-owned subsidiary of SCPIE Holdings. SULs Lloyds business is 100% reinsured by SCPIE Indemnity. At the request of the CDI, the pledged assets have since been transferred to
SUL in exchange for SULs issuance of a promissory note to SCPIE Indemnity in the principal amount of the value of the pledged assets, and SCPIE Holdings has contributed 100% of the stock of SUL to SCPIE Indemnity. On May 11, 2005, the CDI
issued a permitted practice letter to SCPIE Indemnity, which restored the admitted asset status of the pledged securities. The effect of treating the pledged assets as non-admitted as of December 31, 2003 and 2004 would have been to reduce
statutory surplus of SCPIE Indemnity by $30.3 million as of those dates to $110.0 million and $106.2 million, respectively, and the effect of the contribution and permitted practice restored the statutory surplus of SCPIE Indemnity by approximately
$32.0 million as of June 30, 2005. Statutory surplus at June 30, 2005 was $144.7 million.



The foregoing treatment of the pledged assets as non-admitted and the restoration of these assets to admitted status have no effect on the consolidated financial statements of the Company under GAAP, except that SCPIE
Indemnitys ability to pay dividends to SCPIE Holdings, during 2005, without special approval of the CDI, is reduced by approximately $3 million. No dividends have been paid in 2005, and the maximum amount that could be paid, as revised, is
approximately $10.6 million. See Note 5 of Notes to Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2004. As of June 30, 2005, SCPIE Holdings held $3.4 million of
cash and cash equivalents. SCPIE Indemnity has no present plans of paying dividends to SCPIE Holdings during 2005.



14



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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 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 profitability are dependent upon a variety of factors, including future economic, competitive and market conditions, frequency and severity of catastrophic events, future legislative and regulatory actions,
uncertainties and potential delays in obtaining premium rate approvals, the level of ratings from recognized rating services, the inherent uncertainty of loss and LAE estimates in both the core and discontinued non-core businesses (including a
contingent liability related to Highlands Insurance Company), and the cyclical nature of the property and casualty insurance industry, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the
Company. The Company is also subject to certain structural risks as an insurance holding company, including statutory restrictions on dividends and other intercompany transactions. In light of the significant uncertainties inherent in the
forward-looking information herein, the inclusion of such information should not be regarded as 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, 2004.



Information Regarding Non-GAAP Measures



The Company has presented information in this report with respect to premiums written, an operating measure which in managements opinion provides investors useful
industry specific information to evaluate and perform meaningful comparisons of the Companys performance. Premiums written is a non-GAAP financial measure which represents the premiums charged on policies issued during a fiscal period less any
reinsurance. Premiums written is a statutory measure of production levels. Premiums earned, a comparable GAAP measure, represents the portion of premiums written that is recognized as income in the financial statements for the periods presented and
earned on a pro-rata basis over the term of the policies.



RESULTS OF
OPERATIONS



SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED
JUNE 30, 2004



Direct Healthcare Liability Insurance Segment



The Company underwrites professional and related liability policy
coverages for physicians (including oral and maxillofacial surgeons), physician medical groups and clinics, hospitals, dentists, managed care organizations and other providers in the healthcare industry. As a result of the Companys withdrawal
from certain segments of the healthcare industry, the premiums earned are allocated between core and non-core premium. Core premium represents California and Delaware business excluding dentist and hospital business. Non-core business represents
business related to physician and dental programs formerly conducted for the Company primarily in states outside California and Delaware by a national independent insurance agency, other state non-standard physician programs and hospital programs
including those in California.



15



---

The following table summarizes by core and non-core businesses 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* | 
|SIX MONTHS ENDED JUNE 30, 2005 |  |      |        |   |           |   |        |        |  |   |        |  
|Premiums written               |  | $    | 95,376 |   |           | $ | 158    |        |  | $ | 95,534 |  
|                               |  |      |        |   |           |   |        |        |  |   |        |  
|Premiums earned                |  | $    | 64,457 |   |           | $ | 170    |        |  | $ | 64,627 |  
|Losses and LAE incurred        |  |      | 48,762 |   |           |   | (8     | )      |  |   | 48,754 |  
|Underwriting expenses          |  |      | 14,030 |   |           |   | 77     |        |  |   | 14,107 |  
|                               |  |      |        |   |           |   |        |        |  |   |        |  
|Underwriting gain              |  | $    | 1,665  |   |           | $ | 101    |        |  | $ | 1,766  |  
|                               |  |      |        |   |           |   |        |        |  |   |        |  
|Loss ratio                     |  |      | 75.6   | % |           |   |        |        |  |   |        |  
|Expense ratio                  |  |      | 21.8   | % |           |   |        |        |  |   |        |  
|Combined ratio                 |  |      | 97.4   | % |           |   |        |        |  |   |        |  
|                               |  |      |       
|SIX MONTHS ENDED JUNE 30, 2004 |  |      |        |   |           |   |        |        |  |   |        |  
|Premiums written               |  | $    | 96,189 |   |           | $ | (696   | )      |  | $ | 95,493 |  
|                               |  |      |        |   |           |   |        |        |  |   |        |  
|Premiums earned                |  | $    | 62,542 |   |           | $ | (608   | )      |  | $ | 61,934 |  
|Losses and LAE incurred        |  |      | 52,063 |   |           |   | 3,770  |        |  |   | 55,833 |  
|Underwriting expenses          |  |      | 12,571 |   |           |   | 100    |        |  |   | 12,671 |  
|                               |  |      |        |   |           |   |        |        |  |   |        |  
|Underwriting loss              |  | $    | (2,092 | ) |           | $ | (4,478 | )      |  | $ | (6,570 | )
|                               |  |      |        |   |           |   |        |        |  |   |        |  
|Loss ratio                     |  |      | 83.2   | % |           |   |        |        |  |   |        |  
|Expense ratio                  |  |      | 20.1   | % |           |   |        |        |  |   |        |  
|Combined ratio                 |  |      | 103.3  | % |           |   |        |        |  |   |        |  



|* | The ratios for the segment total and non-core business are not meaningful due to the run-off status of non-core business.
|- | -------------------------------------------------------------------------------------------------------------------------



Core Business



Premiums written were $95.4 million and premiums earned were $64.5 million in the six months ended June 30, 2005; compared to $96.2
million and $62.5 million in the six months ended June 30, 2004. Premiums earned increased primarily due to the effect on most policies of a 6.5% rate increase implemented on January 1, 2005, somewhat offset by a decline in policies
in-force of 2.3%.



The loss ratio (losses and LAE related to premiums earned)
for the six months ended June 30, 2005 was 75.6% compared to 83.2% in the six months ended June 30, 2004. The decrease in the loss ratio is due primarily to the 6.5% rate increase effective January 1, 2005, as well as lower loss
estimates for 2005, principally due to a decline in claim frequency.



The
underwriting expense ratio (expenses related to premiums earned) increased to 21.8% in the first six months ended June 30, 2005 from 20.1% in the first six months of 2004. The change is primarily attributable to an increase in nondeferrable
general expenses. In addition, an increasing proportion of new business acquired has been through agents and brokers which increases commission expenses.



Non-Core Business



The premiums written and earned for the six months ended June 30, 2005 result primarily from extended reporting endorsements issued under expired policies. After March 6, 2003, no new or renewal business was
written in the non-core programs, as the Company exited these markets.



16



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The underwriting gain in the first six months ended June 30, 2005 was diminimus and reflects the fact that no
significant changes in reserve levels were required during this period.



Assumed Reinsurance Segment



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.



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



|                                          |  |                                                  |        |   |      |   |        |  
|----------------------------------------- |  | ------------------------------------------------ | ------ | - | ---- | - | ------ | -
|                                          |  | Assumed Reinsurance Segment Underwriting Results |       
|FOR THE SIX MONTHS ENDED JUNE 30,         |  | 2005                                             |        |   | 2004 |  
|Premiums written                          |  | $                                                | (849   | ) |      | $ | (3,278 | )
|                                          |  |                                                  |        |   |      |   |        |  
|Premiums earned                           |  | $                                                | 410    |   |      | $ | 5,707  |  
|Underwriting expenses                     |  |                                                  |        |   |      |   |        |  
|Losses                                    |  |                                                  | 4,304  |   |      |   | 9,936  |  
|Underwriting and other operating expenses |  |                                                  | 1,612  |   |      |   | 4,135  |  
|                                          |  |                                                  |        |   |      |   |        |  
|Underwriting loss                         |  | $                                                | (5,506 | ) |      | $ | (8,364 | )
|                                          |  |                                                  |        |   |      |   |        |  



The earned premium in 2005 and 2004 is
primarily from the one ongoing assumed reinsurance program for the 2003 underwriting year.



The underwriting loss in the six months ended June 30, 2005 is primarily related to increased reserve estimates reported to the Company for a few contracts. Increased reserves related to contracts covering bail
and immigration bonds, Lloyds syndicates and World Trade Center losses were reported to the Company during the quarter ended June 30, 2005.



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 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.



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.



Other Operations



Net investment
income decreased 16.6% to $8.8 million for the six months ended June 30, 2005 from $10.6 million in for the six months ended June 30, 2004. Investment income reflects an 8% reduction in average fixed maturity investments and a decrease in
the average rate of return on invested assets from 3.4% to 3.2% for the six months ended June 30, 2004 and June 30, 2005, respectively. The decline in invested assets was as a result of the claim payments related to the run-off of the
non-core healthcare liability and assumed reinsurance businesses.



17



---

Net realized investment gains of $6 thousand were recorded for the six months ended June 30, 2005 versus realized
invested gains of $1.7 million in the six months ended June 30, 2004.



THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS ENDED JUNE 30, 2004



Direct Healthcare Liability Insurance Segment



The following table summarizes by core and non-core businesses 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 JUNE 30, 2005 |  |      |        |   |           |   |        |        |  |   |        |  
|Premiums written                 |  | $    | 4,025  |   |           | $ | 15     |        |  | $ | 4,040  |  
|                                 |  |      |        |   |           |   |        |        |  |   |        |  
|Premiums earned                  |  | $    | 32,413 |   |           | $ | 18     |        |  | $ | 32,431 |  
|Losses and LAE incurred          |  |      | 24,135 |   |           |   | (23    | )      |  |   | 24,112 |  
|Underwriting expenses            |  |      | 6,734  |   |           |   | 2      |        |  |   | 6,736  |  
|                                 |  |      |        |   |           |   |        |        |  |   |        |  
|Underwriting gain                |  | $    | 1,544  |   |           | $ | 39     |        |  | $ | 1,583  |  
|                                 |  |      |        |   |           |   |        |        |  |   |        |  
|Loss ratio                       |  |      | 74.5   | % |           |   |        |        |  |   |        |  
|Expense ratio                    |  |      | 20.8   | % |           |   |        |        |  |   |        |  
|Combined ratio                   |  |      | 95.3   | % |           |   |        |        |  |   |        |  
|                                 |  |      |       
|THREE MONTHS ENDED JUNE 30, 2004 |  |      |        |   |           |   |        |        |  |   |        |  
|Premiums written                 |  | $    | 3,707  |   |           | $ | (954   | )      |  | $ | 2,753  |  
|                                 |  |      |        |   |           |   |        |        |  |   |        |  
|Premiums earned                  |  | $    | 30,946 |   |           | $ | (960   | )      |  | $ | 29,986 |  
|Losses and LAE incurred          |  |      | 24,685 |   |           |   | 539    |        |  |   | 25,224 |  
|Underwriting expenses            |  |      | 6,284  |   |           |   | (12    | )      |  |   | 6,272  |  
|                                 |  |      |        |   |           |   |        |        |  |   |        |  
|Underwriting loss                |  | $    | (23    | ) |           | $ | (1,487 | )      |  | $ | (1,510 | )
|                                 |  |      |        |   |           |   |        |        |  |   |        |  
|Loss ratio                       |  |      | 79.8   | % |           |   |        |        |  |   |        |  
|Expense ratio                    |  |      | 20.3   | % |           |   |        |        |  |   |        |  
|Combined ratio                   |  |      | 100.1  | % |           |   |        |        |  |   |        |  



|* | The ratios for the segment total and non-core business are not meaningful due to the run-off status of non-core business.
|- | -------------------------------------------------------------------------------------------------------------------------



Core Business



Premiums written were $4.0 million and premiums earned were $32.4 million in the three months ended June 30, 2005; compared to $3.7
million and $30.9 million in the three months ended June 30, 2004. Premiums earned increased primarily due to the effect on most policies of a 6.5% rate increase implemented on January 1, 2005, somewhat offset by a decline in policies
in-force of 2.3%.



The loss ratio (losses and LAE related to premiums earned)
for the second quarter 2005 was 74.5% compared to 79.8% in the second quarter 2004. The decrease in the loss ratio is due primarily to the 6.5% rate increase effective January 1, 2005, as well as lower loss estimates for 2005, principally due
to a decline in claim frequency.



The underwriting expense ratio (expenses
related to premiums earned) increased to 20.8% in the second quarter 2005 from 20.3% in the second quarter 2004. The change is primarily attributable to an increase in non-deferrable general expenses. In addition, an increasing proportion of new
business acquired has been through agents and brokers which increases commission expenses.



18



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Non-Core Business



The premiums written and earned for the second quarter of 2005 result primarily from extended reporting endorsements issued under expired policies. After March 6,
2003, no new or renewal business was written in the non-core programs, as the Company exited these markets.



The underwriting gain in the second quarter of 2005 was diminimus and reflects the fact that no significant changes in reserve levels were required during the quarter.



Assumed Reinsurance Segment



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



|                                          |  |                                                  |        |   |      |   |        |  
|----------------------------------------- |  | ------------------------------------------------ | ------ | - | ---- | - | ------ | -
|                                          |  | Assumed Reinsurance Segment Underwriting Results |       
|FOR THE THREE MONTHS ENDED JUNE 30,       |  | 2005                                             |        |   | 2004 |  
|Premiums written                          |  | $                                                | (291   | ) |      | $ | 7      |  
|                                          |  |                                                  |        |   |      |   |        |  
|Premiums earned                           |  | $                                                | 20     |   |      | $ | 1,242  |  
|Underwriting expenses                     |  |                                                  |        |   |      |   |        |  
|Losses                                    |  |                                                  | 3,035  |   |      |   | 7,604  |  
|Underwriting and other operating expenses |  |                                                  | 118    |   |      |   | 304    |  
|                                          |  |                                                  |        |   |      |   |        |  
|Underwriting loss                         |  | $                                                | (3,133 | ) |      | $ | (6,666 | )
|                                          |  |                                                  |        |   |      |   |        |  



The earned premium in 2005 and 2004 is
primarily from the one ongoing assumed reinsurance program for the 2003 underwriting year.



The underwriting loss in the second quarter 2005 is primarily related to increased reserve estimates reported to the Company for a few contracts. Increased reserves related to contracts covering bail and immigration
bonds, Lloyds syndicates and World Trade Center losses were reported to the Company during the quarter ended June 30, 2005.



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 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.



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.



Other Operations



Net investment
income decreased 19.3% to $4.1 million for the three months ended June 30, 2005 from $5.1 million for the three months ended June 30, 2004. Investment income reflects a 10% reduction in average fixed maturity investments and a decrease in
the average rate of return on invested assets from 3.4% to 3.0% for the three months ended June 30, 2004 and 2005, respectively. The decline in invested assets was as a result of the claim payments related to the run-off of the non-core
healthcare liability and assumed reinsurance businesses.



19



---

Net realized investment losses of $10 thousand were recorded for the second quarter 2005 versus net realized invested
losses of $0.6 million in the second quarter 2004.



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 six months of 2005, the Company had negative cash flow from operations of $34.9 million compared to a negative cash flow of $43.7 million in
2004. The negative cash flow in 2005 and 2004 is related to claims payments associated with the non-core physician and assumed reinsurance programs, which are now in run-off. The Company maintains a significant 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 $83.2 million or 15.5% of invested assets, at June 30, 2005.
The Company believes that all of its short-term and fixed maturity securities are readily marketable and have scheduled maturities in line with projected cash needs. Premiums generated by the Companys core operations have historically produced
positive cash flow after consideration of investment income.



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 $16.3 million at June 30, 2005. 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 2008, 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 2005 without prior regulatory approval is
approximately $10.6 million. As of June 30, 2005, no dividends had been paid to SCPIE Holdings.



In March 2004, the Board of Directors suspended the Companys quarterly dividends. The payment and amount of cash dividends in the future will depend upon, among other factors, the Companys operating
results, overall financial condition, capital requirements and general business conditions. As of June 30, 2005, SCPIE Holdings held cash and short-term securities of $3.4 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.



20



---

The Companys capital adequacy position has been weakened by the losses in the non-core business. On
November 14, 2003, A.M. Best (the leading rating organization for the insurance industry), after a review of the third quarter 2003 results, reduced the rating of the Insurance Subsidiaries to B (Fair), with a negative outlook. In July 2005,
A.M. Best reaffirmed the Insurance Subsidiaries rating with no changes. 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, 2004, the RBC level of each insurance company subsidiary exceeded the threshold requiring
the least regulatory attention.



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 adequacy position should improve.



As of June 30, 2005, the Companys statutory surplus was approximately $144.7 million. The principal differences between statutory surplus and
stockholders equity are deferred policyholder acquisition costs and the deferred federal income tax asset. The Company believes its statutory surplus will increase over time and provide a basis for improved ratings from A.M. Best. This process
could be accelerated if additional capital were obtained by the Company. Although the Company believes an increase in the A.M. Best rating would be beneficial to the Companys ongoing operations, especially in the area of new business
opportunities, there is no assurance that such rating would be increased in the event the Company raised additional capital or whether the Company could raise such capital in appropriate amounts and on reasonable terms.



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 June 30, 2005 comprised 79.5% of total investments at
market value. Corporate bonds represent 49.7% and U.S. government bonds represent 31.0% 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 3.0% of total investments at market value. Mortgage loans represent 1.9% 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 or effective 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 effective duration of the fixed maturity portfolio at June 30, 2005 was 4.1 years.



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 June 30, 2005, the carrying value of the investment portfolio included $3.4 million in net unrealized gains. At December 31, 2004, the investment portfolio
included $4.6 million in net unrealized gains.



21



---

|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 SEC 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.



PART II  OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------



The Company is named as a defendant in various legal actions and arbitration proceedings 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.



|ITEM 2. | CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | --------------------------------------------------------------------------------



None.



|ITEM 3. | DEFAULTS UNDER SENIOR SECURITIES
|------- | --------------------------------



None.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
|------- | -----------------------------------------------------



At the Annual Meeting of Stockholders held on May 24, 2005, the following individuals were reelected to the Board of Directors for a term ending in 2008; Charles B.
McElwee, MD, 4,705,833 votes for, 1,905,536 withheld authority; William A. Renert, MD, 4,703,282 votes for, 1,908,087 withheld authority; Henry L. Stoutz, MD, 4,702,797 votes for, 1,908,572 withheld authority; Ronald H. Wender, MD, 4,620,084 votes
for, 1,991,285 withheld authority; Donald J. Zuk, 4,685,897 votes for, 1,925,472 withheld authority. The other directors, whose terms of office continued after the meeting were Mitchell S. Karlan, MD, Willis T. King, Jr., Louis H. Masotti, PhD, Jack
E. McCleary, MD, Wendell L. Moseley, MD, Donald P. Newell, and Reinhold A. Ullrich, MD.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------



On August 2, 2005, the Audit Committee of the Company appointed Ernst & Young LLP as independent auditors for the Company and its subsidiaries for the current fiscal year ending December 31, 2005.



On July 2, 2005, Patrick S. Grant, Senior Vice President, Marketing
retired as an officer and employee of the Company. Mr. Grant will remain available to consult with the Company.



22



---

|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 Rule 13a-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley
Act of 2002.                                                                                                                                                                                                                                                                                                                         
|       | 
|32.1   |  | Certifications of Registrants Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 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: August 5, 2005 |  |  |  | By:                 |  | /s/ Donald J. Zuk    
|                     |  |  |  |                     |  |                       |  | Donald J. Zuk President and Chief Executive Officer                
|                     |  |  | 
|Date: August 5, 2005 |  |  |  | By:                 |  | /s/ Robert B. Tschudy
|                     |  |  |  |                     |  |                       |  | Robert B. Tschudy Senior Vice President and Chief Financial Officer



23