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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, 2006



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Commission File No. 1-12449

SCPIE HOLDINGS INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 95-4557980                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

1888 Century Park East, Los Angeles, California 90067

www.scpie.com

(Address of principal
executive offices and internet site)

(310) 551-5900

(Registrants telephone number, including area code)



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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x    No ̈

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 in the Exchange Act.

Large accelerated
filer ̈Accelerated filer x    Non-accelerated filer ̈

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ̈No x

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



|                                           |  |                                                                                                                              
|------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------
|Class                                      |  | Outstanding at August 1, 2006                                                                                                
|Preferred stock, par value $l.00 per share |  | No shares outstanding                                                                                                        
|Common stock, par value $0.0001 per share  |  | 10,025,303 shares, including 500,000 shares of Common Stock that have been issued to a wholly owned subsidiary of Registrant.



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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, 2006 |         |   | DECEMBER 31,2005 |  
|                                                                                                                                                               |  | (unaudited)   |         |   |                  |  
|ASSETS                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Securities available-for-sale:                                                                                                                                 |  |               |         |   |                  |   |         |  
|Fixed maturity investments, at fair value (amortized cost 2006 - $443,150; 2005 - $469,350)                                                                    |  | $             | 427,081 |   |                  | $ | 461,480 |  
|Equity investments, at fair value (cost 2006 - $1,832; 2005 - $1,934)                                                                                          |  |               | 2,035   |   |                  |   | 2,095   |  
|                                                                                                                                                               |  |               |         |   |                  |   |         |  
|Total securities available-for-sale                                                                                                                            |  |               | 429,116 |   |                  |   | 463,575 |  
|Cash and cash equivalents                                                                                                                                      |  |               | 91,952  |   |                  |   | 68,783  |  
|                                                                                                                                                               |  |               |         |   |                  |   |         |  
|Total investments and cash and cash equivalents                                                                                                                |  |               | 521,068 |   |                  |   | 532,358 |  
|Accrued investment income                                                                                                                                      |  |               | 5,847   |   |                  |   | 5,874   |  
|Premiums receivable                                                                                                                                            |  |               | 49,975  |   |                  |   | 18,731  |  
|Assumed reinsurance receivable                                                                                                                                 |  |               | 8,802   |   |                  |   | 6,960   |  
|Reinsurance recoverable                                                                                                                                        |  |               | 51,200  |   |                  |   | 55,933  |  
|Deferred policy acquisition costs                                                                                                                              |  |               | 9,435   |   |                  |   | 7,120   |  
|Deferred federal income taxes                                                                                                                                  |  |               | 51,706  |   |                  |   | 51,214  |  
|Property and equipment, net                                                                                                                                    |  |               | 2,096   |   |                  |   | 2,449   |  
|Other assets                                                                                                                                                   |  |               | 5,709   |   |                  |   | 6,325   |  
|                                                                                                                                                               |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                   |  | $             | 705,838 |   |                  | $ | 686,964 |  
|                                                                                                                                                               |  |               |         |   |                  |   |         |  
|LIABILITIES                                                                                                                                                    |  |               |         |   |                  |   |         |  
|Reserves:                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Losses and loss adjustment expenses                                                                                                                            |  | $             | 420,396 |   |                  | $ | 429,315 |  
|Unearned premiums                                                                                                                                              |  |               | 71,187  |   |                  |   | 41,705  |  
|                                                                                                                                                               |  |               |         |   |                  |   |         |  
|Total reserves                                                                                                                                                 |  |               | 491,583 |   |                  |   | 471,020 |  
|Amounts held for reinsurance                                                                                                                                   |  |               |        |   |                  |   | 4,818   |  
|Other liabilities                                                                                                                                              |  |               | 22,941  |   |                  |   | 20,333  |  
|                                                                                                                                                               |  |               |         |   |                  |   |         |  
|Total liabilities                                                                                                                                              |  |               | 514,524 |   |                  |   | 496,171 |  
|Commitments and contingencies                                                                                                                                  |  |               |         |   |                  |   |         |  
|STOCKHOLDERS EQUITY                                                                                                                                           |  |               |         |   |                  |   |         |  
|Preferred stock  par value $1.00, 5,000,000 shares authorized, no shares issued or outstanding                                                                |  |               |         |   |                  |   |         |  
|Common stock, par value $.0001, 30,000,000 shares authorized,12,792,091 shares issued, 2006  9,494,303- shares outstanding2005
 9,456,916 shares outstanding |  |               | 1       |   |                  |   | 1       |  
|Additional paid-in capital                                                                                                                                     |  |               | 37,127  |   |                  |   | 37,127  |  
|Retained earnings                                                                                                                                              |  |               | 264,659 |   |                  |   | 259,645 |  
|Treasury stock, at cost 2006  2,797,788 shares and 2005  2,835,175 shares                                                                                    |  |               | (96,321 | ) |                  |   | (97,063 | )
|Subscription notes receivable                                                                                                                                  |  |               | (2,627  | ) |                  |   | (2,649  | )
|Accumulated other comprehensive (loss) income                                                                                                                  |  |               | (11,525 | ) |                  |   | (6,268  | )
|                                                                                                                                                               |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                     |  |               | 191,314 |   |                  |   | 190,793 |  
|                                                                                                                                                               |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                     |  | $             | 705,838 |   |                  | $ | 686,964 |  
|                                                                                                                                                               |  |               |         |   |                  |   |         |  

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 ENDEDJUNE 30, |        | THREE MONTHS ENDEDJUNE 30, |     
|                                                          |  | 2006                     |        |                            | 2005 |   | 2006   |  |   | 2005   |  
|Revenues:                                                 |  |                          |        |                            |      |   |        |  |   |        |   |  |   |        |  
|Net premiums earned                                       |  | $                        | 63,082 |                            |      | $ | 65,037 |  | $ | 31,452 |   |  | $ | 32,451 |  
|Net investment income                                     |  |                          | 10,211 |                            |      |   | 8,799  |  |   | 5,198  |   |  |   | 4,132  |  
|Realized investment gains (losses)                        |  |                          | (164   | )                          |      |   | 6      |  |   | (53    | ) |  |   | (10    | )
|Other revenue                                             |  |                          | 59     |                            |      |   | 174    |  |   | 6      |   |  |   | 60     |  
|                                                          |  |                          |        |                            |      |   |        |  |   |        |   |  |   |        |  
|Total revenues                                            |  |                          | 73,188 |                            |      |   | 74,016 |  |   | 36,603 |   |  |   | 36,633 |  
|Expenses:                                                 |  |                          |        |                            |      |   |        |  |   |        |   |  |   |        |  
|Losses and loss adjustment expenses                       |  |                          | 50,906 |                            |      |   | 53,058 |  |   | 25,701 |   |  |   | 27,147 |  
|Underwriting and other operating expenses                 |  |                          | 14,737 |                            |      |   | 15,719 |  |   | 7,130  |   |  |   | 6,854  |  
|                                                          |  |                          |        |                            |      |   |        |  |   |        |   |  |   |        |  
|Total expenses                                            |  |                          | 65,643 |                            |      |   | 68,777 |  |   | 32,831 |   |  |   | 34,001 |  
|Income before income taxes                                |  |                          | 7,545  |                            |      |   | 5,239  |  |   | 3,772  |   |  |   | 2,632  |  
|Income tax expense                                        |  |                          | 2,531  |                            |      |   | 1,863  |  |   | 1,136  |   |  |   | 927    |  
|                                                          |  |                          |        |                            |      |   |        |  |   |        |   |  |   |        |  
|Net income                                                |  | $                        | 5,014  |                            |      | $ | 3,376  |  | $ | 2,636  |   |  | $ | 1,705  |  
|                                                          |  |                          |        |                            |      |   |        |  |   |        |   |  |   |        |  
|Basic earnings per share                                  |  | $                        | 0.53   |                            |      | $ | 0.36   |  | $ | 0.28   |   |  | $ | 0.18   |  
|Diluted earnings per share                                |  | $                        | 0.52   |                            |      | $ | 0.35   |  | $ | 0.27   |   |  | $ | 0.18   |  
|Cash dividend declared and paid per share of common stock |  | $                        |       |                            |      | $ |       |  | $ |       |   |  | $ |       |  

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

(DOLLARS IN THOUSANDS)

(UNAUDITED)



|                                                                                 |  |              |   |                            |   |                   |  |                |         |  |                                    |         |   |                                              |   |        |                              |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------------------- |  | ------------ | - | -------------------------- | - | ----------------- |  | -------------- | ------- |  | ---------------------------------- | ------- | - | -------------------------------------------- | - | ------ | ---------------------------- |  | - | ------- | - |  | - | ------- | -
|                                                                                 |  | COMMON STOCK |   | ADDITIONAL PAID-IN CAPITAL |   | RETAINED EARNINGS |  | TREASURY STOCK |         |  | STOCK SUBSCRIPTION NOTESRECEIVABLE |         |   | ACCUMULATEDOTHER COMPREHENSIVE INCOME
(LOSS) |   |        | TOTAL STOCK- HOLDERS
EQUITY | 
|BALANCE AT JANUARY 1, 2006                                                       |  | $            | 1 |                            | $ | 37,127            |  | $              | 259,645 |  | $                                  | (97,063 | ) |                                              | $ | (2,649 | )                            |  | $ | (6,268  | ) |  | $ | 190,793 |  
|Net income                                                                       |  |              |  |                            |   |                  |  |                | 5,014   |  |                                    |        |   |                                              |   |       |                              |  |   |        |   |  |   | 5,014   |  
|Unrealized losses on securities, net of applicable income tax benefit of $2,855  |  |              |  |                            |   |                  |  |                |        |  |                                    |        |   |                                              |   |       |                              |  |   | (5,302  | ) |  |   | (5,302  | )
|Change in minimum pension liability, net of applicable income tax benefit of $74 |  |              |  |                            |   |                  |  |                |        |  |                                    |        |   |                                              |   |       |                              |  |   | (136    | ) |  |   | (136    | )
|Unrealized foreign currency gain                                                 |  |              |   |                            |   |                   |  |                |         |  |                                    |         |   |                                              |   |        |                              |  |   | 181     |   |  |   | 181     |  
|                                                                                 |  |              |   |                            |   |                   |  |                |         |  |                                    |         |   |                                              |   |        |                              |  |   |         |   |  |   |         |  
|Comprehensive loss                                                               |  |              |   |                            |   |                   |  |                |         |  |                                    |         |   |                                              |   |        |                              |  |   |         |   |  |   | (243    | )
|Stock subscription notes repaid                                                  |  |              |  |                            |   |                  |  |                |        |  |                                    |        |   |                                              |   | 22     |                              |  |   |        |   |  |   | 22      |  
|Treasury stock reissued                                                          |  |              |  |                            |   |                  |  |                |        |  |                                    | 742     |   |                                              |   |       |                              |  |   |        |   |  |   | 742     |  
|                                                                                 |  |              |   |                            |   |                   |  |                |         |  |                                    |         |   |                                              |   |        |                              |  |   |         |   |  |   |         |  
|BALANCE AT JUNE 30, 2006                                                         |  | $            | 1 |                            | $ | 37,127            |  | $              | 264,659 |  | $                                  | (96,321 | ) |                                              | $ | (2,627 | )                            |  | $ | (11,525 | ) |  | $ | 191,314 |  
|                                                                                 |  |              |   |                            |   |                   |  |                |         |  |                                    |         |   |                                              |   |        |                              |  |   |         |   |  |   |         |  

See accompanying notes to Consolidated Financial Statements.



3



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|                                                                                 |  |              |   |                            |   |                  |  |                |         |  |                                   |         |   |                                              |   |        |                            |  |   |       |   |  |   |         |  
|-------------------------------------------------------------------------------- |  | ------------ | - | -------------------------- | - | ---------------- |  | -------------- | ------- |  | --------------------------------- | ------- | - | -------------------------------------------- | - | ------ | -------------------------- |  | - | ----- | - |  | - | ------- | -
|                                                                                 |  | COMMON STOCK |   | ADDITIONAL PAID-IN CAPITAL |   | RETAINEDEARNINGS |  | TREASURY STOCK |         |  | STOCK SUBSCRIPTON 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 loss                                                 |  |              |  |                            |   |                 |  |                |        |  |                                   |        |   |                                              |   |       |                            |  |   | (28   | ) |  |   | (28     | )
|                                                                                 |  |              |   |                            |   |                  |  |                |         |  |                                   |         |   |                                              |   |        |                            |  |   |       |   |  |   |         |  
|Comprehensive income                                                             |  |              |   |                            |   |                  |  |                |         |  |                                   |         |   |                                              |   |        |                            |  |   |       |   |  |   | 2,437   |  
|Treasury stock reissued                                                          |  |              |   |                            |   |                  |  |                |         |  |                                   | 137     |   |                                              |   |        |                            |  |   |       |   |  |   | 137     |  
|Stock subscription notes repaid                                                  |  |              |  |                            |   |                 |  |                |        |  |                                   |         |   |                                              |   | 90     |                            |  |   |      |   |  |   | 90      |  
|                                                                                 |  |              |   |                            |   |                  |  |                |         |  |                                   |         |   |                                              |   |        |                            |  |   |       |   |  |   |         |  
|BALANCE AT JUNE 30, 2005                                                         |  | $            | 1 |                            | $ | 37,127           |  | $              | 259,553 |  | $                                 | (97,517 | ) |                                              | $ | (2,928 | )                          |  | $ | 950   |   |  | $ | 197,186 |  
|                                                                                 |  |              |   |                            |   |                  |  |                |         |  |                                   |         |   |                                              |   |        |                            |  |   |       |   |  |   |         |  



4



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SCPIE HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

(UNAUDITED)



|                                                                                       |  |                          |         |   |      |   |         |  
|-------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                       |  | SIX MONTHS ENDEDJUNE 30, |        
|                                                                                       |  | 2006                     |         |   | 2005 |  
|OPERATING ACTIVITIES                                                                   |  |                          |         |   |      |   |         |  
|Net income                                                                             |  | $                        | 5,014   |   |      | $ | 3,376   |  
|Adjustments to reconcile net income to net cash provided/used in operating activities: |  |                          |         |   |      |   |         |  
|Provisions for amortization and depreciation                                           |  |                          | 2,586   |   |      |   | 2,543   |  
|Provision for deferred federal income taxes                                            |  |                          | 2,531   |   |      |   | 1,863   |  
|Realized investment (gains)/losses                                                     |  |                          | 164     |   |      |   | (6      | )
|Changes in operating assets and liabilities:                                           |  |                          |         |   |      |   |         |  
|Deferred acquisition costs                                                             |  |                          | 2,315   |   |      |   | (337    | )
|Accrued investment income                                                              |  |                          | 27      |   |      |   | 161     |  
|Unearned premiums                                                                      |  |                          | 29,482  |   |      |   | 29,648  |  
|Loss and loss adjustment expense reserves                                              |  |                          | (8,919  | ) |      |   | (86,733 | )
|Reinsurance recoverable                                                                |  |                          | 4,733   |   |      |   | 59,358  |  
|Amounts held for reinsurance                                                           |  |                          | (4,818  | ) |      |   | (50,188 | )
|Other liabilities                                                                      |  |                          | 2,608   |   |      |   | (7,297  | )
|Premium receivable                                                                     |  |                          | (32,945 | ) |      |   | 12,180  |  
|Other assets                                                                           |  |                          | 455     |   |      |   | 555     |  
|                                                                                       |  |                          |         |   |      |   |         |  
|Net cash used by operating activities                                                  |  |                          | (1,397  | ) |      |   | (34,877 | )
|INVESTING ACTIVITIES                                                                   |  |                          |         |   |      |   |         |  
|Purchasesfixed maturities                                                             |  |                          | (10,777 | ) |      |   | (45,295 | )
|Salesfixed maturities                                                                 |  |                          | 12,085  |   |      |   | 59,851  |  
|Maturitiesfixed maturities                                                            |  |                          | 22,494  |   |      |   | 8,899   |  
|                                                                                       |  |                          |         |   |      |   |         |  
|Net cash provided by investing activities                                              |  |                          | 23,802  |   |      |   | 23,455  |  
|FINANCING ACTIVITIES                                                                   |  |                          |         |   |      |   |         |  
|Reissuance of treasury shares                                                          |  |                          | 742     |   |      |   | 137     |  
|Repayment of stock subscriptions                                                       |  |                          | 22      |   |      |   | 90      |  
|                                                                                       |  |                          |         |   |      |   |         |  
|Net cash provided by financing activities                                              |  |                          | 764     |   |      |   | 227     |  
|                                                                                       |  |                          |         |   |      |   |         |  
|Increase (decrease) in cash and cash equivalents                                       |  |                          | 23,169  |   |      |   | (11,195 | )
|Cash and cash equivalents at beginning of period                                       |  |                          | 68,783  |   |      |   | 94,390  |  
|                                                                                       |  |                          |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                             |  | $                        | 91,952  |   |      | $ | 83,195  |  
|                                                                                       |  |                          |         |   |      |   |         |  

See accompanying notes to Consolidated Financial Statements.



5



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SCPIE HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

JUNE 30, 2006



|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, 2006 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2006. 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, 2005.

Certain 2005 amounts have been reclassified to conform to the 2006 presentation.



|2. | NEW ACCOUNTING STANDARDS
|-- | ------------------------

In June 2006, the Financial Accounting Standards
Board (FASB) issued interpretation of FASB Statement No. 109, Accounting for Uncertainty in Income Taxes (FIN 48). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This interpretation will be
effective January 1, 2007. The Company currently expects the effect of implementing to be minimal.



6



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|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,
|                                                                                                          |  | 2006                                  |       | 2005                       |   | 2006  |  | 2005
|                                                                                                          |  | (IN THOUSANDS, EXCEPT PER SHARE DATA)
|Net income                                                                                                |  | $                                     | 5,014 |                            | $ | 3,376 |  | $    | 2,636 |  | $ | 1,705
|Numerator for:                                                                                            |  |                                       |       |                            |   |       |  |      |       |  |   |      
|Basic earnings per share of common stock                                                                  |  |                                       | 5,014 |                            |   | 3,376 |  |      | 2,636 |  |   | 1,705
|Diluted earnings per share of common stock                                                                |  |                                       | 5,014 |                            |   | 3,376 |  |      | 2,636 |  |   | 1,705
|Denominator                                                                                               |  |                                       |       |                            |   |       |  |      |       |  |   |      
|Denominator for basic earnings per share of common stock  weighted-average shares outstanding            |  |                                       | 9,504 |                            |   | 9,417 |  |      | 9,490 |  |   | 9,429
|Effect of dilutive securities:                                                                            |  |                                       |       |                            |   |       |  |      |       |  |   |      
|Stock options                                                                                             |  |                                       | 115   |                            |   | 163   |  |      | 115   |  |   | 163  
|                                                                                                          |  |                                       |       |                            |   |       |  |      |       |  |   |      
|Denominator for diluted earnings per share of common stock adjusted  weighted-average shares outstanding |  |                                       | 9,619 |                            |   | 9,580 |  |      | 9,605 |  |   | 9,592
|Basic earnings per share of common stock                                                                  |  | $                                     | 0.53  |                            | $ | 0.36  |  | $    | 0.28  |  | $ | 0.18 
|Diluted earnings per share of common stock                                                                |  | $                                     | 0.52  |                            | $ | 0.35  |  | $    | 0.27  |  | $ | 0.18 



7



---

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

The Companys investments in available-for-sale
securities at June 30, 2006 are summarized as follows:



|                                 |  |                        |         |                        |   |                         |  |            |        |  |   |        
|-------------------------------- |  | ---------------------- | ------- | ---------------------- | - | ----------------------- |  | ---------- | ------ |  | - | -------
|                                 |  | COST OR AMORTIZED COST |         | GROSS UNREALIZED GAINS |   | GROSS UNREALIZED LOSSES |  | FAIR VALUE
|                                 |  | (IN THOUSANDS)        
|Fixed-maturity securities:       |  |                        |         |                        |   |                         |  |            |        |  |   |        
|Bonds:                           |  |                        |         |                        |   |                         |  |            |        |  |   |        
|U.S. government and agencies     |  | $                      | 177,800 |                        | $ | 34                      |  | $          | 5,940  |  | $ | 171,894
|Mortgage-backed and asset-backed |  |                        | 80,246  |                        |   | 21                      |  |            | 2,096  |  |   | 78,171 
|Corporate                        |  |                        | 185,104 |                        |   | 35                      |  |            | 8,123  |  |   | 177,016
|                                 |  |                        |         |                        |   |                         |  |            |        |  |   |        
|Total fixed-maturity securities  |  |                        | 443,150 |                        |   | 90                      |  |            | 16,159 |  |   | 427,081
|Common stocks                    |  |                        | 1,832   |                        |   | 203                     |  |            |       |  |   | 2,035  
|                                 |  |                        |         |                        |   |                         |  |            |        |  |   |        
|Total                            |  | $                      | 444,982 |                        | $ | 293                     |  | $          | 16,159 |  | $ | 429,116
|                                 |  |                        |         |                        |   |                         |  |            |        |  |   |        

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, 2006.



|                                 |  |                         |       |                   |   |                         |  |            |       |                         |   |            |  |   |        |  |   |        
|-------------------------------- |  | ----------------------- | ----- | ----------------- | - | ----------------------- |  | ---------- | ----- | ----------------------- | - | ---------- |  | - | ------ |  | - | -------
|                                 |  | LESS THAN 12 MONTHS     |       | 12 MONTHS OR MORE |   | TOTAL                  
|                                 |  | GROSS UNREALIZED LOSSES |       | FAIRVALUE         |   | GROSS UNREALIZED LOSSES |  | FAIR VALUE |       | GROSS UNREALIZED LOSSES |   | FAIR VALUE
|                                 |  | (IN THOUSANDS)         
|Fixed-maturity securities:       |  |                         |       |                   |   |                         |  |            |       |                         |   |            |  |   |        |  |   |        
|Bonds:                           |  |                         |       |                   |   |                         |  |            |       |                         |   |            |  |   |        |  |   |        
|U.S. government and agencies     |  | $                       | 5,227 |                   | $ | 142,639                 |  | $          | 713   |                         | $ | 23,056     |  | $ | 5,940  |  | $ | 165,695
|Mortgage-backed and asset-backed |  |                         | 755   |                   |   | 32,597                  |  |            | 1,341 |                         |   | 44,978     |  |   | 2,096  |  |   | 77,575 
|Corporate                        |  |                         | 3,639 |                   |   | 77,029                  |  |            | 4,484 |                         |   | 97,625     |  |   | 8,123  |  |   | 174,654
|                                 |  |                         |       |                   |   |                         |  |            |       |                         |   |            |  |   |        |  |   |        
|Total fixed maturity securities  |  | $                       | 9,621 |                   | $ | 252,265                 |  | $          | 6,538 |                         | $ | 165,659    |  | $ | 16,159 |  | $ | 417,924
|                                 |  |                         |       |                   |   |                         |  |            |       |                         |   |            |  |   |        |  |   |        

The Company held 131 investment positions with unrealized losses as of June 30, 2006. All of the investments
are investment grade, and the unrealized losses are primarily due to interest rate fluctuations. The Company held 88 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.



8



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

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



|                                             |  |                          |       |                            |      |   |       |  |   |       |   |  |   |    
|-------------------------------------------- |  | ------------------------ | ----- | -------------------------- | ---- | - | ----- |  | - | ----- | - |  | - | ---
|                                             |  | SIX MONTHS ENDEDJUNE 30, |       | THREE MONTHS ENDEDJUNE 30,
|                                             |  | 2006                     |       |                            | 2005 |   | 2006  |  |   | 2005 
|                                             |  | (IN THOUSANDS)           |       | (IN THOUSANDS)            
|Federal income tax expense at 35%            |  | $                        | 2,641 |                            |      | $ | 1,834 |  | $ | 1,321 |   |  | $ | 922
|Increase (decrease) in taxes resulting from: |  |                          |       |                            |      |   |       |  |   |       |   |  |   |    
|Foreign and miscellaneous                    |  |                          | (110  | )                          |      |   | 29    |  |   | (185  | ) |  |   | 5  
|                                             |  |                          |       |                            |      |   |       |  |   |       |   |  |   |    
|Total income tax expense                     |  | $                        | 2,531 |                            |      | $ | 1,863 |  | $ | 1,136 |   |  | $ | 927
|                                             |  |                          |       |                            |      |   |       |  |   |       |   |  |   |    



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

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



|                                                   |  |                           |        |   |                             |   |        |      |  |   |        |   |  |   |       |  
|-------------------------------------------------- |  | ------------------------- | ------ | - | --------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ----- | -
|                                                   |  | SIX MONTHS ENDED JUNE 30, |        |   | THREE MONTHS ENDED JUNE 30, |  
|                                                   |  | 2006                      |        |   | 2005                        |   |        | 2006 |  |   | 2005   |  
|                                                   |  | (IN THOUSANDS)            |       
|Net income                                         |  | $                         | 5,014  |   |                             | $ | 3,376  |      |  | $ | 2,636  |   |  | $ | 1,705 |  
|Other comprehensive income (loss) before tax:      |  |                           |        |   |                             |   |        |      |  |   |        |   |  |   |       |  
|Unrealized gains (losses) on securities            |  |                           | (8,157 | ) |                             |   | (1,191 | )    |  |   | (2,818 | ) |  |   | 6,446 |  
|Unrealized foreign currency gains (losses)         |  |                           | 181    |   |                             |   | (28    | )    |  |   | 181    |   |  |   | 17    |  
|Change in minimum pension liability                |  |                           | (210   | ) |                             |   | (210   | )    |  |   | (105   | ) |  |   | (105  | )
|                                                   |  |                           |        |   |                             |   |        |      |  |   |        |   |  |   |       |  
|Other comprehensive income (loss) before tax       |  |                           | (3,172 | ) |                             |   | 1,947  |      |  |   | (106   | ) |  |   | 8,063 |  
|Income tax expense (benefit) related to securities |  |                           | (2,855 | ) |                             |   | (417   | )    |  |   | (987   | ) |  |   | 2,255 |  
|Income tax benefit related to pension liability    |  |                           | (74    | ) |                             |   | (73    | )    |  |   | (37    | ) |  |   | (36   | )
|                                                   |  |                           |        |   |                             |   |        |      |  |   |        |   |  |   |       |  
|Comprehensive income (loss)                        |  | $                         | (243   | ) |                             | $ | 2,437  |      |  | $ | 918    |   |  | $ | 5,844 |  
|                                                   |  |                           |        |   |                             |   |        |      |  |   |        |   |  |   |       |  



|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.



9



---

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, 2006            |  | DIRECT HEALTHCARE LIABILITY INSURANCE |        | ASSUMED REINSURANCE |   |        | OTHER |  |   | TOTAL   |  
|Premiums written                          |  | $                                     | 92,054 |                     | $ | 510    |       |  |   |         |   |  | $ | 92,564  |  
|                                          |  |                                       |        |                     |   |        |       |  |   |         |   |  |   |         |  
|Premiums earned                           |  | $                                     | 62,572 |                     | $ | 510    |       |  |   |         |   |  | $ | 63,082  |  
|Net investment income                     |  |                                       |       |                     |   |       |       |  | $ | 10,211  |   |  |   | 10,211  |  
|Realized investment losses                |  |                                       |       |                     |   |       |       |  |   | (164    | ) |  |   | (164    | )
|Other revenue                             |  |                                       |       |                     |   |       |       |  |   | 59      |   |  |   | 59      |  
|                                          |  |                                       |        |                     |   |        |       |  |   |         |   |  |   |         |  
|Total revenues                            |  |                                       | 62,572 |                     |   | 510    |       |  |   | 10,106  |   |  |   | 73,188  |  
|Losses and loss adjustment expenses       |  |                                       | 44,404 |                     |   | 6,502  |       |  |   |        |   |  |   | 50,906  |  
|Other operating expenses (benefit)        |  |                                       | 13,263 |                     |   | (92    | )     |  |   | 1,566   |   |  |   | 14,737  |  
|                                          |  |                                       |        |                     |   |        |       |  |   |         |   |  |   |         |  
|Total expenses                            |  |                                       | 57,667 |                     |   | 6,410  |       |  |   | 1,566   |   |  |   | 65,643  |  
|                                          |  |                                       |        |                     |   |        |       |  |   |         |   |  |   |         |  
|Segment income (loss) before income taxes |  | $                                     | 4,905  |                     | $ | (5,900 | )     |  | $ | 8,540   |   |  | $ | 7,545   |  
|                                          |  |                                       |        |                     |   |        |       |  |   |         |   |  |   |         |  
|Segment assets                            |  | $                                     | 55,970 |                     | $ | 63,392 |       |  | $ | 586,476 |   |  | $ | 705,838 |  

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.



|                                          |  |                                      |        |                    |   |         |       |  |       |         |  |   |        
|----------------------------------------- |  | ------------------------------------ | ------ | ------------------ | - | ------- | ----- |  | ----- | ------- |  | - | -------
|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



10



---

|                                          |  |                                      |        |                    |   |        |       |  |   |         |   |  |   |         |  
|----------------------------------------- |  | ------------------------------------ | ------ | ------------------ | - | ------ | ----- |  | - | ------- | - |  | - | ------- | -
|THREE MONTHS ENDED JUNE 30, 2006          |  | DIRECT HEALTHCARE LIABILITYINSURANCE |        | ASSUMEDREINSURANCE |   |        | OTHER |  |   | TOTAL   |  
|Premiums written                          |  | $                                    | 3,428  |                    | $ | 13     |       |  |   |         |   |  | $ | 3,441   |  
|                                          |  |                                      |        |                    |   |        |       |  |   |         |   |  |   |         |  
|Premiums earned                           |  | $                                    | 31,440 |                    | $ | 12     |       |  |   |         |   |  | $ | 31,452  |  
|Net investment income                     |  |                                      |       |                    |   |       |       |  | $ | 5,198   |   |  |   | 5,198   |  
|Realized investment losses                |  |                                      |       |                    |   |       |       |  |   | (53     | ) |  |   | (53     | )
|Other revenue                             |  |                                      |       |                    |   |       |       |  |   | 6       |   |  |   | 6       |  
|                                          |  |                                      |        |                    |   |        |       |  |   |         |   |  |   |         |  
|Total revenues                            |  |                                      | 31,440 |                    |   | 12     |       |  |   | 5,151   |   |  |   | 36,603  |  
|Losses and loss adjustment expenses       |  |                                      | 22,299 |                    |   | 3,402  |       |  |   |        |   |  |   | 25,701  |  
|Other operating expenses (benefit)        |  |                                      | 6,367  |                    |   | (246   | )     |  |   | 1,009   |   |  |   | 7,130   |  
|                                          |  |                                      |        |                    |   |        |       |  |   |         |   |  |   |         |  
|Total expenses                            |  |                                      | 28,666 |                    |   | 3,156  |       |  |   | 1,009   |   |  |   | 32,831  |  
|                                          |  |                                      |        |                    |   |        |       |  |   |         |   |  |   |         |  
|Segment income (loss) before income taxes |  | $                                    | 2,774  |                    | $ | (3,144 | )     |  | $ | 4,142   |   |  | $ | 3,772   |  
|                                          |  |                                      |        |                    |   |        |       |  |   |         |   |  |   |         |  
|Segment assets                            |  | $                                    | 55,970 |                    | $ | 63,392 |       |  | $ | 586,476 |   |  | $ | 705,838 |  



|                                          |  |                                      |        |                    |   |         |       |  |   |         |   |  |   |         |  
|----------------------------------------- |  | ------------------------------------ | ------ | ------------------ | - | ------- | ----- |  | - | ------- | - |  | - | ------- | -
|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 losses                |  |                                      |       |                    |   |        |       |  |   | (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 |  

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.



11



---

|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). In November 2003, the State of Texas obtained an order in the Texas District Court appointing the Texas Insurance Commissioner as the permanent Receiver of Highlands. The Receiver,
through a Special Deputy Receiver (SDR), has continued to resolve Highlands claim liabilities and to pay its losses and LAE, including those under the subject policies. The SDR has advised the Company that Highlands has paid losses and LAE under the
subject policies of more than $66.0 million and that as of June 30, 2006 has established case loss reserves of $5.4 million, net of reinsurance. Based on a limited review of the exposures remaining, the Company estimates that incurred but not
reported losses are $3.3 million, for a total loss and loss expense reserve of $8.7 million. This estimate is not based on a full reserve analysis of the exposures.

On July 24, 2006, the SDR filed an Application for Approval of Rehabilitation Plan with the Texas District Court. Under the Plan, if approved, the SDR would continue to pay initially all allowed administrative
and policy claims (including those under the subject policies), and then to pay other claims with any remaining funds. The Plan requires policyholders and others to submit claims in the proceeding, and envisions that all of these claims would be
resolved and paid over a number of years. As long as the Rehabilitation Proceeding is in effect, there would be no liquidation of Highlands and no obligation on the part of the Company under the subject policies. The Plan is subject to approval of
the Texas Court, which will be considered at a hearing scheduled for September 8, 2006.

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, 2006, letter of credit issuance under the facility was approximately $48.6 million. Securities of $53.4 million are pledged as
collateral under the facility.



12



---

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

At June 30, 2006, the Company maintains a
stock-based compensation plan, the 2003 Amended and Restated Equity Participation Plan of SCPIE Holdings, Inc. (the Plan) which provides for grants of stock options to key employees and non-employee directors, grants of restricted shares to
non-employee directors, and stock appreciation rights (SARS) to key employees of the Company.

The compensation cost that has been charged against income
for this plan was $141,000 and $98,000 for the six month periods ended June 30, 2006 and June 30, 2005, respectively. The income tax benefit recognized in the income statement for share-based compensation was $49,000 and $34,000 for the
six month periods ended June 30, 2006 and June 30, 2005, respectively.

Prior to January 1, 2006, the Company accounted for stock options
under the recognition and measurement provisions of APB No. 25. The Company provided pro forma disclosure amounts as if the fair value method defined by SFAS No. 123 had been applied to its stock-based compensation. Effective
January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R, using the modified prospective transition method and therefore had not restated prior periods results. Under this transition method,
stock-based compensation expense for the first quarter of fiscal 2006 included compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value
estimated in accordance with the original provisions of SFAS No. 123. Stock-based compensation expense for all share-based payment awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123R. The Company recognizes these compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is the option vesting term of three years. The
cash flows resulting from the tax benefits in excess of the compensation expense recorded for these options is classified as cash provided by financing activities.

As a result of adopting SFAS 123(R) on January 1, 2006, the Companys income before income taxes and net income for the six months ended June 30, 2006 are $122,000 and $79,000 lower, respectively, than if it had continued to account
for share-based compensation under Opinion 25. Basic and diluted earnings per share for the six months ended June 30, 2006 are $0.01 and $0.02 lower, respectively, than if the Company had continued to account for share-based compensation under
Opinion 25.

Option activity as of June 30, 2006 and changes during the six months ended June 30, 2006 were as
follows:



|                               |  |         |  |                                 |       |                                                     |      |                           |   |          
|------------------------------ |  | ------- |  | ------------------------------- | ----- | --------------------------------------------------- | ---- | ------------------------- | - | ---------
|                               |  | Shares  |  | Weighted Average Exercise Price |       | Weighted Average Remaining Contractual Term (years) |      | Aggregate Intrinsic Value
|Outstanding at January 1, 2006 |  | 892,034 |  | $                               | 13.69 |                                                     |      |                           |   |          
|Granted                        |  |        |  |                                 |       |                                                     |      |                           |   |          
|Exercised                      |  | 32,600  |  | $                               | 16.70 |                                                     |      |                           |   |          
|Cancelled or Expired           |  |        |  |                                 |       |                                                     |      |                           |   |          
|                               |  |         |  |                                 |       |                                                     |      |                           |   |          
|Outstanding at June 30, 2006   |  | 859,434 |  | $                               | 13.62 |                                                     | 5.89 |                           | $ | 8,981,236
|                               |  |         |  |                                 |       |                                                     |      |                           |   |          
|Exercisable at June 30, 2006   |  | 788,426 |  | $                               | 13.51 |                                                     | 5.77 |                           | $ | 8,272,506
|                               |  |         |  |                                 |       |                                                     |      |                           |   |          

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference
between the Companys closing stock price on June 30, 2006 and the exercise price, multiplied by the number of in-the-money-options) that would have been received by the option holders had all options been exercised on June 30, 2006.
Total intrinsic value of options exercised during the six months ended June 30, 2006 was $258,000

As of June 30, 2006, $252,000 of total
unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted-average period of 1.9 years.



13



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|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 Rosemont Re the majority of reinsurance business written in 2002 and 2001.
During 2003, the Company participated in only one ongoing reinsurance syndicate and had no ongoing reinsurance participations thereafter. 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 significantly reduced capital requirements related to written premium to surplus ratios in both the A.M.
Best and NAIC capital adequacy models. The capital requirements required by the reserve to surplus ratios continues to decline as the Company settles the claims in its non-core businesses.

Critical Accounting Policies

The Companys discussion
and analysis of its financial condition and results of operations are based upon the Companys consolidated financial statements, which have been prepared in accordance with 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.



14



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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.

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 $377.5 million as of June 30, 2006. The reserves attributable to the operating
segments of the Company are as follows:



15



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Summary of Net Loss and LAE Reserves

(IN THOUSANDS)



|                    |  |              |         |                     |   |                     |  |               |         |                   |   |        |  |   |        
|------------------- |  | ------------ | ------- | ------------------- | - | ------------------- |  | ------------- | ------- | ----------------- | - | ------ |  | - | -------
|                    |  | CaseReserves |         | Bulk & IBNRReserves |   | Total GrossReserves |  | CededReserves |         | Total NetReserves
|June 30, 2006       |  |              |         |                     |   |                     |  |               |         |                   |   |        |  |   |        
|Direct Healthcare   |  |              |         |                     |   |                     |  |               |         |                   |   |        |  |   |        
|Core                |  | $            | 74,072  |                     | $ | 203,832             |  | $             | 277,904 |                   | $ | 13,473 |  | $ | 264,431
|Non-Core            |  |              | 33,131  |                     |   | 17,370              |  |               | 50,501  |                   |   | 1,830  |  |   | 48,671 
|                    |  |              |         |                     |   |                     |  |               |         |                   |   |        |  |   |        
|                    |  |              | 107,203 |                     |   | 221,202             |  |               | 328,405 |                   |   | 15,303 |  |   | 313,102
|Assumed Reinsurance |  |              | 59,046  |                     |   | 32,945              |  |               | 91,991  |                   |   | 27,605 |  |   | 64,386 
|                    |  |              |         |                     |   |                     |  |               |         |                   |   |        |  |   |        
|                    |  | $            | 166,249 |                     | $ | 254,147             |  | $             | 420,396 |                   | $ | 42,908 |  | $ | 377,488
|                    |  |              |         |                     |   |                     |  |               |         |                   |   |        |  |   |        
|December 31, 2005   |  |              |         |                     |   |                     |  |               |         |                   |   |        |  |   |        
|Direct Healthcare   |  |              |         |                     |   |                     |  |               |         |                   |   |        |  |   |        
|Core                |  | $            | 76,726  |                     | $ | 194,114             |  | $             | 270,840 |                   | $ | 13,934 |  | $ | 256,906
|Non-Core            |  |              | 42,730  |                     |   | 20,523              |  |               | 63,253  |                   |   | 2,638  |  |   | 60,615 
|                    |  |              |         |                     |   |                     |  |               |         |                   |   |        |  |   |        
|                    |  |              | 119,456 |                     |   | 214,637             |  |               | 334,093 |                   |   | 16,572 |  |   | 317,521
|Assumed Reinsurance |  |              | 59,804  |                     |   | 35,418              |  |               | 95,222  |                   |   | 28,962 |  |   | 66,260 
|                    |  |              |         |                     |   |                     |  |               |         |                   |   |        |  |   |        
|                    |  | $            | 179,260 |                     | $ | 250,055             |  | $             | 429,315 |                   | $ | 45,534 |  | $ | 383,781
|                    |  |              |         |                     |   |                     |  |               |         |                   |   |        |  |   |        

For most, if not all medical malpractice and other long tail liability lines of business, Bulk and IBNR reserves
(which include loss adjustment expense reserves not allocated to specific cases) are the mathematical result of subtracting tabular case reserves from projected ultimate losses derived by the actuarial process. Bulk and IBNR reserves in the case of
medical malpractice insurance written on a claims-made reporting policy do not generally represent late reported claims but rather expected upward case reserve movement which will be recognized as additional information develops on individual cases.
The relationship between Bulk and IBNR reserves and case reserves can be significantly different between lines of insurance as well as between individual companies. These differences may result from the length of time required to adequately
investigate and evaluate individual cases, a companys individual case reserving philosophy or other reasons.

Reserve Sensitivity

The primary factor affecting the adequacy of reserve estimates in the core direct healthcare area is the trend in pure loss costs (the combination of frequency and
average severity changes) related to malpractice coverage. At June 30, 2006 reserve levels, a 1% change in pure loss costs trend produces a change in prior reserves of approximately $7.8 million. Such changes are reflected in the period of
change. Reserves related to medical malpractice coverage account for over 90% of core reserves.

In the non-core direct healthcare area, the adequacy of
reserves is primarily dependent upon achieving fair settlements with the injured parties and reasonable litigation results. As the individual cases mature and more information becomes available for evaluating individual cases, there is a declining
need for Bulk and IBNR reserves. While the Company believes its reserves are adequate, several jurisdictions where the Company issued policies allow extended periods of time to elapse before the judicial or settlement process is completed.
Individual settlements or judgments will determine the final incurred losses and thus the adequacy of these reserves. The recent experience has been generally consistent with Company expectations, but no assurance can be given that the
Companys current experience will continue. The current non-core direct healthcare average reserve (including



16



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Bulk and IBNR reserves) is approximately $286,000 per outstanding case. If the average settlement ultimately achieved is different by $12,000 for the current
average reserve, the ultimate reserves will be affected by approximately $2.0 million.

The sensitivity of the Companys reserves for Assumed
Reinsurance is impacted primarily by three factors: the accuracy of independent actuarial reviews of particular contracts; timely reporting of losses through the worldwide reinsurance system; and the ultimate severity of large excess of loss claims.
As time passes, the ability of the underlying insureds to accurately reserve the large excess of loss type cases should improve. However, since the reporting of losses through the worldwide reinsurance market is often slow and is dependent upon the
reporting by the ceding companies, the adequacy of these reserves has a potential for volatility and no assurances can be given that further adverse development will not occur.

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;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | 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, 2006, the Company had $51.7 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 $23.2 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 remained strong and
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.



17



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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.

Forward Looking Statements

Certain statements in this quarterly 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 (PSLRA). The PSLRA provides certain safe harbor provisions for forward-looking statements. All forward-looking statements
made in this quarterly report on Form 10-Q are made pursuant to the PSLRA. Words such as, but not limited to, believe, expect, anticipate, estimate, intend, plan, and similar
expressions are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors based on the Companys estimates and expectations concerning future events that
may cause the actual results of the Company to be materially different from historical results or from any results expressed or implied by such forward-looking statements. Actuarial estimates of losses and loss adjustment expenses (LAE),
expectations concerning the Companys ability to retain current insureds at profitable levels, successful withdrawal from the assumed reinsurance business, continued solvency of the Companys reinsurers, obtaining 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, the level of ratings from recognized rating services, future legislative and regulatory actions, uncertainties and potential delays in obtaining premium rate approvals, the Companys relationships with
independent brokers, 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 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, 2005. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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, the most directly 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. The change in unearned premium reconciles the difference
between the two measures.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO SIX MONTHS ENDED JUNE 30, 2005

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.



18



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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, 2006 |  |      |        |   |           |   |     |        |  |   |       
|Premiums written               |  | $    | 92,054 |   |           | $ |    |        |  | $ | 92,054
|                               |  |      |        |   |           |   |     |        |  |   |       
|Premiums earned                |  | $    | 62,572 |   |           | $ |    |        |  | $ | 62,572
|Losses and LAE incurred        |  |      | 44,404 |   |           |   |    |        |  |   | 44,404
|Underwriting expenses          |  |      | 13,263 |   |           |   |    |        |  |   | 13,263
|                               |  |      |        |   |           |   |     |        |  |   |       
|Underwriting gain              |  | $    | 4,905  |   |           | $ |    |        |  | $ | 4,905 
|                               |  |      |        |   |           |   |     |        |  |   |       
|Loss ratio                     |  |      | 71.0   | % |           |   |     |        |  |   |       
|Expense ratio                  |  |      | 21.2   | % |           |   |     |        |  |   |       
|Combined ratio                 |  |      | 92.2   | % |           |   |     |        |  |   |       
|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   | % |           |   |     |        |  |   |       



|* | 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 $92.1 million and premiums
earned were $62.6 million in the six months ended June 30, 2006; compared to $95.4 million and $64.5 million in the six months ended June 30, 2005. Premiums earned decreased primarily due to a small decline in policies in-force and
decreased premiums from loss-rated groups, as loss experience has improved.

The loss ratio (losses and LAE related to premiums earned) for the six months
ended June 30, 2006 was 71.0% compared to 75.6% in the six months ended June 30, 2005. The decrease in the loss ratio is due primarily to lower loss estimates for 2006, principally due to a decline in claim frequency.

The underwriting expense ratio (expenses related to premiums earned) decreased to 21.2% in the first six months ended June 30, 2006 from 21.8% in the first six
months of 2005.

Non-Core Business

Outstanding
reserves for the non-core healthcare declined to $48.7 million as of June 30, 2006 from $60.6 million at December 31, 2005 and the number of open claims decreased to 170 from 229 for the same period. The underwriting results during the
first six months of 2006 and 2005 were diminimus and reflect the fact that no significant changes in reserve levels were required during the two periods.



19



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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):



|                                          |  |                                                  |        |   |      |   |        |  
|----------------------------------------- |  | ------------------------------------------------ | ------ | - | ---- | - | ------ | -
|FOR THE SIX MONTHS ENDED JUNE 30,         |  | Assumed Reinsurance Segment Underwriting Results |       
|                                          |  | 2006                                             |        |   | 2005 |  
|Premiums written                          |  | $                                                | 510    |   |      | $ | (849   | )
|                                          |  |                                                  |        |   |      |   |        |  
|Premiums earned                           |  | $                                                | 510    |   |      | $ | 410    |  
|Underwriting expenses                     |  |                                                  |        |   |      |   |        |  
|Losses                                    |  |                                                  | 6,502  |   |      |   | 4,304  |  
|Underwriting and other operating expenses |  |                                                  | (92    | ) |      |   | 1,612  |  
|                                          |  |                                                  |        |   |      |   |        |  
|Underwriting loss                         |  | $                                                | (5,900 | ) |      | $ | (5,506 | )
|                                          |  |                                                  |        |   |      |   |        |  

The earned premium in 2006 and 2005 is primarily from premium adjustments related to old underwriting years.

The underwriting losses for the six months ended June 30, 2006 and 2005 are primarily related to increases in reserve estimates for a small number of
contracts. For 2006, the increased reserves primarily related to case and IBNR valuations for Lloyds excess property and casualty programs. The underwriting loss in 2005 was primarily related to contracts covering bail and immigration bonds,
Lloyds syndicates and World Trade Center losses.

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 by the Company for underwriting years 2001 and 2002. 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.

Due to significant hurricane losses reported in
2005, A.M. Best reduced its rating of Rosemont Re to B (Fair) and the company has been placed in run-off and will be liquidated. Assets approximately equal to Rosemont Res estimated liabilities under its reinsurance agreement with the Company
are currently held in trust to satisfy the liabilities under the agreement. If the estimated recoveries were to increase in the future, the Company would have to rely on Rosemont Res continuing ability to fund these amounts.

Other Operations

Net investment income increased 15.9% to
$10.2 million for the six months ended June 30, 2006 from $8.8 million for the six months ended June 30, 2005. The increase in investment income reflects an increase in the average annual rate of return on invested assets from 3.2% to 3.9%
for the six months ended June 30, 2005 and June 30, 2006, respectively, partially offset by a decline in average fixed maturity investments. The decline in invested assets was the result of claim payments related to the run-off of the
non-core healthcare liability and assumed reinsurance businesses.



20



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Net realized investment loss of $164 thousand was recorded for the six months ended June 30, 2006 versus realized
invested gains of $6 thousand in the six months ended June 30, 2005.

Expenses of $1.6 million included in Other operating expenses are costs related
to the proxy challenge against the Companys slate of director nominees for 2006.

THREE MONTHS ENDED JUNE 30, 2006
COMPARED TO THREE MONTHS ENDED JUNE 30, 2005

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, 2006 |  |      |        |   |           |   |     |        |  |   |       
|Premiums written                 |  | $    | 3,428  |   |           | $ |    |        |  | $ | 3,428 
|                                 |  |      |        |   |           |   |     |        |  |   |       
|Premiums earned                  |  | $    | 31,440 |   |           | $ |    |        |  | $ | 31,440
|Losses and LAE incurred          |  |      | 22,299 |   |           |   |    |        |  |   | 22,299
|Underwriting expenses            |  |      | 6,367  |   |           |   |    |        |  |   | 6,367 
|                                 |  |      |        |   |           |   |     |        |  |   |       
|Underwriting gain                |  | $    | 2,774  |   |           | $ |    |        |  | $ | 2,774 
|                                 |  |      |        |   |           |   |     |        |  |   |       
|Loss ratio                       |  |      | 70.9   | % |           |   |     |        |  |   |       
|Expense ratio                    |  |      | 20.3   | % |           |   |     |        |  |   |       
|Combined ratio                   |  |      | 91.2   | % |           |   |     |        |  |   |       
|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 loss                |  | $    | 1,544  |   |           | $ | 39  |        |  | $ | 1,583 
|                                 |  |      |        |   |           |   |     |        |  |   |       
|Loss ratio                       |  |      | 74.5   | % |           |   |     |        |  |   |       
|Expense ratio                    |  |      | 20.8   | % |           |   |     |        |  |   |       
|Combined ratio                   |  |      | 95.3   | % |           |   |     |        |  |   |       



|* | 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 $3.4 million and premiums earned
were $31.4 million in the three months ended June 30, 2006; compared to $4.0 million and $32.4 million in the three months ended June 30, 2005. Premiums earned decreased primarily due to a small decline in policies in-force and decreased
premium from loss-rated groups as loss experience has improved.

The loss ratio (losses and LAE related to premiums earned) for the second quarter 2006 was
70.9% compared to 74.5% in the second quarter 2005. The decrease in the loss ratio is due primarily to lower loss estimates for 2006, principally due to a decline in claim frequency.

The underwriting expense ratio (expenses related to premiums earned) decreased to 20.3% in the second quarter 2006 from 20.8% in the second quarter 2005.



21



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Non-Core Business

Outstanding reserves for the non-core healthcare declined to $48.7 million as of June 30, 2006 from $56.3 million at March 31, 2006 and the number of open claims decreased to 170 from 196 for the same period. The underwriting
results in the second quarters of 2006 and 2005 were diminimus and reflect the fact that no significant changes in reserve levels were required during the quarters.

Assumed Reinsurance Segment

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



|                                          |  |                                                  |        |   |      |   |        |  
|----------------------------------------- |  | ------------------------------------------------ | ------ | - | ---- | - | ------ | -
|FOR THE THREE MONTHS ENDED JUNE 30,       |  | Assumed Reinsurance Segment Underwriting Results |       
|                                          |  | 2006                                             |        |   | 2005 |  
|Premiums written                          |  | $                                                | 13     |   |      | $ | (291   | )
|                                          |  |                                                  |        |   |      |   |        |  
|Premiums earned                           |  | $                                                | 12     |   |      | $ | 20     |  
|Underwriting expenses                     |  |                                                  |        |   |      |   |        |  
|Losses                                    |  |                                                  | 3,402  |   |      |   | 3,035  |  
|Underwriting and other operating expenses |  |                                                  | (246   | ) |      |   | 118    |  
|                                          |  |                                                  |        |   |      |   |        |  
|Underwriting loss                         |  | $                                                | (3,144 | ) |      | $ | (3,133 | )
|                                          |  |                                                  |        |   |      |   |        |  

The earned premium in 2006 and 2005 is primarily from premium adjustments related to old underwriting years.

The underwriting losses for the three months ended June 30, 2006 and 2005 are primarily related to increased reserve estimates for a small number of
contracts. For 2006, the increased reserves primarily related to case and IBNR valuations for one Lloyds cedant. The underwriting loss in 2005 is primarily related to contracts covering bail and immigration bonds, Lloyds syndicates and
World Trade Center losses.

Other Operations

Net investment income increased 26.8% to $5.2 million for the three months ended June 30, 2006 from $4.1 million for the three months ended June 30, 2005. Investment income reflects an increase in the average rate of return on
invested assets from 3.1% to 3.9% for the three months ended June 30, 2005 and 2006, respectively, partially offset by a decline in average invested assets. 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.

Net realized investment losses of $53 thousand were recorded for the
second quarter 2006 versus net realized investment losses of $10 thousand in the second quarter 2005.

Expenses of $1.0 million included in Other operating
expenses related to a proxy challenge against the Companys slate of director nominees for 2006. See Note 6 to Consolidated Financial Statements.

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.



22



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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 2006, the Company had negative cash flow from operations of $1.4 million compared to a negative operating cash flow of $34.9 million in 2005. The negative
cash flow in 2006 is primarily related to claims payments associated with the non-core physician and assumed reinsurance programs, which are now in run-off. The Company maintains a 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 $92.0 million or 17.7% of invested assets, at June 30, 2006. 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 $2.0 million at June 30, 2006. 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 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 2006 without prior
regulatory approval is approximately $14.6 million. As of June 30, 2006, 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 will depend upon, among other factors, the Companys operating results, overall financial condition, capital requirements and general business
conditions. As of June 30, 2006, SCPIE Holdings held cash and short-term securities of $3.5 million. Based on historical trends, market conditions and its business plans, the Company believes that its sources of funds (including dividends from
the insurance company subsidiaries) will be sufficient to meet the liquidity needs of SCPIE Holdings over the next 18 months.

The Companys capital
adequacy position has been weakened by the 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 company subsidiaries to B (Fair), with a negative outlook. A.M. Best assigns this rating to companies that have, in its opinion, a fair ability to meet their current obligations to policyholders, but are financially vulnerable to
adverse changes in underwriting and economic conditions. The NAIC has developed a methodology for measuring the adequacy of an insurers surplus which includes a risk-based capital (RBC) formula designed to measure state statutory capital and
surplus needs. The RBC rules provide for different levels of regulatory attention based on four thresholds determined under the formula. At December 31, 2005, the RBC level of each insurance company subsidiary exceeded the threshold requiring
the least regulatory attention. At December 31, 2005, SCPIE Indemnity exceeded this threshold by $85.9 million.

The Company believes that it has the
ability to fund its continuing operations from its premiums written and investment income. The Company plans to continue its focus on the efficient operation of its core business, while at the same time continuing to adjudicate and settle claims
incurred in its discontinued non-core business. As the Company continues to run-off the non-core loss and LAE reserves, its capital adequacy position should improve.



23



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As of June 30, 2006, the Companys statutory surplus was approximately $154.0 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.

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, 2006 comprised 82.0% of total investments at market value. Corporate bonds represent 41.5% and U.S. government bonds represent 40.3% 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 less than 1.0% of total investments at market value. 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, 2006 was 3.5 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, 2006, the carrying value of the investment portfolio included $16.2 million in net unrealized losses. At December 31, 2005,
the investment portfolio included $7.7 million in net unrealized losses.



24



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|ITEM 4. | DISCLOSURE CONTROLS AND PROCEDURES
|------- | ----------------------------------

The Company maintains
disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission (SEC), and that such information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by 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.



25



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PART II  OTHER INFORMATION



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

General

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.

Bail and Immigration Bond Proceedings

The Companys Insurance Subsidiary, AHI, is a party to reinsurance agreements with Highlands Insurance Company, now in Receivership (Highlands), Sirius America Insurance Company (Sirius) and Aegis Security Insurance Company (Aegis),
each of which acted as a primary insurer for various periods under bail and immigration bond programs administered and guaranteed by Capital Bonding Corporation (CBC), as managing general agent. As part of these programs, the primary insurers
(through CBC) issued bail bonds in a number of states and also issued federal immigration bonds. AHI participated as a reinsurer of these programs during 2001 and 2002. The Companys reinsurance participation was 20% of the bond losses during
2001 and 25% during 2002. The Companys share of the losses under these treaties was substantially reinsured with Rosemont Re during 2002 and to a lesser extent during 2001.

During 2004, CBC failed and a significant number of bond losses emerged. There are a number of pending disputes between the primary insurers and reinsurers involved in the CBC program. AHI has been actively engaged in
arbitration proceedings with each of the primary insurers to resolve these disputes. In March 2006, the arbitrators made a final award in the proceeding with Aegis, and in May 2006, the Company commuted any future LAE and bail bond losses
with Aegis. The Company paid to Aegis a total amount slightly in excess of that reserved at December 31, 2005. The arbitration hearing with Sirius is scheduled for March 2007, and the Highlands arbitration proceeding is still in its early
stages. Highlands has not yet asserted all of its alleged losses under the CBC program.



|ITEM 1a. | RISK FACTORS
|-------- | ------------

There have been no material changes in the risk
factors as previously disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2005, under the caption Risk Factors.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None.



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

None.



26



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

At the Annual
Meeting of Stockholders held on June 22, 2006, the following individuals were elected to the Board of Directors for a term ending 2009: Kaj Ahlmann 4,560,477 votes for, 91,034 withheld authority; Willis T. King, Jr. 3,612,734 votes for, 107,889
withheld authority; and Elizabeth A. Murphy 4,558,030 votes for, 93,481 withheld authority. Also, on the date of the Annual Meeting, Charles E. McElwee, M.D., a director of the Company, resigned as a Board member, as previously disclosed in the
Proxy Statement for the Annual Meeting, and the Board appointed Marshall S. Geller to fill the remainder of Dr. McElwees term ending in 2008.

The other directors whose terms of office continued after the Annual Meeting were Mitchell S. Karlan, M.D., Jack E. McCleary, M.D., Wendell L. Moseley, M.D., Donald P. Newell, William A. Renert, M.D., Henry L. Stoutz, M.D., Ronald H.
Wender, M.D. and Donald J. Zuk.

Also, at the Annual Meeting, the stockholders ratified the selection of Ernst & Young LLP as the independent
registered public accounting firm of the Company for the fiscal year ending December 31, 2006. With respect to this selection, 6,503,209 shares voted for ratification of this selection, 38,215 shares voted against ratification, and 121,347
shares abstained.



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

None



27



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|ITEM 6. | EXHIBITS
|------- | --------

The following exhibits are included
herewith.



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NUMBER |  | DOCUMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | 
|10.1   |  | Form of Third Amendment to The 2003 Amended and Restated Equity Participation Plan of SCPIE Holdings Inc. (incorporated by reference to Exhibit 10.2 filed with the Companys Current
Report on Form 8-K on June 27, 2006).                                                                                                                                                                                                                                                                   
|       | 
|31.1   |  | Certification of Registrants Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                                                                                                    
|       | 
|31.2   |  | Certification of Registrants 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   |  | Certification of Registrants Chief Executive 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. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any filing of the Company.
|       | 
|32.2   |  | Certification of Registrants 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. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any filing of the Company.



28



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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 4, 2006 |  |  |  | By:                 |  | /s/ Donald J. Zuk    
|                     |  |  |  |                     |  |                       |  | Donald J. Zuk                                    
|                     |  |  |  |                     |  |                       |  | President and Chief Executive Officer            
|                     |  |  | 
|Date: August 4, 2006 |  |  |  | By:                 |  | /s/ Robert B. Tschudy
|                     |  |  |  |                     |  |                       |  | Robert B. Tschudy                                
|                     |  |  |  |                     |  |                       |  | Senior Vice President and Chief Financial Officer



29