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SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





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FORM 10-Q





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| ̈ |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------




| |  | FOR THE QUARTER ENDED MARCH 31, 2002
| |  | ------------------------------------




COMMISSION FILE NO. 1-12449





SCPIE HOLDINGS INC.


(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)





DELAWARE

95-4457980(STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION)

(I.R.S. EMPLOYER IDENTIFICATION NO.)1888 CENTURY PARK EAST, SUITE 800 LOS ANGELES,
CALIFORNIA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

90067 (ZIP CODE)REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE:

(310) 551-5900





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





Class

Outstanding at May 10, 2002Preferred stock, par value $l.00 per share

No shares outstandingCommon stock, par value $.0001 per share

9,318,066 shares





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PART I  FINANCIAL INFORMATION





ITEM 1.    FINANCIAL STATEMENTS





UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:





SCPIE HOLDINGS INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


(In Thousands, Except Share Data)





March 31, 2002

December 31, 2001(unaudited)ASSETSSecurities available-for-sale:Fixed maturity investments, at fair value (amortized cost 2002$578,448; 2001$565,225)

$
575,827

$
569,144Equity investments, at fair value (cost 2002$29,660; 2001$29,744)


26,071


29,098Total securities available-for-sale


601,898


598,242Other investment


14,928


14,928Short term investments


65,098


84,989Real estate


15,676


15,766Total investments


697,600


713,925Cash


7,124


10,162Accrued investment income


9,451


8,673Premiums receivable


151,169


82,490Reinsurance recoverable on paid and unpaid


89,292


79,248Deferred policy acquisition costs


20,250


19,465Federal income taxes receivable


21,691


11,558Deferred federal income taxes


29,030


36,661Costs in excess of net assets acquired


5,324


5,324Property and equipment, net


6,436


6,839Other assets


3,610


3,301Total assets

$
1,040,977

$
977,646LIABILITIESReserves:Losses and loss adjustment expenses

$
594,088

$
576,636Unearned premiums


162,237


101,868Total reserves


756,325


678,504Bank loan payable





9,000Other liabilities


31,282


30,754Total liabilities


787,607


718,258Commitments and contingencies




2




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March 31, 2002


December 31, 2001STOCKHOLDERS EQUITYPreferred 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,2002  9,318,066 shares
outstanding 2001  9,318,066 shares outstanding


1



1Additional paid-in capital


37,805



37,803Accumulated other comprehensive income (loss)


(4,422
)


1,883Retained earnings


322,671



322,734356,055



362,421Treasury stock, at cost (2002  2,974,025 shares and 2001  2,974,025 shares)


(98,914
)


(98,983
)Stock subscription notes receivable


(3,771
)


(4,050
)Total stockholders equity


253,370



259,388Total liabilities and stockholders equity

$
1,040,977


$
977,646











See
accompanying notes to Consolidated Financial Statements.




3




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SCPIE HOLDINGS INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME


(In Thousands, Except Per Share Data)


(Unaudited)





Three Months Ended March 31,2002


2001Revenues:Premiums earned

$
81,053


$
47,638Net investment income


8,538



9,002Realized investment gains


335



1,200Equity in earnings from affiliate


248



250Other revenue


104



201Total revenues


90,278



58,291Expenses:Losses and loss adjustment expenses


68,700



45,840Other operating expenses


20,777



9,264Interest expenses


51



579Total expenses


89,528



55,683Income before federal income taxes


750



2,608Federal income tax expense (benefit)


(176
)


367Net income

$
926


$
2,241Basic earnings per share of common stock

$
0.10


$
0.24Diluted earnings per share of common stock

$
0.10


$
0.24Cash dividend declared per share of common stock

$
0.10


$
0.10





CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY





(In Thousands)


(Unaudited)





Common Stock

Additional Paid-in Capital

Accumulated Other Comprehensive Income (Loss )


Retained Earnings


Treasury Stock


Stock Subscription Notes Receivable


Total Stock- Holders EquityBALANCE AT JANUARY 1, 2002

$
1

$
37,803

$
1,883


$
322,734


$
(98,983
)

$
(4,050
)

$
259,388Net income












926











926Other comprehensive loss for unrealized gains on securities sold, net of reclassification adjustments of $53 for losses included in
net income








(6,305
)














(6,305
)Comprehensive loss
























(5,379
)Treasury stock reissued
















69







69Repayment of stock subscription note




















279



279Cash dividends












(989
)










(989
)Other





2


















2BALANCE AT MARCH 31, 2002

$
1

$
37,805

$
(4,422
)

$
322,671


$
(98,914
)

$
(3,771
)

$
253,370





See accompanying notes to Consolidated Financial Statements.




4




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SCPIE HOLDINGS INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


(In Thousands)


(Unaudited)





Three Months Ended March 31,2002


2001OPERATING ACTIVITIESNet income

$
926


$
2,241Adjustments to reconcile net income to net cash provided by (used in) operating activities:Provision for amortization and depreciation


1,206



467Provision for deferred federal income taxes






(2,264
)Realized investment gains


(335
)


(1,200
)Equity in earnings of affiliate


(248
)


(250
)Changes in operating assets and liabilities:Deferred acquisition costs


(785
)


(3,362
)Accrued investment income


(778
)


381Federal income tax receivable


967



Unearned premiums


60,369



58,661Unpaid losses and loss adjustment expenses, and reinsurance recoverables


7,408



(4,364
)Other liabilities


528



14,163Premium receivable


(68,679
)


(51,787
)Other assets


(309
)


(1,264
)Net cash provided by operating activities

$
270


$
11,422INVESTING ACTIVITIESPurchasesfixed maturities


(60,727
)

$
(153,748
)Salesfixed maturities


47,169



142,327Maturitiesfixed maturities






7,148Purchasesequities






(2,500
)Changes in short-term investments


19,891



(9,746
)Net cash provided by (used in) investing activities

$
6,333


$
(16,519
)FINANCING ACTIVITIESBank loan payment

$
(9,000
)

$
Repayment of stock subscription note


279



Reissue of treasury shares


69



134Cash dividends


(989
)


(924
)Net cash used in financing activities

$
(9,641
)

$
(790
)Decrease in cash

$
(3,038
)

$
(5,887
)Cash at beginning of period


10,162



10,418Cash at end of period

$
7,124


$
4,531





See accompanying notes to Consolidated Financial Statements.




5




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SCPIE HOLDINGS INC. AND SUBISIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





(Unaudited)


March 31, 2002


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
wholly-owned subsidiaries, principally SCPIE Indemnity Company (SCPIE Indemnity), American Healthcare Indemnity Company (AHI), American Healthcare Specialty Insurance Company (AHSIC), SCPIE Underwriting Limited (SUL) and SCPIE Management Company
(SMC), collectively, the Company.





These financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with instructions to Form 10-Q and Article 7 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31,
2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the consolidated financial statements and notes thereto included in SCPIE Holdings annual report
on Form 10-K for the year ended December 31, 2001.





Certain 2001 amounts have been reclassified to conform to the 2002
presentation.





2.    EARNINGS PER SHARE





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





Three Months Ended March 31,2002

2001(In Thousands, Except Per Share Data)Numerator:Net income

$
926

$
2,241Numerator for:Basic earnings per share of common stock

$
926

$
2,241Diluted earnings per share of common stock

$
926

$
2,241Denominator:Denominator for basic earnings per share of common stock  weighted-average shares outstanding


9,318


9,339Effect of dilutive securities:Stock options


201


Denominator for diluted earnings per share of common stock adjusted  weighted-average shares outstanding


9,519


9,339Basic earnings per share of common stock

$
0.10

$
0.24Diluted earnings per share of common stock

$
0.10

$
0.24




6




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SCPIE HOLDINGS INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(Unaudited)





March 31, 2002







3.    INVESTMENTS





The Companys investments in available-for-sale securities at March 31, 2002 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

$
167,875

$
2,206

$
1,946

$
168,136State, municipalities and political subdivisions


122,956


1,246


1,504


122,698Mortgage-backed securities, U.S. Government


67,494


479


611


67,361Corporate


220,123


1,502


3,993


217,632Total fixed-maturity securities


578,448


5,433


8,054


575,827Equity securities


29,660


11,668


5,257


26,071Total

$
608,108

$
17,101

$
13,311

$
601,898





4.    FEDERAL INCOME TAXES





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





Three Months Ended March 31,2002


2001(In Thousands)Federal income tax at 35%

$
263


$
913Increase (decrease) in taxes resulting from:Tax-exempt interest


(486
)


(620
)Goodwill






53Other


47



21Total

$
(176
)

$
367





On March 9, 2002, the Job Creation and Worker Assistance Act of 2002 became law.
The new law allows tax losses incurred in 2001 and 2002 to be carried back five years instead of the two years allowed under prior law. As a result of this law change, the Company will be able to recoup an additional approximate $11 million of taxes
paid in the three years ended December 31, 1998, 1999 and 2000 subsequent to filing its 2001 tax return. The federal income taxes receivable recorded on the December 31, 2001 balance sheet were increased by approximately $11 million and the deferred
tax asset decreased by an identical amount in the financial statements for the quarter ended March 31, 2002.




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SCPIE HOLDINGS INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(Unaudited)





March 31, 2002







5.    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, hospitals 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, accident and health coverages 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.





The
following table presents information about reportable segment income (loss) and segment assets as of and for the period indicated (in thousands):





Direct Healthcare Liability Insurance


Assumed Reinsurance


Other

TotalThree Months Ended March 31, 2002Premiums earned

$
43,142


$
37,911


$


$
81,053Net investment income










8,538


8,538Realized investment gains










335


335Equity earnings from affiliate










248


248Other revenue










104


104Total revenues


43,142



37,911



9,225


90,278Losses and loss adjustment expenses


40,496



28,204






68,700Other operating expenses


10,735



10,042






20,777Interest expenses










51


51Total expenses


51,231



38,246



51


89,528Segment (loss) income before income taxes


(8,089
)


(335
)


9,174


750Combined ratio


118.8
%


100.9
%





110.5
%Segment assets

$
264,498


$
71,755


$
704,724

$
1,040,977Direct Healthcare Liability Insurance


Assumed Reinsurance


Other

TotalThree Months Ended March 31, 2001Premiums earned

$
35,592


$
12,046


$


$
47,638Net investment income










9,002


9,002Realized investment gains










1,200


1,200Equity earnings from affiliate










250


250Other revenue










201


201Total revenues


35,592



12,046



10,653


58,291Losses and loss adjustment expenses


35,117



10,723






45,840Other operating expenses


7,886



1,378






9,264Interest expenses










579


579Total expenses


43,003



12,101



579


55,683Segment (loss) income before income taxes


(7,411
)


(55
)


10,074


2,608Combined ratio


120.8
%


100.5
%





116.2
%Segment assets

$
195,061


$
15,699


$
719,489

$
930,249




8




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SCPIE HOLDINGS INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(Unaudited)





March 31, 2002







6.    COMMITMENTS AND CONTINGENCIES





The Company is named as defendant in various legal actions primarily arising from claims made under insurance policies and contracts. These actions are
considered by the Company in estimating the loss and loss adjustment expense reserves. The Companys management believes that the resolution of these actions will not have a material adverse effect on the Companys financial position or
results of operations.





Between January 1, 2000 and April 30, 2001, the Company issued endorsements to certain policyholders of
the insurance company subsidiaries of Highlands Insurance Group, Inc. (HIG). Under these endorsements, the Company agreed to assume the policy obligations of the HIG insurance company subsidiaries, if the subsidiaries became unable to pay their
obligations by reason of having been declared insolvent by a court of competent jurisdiction. The coverages included property, workers compensation, commercial automobile, general liability and umbrella. The gross premiums written by the HIG
subsidiaries were approximately $88.0 million for the subject policies. In November 2001, HIG disclosed that its A.M. Best Rating had been reduced to C- and that its financial plan might trigger some level of regulatory involvement. In December
2001, HIG announced that it would cease issuing any new or renewal policies as soon as practical. HIG has advised the Company that at March 31, 2002, the HIG insurance company subsidiaries had paid losses and LAE under the subject policies of
$31.5 million and had established case loss reserves of $23.7 million, net of reinsurance. Incurred but not reported losses are expected to emerge; however, the amount cannot be reasonably estimated at this time. If the HIG insurance company
subsidiaries are declared insolvent at some future date by a court of competent jurisdiction and unable to pay losses under the subject policies, the Company would be responsible to pay the amount of the losses incurred and unpaid at such date;
however, the Company would be entitled to indemnification of a portion of this loss from certain of the reinsurers of the HIG insurance company subsidiaries. The Company would be subrogated to the rights of the policyholders as creditors of the HIG
insurance company subsidiaries. The Annual Statements filed by the HIG insurance company subsidiaries with the applicable state regulatory authorities in March 2002 show combined policyholder surplus of approximately $41.2 million at December 31,
2001, which includes $152.6 million of reserve discounting. In February 2002, the Texas Department of Insurance issued Supervisory Orders to the Texas HIG Insurance Company subsidiaries. By their terms, the Orders are also binding on all of the HIG
affiliates. Under these and similar orders in other jurisdictions, the HIG Insurance Company subsidiaries are effectively restricted to the run off payment of losses.




9




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SCPIE HOLDINGS INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(Unaudited)





March 31, 2002







7.    ACCOUNTING PRONOUNCEMENTS





During 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (FAS 142), which requires that, effective January 1, 2002, goodwill and certain other intangible assets deemed to have an indefinite useful life, cease amortizing. The following table illustrates the financial statement impact
as though FAS 142 was in effect beginning January 1, 2001.





(in thousands, except earning per share amounts)For the Quarter Ended March 31, 2001Reported net income

$
2,241Add back:  intangible amortization


539Adjusted net income

$
2,780Basic and diluted earnings per share:Reported net income per share

$
0.24Intangible amortization


0.06Adjusted net income per share

$
0.30





8.    SUBSEQUENT EVENT





On April 30, 2002, the company eliminated 41 positions from a total staffing of 230. A one time charge of approximately $600,000 will be recorded in the second quarter of 2002
related to severance and other associated costs.




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ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





GENERAL





Certain statements in this report on Form 10-Q that are not historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and other factors based on the Companys estimates and expectations concerning future events that may cause the actual results of the Company to be materially different
from historical results or from any results expressed or implied by such forward-looking statements. Actuarial estimates of losses and loss expenses and expectations concerning the Companys ability to retain current insureds at profitable
levels, maintain its existing reinsurance relationships, and expand its healthcare liability insurance business in its principal market are dependent upon a variety of factors, including future economic, competitive and market conditions, frequency
and severity of catastrophic events, future legislative and regulatory changes, the level of ratings established by national rating organizations, the inherent uncertainty of loss and loss expense estimates, and the cyclical nature of the property
and casualty industry, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. In addition, the Companys future results will be, in large part, dependent upon the successful
growth and profitability of a business segment, assumed reinsurance, in which the Company has only limited experience. The Company is also subject to certain structural risks, including statutory restrictions on intercompany transactions within the
Companys holding company structure. These risks and uncertainties are discussed in more detail under BusinessRisk Factors, and Managements Discussion and AnalysisGeneral in the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2001.





The Company conducts its insurance business in two business
segments: direct healthcare liability insurance and assumed reinsurance operations. Direct healthcare liability insurance represents professional liability insurance for physicians, oral and maxillofacial surgeons and dentists, healthcare facilities
and other healthcare providers. The direct healthcare liability insurance segment includes premiums assumed under fronting arrangements related to a dental program. Assumed reinsurance represents the book of assumed worldwide reinsurance of
professional, commercial and personal liability coverages, commercial and residential property risks, accident and health and workers compensation coverages and marine coverages.





The Company experienced significant underwriting losses in both segments during 2001. The losses in the direct healthcare liability insurance segment were almost entirely attributable to
adverse experience incurred by the Company under policies issued to physicians and medical groups in states outside California. Adverse experience included both losses incurred under policies issued and renewed during 2001 and increases in loss
reserves for policies issued in prior years. The Company instituted a number of premium rate increases and stricter underwriting standards during 2001 in an attempt to improve results. The Company and the independent insurance agency for the
principal non-California programs (Brown & Brown) have recently agreed to terminate the Companys participation no later than March 2003. In the meantime, the Company continues to apply very strict underwriting requirements and
has the full advantage of the rate increases on policies issued and renewed under these programs.





The underwriting loss
experienced in the assumed reinsurance segment during 2001 was primarily the result of the September 11, 2001, terrorist attack on the World Trade Center, Pentagon and certain airlines. During 2001, the Company recorded a loss of $28.1 million from
the September 11 event. As a result of the Companys 2001 financial results,




11




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on February 21, 2002, A.M. Best & Co (A.M. Best), the leading rating organization for the insurance industry, downgraded the financial strength rating of the Companys insurance company
subsidiaries to B++ (Very Good) from A (Excellent). The stated reason for the downgrade was the effect the losses for 2001 will have on the capitalization of the Company in relation to significant premium growth that occurred during 2001. This
downgrade could have a material adverse effect on the ability of the Company to maintain its volume of premiums written and earned, particularly in the assumed reinsurance segment.





RESULTS OF OPERATIONS





THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001





Consolidated Operating Results





Total revenues were $90.3 million for the three months ended March 31, 2002, an increase of 54.9% over total revenues of $58.3 million for the same period in 2001. Premiums earned increased $33.4 million, or 70%, for
the quarter ended March 31, 2002. The increase was principally attributable to assumed reinsurance premiums earned of $37.9 million in the first quarter of 2002 as compared to $12.0 million earned the prior year.





Net investment income decreased to $8.5 million for the three months ended March 31, 2002, or 5.6%, from $9.0 million a year ago. The average rate of
return on invested assets was 4.83% and 5.32% for the three months ended March 31, 2002 and 2001, respectively. During the first quarter of 2002, the Company realized $0.3 million of investment gains as compared to $1.2 million in realized
investment gains for the same period in 2001. Variations in investment returns occur due to interest rate fluctuations, the allocation of investments between taxable and nontaxable securities and general conditions in the securities markets that are
evaluated by the Company in accordance with its investment guidelines.





Total expenses were $89.5 million for the three months
ended March 31, 2002, an increase of 60.1% over total expenses of $55.7 million for the same period in 2001. The combined ratio was 110.5% for the first quarter of 2002 compared to 116.2% in the prior year. The combined ratio is the sum of loss and
LAE expenses and other operating expenses to premiums earned. The decrease in the combined ratio in 2002 is due to a change in the mix of business to a greater proportion of assumed reinsurance, which produced a lower combined ratio.





Net income for the three months ended March 31, 2002 was $0.9 million, a decrease of 59.1% from net income of $2.2 million for the
corresponding period in 2001.





Other comprehensive income or loss represents the change in unrealized gains and losses on
invested assets occurring during the period. As a result of changes occurring in the fixed income and securities markets, the Company had comprehensive losses of $5.3 million (net of tax) in the first quarter of 2002.





Direct Healthcare Liability Insurance Segment





Premiums Earned.    Premiums earned in the direct healthcare liability insurance segment increased by approximately $7.6 million, or 21.2%, to $43.1 million for the three months ended March 31, 2002 from
$35.6 million for the same period in 2001. This was principally due to a $4.6 million increase in premium from physicians and small medical groups written through Brown & Brown outside California, reflecting the 70% average rate increases
instituted during the end of 2001 in the states involved. In California, premiums earned from physician and medical groups increased by approximately $2.1 million to $26.1 million from $24.0 million in 2001, reflecting an 8.4% average rate increase
in 2002.





In the 2002 first quarter, gross premiums written were $104.1 million, and net premiums written were
$98.7 million. In the same period in 2001, gross premiums written were $98.0 million and net premiums written were $94.6 million.




12




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Losses and LAE.    Losses and LAE in the direct healthcare liability
insurance segment increased to $40.5 million, or 93.8% of premiums earned in the first quarter 2002, from $35.6 million, or 98.7% of premiums earned for the same period in 2001. The lower loss ratio in 2002 is primarily due to higher rates in
2001 and 2002 for California physicians, medical groups and healthcare facilities. In the 2002 first quarter, the Company reduced its prior years loss and LAE reserve estimates by $4.8 million, compared to $2.9 million in the 2001 first
quarter.





Other Operating Expenses.    Other operating expenses for the direct healthcare liability
insurance segment increased to $10.7 million for the three months ended March 31, 2002 as compared to $8.1 million for the same period in 2001. In 2002, the Company did not defer acquisition costs related to physician business written outside
California because of the unprofitable status of the business. In the 2001 first quarter, a significant portion of these costs was deferred.





The combined ratio for the direct healthcare liability segment was 118.8% in the 2002 first quarter, compared to 120.8% in the prior year.





Assumed Reinsurance Segment





Premiums Earned.    Premiums
earned in the assumed reinsurance segment increased to $37.9 million for the three months ended March 31, 2002 from $12.0 million for the same period in 2001, reflecting the anticipated growth in the segment. Premiums earned included approximately
$20.3 million under casualty programs, $5.8 million under property programs, $9.0 million under accident and health programs and $2.8 million under its marine program. Gross premiums written in the 2002 first quarter were $46.0 million, and net
premiums written were $42.7 million. In the same period last year, gross premiums written were $12.3 million, and net premiums written were $11.7 million.





Approximately $13.0 million of the 2002 earned premium increase was attributable to the Companys participation in Lloyds of London (Lloyds) syndicates. Premiums written through these syndicates are
established to include higher commission expenses and lower expected loss ratios than the Companys other assumed reinsurance business.





Losses and LAE.    Losses and LAE in the assumed reinsurance segment increased to $28.2 million, or 74.4% of premiums earned in the first quarter 2002, from $10.7 million, or 89.0% of
premiums earned for the same period in 2001. The lower loss ratio in 2002 is due to the significant amount of Lloyds syndicate business discussed above.





Other Operating Expenses.    Other operating expenses for the assumed reinsurance segment increased $8.6 million to $10.0 million for the three months ended March 31, 2002 from $1.4
million for the same period in 2001. The increase reflects commission expenses associated with higher premiums in 2002 at higher commission rates.





The combined ratio for the assumed reinsurance segment was 100.9% and 100.5% in 2002 and 2001, respectively.





LIQUIDITY AND CAPITAL RESOURCES





The primary sources of the Companys liquidity are insurance premiums, net
investment income, recoveries from reinsurers and proceeds from the maturity or sale of invested assets. Funds are used to pay losses, LAE, operating expenses, reinsurance premiums and taxes.





Because of uncertainty related to the timing of the payment of claims, cash from operations for a property and casualty insurance company can vary substantially from period to
period. During the first three months of 2002, the Company had positive cash flow from operations of $0.3 million compared to $11.4 million in 2001.




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The Company invests its positive cash flow from operations in both fixed maturity securities
and equity securities. The Companys current policy is to limit its investment in equity securities and real estate to no more than 8.0% of the total market value of its investments. Accordingly, the Companys portfolio of unaffiliated
equity securities was $26.1 million at March 31, 2002. The Company plans to continue its emphasis on fixed maturity securities investments for the indefinite future.





The Company has made limited investments in real estate, which have been used almost entirely in the Companys operating activities, with the remainder leased to third parties. The
Company leases approximately 95,000 square feet of office space for its headquarters. The lease is for a term of 10 years ending in 2009, and the Company has two options to renew the lease for a period of five years each. The Companys two
former headquarters buildings were leased to third parties during 2000.





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 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 the
insurance company subsidiaries are able to pay to SCPIE Holdings during 2002 without prior regulatory approval is approximately $12.4 million. No dividends were paid by the insurance company subsidiaries through May 13, 2002.





Common stock dividends paid to stockholders were $.40 per share in 2001. These dividends were funded through dividends from the
Companys insurance subsidiaries received in prior years. The Company has declared a regular quarterly dividend of $.10 per share, payable on June 28, 2002. Payment of future dividends is subject to Board approval, earnings and the financial
condition of the Company.





According to regulations governing insurance companies, the insurance company subsidiaries are
required to maintain sufficient statutory capital and surplus to cover the risks associated with the policies they write. Due to losses and strengthening of loss reserves in 2001, the statutory capital and surplus of the insurance company
subsidiaries declined significantly, while premiums increased. Failure to generate significant profitability in 2002 or obtain additional capital will limit the Companys ability to increase or maintain its premium writings. There is no
assurance that additional capital, if necessary, will be available to the Company on favorable or acceptable terms.





The average
rate of return on invested assets was 4.83% and 5.32% for the three months ended March 31, 2002 and 2001, respectively.





The
Company had borrowings of $9.0 million outstanding at December 31, 2001, under a Credit Agreement with three bank lenders. On February 28, 2002, the Company fully repaid the outstanding balance, and the parties terminated the Credit Agreement.





Based on historical trends, market conditions and its business plans, the Company believes that its sources of funds will be
sufficient to meet its liquidity needs over the next 18 months and beyond. However, because economic, market and regulatory conditions may change, there can be no assurance that the Companys sources of funds will be sufficient to meet these
liquidity needs. The short- and long-term liquidity requirements of the Company may vary because of the uncertainties regarding the settlement dates for unpaid claims.




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During May 2001, the Board of Directors authorized the continuation of the Companys 1999
program to repurchase up to 1,000,000 shares of its common stock on the open market. This authorization extended the Companys 1999 program that would have otherwise expired in May 2001. Under this extended 1999 program, 391,420 shares have
been repurchased.





EFFECT OF INFLATION





The primary effect of inflation on the Company is considered in pricing and estimating reserves for unpaid losses and LAE for claims in which there is a long period between reporting and settlement, such as medical
malpractice claims. The actual effect of inflation on the Companys results cannot be accurately known until claims are ultimately settled. Based on actual results to date, the Company believes that loss and LAE reserve levels and the
Companys rate-making process adequately incorporate the effects of inflation.





ITEM 3.    QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





The Company is subject to various market risk exposures, including interest rate risk and
equity price risk.





The Company invests its assets primarily in fixed-maturity securities, which at March 31, 2002 comprised
82.5% of total investments at market value. U.S. government and tax-exempt bonds represent 50.7% of the fixed-maturity investments, with the remainder consisting of mortgage-backed securities and corporate bonds. Equity securities, consisting
primarily of common stocks, account for 3.7% of total investment at market value. The other investment, which is comprised of a mutual fund investment that contains derivative instruments, accounts for 2.1% of total investments at market value.
Approximately 11.7% of the investment portfolio consists of real estate investments 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 goes up with
the opposite holding true in rising interest rate environments. The value of the common stock equity investments is dependent upon general conditions in the securities markets and the business and financial performance of the individual companies in
the portfolio. Values are typically based on future economic prospects as perceived by investors in the equity markets.





At
March 31, 2002, the value of the fixed maturity portfolio was $2.6 million below amortized cost. At December 31, 2001 the Companys fixed maturities were valued at $3.9 million above amortized cost.




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PART IIOTHER INFORMATION





ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K





(a)The following exhibits are included herewith.





Number

Document10.1

Employment Agreement dated May 1, 2002 between SCPIE Management Company and Timothy C. Rivers.





(b)The Company filed no reports on Form 8-K during
the quarterly period ended March 31, 2002.




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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:  May 15, 2002



By:

/s/    DONALD J. ZUKDonald J. Zuk President and Chief Executive Officer





By:

/s/    ROBERT B. TSCHUDYRobert B. Tschudy Senior Vice President andChief Financial
Officer





By:

/s/    EDWARD G. MARLEYEdward G. Marley Controller and Chief Accounting
Officer




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