The fast-moving electronic letters were irrefutable evidence that SCPIE had indeed transformed itself into a public company – culminating 21 years of hard work and promises delivered. The flash of our stock symbol signaled the dissolution of the Southern California Physicians Insurance Exchange and the birth of The SCPIE Companies, composed of SCPIE Holdings Inc. and its subsidiaries, which are described in this report.

By going public, SCPIE crossed a frontier – and now it is boldly heading off to tackle fresh challenges and create an even more prosperous future. With a newly extended corporate reach that spans the nation, we are a company that is dynamic, active and on the move, with strong prospects for impressive growth.

SCPIE's first two decades focused on building the rock-solid foundation that makes our expected growth possible. Born out of California's malpractice insurance crisis of the mid-1970s, SCPIE evolved to become one of the nation's premier liability carriers for healthcare professionals and providers.

Every year since its inception, SCPIE has been an industry leader in California; we've covered more physicians, medical groups and clinics in the state than any other carrier. Our reputation for providing top-notch service and developing innovative ideas is unsurpassed in the industry. Now, by becoming a publicly traded company, we're sending a clear message that we are not content to rest on our laurels.

Why go public? Becoming a public company gives SCPIE access to additional sources of capital, which we'll need in order to expand into other states.

Why go national? SCPIE resolved to become a nationwide insurance carrier – under the name American Healthcare Indemnity Company – because of dramatic changes in the country's healthcare delivery system.

In recent years, far-reaching consolidations have created very large, integrated healthcare companies covering many states and regions – or in some cases, the entire country. We realized that to continue competing successfully, SCPIE had to be able to insure these huge systems, especially the managed care organizations and hospital chains. Going public will enable us to raise the necessary capital.

How bright is SCPIE's future? Just look at our improved performance in 1996. Revenues for the year rose to $173.4 million and net income increased to $30.2 million, or $3.02 per share. Significantly, income before policyholder dividends and income taxes increased to $50.3 million in 1996, while the company's GAAP combined ratio improved to 102.1% for 1996, due to rate increases, improving loss trends and continuing favorable loss reserve development. At the end of the year, policyholders' equity was $288.6 million, equal to $28.86 per share.

Moreover, during last year's final quarter, SCPIE bound $11 million in net annualized premiums – much of it outside the state of California. Since December 1996, we've written policies in eight states where we had never done business before.

Such growth promises to continue, as SCPIE – traditionally a direct writer of insurance – increasingly offers brokered products nationwide. In 1996, just 5% of SCPIE's business came through brokers; we expect that to rise significantly by the year 2000. There's a great deal of potential business in this country, and SCPIE intends to go after it aggressively – both on our own and via brokers.

We also plan to take advantage of opportunities to acquire, or partner with, other insurance companies – when it makes good business sense. And we intend to continue developing and expanding our product line – as we've done with new coverages such as Errors and Omissions for managed care organizations and Directors and Officers Liability for large healthcare providers.

Still, while SCPIE clearly is a company on the move, the heart and soul of what we offer – coverage for physicians running the spectrum from solos to multispecialty groups, and other healthcare-related entities – will always remain the same:
• Unparalleled policyholder service, including proactive risk management and expert claims management.
• Innovative products, which we regularly enhance and refine.
• Disciplined underwriting, a cornerstone of SCPIE's consistent profitability.
• Conscientious cost-containment, key to the efficiency of our operation.
• Creative use of cutting-edge information technologies, enabling us to communicate our message effectively.

More than two decades of experience – and success – should enable us to compete extremely effectively in today's rapidly evolving healthcare environment. Most important, our plans for intelligent, careful expansion have been exhaustively thought-out, and now we'll have the capital to turn them into reality.

All of which helps explain our thrill at seeing three letters – SKP – flash across the NYSE's electronic ticker: The future belongs to SCPIE!