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• Letter to Stockholders
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Our loss ratio held steady compared with the prior year – although our expense ratio went up somewhat, mainly due to increased commission fees and our national expansion. Our stockholders' equity increased 25.1% to $361.1 million, and our total investment portfolio rose 9.4% to $785.7 million.

It was an outstanding first year for SCPIE's common stock (NYSE:SKP), which commenced trading on January 30. After starting at an IPO price of 18¹/4, the stock finished the year at 28¹⁵/16 – a 58.6% increase that far exceeded the growth we hoped for when we took the company public. Stockholders also benefited from our growth through a cash dividend of $.05 per share, paid every quarter of 1997. Book value per share increased to $29.41 in 1997, on more shares outstanding, compared to $28.86 in 1996.

The strong appreciation of our stock price is a tangible indication of the financial community's confidence in our future. We, too, have great confidence in the long-term growth prospects of SCPIE Holdings Inc., which is one reason we initiated a stock repurchase plan for up to 1 million shares.

As already noted, there were a number of important developments in 1997 that put our nationwide expansion squarely on track:



• We established an alliance with Poe & Brown, Inc., one of the nation's leading independent insurance agency organizations. Through Poe & Brown, we are offering malpractice coverage to solo physicians and medical groups in eight states – primarily in Connecticut, Florida and Georgia.

• We purchased Fremont Indemnity Company's medical malpractice book of business; in 1996, it covered thousands of healthcare practitioners in 10 states – the majority in California and Arizona – for a total of approximately $28 million in premiums written. The practitioners include chiropractors and podiatrists, until now untapped markets for SCPIE.

• We continued to apply for – and to receive – regulatory approvals in an increasing number of states, including a new license in Pennsylvania; license modifications in Colorado, Florida and New Jersey; and rate and policy form approvals in Arizona, Florida, Hawaii, Kentucky, Louisiana, Nevada, New Mexico, Oregon and Washington.

• We began to market our hospital insurance program through major brokerage firms throughout the nation.
  
  

In carrying out our strategic plan, we will continue to look at possible acquisitions as a way to enhance the value of our company. One thing we won't do, however, is pursue acquisitions or write policies that do not make sound business sense, simply to boost our top line and artificially inflate our stock price.

Some medical malpractice insurance firms have done just that – but they've learned the hard lesson that cashflow underwriting ultimately produces unfavorable results. We would rather enjoy prudent, steady and solid growth.

It takes vision to be a leader in the medical malpractice insurance industry. We have that vision at SCPIE Holdings Inc., which is why we've been a trailblazer in the field for more than two decades. And why our future in the new millennium promises to be even more exciting.

In 1997, we hit our stride as a publicly held company. Now we're ready to run the long-distance race ahead.

Mitchell S. Karlan MD
Chairman of the Board

Donald J. Zuk
President and Chief Executive Officer

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Consolidated Statements of Income (in thousands, except per share data)
For the year ended December 31,	1997	1996	1995
Revenues   Premiums earned	$ 133,866	$ 120,484	$ 116,354
Net investment income	42,716	40,769	40,424
Realized investment gains	6,602	11,738	7,950
Other revenue	551	375	281
Total revenues	183,735	173,366	165,009
Expenses   Losses and loss adjustment expenses	123,377	108,797	118,023
Other operating expenses	17,987	14,276	12,561
Total expenses	141,364	123,073	130,584
Income before policyholder dividends     and federal income taxes	42,371	50,293	34,425
Policyholder dividends	—	8,436	—
Federal income taxes	10,195	11,665	10,056
Net income	$32,176	$30,192	$24,369
Basic earnings per share of   common stock	$ 2.66	$3.02	$2.44

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Consolidated Statements of Changes in Stockholders' Equity (in thousands)

	Preferred Stock	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Unrealized Appreciation (Depreciation) on Securities, Net	Total Stockholders' Equity
Balance At JAN. 1, 1995	$ –	$ –	$       –	$226,227	$     –	$ (16,691)	$209,536
Net income	–	–	–	24,369	–	–	24,369
Net unrealized appreciation	–	–	–	–	–	39,914	39,914
Balance At DEC. 31, 1995	–	–	–	250,596	–	23,223	273,819
Net income	–	–	–	30,192	–	–	30,192
Net unrealized depreciation	–	–	–	–	–	(15,444)	(15,444)
Balance At DEC. 31, 1996	–	–	–	280,788	–	7,779	288,567
Net income	–	–	–	32,176	–	–	32,176
Issuance of common stock	–	1	36,386	–	–	–	36,387
Purchase of treasury stock	–	–	–	–	(416)	–	(416)
Cash dividends	–	–	–	(2,458)	–	–	(2,458)
Net unrealized appreciation	–	–	–	–	–	6,859	6,859
Balance At DEC. 31, 1997	$ –	$ 1	$36,386	$310,506	$ (416)	$14,638	$361,115

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