California-based SCPIE Holdings Inc., a provider of healthcare liability insurance, reported results for its fourth quarter and year ended Dec. 31, 2002, which includes the divestiture of its assumed reinsurance business and a renewed focus on the company’s core book of business – primarily physician and medical group professional liability in California and Delaware.
During the fourth quarter of 2002, SCPIE successfully completed a previously announced transaction to cede substantially all of SCPIE’s future assumed reinsurance earned premiums and related losses and acquisition expenses to GoshawK Insurance Holdings plc, a London-based insurance and reinsurance business listed on the London Stock Exchange. GoshawKRe, a wholly owned subsidiary of GoshawK, will assume 98 percent of SCPIE’s June 30, 2002, unearned premiums and future written premiums related to its assumed reinsurance business for the 2001 and 2002 underwriting years. For 2002, assumed reinsurance written premiums retroceded to GoshawK totaled $129.3 million. SCPIE also will pay an additional premium of 14.3 percent to GoshawK on the retroceded premiums.
Net loss for the 2002 year totaled $38.4 million, or $4.12 per share. A year ago, SCPIE reported a net loss of $57.9 million, or $6.22 per share.
On an operating basis, SCPIE reported a loss of $5.44 per share, compared with an operating loss of $6.61 per share for the prior-year period. Operating income, which excludes realized investment gains and losses, is used by management and the investment community as an important metric of results from the company’s core business.
SCPIE’s 2002 results include underwriting losses of $114.1 million. The company’s non-core direct healthcare liability insurance programs (defined as business and premiums related primarily to the Brown & Brown and hospital programs) had $53.8 million in losses, its assumed reinsurance book had $47.8 million in losses, and its core book had losses of $12.5 million.
SCPIE’s 2001 results include underwriting losses of $133.3 million. The non-core book had losses of $82.5 million, its assumed reinsurance business had losses of $23.6 million, and its core book had losses of $27.2 million.
Total revenues in 2002 reached $339.2 million, including $32.2 million of net investment income and $18.9 million of realized investment gains. This compares with total revenues of $279.7 million in 2001, including $35.9 million of net investment income and $5.7 million of realized investment gains.
“SCPIE has two primary goals,” Donald Zuk, SCPIE president and CEO, commented. “The first is to become profitable again, and the second is to return to our previous A.M. Best rating of excellent or better. The withdrawal of the company from all direct healthcare liability business other than our historical base of California and a small program in Delaware should result in significantly decreased underwriting losses in 2003. The divestiture of our reinsurance business, although expensive, significantly improves our leverage ratios under both the NAIC and A.M. Best capital adequacy models.
“To illustrate the reduction of our non-core business, net earned premium in the fourth quarter of 2002 was only $7.1 million. Our focus going forward will be to continue our efforts to build our California physician book of business and continue to implement strict underwriting standards and pricing guidelines.”
In 2002, net earned premiums for the company’s direct healthcare liability operations totaled $163.5 million compared with $156.4 million in 2001.
Net written premiums in the direct healthcare segment totaled $138.9 million in 2002, versus $168.6 million the year before.
For 2002, SCPIE’s GAAP loss ratio was 112.0 percent compared with 129.1 percent the year before. The expense ratio in 2002 totaled 27.9 percent versus 27.4 percent in 2001. The combined ratio in 2002 was 139.9 percent compared with 156.5 percent the year before.
For the current fourth quarter, net loss equaled $1.70 per share, compared with a net loss of $3.59 per share in the 2001 fourth quarter.
On an operating basis, SCPIE reported a fourth quarter operating loss of $2.65 per share, compared with an operating loss of $3.71 per share in the fourth quarter a year ago.
Net earned premiums for the fourth quarter of 2002 were $50.7 million, of which $39.4 million were from SCPIE’s direct healthcare segment. A year ago, SCPIE reported earned premiums of $71.8 million, including $43.6 million from direct healthcare liability programs.
Total revenues for 2002 fourth quarter, including $7.3 million of net investment income and $13.5 million of realized investment gains, were $72.2 million. In 2001, total fourth-quarter revenues of $82.7 million included $8.6 million of net investment income and $1.6 million of realized investment gains.
At year-end Dec. 31, 2002, total investments equaled $709.3 million compared with $713.9 million a year earlier. Total reserves stood at $718.2 million at the 2002 year-end, compared with $678.5 million at Dec. 31, 2001. Book value per share at Dec. 31, 2002, which includes unrealized gains and losses, was $24.34 versus $27.85 at December 31, 2001. Excluding unrealized gains and losses, book value was $23.14 at Dec. 31, 2002, compared with $27.64 at Dec. 31, 2001.
The company also reported that a hearing will begin today to review a requested rate increase of 15.6 percent for its California business in 2003. It is uncertain when the hearing will be completed and when a decision will be rendered. If, and when, a rate increase is approved, SCPIE will implement the increase on a prospective basis.
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