Los Angeles-based SCPIE Holdings Inc, a provider of healthcare liability insurance, reported results for its fourth quarter and full year ended Dec. 31, 2003. The company also announced that its Board of Directors has suspended the regular quarterly cash dividend, reflecting SCPIE’s commitment to strengthen its financial position.
For the 2003 fourth quarter, SCPIE reported net income of $2.6 million, or $0.28 per share, compared with a net loss a year ago of $15.9 million or $1.70 per share. The positive results reflect the benefit of a rate increase implemented on Oct. 1, 2003 in California, together with the progress the company continues to make in its strategic plan, commenced in 2002, to focus on its core California and Delaware healthcare liability insurance business while reducing its exposure to noncore healthcare liability and assumed reinsurance markets.
For the full year, SCPIE recorded a net loss of $12.8 million, or $1.37 per share, compared with a net loss a year ago of $38.4 million, or $4.12 per share. The losses in 2003 and 2002 stemmed almost entirely from SCPIE’s noncore healthcare liability and assumed reinsurance businesses.
Financial and operational highlights
— The renewal rate for SCPIE’s core direct healthcare liability insurance continued strong in 2003 at 92 percent.
— Although SCPIE’s request for a rate increase in California was challenged, the company was ultimately successful in securing a 9.9 percent increase that took effect Oct. 1, 2003.
— The company intends to submit its next rate application in California after the full 2003 results have been evaluated.
— A rate increase of 34.9 percent was implemented in Delaware in June 2003.
— Following SCPIE’s withdrawal from noncore direct healthcare liability business in 2002, the company’s exposure in those states continues to decline. During 2003 the number of in-force policies decreased by 2,433 to 379 as of Dec. 31, 2003. Outstanding claims for the related business decreased from 1,033 as of Dec. 31, 2002 to 739 as of Dec. 31, 2003.
— SCPIE began 2003 with an agreement in place to cede to GoshawK Reinsurance Ltd. (Bermuda) substantially all of SCPIE’s future assumed reinsurance earned premiums, a key element in the company’s strategic plan to improve its financial strength and enhance its leverage ratios.
— SCPIE’s balance sheet remains debt-free.
“SCPIE ended 2003 on a positive note,” said Donald Zuk, president and CEO. “Despite the setback in the third quarter that dampened our full-year performance, the positive effects of the measures we have taken to get SCPIE back on a solid financial footing were demonstrated in our better loss ratios and fourth-quarter profits. With a full year of higher rates ahead of us, and as we gain the advantage of further distance from our noncore businesses, we are optimistic about our ability to demonstrate continuing improvement as 2004 unfolds.”
“While we regret the suspension of the cash dividend,” Zuk added, “the Board and management agree that this action is a prudent measure, consistent with our strategic plan to strengthen SCPIE’s financial position.”
Core operating review
Net earned premium for the company’s core direct healthcare liability insurance business in the fourth quarter of 2003 totaled $29.8 million, down from $32.3 million a year earlier. Net written premiums were $20.9 million in the 2003 fourth quarter, compared with $25.4 million in last year’s fourth quarter. The core business incurred a net underwriting loss of $1.6 million in the 2003 fourth quarter, an improvement from an underwriting loss of $4.1 million in the final quarter of 2002. The fourth quarter GAAP combined ratio for the core business improved to 105.2 percent, compared with 112.7 percent in 2002, primarily reflecting the benefit of the rate increase effective Oct. 1, 2003.
For the full 2003 year, net earned premium for the company’s core direct healthcare liability insurance business totaled $119.1 million, compared with $116.1 million for the same period a year earlier. Net written premiums for the core direct healthcare liability insurance business rose to $123.3 million from $117.0 million. For the full 2003 year, the core business incurred an underwriting loss of $10.8 million narrowed from a loss of $12.5 million for the same period last year. The GAAP combined ratio equaled 109.1%, compared with 110.8 percent in 2002.
Revenues and premiums declined throughout 2003 compared with 2002, reflecting the significant reduction of noncore business during 2003.
Total revenues for the fourth quarter of 2003 were $45.1 million, compared with total revenues of $72.2 million in the final quarter of 2002. Net earned premiums for the fourth quarter of 2003 were $34.3 million, compared with net earned premiums of $50.7 million in the fourth quarter of 2002.
Also included in fourth-quarter total revenues for 2003 are $6.9 million of net investment income, compared with $7.3 million of net investment income in the fourth quarter of 2002. Realized gains of $4.5 million in the fourth quarter of 2003 and $13.5 million in the fourth quarter of 2002 contributed $0.31 and $0.94 to earnings per share, respectively.
During the fourth quarter of 2003, SCPIE’s GAAP loss ratio declined to 99.5 percent, compared with 148.8% for last year’s fourth quarter. The GAAP expense ratio for the 2003 fourth quarter was 21.3 percent versus 42.6 percent a year ago. The company’s GAAP combined ratio for the quarter was 120.8 percent compared with 191.4 percent a year ago.
Total revenues for 2003 were $187.0 million, compared with total revenues of $339.2 million in 2002. Net earned premiums for 2003 were $163.9 million, compared with net earned premiums of $286.1 million in 2002.
Net written premiums for 2003 totaled $147.0 million compared with net written premiums of $251.8 million in 2002.
Also included in total revenues for 2003 is $22.0 million of net investment income, compared with $32.2 million of net investment income in 2002. Realized investment gains of $216,000 in 2003 and $18.9 million in 2002 contributed $0.02 and $1.32 to earnings per share, respectively.
For all of 2003, SCPIE’s GAAP loss ratio equaled 98.5 percent, compared with 112.0 percent for 2002. The GAAP expense ratio for the full 2003 year was 28.0 percent versus 27.9 percent for 2002. The company’s GAAP combined ratio for the 2003 year was 126.5 percent compared with 139.9 percent in 2002.
As of Dec. 31, 2003, SCPIE’s balance sheet remained debt free. Book value per share at Dec. 31, 2003, was $21.79 compared with $24.34 at Dec. 31, 2002.
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