PICO Holdings

WATER RESOURCE AND WATER STORAGE OPERATIONS

REAL ESTATE OPERATIONS

INSURANCE IN "RUN-OFF" OPERATIONS

This business segment consists of Physicians Insurance Company of Ohio and Citation Insurance Company which are in "run-off". This means that Physicians and Citation are handling and resolving the claims on expired policies, but not writing new business.

Once an insurance company has gone into run off and the last of its policies have expired, typically most revenues come from net investment income and realized gains or losses on the sale of the securities investments which correspond to the insurance company's reserves and shareholders' equity.

Administering our own run off also provides us with the following opportunities:

We retain management of the associated investment portfolios.
We believe that the return on our portfolio assets has been attractive in absolute terms, and highly competitive in relative terms.
Since the claims reserves of the "run-off" insurance companies effectively recognize the cost of paying and handling claims in future years, the investment return on the corresponding investment assets, less non-insurance expenses, accrues to PICO.
We are able to participate in favorable development of our claims reserves, if any.

In broad terms, Physicians and Citation hold cash and fixed-income securities corresponding to their loss reserves and state capital and deposit requirements, and the remainder of the portfolio is invested in small-capitalization value stocks in the U.S. and selected foreign markets.

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