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Securities and Exchange Commission
Form 11-K
þ | Annual Report Pursuant to Section 15(d) of the Securities Exchange | |
| Act of 1934 |
For the fiscal year ended: December 31, 2004
OR
o | Transition Report Pursuant to Section 15(d) of the Securities | |
| Exchange Act of 1934 |
For the transition period from ________ to _________
Commission File Number: 000-32057
American Physicians Assurance Corporation 401(k) Plan
(Full Title of Plan)
American Physicians Capital, Inc.
(Name of Issuer of the Securities Held Pursuant to the Plan and the Address of its Principal
Executive Office)
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American Physicians Assurance
Corporation 401(k) Plan
and Supplemental Schedule
Years ended December 31, 2004 and 2003
with Report of Independent Registered
Public Accounting Firm
American Physicians Assurance Corporation
401(k) Plan
Audited Financial Statements
and Supplemental Schedule
Years ended December 31, 2004 and 2003
Contents
| 1 | ||||||||
| 2 | ||||||||
| Financial Statements | ||||||||
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| Supplemental Schedule* | ||||||||
| 10 | ||||||||
| Consent of BDO Siedman, LLP | ||||||||
| Consent of PricewaterhouseCoopers LLP | ||||||||
| * | Other schedules required by Section 2520.103.10 of the Department of Labor and Regulations and Disclosure Under ERISA have been omitted because they are not applicable. | ||
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Report of Independent Registered Public Accounting Firm
Board of Directors
American Physicians Assurance Corporation
East Lansing, Michigan
We have audited the accompanying statement of assets available for benefits of American Physicians Assurance Corporation 401(k) Plan as of December 31, 2004, and the related statement of changes in assets available for benefits for the year then ended. These financial statements are the responsibility of the Plan Administrator. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the assets available for benefits of American Physicians Assurance Corporation 401(k) Plan as of December 31, 2004, and the changes in assets available for benefits for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental schedule of assets (held at end of year) as of December 31, 2004 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan Administrator. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements, and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ BDO Seidman, LLP
Grand Rapids, Michigan
June 7, 2005
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Report of Independent Registered Public Accounting Firm
To the Participants and Administrator of
American Physicians Assurance Corporation 401(k) Plan
In our opinion, the accompanying statements of net assets available for benefits and the related statements of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of American Physicians Assurance Corporation 401(k) Plan (the “Plan”) at December 31, 2003, and the changes in net assets available for benefits for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) as of December 31, 2003 is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
June 24, 2004
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American Physicians Assurance Corporation
401(k) Plan
Statements of Assets Available for Benefits
| December 31, | ||||||||
| 2004 | 2003 | |||||||
| Investments: | ||||||||
| Participant directed investment accounts | $ | 10,312,077 | $ | 10,953,885 | ||||
| Participant loans | 83,208 | 152,666 | ||||||
| Assets available for benefits | $ | 10,395,285 | $ | 11,106,551 | ||||
The accompanying notes are an integral part of the financial statements.
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American Physicians Assurance Corporation
401(k) Plan
Statements of Changes in Assets Available for Benefits
| Year Ended December 31, | ||||||||
| 2004 | 2003 | |||||||
Additions: | ||||||||
| Participant contributions | $ | 1,032,408 | $ | 1,169,031 | ||||
| Participating employers’ contributions | 476,261 | 583,740 | ||||||
| Rollover contributions | 2,487 | 707,166 | ||||||
| Interest income | 43,994 | 51,675 | ||||||
| Net realized and unrealized appreciation in fair value of investments | 921,772 | 1,893,094 | ||||||
| Total additions | 2,476,922 | 4,404,706 | ||||||
Deductions: | ||||||||
| Benefit payments | 1,727,429 | 771,139 | ||||||
| Investment expenses | 3,653 | 2,203 | ||||||
| Other | 26,404 | 7,706 | ||||||
| Total deductions | 1,757,486 | 781,048 | ||||||
| Net increase in assets available for benefits | 719,436 | 3,623,658 | ||||||
| Assets transferred out (Note 4) | 1,430,702 | — | ||||||
| Assets available for benefits at beginning of year | 11,106,551 | 7,482,893 | ||||||
| Assets available for benefits at end of year | $ | 10,395,285 | $ | 11,106,551 | ||||
The accompanying notes are an integral part of the financial statements.
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American Physicians Assurance Corporation
401(k) Plan
Notes to Financial Statements
December 31, 2004 and 2003
1. Description of the Plan
The following is a description of the American Physicians Assurance Corporation 401(k) Plan (“the Plan”) and provides only general information. Plan participants should refer to the Plan document for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan which, through September 30, 2004, covered employees of American Physicians Assurance Corporation, Alpha Advisors, Inc., SCW Agency Group, Inc. (“SCW”) and KMA Insurance Agency, Inc. (“KMA”)(“Participating Employers”). Effective October 1, 2004, SCW and KMA elected to discontinue their participation in the Plan. The impact of this event is more fully described in Note 5.
Employees are eligible to participate in the Plan as of January 1 or July 1 following the completion of 6 months and 500 hours of service and having reached the age of 21. The Plan’s operations are subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended.
Contributions
Participants can elect to defer and contribute to the Plan up to 50 percent of their pretax annual compensation, as defined in the Plan, not to exceed limitations contained in Internal Revenue Code (“IRC”) Section 402 (g). The Participating Employers make a contribution equal to 100 percent of the participant’s deferred compensation, up to three percent of the participant’s eligible compensation, and 50 percent of the participant’s deferred compensation which exceeds three percent but does not exceed five percent of the participant’s eligible compensation. Participants may also contribute amounts representing distributions from other qualified plans.
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American Physicians Assurance Corporation
401(k) Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Participants’ Accounts
Each participant’s account is credited with participant’s deferrals, the Participating Employers’ contribution and the earnings of the participant’s accounts. The participant’s account earnings are based on the number of units of each fund owned by the participant, and vary from participant to participant based on the investment fund options that each individual participant has elected. The benefit to which a participant is entitled in the event of death, disability or separation from service, is the vested total of the participant’s account balance.
Vesting
Participants are immediately vested in both voluntary employee deferrals and Participating Employers’ contributions, plus earnings thereon.
Investment Options
Upon enrollment in the Plan, a participant may self-direct employee and employer contributions in any of the investment options that are available under the Plan, with the exception of the CIGNA Direct Fund, which is a self-directed brokerage account. Employee deferrals and employer contributions may not be directed to the CIGNA Direct Fund, but rather funds must be transferred into the fund from other funds. The initial transfer into the CIGNA Direct Fund must be at least $2,500, and subsequent transfers to the fund account must be in amounts of at least $1,000.
Payment of Benefits
On termination of service, a participant may elect to receive a lump-sum amount equal to the value of his or her account balance. If a participant’s account balance is less than $5,000, a single lump sum payment is required. Benefits are recorded when paid. At December 31, 2004 and 2003 there were no distributions requested, but not yet paid.
Participant Loans
A participant may borrow from the Plan an amount not in excess of 50% of the participant’s vested account balance. In no event can the participant borrow less than $1,000 or more than $50,000. Loans are for a period not exceeding five years, except in the case of loan proceeds used to acquire a principal residence. Loans bear interest at an agreed-upon percentage based on prevailing market rates existing at the time a participant loan is made, ranging from 6.00% to 10.75% at December 31, 2004.
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American Physicians Assurance Corporation
401(k) Plan
Notes to Financial Statements (continued)
2. Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan have been presented on the accrual basis.
Investment Valuation
The current value of the units owned by the Plan in the investment accounts, excluding the Guaranteed Income Fund, is based on quoted redemption values on the last business day of the plan year. The Guaranteed Income Fund is an unallocated insurance contract, valued by Prudential and is stated at contract value, which approximates market value.
The Guaranteed Income Fund interest rates are declared in advance and are guaranteed for six months. The net interest rate at December 31, 2004 was 3.2%, and the minimum crediting rate under the contract is 1.5%.
The difference between the selling price and cost, or previously stated fair market value, of investments is reported as net realized and unrealized appreciation or depreciation in the statement of changes in net assets. The difference between fair market value and cost, or previously stated fair market value of investments, is also reported as net realized and unrealized appreciation or depreciation in the statements of changes in net assets.
All income, as well as all investment gains and losses, is allocated to each participant’s account in the proportion that each participant’s account balance bears to the total of all account balances for each particular fund.
Administrative Expenses
Administrative expenses, with the exception of certain investment expenses of the Plan, were paid by the Participating Employers.
Risks and Uncertainties
The Plan’s investments ultimately consist of stocks, bonds, fixed income securities, and other investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in values of investment securities will occur in the near term and that such changes could materially affect participant account balances and the amounts reported in the statement of assets available for benefits.
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American Physicians Assurance Corporation
401(k) Plan
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets available for benefits and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of changes in net assets available for benefits during the reporting period. Actual results could differ from those estimates.
3. Investments
Participants direct their entire account balance between 20 investment funds and American Physicians Capital, Inc. common stock, through the service provider under contract with the trustee of the Plan, Prudential Financial Services (“Prudential”) (formerly CIGNA Bank and Trust Company FSB). American Physicians Capital Inc. is the parent company for American Physicians Assurance Corporation, the primary Participating Employer.
The Plan’s investments are held by Prudential.
At December 31, 2004 and 2003, the following investments, at fair value, exceed five percent of the value of Plan assets available for benefits:
| 2004 | 2003 | |||||||
| Standard and Poor’s 500 Index Fund | $ | 1,266,415 | $ | 1,067,626 | ||||
| Guaranteed Income Fund | 1,159,535 | 1,327,711 | ||||||
| Small Company Stock — Growth I — TimesSquare Capital Management | 1,073,019 | 1,436,431 | ||||||
| Mid Cap Value Fund — Wellington Management | 1,034,753 | 1,025,296 | ||||||
| Alliance Growth & Income A Fund | 890,851 | 1,033,801 | ||||||
| Oppenheimer Global A Fund | 861,769 | 899,490 | ||||||
| Balanced/Dresdner RCM Fund | 743,040 | 1,075,057 | ||||||
| CIGNA Lifetime 40 Fund | — | 571,146 | ||||||
The Plan’s investments in employer issued common stock and self-directed brokerage accounts totaled $51,051 and $29,195, respectively, at December 31, 2004.
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American Physicians Assurance Corporation
401(k) Plan
Notes to Financial Statements (continued)
4. Related-Party Transactions
Effective October 1, 2004, SCW and KMA elected to discontinue their participation in the Plan. On October 1, 2004, $1,430,702 of the assets attributable to participants employed by those entities was spun-off to a plan established by SCW and KMA. The Plan does not consider Participating Employers’ contributions to the Plan to be party-in-interest transactions.
Certain plan investments are funds managed by Prudential, the Plan’s trustee, and as such are considered party-in-interest transactions. Fees paid by the Plan to Prudential for investment management were $3,653 and $2,203 for the years ended December 31, 2004 and 2003.
5. Plan Amendments
Effective October 1, 2004, SCW and KMA elected to discontinue their participation in the Plan. On October 1, 2004, $1,430,702 of the assets attributable to participants employed by those entities was spun-off to a plan established by SCW.
6. Income Tax Status
The Plan obtained its latest determination letter on November 15, 2002, in which the Internal Revenue Service stated that the plan and related trust, as then designed, were in accordance with applicable requirements of the Internal Revenue Code (“IRC”). The Plan has been amended since receiving the determination letter. However, the Plan administrator and the Plan’s legal counsel believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
7. Plan Termination
Although they have not expressed any intent to do so, the Participating Employers have the right under the Plan to discontinue contributions at any time and terminate the Plan, subject to the provisions of ERISA.
8. Subsequent Events
Effective January 1, 2005, the American Physicians Assurance Corporation Pension Plan (“Pension Plan”) was merged into the Plan. The transfer of these assets, in the amount of $7,333,431, from Merrill Lynch to Prudential, the trustee of the Plan, was completed on March 28, 2005.
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American Physicians Assurance Corporation
401(k) Plan
Schedule H, line 4i
December 31, 2004
| (b) | Identity of Issue, Borrower, | (c) | Description of Investment Including Maturity Date, | (e) | Current | |||||
| (a) | Lessor or Similar Party | Rate of Interest, Collateral, Par or Maturity Value | (d) Cost + | Value | ||||||
| * | Prudential Financial Services | Dryden Standard and Poor’s 500 Index Fund | $ | 1,266,415 | ||||||
| * | Prudential Financial Services | Guaranteed Income Fund | 1,159,535 | |||||||
| * | Prudential Financial Services | Small Company Stock - Growth I - TimesSquare Capital Management | 1,073,019 | |||||||
| * | Prudential Financial Services | Mid Cap Value Fund - Wellington Management | 1,034,753 | |||||||
| * | Prudential Financial Services | Alliance Growth & Income A Fund | 890,851 | |||||||
| * | Prudential Financial Services | Oppenheimer Global A Fund | 861,769 | |||||||
| * | Prudential Financial Services | Balanced/Dresdner RCM Fund | 743,040 | |||||||
| * | Prudential Financial Services | Lifetime 40 Fund | 489,836 | |||||||
| * | Prudential Financial Services | Lifetime 50 Fund | 437,806 | |||||||
| * | Prudential Financial Services | Oakmark Select I | 390,207 | |||||||
| * | Prudential Financial Services | Large Cap Growth/Dresdner RCM Fund | 315,138 | |||||||
| * | Prudential Financial Services | Lifetime 20 Fund | 301,200 | |||||||
| * | Prudential Financial Services | Templeton Foreign | 281,965 | |||||||
| * | Prudential Financial Services | Lifetime 30 Fund | 255,966 | |||||||
| * | Prudential Financial Services | Waddell & Reed Accumulative A Fund | 250,033 | |||||||
| * | Prudential Financial Services | Small Company Stock - Value III - TCW Asset Management | 179,904 | |||||||
| * | Prudential Financial Services | Mid Cap Growth Fund - Artisan Partners | 172,581 | |||||||
| * | Prudential Financial Services | Lifetime 60 Fund | 94,475 | |||||||
| * | Prudential Financial Services | American Physicians Capital, Inc. Common Stock | 51,051 | |||||||
| * | Prudential Financial Services | Prudential Short-Term Bond Fund | 33,339 | |||||||
| * | Prudential Financial Services | CIGNA Direct | 29,195 | |||||||
| 10,312,078 | ||||||||||
| * | Participant Loans | Interest rates of 6.00% to 10.75% maturing between 2005 and 2010. | 83,207 | |||||||
| Total Investments | $ | 10,395,285 | ||||||||
There were no assets reportable as both acquired and disposed of within the plan year.
| * | Denotes a party-in-interest. | |
| + | Information not required per Department of Labor reporting requirements. |
Employer identification number: 38-2102867
Three digit plan number: 002
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| American | Physicians Assurance Corporation | |||
| 401(k)Plan | ||||
| Date: June 29, 2005 | /s/ Nancy Axtell | |||
| Nancy Axtell, | ||||
| Vice President of Human Resources | ||||
| American Physicians Capital, Inc. |
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