American Physicians Capital (ACAP) 8-K American Physicians Capital, Inc. Reports Second Quarter 2010 Results

Exhibit 99

American Physicians Capital, Inc. Reports Second Quarter 2010 Results

EAST LANSING, Mich.--(BUSINESS WIRE)--July 29, 2010--American Physicians Capital, Inc. (APCapital) (NASDAQ:ACAP) today announced net income of $9.4 million or $.98 per diluted common share for the second quarter of 2010. This compares to net income of $11.0 million, or $.97 per diluted common share for the second quarter of 2009. Year-to-date, the Company has generated net income of $18.4 million or $1.88 per diluted common share in 2010, compared to $21.1 million or $1.82 per diluted common share in the first six months of 2009. At June 30, 2010, APCapital’s book value per share was $25.20 based on 9,339,087 shares outstanding.

As announced on July 8, 2010, APCapital has entered into a definitive merger agreement with The Doctors Company, the largest national insurer of physician and surgeon medical liability, pursuant to which The Doctors Company will acquire APCapital for $41.50 per share in cash. The transaction is expected to close in the fourth quarter of 2010 and is subject to customary closing conditions.

Consolidated Income Statement
(Dollars in thousands)
		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2010			2009			2010			2009
Direct Premiums Written		$	24,001		$	24,245		$	51,297		$	54,367
Net Premiums Written		$	25,095		$	23,389		$	51,130		$	52,109
Net Premiums Earned		$	29,388		$	28,382		$	56,083		$	57,688
Incurred Loss and Loss Adjustment Expenses:
	Current Accident Year Losses		22,928			23,200			44,841			47,036
	Prior Year Losses		(8,276	)		(10,087	)		(16,397	)		(18,311	)
	Total		14,652			13,113			28,444			28,725
Underwriting Expenses			7,042			7,319			13,669			14,451
	Underwriting Income		7,694			7,950			13,970			14,512
Investment Income			6,298			8,028			12,664			16,218
Other Income (1)			282			212			857			435
Other Expenses			(1,704	)		(846	)		(2,542	)		(1,818	)
	Pre-tax Income		12,570			15,344			24,949			29,347
Federal Income Taxes			3,138			4,354			6,566			8,270
	Net Income	$	9,432		$	10,990		$	18,383		$	21,077
Loss Ratio:
	Current Accident Year		78.0	%		81.7	%		80.0	%		81.5	%
	Prior Year Development		-28.1	%		-35.5	%		-29.3	%		-31.7	%
	Calendar Year		49.9	%		46.2	%		50.7	%		49.8	%
Underwriting Expense Ratio			24.0	%		25.8	%		24.4	%		25.1	%
Combined Ratio			73.9	%		72.0	%		75.1	%		74.9	%
(1) Includes realized gains and losses

Direct premiums written were $24.0 million in the second quarter of 2010, down $244,000 or 1.0% from the same period a year ago. Year-to-date, direct premiums written are down $3.1 million or 5.6%. The rate of decline in direct premiums written slowed in the second quarter of 2010 due to an increase in new business written in Illinois. However, direct premiums have continued to decrease due to rate reductions based on lower claims frequency trends and competitive pressures. We insured 8,631 physicians at June 30, 2010, down from 8,821 insureds at year end 2009.

Net premiums earned in the second quarter of 2010 were up $1.0 million or 3.5% from the second quarter of 2009, but were down $1.6 million or 2.8% year-to-date. In the second quarter of 2010 we recognized $2.0 million of reduced ceded premiums due to the favorable development of loss reserves associated with our swing-rated reinsurance treaties on prior years.

The 2010 second quarter loss ratio was 49.9% with $8.3 million of positive development from prior accident years. For the six months ended June 30, 2010, the loss ratio was 50.7% with $16.4 million of positive prior year development. On an accident year basis, the loss ratio for the first half of 2010 was 80.0%, down from the 81.5% reported in the first half of 2009. This decrease in accident year loss ratio reflects the recent trend of favorable reserve development and the impact of the swing rated reinsurance treaty premium adjustment.

Claim frequency continued to be at historically low levels, but has leveled-off. The number of claims reported in the second quarter of 2010 was 270, up from 254 reported in the second quarter of 2009 but down from the 296 reported in the first quarter of 2010. Our open claim count is 1,416 at June 30, 2010. Our average net case reserve increased to $185,100 at June 30, 2010 from $183,100 at December 31, 2009.

The underwriting expense ratio decreased in the second quarter of 2010 to 24.0% from 25.8% in the second quarter of 2009. Year-to-date the underwriting expense ratio is down to 24.4% from 25.1% a year ago. This decrease in the underwriting expense ratio is primarily the result of our continued cost cutting efforts and the swing-rated premium adjustment. Other expenses were up $858,000 in the second quarter of 2010 and $724,000 year-to-date as a result of costs associated with our recently announced merger agreement with The Doctors Company.

Investments

Investment income was $6.3 million in the second quarter of 2010, down from $8.0 million for the same period in 2009. The overall investment yield decreased to 3.25% in the second quarter 2010 from 3.97% in the second quarter of 2009. Year-to-date our investment yield was 3.24% through June 2010 compared to 3.97% through June 30, 2009. These decreases were primarily attributable to our increased position in tax-exempt securities, and the decline in short-term interest rates.

Balance Sheet and Equity Information

APCapital’s total assets were $930.2 million at June 30, 2010, down $14.4 million from December 31, 2009. At June 30, 2010 the Company’s total shareholders’ equity was $235.3 million, down $1.7 million from December 31, 2009. Our net income of $18.4 million through the second quarter of 2010 was more than offset by the Company utilizing $19.6 million of equity to repurchase its common shares and $1.7 million to pay shareholder dividends.

Capital Management

In the second quarter of 2010, APCapital repurchased 261,300 shares at an average cost of $31.72 per share. Year-to-date through June 30, 2010, we repurchased 647,100 shares at an average cost of $30.32 per share. As previously announced, we have discontinued our cash dividend and share repurchase program as a result of our pending acquisition by The Doctors Company.

Stock Split

All share and per share numbers disclosed in this press release have been adjusted to reflect the July 2009 four-for-three stock split.

Corporate Description

American Physicians Capital, Inc. is a regional provider of medical professional liability insurance focused primarily in the Midwest and New Mexico markets through American Physicians Assurance Corporation and its other subsidiaries. Further information about the companies is available on the Internet at http://www.apcapital.com.

Forward-Looking Statements

Certain statements made by American Physicians Capital, Inc. in this release may constitute forward-looking statements within the meaning of the federal securities laws. When we discuss future operating results, plans, objectives, expectations and intentions, or use words such as “will,” “should,” “believes,” “expects,” “anticipates,” “estimates” or similar expressions, we are making forward-looking statements. These forward-looking statements represent our outlook only as of the date of this release. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive risks and uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the following:

• increased competition could adversely affect our ability to sell our products at premium rates we deem adequate, which may result in a decrease in premium volume, a decrease in our profitability, or both;
• our reserves for unpaid losses and loss adjustment expenses are based on estimates that may prove to be inadequate to cover our losses;
• market liquidity and volatility associated with the current financial crisis makes the fair values of our investments more difficult to estimate and may have other unforeseen consequences that we are currently unable to predict;
• an interruption or change in current marketing and agency relationships could reduce the amount of premium we are able to write;
• if we are unable to obtain or collect on ceded reinsurance, our results of operations and financial condition may be adversely affected;
• our geographic concentration in certain Midwestern states and New Mexico ties our performance to the business, economic, regulatory and legislative conditions in those states;
• a downgrade in the A.M. Best Company financial strength rating of our primary insurance subsidiary could reduce the amount of business we are able to write;
• changes in interest rates could adversely impact our results of operation, cash flows and financial condition;
• the unpredictability of court decisions could have a material adverse financial impact on our operations;
• our business could be adversely affected by the loss of one or more of our key employees;
• the insurance industry is subject to regulatory oversight that may impact the manner in which we operate our business, our ability to obtain future premium rate increases, the type and amount of our investments, the levels of capital and surplus deemed adequate to protect policyholder interests, or the ability of our insurance subsidiaries to pay dividends to the holding company;

• our status as an insurance holding company with no direct operations could adversely affect our ability to meet our debt obligations and fund future cash dividends and share repurchases;
• legislative or judicial changes in the tort system may have adverse or unintended consequences that could materially and adversely affect our results of operations and financial condition;
• applicable law and certain provisions in our articles and bylaws may prevent and discourage unsolicited attempts to acquire our Company that may be in the best interest of our shareholders or that might result in a substantial profit to our shareholders;
• the possibility that the closing of the transaction with The Doctors Company does not occur or is delayed, either due to the failure of closing conditions, including approval of APCapital’s shareholders, the failure to obtain required regulatory approvals or other reasons; and
• any other factors listed or discussed in the reports filed by APCapital with the Securities and Exchange Commission under the Securities Exchange Act of 1934.

Other factors not currently anticipated by management may also materially and adversely affect our financial condition, liquidity or results of operations. APCapital does not undertake, and expressly disclaims any obligation, to update or alter its statements whether as a result of new information, future events or otherwise, except as required by applicable law.

Definition of Non-GAAP Financial Measures

APCapital uses operating income, a non-GAAP financial measure, to evaluate APCapital’s underwriting performance. Operating income differs from net income by excluding the after-tax effect of realized capital gains and (losses).

Although the investment of premiums to generate investment income and capital gains or (losses) is an integral part of an insurance company’s operations, APCapital’s decisions to realize capital gains or (losses) are independent of the insurance underwriting process. In addition, under applicable GAAP accounting requirements, losses may be recognized for accounting purposes as the result of other than temporary declines in the value of investment securities, without actual realization. APCapital believes that the level of realized gains and (losses) for any particular period is not indicative of the performance of our ongoing underlying insurance operations in a particular period. As a result, APCapital believes that providing operating income (loss) information makes it easier for users of APCapital’s financial information to evaluate the success of APCapital’s underlying insurance operations.

In addition to APCapital’s reported loss ratios, management also uses accident year loss ratios, a non-GAAP financial measure, to evaluate APCapital’s current underwriting performance. The accident year loss ratio excludes the effect of prior years’ loss reserve development. APCapital believes that this ratio is useful to investors as it focuses on the relationships between current premiums earned and losses incurred related to the current year. Although considerable variability is inherent in the estimates of losses incurred related to the current year, APCapital believes that the current estimates are reasonable.

Summary Financial Information
American Physicians Capital, Inc.
Balance Sheet Data	June 30,		December 31,
	2010		2009
	(In thousands, except per share data)
Assets:
Available-for-sale - bonds	$	263,083	$	205,073
Held-to-maturity - bonds		328,728		368,851
Other invested assets		57,193		53,303
Cash and cash equivalents		140,651		172,162
Cash and investments		789,655		799,389
Premiums receivable		26,556		29,662
Reinsurance recoverable		63,754		63,283
Deferred federal income taxes		16,233		17,328
Other assets		33,962		34,852
Total assets	$	930,160	$	944,514
Liabilities and Shareholders' Equity:
Unpaid losses and loss adjustment expenses	$	596,077	$	608,807
Unearned premiums		45,677		50,670
Long-term debt		25,928		25,928
Other liabilities		27,148		22,069
Total liabilities		694,830		707,474
Retained earnings		223,992		226,952
Accumulated other comprehensive income:
Net unrealized gains on investments,
net of deferred federal income taxes		11,338		10,088
Shareholders' equity		235,330		237,040
Total liabilities and shareholders' equity	$	930,160	$	944,514
Shares outstanding		9,339		9,986
Book value per share	$	25.20	$	23.74

Summary Financial Information
American Physicians Capital, Inc.
Income Statement
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(In thousands, except per share data)
Direct premiums written	$	24,001		$	24,245		$	51,297		$	54,367
Net premiums written	$	25,095		$	23,389		$	51,130		$	52,109
Net premiums earned	$	29,388		$	28,382		$	56,083		$	57,688
Investment income		6,298			8,028			12,664			16,218
Net realized gains		-			-			326			-
Other income		282			212			531			435
Total revenues		35,968			36,622			69,604			74,341
Losses and loss adjustment expenses		14,652			13,113			28,444			28,725
Underwriting expenses		7,042			7,319			13,669			14,451
Other expenses		1,704			846			2,542			1,818
Total expenses		23,398			21,278			44,655			44,994
Income before income taxes		12,570			15,344			24,949			29,347
Federal income tax expense		3,138			4,354			6,566			8,270
Net income	$	9,432		$	10,990		$	18,383		$	21,077
Adjustments to reconcile net income to operating income:
Net income	$	9,432		$	10,990		$	18,383		$	21,077
Addback:
Net realized gains, net of tax		-			-			(212	)		-
Net operating income	$	9,432		$	10,990		$	18,171		$	21,077
Ratios:
Loss ratio (1)		49.9	%		46.2	%		50.7	%		49.8	%
Underwriting ratio (2)		24.0	%		25.8	%		24.4	%		25.1	%
Combined ratio (3)		73.9	%		72.0	%		75.1	%		74.9	%
Earnings per share data:
Net income
Basic	$	1.00		$	0.99		$	1.91		$	1.85
Diluted	$	0.98		$	0.97		$	1.88		$	1.82
Net operating income
Basic	$	1.00		$	0.99		$	1.89		$	1.85
Diluted	$	0.98		$	0.97		$	1.86		$	1.82
Basic weighted average shares outstanding		9,476			11,108			9,633			11,380
Diluted weighted average shares outstanding		9,616			11,275			9,770			11,564
(1)The loss ratio is calculated by dividing incurred loss and loss adjustment expenses by net premiums earned.
(2)The underwriting ratio is calculated by dividing underwriting expenses by net premiums earned.
(3)The combined ratio is the sum of the loss and underwriting ratios.

Summary Financial Information
American Physicians Capital, Inc.
Selected Cash Flow Information
	Six Months Ended
	June 30,
	2010			2009
	(In thousands)
Net cash from operating activities	$	2,711		$	17,247
Net cash (for) from investing activities	$	(12,774	)	$	54,908
Net cash for financing activities	$	(21,448	)	$	(34,713	)
Net (decrease) increase in cash and cash equivalents	$	(31,511	)	$	37,442

American Physicians Capital, Inc.
Supplemental Statistics
Medical Professional Liability
	Reported	Net Premium
Three Months Ended	Claim Count	Earned
		(In thousands)
June 30, 2010	270	$	29,390
March 31, 2010	296		26,695
December 31, 2009	184		29,400
September 30, 2009	237		28,261
June 30, 2009	254		28,383
March 31, 2009	244		29,302
December 31, 2008	182		30,704
September 30, 2008	233		30,494
June 30, 2008	261		31,420
March 31, 2008	232		31,657
December 31, 2007	245		33,471
September 30, 2007	191		35,517
June 30, 2007	269		34,896
				Average Net
		Average Net		Paid Claim
	Open	Case Reserve		(Trailing Four
Three Months Ended	Claim Count	Per Open Claim		Quarter Average)
June 30, 2010	1,416	$	185,100	$	98,800
March 31, 2010	1,372		184,500		91,700
December 31, 2009	1,290		183,100		86,200
September 30, 2009	1,359		173,800		83,400
June 30, 2009	1,349		178,500		76,200
March 31, 2009	1,429		179,000		74,500
December 31, 2008 (1)	1,418		166,500		72,500
September 30, 2008	1,540		153,100		69,200
June 30, 2008	1,639		150,000		65,700
March 31, 2008	1,672		148,600		63,100
December 31, 2007	1,741		144,800		67,500
September 30, 2007	1,913		144,200		70,400
June 30, 2007	2,124		136,200		69,600
	Retention Ratio
	Six Months Ended	Year Ended		Six Months Ended
	June 30, 2010	December 31, 2009		June 30, 2009
Michigan	87%	89%		89%
Illinois	90%	90%		89%
Ohio	85%	87%		86%
New Mexico	90%	89%		88%
Total (all states)	88%	88%		88%
(1) Excludes the effect of approximately $16.6 million of negative paid losses resulting from the commutation of the Company's 2005 medical professional liability reinsurance treaty.

CONTACT:
American Physicians Capital, Inc.
Ann Storberg, Investor Relations
(517) 324-6629