Exhibit 99.1
American Physicians Capital, Inc. Reports First Quarter 2003 Results
EAST LANSING, Mich., May 8 /PRNewswire-FirstCall/ --
American Physicians Capital, Inc. (APCapital) (Nasdaq: ACAP) today reported a
net loss of ($985,000), or ($.11) per diluted share for the first quarter of
2003, compared to a net loss of ($12.6) million, or ($1.26) per diluted share
for the first quarter of 2002. Net operating loss was also ($.11) per diluted
share in the first quarter of 2003, as compared to a net operating loss of
($.33) per diluted share in the first quarter of 2002.
"Our operating results continued to improve as our loss ratio dropped to
95.8%," said President and CEO William B. Cheeseman. "We had hoped to be
profitable for the quarter, but the extremely low interest rate environment
has reduced our investment returns. However, we are reporting improved
operating results in all lines, and continue to obtain rate increases in all
markets."
Operating income, which differs from net income by excluding the net
effect of realized capital gains and losses, is used by management and the
investment community as an important measure of the company's financial
performance. APCapital believes that investors' understanding of our
company's performance is enhanced by our disclosure of non-GAAP financial
measures. We use operating income (loss) as a measure of underwriting
performance, and we believe that it is useful to investors because it excludes
the net effect of realized capital gains and losses, which are volatile
between periods and because investors often exclude such data when evaluating
a company's performance.
In addition to our reported GAAP loss ratios, we also report an accident
year loss ratio, which excludes any prior year loss reserve development. We
believe this is useful to investors as it is a better indication of our
current underwriting performance. Our method of calculating these measures
may differ from those used by other companies and, therefore, comparability
may be limited.
In accordance with the transition guidance given in Statement of Financial
Accounting Standards ("SFAS") No. 142, the goodwill impairment charge, net of
tax, that was determined in the fourth quarter of 2002 has been recorded in
the first quarter of 2002 as SFAS No. 142 was adopted effective January 1,
2002.
Medical Professional Liability Results
Net earned premiums were $39.5 million in the first quarter of 2003, a
19.8% increase over the first quarter of 2002. The majority of this premium
increase is from the Company's rate actions as our insured physician count
decreased 5.3%. The Company continues its exit from the Florida market, and
the elimination of poor risks in other markets. However, the Company has
increased its market penetration in Michigan and Illinois. During the first
quarter, the Company successfully renewed its reinsurance program at terms
similar to 2002. The major reinsurance company participants are Hannover Re,
American Re, and Transatlantic Reinsurance Co.
Loss and loss adjustment expenses continued to improve. The first quarter
2003 reported loss ratio was 104.3%, consisting of 101.8% on the current
accident year and 2.5% of prior year development. These ratios compare to
116.8% on the 2002 accident year and 4.5% of prior year development for a
total loss ratio of 121.3% reported in the first quarter of 2002.
Underwriting expenses were $7.8 million, or 19.8% of net earned premium in
the first quarter of 2003 compared to $6.4 million, or 19.4% in the first
quarter of 2002. The increases in underwriting expenses were directly
attributable to the increase in commissions and premium taxes associated with
the higher premium volume.
Workers' Compensation Results
Net earned premiums were $12.5 million in the first quarter of 2003, an
18.0% decrease from the first quarter of 2002. The decrease was the result of
the non-renewal of construction and other higher risk or poor performing
business. This decline in premium is part of management's plan to restructure
the workers' compensation book of business into a more profitable, lower-risk
line of business. Rates on renewal business in the 2003 first quarter
increased an average of 23%.
Loss and loss adjustment expenses have improved from 2002. The first
quarter 2003 reported loss ratio was 73.7% consisting of 80.1% on the current
accident year and (6.4%) of prior year development. These ratios compare to
80.0% on the 2002 accident year and (6.5%) of prior year development for a
total loss ratio of 73.5% reported in the first quarter of 2002. The loss
ratio for all of 2002 was 86.8%.
Underwriting expenses were $4.3 million, or 34.2% of net earned premium in
the first quarter of 2003 compared to $3.9 million, or 25.4% in the first
quarter of 2002. The increase in underwriting expenses was attributable to
the hiring of a new management team and the restructuring of the book-of-
business.
Health and Other Operating Activities
Net earned premiums for the health program were $6.5 million in the first
quarter of 2003, a 14.8% increase over the first quarter of 2002. The health
premiums relate to a single preferred provider program sponsored by one of the
Company's major Michigan professional liability insured groups. The increase
in premiums is the result of increasing rates as the actual number of covered
lives in the program decreased 19.0%.
The health line generated a loss ratio of 82.7% in the first quarter of
2003 as compared to 102.0% in the 2002 first quarter. This improved loss
ratio was attributable to the higher rates and the non-renewal of poor
performing accounts.
Loss reserve development and reinsurance treaty adjustments related to the
run-off of the personal and commercial lines resulted in a ($354,000) loss in
the first quarter of 2003. This compares to a loss of ($154,000) in the first
quarter of 2002.
Investment Income
Investment income was $10.4 million in the first quarter of 2003, a 4.2%
decrease from the first quarter of 2002. The decrease was primarily due to
lower interest rates and the Company's large cash position in the first
quarter. The average yield on investments was 5.48% for the first quarter of
2003 as compared to 5.84% for the same period in 2002.
Balance Sheet and Equity Information
APCapital's total assets were $1.059 billion at March 31, 2003, virtually
unchanged from December 31, 2002. Net unrealized gains on the Company's
investments increased $2.0 million during the first quarter of 2003. At
March 31, 2003, the Company's total shareholders' equity was $280.7 million,
up from $280.3 million at December 31, 2002. The increase in equity was the
result of unrealized gains in the investment portfolio.
APCapital's book value per common share was $32.25 at March 31, 2003,
based on 8,701,533 common shares outstanding, compared to $32.24 at
December 31, 2002. Tangible book value per common share was $32.20 at
March 31, 2003, compared to $32.24 at December 31, 2002.
Trust Preferred Pools
During the first quarter, the Company pursued participation in two
insurance trust preferred pools. The pools are expected to close in May 2003
with the Company's anticipated net proceeds approximating $29 million. The
pools are anticipated to have a 30 year maturity and bear interest at a
floating rate. The initial interest rate is expected to approximate 5.5%.
Outlook
"I remain positive about the future," said Cheeseman. "Our higher rate
structure and improved book of business will result in continued declines in
our loss ratios; and I remain confident that we will achieve profitability in
2003."
Conference Call: APCapital's Web site, www.apcapital.com/investor , will
host a live Webcast of its conference call in a listen-only format to discuss
2003 first quarter results on May 9, 2003 at 10:00 a.m. Eastern time. An
archived edition of the Webcast will be available for two weeks following the
event. For individuals unable to access the Webcast, a telephone replay will
be available by dialing 1-800-642-1687 or (706) 645-9291 and entering the
conference ID code: 9855683. The replay will be available through 11:59 p.m.
Eastern time on May 23, 2003.
Corporate Description
American Physicians Capital, Inc. is a national provider of medical
professional liability and workers' compensation insurance through American
Physicians Assurance Corporation and its other subsidiaries. The group of
companies is rated A- (Excellent) by A.M. Best and A- by Standard & Poor's.
Further information about the companies is available on the Internet at
www.apcapital.com .
Forward-Looking Statement: Certain statements made by American Physicians
Capital, Inc. in this release may constitute forward-looking statements within
the meaning of the federal securities laws. While we believe any forward-
looking statements we have made are reasonable, they are subject to risks and
uncertainties, and actual results could differ materially. These risks and
uncertainties include, but are not limited to, the following: the potential
inadequacy of our loss and loss adjustment expense reserves, liabilities
imposed that exceed our policy limits and reserves, increased pressures on
rates and our potential inability to obtain rate increases, adverse changes in
the health care industry, our potential inability to obtain adequate and
affordable reinsurance coverage from creditworthy reinsurers and to collect
the full amount of reinsurance recoverable due to run-off or insolvency of a
reinsurer, adverse regulatory changes in Michigan and all of our states of
operation, our potential inability to execute our business strategy, the loss
of our relationships with medical associations, an unanticipated increase in
claims or other unforeseen costs due to our exit from certain markets, an
interruption or change in our principal third-party distribution relationship,
a reduction in our A.M. Best Company rating, negative changes in financial
market conditions, a further downturn in general economic conditions, 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.
APCapital does not undertake, and expressly disclaims any obligation, to
update or alter its forward-looking statements whether as a result of new
information, future events or otherwise, except as required by law.
Summary Financial Information
APCapital, Inc.
Balance Sheet Data March 31, December 31,
2003 2002
(In thousands, except per share data)
Assets:
Cash and investments $800,071 $801,556
Premiums receivable 58,273 62,531
Reinsurance recoverable 103,113 98,128
Deferred federal income taxes 41,027 42,542
Federal income taxes recoverable 2,015 1,100
Other assets 54,370 53,061
Total assets $1,058,869 $1,058,918
Liabilities and Shareholders' Equity:
Unpaid losses and loss adjustment
expenses $639,331 $637,494
Unearned premiums 101,013 103,420
Note payable, officer 6,662 6,567
Other liabilities 31,189 31,148
Total liabilities 778,195 778,629
Shareholders' equity 280,674 280,289
Total liabilities and
shareholders' equity $1,058,869 $1,058,918
Book value per share:
Total $32.25 $32.24
Tangible $32.20 $32.24
Shares outstanding 8,702 8,695
Summary Financial Information
APCapital, Inc.
Income Statement
Three Months Ended
March 31,
2003 2002
(In thousands except per share data)
Net premiums earned $58,436 $53,927
Investment income 10,385 10,836
Net realized losses (3) (286)
Other income 161 134
Total revenues 68,979 64,611
Losses and loss adjustment expenses 55,982 57,168
Underwriting expenses 13,287 11,471
Other expenses 1,225 1,401
Total expenses 70,494 70,040
Loss before income taxes and
cumulative effect of a change
in accounting principle (1,515) (5,429)
Federal income tax benefit (530) (1,900)
Loss before cumulative effect of
a change in accounting principle (985) (3,529)
Cumulative effect of a change in
accounting principle (1) (9,079)
Net loss $(985) $(12,608)
Adjustments to reconcile net loss to
operating loss
Net loss (985) (12,608)
Add back:
Realized losses, net of tax 2 186
Cumulative effect of a change in
accounting principle (1) 9,079
Operating loss $(983) $(3,343)
Earnings per share data
Net loss before cumulative effect of
a change in accounting principle (1)
Basic $(0.11) $(0.35)
Diluted $(0.11) $(0.35)
Cumulative effect of a change in
accounting principle (1)
Basic $(0.91)
Diluted $(0.91)
Net loss
Basic $(0.11) $(1.26)
Diluted $(0.11) $(1.26)
Operating loss per share
Basic $(0.11) $(0.33)
Diluted $(0.11) $(0.33)
Basic weighted average shares
outstanding 8,595 10,029
Diluted weighted average shares
outstanding 8,595 (2) 10,029 (2)
(1) In accordance with the transition guidance given in SFAS No. 142, the
goodwill impairment charge, net of tax, that was determined in the fourth
quarter of 2002 has been recorded in the first quarter of 2002 as SFAS No. 142
was adopted effective January 1, 2002.
(2) Incremental shares for the conversion of options are not included in
the calculation as they would be anti-dilutive.
Summary Financial Information
APCapital, Inc.
Line of Business Results
(Dollars in thousands) Three Months Ended
March 31,
2003 2002
Direct Premiums Written:
Medical professional liability $47,591 $45,403
Workers' compensation 7,226 19,268
Health 6,841 5,528
Personal and commercial - 360
Total $61,658 $70,559
Net Premiums Written:
Medical professional liability $40,119 $38,567
Workers' compensation 8,305 18,126
Health 6,525 5,684
Personal and commercial (112) -
Total $54,837 $62,377
Net Premiums Earned:
Medical professional liability $39,485 $32,951
Workers' compensation 12,538 15,292
Health 6,525 5,684
Personal and commercial (112) -
Total $58,436 $53,927
Loss Ratio:
Medical professional liability 104.3% 121.3%
Workers' compensation 73.7% 73.5%
Health 82.7% 102.0%
Personal and commercial (1) -139.7%
Total 95.8% 106.0%
Underwriting Ratio:
Medical professional liability 19.8% 19.4%
Workers' compensation 34.2% 25.4%
Health 16.9% 21.0%
Personal and commercial (1) -75.9%
Total 22.7% 21.3%
Combined Ratio:
Medical professional liability 124.1% 140.7%
Workers' compensation 107.9% 98.9%
Health 99.6% 123.0%
Personal and commercial (1) -215.6%
Total 118.5% 127.3%
(1) There were no personal and commercial premiums earned during the
three months ended March 31, 2002. Therefore, loss, underwriting and combined
ratios are not applicable.