Exhibit 99
AMERICAN PHYSICIANS CAPITAL, INC. REPORTS THIRD QUARTER 2005 RESULTS
EAST LANSING, Mich., Nov. 3 /PRNewswire-FirstCall/ --
Significant Third Quarter 2005 Events
* Net income of $6.8 million or $.79 per diluted common share
* Operating income of $7.1 million or $.82 per diluted common share
* Book value increased to $30.55 per share
* Continued strong medical professional liability results with a
year-to-date combined ratio of 97.9%
* Stable run-off reserves in our "other insurance" line
American Physicians Capital, Inc. (APCapital) (Nasdaq: ACAP) today
announced net income of $6.8 million or $.79 per diluted common share for the
third quarter of 2005. This compares to net income of $4.5 million, or $.52 per
diluted common share for the 2004 third quarter. For the nine months ended
September 30, 2005, the Company has generated net income of $61.9 million or
$7.08 per diluted common share compared to net income of $13.5 million or $1.57
per diluted common share in 2004. Strong earnings and the elimination of the
Company's deferred tax valuation allowance in the second quarter of 2005 were
the primary contributors to the increase in net income recorded in the first
nine months of 2005 compared with the same period in 2004.
For the third quarter of 2005, operating income, which excludes realized
gains and losses, net of tax was $7.1 million, or $.82 per diluted common share.
This compares to net operating income of $4.8 million or $.54 per diluted common
share in the third quarter of 2004.
"Our strategic plan over the last several quarters to improve the
performance of our core medical professional liability business and shed non-
core lines continued to produce positive results," stated President and Chief
Executive Officer R. Kevin Clinton. "Medical professional liability generated a
solid $11.3 million of pre-tax earnings for the quarter, and the other insurance
line now has a negligible impact on our financials."
Medical Professional Liability Results
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
(dollars in thousands) 2005 2004 2005 2004
- ---------------------------------------- ------------ ------------ ------------ ------------
Direct Premiums Written $ 61,903 $ 70,784 $ 145,657 $ 163,841
Net Premiums Written $ 53,101 $ 61,149 $ 123,762 $ 141,088
Net Premiums Earned $ 40,280 $ 44,169 $ 122,981 $ 130,184
Incurred Loss and Loss Adjustment
Expenses:
Current Accident Year Losses 32,161 36,881 99,455 112,557
Gerling Commutation - - - 4,139
Prior Year Losses (1,375) (700) (3,925) (5,549)
Total 30,786 36,181 95,530 111,147
Underwriting Expenses 7,401 9,185 24,902 27,340
Underwriting Income (Loss) 2,093 (1,197) 2,549 (8,303)
Net Investment Income and Other 9,178 9,300 29,248 32,177
Pre-tax Income $ 11,271 $ 8,103 $ 31,797 $ 23,874
Loss Ratio:
Current Accident Year 79.8% 83.5% 80.9% 86.5%
Prior Year Development (including
Gerling) -3.4% -1.6% -3.2% -1.1%
Calendar Year 76.4% 81.9% 77.7% 85.4%
Underwriting Expense Ratio 18.4% 20.8% 20.2% 21.0%
Combined Ratio 94.8% 102.7% 97.9% 106.4%
Pre-tax income in the third quarter of 2005 totaled $11.3 million, an
increase of $3.2 million or 39.1% from the same period in 2004. The improved
results reflect the positive impact of rate increases taken since 2002, the exit
from unprofitable markets and market segments, as well as the implementation of
more stringent underwriting standards.
The loss ratio in the third quarter of 2005 was 76.4%, which lowered the
loss ratio for the first nine months of 2005 to 77.7%. The 2005 year-to-date
loss ratio is down from 85.4% for the first nine months of 2004. The improved
loss ratio was the result of several factors including earned rate increases and
the application of stricter underwriting standards. The 2005 year-to-date loss
ratio includes $3.9 million of positive prior year development as compared to
$5.5 million a year ago (excluding the effects of the 2004 Gerling commutation).
Direct written premiums are down $8.9 million or 12.5% in the third quarter
of 2005, and year-to-date premiums are down $18.2 million or 11.1% from a year
ago. The result of exiting Nevada and Florida, discontinuing the alternative
risk program and non-renewing a larger hospital account due to underwriting
considerations accounted for approximately $10.2 million of this year-to-date
decline in premium. Premiums also declined from 2004 due to reducing exposures
in certain high risk territories and specialties in Ohio and Kentucky where our
premiums are down $4.1 million and $3.9 million year- to-date, respectively.
Premium rate increases have ranged from 2.5% to 9.0% by state in 2005,
except Kentucky where we increased rates 23.6%. Although we have experienced
price competition, we remain committed to profitable underwriting, and thus will
continue to adequately price our product.
The underwriting expense ratio was 18.4% in the third quarter of 2005, down
from 20.8% in the third quarter of 2004 as we continue to work to reduce
expenses. The third quarter ratio also benefited from the recovery of certain
expenses previously recorded in relation to an arbitration matter. Our year-
to-date 2005 underwriting ratio of 20.2% is down from the 2004 rate of 21.0%.
Other Insurance Lines Results
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
(dollars in thousands) 2005 2004 2005 2004
- ---------------------------------------- ------------ ------------ ------------ ------------
Direct Premiums Written $ (62) $ 2,306 $ 2,082 $ 8,938
Net Premiums Written $ (110) $ 2,574 $ (348) $ 8,716
Net Premiums Earned $ (109) $ 4,586 $ 763 $ 23,775
Incurred Loss and Loss Adjustment
Expenses:
Current Accident Year Losses (106) 4,706 505 21,088
Gerling Commutation - - - 271
Prior Year Losses 114 1,886 1,809 5,194
Total 8 6,592 2,314 26,553
Underwriting Expenses 137 653 345 6,646
Underwriting Loss (254) (2,659) (1,896) (9,424)
Net Investment Income and Other 630 516 2,189 2,964
Pre-tax Income (Loss) $ 376 $ (2,143) $ 293 $ (6,460)
Loss Ratio:
Current Accident Year 97.2% 102.6% 66.2% 88.7%
Prior Year Development (including
Gerling) -104.5% 41.1% 237.1% 23.0%
Calendar Year -7.3% 143.7% 303.3% 111.7%
Underwriting Expense Ratio -125.7% 14.2% 45.2% 28.0%
Combined Ratio -133.0% 157.9% 348.5% 139.7%
All of our other insurance policies have expired. The negative premium
amounts are the result of final policy audits or other adjustments. The majority
of residual health claims outstanding should run-off by the end of 2005. We
continue to manage the run-off of the workers' compensation claims. There were
675 open claims at September 30, 2005, down 39.0% since the start of the year.
Investment Income
Investment income was $10.8 million in the third quarter of 2005, a
decrease of $195,000 from the third quarter of 2004. For the first nine months
of 2005, investment income was $33.6 million, down $2.9 million from 2004.
Investment income is down in 2005 as a result of our efforts to reduce the
overall risk of our portfolio, whereby we have liquidated higher risk
securities, which had been generating higher returns. In addition, certain CMO
securities have decreased in market value by approximately $907,000 in the third
quarter of 2005. Due to the accounting treatment associated with these
securities, market value adjustments are reflected in investment income.
At September 30, 2005, $355.4 million, or 58.5% of our fixed income
security portfolio is classified as held-to-maturity. The Company retains $252.3
million of securities classified as available-for-sale and $229.3 million of
cash and cash equivalent resources that allow management flexibility with
respect to investment options in response to changes in future interest rates.
Federal Income Tax Expense (Credit)
At September 30, 2005, the Company has a net deferred tax asset of $48.5
million. The Company has approximately $27.7 million of net loss carryforwards
available to offset future taxable income. In addition, we have $8.6 million of
alternative minimum tax credit carryforwards. For financial reporting purposes,
our effective tax rate is expected to be approximately 35.0% going forward.
Balance Sheet and Equity Information
APCapital's total assets were $1.115 billion at September 30, 2005, up
$44.7 million from December 31, 2004. At September 30, 2005, the Company's total
shareholders' equity was $259.8 million compared to $202.1 million at December
31, 2004. The increase in equity was the result of the 2005 net income and the
non-income effect of the deferred tax valuation allowance reversal during the
second quarter of 2005, partially offset by the effect of share repurchases.
APCapital's book value per common share was $30.55 at September 30, 2005,
based on 8,501,685 common shares outstanding, compared to $23.31 at December 31,
2004.
Share Repurchase Program
During the third quarter of 2005, the Company repurchased 44,100 shares of
its common stock at an average price of $37.56. Year-to-date, the Company has
repurchased 264,900 shares at an average price of $35.48. Under the September
11, 2003 authorization, the Company has approximately 153,500 shares available
for repurchase at September 30, 2005. On November 2, 2005, the Board of
Directors approved an additional 5% common stock repurchase authorization upon
completion of the September 2003 authorization.
Outlook
"We are very pleased with our third quarter results," said Clinton. "Our
core business is profitable and we have completed a major restructuring of our
business. We are well positioned to accept new business that meets our pricing
and underwriting standards."
Conference Call
APCapital's website, http://www.apcapital.com , will host a live Webcast of
its conference call in a listen-only format to discuss 2005 third quarter
results on November 4, 2005 at 10:00 a.m. Eastern time. An archived edition of
the Webcast can be accessed by going to the Company's website and selecting "For
Investors," then "Audio Links." For individuals unable to access the Webcast, a
telephone replay will be available by dialing 1-888-286-8010 (international
617-801-6888) and entering the conference passcode: 65175782. The replay will be
available through 11:59 p.m. Eastern time on November 9, 2005.
Corporate Description
American Physicians Capital, Inc. is a regional provider of medical
professional liability insurance focused primarily in the Midwest 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 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. When we use words such as "will," "should," "believes,"
"expects," "anticipates," "estimates" or similar expressions, or make statements
in the section entitled "Outlook," we are making forward- looking statements.
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, which could require us to make an adjustment to the level of these
reserves and that may materially and adversely impact the results of operations
for the period any such adjustment is made;
* a deterioration in the current accident year experience could result
in a portion or all of our deferred policy acquisition costs not being
recoverable, which would result in a charge to income;
* unforeseen costs or the need for additional reserve enhancements
associated with our exit from workers' compensation;
* substantial jury awards against our insureds could impose liability on
us exceeding our policy limits or the funds we have reserved for the payment of
claims;
* increased pressures on premium rates and our potential inability to
obtain rate increases;
* changes in competitive conditions;
* the passing of tort reform at a national level may have a material
adverse impact on our results of operations pertaining to certain markets that
currently have tort reform in place at the state level;
* recently passed tort reform legislation in Illinois may have a
material adverse impact on our results of operations if claims frequency or
severity trend upwards, as we may not be able to obtain rate increases the
Company deems necessary;
* an unanticipated increase in claims frequency or severity patterns;
* our potential inability to obtain adequate and affordable reinsurance
coverage from creditworthy reinsurers;
* our potential inability to collect the full amount of our reinsurance
recoverables from reinsurers experiencing financial difficulties, which could
result in a future charge to income;
* adverse regulatory and market changes in certain states of operation
where our business is concentrated;
* the loss of our relationships with medical associations;
* an interruption or change in our principal third-party distribution
relationship;
* the potential insolvency of any of the guaranty associations in which
we participate;
* the potential inability to obtain regulatory approval of rate
increases;
* our potential inability to comply with insurance regulations;
* a reduction in our A.M. Best Company rating;
* negative changes in financial market conditions;
* a significant increase in short-term interest rates;
* a change in real estate market conditions;
* a 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 statements whether as a result of new information, future
events or otherwise, except as required by law.
Definition of Non-GAAP Financial Measures
The Company 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, the Company'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, the Company believes that providing operating income (loss)
information makes it easier for users of APCapital's financial information to
evaluate the success of the Company's underlying insurance operations.
In addition to the Company's reported loss ratios, management also uses
accident year loss ratios, a non-GAAP financial measure, to evaluate the
Company'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, the Company believes that the current
estimates are reasonable.
Summary Financial Information
APCapital, Inc.
September 30, December 31,
Balance Sheet Data 2005 2004
- ---------------------------------------- --------------- ----------------
(Unaudited)
(In thousands, except per
share data)
Assets:
Available-for-sale - bonds $ 252,268 $ 657,706
Held-to-maturity - bonds 355,374 -
Other invested assets 13,599 9,456
Cash and cash equivalents 229,323 190,936
Total cash and investments 850,564 858,098
Premiums receivable 56,441 54,614
Reinsurance recoverable 108,014 103,312
Deferred federal income taxes 48,469 -
Other assets 51,125 53,875
Total assets $ 1,114,613 $ 1,069,899
Liabilities and Shareholders' Equity:
Unpaid losses and loss adjustment
expenses $ 687,940 $ 693,630
Unearned premiums 91,157 90,040
Long-term debt 30,928 30,928
Other liabilities 42,250 50,977
Total liabilities 852,275 865,575
Minority interest in
consolidated subsidiary 2,570 2,200
Net unrealized gains, net of tax 8,829 8,154
Other shareholders' equity 250,939 193,970
Total shareholders' equity 259,768 202,124
Total liabilities and
shareholders' equity $ 1,114,613 $ 1,069,899
Book value per share $ 30.55 $ 23.31
Shares outstanding 8,502 8,672
Summary Financial Information
APCapital, Inc.
Unaudited Income Statements
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
(In thousands except per share data)
Direct premiums written $ 61,841 $ 73,090 $ 147,739 $ 172,779
Net premiums written $ 52,991 $ 63,723 $ 123,414 $ 149,804
Net premiums earned $ 40,171 $ 48,755 $ 123,744 $ 153,959
Investment income 10,752 10,947 33,582 36,451
Net realized (losses) gains (428) (332) (750) 1,233
Other income 222 156 687 562
Total revenues 50,717 59,526 157,263 192,205
Losses and loss adjustment expenses 30,794 42,773 97,844 137,700
Underwriting expenses 7,538 9,838 25,247 33,986
Other expenses 1,824 2,142 6,253 7,389
Total expenses 40,156 54,753 129,344 179,075
Income before income taxes and
minority interest 10,561 4,773 27,919 13,130
Federal income tax expense (benefit) 3,705 226 (34,393) (374)
Income before minority interest 6,856 4,547 62,312 13,504
Minority interest in net (income)
loss of consolidated subsidiary (31) 2 (373) 17
Net income $ 6,825 $ 4,549 $ 61,939 $ 13,521
Adjustments to reconcile net income
to operating income
Net income $ 6,825 $ 4,549 $ 61,939 $ 13,521
Add back:
Realized losses (gains), net of
tax 278 216 488 (801)
Net operating income $ 7,103 $ 4,765 $ 62,427 $ 12,720
Ratios:
Loss ratio (1) 76.7% 87.7% 79.1% 89.4%
Underwriting expense ratio (2) 18.8% 20.2% 20.4% 22.1%
Combined ratio (3) 95.5% 107.9% 99.5% 111.5%
Earnings per share data:
Net income
Basic $ 0.81 $ 0.54 $ 7.23 $ 1.60
Diluted $ 0.79 $ 0.52 $ 7.08 $ 1.57
Net operating income per share
Basic $ 0.84 $ 0.56 $ 7.28 $ 1.51
Diluted $ 0.82 $ 0.54 $ 7.13 $ 1.47
Basic weighted average shares
outstanding 8,444 8,443 8,572 8,427
Diluted weighted average shares
outstanding 8,652 8,755 8,754 8,626
(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
APCapital, Inc.
Unaudited Selected Cash Flow Information
Nine Months Ended
September 30,
----------------------------------
2005 2004
--------------- ---------------
(In thousands)
Net cash provided by operating activities $ 22,590 $ 28,636
Net cash provided by investing activities $ 22,760 $ 72,458
Net cash used in financing activities $ (6,963) $ (5,076)
APCapital, Inc.
Supplemental Statistics
Medical Professional Liability
Reported Claim Count
----------------------------------
Excluding Total
Three Months Ended Florida Florida (All States)
- -------------------------- --------- ------- ------------
September 30, 2005 354 7 361
June 30, 2005 395 6 401
March 31, 2005 403 1 404
December 31, 2004 365 6 371
September 30, 2004 424 7 431
June 30, 2004 454 5 459
March 31, 2004 515 10 525
December 31, 2003 467 62 529
September 30, 2003 566 65 631
June 30, 2003 588 106 694
March 31, 2003 602 201 803
Net Premium Earned (in thousands)
----------------------------------------------
Florida
Excluding ------------------ Total
Three Months Ended Florida APCapital PIC (All States)
- -------------------------- --------- --------- ------ ------------
September 30, 2005 39,345 $ (40) $ 975 $ 40,280
June 30, 2005 39,677 - 869 40,546
March 31, 2005 41,124 232 799 42,155
December 31, 2004 42,715 199 737 43,651
September 30, 2004 42,965 531 673 44,169
June 30, 2004 42,842 203 514 43,559
March 31, 2004 41,793 281 382 42,456
December 31, 2003 37,833 1,431 610 39,874
September 30, 2003 38,279 2,764 - 41,043
June 30, 2003 32,463 5,912 - 38,375
March 31, 2003 34,700 4,785 - 39,485
Average Net
Open Case Reserve Average Net
Three Months Ended Claim Count Per Open Claim Paid Claim
- -------------------------- ----------- -------------- ------------
September 30, 2005 3,109 $ 119,100 $ 77,300
June 30, 2005 3,211 116,300 72,500
March 31, 2005 3,344 114,900 85,800
December 31, 2004 3,342 117,000 50,500
September 30, 2004 3,803 103,300 78,100
June 30, 2004 3,885 100,100 61,000
March 31, 2004 4,103 95,400 55,200
December 31, 2003 4,447 87,600 55,100
September 30, 2003 4,780 82,200 82,200
June 30, 2003 4,788 79,800 60,300
March 31, 2003 4,830 75,400 71,500
Retention Ratio
-----------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, Year Ended September 30,
2004 2004 2005
------------------ --------------- ------------------
Illinois 67% 67% 74%
Kentucky 76% 73% 63%
Michigan 88% 88% 83%
New Mexico 91% 92% 90%
Ohio 79% 79% 81%
Total (all states) 80% 83% 81%
Notes:
All values, except net premiums earned, exclude experience from our
investment in Physicians Insurance Company (Florida).
(Logo: http://www.newscom.com/cgi-bin/prnh/20020123/ACAPLOGO )
SOURCE American Physicians Capital, Inc.
-0- 11/03/2005
/CONTACT: Ann Storberg, Investor Relations of American Physicians
Capital, Inc., +1-517-324-6629/
/Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20020123/ACAPLOGO
PRN Photo Desk, photodesk@prnewswire.com/
/Web site: http://www.apcapital.com /
(ACAP)