Exhibit 99
AMERICAN PHYSICIANS CAPITAL, INC. REPORTS FOURTH QUARTER
AND YEAR END 2005 RESULTS
EAST LANSING, Mich., Feb. 15 /PRNewswire-FirstCall/ --
Significant Fourth Quarter 2005 Events
* Net income of $10.4 million or $1.21 per diluted common share for the
quarter
* Substantial recovery on fixed-income security previously written-off
* Pre-tax income of $17.7 million in medical professional liability for
the quarter
* Positive prior year development of $2.5 million on medical professional
liability reserves
* Stable reserves for other insurance lines
American Physicians Capital, Inc. (APCapital) (Nasdaq: ACAP) today announced
net income of $10.4 million or $1.21 per diluted common share for the fourth
quarter of 2005. This compares to net income of $6.5 million, or $.73 per
diluted common share for the 2004 fourth quarter. For the year ended December
31, 2005, the Company has generated net income of $72.4 million or $8.29 per
diluted common share compared to net income of $20.0 million or $2.30 per
diluted share in 2004. The 2005 net income amount includes the $44.1 million
impact of eliminating the deferred tax asset valuation allowance in the second
quarter.
For the fourth quarter of 2005, operating income, which excludes realized
gains and losses, net of tax, was $8.6 million or $1.00 per diluted share. This
compares to net operating income of $6.3 million or $.71 per diluted share in
the fourth quarter of 2004.
"We completed our second year of positive financial performance in 2005,"
stated President and Chief Executive Officer R. Kevin Clinton. "Through our
strategic efforts which began in 2002, we have restructured our Company into a
consistently profitable enterprise, focused on our core medical professional
liability product in our core states."
Medical Professional Liability Results
(dollars in thousands)
Three Months Ended Year Ended
December 31, December 31,
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Direct Premiums Written $ 37,797 $ 39,193 $ 183,454 $ 203,034
Net Premiums Written $ 34,018 $ 33,954 $ 157,780 $ 175,042
Net Premiums Earned $ 40,589 $ 43,651 $ 163,570 $ 173,835
Incurred Loss and Loss Adjustment
Expenses:
Current Accident Year Losses 31,626 35,673 131,081 148,230
Gerling Commutation - - - 4,139
Prior Year Losses (2,500) (1,301) (6,425) (6,850)
Total 29,126 34,372 124,656 145,519
Underwriting Expenses 7,857 7,980 32,759 35,320
Underwriting Income (Loss) 3,606 1,299 6,155 (7,004)
Net Investment Income and Other 14,104 11,299 43,352 43,476
Pre-tax Income $ 17,710 $ 12,598 $ 49,507 $ 36,472
Loss Ratio:
Current Accident Year 77.9% 81.7% 80.1% 85.3%
Prior Year Development (including
Gerling) -6.1% -3.0% -3.9% -1.6%
Calendar Year 71.8% 78.7% 76.2% 83.7%
Underwriting Expense Ratio 19.4% 18.3% 20.0% 20.3%
Combined Ratio 91.2% 97.0% 96.2% 104.0%
Pre-tax income in the fourth quarter of 2005 totaled $17.7 million, an
increase of $5.1 million or 40.6% from the same period in 2004. For the year
ended December 31, 2005, this line has produced pre-tax income of $49.5 million
compared to $36.5 million in 2004. The improved results reflect the positive
impact of rate increases and more stringent underwriting standards implemented
since 2002, the exit from unprofitable markets and market segments, as well as
favorable loss development patterns.
The loss ratio in the fourth quarter of 2005 was 71.8%, which lowered the
loss ratio for the year to 76.2%. The 2005 loss ratio is down from 83.7% for
2004. The improved loss ratio was the result of several factors including earned
rate increases and the application of stricter underwriting standards. The 2005
loss ratio includes $6.4 million of positive prior year development as compared
to $6.9 million a year ago (excluding the effects of the 2004 Gerling
commutation).
Direct written premiums are down $1.4 million or 3.6% in the fourth quarter
of 2005, and for the year premiums are down $19.6 million or 9.6% from 2004. The
result of exiting Nevada and Florida, discontinuing the alternative risk program
and non-renewing a large hospital account due to underwriting considerations
accounted for approximately $10.6 million of this year-over- year 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 $4.6 million and $3.5 million year-over- year, 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 19.4% in the fourth quarter of 2005, up
from 18.3% in the fourth quarter of 2004. However, for the year, the
underwriting ratio was 20.0%, down slightly from the 20.3% in 2004.
Other Insurance Lines Results
(dollars in thousands)
Three Months Ended Year Ended
December 31, December 31,
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Direct Premiums Written $ (25) $ 1,973 $ 2,057 $ 10,911
Net Premiums Written $ (50) $ 2,673 $ (398) $ 11,389
Net Premiums Earned $ (50) $ 2,969 $ 713 $ 26,744
Incurred Loss and Loss Adjustment
Expenses:
Current Accident Year Losses (90) 2,283 415 23,371
Gerling Commutation - - - 271
Prior Year Losses 244 3,431 2,053 8,625
Total 154 5,714 2,468 32,267
Underwriting Expenses (24) 715 321 7,361
Underwriting Loss (180) (3,460) (2,076) (12,884)
Net Investment Income and Other 671 546 2,860 3,510
Pre-tax Income (Loss) $ 491 $ (2,914) $ 784 $ (9,374)
Loss Ratio:
Current Accident Year * 76.9% 58.2% 87.4%
Prior Year Development (including
Gerling) * 115.6% 287.9% 33.3%
Calendar Year * 192.5% 346.1% 120.7%
Underwriting Expense Ratio * 24.1% 45.0% 27.5%
Combined Ratio * 216.6% 391.1% 148.2%
(*not meaningful due to negative premium)
All of our other insurance lines policies have expired. The negative premium
amounts in the fourth quarter are the result of final policy audits or other
adjustments. The majority of residual health claims outstanding have been
run-off. We continue to manage the run-off of the workers' compensation claims.
There were 585 open claims at December 31, 2005, down 47.2% since the start of
the year.
Investment Income
Investment income was $11.6 million in the fourth quarter of 2005, an
increase of $659,000 from the fourth quarter of 2004. For the year ended
December 31, 2005, investment income was $45.2 million, down $2.2 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 decreased in market value by approximately $1.1 million in 2005. Due
to the accounting treatment associated with these securities, market value
adjustments are reflected in investment income. Overall, the investment
portfolio of the Company generated a 5.43% return in 2005 as compared to 5.93%
in 2004. In the fourth quarter of 2005, we recovered approximately $2.7 million
in cash related to securities that had been written-off in previous years.
At December 31, 2005, $345.7 million, or 60.7% of our fixed-income security
portfolio is classified as held-to-maturity. The Company retains $224.1 million
of securities classified as available-for-sale and $273.0 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 Taxes
At December 31, 2005, the Company had a net deferred tax asset of $44.0
million. This amount includes deferred tax assets relating to approximately
$21.3 million of net operating loss carryforwards available to offset future
taxable income, and $8.8 million of alternative minimum tax credit
carryforwards.
Balance Sheet and Equity Information
APCapital's total assets were $1.109 billion at December 31, 2005, up $39.4
million from December 31, 2004. At December 31, 2005, the Company's total
shareholders' equity was $261.2 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 and
investment market value declines.
APCapital's book value per common share was $31.35 at December 31, 2005,
based on 8,333,417 common shares outstanding, compared to $23.31 at December 31,
2004.
Share Repurchase Program
During the fourth quarter of 2005, the Company repurchased 168,600 shares of
its common stock at an average price of $45.42. For the year, the Company has
repurchased 433,500 shares at an average price of $39.35. Under the November 2,
2005 authorization, the Company has approximately 410,000 shares available for
repurchase at December 31, 2005.
Outlook
"The 2005 results have demonstrated that we have transformed APCapital into
a strong profitable Company," said Clinton. "Our business is profitable and we
are well positioned to grow in our key markets. However, we remain careful
managers of our capital and will only grow if it can be done at appropriate
rates. If not, we will continue our strategy of utilizing our capital more
effectively elsewhere."
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 fourth quarter and
year-end results on February 16, 2006 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 "Webcasts". 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: 71780556. The
replay will be available through 11:59 p.m. Eastern time on February 21, 2006.
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:
* increased pressures on premium rates and our potential inability to
obtain rate increases;
* changes in competitive conditions;
* 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;
* 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;
* 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;
* 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 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.
Balance Sheet Data
December 31, December 31,
2005 2004
------------ ------------
(In thousands, except
per share data)
Assets:
Available-for-sale - bonds $ 224,101 $ 657,706
Held-to-maturity - bonds 345,702 -
Other invested assets 11,568 9,456
Cash and cash equivalents 272,988 190,936
Cash and investments 854,359 858,098
Premiums receivable 50,729 54,614
Reinsurance recoverable 109,368 103,312
Deferred federal income taxes 44,039 -
Other assets 50,833 53,875
Total assets $ 1,109,328 $ 1,069,899
Liabilities and Shareholders'
Equity:
Unpaid losses and loss adjustment
expenses $ 689,857 $ 693,630
Unearned premiums 82,098 90,040
Long-term debt 30,928 30,928
Other liabilities 42,592 50,977
Total liabilities 845,475 865,575
Minority interest in consolidated
subsidiary 2,641 2,200
Common stock - -
Additional paid-in-capital 74,444 86,956
Retained earnings 179,748 107,382
Unearned stock compensation (84) (368)
Accumulated other comprehensive
income:
Net unrealized appreciation on
investments, net of deferred federal
income taxes 7,104 8,154
Shareholders' equity 261,212 202,124
Total liabilities and
shareholders' equity $ 1,109,328 $ 1,069,899
Shares outstanding 8,333 8,672
Book value per share $ 31.35 $ 23.31
Summary Financial Information
APCapital, Inc.
Income Statement
Three Months Ended Year Ended
December 31, December 31,
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
(In thousands, except per share data)
Direct premiums written $ 37,772 $ 41,166 $ 185,511 $ 213,945
Net premiums written $ 33,968 $ 36,627 $ 157,382 $ 186,431
Net premiums earned $ 40,539 $ 46,620 $ 164,283 $ 200,579
Investment income 11,581 10,922 45,163 47,373
Net realized gains 2,783 318 2,033 1,551
Other income 700 615 1,387 1,177
Total revenues 55,603 58,475 212,866 250,680
Losses and loss adjustment
expenses 29,280 40,086 127,124 177,786
Underwriting expenses 7,833 8,695 33,080 42,681
Other expenses 1,542 3,074 7,795 10,463
Total expenses 38,655 51,855 167,999 230,930
Income before income taxes
and minority interests 16,948 6,620 44,867 19,750
Federal income tax expense
(benefit) 6,441 84 (27,952) (290)
Income before minority
interests 10,507 6,536 72,819 20,040
Minority interest in net income
of consolidated subsidiary (80) (27) (453) (10)
Net income $ 10,427 $ 6,509 $ 72,366 $ 20,030
Adjustments to reconcile net
income to operating income:
Net income $ 10,427 $ 6,509 $ 72,366 $ 20,030
Add back:
Realized gains, net of tax (1,809) (207) (1,321) (1,008)
Net operating income $ 8,618 $ 6,302 $ 71,045 $ 19,022
Ratios:
Loss ratio (1) 72.2% 86.0% 77.4% 88.6%
Underwriting ratio (2) 19.3% 18.7% 20.1% 21.3%
Combined ratio (3) 91.5% 104.7% 97.5% 109.9%
Earnings per share data:
Net income
Basic $ 1.24 $ 0.76 $ 8.48 $ 2.37
Diluted $ 1.21 $ 0.73 $ 8.29 $ 2.30
Net operating income
Basic $ 1.02 $ 0.74 $ 8.32 $ 2.25
Diluted $ 1.00 $ 0.71 $ 8.14 $ 2.18
Basic weighted average shares
outstanding 8,439 8,539 8,538 8,455
Diluted weighted average shares
outstanding 8,606 8,881 8,729 8,721
(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.
Selected Cash Flow Information
For the Year Ended
December 31,
-----------------------
2005 2004
---------- ----------
(In thousands)
Net cash provided by operating activities $ 38,963 $ 43,887
Net cash provided by investing activities $ 57,332 $ 49,637
Net cash used in financing activities $ (14,243) $ (4,639)
APCapital, Inc.
Supplemental Statistics
Medical Professional Liability
Reported Claim Count
---------------------------------------------
Excluding Total
Florida Florida (All States)
------------ ------------ ------------
Three Months Ended
December 31, 2005 346 1 347
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(1) 803
Net Premium Earned (in thousands)
---------------------------------------------------------
Florida
Excluding --------------------------- Total
Florida APCapital PIC (All States)
------------ ------------ ------------ ------------
Three Months Ended
December 31, 2005 39,918 $ - $ 671 $ 40,589
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
Claim Per Open Average Net
Count Claim Paid Claim
------------ ------------ ------------
Three Months Ended
December 31, 2005 2,991 $ 122,400 $ 69,100
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(2)
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
----------------------------
Year Ended Year Ended
2005 2004
------------ ------------
Illinois 75% 67%
Kentucky 64% 73%
Michigan 84% 88%
New Mexico 89% 92%
Ohio 82% 79%
Total (all states) 82% 83%
Notes:
All values, except net premiums earned, exclude experience from investment
in Physicians Insurance Company (Florida).
(1) Includes 76 claims reported by 4 physicians at the end of their
coverage with the company.
(2) Average net paid claim data excludes the effect of Gerling Global
commutation.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020123/ACAPLOGO )
SOURCE American Physicians Capital, Inc.
-0- 02/15/2006
/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 /