Exhibit 99
[APCAPITAL(SM) LOGO]
For Immediate Release Contact: Ann Storberg, Investor Relations
(517) 324-6629
AMERICAN PHYSICIANS CAPITAL, INC. REPORTS
FIRST QUARTER 2006 RESULTS
East Lansing, Mich. (April 27, 2006)
SIGNIFICANT FIRST QUARTER 2006 EVENTS
o Net income of $8.9 million or $1.05 per diluted common share for the
quarter
o Pre-tax income of $13.2 million
o Positive prior year development of $2.1 million on reserves
o Repurchased 127,500 common shares for $6.1 million
American Physicians Capital, Inc. (APCapital) (NASDAQ:ACAP) today announced net
income of $8.9 million or $1.05 per diluted common share for the first quarter
of 2006. This compares to net income of $7.3 million, or $.82 per diluted common
share for the 2005 first quarter.
"We have successfully implemented our business strategy and remain committed to
maximizing shareholder value," said President and Chief Executive Officer R.
Kevin Clinton. "Even though we are beginning to experience increased competition
in the market place, our innovative underwriting approach should allow us to
identify and select lower risk accounts and maintain our underwriting margins."
In the first quarter of 2006, the Company made four important changes to its
financial reporting and operating practices.
1. Due to the insignificance of the run-off on non-medical professional
liability business, we are now reporting all operating results as one
segment. Previously, we had reported these run-off results as the
"Other Insurance" segment.
2. As a result of a change in the ownership status of PIC Florida, we are
no longer consolidating the results of PIC Florida into the accounts
of APCapital. Our investment in PIC Florida is now reported utilizing
the "equity method" of accounting.
3. Effective January 1, 2006, we began expensing the remaining unvested
options. In the first quarter of 2006 we recognized an incremental
option expense of $147,800.
4. We modified our reinsurance agreement effective January 1, 2006,
whereby we retain 50% of any loss over $500,000 up to our highest
policy limit of $2.0 million. However, the majority of policies have
limits of $1.0 million or less. In addition, our reinsurance treaty is
no longer swing-rated.
CONSOLIDATED INCOME STATEMENT
(Dollars in thousands)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2006 2005
---------- ----------
Direct Premiums Written:
APCapital $ 41,521 $ 48,124
PIC Florida - 1,818
---------- ----------
$ 41,521 $ 49,942
========== ==========
Net Premiums Written $ 38,965 $ 42,231
========== ==========
Net Premiums Earned $ 37,443 $ 43,893
Incurred Loss and Loss Adjustment Expenses:
Current Accident Year Losses 28,985 36,077
Prior Year Losses (2,108) (228)
---------- ----------
Total 26,877 35,849
Underwriting Expenses 7,677 9,130
---------- ----------
Underwriting Income (Loss) 2,899 (1,086)
Investment Income 11,103 10,642
Other Income (1) 489 168
Other Expenses (1,309) (2,133)
---------- ----------
Pre-tax Income 13,172 7,591
Federal Income Taxes 4,309 170
Minority Interest - (89)
---------- ----------
Net Income $ 8,803 $ 7,332
========== ==========
Loss Ratio:
Current Accident Year 77.4% 82.2%
Prior Year Development -5.6% -0.5%
Calendar Year 71.8% 81.7%
Underwriting Expense Ratio 20.5% 20.8%
Combined Ratio 92.3% 102.5%
(1) Includes realized gains and losses
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Direct premiums written were $41.5 million in the first quarter of 2006, down
$8.4 million or 16.9% from the same period a year ago. This decrease was
partially caused by the impact of no longer consolidating PIC Florida ($1.8
million) and the exit from the health line ($1.1 million). In addition, we have
experienced price competition in selected markets causing premium reductions in
Illinois, Kentucky and Michigan. Net premiums earned in the first quarter of
2006 were down $6.5 million or 14.7% from the first quarter of 2005. The decline
in net premiums earned was not as great as the decline in direct premiums
written due to the change in reinsurance terms. The insured physician
policies-in-force count at March 31, 2006 totaled 9,472, which is down less than
1% from the end of 2005.
The 2006 first quarter loss ratio was 71.8% with $2.1 million of positive
development from prior accident years. This represents a significant improvement
from the 81.7% loss ratio reported in the first quarter of 2005. The improved
loss ratio is the result of past rate increases and the improved
book-of-business we have developed over the last four years. On an accident year
basis, the loss ratio has decreased from 82.2% in the first quarter of 2005 to
77.4% in the first quarter of 2006. The number of claims reported in the first
quarter of 2006 was 308, down from 347 in the fourth quarter of last year and
404 reported in the first quarter of 2005.
The underwriting expense ratio was relatively flat at 20.5% for the first
quarter of 2006. Other expenses are down $824,000 or 38.6% due to lower
Sarbanes-Oxley/404 costs, intangibles being fully amortized, and lower
investment expenses.
INVESTMENT INCOME
Investment income was $11.1 million in the first quarter of 2006, compared to
$10.6 million for the same period in 2005. The overall investment yields
increased from 5.14% in the first quarter 2005 to 5.28% in the first quarter of
2006. In the first quarter of 2006, we purchased $192.5 million of tax-exempt
securities. We now have a 24.5% allocation of our cash and investment portfolio
in tax-exempt securities. The average return on these tax-exempt securities is
3.8%. As a result, we anticipate our gross investment returns to decline in the
future.
BALANCE SHEET AND EQUITY INFORMATION
APCapital's total assets were $1.089 billion at March 31, 2006, down $20.1
million from December 31, 2005. At March 31, 2006, the Company's total
shareholders' equity was $263.0 million, up from $261.2 million at December 31,
2005, as a result of our first quarter net income. However, net unrealized gains
on the Company's available-for-sale investments decreased $1.9 million, net of
tax, during the first quarter of 2006 and the Company utilized $6.1 million of
equity to repurchase shares in the quarter.
APCapital's book value per common share was $31.93 at March 31, 2006, based on
8,235,582 common shares outstanding, compared to $31.35 at December 31, 2005.
STOCK REPURCHASE PROGRAM
The Company repurchased 127,500 shares of its common stock during the first
quarter of 2006 at an average cost of $47.92 per share. Under the November 2,
2005 authorization, the Company has approximately 282,400 shares available for
repurchase at March 31, 2006. On April 6, 2006, the Company's Board of Directors
authorized an additional share repurchase of $20 million of its common shares.
The Board also adopted a plan under Rule 10b5-1 of the Securities Exchange Act
of 1934 to repurchase its common shares pursuant to this authorization.
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OUTLOOK
"We are pleased with the continued profitability of our Company," said Clinton.
"We have enhanced our shareholder value through our strong operating results and
share repurchase program. We continue to evaluate opportunities to further
increase shareholder value."
CONFERENCE CALL
APCapital's website, www.apcapital.com, will host a live Webcast of its
conference call in a listen-only format to discuss 2006 first quarter results on
April 28, 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 or (617) 801-6888 and
entering the conference ID code: 39799490. The replay will be available through
11:59 p.m. Eastern time on May 2, 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:
o 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;
o our reserves for unpaid losses and loss adjustment expenses are based
on estimates that may prove to be inadequate to cover our losses;
o our exit from various markets and lines of business may prove more
costly than originally anticipated;
o tort reform legislation may have adverse or unintended consequences
that could materially and adversely affect our results of operations
and financial condition;
o if we are unable to obtain or collect on ceded reinsurance, our
results of operations and financial condition may be adversely
affected;
o the insurance industry is subject to regulatory oversight that may
impact the manner in which we operate our business;
o our geographic concentration in certain Midwestern states and New
Mexico ties our performance to the business, economic, regulatory and
legislative conditions in those states;
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o an interruption or change in current marketing and agency
relationships could reduce the amount of premium we were able to
write;
o a downgrade in the financial strength rating of our insurance
subsidiaries could reduce the amount of business we were able to
write;
o changes in interest rates could adversely impact our results of
operation, cash flows and financial condition;
o our status as an insurance holding company with no direct operations
could adversely affect our ability to meet our debt obligations and
fund future share repurchases;
o 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.
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SUMMARY FINANCIAL INFORMATION
APCAPITAL, INC.
BALANCE SHEET DATA
MARCH 31, DECEMBER 31,
2006 2005
-------------- --------------
(In thousands, except per share data)
ASSETS:
Available-for-sale - bonds $ 250,422 $ 224,101
Held-to-maturity - bonds 495,158 345,702
Other invested assets 14,091 11,568
Cash and cash equivalents 94,487 272,988
-------------- --------------
Cash and investments 854,158 854,359
Premiums receivable 44,701 50,729
Reinsurance recoverable 107,491 109,368
Deferred federal income taxes 40,938 44,039
Other assets 41,943 50,833
-------------- --------------
Total assets $ 1,089,231 $ 1,109,328
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Unpaid losses and loss adjustment expenses $ 685,481 $ 689,857
Unearned premiums 77,893 82,098
Long-term debt 30,928 30,928
Other liabilities 31,940 42,592
-------------- --------------
Total liabilities 826,242 845,475
Minority interest in consolidated subsidiary - 2,641
Common stock - -
Additional paid-in-capital 69,140 74,444
Retained earnings 188,611 179,748
Unearned stock compensation - (84)
Accumulated other comprehensive income:
Net unrealized appreciation on investments,
net of deferred federal income taxes 5,238 7,104
-------------- --------------
Shareholders' equity 262,989 261,212
-------------- --------------
Total liabilities and shareholders' equity $ 1,089,231 $ 1,109,328
============== ==============
Shares outstanding 8,236 8,333
Book value per share $ 31.93 $ 31.35
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SUMMARY FINANCIAL INFORMATION
APCAPITAL, INC.
SELECTED CASH FLOW INFORMATION
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
2006 2005
------------ ------------
(In thousands)
Net cash provided by operating activities $ 8,757 $ 1,024
============ ============
Net cash used in investing activities $ (181,904) $ (89,631)
============ ============
Net cash (used in) provided by financing activities $ (5,354) $ 900
============ ============
Net decrease in cash and cash equivalents $ (178,501) $ (87,707)
============ ============
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APCAPITAL, INC.
SUPPLEMENTAL STATISTICS
MEDICAL PROFESSIONAL LIABILITY
REPORTED
THREE MONTHS ENDED CLAIM COUNT
- --------------------------- ---------------------
March 31, 2006 308
December 31, 2005 347
September 30, 2005 361
June 30, 2005 401
March 31, 2005 404
December 31, 2004 371
September 30, 2004 431
June 30, 2004 459
March 31, 2004 525
NET PREMIUM EARNED (IN THOUSANDS)
----------------------------------------------------------
APCAPITAL
THREE MONTHS ENDED EXCLUDING PIC FLORIDA PIC FLORIDA TOTAL
- --------------------------- --------------------- -------------- ------------------
March 31, 2006 $ 37,443 $ - $ 37,443
December 31, 2005 39,918 671 40,589
September 30, 2005 39,305 975 40,280
June 30, 2005 39,677 869 40,546
March 31, 2005 41,356 799 42,155
December 31, 2004 42,914 737 43,651
September 30, 2004 43,496 673 44,169
June 30, 2004 43,045 514 43,559
March 31, 2004 42,074 382 42,456
AVERAGE NET
OPEN CASE RESERVE AVERAGE NET
THREE MONTHS ENDED CLAIM COUNT PER OPEN CLAIM PAID CLAIM
- --------------------------- --------------------- -------------- ------------------
March 31, 2006 2,976 $ 120,400 $ 108,100
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(1)
March 31, 2004 4,103 95,400 55,200
RETENTION RATIO
-----------------------------------------------------------
THREE MONTHS ENDED YEAR ENDED THREE MONTHS ENDED
MARCH 31, 2005 2005 MARCH 31, 2006
--------------------- -------------- ------------------
Illinois 68% 75% 79%
Kentucky 61% 64% 80%
Michigan 87% 84% 85%
New Mexico 86% 89% 82%
Ohio 84% 82% 85%
Total (all states) 79% 82% 82%
NOTES:
- ------
All values, except net premiums earned, exclude experience from investment in
Physicians Insurance Company (Florida).
(1) Average net paid claim data excludes the effect of Gerling Global
commutation.
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