APCapital Turns a Profit

East Lansing, Mich.-based medical liability and workers’ compensation carrier American Physicians Capital Inc. reported net income of $1.1 million, or 12 cents per diluted share for the second quarter of 2003, compared to a net loss of $2.7 million, or 28 cents per diluted share for the second quarter of 2002. Net operating income was 4 cents per diluted share in the second quarter of 2003, as compared to a net operating loss of 28 cents per diluted share in the second quarter of 2002.

For the six months ended June 30, 2003, the company reported net income of $122,000, or 1 cents per diluted share, compared to a net loss of $15.3 million, or $1.55 per share for the six months ended June 30, 2002. The net loss for the first six months of 2002 included a $9.1 million, or 92 cents per diluted share, cumulative effect for a change in the accounting for goodwill. The net operating loss was $624,000, or 7 cents per diluted share for the first six months of 2003 as compared to a net operating loss of $6.1 million, or 61 cents per diluted share for the same period in 2002.

Net premiums earned were $38.4 million in the second quarter of 2003, a 9.6 percent increase over the second quarter of 2002. For the first six months of 2003, net premiums earned were $77.9 million, an increase of 14.5 percent from the same period in 2002. The majority of this premium increase is from the Company’s rate actions, as the insured physician count at June 30, 2003 has decreased 13.9 percent from June 30, 2002. The decrease in physician count is due to the company’s exit from the Florida market, the discontinuance of the Ohio occurrence-based policies, and the elimination of poor risks in other markets. However, the company has grown in its target markets.

Loss and loss adjustment expenses continued to improve on the current accident year. The second quarter 2003 reported loss ratio was 97.7 percent, consisting of 97 percent on the current accident year and 0.7 percent of prior year development. These ratios compare to 112.3 percent on the 2002 accident year and 2.8 percent of prior year development for a total loss ratio of 115.1 percent reported in the second quarter of 2002. For the six months ended June 30, 2003, the reported loss ratio was 101.0 percent as compared to 118.1 percent for the same period in 2002. The company has reported $1.25 million of adverse prior year development through June 30, 2003. The company continues to monitor loss development closely, especially in the Ohio occurrence and Florida run-off markets.

Underwriting expenses were $7.1 million, or 18.4 percent of net premiums earned in the second quarter of 2003 compared to $6.7 million, or 19 percent in the second quarter of 2002. Underwriting expenses for the first six months of 2003 were $14.9 million, or 19.1 percent of net premiums earned as compared to $13.1 million, or 19.2 percent of net premiums earned for the same period of 2002. The increases in underwriting expenses were directly attributable to an increase in commissions and premium taxes associated with the higher premium volume.

Net premiums earned in workers’ compensation were $10.8 million in the second quarter of 2003, a 30.5 percent decrease from the second quarter of 2002. For the first six months of 2003, net premiums earned were $23.3 million, a decrease of 24.3 percent from the same period in 2002. The decrease was the result of the non-renewal of some construction accounts 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 through the first six months of 2003 increased an average of 24.8 percent.

The decline in workers’ compensation net premiums earned is also a function of the company’s current philosophy to focus on the medical professional liability line of business. As a result of the favorable pricing environment, APCapital has allocated the majority of its capital to the medical professional liability line. While we remain committed to the workers’ compensation line, we do not expect to grow this line significantly in the near future.

During the second quarter, A.M. Best reaffirmed the company’s “A-” (Excellent) rating. On July 31, 2003, Standard & Poor’s also reaffirmed the Company’s “A-” rating.