APCapital Q4 Barely Profitable; $76 Million Loss for Year

East Lansing, Mich.-based medical liability insurer American Physicians Capital Inc. announced net income of $102,000, or 1 cent per share for the fourth quarter of 2003. For the year, the company reported a net loss of $76.8 million, or $9.02 per share. This compares to a net loss of $1.2 million, or 14 cents per share, for the 2002 fourth quarter, and a net loss of $18.5 million, or $1.98 per share, in 2002.

President and CEO R. Kevin Clinton said the fourth-quarter results demonstrate that its underwriting efforts and rate increases are beginning to work.

Net premiums earned were down $708,000 in the fourth quarter of 2003, or 1.7 percent, compared to the fourth quarter of 2002. For 2003, net premiums earned were up $10.1 million, or 6.8 percent, from 2002. The company blamed the decrease in fourth-quarter premiums on its exit from the Florida market. The premium increase for the full year is the result of the company’s rate increases in late 2002 and throughout 2003. The insured physician count has decreased 11.9 percent from 2002, the company said, due to its exit from Florida, discontinuance of Ohio and Kentucky occurrence-based policies, and elimination of poor risks in other markets.

The 2003 fourth quarter loss ratio was 87.6 percent with no adverse development from prior accident years. For all of 2003, the reported loss ratio was 124.3 percent, consisting of 96.5 percent on the current accident year and 27.8 percent of prior year development. These ratios compare to 106.1 percent from the 2002 accident year and 3.1 percent of prior year development for a total loss ratio of 109.2 percent reported in 2002.

During 2003, increases in prior year reserves were determined to be necessary based on actuarial projections. In the third quarter of 2003, the company experienced a significant increase in average paid and reported loss severity. These higher losses indicated a trend representing a major increase in the average paid severity on the 1999-2002 accident years. As a result, the actuarially estimated severity of future claim settlements was increased significantly.

The increase in severity is a result of the overall market conditions for medical professional liability and specific issues associated with the company’s book of business. In Ohio, the company experienced an increase in the overall severity and frequency of large losses in the Northeast portion of the state. In response, the company reduced policy limits, discontinued writing occurrence-based policies, and significantly restricted business writing in this area. In Kentucky, the frequency and severity of large losses has also increased. The company has reduced limits, discontinued occurrence-based policies and reduced the insured physician count in this state.

The company began to exit the Florida market in December 2002 due to the large settlements and high loss adjustment fees experienced by the industry in this market. The company has experienced an increase in settlement costs and the frequency of claims filed since the announcement of our exit. As a result of these increasing severity and payment trends, the company increased reserves on the run-off of this book by $16 million in the third quarter of 2003.

In the fourth quarter of 2003, internal and external actuaries again analyzed the company’s professional liability reserves in all markets and determined that there was no indication of further adverse development from the reserves recorded at the end of the third quarter of 2003.