APCapital second-quarter net income decreases to $9.4 million

American Physicians Capital, Inc. (APCapital) (NASDAQ:ACAP) today announced net income of $9.4 million or $.98 per diluted common share for the second quarter of 2010. This compares to net income of $11.0 million, or $.97 per diluted common share for the second quarter of 2009. Year-to-date, the Company has generated net income of $18.4 million or $1.88 per diluted common share in 2010, compared to $21.1 million or $1.82 per diluted common share in the first six months of 2009. At June 30, 2010, APCapital's book value per share was $25.20 based on 9,339,087 shares outstanding.

As announced on July 8, 2010, APCapital has entered into a definitive merger agreement with The Doctors Company, the largest national insurer of physician and surgeon medical liability, pursuant to which The Doctors Company will acquire APCapital for $41.50 per share in cash. The transaction is expected to close in the fourth quarter of 2010 and is subject to customary closing conditions.

Direct premiums written were $24.0 million in the second quarter of 2010, down $244,000 or 1.0% from the same period a year ago. Year-to-date, direct premiums written are down $3.1 million or 5.6%. The rate of decline in direct premiums written slowed in the second quarter of 2010 due to an increase in new business written in Illinois. However, direct premiums have continued to decrease due to rate reductions based on lower claims frequency trends and competitive pressures. We insured 8,631 physicians at June 30, 2010, down from 8,821 insureds at year end 2009.

Net premiums earned in the second quarter of 2010 were up $1.0 million or 3.5% from the second quarter of 2009, but were down $1.6 million or 2.8% year-to-date. In the second quarter of 2010 we recognized $2.0 million of reduced ceded premiums due to the favorable development of loss reserves associated with our swing-rated reinsurance treaties on prior years.

The 2010 second quarter loss ratio was 49.9% with $8.3 million of positive development from prior accident years. For the six months ended June 30, 2010, the loss ratio was 50.7% with $16.4 million of positive prior year development. On an accident year basis, the loss ratio for the first half of 2010 was 80.0%, down from the 81.5% reported in the first half of 2009. This decrease in accident year loss ratio reflects the recent trend of favorable reserve development and the impact of the swing rated reinsurance treaty premium adjustment.

Claim frequency continued to be at historically low levels, but has leveled-off. The number of claims reported in the second quarter of 2010 was 270, up from 254 reported in the second quarter of 2009 but down from the 296 reported in the first quarter of 2010. Our open claim count is 1,416 at June 30, 2010. Our average net case reserve increased to $185,100 at June 30, 2010 from $183,100 at December 31, 2009.

The underwriting expense ratio decreased in the second quarter of 2010 to 24.0% from 25.8% in the second quarter of 2009. Year-to-date the underwriting expense ratio is down to 24.4% from 25.1% a year ago. This decrease in the underwriting expense ratio is primarily the result of our continued cost cutting efforts and the swing-rated premium adjustment. Other expenses were up $858,000 in the second quarter of 2010 and $724,000 year-to-date as a result of costs associated with our recently announced merger agreement with The Doctors Company.

Investments

Investment income was $6.3 million in the second quarter of 2010, down from $8.0 million for the same period in 2009. The overall investment yield decreased to 3.25% in the second quarter 2010 from 3.97% in the second quarter of 2009. Year-to-date our investment yield was 3.24% through June 2010 compared to 3.97% through June 30, 2009. These decreases were primarily attributable to our increased position in tax-exempt securities, and the decline in short-term interest rates.

Balance Sheet and Equity Information

APCapital's total assets were $930.2 million at June 30, 2010, down $14.4 million from December 31, 2009. At June 30, 2010 the Company's total shareholders' equity was $235.3 million, down $1.7 million from December 31, 2009. Our net income of $18.4 million through the second quarter of 2010 was more than offset by the Company utilizing $19.6 million of equity to repurchase its common shares and $1.7 million to pay shareholder dividends.

Capital Management

In the second quarter of 2010, APCapital repurchased 261,300 shares at an average cost of $31.72 per share. Year-to-date through June 30, 2010, we repurchased 647,100 shares at an average cost of $30.32 per share. As previously announced, we have discontinued our cash dividend and share repurchase program as a result of our pending acquisition by The Doctors Company.

Stock Split

All share and per share numbers disclosed in this press release have been adjusted to reflect the July 2009 four-for-three stock split.