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American Physicians Capital, Inc. Reports Third Quarter 2007 Results
Date:10/25/2007

EAST LANSING, Mich., Oct. 25 /PRNewswire-FirstCall/ -- American Physicians Capital, Inc. (APCapital) (Nasdaq: ACAP) today announced net income of $13.3 million or $1.21 per diluted common share for the third quarter of 2007. For the first nine months of 2007, APCapital has generated net income of $40.1 million, or $3.54 per diluted common share. At September 30, 2007, APCapital's book value per share was $25.61 based on 10,575,799 shares outstanding, an increase of 10.1% from $23.26 at December 31, 2006.

APCapital generated net income of $11.0 million or $.91 per share in the third quarter of 2006 and net income of $30.6 million or $2.47 per share for the first nine months of 2006.

"We continue to be a disciplined underwriter and careful manager of capital," said President and Chief Executive Officer R. Kevin Clinton. "To remain competitive and maintain our strong retention rate, we have selectively lowered our rates in most of our markets. However, our focus continues to be bottom-line driven. Our commitment to this philosophy has been the main driver for our strong financial results."

Consolidated Income Statement

(Dollars in thousands)

Three Months Ended Nine Months Ended

September 30, September 30,

2007 2006 2007 2006

Direct Premiums Written $45,213 $51,819 $109,362 $125,742

Net Premiums Written $43,626 $48,304 $105,487 $117,351

Net Premiums Earned $35,516 $37,772 $105,444 $112,635

Incurred Loss and Loss Adjustment

American Physicians Capital, Inc.

Income Statement

Three Months Ended Nine Months Ended

June 30, September 30,

2007 2006 2007 2006

(In thousands, (In thousands,

except per except per

share data) share data)

Direct premiums written $45,213 $51,819 $109,362 $125,742

Net premiums written $43,626 $48,304 $105,487 $117,351

Net premiums earned $35,516 $37,772 $105,444 $112,635

Investment income 10,737 11,338 33,066 34,010

Net realized (losses) gains (73) 100 (139) 1,448

Other income 186 198 574 825

Total revenues 46,366 49,408 138,945 148,918

Losses and loss adjustment

expenses 18,233 24,547 53,511 77,220

Underwriting expenses 7,275 7,373 22,202 22,784

Other expenses 1,361 1,301 4,030 3,938

Total expenses 26,869 33,221 79,743 103,942

Income before income taxes 19,497 16,187 59,202 44,976

Federal income tax expense 6,216 5,162 19,083 14,376

Net income $13,281 $11,025 $40,119 $30,600

Adjustments to reconcile net

income to operating income:

Net income $13,281 $11,025 $40,119 $30,600

Add back:

Realized losses (gains), net

of tax 47 (65) 90 (941)

Net operating income $13,328 $10,960 $40,209 $29,659

Ratios:

Loss ratio (1) 51.3% 65.0% 50.7% 68.6%

Underwriting ratio (2) 20.5% 19.5% 21.1% 20.2%

Combined ratio (3) 71.8% 84.5% 71.8% 88.8%

Earnings per share data:

Net income

Basic $1.23 $0.93 $3.61 $2.52

Diluted $1.21 $0.91 $3.54 $2.47

Net operating income

Basic $1.23 $0.93 $3.61 $2.45

Diluted $1.21 $0.91 $3.55 $2.39

Basic weighted average shares

outstanding 10,801 11,796 11,124 12,123

Diluted weighted average shares

outstanding 11,015 12,062 11,339 12,390

(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

American Physicians Capital, Inc.

Selected Cash Flow Information

For the Nine Months Ended

September 30,

2007 2006

(In thousands)

Net cash from operating activities $39,433 $41,145

Net cash for investing activities $(28,021) $(237,482)

Net cash for financing activities $(38,114) $(26,216)

Net decrease in cash and cash

equivalents $(26,702) $(222,553)

American Physicians Capital, Inc.

Supplemental Statistics

Medical Professional Liability

Reported

Three Months Ended Claim Count

September 30, 2007 191

June 30, 2007 269

March 31, 2007 247

December 31, 2006 267

September 30, 2006 297

June 30, 2006 296

March 31, 2006 308

December 31, 2005 347

September 30, 2005 361

June 30, 2005 401

March 31, 2005 404

Net Premium Earned (in thousands)

APCapital

Excluding

Three Months Ended PIC Florida PIC Florida Total

September 30, 2007 $35,517 $- $35,517

June 30, 2007 34,896 - 34,896

March 31, 2007 35,034 - 35,034

December 31, 2006 37,051 - 37,051

September 30, 2006 37,774 - 37,774

June 30, 2006 37,517 - 37,517

March 31, 2006 37,448 - 37,448

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

Average Net

Average Net Paid Claim

Case Reserve (Trailing

Open Per Four Quarter

Three Months Ended Claim Count Open Claim Average)

September 30, 2007 1,913 $144,200 $70,400

June 30, 2007 2,124 136,200 69,600

March 31, 2007 2,200 138,800 56,600

December 31, 2006 2,256 137,900 59,100

September 30, 2006 2,347 138,800 57,600

June 30, 2006 2,558 136,300 63,000

March 31, 2006 2,976 120,400 78,800

December 31, 2005 2,991 122,400 75,900

September 30, 2005 3,109 119,100 67,900

June 30, 2005 3,211 116,300 68,200

March 31, 2005 3,344 114,900 65,200

Retention Ratio

Nine Months Nine Months

Ended Ended

September 30, Year Ended September 30,

2006 2006 2007

Illinois 82% 81% 81%

Kentucky 69% 70% 85%

Michigan 86% 85% 86%

New Mexico 81% 82% 89%

Ohio 83% 83% 88%

Total (all states) 82% 82% 86%

Notes:

All values, except net premiums earned, exclude experience from

investment in Physicians Insurance Company (Florida).

p>

Expenses:

Current Accident Year Losses 26,191 27,693 78,632 85,352

Prior Year Losses (7,958) (3,146) (25,121) (8,132)

Total 18,233 24,547 53,511 77,220

Underwriting Expenses 7,275 7,373 22,202 22,784

Underwriting Income 10,008 5,852 29,731 12,631

Investment Income 10,737 11,338 33,066 34,010

Other Income (1) 113 298 435 2,273

Other Expenses (1,361) (1,301) (4,030) (3,938)

Pre-tax Income 19,497 16,187 59,202 44,976

Federal Income Taxes 6,216 5,162 19,083 14,376

Net Income $13,281 $11,025 $40,119 $30,600

Loss Ratio:

Current Accident Year 73.7% 73.3% 74.5% 75.8%

Prior Year Development -22.4% -8.3% -23.8% -7.2%

Calendar Year 51.3% 65.0% 50.7% 68.6%

Underwriting Expense Ratio 20.5% 19.5% 21.1% 20.2%

Combined Ratio 71.8% 84.5% 71.8% 88.8%

(1) Includes realized gains and losses

Direct premiums written were $45.2 million in the third quarter of 2007, down $6.6 million or 12.7% from the same period a year ago. For the first nine months of 2007, direct premiums written were down $16.4 million, or 13.0%. The declines in direct premiums written were primarily the result of selective price reductions in our major markets. We insured 9,313 physicians at September 30, 2007, down just 1.5% from year end 2006.

Net premiums earned in the third quarter of 2007 were down $2.3 million or 6.0% from the third quarter of 2006 and year-to-date are down $7.2 million or 6.4%. The declines in net premiums earned were not as great as the declines in direct premiums written due to the reinsurance terms in place for 2007 whereby APCapital retained a greater portion of loss exposure and ceded less premium.

The 2007 third quarter loss ratio was 51.3% with $8.0 million of positive development from prior accident years. For the nine months ended September 30, 2007, the loss ratio was 50.7% with $25.1 million of positive prior year development. On an accident year basis, the loss ratio in the third quarter of 2007 was 73.7%, up slightly from the 73.3% reported in the third quarter of 2006. Year-to-date the accident loss ratio was 74.5% in 2007 as compared to 75.8% in 2006. This accident year loss ratio reflects the strong book-of- business we have developed and our adherence to an adequate pricing and strict underwriting philosophy.

We continue to experience favorable development in our reserves. The number of reported claims in the third quarter of 2007 was 191 down 35.7% from the 297 reported in the third quarter of 2006. Year-to-date there have been 707 claims reported in 2007 as compared to 901 through September 30, 2006 --- a 21.5% decrease. Claim severity has remained relatively stable and claims have been settling for amounts below established case reserves. As a result of this better than anticipated claim frequency and severity, prior year reserves have continued to develop favorably.

The underwriting expense ratio increased in the third quarter of 2007 to 20.5% from 19.5% in the third quarter of 2006. The 2007 year-to-date underwriting expense ratio was 21.1%, up from 20.2% a year ago. The increases in the underwriting ratio were principally the result of our lower premium volume giving APCapital a smaller base over which to spread its fixed costs. Other expenses in 2007 for the third quarter and year-to-date were approximately the same as a year ago.

Investment income

Investment income was down slightly in the third quarter of 2007 and year- to-date. The overall investment yields decreased from 5.29% in the third quarter 2006 to 4.93% in the third quarter of 2007. For the first nine months of 2007, our investment yield was 5.05% compared to 5.33% a year ago. The decrease in investment yield is a result of a greater allocation of our portfolio to tax-exempt securities.

Balance Sheet and Equity Information

APCapital's total assets were $1.088 billion at September 30, 2007, down $8.3 million from December 31, 2006. At September 30, 2007, APCapital's total shareholders' equity was $270.8 million, up from $268.8 million at December 31, 2006. The increase in shareholders' equity is a result of net income of $40.1 million for the first nine months of 2007 being partially offset by the use of $37.3 million of equity to repurchase shares and $1.1 million to pay APCapital's first cash dividend in the third quarter of 2007.

Capital Management

In the third quarter of 2007 APCapital repurchased 506,400 shares at an average cost of $37.12 per share. Year-to-date, APCapital has repurchased 995,600 shares utilizing $37.3 million of equity. APCapital has the following outstanding share repurchase authorizations:

Type of (In thousands)

Date Approved Repurchase Amount Amount

By Board Plan Authorized Remaining (2)

October 27, 2006 Rule 10b5-1 $32,000 $21,397

May 22, 2007 Discretionary (1) $15,000 $5,459

August 16, 2007 Discretionary (1) $20,000 $20,000

$67,000 $46,856

(1) All shares will be repurchased under management's discretion in the

open market or in privately negotiated transactions during the Company's

normal trading windows.

(2) As of September 30, 2007.

The share repurchase program remains an integral part of APCapital's capital management program. APCapital seeks to maintain an optimal but flexible level of capital during this softer market cycle.

In the third quarter of 2007, the Board of Directors declared its first regular quarterly cash dividend of $0.10 per common share, which was paid to shareholders on September 28, 2007. Today, APCapital's Board of Directors declared a fourth quarter cash dividend of $0.10 per common share payable on December 31, 2007 to shareholders of record on December 13, 2007.

Stock Split

In September 2006, APCapital's Board of Directors declared a three-for-two stock split of its common shares to shareholders. All prior year share and per share numbers disclosed in this press release are split adjusted.

Stilwell Standstill Agreement

APCapital also announced that, by mutual consent of the parties, the Standstill Agreement with Joseph Stilwell, Spencer Schneider and various related parties has been terminated, effective immediately. Mr. Stilwell and Mr. Schneider will continue to serve as directors of APCapital following the termination.

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 2007 third quarter results on October 26, 2007 at 10:00 a.m. Eastern time. An archived edition of the Webcast can be accessed by going to APCapital'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: 54959353. The replay will be available through 11:59 p.m. Eastern time on October 31, 2007.

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 Statements

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, 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 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;

-- our reserves for unpaid losses and loss adjustment expenses are based

on estimates that may prove to be inadequate to cover our losses;

-- tort reform legislation may have adverse or unintended consequences

that could materially and adversely affect our results of operations

and financial condition;

-- if we are unable to obtain or collect on ceded reinsurance, our results

of operations and financial condition may be adversely affected;

-- the insurance industry is subject to regulatory oversight that may

impact the manner in which we operate our business;

-- our geographic concentration in certain Midwestern states and New

Mexico ties our performance to the business, economic, regulatory and

legislative conditions in those states;

-- an interruption or change in current marketing and agency relationships

could reduce the amount of premium we are able to write;

-- a downgrade in the financial strength rating of our insurance

subsidiaries could reduce the amount of business we are able to write;

-- changes in interest rates could adversely impact our results of

operation, cash flows and financial condition;

-- 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;

-- the loss of one or more of our key employees could adversely affect our

business;

-- unpredictable court decisions could have a material adverse financial

impact on our business operations if the amount of the award is

expanded beyond the intended insurance coverage;

-- applicable law and certain provisions in our articles and bylaws may

prevent and discourage unsolicited attempts to acquire our Company that

may be in the best interest of our shareholders;

-- 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

APCapital 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, APCapital'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, APCapital believes that providing operating income (loss) information makes it easier for users of APCapital's financial information to evaluate the success of APCapital's underlying insurance operations.

In addition to APCapital's reported loss ratios, management also uses accident year loss ratios, a non-GAAP financial measure, to evaluate APCapital'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, APCapital believes that the current estimates are reasonable.

(Logo: http://www.newscom.com/cgi-bin/prnh/20020123/ACAPLOGO )

Summary Financial Information

American Physicians Capital, Inc.

Balance Sheet Data September 30, December 31,

2007 2006

(In thousands, except per share data)

Assets:

Available-for-sale - bonds $279,066 $255,001

Held-to-maturity - bonds 498,940 505,572

Other invested assets 12,180 6,476

Cash and cash equivalents 81,525 108,227

Cash and investments 871,711 875,276

Premiums receivable 41,342 43,068

Reinsurance recoverable 111,573 109,013

Deferred federal income taxes 26,643 32,795

Other assets 36,277 35,663

Total assets $1,087,546 $1,095,815

Liabilities and Shareholders'

Equity:

Unpaid losses and loss adjustment

expenses $680,096 $688,031

Unearned premiums 68,744 70,744

Long-term debt 30,928 30,928

Federal income taxes payable 2,737 189

Other liabilities 34,202 37,113

Total liabilities 816,707 827,005

Common stock - -

Additional paid-in-capital 4,348 41,106

Retained earnings 261,992 222,935

Accumulated other comprehensive

income:

Net unrealized gains on

investments, net of deferred

federal income taxes 4,499 4,769

Shareholders' equity 270,839 268,810

Total liabilities and

shareholders' equity $1,087,546 $1,095,815

Shares outstanding 10,576 11,557

Book value per share $25.61 $23.26


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SOURCE American Physicians Capital, Inc.
Copyright©2007 PR Newswire.
All rights reserved

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