##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
   Form 10-Q
   þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    June 30, 2006o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          
    to   Commission File Number:
    000-32057
  American Physicians Capital,
    Inc.
 (Exact name of registrant as
    specified in its charter)
   Michigan

38-3543910(State or other jurisdiction
    of

(IRS employerincorporation or
    organization)

identification number)   1301 North Hagadorn Road, East Lansing, Michigan 48823
 (Address of principal executive
    offices, including zip code)
  Registrants telephone number, including area code:(517) 351-1150
  þ o
  Rule 12b-2
  o þ o
  Rule 12b-2 o þ




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##### 



TABLE OF
    CONTENTS
  PART I.  FINANCIAL
    INFORMATIONItem 1.

Financial
    Statements


3Condensed
    Consolidated Balance Sheets


3Condensed
    Consolidated Statements of Income


4Condensed
    Consolidated Statements of Comprehensive Income


5Condensed
    Consolidated Statements of Cash Flows


6Notes to Condensed
    Consolidated Financial Statements


7Item 2.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


18Item 3.

Quantitative and
    Qualitative Disclosures About Market Risk


28Item 4.

Controls and
    Procedures


29PART II.  OTHER
    INFORMATIONItem 1A.

Risk
    Factors


30Item 2.

Unregistered Sales
    of Equity Securities and Use of Proceeds


30Item 4.

Submission of
    Matters to a Vote of Security Holders


31Item 6.

Exhibits


31Signatures


32Exhibit Index


33Section 302 Certification of Chief Executive OfficerSection 302 Certification of Chief Financial OfficerSection 906 Certification of Chief Executive Officer and Chief Financial Officer   2




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##### Table of Contents



PART I.  FINANCIAL
    INFORMATION  ITEM 1.
    FINANCIAL
    STATEMENTS  AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Balance Sheets
  June 30,


December 31,2006


2005(Unaudited)(In thousands, exceptshare data)ASSETSInvestments:Fixed-income securitiesAvailable-for-sale,
    at fair value

$
235,414


$
224,101Held-to-maturity


516,579



345,702Other investments


14,247



11,568Total investments


766,240



581,371Cash and cash equivalents


87,513



272,988Premiums receivable


40,477



50,729Reinsurance recoverable


109,791



109,368Deferred federal income taxes


37,845



44,039Federal income tax recoverable


766



Property and equipment, net of
    accumulated depreciation


10,403



11,157Other assets


33,491



39,676Total assets

$
1,086,526


$
1,109,328LIABILITIESUnpaid losses and loss adjustment
    expenses

$
691,676


$
689,857Unearned premiums


68,749



82,098Federal income taxes payable






762Long-term debt


30,928



30,928Other liabilities


36,125



41,830Total liabilities


827,478



845,475Minority Interest in
    Consolidated Subsidiary






2,641Shareholders
    EquityCommon stock, no par value,
    50,000,000 shares authorized: 7,957,182 and
    8,333,417 shares outstanding at June 30, 2006 and
    December 31, 2005, respectively






Additional
    paid-in-capital


56,163



74,360Retained earnings


199,323



179,748Accumulated other comprehensive
    income:Net unrealized appreciation on
    investments, net of deferred federal income taxes


3,562



7,104Total shareholders equity


259,048



261,212Total liabilities and
    shareholders equity

$
1,086,526


$
1,109,328    3




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Statements of Income
  Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005(Unaudited)(In thousands, except per share data)Net premiums written

$
30,082


$
28,192


$
69,047


$
70,423Change in net unearned premiums


7,338



11,488



5,816



13,150Net premiums earned


37,420



39,680



74,863



83,573Investment income


11,569



12,188



22,672



22,830Net realized gains (losses)


1,336



(256
)


1,348



(322
)Other income


150



231



627



465Total revenues and other income


50,475



51,843



99,510



106,546Losses and loss adjustment expenses


25,796



31,201



52,673



67,050Underwriting expenses


7,734



8,579



15,411



17,709Investment expenses


228



377



397



676Interest expense


756



603



1,472



1,172Amortization expense






156







313General and administrative expenses


323



798



686



1,836Other expenses


21



362



82



432Total expenses


34,858



42,076



70,721



89,188Income before federal income taxes
    and minority interest


15,617



9,767



28,789



17,358Federal income tax expense
    (benefit)


4,905



(38,268
)


9,214



(38,098
)Income before minority interest


10,712



48,035



19,575



55,456Minority interest in net income of
    consolidated subsidiary






(253
)






(342
)Net income

$
10,712


$
47,782


$
19,575


$
55,114Net income  per common
    shareBasic

$
1.32


$
5.54


$
2.39


$
6.38Diluted

$
1.29


$
5.44


$
2.34


$
6.27    4




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Statements of Comprehensive Income
  Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005(Unaudited)(In thousands)Net income

$
10,712


$
47,782


$
19,575


$
55,114Other comprehensive (loss) income:Unrealized (appreciation)
    depreciation on
    available-for-sale
    investment securities arising during the period


(2,158
)


3,917



(4,744
)


(6,345
)Amortization of net unrealized
    appreciation on
    held-to-maturity
    investment securities since the date of transfer from the
    available-for-sale
    category


(272
)


(256
)


(557
)


(256
)Adjustment for realized (gains)
    losses on investment securities included in net income


(148
)


40



(148
)


68Other comprehensive (loss) income
    before tax and minority interests


(2,578
)


3,701



(5,449
)


(6,533
)Deferred federal income tax
    (benefit) expense


(902
)


1,295



(1,907
)


(2,287
)Change in deferred tax valuation
    allowance






(11,094
)






(7,512
)Other comprehensive (loss) income
    before minority interest


(1,676
)


13,500



(3,542
)


3,266Minority interest in unrealized
    depreciation






(3
)






(3
)Other comprehensive (loss) income


(1,676
)


13,497



(3,542
)


3,263Comprehensive income

$
9,036


$
61,279


$
16,033


$
58,377    5




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AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Statements of Cash Flows
  Six Months EndedJune 30,2006


2005(Unaudited)(In thousands)Cash flows from (for) operating
    activitiesNet income

$
19,575


$
55,114Adjustments to reconcile net
    income to net cash from operating activities:Depreciation and amortization


1,451



2,882Net realized (gains) losses


(1,348
)


322Change in fair value of derivatives






143Deferred federal income taxes


7,793



(38,505
)Share-based compensation


337



195Income on equity method investee


(706
)


Minority interest in net income of
    consolidated subsidiary






342Changes in:Unpaid loss and loss adjustment
    expenses


5,962



(2,743
)Unearned premiums


(8,885
)


(13,669
)Other assets and liabilities


3,456



8,455Net cash from operating
    activities


27,635



12,536Cash flows from (for) investing
    activitiesPurchasesAvailable-for-sale 
    fixed income


(71,850
)


(1,774
)Held-to-maturity 
    fixed income


(188,188
)


(112,912
)Other investments


(262
)


(606
)Property and equipment


(175
)


(485
)Proceeds from sales and maturitiesAvailable-for-sale 
    fixed income


50,015



29,876Held-to-maturity 
    fixed income


16,365



73,184Other investments


2,123



2,203Property and equipment


6



24Deconsolidation of PIC-Florida


(2,941
)


Pending securities transactions


(53
)


(9,107
)Net cash for investing
    activities


(194,960
)


(19,597
)Cash flows from (for) financing
    activitiesCommon stock repurchased


(19,620
)


(7,743
)Federal income tax effect of share
    based awards


679



233Payable for shares repurchased


338



Proceeds from stock options
    exercised


453



900Net cash for financing
    activities


(18,150
)


(6,610
)Net decrease in cash and cash
    equivalents


(185,475
)


(13,671
)Cash and cash equivalents,
    beginning of period


272,988



190,936Cash and cash equivalents, end
    of period

$
87,513


$
177,265    6




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes
    to Condensed Consolidated Financial Statements 
    (Unaudited)
  1.  Significant
    Accounting Policies
  Basis
    of Consolidation and Reporting
      Form 10-Q Rule 10-01 Regulation S-X Form 10-Q
  Form 10-K
  Use of
    Estimates
      Nature
    of Business and Segment Reporting
   7




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
    Share-Based
    Compensation
    Minority
    Interests
    PIC-Florida
    Reclassification
   8




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
   2.
    Effects
    of New Accounting Pronouncements    
    FASB Staff Position (FSP)
    FAS 13-2,
    Accounting for a Change or Projected Change in the Timing
    of Cash Flows Relating to Income Taxes Generated by a Leveraged
    Lease Transaction. This FSP addresses how a change or
    projected change in the timing of cash flows relating to income
    taxes generated by a leveraged lease transaction affects the
    accounting by a lessor for that lease, and amends
    SFAS No. 13, Accounting for Leases. The
    guidance in FSP
    FAS 13-2
    shall be applied to fiscal years beginning after
    December 15, 2006. (Issued July 2006)
    FSP FIN 46(R)-6, Determining the Variability to Be
    Considered in Applying FIN 46(R), addresses how a
    reporting enterprise should determine the variability to be
    considered in applying FIN 46(R), Consolidation of
    Variable Interest Entities. FSP FIN 46(R) will be
    effective beginning in third quarter of 2006. (Issued April 2006)
    FSP FTB 85-4-1, Accounting for Life Settlement Contracts
    by Third-Party Investors, provides initial and subsequent
    measurement guidance and financial statement presentation and
    disclosure guidance for investments by third-party investors in
    life settlement contracts. The provisions of this FSP are
    effective for fiscal years beginning after June 15, 2006.
    (Issued March 2006)
    SFAS No. 156, Accounting for Servicing of
    Financial Assets, amends SFAS No. 140,
    Accounting for Transfers and Servicing of Financial Assets
    and Extinguishment of Liabilities, with respect to the
    accounting for separately recognized servicing assets and
    servicing liabilities, and is effective for an entitys
    first fiscal year that begins after September 15, 2006.
    (Issued March 2006)
    SFAS No. 155, Accounting for Certain Hybrid
    Financial Instruments  an amendment of SFAS Nos.
    133 and 140, resolves issues addressed in
    SFAS No. 133 Implementation Issue No. D1,
    Application of Statement 133 to Beneficial Interests
    in Securitized Financial Assets. SFAS No. 155
    permits the fair value remeasurement for any hybrid financial
    instrument that contains an embedded derivative that would
    otherwise require bifurcation; clarifies which interest-only
    strips and principal-only strips are not subject to the
    requirements of SFAS No. 133; clarifies that
    concentrations of credit risk in the form of subordination are
    not embedded derivatives; and amends SFAS No. 140 to
    eliminate the prohibition on a qualifying special-purpose entity
    from holding a derivative financial instrument that pertains to
    a beneficial interest other than another derivative financial
    instrument. SFAS No. 155 is effective for all
    financial instruments acquired or issued after the beginning of
    an entitys first fiscal year that begins after
    September 15, 2006. (Issued February 2006)
    FSP No. FAS 123(R)-4, Classification of Options
    and Similar Instruments Issued as Employee Compensation That
    Allow for Cash Settlement upon the Occurrence of a Contingent
    Event, clarifies that options and similar instruments
    issued as employee compensation that allow for cash settlement
    upon the occurrence of a contingent event, do not meet the
    criteria for classification as a liability if the contingent
    event is outside the employees control. Such options or
    similar instruments would not be classified as liabilities until
    it becomes probable that the event will occur. The provisions of
    FSP No. FAS 123(R)-4 are effective upon the initial
    adoption of SFAS No. 123(R), which was effective
    January 1, 2006 for the Company. (Issued February 2006)   9




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
    3.
    Income
    Per Share    Three Months Ended


Six Months EndedJune 30


June 30,2006


2005


2006


2005(In thousands, except per share data)Numerator for basic and diluted
    income per common share:Net income

$
10,712


$
47,782


$
19,575


$
55,114Denominator:Denominator for basic income per
    common share  weighted average shares outstanding


8,120



8,625



8,192



8,636Effect of dilutive stock options
    and awards


172



157



180



160Denominator for diluted income per
    common share  adjusted weighted average shares
    outstanding


8,292



8,782



8,372



8,796Net income 
    basic

$
1.32


$
5.54


$
2.39


$
6.38Net income 
    diluted

$
1.29


$
5.44


$
2.34


$
6.27     4.
    Share-Based
    Compensation  Equity
    Compensation Plans
     10




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
       For the Period Ended June 30, 2006WeightedWeighted


Average


AggregateNumber of


Average


Remaining


IntrinsicOptions


Exercise Price


Term


Value(In years)


(In thousands)Options outstanding at
    January 1, 2006


517,400


$
22.80Granted during the period






Exercised during the period


(50,400
)

$
14.34Canceled during the period


(1,000
)

$
39.75Options outstanding at
    June 30, 2006


466,000


$
23.67



6.59


$
13,477Options exercisable at
    June 30, 2006


337,500


$
19.39



5.78


$
11,205   in-the-money
      WeightedNumber of


AverageNon-vested


Grant DateShares


Fair ValueNon-vested shares outstanding at
    January 1, 2006


16,079


$
17.20Granted during the period






Vested during the period


(7,921
)

$
17.20Forfeited during the period


(510
)

$
17.20Non-vested shares outstanding at
    June 30, 2006


7,648


$
17.20      11




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
   Impact
    of the Adoption of SFAS No. 123(R)
    additional-paid-in-capital.
  additional-paid-in-capital.
   12




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
     Three Months Ended


Six Months EndedJune 30, 2005


June 30, 2005(In thousands, except per share data)Net income as reported

$
47,782


$
55,114Add: Stock-based employee
    compensation expense included in reported net income, net of
    related tax effects


64



127Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards granted since 2000, net of related tax effects


(122
)


(245
)Pro forma net income

$
47,724


$
54,996Basic income per shareAs reported

$
5.54


$
6.38Pro forma

$
5.53


$
6.37Diluted income per shareAs reported

$
5.44


$
6.27Pro forma

$
5.43


$
6.25   Valuation
    Assumptions
    2005


2004(Binomial Lattice)


(Black-Scholes)Risk-free interest rate


4.44
%


3.12
%Dividend yield


0
%


0
%Expected volatility


10% - 25
%


40
%Weighted average volatility


20
%


40
%Expected term (years)


4.0



5.0Weighted average estimated grant
    date fair value

$
7.27


$
8.55    13




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
   5.
    Investments  available-for-sale
  June 30, 2006Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost/Cost


Gains


Losses


Fair Value(In thousands)Available-for-saleU.S. government obligations

$
2,498


$
18


$
(13
)

$
2,503States and political subdivisions


80,672



44



(1,228
)


79,488Corporate securities


150,813



2,854



(482
)


153,185Mortgage-backed securities


217



21







238Total
    available-for-sale
    securities

$
234,200


$
2,937


$
(1,723
)

$
235,414   December 31, 2005Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost/Cost


Gains


Losses


Fair Value(In thousands)Available-for-saleU.S. government obligations

$
3,752


$
55


$
(19
)

$
3,788States and political subdivisions


16,106



145







16,251Corporate securities


197,926



6,028



(230
)


203,724Mortgage-backed securities


287



57



(6
)


338Total
    available-for-sale
    securities

$
218,071


$
6,285


$
(255
)

$
224,101   held-to-maturity
  June 30, 2006Gross


GrossUnrecognized


UnrecognizedCarrying


Holding


Holding


EstimatedValue(1)


Gains


Losses


Fair Value(In thousands)Held-to-maturityU.S. government obligations

$
142,593






$
(4,445
)

$
138,148States and political subdivisions


130,583







(2,748
)


127,835Corporate securities


69,379



72



(4,111
)


65,340Mortgage-backed securities


174,024







(7,729
)


166,295Total
    held-to-maturity
    fixed-income securities

$
516,579


$
72


$
(19,033
)

$
497,618     (1)
    
    Carrying value includes $4.3 million of unamortized net
    unrealized appreciation.  14




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
  December 31, 2005Gross


GrossUnrecognized


UnrecognizedCarrying


Holding


Holding


EstimatedValue(1)


Gains


Losses


Fair Value(In thousands)Held-to-maturityU.S. government obligations

$
82,628






$
(1,638
)

$
80,990States and political subdivisions


2,879







(28
)


2,851Corporate securities


69,681



173



(1,572
)


68,282Mortgage-backed securities


190,514



51



(3,753
)


186,812Total
    held-to-maturity
    fixed-income securities

$
345,702


$
224


$
(6,991
)

$
338,935     (1)
    
    Carrying value includes $4.9 million of unamortized net
    unrealized appreciation.  available-for-sale held-to-maturity
    6.
    Income
    Taxes    Three Months Ended June 30,


Six Months Ended June 30,2006


2005


2006


2005(Dollars in thousands)Income before taxes

$
15,617






$
9,767






$
28,789






$
17,358Tax at statutory rate


5,466



35.0
%


3,418



35.0
%


10,076



35.0
%


6,075



35.0
%Tax effect of:Tax exempt interest


(601
)


(3.8
)%


(46
)


(0.5
)%


(893
)


(3.1
)%


(103
)


(0.6
)%Other items, net


40



0.3
%


(27
)


(0.3
)%


31



0.1
%


(19
)


(0.1
)%Valuation allowance






0.0
%


(41,613
)


(426.1
)%






0.0
%


(44,051
)


(253.8
)%$
4,905



31.4
%

$
(38,268
)


(391.8
)%

$
9,214



32.0
%

$
(38,098
)


(219.5
)%  15




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
   Form 10-K
  7.
    Shareholders
    Equity    Discretionary PlanTotalNumber of





AverageShares


Total


Price PaidPurchased


Cost


per Share(In thousands)Three months ended March 31,
    2006


127,500


$
6,110


$
47.92Three months ended June 30,
    2006


12,500



594



47.53Six months ended June 30, 2006


140,000


$
6,704


$
47.89Inception to date as of
    June 30, 2006


3,770,570


$
84,144


$
22.32   Rule 10b5-1 Rule 10b5-1
  Rule 10b5-1
    PlanTotalNumber of





AverageShares


Total


Price PaidPurchased


Cost


per Share(In thousands)Three months ended March 31,
    2006





$



$
Three months ended June 30,
    2006


280,600



12,916



46.03Six months ended June 30, 2006


280,600


$
12,916


$
46.03Inception to date as of
    June 30, 2006


280,600


$
12,916


$
46.03   Rule 10b5-1 Rule 10b5-1 Rule 10b5-1
 16




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
   8.
    Subsequent
    Event   17




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K
    Form 10-K
  
    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.
    Our exit from various markets and lines of business may prove
    more costly than originally anticipated.
    Legislative or judicial changes in the tort system 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
    ability to obtain future premium rate increases, the type and
    amount of our investments, the levels of capital and surplus
    deemed adequate to protect policyholder interests, or the
    ability of our insurance subsidiaries to pay dividends to the
    holding company.
    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 A.M. Best Company 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.   18




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##### Table of Contents



Overview
    of APCapitals Operations
        Critical
    Accounting Policies
    Form 10-K
  Share-Based
    Compensation
     19




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##### Table of Contents



Description
    of Ratios Analyzed
    GAAP Ratios
    and Other GAAP Financial Measures
    Accident
    Year Loss Ratio
    Results
    of Operations  Three and Six Months Ended
    June 30, 2006 Compared to Three and Six Months Ended
    June 30, 2005
     20




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##### Table of Contents



For the Three Months Ended June 30,Change2006


2005


Dollar


Percentage(Dollars in thousands)Direct premiums writtenIllinois

$
9,746


$
9,892


$
(146
)


(1.5
)%Kentucky


777



1,032



(255
)


(24.7
)%Michigan


10,938



10,136



802



7.9
%New Mexico


4,475



4,607



(132
)


(2.9
)%Ohio


6,085



7,562



(1,477
)


(19.5
)%PIC-Florida






2,251



(2,251
)


(100.0
)%Other


381



476



(95
)


(20.0
)%Total

$
32,402


$
35,956


$
(3,554
)


(9.9
)%Net premiums written

$
30,082


$
28,192


$
1,890



6.7
%Net earned premium

$
37,420


$
39,680


$
(2,260
)


(5.7
)%Losses and loss adjustment expensesCurrent year losses


28,674



31,828



(3,154
)


(9.9
)%Prior year losses


(2,878
)


(627
)


(2,251
)


359.0
%Total


25,796



31,201



(5,405
)


(17.3
)%Underwriting expenses


7,734



8,579



(845
)


(9.8
)%Total underwriting gain (loss)


3,890



(100
)


3,990



(3990.0
)%Add:Investment income


11,569



12,188



(619
)


(5.1
)%Net realized gains (losses)


1,336



(256
)


1,592



621.9
%Other income


150



231



(81
)


(35.1
)%Less:Investment expenses


228



377



(149
)


(39.5
)%Interest expense


756



603



153



25.4
%Amortization expense






156



(156
)


(100.0
)%General and administrative expenses


323



798



(475
)


(59.5
)%Other expenses


21



362



(341
)


(94.2
)%Total other revenue and expense
    items


11,727



9,867



1,860



18.9
%Income before federal income taxes
    and minority interest


15,617



9,767



5,850



59.9
%Federal income tax expense
    (benefit)


4,905



(38,268
)


43,173



112.8
%Income before minority interest


10,712



48,035



(37,323
)


(77.7
)%Minority interest in income of
    consolidated subsidiary






(253
)


253



(100.0
)%Net income

$
10,712


$
47,782


$
(37,070
)


(77.6
)%Loss Ratio:Accident year


76.6
%


80.2
%






3.6
%Prior years


(7.7
)%


(1.6
)%






6.1
%Calendar year


68.9
%


78.6
%






9.7
%Underwriting expense ratio


20.7
%


21.6
%






0.9
%Combined ratio


89.6
%


100.2
%






10.5
%  21




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##### Table of Contents



For the Six Months Ended June 30,Change2006


2005


Dollar


Percentage(Dollars in thousands)Direct premiums writtenIllinois

$
24,806


$
26,848


$
(2,042
)


(7.6
)%Kentucky


3,785



6,355



(2,570
)


(40.4
)%Michigan


19,328



21,059



(1,731
)


(8.2
)%New Mexico


9,779



10,047



(268
)


(2.7
)%Ohio


15,078



16,232



(1,154
)


(7.1
)%PIC-Florida






4,069



(4,069
)


(100.0
)%Other


1,147



1,288



(141
)


(10.9
)%Total

$
73,923


$
85,898


$
(11,975
)


(13.9
)%Net premiums written

$
69,047


$
70,423


$
(1,376
)


(2.0
)%Net earned premium

$
74,863


$
83,573


$
(8,710
)


(10.4
)%Losses and loss adjustment expensesCurrent year losses


57,659



67,905



(10,246
)


(15.1
)%Prior year losses


(4,986
)


(855
)


(4,131
)


483.2
%Total


52,673



67,050



(14,377
)


(21.4
)%Underwriting expenses


15,411



17,709



(2,298
)


(13.0
)%Total underwriting gain (loss)


6,779



(1,186
)


7,965



(671.6
)%Add:Investment income


22,672



22,830



(158
)


(0.7
)%Net realized gains (losses)


1,348



(322
)


1,670



518.6
%Other income


627



465



162



34.8
%Less:Investment expenses


397



676



(279
)


(41.3
)%Interest expense


1,472



1,172



300



25.6
%Amortization expense






313



(313
)


(100.0
)%General and administrative expenses


686



1,836



(1,150
)


(62.6
)%Other expenses


82



432



(350
)


(81.0
)%Total other revenue and expense
    items


22,010



18,544



3,466



18.7
%Income before federal income taxes
    and minority interest


28,789



17,358



11,431



65.9
%Federal income tax expense
    (benefit)


9,214



(38,098
)


47,312



124.2
%Income before minority interest


19,575



55,456



(35,881
)


(64.7
)%Minority interest in income of
    consolidated subsidiary






(342
)


342



(100.0
)%Net income

$
19,575


$
55,114


$
(35,539
)


(64.5
)%Loss Ratio:Accident year


77.0
%


81.2
%






4.2
%Prior years


(6.6
)%


(1.0
)%






5.6
%Calendar year


70.4
%


80.2
%






9.8
%Underwriting expense ratio


20.6
%


21.2
%






0.6
%Combined ratio


91.0
%


101.4
%






10.4
%  22




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23




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##### Table of Contents



24




---



##### Table of Contents



Liquidity
    and Capital Resources
          available-for-sale held-to-maturity
     25




---



##### Table of Contents



Financial
    Condition
    Statutory
    Capital and Surplus
      Reserves
    for Unpaid Losses and Loss Adjustment Expenses
      Number





Average Netof Open


Net Case


Case Reserve


Net IBNR


Total NetClaims


Reserves


per Open Claim


Reserves


Reserves(In thousands, except claim and per claim data)December 31, 2005


2,991


$
366,138


$
122,413


$
178,123


$
544,261Change


(433
)

$
(17,421
)

$
13,911


$
24,744


$
7,323June 30, 2006


2,558


$
348,717


$
136,324


$
202,867


$
551,584      26




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##### Table of Contents



Six Months Ended


Year EndedJune 30, 2006


December 31, 2005Beginning balance, gross

$
689,857


$
693,630Less, reinsurance recoverables


107,692



101,791Net reserves, beginning balance


582,165



591,839Deconsolidation of PIC-FL


(2,418
)


Incurred related toCurrent year


57,659



131,496Prior years


(4,986
)


(4,372
)52,673



127,124Paid related toCurrent year


538



5,054Prior years


49,193



131,74449,731



136,798Net reserves, ending balance


582,689



582,165Plus, reinsurance recoverables


108,987



107,692Ending balance, gross

$
691,676


$
689,857Development as a % of beginning
    net reserves


(0.9
)%


(0.7
)%   Other
    Significant Balance Sheet Items
         27




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##### Table of Contents



additional-paid-in-capital
  Contractual
    Obligations and Off-Balance Sheet Arrangements
  Form 10-K Form 10-Q,
  Effects
    of New Accounting Pronouncements
    Item 3.
    Quantitative
    and Qualitative Disclosures About Market and Credit
    Risk  General
   28




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##### Table of Contents



available-for-sale held-to-maturity,
    Qualitative
    Information About Market and Credit Risk
  available-for-sale held-to-maturity,
  held-to-maturity held-to-maturity
  Quantitative
    Information About Market Risk
  available-for-sale available-for-sale
  June 30, 2006


December 31, 2005Portfolio


Change in


Modified


Portfolio


Change in


ModifiedChange in Rates

Value


Value


Duration


Value


Value


Duration(Dollars in thousands)


(Dollars in thousands)+2%

$
222,816


$
(12,598
)


2.62


$
215,014


$
(9,087
)


1.89+1%


228,825



(6,589
)


2.69



219,173



(4,928
)


2.160


235,414







3.00



224,101







2.27−1%


242,627



7,213



3.09



228,991



4,890



2.36−2%


250,269



14,855



3.19



234,917



10,816



2.50   Item 4.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
   29




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##### Table of Contents



Rule 13a-15(b).
  Changes
    in Internal Control Over Financial Reporting
   PART II.
    OTHER INFORMATION  Item 1A.
    Risk
    Factors  Form 10-K Form 10-K.
  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.   30




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##### Table of Contents



Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds.    Total NumberTotal





of Shares


Maximum Number (or Approximate DollarNumber of


Average


Purchased as


Value) of Shares That May Yet beShares


Price Paid


Part of Publicly


Purchased Under the Plans or ProgramsPurchased


per Share


Announced Plans


Discretionary Plan(a)


Rule 10b5-1
    Plan(b)For the month ended April 30,
    2006


43,600


$
47.86



43,600



269,869


$
18,507,418For the month ended May 31,
    2006


126,100


$
45.65



126,100



269,869


$
12,751,474For the month ended June 30,
    2006


123,400


$
45.92



123,400



269,869


$
7,084,483For the three months ended
    June 30, 2006


293,100


$
46.09



293,100



269,869


$
7,084,483     (a)
    
    In November 2005, the Board of Directors authorized the purchase
    of an additional five percent of the Companys outstanding
    common shares, which represents approximately
    425,000 shares, at the discretion of management as part of
    a repurchase program that began March 30, 2001 (referred to
    as the discretionary plan). This most recent
    authorization brings the total number of shares authorized to be
    repurchased under the discretionary plan to 4,040,439. The
    timing of the purchases and the number of shares to be bought at
    any time depend on market conditions and the Companys
    capital resources and requirements. The discretionary plan has
    no expiration date and may be terminated at any time.(b)
    
    In April 2006, the Company announced that its Board of Directors
    authorized an additional share repurchase of $20 million of
    its common shares, which would be repurchased under a newly
    adopted plan under
    Rule 10b5-1
    of the Securities Exchange Act of 1934. The
    Rule 10b5-1
    plan share repurchases are made pursuant to a formula in the
    plan and are expected to continue until the entire authorization
    is utilized, subject to conditions specified in the plan, but
    not later than December 31, 2006. The Company may terminate
    the plan at any time.  Item 4.
    Submission
    of Matters to a Vote of Security Holders    Votes


VotesNominee

For


WithheldBilly B. Baumann, M.D.


7,534,202



81,421R. Kevin Clinton


7,524,802



90,821Larry W. Thomas


7,536,202



79,421   BrokerFor


Against


Abstain


Non-VotesProposal to ratify appointment of
    BDO Seidman, LLP as the Companys independent registered
    public accountants


7,535,532



79,243



848



0   Item 6.
    Exhibits  Exhibits.
   31




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##### Table of Contents



SIGNATURES      By:
    /s/  R.
    Kevin Clinton      By:
    /s/  Frank
    H. Freund         32




---



##### Table of Contents



EXHIBIT INDEX  Exhibit No.

Exhibit Description31
.1

Certification of Chief Executive
    Officer pursuant to
    Rule 13a-14(a)
    under the Securities Exchange Act of 1934.31
.2

Certification of Chief Financial
    Officer pursuant to
    Rule 13a-14(a)
    under the Securities Exchange Act of 1934.32


Certification of Chief Executive
    Officer and Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350 and
    Rule 13a-14(b)
    under the Securities Exchange Act of 1934.  33