##### 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, 2008o

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(State or other jurisdiction
    of
    incorporation or organization)

38-3543910(IRS employer
    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
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ




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##### Table of Contents



TABLE OF
    CONTENTS
  PART I.  FINANCIAL
    INFORMATIONItem 1
.

Financial StatementsCondensed Consolidated Balance Sheets


3Condensed Consolidated Statements of Income


4Condensed Consolidated Statements of
    Shareholders Equity


5Condensed Consolidated Statements of
    Comprehensive Income


6Condensed Consolidated Statements of Cash
    Flows


7Notes to Condensed Consolidated Financial
    Statements


8Item 2
.

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


13Item 3
.

Quantitative and Qualitative Disclosures About
    Market Risk


26Item 4
.

Controls and Procedures


28PART II.  OTHER
    INFORMATIONItem 1A
.

Risk Factors


29Item 2
.

Unregistered Sales of Equity Securities and Use
    of Proceeds


29Item 4
.

Submission of Matters to a Vote of Security
    Holders


30Item 6
.

Exhibits


30Signatures


31Exhibit Index


32Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350  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 31,2008


2007(Unaudited)(In thousands, except share data)ASSETSInvestments:Fixed-income securitiesAvailable-for-sale, at fair value

$
229,106


$
262,301Held-to-maturity, at amortized cost


493,917



497,662Other investments


15,534



11,487Total investments


738,557



771,450Cash and cash equivalents


112,070



87,498Premiums receivable


30,883



35,542Reinsurance recoverable


103,797



106,961Deferred federal income taxes


21,840



22,439Federal income tax recoverable


224



1,076Property and equipment, net of accumulated depreciation


15,443



13,789Other assets


18,504



18,707Total assets

$
1,041,318


$
1,057,462LIABILITIESUnpaid losses and loss adjustment expenses

$
657,910


$
664,117Unearned premiums


54,775



60,080Long-term debt


30,928



30,928Other liabilities


32,703



38,780Total liabilities


776,316



793,905Commitments & ContingenciesShareholders EquityCommon stock, no par value, 50,000,000 shares authorized:
    9,721,252 and 10,127,740 shares outstanding at
    June 30, 2008 and December 31, 2007, respectively






Additional
    paid-in-capital






Retained earnings


260,323



257,502Accumulated other comprehensive income:Net unrealized appreciation on investments, net of deferred
    federal income taxes


4,679



6,055Total shareholders equity


265,002



263,557Total liabilities and shareholders equity

$
1,041,318


$
1,057,462    3




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


Six Months EndedJune 30,


June 30,2008


2007


2008


2007(Unaudited)(In thousands, except per share data)Net premiums written

$
25,499


$
26,967


$
57,674


$
61,861Change in net unearned premiums


5,921



7,929



5,393



8,067Net premiums earned


31,420



34,896



63,067



69,928Investment income


9,235



11,152



19,192



22,329Net realized gains (losses)


74



(64
)


(708
)


(66
)Other income


206



175



395



388Total revenues and other income


40,935



46,159



81,946



92,579Losses and loss adjustment expenses


17,667



12,916



33,865



35,278Underwriting expenses


6,623



7,566



13,639



14,927Investment expenses


241



230



503



417Interest expense


555



782



1,243



1,555General and administrative expenses


319



363



586



695Other expenses






(1
)






2Total expenses


25,405



21,856



49,836



52,874Income before federal income taxes


15,530



24,303



32,110



39,705Federal income tax expense


4,487



7,970



9,693



12,867Net income

$
11,043


$
16,333


$
22,417


$
26,838Net income  per common shareBasic

$
1.14


$
1.47


$
2.28


$
2.38Diluted

$
1.11


$
1.44


$
2.24


$
2.33    4




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AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Statements of Shareholders
    Equity
  AccumulatedAdditional





OtherShares


Paid-in


Retained


ComprehensiveOutstanding


Capital


Earnings


Income


Total(Unaudited)(In thousands, except share data)Balance, December 31, 2007


10,127,740


$



$
257,502


$
6,055


$
263,557Comprehensive income:Net income










22,417







22,417Other comprehensive loss, net of taxes














(1,376
)


(1,376
)Total comprehensive income, net of taxes


















21,041Options exercised


10,960



168











168Amortization of unearned stock compensation, net of taxShares tendered/netted in connection with option exercise


(1,448
)


(63
)










(63
)Cash dividends to shareholders, $0.20 per share(1)










(1,952
)






(1,952
)Excess tax benefits from share-based awards






101











101Fair value compensation of share-based awards






37











37Purchase and retirement of common stock


(416,000
)


(243
)


(17,644
)






(17,887
)Balance, June 30, 2008


9,721,252


$



$
260,323


$
4,679


$
265,002   AccumulatedAdditional





OtherShares


Paid-in


Retained


ComprehensiveOutstanding


Capital


Earnings


Income


Total(Unaudited)(In thousands, except share data)Balance, December 31, 2006


11,556,575


$
41,106


$
222,935


$
4,769


$
268,810Comprehensive income:Net income










26,838







26,838Other comprehensive loss, net of taxes














(2,015
)


(2,015
)Total comprehensive income, net of taxes


















24,823Options exercised


18,025



215











215Amortization of unearned stock compensation, net of taxShares tendered/netted in connection with option exercise


(3,201
)


(122
)










(122
)Excess tax benefits from share-based awards






315











315Fair value compensation of share-based awards






113











113Purchase and retirement of common stock


(489,200
)


(18,514
)










(18,514
)Balance, June 30, 2007


11,082,199


$
23,113


$
249,773


$
2,754


$
275,640     (1)
    
    Cash dividends of $0.10 per common share were paid in each of
    the first and second quarter of 2008.   5




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


Six Months EndedJune 30,


June 30,2008


2007


2008


2007(Unaudited)(In thousands)Net income

$
11,043


$
16,333


$
22,417


$
26,838Other comprehensive income (loss):Unrealized depreciation on available-for-sale investment
    securities arising during the period


(4,015
)


(2,859
)


(785
)


(2,559
)Amortization of net unrealized appreciation on held-to-maturity
    investment securities since the date of transfer from the
    available-for-sale category


(303
)


(240
)


(505
)


(482
)Adjustment for net realized gains (losses) on available-for-sale
    investment securities included in net income(1)


31



(60
)


(827
)


(60
)Other comprehensive loss before tax


(4,287
)


(3,159
)


(2,117
)


(3,101
)Deferred federal income tax benefit


(1,500
)


(1,106
)


(741
)


(1,086
)Other comprehensive loss


(2,787
)


(2,053
)


(1,376
)


(2,015
)Comprehensive income

$
8,256


$
14,280


$
21,041


$
24,823     (1)
    
    Includes net realized gains of $7,000 for the three and six
    months ended June 30, 2008, related to held-to-maturity
    securities with unamortized, net unrealized gains related to the
    transfer of securities to the held-to-maturity category.   6




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AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Condensed
    Consolidated Statements of Cash Flows
  Six Months EndedJune 30,2008


2007(Unaudited)(In thousands)Cash flows from (for) operating activitiesNet income

$
22,417


$
26,838Adjustments to reconcile net income to net cash from operating
    activities:Depreciation and amortization


1,948



1,415Net realized losses


708



66Deferred federal income taxes


1,340



5,654Current federal income taxes


953



2,746Excess tax benefits from share-based awards


(101
)


(315
)Share-based compensation


37



113Income on equity method investees






(96
)Changes in:Unpaid loss and loss adjustment expenses


(6,208
)


(7,907
)Unearned premiums


(5,305
)


(10,071
)Other assets and liabilities


2,413



8,530Net cash from operating activities


18,202



26,973Cash flows from (for) investing activitiesPurchasesAvailable-for-sale  fixed income


(15,478
)


(56,234
)Held-to-maturity  fixed income


(96,766
)


(5,312
)Other investments


(3,364
)


(2,924
)Property and equipment


(2,136
)


(2,075
)Proceeds from sales and maturitiesAvailable-for-sale  fixed income


44,878



19,984Held-to-maturity  fixed income


99,329



7,755Other investments






250Property and equipment






20Pending securities transactions


2,343



Net cash from (for) investing activities


28,806



(38,536
)Cash flows from (for) financing activitiesCommon stock repurchased


(17,887
)


(18,514
)Excess tax benefits from share-based awards


101



315Change in payable for shares repurchased


(2,803
)


(283
)Cash dividends paid


(1,952
)


Proceeds from stock options exercised


105



93Net cash for financing activities


(22,436
)


(18,389
)Net increase (decrease) in cash and cash equivalents


24,572



(29,952
)Cash and cash equivalents, beginning of period


87,498



108,227Cash and cash equivalents, end of period

$
112,070


$
78,275    7




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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
  Reclassifications
    Use of
    Estimates
      Nature
    of Business
   8




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AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
  2.
    Effects
    of New Accounting Pronouncements  Fair Value Measurements, FAS No. 157-2. FAS No. 157-2
  Business Combinations, , Business Combinations
  Non-controlling Interests in Consolidated Financial
    Statements  an amendment of Accounting Research
    Bulletin No. 51
  Disclosures about Derivative
    Instruments and Hedging Activities-an amendment of FASB
    Statement No. 133,
 9




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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 30,2008


2007


2008


2007(In thousands, except per share data)Numerator for basic and diluted income per common share:Net income

$
11,043


$
16,333


$
22,417


$
26,838Denominator:Denominator for basic income per common share 
    weighted average shares outstanding


9,728



11,135



9,822



11,285Effect of dilutive stock options and awards


200



218



197



216Denominator for diluted income per common share 
    adjusted weighted average shares outstanding


9,928



11,353



10,019



11,501Net income  basic

$
1.14


$
1.47


$
2.28


$
2.38Net income  diluted

$
1.11


$
1.44


$
2.24


$
2.33     4.
    Fair
    Value Measurements    
    Level 1: Quoted prices (unadjusted) for identical assets or
    liabilities in active markets that the entity has the ability to
    access as of the measurement date.
    Level 2: Significant observable inputs other than
    Level 1 prices such as quoted prices for similar assets or
    liabilities in active markets; quoted prices for identical or
    similar assets or liabilities in markets that are not active; or
    other inputs that are observable or can be derived from or
    corroborated by observable market data by correlation or other
    means.
    Level 3: Significant unobservable inputs that reflect a
    reporting entitys own assumptions about the assumptions
    that market participants would use in pricing an asset or
    liability. 10




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AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
     Valuation
    of Investments
    Investments
    Measured at Fair Value on a Recurring Basis
  Available-for-sale fixed-income securities 
  Available-for-sale equity securities 
    Total


Level 1


Level 2


Level 3(In thousands)Available-for-sale investments:Fixed-income securities

$
229,106


$



$
222,382


$
6,724Equity securities(1)


10,563



10,563







Total

$
239,669


$
10,563


$
222,382


$
6,724     (1)
    
    Included in other investments on the accompanying Condensed
    Consolidated Balance Sheets.     11




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
    Available-for-SaleFixed-IncomeSecurities(In thousands)Balance at January 1, 2008

$
6,911Principal paydowns


(210
)Net unrealized appreciation included in other comprehensive
    income


23Balance at June 30, 2008

$
6,724   Investment
    Measured at Fair Value on a Nonrecurring Basis
  Held-to-maturity fixed-income securities 
  Other
    Assets and Liabilities Measured at Fair Value on a Nonrecurring
    Basis
  and/or
 12




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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.
    Our reserves for unpaid losses and loss adjustment expenses are
    based on estimates that may prove to be inadequate to cover our
    losses.
    An interruption or change in current marketing and agency
    relationships could reduce the amount of premium we are able to
    write.
    If we are unable to obtain or collect on ceded reinsurance, our
    results of operations and financial condition may be adversely
    affected.
    Our geographic concentration in certain Midwestern states and
    New Mexico ties our performance to the business, economic,
    regulatory and legislative conditions in those states.
    A downgrade in the A.M. Best Company rating of our primary
    insurance subsidiary 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.
    The unpredictability of court decisions could have a material
    impact on our operations.
    Our business could be adversely affected by the loss of one or
    more key employees.
    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 status as an insurance holding company with no direct
    operations could adversely affect our ability to meet our debt
    obligations and fund future cash dividends and share repurchases.
    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.
    Applicable law and various provisions in our articles and bylaws
    may prevent and discourage unsolicited attempts to acquire
    APCapital that you may believe are in your best interests or
    that might result in a substantial profit to you. 13




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##### Table of Contents



Overview
    of the Companys Operations
      Form 10-K.
  Critical
    Accounting Policies
    Form 10-K
  Description
    of Ratios and Other Metrics Analyzed
    Underwriting Gain or Loss:
  Loss Ratio:
 14




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##### Table of Contents



Underwriting Expense Ratio:
  Combined Ratio:
  Investment Yield:
         15




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##### Table of Contents



Results
    of Operations  Three and Six Months Ended
    June 30, 2008 Compared to Three and Six Months Ended
    June 30, 2007
    For the Three Months Ended June 30,Change2008


2007


Dollar


Percentage(Dollars in thousands)Direct premiums written

$
26,444


$
27,847


$
(1,403
)


(5.0
)%Net premiums written

$
25,499


$
26,967


$
(1,468
)


(5.4
)%Net premiums earned

$
31,420


$
34,896


$
(3,476
)


(10.0
%)Losses and loss adjustment expensesCurrent year losses


24,670



25,814



(1,144
)


(4.4
)%Prior year losses


(7,003
)


(12,898
)


5,895



(45.7
)%Total


17,667



12,916



4,751



36.8
%Underwriting expenses


6,623



7,566



(943
)


(12.5
)%Total underwriting gain


7,130



14,414



(7,284
)


(50.5
)%Other revenue (expense) itemsInvestment income


9,235



11,152



(1,917
)


(17.2
)%Net realized losses


74



(64
)


138



(215.6
)%Other income


206



175



31



17.7
%Other expenses(1)


(1,115
)


(1,374
)


259



(18.9
)%Total other revenue and expense items


8,400



9,889



(1,489
)


(15.1
)%Income before federal income taxes


15,530



24,303



(8,773
)


(36.1
)%Federal income tax expense


4,487



7,970



(3,483
)


(43.7
)%Net income

$
11,043


$
16,333


$
(5,290
)


(32.4
)%Loss Ratio:Accident year


78.5
%


74.0
%






4.5
%Prior years


(22.3
)%


(37.0
)%






14.7
%Calendar year


56.2
%


37.0
%






19.2
%Underwriting expense ratio


21.1
%


21.7
%






(0.6
)%Combined ratio


77.3
%


58.7
%






18.6
%Investment yield


4.38
%


5.10
%






(0.7
)%     (1)
    
    Other expenses includes investment expenses, interest expense,
    general and administrative expenses and other expenses as
    reported in the unaudited Condensed Consolidated Statements of
    Income included elsewhere in this report. 16




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##### Table of Contents



For the Six Months Ended June 30,Change2008


2007


Dollar


Percentage(Dollars in thousands)Direct premiums written

$
60,115


$
64,149


$
(4,034
)


(6.3
)%Net premiums written

$
57,674


$
61,861


$
(4,187
)


(6.8
)%Net premiums earned

$
63,067


$
69,928


$
(6,861
)


(9.8
)%Losses and loss adjustment expensesCurrent year losses


49,288



52,441



(3,153
)


(6.0
)%Prior year losses


(15,423
)


(17,163
)


1,740



(10.1
)%Total


33,865



35,278



(1,413
)


(4.0
)%Underwriting expenses


13,639



14,927



(1,288
)


(8.6
)%Total underwriting gain


15,563



19,723



(4,160
)


(21.1
)%Other revenue (expense) itemsInvestment income


19,192



22,329



(3,137
)


(14.0
)%Net realized losses


(708
)


(66
)


(642
)


972.7
%Other income


395



388



7



1.8
%Other expenses(1)


(2,332
)


(2,669
)


337



(12.6
)%Total other revenue and expense items


16,547



19,982



(3,435
)


(17.2
)%Income before federal income taxes


32,110



39,705



(7,595
)


(19.1
)%Federal income tax expense


9,693



12,867



(3,174
)


(24.7
)%Net income

$
22,417


$
26,838


$
(4,421
)


(16.5
)%Loss Ratio:Accident year


78.2
%


75.0
%






3.2
%Prior years


(24.5
)%


(24.5
)%






0.0
%Calendar year


53.7
%


50.5
%






3.2
%Underwriting expense ratio


21.6
%


21.3
%






0.3
%Combined ratio


75.3
%


71.8
%






3.5
%Investment yield


4.53
%


5.11
%






(0.6
)%Return on beginning equity (annualized)


17.0
%


20.0
%






(3.0
)%     (1)
    
    Other expenses includes investment expenses, interest expense,
    general and administrative expenses and other expenses as
    reported in the unaudited Condensed Consolidated Statements of
    Income included elsewhere in this report.  Overview
   17




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##### Table of Contents



Premiums
    Written and Earned
    For the Three Months Ended June 30,


For the Six Months Ended June 30,Change








Change2008


2007


Dollar


Percentage


2008


2007


Dollar


Percentage(Dollars in thousands)


(Dollars in thousands)Direct premiums writtenMichigan

$
9,409


$
10,151


$
(742
)


(7.3
)%

$
19,249


$
19,414


$
(165
)


(0.8
)%Illinois


7,252



7,497



(245
)


(3.3
)%


15,806



17,337



(1,531
)


(8.8
)%Ohio


4,830



5,686



(856
)


(15.1
)%


12,277



14,051



(1,774
)


(12.6
)%New Mexico


3,952



3,498



454



13.0
%


9,024



8,952



72



0.8
%Kentucky


574



623



(49
)


(7.9
)%


2,711



3,356



(645
)


(19.2
)%Other


427



392



35



8.9
%


1,048



1,039



9



0.9
%Total

$
26,444


$
27,847


$
(1,403
)


(5.0
)%

$
60,115


$
64,149


$
(4,034
)


(6.3
)%Net premiums written

$
25,499


$
26,967


$
(1,468
)


(5.4
)%

$
57,674


$
61,861


$
(4,187
)


(6.8
)%Ratio of net premiums written to direct


96.4
%


96.8
%






(0.4
)%


95.9
%


96.4
%






(0.5
)%         year-to-date
 18




---



##### Table of Contents



Loss
    and Loss Adjustment Expenses
    year-to-date year-to-date
  year-to-date year-to-date
    Form 10-K.
 19




---



##### Table of Contents



Underwriting
    Expenses
  year-to-date
  Investment
    Income
  year-to-date year-to-date
    Net
    Realized Losses
    Other
    Expenses
  year-to-date
 20




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##### Table of Contents



Income
    Taxes
  year-to-date
  Liquidity
    and Capital Resources
              available-for-sale held-to-maturity
 21




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##### Table of Contents



available-for-sale held-to-maturity
      Financial
    Condition
    Statutory
    Capital and Surplus
    Reserves
    for Unpaid Losses and Loss Adjustment Expenses
   22




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##### Table of Contents



June 30,


December 31,2008


2007


Change


% Change(In thousands, except claim and per claim data)Net case reserves

$
245,903


$
252,017


$
(6,114
)


(2.4
)%Number of open claims


1,639



1,741



(102
)


(5.9
)%Average net case reserve per open claim

$
150,032


$
144,754


$
5,278



3.6
%Net IBNR reserves

$
285,987


$
281,310


$
4,677



1.7
%Total net reserves

$
531,890


$
533,327


$
(1,437
)


(0.3
)%              23




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##### Table of Contents



Six MonthsEnded


Year EndedJune 30, 2008


December 31, 2007(In thousands)Beginning balance, gross

$
664,117


$
688,031Less, reinsurance recoverables


(104,648
)


(107,965
)Net reserves, beginning balance


559,469



580,066Incurred related toCurrent year


49,288



103,673Prior years


(15,423
)


(34,245
)33,865



69,428Paid related toCurrent year


869



2,699Prior years


37,191



87,32638,060



90,025Net reserves, ending balance


555,274



559,469Plus, reinsurance recoverables


102,636



104,648Ending balance, gross

$
657,910


$
664,117Development as a% of beginning net reserves


(2.8
)%


(5.9
)%    24




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##### Table of Contents



Other
    Significant Balance Sheet Items
    June 30, 2008


December 31, 2007Amount


% of Total


Amount


% of Total(In thousands)U.S. Government and government agency securities

$
64,482



7.6
%

$
145,021



16.9
%States and political subdivisions (tax-exempt) securities


376,282



44.2
%


269,013



31.2
%Corporate securities


130,831



15.4
%


193,037



22.5
%Mortgage-backed securities


151,428



17.8
%


152,892



17.8
%Total fixed-income securities


723,023



85.0
%


759,963



88.4
%Publicly traded equity securities


10,563



1.2
%


6,516



0.8
%Statutory trusts


928



0.1
%


928



0.1
%Real estate LLCs


2,550



0.3
%


2,550



0.3
%Real estate held for development


1,493



0.2
%


1,493



0.2
%Total other investments


15,534



1.8
%


11,487



1.4
%Cash and cash equivalents


112,070



13.2
%


87,498



10.2
%Total invested assets

$
850,627



100.0
%

$
858,948



100.0
%Available-for-sale
    fixed-income securities (at fair value)

$
229,106



31.7
%

$
262,301



34.5
%Held-to-maturity
    fixed-income securities (at amortized cost)


493,917



68.3
%


497,662



65.5
%Total fixed-income securities

$
723,023



100.0
%

$
759,963



100.0
%        25




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##### Table of Contents



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 Risk  General
    available-for-sale held-to-maturity,
   26




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##### Table of Contents



Qualitative
    Information About Market Risk
  available-for-sale held-to-maturity,
  June 30, 2008


December 31, 2007Carrying


% of


Carrying


% ofRating

Value(1)


Total


Value(1)


TotalAAA

$
359,646



49.8
%

$
506,774



66.7
%AA


251,861



34.8
%


115,818



15.2
%A


72,573



10.0
%


94,078



12.4
%BBB


25,933



3.6
%


30,046



4.0
%710,013



98.2
%


746,716



98.3
%Private Placement


13,010



1.8
%


13,247



1.7
%Total

$
723,023



100.0
%

$
759,963



100.0
%Average Rating


AA+







AA+     (1)
    
    Carrying value is fair value for
    available-for-sale
    securities and amortized cost for
    held-to-maturity
    securities.      held-to-maturity held-to-maturity
  available-for-sale held-to-maturity
 27




---



##### Table of Contents



Quantitative
    Information About Market Risk
  available-for-sale available-for-sale
  June 30, 2008


December 31, 2007Portfolio


Change in


Modified


Portfolio


Change in


ModifiedChange in Rates

Value


Value


Duration


Value


Value


Duration(Dollars in thousands)


(Dollars in thousands)+2%

$
215,813


$
(13,293
)


2.96


$
248,140


$
(14,161
)


2.74+1%


222,406



(6,700
)


2.96



255,182



(7,119
)


2.820


229,106







3.22



262,301







3.06-1%


237,189



8,083



3.28



270,958



8,657



3.13-2%


245,280



16,174



3.35



279,652



17,351



3.20   Item 4.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
      Changes
    in Internal Control Over Financial Reporting
   28




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##### Table of Contents



PART II.
    OTHER INFORMATION  Item 1A.
    Risk
    Factors  Form 10-K
  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds.    Maximum Dollar Value ofTotal Number


Shares that May Yet BeTotal





of Shares


Repurchased Under the Plans orNumber of


Average


Purchased as


ProgramsShares


Price Paid


Part of Publicly


Discretionary


Rule 10b5-1Purchased


per Share


Announced Plans


Plan(a)


Plan(b)For the month ended April 30, 2008


2,000


$
44.90



2,000


$
21,760,730


$
32,226,975For the month ended May 31, 2008


10,000


$
45.22



10,000


$
21,760,730


$
31,774,725For the month ended June 30, 2008





$







$
21,760,730


$
31,774,725For the three months ended June 30, 2008


12,000


$
45.17



12,000


$
21,760,730


$
31,774,725     (a)
    
    On February 7, 2008, the Board of Directors authorized the
    repurchase of additional common shares with a cost of up to
    $25 million at managements discretion. The timing of
    the repurchases 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 or discontinued at any
    time or from time to time.(b)
    
    On October 29, 2007, the Companys Board of Directors
    authorized the repurchase of an additional $20 million of
    its common shares in 2008 pursuant to a plan under
    Rule 10b5-1.
    In addition, the Board authorized the rollover into the 2008
    Rule 10b5-1
    plan of any unused dollars allocated to the 2007
    Rule 10b5-1
    plan adopted by the Board in October 2006, which totaled
    $19.4 million at December 31, 2007. The
    Rule 10b5-1
    plan share repurchases are made pursuant to a formula in the
    plan and are expected to continue until the entire
    authorizations are utilized, subject to conditions specified in
    the plan, but not later than December 31, 2008. The Company
    may terminate the 2008
    Rule 10b5-1
    plan at any time. 29




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##### Table of Contents



Item 4.
    Submission
    of Matters to a Vote of Security Holders    Votes


VotesNominee

For


WithheldAppaRao Mukkamala, M.D.


9,185,537



296,185Joseph Stilwell


9,169,232



312,490Spencer L. Schneider, J.D.


9,169,232



312,490   BrokerFor


Against


Abstain


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


9,457,439



20,110



4,173



   Item 6.
    Exhibits  Exhibits.
   30




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##### Table of Contents



SIGNATURES      By:
    /s/  R.
    Kevin Clinton     By:
    /s/  Frank
    H. Freund   
   31




---



##### Table of Contents



EXHIBIT INDEX  Exhibit No.

Exhibit Description10
.53

Summary Amendment No. 2, dated May 9, 2008, to the
    Incentive Compensation Plan as of March 2007 (filed as an
    exhibit to the Companys Current Report on
    Form 8-K
    filed on May 15, 2008 and incorporated herein by reference).31
.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.  32