##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, 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
    September 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
    incorporation or organization)

(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
  Rule 12b-2
  o þ o
  Rule 12b-2 o þ




---



##### 



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 6.

Exhibits


31Signatures


32Exhibit Index


33Certificate of the Chief Executive Officer to Section 302Certificate of the Chief Financial Officer to Section 302Section 906 Certification of CEO and CFO   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
  September 30,


December 31,2006


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

$
292,977


$
224,101Held-to-maturity


509,905



345,702Other investments


16,664



11,568Total investments


819,546



581,371Cash and cash equivalents


50,435



272,988Premiums receivable


48,581



50,729Reinsurance recoverable


106,988



109,368Deferred federal income taxes


34,458



44,039Property and equipment, net of
    accumulated depreciation


10,094



11,157Other assets


29,947



39,676Total assets

$
1,100,049


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

$
689,126


$
689,857Unearned premiums


79,543



82,098Federal income taxes payable


1,309



762Long-term debt


30,928



30,928Other liabilities


33,361



41,830Total liabilities


834,267



845,475Minority Interest in
    Consolidated Subsidiary






2,641Shareholders
    EquityCommon stock, no par value,
    50,000,000 shares authorized: 11,684,973 and
    12,500,126 shares outstanding at September 30, 2006
    and December 31, 2005, respectively






Additional
    paid-in-capital


48,262



74,360Retained earnings


210,348



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


7,172



7,104Total shareholders equity


265,782



261,212Total liabilities and
    shareholders equity

$
1,100,049


$
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


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


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

$
48,304


$
52,991


$
117,351


$
123,414Change in net unearned premiums


(10,532
)


(12,820
)


(4,716
)


330Net premiums earned


37,772



40,171



112,635



123,744Investment income


11,338



10,752



34,010



33,582Net realized gains (losses)


100



(428
)


1,448



(750
)Other income


198



222



825



687Total revenues and other income


49,408



50,717



148,918



157,263Losses and loss adjustment expenses


24,547



30,794



77,220



97,844Underwriting expenses


7,373



7,538



22,784



25,247Investment expenses


205



540



602



1,216Interest expense


786



646



2,258



1,818Amortization expense






157







470General and administrative expenses


302



433



988



2,269Other expenses


8



48



90



480Total expenses


33,221



40,156



103,942



129,344Income before federal income taxes
    and minority interest


16,187



10,561



44,976



27,919Federal income tax expense
    (benefit)


5,162



3,705



14,376



(34,393
)Income before minority interest


11,025



6,856



30,600



62,312Minority interest in net income of
    consolidated subsidiary






(31
)






(373
)Net income

$
11,025


$
6,825


$
30,600


$
61,939Net income  per common
    shareBasic

$
0.93


$
0.54


$
2.52


$
4.82Diluted

$
0.91


$
0.53


$
2.47


$
4.72    4




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##### Table of Contents



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


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Unaudited)(In thousands)Net income

$
11,025


$
6,825


$
30,600


$
61,939Other comprehensive income (loss):Unrealized appreciation
    (depreciation) on
    available-for-sale
    investment securities arising during the period


5,826



(3,524
)


1,082



(9,869
)Amortization of net unrealized
    appreciation on
    held-to-maturity
    investment securities since the date of transfer from the
    available-for-sale
    category


(272
)


(440
)


(829
)


(696
)Adjustment for realized (gains)
    losses on investment securities included in net income






(26
)


(148
)


42Other comprehensive income (loss)
    before tax and minority interests


5,554



(3,990
)


105



(10,523
)Deferred federal income tax
    expense (benefit)


1,944



(1,396
)


37



(3,683
)Change in deferred tax valuation
    allowance














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


3,610



(2,594
)


68



672Minority interest in unrealized
    depreciation






6







3Other comprehensive income (loss)


3,610



(2,588
)


68



675Comprehensive income

$
14,635


$
4,237


$
30,668


$
62,614    5




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##### Table of Contents



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


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

$
30,600


$
61,939Adjustments to reconcile net
    income to net cash from operating activities:Depreciation and amortization


2,240



4,119Net realized (gains) losses


(1,448
)


750Change in fair value of derivatives






1,050Deferred federal income taxes


9,259



(35,572
)Share-based compensation


459



291Income on equity method investee


(1,001
)


Minority interest in net income of
    consolidated subsidiary






373Changes in:Unpaid loss and loss adjustment
    expenses


3,412



(5,690
)Unearned premiums


1,909



1,117Other assets and liabilities


(4,285
)


(5,787
)Net cash from operating
    activities


41,145



22,590Cash flows from (for) investing
    activitiesPurchasesAvailable-for-sale 
    fixed income


(126,979
)


(3,752
)Held-to-maturity 
    fixed income


(188,188
)


(112,912
)Other investments


(386
)


(8,186
)Property and equipment


(216
)


(670
)Proceeds from sales and maturitiesAvailable-for-sale 
    fixed income


50,938



100,836Held-to-maturity 
    fixed income


22,514



52,513Other investments


2,485



2,835Property and equipment


6



30Deconsolidation of PIC-Florida


(2,941
)


Pending securities transactions


5,285



(7,934
)Net cash (for) from investing
    activities


(237,482
)


22,760Cash flows from (for) financing
    activitiesCommon stock repurchased


(27,701
)


(9,399
)Federal income tax effect of share
    based awards


700



727Payable for shares repurchased


295



Proceeds from stock options
    exercised


490



1,709Net cash for financing
    activities


(26,216
)


(6,963
)Net (decrease) increase in cash
    and cash equivalents


(222,553
)


38,387Cash and cash equivalents,
    beginning of period


272,988



190,936Cash and cash equivalents, end
    of period

$
50,435


$
229,323    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
          Reclassification
   8




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
  2.
    Stock
    Split  three-for-two
  3.
    Effects
    of New Accounting Pronouncements       9




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
  4.
    Income
    Per Share    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


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

$
11,025


$
6,825


$
30,600


$
61,939Denominator:Denominator for basic income per
    common share  weighted average shares outstanding


11,796



12,667



12,123



12,858Effect of dilutive stock options
    and awards


266



312



267



273Denominator for diluted income per
    common share  adjusted weighted average shares
    outstanding


12,062



12,979



12,390



13,131Net income 
    basic

$
0.93


$
0.54


$
2.52


$
4.82Net income 
    diluted

$
0.91


$
0.53


$
2.47


$
4.72     5.
    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 Nine Months Ended September 30, 2006WeightedNumber


Weighted


Average


Aggregateof


Average


Remaining


IntrinsicOptions


Exercise Price


Term


Value(In years)


(In thousands)Options outstanding at
    January 1, 2006


776,100


$
15.20Granted during the period






Exercised during the period


(78,600
)

$
9.67Canceled during the period


(1,500
)

$
26.50Options outstanding at
    September 30, 2006


696,000


$
15.80



6.34


$
11,453Options exercisable at
    September 30, 2006


550,253


$
12.93



5.80


$
10,634   in-the-money
      WeightedNumber of


AverageNon-vested


Grant DateShares


Fair ValueNon-vested shares outstanding at
    January 1, 2006


24,119


$
11.47Granted during the period






Vested during the period


(11,882
)

$
11.47Forfeited during the period


(765
)

$
11.47Non-vested shares outstanding at
    September 30, 2006


11,472


$
11.47      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)
    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


Nine Months EndedSeptember 30, 2005


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

$
6,825


$
61,939Add: Stock-based employee
    compensation expense included in reported net income, net of
    related tax effects


63



190Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards granted since 2000, net of related tax effects


(160
)


(405
)Pro forma net income

$
6,728


$
61,724Basic income per shareAs reported

$
0.54


$
4.82Pro forma

$
0.53


$
4.80Diluted income per shareAs reported

$
0.53


$
4.72Pro forma

$
0.52


$
4.70   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

$
4.85


$
5.70    13




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
  6.
    Investments  available-for-sale
  September 30, 2006Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost/Cost


Gains


Losses


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

$
2,499


$
27


$
(2
)

$
2,524States and political subdivisions


79,618



465







80,083Corporate securities


205,904



4,482



(242
)


210,144Mortgage-backed securities


191



35







226Total
    available-for-sale
    securities

$
288,212


$
5,009


$
(244
)

$
292,977   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
  September 30, 2006Gross


GrossUnrecognized


UnrecognizedCarrying


Holding


Holding


EstimatedValue(1)


Gains


Losses


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

$
142,580


$
288


$
(1,763
)

$
141,105States and political subdivisions


130,265



549



(33
)


130,781Corporate securities


69,230



114



(2,567
)


66,777Mortgage-backed securities


167,830



19



(4,211
)


163,638Total
    held-to-maturity
    fixed-income securities

$
509,905


$
970


$
(8,574
)

$
502,301     (1)
    
    Carrying value includes $4.0 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(2)


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     (2)
    
    Carrying value includes $4.9 million of unamortized net
    unrealized appreciation.  available-for-sale held-to-maturity
    7.
    Income
    Taxes    Three Months Ended September 30,


Nine Months Ended September 30,2006


2005


2006


2005(Dollars in thousands)Income before taxes

$
16,187






$
10,561






$
44,976






$
27,919Tax at statutory rate


5,665



35.0
%


3,689



34.9
%


15,742



35.0
%


9,764



35.0
%Tax effect of:Tax exempt interest


(599
)


(3.7
)%


(39
)


(0.4
)%


(1,492
)


(3.3
)%


(142
)


(0.5
)%Other items, net


96



0.6
%


55



0.5
%


126



0.3
%


36



0.1
%Valuation allowance






0.0
%






0.0
%






0.0
%


(44,051
)


(157.8
)%$
5,162



31.9
%

$
3,705



35.1
%

$
14,376



32.0
%

$
(34,393
)


(123.2
)%  15




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
  Form 10-K
  8.
    Shareholders
    Equity    Discretionary PlanTotalNumber of





AverageShares


Total


Price PaidPurchased


Cost


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


191,250


$
6,110


$
31.95Three months ended June 30,
    2006


18,750



594



31.69Three months ended
    September 30, 2006










Nine months ended
    September 30, 2006


210,000


$
6,704


$
31.92Inception to date as of
    September 30, 2006


5,655,855


$
84,144


$
14.88   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


420,900



12,916



30.69Three months ended
    September 30, 2006


253,800



8,081



31.84Nine months ended
    September 30, 2006


674,700


$
20,997


$
31.12Inception to date as of
    September 30, 2006


674,700


$
20,997


$
31.12   Rule 10b5-1
 16




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##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
  Rule 10b5-1 Rule 10b5-1 Rule 10b5-1
  9.
    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
        three-for-two
  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 Nine Months Ended
    September 30, 2006 Compared to Three and Nine Months Ended
    September 30, 2005
   20




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##### Table of Contents



For the Three Months Ended September 30,


For the Nine Months Ended September 30,Change








Change2006


2005


Dollar


Percentage


2006


2005


Dollar


Percentage(Dollars in thousands)


(Dollars in thousands)Direct premiums written

$
51,819


$
61,841


$
(10,022
)


(16.2
)%

$
125,742


$
147,739


$
(21,997
)


(14.9
)%Net premiums written

$
48,304


$
52,991


$
(4,687
)


(8.8
)%

$
117,351


$
123,414


$
(6,063
)


(4.9
)%Net earned premium

$
37,772


$
40,171


$
(2,399
)


(6.0
)%

$
112,635


$
123,744


$
(11,109
)


(9.0
)%Losses and loss adjustment expenses
    Current year losses


27,693



32,055



(4,362
)


(13.6
)%


85,352



99,960



(14,608
)


(14.6
)%Prior year losses


(3,146
)


(1,261
)


(1,885
)


(149.5
)%


(8,132
)


(2,116
)


(6,016
)


(284.3
)%Total


24,547



30,794



(6,247
)


(20.3
)%


77,220



97,844



(20,624
)


(21.1
)%Underwriting expenses


7,373



7,538



(165
)


(2.2
)%


22,784



25,247



(2,463
)


(9.8
)%Total underwriting gain


5,852



1,839



4,013



218.2
%


12,631



653



11,978



1834.3
%Other revenue (expense) itemsInvestment income


11,338



10,752



586



5.5
%


34,010



33,582



428



1.3
%Net realized gains (losses)


100



(428
)


528



123.4
%


1,448



(750
)


2,198



293.1
%Other income


198



222



(24
)


(10.8
)%


825



687



138



20.1
%Other expenses(1)


(1,301
)


(1,824
)


523



28.7
%


(3,938
)


(6,253
)


2,315



37.0
%Total other revenue and expenses
    items


10,335



8,722



1,613



18.5
%


32,345



27,266



5,079



18.6
%Income before federal income taxes
    and minority interest


16,187



10,561



5,626



53.3
%


44,976



27,919



17,057



61.1
%Federal in come tax expense
    (benefit)


5,162



3,705



1,457



(39.3
)%


14,376



(34,393
)


48,769



141.8
%Income before minority interest


11,025



6,856



4,169



60.8
%


30,600



62,312



(31,712
)


(50.9
)%Minority interest in income of
    consolidated subsidiary






(31
)


31



(100.0
)%






(373
)


373



(100.0
)%Net income

$
11,025


$
6,825


$
4,200



61.5
%

$
30,600


$
61,939


$
(31,339
)


(50.6
)%Loss Ratio:Accident year


73.3
%


79.8
%






6.5
%


75.8
%


80.8
%






5.0
%Priory ears


(8.3
)%


(3.1
)%






5.2
%


(7.2
)%


(1.7
)%






5.5
%Calendar year


65.0
%


76.7
%






11.7
%


68.6
%


79.1
%






10.5
%Underwriting expense ratio


19.5
%


18.8
%






(0.7
)%


20.2
%


20.4
%






0.2
%Combined ratio


84.5
%


95.5
%






11.0
%


88.8
%


99.5
%






10.7
%     (1)
    
    Other expenses includes investment expenses, interest expense,
    amortization expense, general and administrative expenses and
    other expenses as reported in the unaudited Condensed
    Consolidated Statements of Income included elsewhere in this
    report. 21




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##### Table of Contents



For the Three Months Ended September 30,


For the Nine Months Ended September 30,Change








Change2006


2005


Dollar


Percentage


2006


2005


Dollar


Percentage(Dollars in thousands)


(Dollars in thousands)Direct premiums writtenMichigan

$
17,411


$
18,216


$
(805
)


(4.4
)%

$
36,739


$
39,275


$
(2,536
)


(6.5
)%Illinois


17,379



21,067



(3,688
)


(17.5
)%


42,185



47,915



(5,730
)


(12.0
)%Ohio


7,887



8,887



(1,000
)


(11.3
)%


22,965



25,119



(2,154
)


(8.6
)%New Mexico


6,124



6,882



(758
)


(11.0
)%


15,903



16,929



(1,026
)


(6.1
)%Other


1,712



1,730



(18
)


(1.0
)%


2,859



3,018



(159
)


(5.3
)%Kentucky


1,306



1,836



(530
)


(28.9
)%


5,091



8,191



(3,100
)


(37.8
)%PIC-Florida






3,223



(3,223
)


(100.0
)%






7,292



(7,292
)


(100.0
)%Total

$
51,819


$
61,841


$
(10,022
)


(16.2
)%

$
125,742


$
147,739


$
(21,997
)


(14.9
)%      22




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##### Table of Contents



23




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##### Table of Contents



For the Three Months Ended September 30,


For the Nine Months Ended September 30,Change








Change2006


2005


Dollar


Percentage


2006


2005


Dollar


Percentage(Dollars in thousands)


(Dollars in thousands)Other expensesInvestment expenses


205



540



(335
)


(62.0
)%


602



1,216



(614
)


(50.5
)%Interest expense


786



646



140



21.7
%


2,258



1,818



440



24.2
%Amortization expense






157



(157
)


(100.0
)%






470



(470
)


(100.0
)%General and administrative expenses


302



433



(131
)


(30.3
)%


988



2,269



(1,281
)


(56.5
)%Other


8



48



(40
)


(83.3
)%


90



480



(390
)


(81.3
)%Total


1,301



1,824



(523
)


(28.7
)%


3,938



6,253



(2,315
)


(37.0
)%         Liquidity
    and Capital Resources
     24




---



##### Table of Contents



available-for-sale held-to-maturity
  PIC-Wisconsin
    Financial
    Condition
    Statutory
    Capital and Surplus
   25




---



##### Table of Contents



Reserves
    for Unpaid Losses and Loss Adjustment Expenses
        September 30,


December 31,2006


2005


Change


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

$
325,708


$
366,138


$
(40,430
)


(11.0
)%Number of open claims


2,347



2,991



(644
)


(21.5
)%Average net case reserve per open
    claim

$
138,776


$
122,413


$
16,363



13.4
%Net IBNR reserves

$
228,298


$
178,123


$
50,175



28.2
%Total net reserves

$
554,006


$
544,261


$
9,745



1.8
%    26




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##### Table of Contents



Nine Months Ended


Year EndedSeptember 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


85,352



131,496Prior years


(8,132
)


(4,372
)77,220



127,124Paid related toCurrent year


1,731



5,054Prior years


71,389



131,74473,120



136,798Net reserves, ending balance


583,847



582,165Plus, reinsurance recoverables


105,279



107,692Ending balance, gross

$
689,126


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


(1.4
)%


(0.7
)%     Other
    Significant Balance Sheet Items
  held-to-maturity
       27




---



##### 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 Risk  General
    available-for-sale held-to-maturity,
   28




---



##### Table of Contents



Qualitative
    Information About Market Risk
  available-for-sale held-to-maturity,
  held-to-maturity held-to-maturity
  Quantitative
    Information About Market Risk
  available-for-sale available-for-sale
  September 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%

$
277,589


$
(15,388
)


2.53


$
215,014


$
(9,087
)


1.89+1%


284,902



(8,075
)


2.59



219,173



(4,928
)


2.160


292,977







2.84



224,101







2.27−1%


301,586



8,609



2.92



228,991



4,890



2.36−2%


310,691



17,714



3.01



234,917



10,816



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




---



##### 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-Q Form 10-K.
  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 July 31,
    2006


68,250


$
32.25



68,250



404,804


$
4,883,124For the month ended
    August 31, 2006


120,300


$
31.21



120,300



404,804


$
11,128,374For the month ended
    September 30, 2006


65,250


$
32.57



65,250



404,804


$
9,002,752For the three months ended
    September 30, 2006


253,800


$
31.84



253,800



404,804


$
9,002,752     (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
    637,500 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 6,060,659. 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 30




---



##### Table of Contents



Rule 10b5-1
    of the Securities Exchange Act of 1934. In August 2006, the
    Board of Directors authorized an additional share repurchase of
    $10 million of its common shares under the
    Rule 10b5-1
    plan. 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, 2006. The Company
    may terminate the plan at any time. On October 27, 2006,
    the Companys Board of Directors adopted a new stock
    repurchase plan for 2007 under
    Rule 10b5-1
    and authorized an additional share repurchase of
    $32 million of its common shares. In addition, the Board
    authorized the rollover into the 2007 plan of any unused dollars
    allocated to the 2006 10b5-1 plan.  Item 6.
    Exhibits  Exhibits.
   31




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##### Table of Contents



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




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##### 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