##### 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
    September 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

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
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ




---



##### 



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


15Item 3
.

Quantitative and Qualitative Disclosures About
    Market Risk


29Item 4
.

Controls and Procedures


30PART II. OTHER INFORMATIONItem 1A
.

Risk Factors


31Item 2
.

Unregistered Sales of Equity Securities and Use
    of Proceeds


31Item 5
.

Other Information


32Item 6
.

Exhibits


32Signatures


33Exhibit Index


34EX-10.54EX-10.55EX-31.1EX-31.2EX-32.1EX-99.1   2




---



##### Table of Contents



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


December 31,2008


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

$
225,234


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


487,471



497,662Other investments


15,124



11,487Total investments


727,829



771,450Cash and cash equivalents


118,569



87,498Premiums receivable


37,214



35,542Reinsurance recoverable


101,108



106,961Deferred federal income taxes


22,486



22,439Federal income tax recoverable






1,076Property and equipment, net of accumulated depreciation


16,111



13,789Other assets


19,637



18,707Total assets

$
1,042,954


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

$
652,736


$
664,117Unearned premiums


60,833



60,080Long-term debt


25,928



30,928Other liabilities


35,333



38,780Total liabilities


774,830



793,905Commitments & ContingenciesShareholders EquityCommon stock, no par value, 50,000,000 shares authorized:
    9,594,712 and 10,127,740 shares outstanding at
    September 30, 2008 and December 31, 2007, respectively






Additional
    paid-in-capital






Retained earnings


264,982



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


3,142



6,055Total shareholders equity


268,124



263,557Total liabilities and shareholders equity

$
1,042,954


$
1,057,462    3




---



##### Table of Contents



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


Nine Months EndedSeptember 30,


September 30,2008


2007


2008


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

$
36,257


$
43,626


$
93,931


$
105,487Change in net unearned premiums


(5,760
)


(8,110
)


(367
)


(43
)Net premiums earned


30,497



35,516



93,564



105,444Investment income


8,886



10,737



28,078



33,066Net realized gains (losses)


22



(73
)


(686
)


(139
)Other income


158



186



553



574Total revenues and other income


39,563



46,366



121,509



138,945Losses and loss adjustment expenses


16,537



18,233



50,402



53,511Underwriting expenses


6,366



7,275



20,005



22,202Investment expenses


234



231



737



648Interest expense


509



796



1,752



2,351General and administrative expenses


247



333



833



1,028Other expenses






1







3Total expenses


23,893



26,869



73,729



79,743Income before federal income taxes


15,670



19,497



47,780



59,202Federal income tax expense


4,502



6,216



14,195



19,083Net income

$
11,168


$
13,281


$
33,585


$
40,119Net income  per common shareBasic

$
1.15


$
1.23


$
3.44


$
3.61Diluted

$
1.13


$
1.21


$
3.37


$
3.54    4




---



##### Table of Contents



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










33,585







33,585Other comprehensive loss, net of taxes














(2,913
)


(2,913
)Total comprehensive income, net of taxes


















30,672Options exercised


14,020



217











217Shares tendered/netted in connection with option exercise


(1,448
)


(63
)










(63
)Cash dividends to shareholders, $0.30 per share(1)










(2,915
)






(2,915
)Excess tax benefits from share-based awards






136











136Fair value compensation of share-based awards






44











44Purchase and retirement of common stock


(545,600
)


(334
)


(23,190
)






(23,524
)Balance, September 30, 2008


9,594,712


$



$
264,982


$
3,142


$
268,124   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










40,119







40,119Other comprehensive loss, net of taxes














(270
)


(270
)Total comprehensive income, net of taxes


















39,849Options exercised


18,025



215











215Shares tendered/netted in connection with option exercise


(3,201
)


(122
)










(122
)Cash dividends to shareholders, $0.10 per share(2)










(1,062
)






(1,062
)Excess tax benefits from share-based awards






320











320Fair value compensation of share-based awards






142











142Purchase and retirement of common stock


(995,600
)


(37,313
)










(37,313
)Balance, September 30, 2007


10,575,799


$
4,348


$
261,992


$
4,499


$
270,839     (1)
    
    Cash dividends of $0.10 per common share were paid in each of
    the first, second and third quarters of 2008.(2)
    
    A cash dividend of $0.10 per common share was paid in the third
    quarter of 2007.   5




---



##### Table of Contents



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


Nine Months EndedSeptember 30,


September 30,2008


2007


2008


2007(Unaudited)(In thousands)Net income

$
11,168


$
13,281


$
33,585


$
40,119Other comprehensive (loss) income:Unrealized (depreciation) appreciation on available-for-sale
    investment securities arising during the period


(2,125
)


2,920



(2,910
)


361Amortization of net unrealized appreciation on held-to-maturity
    investment securities related to their transfer from the
    available-for-sale category


(247
)


(234
)


(752
)


(716
)Adjustment for net realized gains (losses) on available-for-sale
    investment securities included in net income(1)


8







(819
)


(60
)Other comprehensive (loss) income before tax


(2,364
)


2,686



(4,481
)


(415
)Deferred federal income tax (benefit) expense


(827
)


941



(1,568
)


(145
)Other comprehensive (loss) income


(1,537
)


1,745



(2,913
)


(270
)Comprehensive income

$
9,631


$
15,026


$
30,672


$
39,849     (1)
    
    Includes net realized gains of $8,000 and $15,000 for the three
    and nine months ended September 30, 2008, respectively,
    related to held-to-maturity securities with unamortized, net
    unrealized gains related to the transfer of securities to the
    held-to-maturity category.   6




---



##### Table of Contents



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


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

$
33,585


$
40,119Adjustments to reconcile net income to net cash from operating
    activities:Depreciation and amortization


3,074



2,256Net realized losses


686



139Deferred federal income taxes


1,522



6,297Current federal income taxes


1,573



2,746Excess tax benefits from share-based awards


(136
)


(320
)Share-based compensation


44



142Loss (income) on equity method investees


85



(101
)Changes in:Unpaid loss and loss adjustment expenses


(11,381
)


(7,935
)Unearned premiums


753



(2,000
)Other assets and liabilities


(4,069
)


(1,910
)Net cash from operating activities


25,736



39,433Cash flows from (for) investing activitiesPurchasesAvailable-for-sale  fixed income


(21,255
)


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


(96,766
)


(5,312
)Other investments


(3,607
)


(5,901
)Property and equipment


(3,022
)


(2,981
)Proceeds from sales and maturitiesAvailable-for-sale  fixed income


52,446



31,685Held-to-maturity  fixed income


105,021



10,325Other investments


150



375Property and equipment


2



22Other


5,846



Net cash from (for) investing activities


38,815



(28,021
)Cash flows from (for) financing activitiesCommon stock repurchased


(23,524
)


(37,313
)Excess tax benefits from share-based awards


136



320Change in payable for shares repurchased


(2,331
)


(152
)Repayment of long-term debt


(5,000
)


Cash dividends paid


(2,915
)


(1,062
)Proceeds from stock options exercised


154



93Net cash for financing activities


(33,480
)


(38,114
)Net increase (decrease) in cash and cash equivalents


31,071



(26,702
)Cash and cash equivalents, beginning of period


87,498



108,227Cash and cash equivalents, end of period

$
118,569


$
81,525    7




---



##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes
    to Condensed Consolidated Financial Statements
  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




---



##### Table of Contents



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. FSP FAS No. 157-2
  SFAS 157-3, Determining the Fair Value of a Financial Asset when the
    Market for That Asset is Not Active FSP SFAS 157-3 SFAS 157-3
  SFAS 157-3 SFAS 157-3
  Business Combinations, , Business Combinations
  Non-controlling Interests in Consolidated Financial
    Statements  an amendment of Accounting Research
    Bulletin No. 51
 9




---



##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
  Disclosures about Derivative
    Instruments and Hedging Activities  an amendment
    of FASB Statement No. 133
  The Hierarchy of Generally Accepted Accounting
    Principles.
  Accounting for Financial Guarantee Insurance Contracts,
    an interpretation of FASB Statement No. 60
  3.
    Income
    Per Share    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2008


2007


2008


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

$
11,168


$
13,281


$
33,585


$
40,119Denominator:Denominator for basic income per common share 
    weighted average shares outstanding


9,669



10,801



9,771



11,124Effect of dilutive stock options and awards


195



214



196



215Denominator for diluted income per common share 
    adjusted weighted average shares outstanding


9,864



11,015



9,967



11,339Net income  basic

$
1.15


$
1.23


$
3.44


$
3.61Net income  diluted

$
1.13


$
1.21


$
3.37


$
3.54    10




---



##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
    4.
    Investments    September 30, 2008Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost/Cost


Gains


Losses


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

$



$



$



$
States and political subdivisions


150,463



1,380



(488
)


151,355Corporate securities


72,814



1,679



(714
)


73,779Mortgage-backed securities


103







(3
)


100Total fixed-income securities


223,380



3,059



(1,205
)


225,234Equity securities(1)


9,265



881







10,146Total available-for-sale securities

$
232,645


$
3,940


$
(1,205
)

$
235,380   December 31, 2007Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost/Cost


Gains


Losses


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

$
2,500


$
11


$



$
2,511States and political subdivisions


132,223



2,938







135,161Corporate securities


121,594



3,084



(174
)


124,504Mortgage-backed securities


119



6







125Total fixed-income securities


256,436



6,039



(174
)


262,301Equity securities(1)


5,901



615







6,516Total available-for-sale securities

$
262,337


$
6,654


$
(174
)

$
268,817     (1)
    
    Available-for-sale equity securities are included in Other
    investments on the accompanying Condensed Consolidated
    Balance Sheets. 11




---



##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
     September 30, 2008Gross


GrossUnrecognized


UnrecognizedCarrying


Holding


Holding


EstimatedValue


Gains


Losses


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

$
64,470


$
293


$
(275
)

$
64,488States and political subdivisions


229,233



427



(4,680
)


224,980Corporate securities


42,950



564



(566
)


42,948Mortgage-backed securities


150,818



618



(2,576
)


148,860Total held-to-maturity fixed-income securities

$
487,471


$
1,902


$
(8,097
)

$
481,276   December 31, 2007Gross


GrossUnrecognized


UnrecognizedCarrying


Holding


Holding


EstimatedValue


Gains


Losses


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

$
142,510


$
778


$
(14
)

$
143,274States and political subdivisions


133,851



2,160







136,011Corporate securities


68,534



713



(1,283
)


67,964Mortgage-backed securities


152,767



192



(3,597
)


149,362Total held-to-maturity fixed-income securities

$
497,662


$
3,843


$
(4,894
)

$
496,611    12




---



##### Table of Contents



AMERICAN
    PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
  Notes to
    Condensed Consolidated Financial
    Statements  (Continued)
  5.
    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.    Valuation
    of Investments
    Investments
    Measured at Fair Value on a Recurring Basis
  Available-for-sale fixed-income securities
  Available-for-sale equity securities
 13




---



##### Table of Contents



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


Level 1


Level 2


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

$
225,234


$



$
218,899


$
6,335Equity securities(1)


10,146



10,146







Total

$
235,380


$
10,146


$
218,899


$
6,335     (1)
    
    Included in other investments on the accompanying Condensed
    Consolidated Balance Sheets.      Available-for-SaleFixed-IncomeSecurities(In thousands)Balance at January 1, 2008

$
6,911Principal paydowns


(523
)Net unrealized depreciation included in other comprehensive
    income


(53
)Balance at September 30, 2008

$
6,335   Investment
    Measured at Fair Value on a Nonrecurring Basis
  Held-to-maturity fixed-income securities held-to-maturity other-than-temporarily
  Other
    Assets and Liabilities Measured at Fair Value on a Nonrecurring
    Basis
  and/or
 14




---



##### 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.
    Market illiquidity and volatility associated with the current
    financial crisis makes the fair values of our investments more
    difficult to estimate, and may have other unforeseen
    consequences that we are currently unable to predict.
    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. 15




---



##### Table of Contents




    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.    Overview
    of the Companys Operations
      Form 10-K.
  Critical
    Accounting Policies
    Form 10-K
   16




---



##### Table of Contents



Description
    of Ratios and Other Metrics Analyzed
    Underwriting Gain or Loss:
  Loss Ratio:
  Underwriting Expense Ratio:
  Combined Ratio:
  Investment Yield:
 17




---



##### Table of Contents



Net-of-tax
           18




---



##### Table of Contents



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


2007


Dollar


Percentage(Dollars in thousands)Direct premiums written

$
37,820


$
45,213


$
(7,393
)


(16.4
)%Net premiums written

$
36,257


$
43,626


$
(7,369
)


(16.9
)%Net premiums earned

$
30,497


$
35,516


$
(5,019
)


(14.1
)%Losses and loss adjustment expensesCurrent year losses


24,085



26,191



(2,106
)


(8.0
)%Prior year losses


(7,548
)


(7,958
)


410



(5.2
)%Total


16,537



18,233



(1,696
)


(9.3
)%Underwriting expenses


6,366



7,275



(909
)


(12.5
)%Total underwriting gain


7,594



10,008



(2,414
)


(24.1
)%Other revenue (expense) itemsInvestment income


8,886



10,737



(1,851
)


(17.2
)%Net realized losses


22



(73
)


95



(130.1
)%Other income


158



186



(28
)


(15.1
)%Other expenses(1)


(990
)


(1,361
)


371



(27.3
)%Total other revenue and expense items


8,076



9,489



(1,413
)


(14.9
)%Income before federal income taxes


15,670



19,497



(3,827
)


(19.6
)%Federal income tax expense


4,502



6,216



(1,714
)


(27.6
)%Net income

$
11,168


$
13,281


$
(2,113
)


(15.9
)%Loss Ratio:Accident year


79.0
%


73.7
%






5.3
%Prior years


(24.8
)%


(22.4
)%






(2.4
)%Calendar year


54.2
%


51.3
%






2.9
%Underwriting expense ratio


20.9
%


20.5
%






0.4
%Combined ratio


75.1
%


71.8
%






3.3
%Pre-tax investment yield


4.21
%


4.93
%






(0.7
)%Net-of-tax investment yield


3.25
%


3.56
%






(0.3
)%     (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. 19




---



##### Table of Contents



For the Nine Months Ended September 30,Change2008


2007


Dollar


Percentage(Dollars in thousands)Direct premiums written

$
97,935


$
109,362


$
(11,427
)


(10.4
)%Net premiums written

$
93,931


$
105,487


$
(11,556
)


(11.0
)%Net premiums earned

$
93,564


$
105,444


$
(11,880
)


(11.3
)%Losses and loss adjustment expensesCurrent year losses


73,373



78,632



(5,259
)


(6.7
)%Prior year losses


(22,971
)


(25,121
)


2,150



(8.6
)%Total


50,402



53,511



(3,109
)


(5.8
)%Underwriting expenses


20,005



22,202



(2,197
)


(9.9
)%Total underwriting gain


23,157



29,731



(6,574
)


(22.1
)%Other revenue (expense) itemsInvestment income


28,078



33,066



(4,988
)


(15.1
)%Net realized losses


(686
)


(139
)


(547
)


393.5
%Other income


553



574



(21
)


(3.7
)%Other expenses(1)


(3,322
)


(4,030
)


708



(17.6
)%Total other revenue and expense items


24,623



29,471



(4,848
)


(16.5
)%Income before federal income taxes


47,780



59,202



(11,422
)


(19.3
)%Federal income tax expense


14,195



19,083



(4,888
)


(25.6
)%Net income

$
33,585


$
40,119


$
(6,534
)


(16.3
)%Loss Ratio:Accident year


78.4
%


74.5
%






3.9
%Prior years


(24.5
)%


(23.8
)%






(0.7
)%Calendar year


53.9
%


50.7
%






3.2
%Underwriting expense ratio


21.4
%


21.1
%






0.3
%Combined ratio


75.3
%


71.8
%






3.5
%Pre-tax investment yield


4.43
%


5.05
%






(0.6
)%Net-of-tax investment yield


3.32
%


3.59
%






(0.3
)%Return on beginning equity (annualized)


17.0
%


19.9
%






(2.9
)%     (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
   20




---



##### Table of Contents



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


For the Nine Months Ended September 30,Change








Change2008


2007


Dollar


Percentage


2008


2007


Dollar


Percentage(Dollars in thousands)


(Dollars in thousands)Direct premiums written Michigan

$
14,030


$
16,898


$
(2,868
)


(17.0
)%

$
33,279


$
36,312


$
(3,033
)


(8.4
)%Illinois


11,407



12,944



(1,537
)


(11.9
)%


27,213



30,281



(3,068
)


(10.1
)%Ohio


5,093



7,087



(1,994
)


(28.1
)%


17,370



21,138



(3,768
)


(17.8
)%New Mexico


5,207



5,842



(635
)


(10.9
)%


14,231



14,794



(563
)


(3.8
)%Kentucky


809



987



(178
)


(18.0
)%


3,520



4,343



(823
)


(19.0
)%Other


1,274



1,455



(181
)


(12.4
)%


2,322



2,494



(172
)


(6.9
)%Total

$
37,820


$
45,213


$
(7,393
)


(16.4
)%

$
97,935


$
109,362


$
(11,427
)


(10.4
)%Net premiums written

$
36,257


$
43,626


$
(7,369
)


(16.9
)%

$
93,931


$
105,487


$
(11,556
)


(11.0
)%Ratio of net premiums written to direct


95.9
%


96.5
%






(0.6
)%


95.9
%


96.5
%






(0.6
)%          21




---



##### Table of Contents



Loss
    and Loss Adjustment Expenses
          Form 10-K.
  Underwriting
    Expenses
   22




---



##### Table of Contents



Investment
    Income
    Net
    Realized Losses
  pre-tax
  Other
    Expenses
    Income
    Taxes
  tax-exempt
 23




---



##### Table of Contents



Liquidity
    and Capital Resources
      Parent
    Company
        Rule 10b5-1 Rule 10b5-1
   24




---



##### Table of Contents



Consolidated
      Financial
    Condition
    Statutory
    Capital and Surplus
    Reserves
    for Unpaid Losses and Loss Adjustment Expenses
  in-force.
   25




---



##### Table of Contents



September 30,


December 31,2008


2007


Change


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

$
235,726


$
252,017


$
(16,291
)


(6.5
)%Number of open claims


1,540



1,741



(201
)


(11.5
)%Average net case reserve per open claim

$
153,069


$
144,754


$
8,315



5.7
%Net IBNR reserves

$
294,355


$
281,310


$
13,045



4.6
%Total net reserves

$
530,081


$
533,327


$
(3,246
)


(0.6
)%              26




---



##### Table of Contents



Nine MonthsEnded


Year EndedSeptember 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


73,373



103,673Prior years


(22,971
)


(34,245
)50,402



69,428Paid related toCurrent year


1,706



2,699Prior years


54,647



87,32656,353



90,025Net reserves, ending balance


553,518



559,469Plus, reinsurance recoverables


99,218



104,648Ending balance, gross

$
652,736


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


(4.1
)%


(5.9
)%     Other
    Significant Balance Sheet Items
    September 30, 2008


December 31, 2007Amount


% of Total


Amount


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

$
64,470



7.6
%

$
145,021



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


380,588



45.0
%


269,013



31.2
%Corporate securities


116,729



13.8
%


193,037



22.5
%Mortgage-backed securities


150,918



17.8
%


152,892



17.8
%Total fixed-income securities


712,705



84.2
%


759,963



88.4
%Publicly traded equity securities


10,146



1.2
%


6,516



0.8
%Statutory trusts


778



0.1
%


928



0.1
%Investment real estate


4,200



0.5
%


4,043



0.5
%Total other investments


15,124



1.8
%


11,487



1.4
%Cash and cash equivalents


118,569



14.0
%


87,498



10.2
%Total invested assets

$
846,398



100.0
%

$
858,948



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

$
225,234



31.6
%

$
262,301



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


487,471



68.4
%


497,662



65.5
%Total fixed-income securities

$
712,705



100.0
%

$
759,963



100.0
%  27




---



##### Table of Contents



Contractual
    Obligations and Off-Balance Sheet Arrangements
  Form 10-K Form 10-Q,
  Effects
    of New Accounting Pronouncements
   28




---



##### Table of Contents



Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  General
        Qualitative
    Information About Market Risk
    September 30, 2008


December 31, 2007Carrying


% of


Carrying


% ofRating

Value(1)


Total


Value(1)


TotalAAA

$
370,514



51.9
%

$
506,774



66.7
%AA


247,179



34.7
%


115,818



15.2
%A


65,376



9.2
%


94,078



12.4
%BBB


23,302



3.3
%


30,046



4.0
%706,371



99.1
%


746,716



98.3
%Private Placement


6,334



0.9
%


13,247



1.7
%Total

$
712,705



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.       29




---



##### Table of Contents



Quantitative
    Information About Market Risk
    September 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%

$
212,609


$
(12,625
)


2.96


$
248,140


$
(14,161
)


2.74+1%


219,016



(6,218
)


2.98



255,182



(7,119
)


2.820


225,234







3.12



262,301







3.06-1%


232,949



7,715



3.21



270,958



8,657



3.13-2%


240,648



15,414



3.28



279,652



17,351



3.20   Item 4.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
      Changes
    in Internal Control Over Financial Reporting
   30




---



##### Table of Contents



PART II.
    OTHER INFORMATION  Item 1A.
    Risk
    Factors  Form 10-K
  Market illiquidity and volatility associated with the current
    financial crisis makes the fair values of our investments more
    difficult to estimate, and may have other unforeseen
    consequences that we are currently unable to predict.
      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


Repurchased as


ProgramsShares


Price Paid


Part of Publicly


Discretionary


Rule 10b5-1Repurchased


per Share


Announced Plans


Plan(a)


Plan(b)For the month ended July 31, 2008


28,000


$
43.61



28,000


$
21,760,730


$
30,553,679For the month ended August 31, 2008


50,400


$
43.32



50,400


$
21,409,312


$
28,721,696For the month ended September 30, 2008


51,200


$
43.60



51,200


$
21,409,312


$
26,489,283For the three months ended September 30, 2008


129,600


$
43.49



129,600


$
21,409,312


$
26,489,283     (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 through December 31, 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. On November 3, 2008, the Companys Board of
    Directors authorized extending the 2008
    Rule 10b-5-1
    plan into 2009 by eliminating the December 31, 2008
    expiration date. The
    Rule 10b5-1
    plan share repurchases will continue to be made pursuant to a
    formula in the plan, but the plan will now expire only after all
    of the allocated dollars in 31




---



##### Table of Contents



the plan have been used. As of October 31, 2008, the
    Company had approximately $17.6 million remaining under the
    Rule 10b5-1
    plan. The Company may terminate the 2008
    Rule 10b5-1
    plan at any time.  Item 5.
    Other
    Information    Item 6.
    Exhibits  Exhibits.
   32




---



##### Table of Contents



SIGNATURES      By:
    /s/  R.
    Kevin Clinton     By:
    /s/  Frank
    H. Freund       33




---



##### Table of Contents



EXHIBIT INDEX  Exhibit No.

Exhibit Description3
.2

Amended and Restated Bylaws, as amended October 30, 2008(1)10
.54

Letters, dated July 16, 2008 and August 27, 2008, among American
    Physicians Assurance Corporation and SCW Agency Group, Inc.
    evidencing agreement to extend term of Master Agency Agreement
    between American Physicians Assurance Corporation and SCW Agency
    Group, Inc.**10
.55

Adoption of Master Agency Agreement, effective as of November 1,
    2008, between American Physicians Assurance Corporation and SCW
    Agency Group, Inc. amending Master Agency Agreement between
    American Physicians Assurance Corporation and SCW Agency Group,
    Inc.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 1934.99
.1

Fixed-Income Security Detail of American Physicians Capital,
    Inc. and Subsidiaries Investment Portfolio as of September
    30, 2008.     (1)
    
    Filed as an Exhibit to APCapitals Current Report on
    Form 8-K
    dated, November 5, 2008 and incorporated herein by
    reference.**
    
    Portions of this Exhibit have been omitted pursuant to
    APCapitals request to the Secretary of the Securities and
    Exchange Commission for confidential treatment pursuant to
    Rule 24b-2
    under the Securities Exchange Act of 1934, as amended. 34