##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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Form 10-Q

|  |  |                                                                                                                                                                                                                 |  | 
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF
    THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2003                                                                     |  | 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE
    SECURITIES EXCHANGE ACT OF 1934
    For 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)(Zip
Code)


Registrants telephone number, including
area code: (517) 351-1150

Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.

YESxNOo

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act)

YESxNOo

The number of shares outstanding of the
registrants common stock, no par value per share, as of
August 11, 2003 was 8,705,588.



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TABLE OF CONTENTS



|                                                                      |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|TABLE OF CONTENTS                                                    
|PART I. FINANCIAL INFORMATION                                        
|CONDENSED CONSOLIDATED BALANCE SHEETS                                
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)              
|CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                      
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)     
|PART II. OTHER INFORMATION                                           
|SIGNATURES                                                           
|EXHIBIT INDEX                                                        
|EX-3.2 Bylaws                                                        
|EX-4.1 Indenture - Deferrable Interest Debentures                    
|EX-4.2 Indenture - Debt Securities                                   
|EX-10.1 Amended And Restated Declaration Of Trust                    
|EX-10.2 Amended and Restated Declaration of Trust                    
|EX-10.3 Placement Agreement                                          
|EX-10.4 Placement Agreement                                          
|EX-10.5 Guarantee Agreement                                          
|EX-10.6 Guarantee Agreement                                          
|EX-10.7 Executive Employment Agreement                               
|EX-31.1 Certification of Chief Executive Officer                     
|EX-31.2 Certification of Chief Financial Officer                     
|EX-32 Certification of CEO and CFO                                   



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##### Table of Contents








TABLE OF CONTENTS


|                              |                                                                                                   |  |    |    | 
|----------------------------- | ------------------------------------------------------------------------------------------------- |  | -- | -- | 
|PART I. FINANCIAL INFORMATION |                                                                                                   |  |    |   
|                              | Item 1. Financial Statements (Unaudited)                                                          |  |    |    | 
|                              | Condensed
    Consolidated Balance Sheets                                                         |  |    | 3  | 
|                              | Condensed
    Consolidated Statements of Income                                                   |  |    | 4  | 
|                              | Condensed
    Consolidated Statements of Comprehensive Income                                     |  |    | 5  | 
|                              | Condensed
    Consolidated Statements of Cash Flows                                               |  |    | 6  | 
|                              | Notes
    to Condensed Consolidated Financial Statements                                          |  |    | 7  | 
|                              | Item 2. Managements Discussion
    and Analysis of Financial Condition and Results of Operations |  |    | 12 | 
|                              | Item 3. Quantitative and Qualitative
    Disclosures About Market Risk                            |  |    | 25 | 
|                              | Item 4. Controls and Procedures                                                                   |  |    | 26 | 
|PART II. OTHER INFORMATION    |                                                                                                   |  |    |   
|                              | Item 2. Changes in Securities and Use
    of Proceeds                                             |  |    | 27 | 
|                              | Item 4. Submission of Matters to a Vote
    of Security Holders                                   |  |    | 27 | 
|                              | Item 6. Exhibits and Reports on
    Form 8-K                                                      |  |    | 28 | 
|Signatures                    |                                                                                                   |  | 29 |   
|Exhibit Index                 |                                                                                                   |  | 30 |   

2



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PART I. FINANCIAL INFORMATION


AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES






CONDENSED CONSOLIDATED BALANCE
SHEETS


ITEM 1. FINANCIAL STATEMENTS

|                                                                                                                                                                  |                                                                                      |                                            |         |         |              |   |         |         |           | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ------- | ------------ | - | ------- | ------- | --------- | 
|                                                                                                                                                                  |                                                                                      | June 30,                                   |         |         | December 31, |  
|                                                                                                                                                                  |                                                                                      | 2003                                       |         |         | 2002         |  
|                                                                                                                                                                  |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                  |                                                                                      | (Unaudited)                                |         |         |             
|                                                                                                                                                                  |                                                                                      |                                           
|                                                                                                                                                                  |                                                                                      | (In thousands, except share data)          |        
|Assets                                                                                                                                                            |                                                                                      |                                            |         |         |              |   |         |        
|Investments:                                                                                                                                                      |                                                                                      |                                            |         |         |              |   |         |        
|                                                                                                                                                                  | Fixed maturities, at fair value                                                      |                                            | $       | 592,303 |              |   | $       | 618,899 |          
|                                                                                                                                                                  | Equity securities, at fair value                                                     |                                            |         | 2,992   |              |   |         | 44      |          
|                                                                                                                                                                  | Other investments                                                                    |                                            |         | 30,815  |              |   |         | 30,788  |          
|                                                                                                                                                                  |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                  |                                                                                      | Total investments                          |         |         | 626,110      |   |         |         | 649,731   | 
|Cash and cash equivalents                                                                                                                                         |                                                                                      |                                            | 206,672 |         |              |   | 151,825 |        
|Premiums receivable                                                                                                                                               |                                                                                      |                                            | 53,656  |         |              |   | 62,531  |        
|Reinsurance recoverable                                                                                                                                           |                                                                                      |                                            | 107,813 |         |              |   | 98,128  |        
|Federal income tax recoverable                                                                                                                                    |                                                                                      |                                            | 1,692   |         |              |   | 1,100   |        
|Deferred federal income taxes                                                                                                                                     |                                                                                      |                                            | 36,727  |         |              |   | 42,542  |        
|Property and equipment, net of accumulated
    depreciation                                                                                                       |                                                                                      |                                            | 14,792  |         |              |   | 14,352  |        
|Intangible assets                                                                                                                                                 |                                                                                      |                                            | 434     |         |              |   |        |        
|Other assets                                                                                                                                                      |                                                                                      |                                            | 35,331  |         |              |   | 38,709  |        
|                                                                                                                                                                  |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                  |                                                                                      | Total assets                               |         | $       | 1,083,227    |   |         | $       | 1,058,918 | 
|                                                                                                                                                                  |                                                                                      |                                            |         |         |              |  
|Liabilities                                                                                                                                                       |                                                                                      |                                            |         |         |              |   |         |        
|Unpaid losses and loss adjustment expenses                                                                                                                        |                                                                                      | $                                          | 632,488 |         |              | $ | 637,494 |        
|Unearned premiums                                                                                                                                                 |                                                                                      |                                            | 88,742  |         |              |   | 103,420 |        
|Mandatorily redeemable trust preferred securities                                                                                                                 |                                                                                      |                                            | 30,000  |         |              |   |        |        
|Note payable, officer                                                                                                                                             |                                                                                      |                                            | 5,752   |         |              |   | 6,567   |        
|Other liabilities                                                                                                                                                 |                                                                                      |                                            | 36,917  |         |              |   | 31,148  |        
|                                                                                                                                                                  |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                  |                                                                                      | Total liabilities                          |         |         | 793,899      |   |         |         | 778,629   | 
|                                                                                                                                                                  |                                                                                      |                                            |         |         |              |  
|Shareholders Equity                                                                                                                                              |                                                                                      |                                            |         |         |              |   |         |        
|Common stock, no par value, 50,000,000 shares
    authorized: 8,706,173 and 8,695,452 shares outstanding at
    June 30, 2003 and December 31, 2002, respectively |                                                                                      |                                            |        |         |              |   |        |        
|Additional paid-in-capital                                                                                                                                        |                                                                                      |                                            | 92,216  |         |              |   | 92,148  |        
|Retained earnings                                                                                                                                                 |                                                                                      |                                            | 164,305 |         |              |   | 164,183 |        
|Unearned stock compensation                                                                                                                                       |                                                                                      |                                            | (528    | )       |              |   | (678    | )      
|Accumulated other comprehensive income:                                                                                                                           |                                                                                      |                                            |         |         |              |   |         |        
|                                                                                                                                                                  | Net unrealized appreciation on investments, net
    of deferred federal income taxes |                                            |         | 33,335  |              |   |         | 24,636  |          
|                                                                                                                                                                  |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                  |                                                                                      | Total shareholders equity                 |         |         | 289,328      |   |         |         | 280,289   | 
|                                                                                                                                                                  |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                  |                                                                                      | Total liabilities and shareholders equity |         | $       | 1,083,227    |   |         | $       | 1,058,918 | 
|                                                                                                                                                                  |                                                                                      |                                            |         |         |              |  

The accompanying notes are an integral part of
the condensed consolidated financial statements.

3



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##### Table of Contents



AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES






CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)


|                                                                                                  |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |         |  |   |         |         |  
|------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------ | ------ | ---------------- | - | ------ | ------ | - | - | ------- | ------- |  | - | ------- | ------- | -
|                                                                                                  |                                                                                                         |                                       |        |       
|                                                                                                  |                                                                                                         | Three Months Ended                    |        |        | Six Months Ended |  
|                                                                                                  |                                                                                                         | June 30,                              |        |        | June 30,         |  
|                                                                                                  |                                                                                                         |                                       |        |        |                  |  
|                                                                                                  |                                                                                                         | 2003                                  |        |        | 2002             |   |        | 2003   |   |   | 2002    |        
|                                                                                                  |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |        
|                                                                                                  |                                                                                                         |                                      
|                                                                                                  |                                                                                                         | (In thousands, except per share data) |       
|Net premiums written                                                                              |                                                                                                         | $                                     | 44,994 |        |                  | $ | 51,002 |        |   | $ | 99,831  |         |  | $ | 113,379 |        
|Change in net unearned premiums                                                                   |                                                                                                         |                                       | 9,502  |        |                  |   | 4,620  |        |   |   | 13,101  |         |  |   | (3,830  | )      
|                                                                                                  |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |        
|                                                                                                  | Net premiums earned                                                                                     |                                       |        | 54,496 |                  |   |        | 55,622 |   |   |         | 112,932 |  |   |         | 109,549 |  
|Investment income                                                                                 |                                                                                                         |                                       | 10,424 |        |                  |   | 11,851 |        |   |   | 20,809  |         |  |   | 22,687  |        
|Net realized gains (losses)                                                                       |                                                                                                         |                                       | 1,151  |        |                  |   | (2     | )      |   |   | 1,148   |         |  |   | (288    | )      
|Other income                                                                                      |                                                                                                         |                                       | 196    |        |                  |   | 128    |        |   |   | 357     |         |  |   | 262     |        
|                                                                                                  |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |        
|                                                                                                  | Total revenues and other income                                                                         |                                       |        | 66,267 |                  |   |        | 67,599 |   |   |         | 135,246 |  |   |         | 132,210 |  
|                                                                                                  |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |        
|Losses and loss adjustment expenses                                                               |                                                                                                         |                                       | 51,030 |        |                  |   | 58,369 |        |   |   | 107,012 |         |  |   | 115,533 |        
|Underwriting expenses                                                                             |                                                                                                         |                                       | 11,820 |        |                  |   | 11,886 |        |   |   | 25,107  |         |  |   | 23,361  |        
|Investment expenses                                                                               |                                                                                                         |                                       | 598    |        |                  |   | 1,009  |        |   |   | 1,149   |         |  |   | 1,920   |        
|Interest expense                                                                                  |                                                                                                         |                                       | 278    |        |                  |   | 93     |        |   |   | 373     |         |  |   | 183     |        
|Amortization expense                                                                              |                                                                                                         |                                       | 95     |        |                  |   |       |        |   |   | 139     |         |  |   |        |        
|General and administrative expenses                                                               |                                                                                                         |                                       | 743    |        |                  |   | 436    |        |   |   | 1,278   |         |  |   | 836     |        
|                                                                                                  |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |        
|                                                                                                  | Total expenses                                                                                          |                                       |        | 64,564 |                  |   |        | 71,793 |   |   |         | 135,058 |  |   |         | 141,833 |  
|                                                                                                  |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |        
|                                                                                                  | Income (loss) before federal income taxes
    and cumulative effect of a change in accounting principle |                                       |        | 1,703  |                  |   |        | (4,194 | ) |   |         | 188     |  |   |         | (9,623  | )
|Federal income tax expense (benefit)                                                              |                                                                                                         |                                       | 596    |        |                  |   | (1,475 | )      |   |   | 66      |         |  |   | (3,373  | )      
|                                                                                                  |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |        
|                                                                                                  | Income (loss) before cumulative effect of a
    change in accounting principle                          |                                       |        | 1,107  |                  |   |        | (2,719 | ) |   |         | 122     |  |   |         | (6,250  | )
|Cumulative effect of a change in accounting
    principle                                         |                                                                                                         |                                       |       |        |                  |   |       |        |   |   |        |         |  |   | (9,079  | )      
|                                                                                                  |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |        
|                                                                                                  | Net income (loss)                                                                                       |                                       | $      | 1,107  |                  |   | $      | (2,719 | ) |   | $       | 122     |  |   | $       | (15,329 | )
|                                                                                                  |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |        
|Income (loss) before cumulative effect of a
    change in accounting principle  per common share |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |         |  |   |         |        
|                                                                                                  | Basic                                                                                                   |                                       | $      | 0.13   |                  |   | $      | (0.28  | ) |   | $       | 0.01    |  |   | $       | (0.63   | )
|                                                                                                  | Diluted                                                                                                 |                                       | $      | 0.12   |                  |   | $      | (0.28  | ) |   | $       | 0.01    |  |   | $       | (0.63   | )
|Cumulative effect of a change in accounting
    principle  per common share                      |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |         |  |   |         |        
|                                                                                                  | Basic                                                                                                   |                                       | $      |       |                  |   | $      |       |   |   | $       |        |  |   | $       | (0.92   | )
|                                                                                                  | Diluted                                                                                                 |                                       | $      |       |                  |   | $      |       |   |   | $       |        |  |   | $       | (0.92   | )
|Net income (loss)  per common share                                                              |                                                                                                         |                                       |        |        |                  |   |        |        |   |   |         |         |  |   |         |        
|                                                                                                  | Basic                                                                                                   |                                       | $      | 0.13   |                  |   | $      | (0.28  | ) |   | $       | 0.01    |  |   | $       | (1.55   | )
|                                                                                                  | Diluted                                                                                                 |                                       | $      | 0.12   |                  |   | $      | (0.28  | ) |   | $       | 0.01    |  |   | $       | (1.55   | )

The accompanying notes are an integral part of
the condensed consolidated financial statements.

4



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##### Table of Contents



AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES






CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME


(UNAUDITED)


|                                   |                                                                                                                                                                                                                                                             |                             |       |       |                  |   |        |        |        |   |      |       |       |   |         |       |        |  
|---------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ----- | ----- | ---------------- | - | ------ | ------ | ------ | - | ---- | ----- | ----- | - | ------- | ----- | ------ | -
|                                   |                                                                                                                                                                                                                                                             |                             |       |      
|                                   |                                                                                                                                                                                                                                                             | Three Months Ended          |       |       | Six Months Ended |  
|                                   |                                                                                                                                                                                                                                                             | June 30,                    |       |       | June 30,         |  
|                                   |                                                                                                                                                                                                                                                             |                             |       |       |                  |  
|                                   |                                                                                                                                                                                                                                                             | 2003                        |       |       | 2002             |   |        | 2003   |        |   | 2002 |      
|                                   |                                                                                                                                                                                                                                                             |                             |       |       |                  |   |        |        |        |   |      |      
|                                   |                                                                                                                                                                                                                                                             |                            
|                                   |                                                                                                                                                                                                                                                             | (In thousands)              |      
|Net income (loss)                  |                                                                                                                                                                                                                                                             | $                           | 1,107 |       |                  | $ | (2,719 | )      |        | $ | 122  |       |       | $ | (15,329 | )    
|Other comprehensive income (loss): |                                                                                                                                                                                                                                                             |                             |       |       |                  |   |        |        |        |   |      |       |       |   |         |      
|                                   | Unrealized appreciation on investment securities
    arising during the period, net of deferred federal income tax
    expense of $3,584 and $4,282, respectively, in 2003 and $7,167
    and $4,569, respectively, in 2002                                 |                             |       | 6,656 |                  |   |        | 13,311 |        |   |      | 7,953 |       |   |         | 8,486 |       
|                                   | Less reclassification adjustment for realized
    (gains) losses on investment securities included in net income
    (loss), net of income tax (expense) benefit of ($403) and
    ($402), respectively, in 2003 and $1 and ($2), respectively, in
    2002 |                             |       | (748  | )                |   |        | 1      |        |   |      | (746  | )     |   |         | (3    | )     
|                                   |                                                                                                                                                                                                                                                             |                             |       |       |                  |   |        |        |        |   |      |      
|                                   |                                                                                                                                                                                                                                                             | Other comprehensive income  |       |       | 7,404            |   |        |        | 13,310 |   |      |       | 8,699 |   |         |       | 8,489  |  
|                                   |                                                                                                                                                                                                                                                             |                             |       |       |                  |   |        |        |        |   |      |      
|                                   |                                                                                                                                                                                                                                                             | Comprehensive income (loss) |       | $     | 8,511            |   |        | $      | 10,591 |   |      | $     | 8,821 |   |         | $     | (6,840 | )
|                                   |                                                                                                                                                                                                                                                             |                             |       |       |                  |   |        |        |        |   |      |      

The accompanying notes are an integral part of
the condensed consolidated financial statements.

5



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##### Table of Contents



AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(UNAUDITED)


|                                     |                                                                                                            |                                                    |                                                          |        |         |         |   |         |         |         |  
|------------------------------------ | ---------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------------- | ------ | ------- | ------- | - | ------- | ------- | ------- | -
|                                     |                                                                                                            |                                                   
|                                     |                                                                                                            | Six Months Ended                                   |                                                         
|                                     |                                                                                                            | June 30,                                           |                                                         
|                                     |                                                                                                            |                                                    |                                                         
|                                     |                                                                                                            | 2003                                               |                                                          |        | 2002    |        
|                                     |                                                                                                            |                                                    |                                                          |        |         |        
|                                     |                                                                                                            |                                                   
|                                     |                                                                                                            | (In thousands)                                     |                                                         
|Cash flows from operating activities |                                                                                                            |                                                    |                                                          |        |         |         |   |        
|                                     | Net income (loss)                                                                                          |                                                    | $                                                        | 122    |         |         | $ | (15,329 | )      
|                                     | Adjustments to reconcile net income
    (loss) to net cash (used in) provided by operating
    activities: |                                                    |                                                          |        |         |         |   |         |        
|                                     |                                                                                                            | Depreciation and amortization                      |                                                          |        | 2,559   |         |   |         | 1,300   |        
|                                     |                                                                                                            | Net realized (gains) losses                        |                                                          |        | (1,148  | )       |   |         | 288     |        
|                                     |                                                                                                            | Change in fair value of derivatives instruments    |                                                          |        | (400    | )       |   |         |        |        
|                                     |                                                                                                            | Change in deferred federal income taxes            |                                                          |        | 1,050   |         |   |         | 2,393   |        
|                                     |                                                                                                            | Goodwill impairment                                |                                                          |        |        |         |   |         | 13,968  |        
|                                     |                                                                                                            | Change in unpaid loss and loss adjustment expenses |                                                          |        | (5,006  | )       |   |         | 19,987  |        
|                                     |                                                                                                            | Change in unearned premiums                        |                                                          |        | (14,678 | )       |   |         | 4,848   |        
|                                     |                                                                                                            | Changes in other assets and liabilities            |                                                          |        | 8,079   |         |   |         | (10,824 | )      
|                                     |                                                                                                            |                                                    |                                                          |        |         |        
|                                     |                                                                                                            |                                                    | Net cash (used in) provided by operating
    activities  |        |         | (9,422  | ) |         |         | 16,631  |  
|                                     |                                                                                                            |                                                    |                                                          |        |         |        
|Cash flows from investing activities |                                                                                                            |                                                    |                                                          |        |         |         |   |        
|                                     | Purchases                                                                                                  |                                                    |                                                          |        |         |         |   |         |        
|                                     |                                                                                                            | Available-for-sale  fixed maturities              |                                                          |        | (46,667 | )       |   |         | (79,003 | )      
|                                     |                                                                                                            | Available-for-sale  equity securities             |                                                          |        | (2,948  | )       |   |         |        |        
|                                     |                                                                                                            | Leasehold improvements                             |                                                          |        | (361    | )       |   |         |        |        
|                                     |                                                                                                            | Property and equipment                             |                                                          |        | (1,400  | )       |   |         | (562    | )      
|                                     | Sales and maturities                                                                                       |                                                    |                                                          |        |         |         |   |         |        
|                                     |                                                                                                            | Available-for-sale  fixed maturities              |                                                          |        | 87,480  |         |   |         | 13,238  |        
|                                     |                                                                                                            | Other                                              |                                                          |        | 3       |         |   |         |        |        
|                                     |                                                                                                            |                                                    |                                                          |        |         |        
|                                     |                                                                                                            |                                                    | Net cash provided by (used in) investing
    activities  |        |         | 36,107  |   |         |         | (66,327 | )
|                                     |                                                                                                            |                                                    |                                                          |        |         |        
|Cash flows from financing activities |                                                                                                            |                                                    |                                                          |        |         |         |   |        
|                                     | Common stock repurchased                                                                                   |                                                    |                                                          |       |         |         |   | (10,837 | )      
|                                     | Principal payment on note payable                                                                          |                                                    |                                                          | (1,000 | )       |         |   | (1,000  | )      
|                                     | Proceeds from issuance of mandatorily redeemable
    trust preferred securities, net of expenses           |                                                    |                                                          | 29,094 |         |         |   |         |        
|                                     | Proceeds from stock options exercised                                                                      |                                                    |                                                          | 68     |         |         |   | 176     |        
|                                     | Other sources                                                                                              |                                                    |                                                          |       |         |         |   | 138     |        
|                                     |                                                                                                            |                                                    |                                                          |        |         |        
|                                     |                                                                                                            |                                                    | Net cash provided by (used in) financing
    activities  |        |         | 28,162  |   |         |         | (11,523 | )
|                                     |                                                                                                            |                                                    |                                                          |        |         |        
|                                     |                                                                                                            |                                                    | Net increase (decrease) in cash and cash
    equivalents |        |         | 54,847  |   |         |         | (61,219 | )
|                                     |                                                                                                            |                                                    | Cash and cash equivalents, beginning of
    period       |        |         | 151,825 |   |         |         | 106,444 |  
|                                     |                                                                                                            |                                                    |                                                          |        |         |        
|                                     |                                                                                                            |                                                    | Cash and cash equivalents, end of
    period             |        | $       | 206,672 |   |         | $       | 45,225  |  
|                                     |                                                                                                            |                                                    |                                                          |        |         |        

The accompanying notes are an integral part of
the condensed consolidated financial statements.

6



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##### Table of Contents



AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)


1.     Basis of
Presentation

The accompanying unaudited condensed consolidated
financial statements include the accounts of American Physicians
Capital, Inc. (APCapital) and its wholly owned
subsidiaries, together referred to in this report as the
Company. All significant intercompany accounts and
transactions are eliminated in consolidation.

The Company is principally engaged in the
business of providing medical professional liability and
workers compensation insurance throughout the United
States with a concentration of writings in the Midwest.

The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in
conformity with accounting principles generally accepted in the
United States of America (GAAP) and with the
instructions for Form 10-Q and Rule 10-01 of
Regulation S-X as they apply to interim financial
information. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete
financial statements.

In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. The
operating results for the three-month and six-month periods
ended June 30, 2003 are not necessarily indicative of the
results to be expected for the year ending December 31,
2003. The accompanying condensed consolidated financial
statements should be read with the annual consolidated financial
statements and notes contained in the Companys Annual
Report on Form 10-K for the year ended December 31,
2002.

The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

The most significant estimates that are
susceptible to significant change in the near-term relate to the
determination of the losses and loss adjustment expense
reserves, investments, taxes, reinsurance, the reserve for
extended reporting period claims and derivative financial
instruments. Although considerable variability is inherent in
these estimates, management believes that the current estimates
are reasonable in all material respects. The estimates are
reviewed regularly and adjusted as necessary. Such adjustments
are reflected in current operations.

Certain 2002 amounts have been reclassified to
conform with the 2003 presentation.

Stock-based Compensation

The Company uses the intrinsic value-based method
to account for all stock-based employee compensation plans and
has adopted the disclosure alternative of Statement of Financial
Accounting Standard (SFAS) No. 123
Accounting for Stock-Based Compensation, as amended
by SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. In
accordance with SFAS No. 123, as amended by SFAS
No. 148, the Company is required to disclose the pro forma
effects on operating results as if the Company had elected the
fair value approach to account for its stock-based employee
compensation plans.

7



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##### Table of Contents



AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

If compensation had been determined based on the
fair value at the grant date, consistent with the provisions of
SFAS No. 123, our net income (loss) and net income (loss)
per share would have been as follows for the three months and
six months ended June 30, 2003 and 2002:

|                                                                                                                                                                       |             |                                       |       |      |            |   |        |       |   |   |      |       |   |   |         |       |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------------------------- | ----- | ---- | ---------- | - | ------ | ----- | - | - | ---- | ----- | - | - | ------- | ----- | -
|                                                                                                                                                                       |             |                                       |       |     
|                                                                                                                                                                       |             | Three Months                          |       |      | Six Months |  
|                                                                                                                                                                       |             | Ended                                 |       |      | Ended      |  
|                                                                                                                                                                       |             | June 30,                              |       |      | June 30,   |  
|                                                                                                                                                                       |             |                                       |       |      |            |  
|                                                                                                                                                                       |             | 2003                                  |       |      | 2002       |   |        | 2003  |   |   | 2002 |      
|                                                                                                                                                                       |             |                                       |       |      |            |   |        |       |   |   |      |      
|                                                                                                                                                                       |             |                                      
|                                                                                                                                                                       |             | (In thousands, except per share data) |      
|Net income (loss), as reported                                                                                                                                         |             | $                                     | 1,107 |      |            | $ | (2,719 | )     |   | $ | 122  |       |   | $ | (15,329 | )    
|Add: Stock-based employee compensation expense
    included in reported net income (loss), net of related tax
    effects                                              |             |                                       | 75    |      |            |   | 77     |       |   |   | 150  |       |   |   | 152     |      
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards
    granted since 2000, net of related tax effects |             |                                       | (349  | )    |            |   | (539   | )     |   |   | (698 | )     |   |   | (1,053  | )    
|                                                                                                                                                                       |             |                                       |       |      |            |   |        |       |   |   |      |      
|Pro forma net income (loss)                                                                                                                                            |             | $                                     | 833   |      |            | $ | (3,181 | )     |   | $ | (426 | )     |   | $ | (16,230 | )    
|                                                                                                                                                                       |             |                                       |       |      |            |   |        |       |   |   |      |      
|Basic income (loss) per share                                                                                                                                          |             |                                       |       |      |            |   |        |       |   |   |      |       |   |   |         |      
|                                                                                                                                                                       | As reported |                                       | $     | 0.13 |            |   | $      | (0.28 | ) |   | $    | 0.01  |   |   | $       | (1.55 | )
|                                                                                                                                                                       | Pro forma   |                                       | $     | 0.10 |            |   | $      | (0.33 | ) |   | $    | (0.05 | ) |   | $       | (1.64 | )
|Diluted income (loss) per share                                                                                                                                        |             |                                       |       |      |            |   |        |       |   |   |      |       |   |   |         |      
|                                                                                                                                                                       | As reported |                                       | $     | 0.12 |            |   | $      | (0.28 | ) |   | $    | 0.01  |   |   | $       | (1.55 | )
|                                                                                                                                                                       | Pro forma   |                                       | $     | 0.09 |            |   | $      | (0.33 | ) |   | $    | (0.05 | ) |   | $       | (1.64 | )

Such pro forma disclosures may not be
representative of future compensation costs as options may vest
over several years and additional grants may be made.

There were no options granted during the three
months ended June 30, 2003. During the six months ended
June 30, 2003, there were 5,000 options granted.

Derivative Financial Instruments

During the second quarter of 2003, the Company
has purchased interest-only certificates, which may not allow
for the recovery of substantially all of its investment. These
certificates pay a variable rate of interest that is inversely
related to the London Interbank Offered Rate
(LIBOR). The Company has determined that these
certificates contain an embedded derivative instrument as
defined by SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities.

All interest-only certificates with an inverse
floating rate of interest are carried on the balance sheet at
fair value as a fixed maturity security. These certificates are
not linked to specific assets or liabilities on the balance
sheet or to a forecasted transaction and, therefore, do not
qualify for hedge accounting. In addition, the Company does not
feel that it can reliably identify and separately measure the
embedded derivative instrument. Any changes in the fair value of
the certificates, based on quoted market prices, are recorded in
current period earnings as investment income.

At June 30, 2003 the Company had such
certificates with a fair value of approximately
$7.7 million. The fair value of these certificates
increased approximately $400,000 during the three months and six
months ended June 30, 2003.

The Company uses these certificates as a part of
its overall interest rate risk-management strategy related to
its investment portfolio.

8



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##### Table of Contents



AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2.     Income (Loss)
Per Share

Net income (loss) per common share is
computed by dividing net income (loss) by the weighted
average number of shares of common stock and common stock
equivalents (e.g., stock options and stock awards) outstanding,
calculated on a daily basis. Basic weighted average shares
outstanding for the three months and six months ended
June 30, 2003 were 8,599,392 and 8,596,995, respectively,
and 9,712,499 and 9,870,303, respectively, for the three months
and six months ended June 30, 2002. Diluted weighted
average shares outstanding were 8,972,313 and 8,909,701,
respectively, for the three months and six months ended
June 30, 2003. As the Company was in a net loss position
for the three months and six months ended June 30, 2002, no
effect of options or other stock awards was calculated as the
impact would have been anti-dilutive.

The following table sets forth the computation of
basic and diluted income (loss) per common share:

|                                                                    |                                                                                                  |                                       |   |       |          |  |   |        |   |  |      |       |  |  |   |         |  
|------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------------------------------- | - | ----- | -------- |  | - | ------ | - |  | ---- | ----- |  |  | - | ------- | -
|                                                                    |                                                                                                  |                                       |   |      
|                                                                    |                                                                                                  | June 30,                              |   |       | June 30, | 
|                                                                    |                                                                                                  |                                       |   |       |          | 
|                                                                    |                                                                                                  | 2003                                  |   |       | 2002     |  |   | 2003   |   |  | 2002 |      
|                                                                    |                                                                                                  |                                       |   |       |          |  |   |        |   |  |      |      
|                                                                    |                                                                                                  |                                      
|                                                                    |                                                                                                  | (In thousands, except per share data) |  
|Numerator for basic and diluted income (loss)
    per common share: |                                                                                                  |                                       |   |       |          |  |   |        |   |  |      |       |  |  |   |        
|                                                                    | Income (loss) before cumulative effect of a
    change in accounting principle                   |                                       | $ | 1,107 |          |  | $ | (2,719 | ) |  | $    | 122   |  |  | $ | (6,250  | )
|                                                                    | Cumulative effect of a change in accounting
    principle                                        |                                       |   |      |          |  |   |       |   |  |      |      |  |  |   | (9,079  | )
|                                                                    |                                                                                                  |                                       |   |       |          |  |   |        |   |  |      |      
|                                                                    | Net income (loss)                                                                                |                                       | $ | 1,107 |          |  | $ | (2,719 | ) |  | $    | 122   |  |  | $ | (15,329 | )
|                                                                    |                                                                                                  |                                       |   |       |          |  |   |        |   |  |      |      
|Denominator:                                                        |                                                                                                  |                                       |   |       |          |  |   |        |   |  |      |       |  |  |   |        
|                                                                    | Denominator for basic loss per common
    share  weighted average shares outstanding            |                                       |   | 8,599 |          |  |   | 9,712  |   |  |      | 8,597 |  |  |   | 9,870   |  
|                                                                    | Effect of dilutive stock options and awards                                                      |                                       |   | 373   |          |  |   |       |   |  |      | 313   |  |  |   |        |  
|                                                                    |                                                                                                  |                                       |   |       |          |  |   |        |   |  |      |      
|                                                                    | Denominator for diluted loss per common
    share  adjusted weighted average shares outstanding |                                       |   | 8,972 |          |  |   | 9,712  |   |  |      | 8,910 |  |  |   | 9,870   |  
|                                                                    |                                                                                                  |                                       |   |       |          |  |   |        |   |  |      |      

3.     Segment
Information

The Company is organized and operates principally
in the property and casualty insurance industry and has five
reportable segments  medical professional liability,
workers compensation, health, personal and commercial, and
corporate and other. The accounting policies of the segments are
described in the notes to the financial statements included in
the Companys most recent Annual Report on Form 10-K.

Expense allocations are based primarily on loss
and loss adjustment expenses by line of business and certain
other estimates for underwriting expenses. Investment income,
investment expense, amortization expense and interest expense
are allocated to the segments based on that segments
ownership percentage of

9



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##### Table of Contents



AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the assets or liabilities underlying the income
or expense. General and administrative expenses are all
attributed to the holding company and are included in corporate
and other.

|              |                                |                |   |         |              |  |   |         |           | 
|------------- | ------------------------------ | -------------- | - | ------- | ------------ |  | - | ------- | --------- | 
|              |                                | June 30,       |   |         | December 31, | 
|              |                                | 2003           |   |         | 2002         | 
|              |                                |                |   |         |              | 
|              |                                |               
|              |                                | (In thousands) |  
|Total assets: |                                |                |   |         |              |  |   |        
|              | Medical professional liability |                | $ | 874,998 |              |  | $ | 859,804 |          
|              | Workers compensation          |                |   | 140,289 |              |  |   | 153,612 |          
|              | Health                         |                |   | 12,762  |              |  |   | 19,003  |          
|              | Personal and commercial        |                |   | 3,916   |              |  |   | 4,089   |          
|              | Corporate and other            |                |   | 51,262  |              |  |   | 22,410  |          
|              |                                |                |   |         |              | 
|              |                                | Total          |   | $       | 1,083,227    |  |   | $       | 1,058,918 | 
|              |                                |                |   |         |              | 

|                                                                                                         |                                |                    |   |        |                  |  |   |        |        |   |      |        |         |  |   |        |         |  
|-------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------ | - | ------ | ---------------- |  | - | ------ | ------ | - | ---- | ------ | ------- |  | - | ------ | ------- | -
|                                                                                                         |                                |                    |   |       
|                                                                                                         |                                | Three Months Ended |   |        | Six Months Ended | 
|                                                                                                         |                                | June 30,           |   |        | June 30,         | 
|                                                                                                         |                                |                    |   |        |                  | 
|                                                                                                         |                                | 2003               |   |        | 2002             |  |   | 2003   |        |   | 2002 |       
|                                                                                                         |                                |                    |   |        |                  |  |   |        |        |   |      |       
|                                                                                                         |                                |                   
|                                                                                                         |                                | (In thousands)     |  
|Total revenue:                                                                                           |                                |                    |   |        |                  |  |   |        |        |   |      |        |         |  |   |       
|                                                                                                         | Medical professional liability |                    | $ | 48,132 |                  |  | $ | 45,222 |        |   | $    | 96,404 |         |  | $ | 86,423 |        
|                                                                                                         | Workers compensation          |                    |   | 12,521 |                  |  |   | 17,581 |        |   |      | 26,396 |         |  |   | 34,528 |        
|                                                                                                         | Health                         |                    |   | 5,637  |                  |  |   | 5,856  |        |   |      | 12,349 |         |  |   | 11,672 |        
|                                                                                                         | Personal and commercial        |                    |   | (70    | )                |  |   | (907   | )      |   |      | (219   | )       |  |   | (925   | )      
|                                                                                                         | Corporate and other            |                    |   | 47     |                  |  |   | (153   | )      |   |      | 316    |         |  |   | 512    |        
|                                                                                                         |                                |                    |   |        |                  |  |   |        |        |   |      |       
|                                                                                                         |                                | Total              |   | $      | 66,267           |  |   | $      | 67,599 |   |      | $      | 135,246 |  |   | $      | 132,210 |  
|                                                                                                         |                                |                    |   |        |                  |  |   |        |        |   |      |       
|Income (loss) before federal income taxes and
    cumulative effect of a change in accounting principle: |                                |                    |   |        |                  |  |   |        |        |   |      |        |         |  |   |       
|                                                                                                         | Medical professional liability |                    | $ | 2,947  |                  |  | $ | (2,658 | )      |   | $    | 1,658  |         |  | $ | (8,583 | )      
|                                                                                                         | Workers compensation          |                    |   | 983    |                  |  |   | 478    |        |   |      | 1,235  |         |  |   | 2,135  |        
|                                                                                                         | Health                         |                    |   | (714   | )                |  |   | (361   | )      |   |      | (510   | )       |  |   | (1,547 | )      
|                                                                                                         | Personal and commercial        |                    |   | (608   | )                |  |   | (1,070 | )      |   |      | (1,010 | )       |  |   | (1,253 | )      
|                                                                                                         | Corporate and other            |                    |   | (905   | )                |  |   | (583   | )      |   |      | (1,185 | )       |  |   | (375   | )      
|                                                                                                         |                                |                    |   |        |                  |  |   |        |        |   |      |       
|                                                                                                         |                                | Total              |   | $      | 1,703            |  |   | $      | (4,194 | ) |      | $      | 188     |  |   | $      | (9,623  | )
|                                                                                                         |                                |                    |   |        |                  |  |   |        |        |   |      |       

4.     Goodwill

Effective January 1, 2002, the Company
adopted Statement of Financial Accounting Standard
(SFAS) No. 142, Goodwill and Other
Intangible Assets. At that date, the only goodwill or
other intangible asset recorded by the Company was the
$13.9 million associated with the purchase of
Stratton-Cheeseman Management Company in 1999. Based on the
results of the impairment testing, the recorded net goodwill of
$13.9 million was written off as the fair value of the
Companys reporting units did not support the carrying
value of previously recorded goodwill. For purposes of the
impairment testing, fair value was estimated using various
methods, including multiples of projected net income and market
capitalization. The goodwill impairment was recorded as a
cumulative effect of a change in accounting principle, net of a
deferred income tax benefit of $4.9 million. In accordance
with the transition guidance given in SFAS No. 142, the
goodwill impairment charge, net of tax, that was determined in
the fourth quarter of 2002 was recorded in the first quarter of
2002.

10



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##### Table of Contents



AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.     Mandatorily
Redeemable Trust Preferred Securities

In May 2003, subsidiary trusts of the
Company issued, in two separate issues of $15 million each,
mandatorily redeemable trust preferred securities
(TPS) to, in each case, a trust formed by an
institutional investor. The Companys trusts received a
total of $29.1 million in net proceeds, after the deduction
of a total of approximately $906,000 of commissions paid to the
placement agents in the transactions. These costs have been
capitalized and are included in other assets on the balance
sheet. Issuance costs will be amortized over five years as a
component of amortization expense. The Company estimates that
the fair value of the TPS issued approximates the gross proceeds
of cash received at the time of issuance. The TPS have financial
terms similar to those of the floating rate junior subordinated
deferrable interest debentures (the Debentures)
discussed below.

The Company formed American Physicians Capital
Statutory Trust I and APCapital Trust II (the
Trusts) for the purpose of issuing the TPS. The
gross proceeds from issuance were used to purchase the
Debentures issued by APCapital. The Debentures are the sole
assets of the Trusts. The Debentures mature in 30 years and bear
interest at an annual rate equal to the three-month LIBOR plus
4.10% for the first issuance, and plus 4.20% for the second
issuance, payable quarterly beginning in August 2003. The
interest rate is adjusted on a quarterly basis provided that
prior to May 2008, the interest rate shall not exceed
12.50%. The initial interest rates of 5.41% (Trust I issuance)
and 5.48% (Trust II issuance) resulted in interest expense
of approximately $188,000 for the three months and six months
ended June 30, 2003. At June 30, 2003, accrued
interest payable was approximately $188,000. The Debentures are
callable by APCapital at par beginning in May 2008.

The Debentures are unsecured obligations of the
Company and are junior in the right of payment to all future
senior indebtedness of the Company. APCapital has guaranteed
that the payments made to the Trusts will be distributed by the
Trusts to the holders of the TPS. The Debentures, and related
investment in the Trusts, have been eliminated in consolidation.

11



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##### Table of Contents



Item 2.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion and analysis should be
read in conjunction with the condensed consolidated financial
statements and the notes thereto included elsewhere in this
report and the Companys Annual Report on Form 10-K
for the year ended December 31, 2002. The following
discussion of our financial condition and results of operations
contains certain forward-looking statements related to our
anticipated future financial condition and operating results and
our current business plans. When we use words such as
believes, expects,
anticipates, estimates or similar
expressions, we are making forward-looking statements. These
forward-looking statements represent our outlook only as of the
date of this report. While we believe that any forward-looking
statements we have made are reasonable, actual results could
differ materially since these statements are based on our
current expectations and are subject to risks and uncertainties.
These risks and uncertainties are detailed from time to time in
reports filed by the Company with the Securities and Exchange
Commission. See, for example, the disclosures in
Item 1  Business  Uncertainties
Relating to Forward-Looking Statements of the
Companys Annual Report on Form 10-K for the year
ended December 31, 2002, and in other reports filed by the
Company with the Securities and Exchange Commission
(SEC).

In addition to those factors previously detailed
and stated elsewhere in this report, the Company has identified
the following risks and uncertainties that could cause our
future actual results to differ materially from our current
expectations.



| |   |                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The continued adverse development related to the
    run-off of our personal and commercial business could result in
    additional unanticipated losses.                                                                                                         
|
| |  | We may be unable to collect the full amount of
    reinsurance recoverable, which could result in a future charge
    to income, from Gerling Global, a significant reinsurer, if
    their cash flow or surplus levels are inadequate to make claim
    payments.
|
| |  | If the Company is unable to generate sufficient
    taxable income in the future, we may not be able to realize some
    or all of our deferred tax assets.                                                                                                       

Other factors not currently anticipated by
management may also materially and adversely affect the
Companys financial position and results of operations. The
Company does not undertake, and expressly disclaims any
obligation, to update or alter its forward-looking statements,
whether as a result of new information, future events or
otherwise, except as required by applicable law.

We operate primarily in three insurance product
segments: medical professional liability, workers
compensation, and health. Effective December 31, 2001, the
Company exited the personal and commercial lines of business.
The personal and commercial insurance operating segment will
continue to generate income (loss) due to the development
of unpaid loss and loss adjustment expenses associated with this
segment. See Note 3 of the Notes to Condensed Consolidated
Financial Statements, contained elsewhere in this report, for
further information regarding the operating results of our
business segments.

Non GAAP and Other Financial
Measures

In the analysis of our operating results that
follows, we refer to various financial ratios and other measures
that management uses to analyze and compare the underwriting
results of our insurance operations. These ratios are calculated
on a GAAP basis and include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Loss ratio This ratio compares our losses and
    loss adjustment expenses incurred, net of reinsurance, to our
    net premiums earned, and indicates how much we expect to pay
    policyholders for claims and related settlement expenses
    compared to the amount of premiums we earn. The lower the
    percentage, the more profitable our insurance business is, all
    other things being equal.             
|
| |  | Underwriting expense ratio This ratio compares our expenses to
    obtain new business and renew existing business, plus normal
    operating expenses, to our net premiums earned. The ratio is
    used to measure how efficient we are at obtaining business and
    operating the insurance segments. The lower the percentage, the
    more efficient we are, all else being equal. Sometimes, however,
    a higher

12



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##### Table of Contents



| |   |                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | underwriting expense ratio can result in better
    business and improve our loss ratio, and overall profitability.                                                                                                                                
|
| |  | Combined ratio This ratio equals the sum of our loss
    ratio and underwriting expense ratio. The lower the percentage,
    the more profitable our insurance business is. This ratio
    excludes the effects of investment income.             
|
| |  | Underwriting gain (loss) This measure equals the net premiums
    earned less loss and loss adjustment expenses as well as
    underwriting expenses. It is another measure of the underwriting
    performance of our various insurance segments.

In addition to our reported GAAP loss ratios, we
also report accident year loss ratios. The accident year loss
ratio is computed by taking total incurred loss and loss
adjustment expenses, less any development on prior year loss
reserves, divided by net premiums earned. We believe this ratio
is useful in evaluating our current underwriting performance, as
it focuses on the relationships between current premiums earned
and current losses. Considerable variability is inherent in the
establishment of loss reserves related to the current accident
year. While management believes that its estimate is reasonable,
there can be no assurance that these loss reserves will develop
as expected. Our method of calculating accident year loss ratios
may differ from those used by other companies and, therefore,
comparability may be limited.

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##### Table of Contents



Results of Operations  Three Months
and Six Months Ended June 30, 2003, Compared to Three
Months and Six Months Ended June 30, 2002

Medical
Professional Liability Insurance Operations

The following table sets forth the operating
results of our medical professional liability insurance
operations for the three-month and six-month periods ended
June 30, 2003 and 2002.

|                                                                                                        |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |        |        |   |        |        |        |   |        |        |       | 
|------------------------------------------------------------------------------------------------------- | ---------------------------- | --------------------------- | ------ | ---------- | ------------------------- | - | ------- | ------ | ---------- | - | ------ | ------ | ------ | ---- | ------ | ------- | ----- | - | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ----- | 
|                                                                                                        |                              |                             |        |           
|                                                                                                        |                              | Three Months Ended June 30, |        |            | Six Months Ended June 30, |  
|                                                                                                        |                              |                             |        |            |                           |  
|                                                                                                        |                              |                             |        | Percentage |                           |   |         |        | Percentage |  
|                                                                                                        |                              | 2003                        |        |            | 2002                      |   |         | Change |            |   | Change |        |        | 2003 |        |         | 2002  |   |         | Change |        |   | Change  |       
|                                                                                                        |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |       
|                                                                                                        |                              |                            
|                                                                                                        |                              | (Dollars in thousands)      |       
|Direct premiums written:                                                                                |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |        |        |   |        |        |        |   |        |       
|                                                                                                        | Ohio                         |                             | $      | 8,323      |                           |   | $       | 7,099  |            |   | $      | 1,224  |        |      |        | 17.2%   |       |   | $       | 16,228 |        |   | $       | 16,119 |        |   | $      | 109    |        |   |        | 0.7%   |      
|                                                                                                        | Illinois                     |                             |        | 7,908      |                           |   |         | 7,011  |            |   |        | 897    |        |      |        | 12.8%   |       |   |         | 20,838 |        |   |         | 14,027 |        |   |        | 6,811  |        |   |        | 48.6%  |      
|                                                                                                        | Michigan                     |                             |        | 7,339      |                           |   |         | 8,847  |            |   |        | (1,508 | )      |      |        | -17.0%  |       |   |         | 15,781 |        |   |         | 16,457 |        |   |        | (676   | )      |   |        | -4.1%  |      
|                                                                                                        | New Mexico                   |                             |        | 3,212      |                           |   |         | 1,542  |            |   |        | 1,670  |        |      |        | 108.3%  |       |   |         | 7,025  |        |   |         | 4,045  |        |   |        | 2,980  |        |   |        | 73.7%  |      
|                                                                                                        | Kentucky                     |                             |        | 1,798      |                           |   |         | (159   | )          |   |        | 1,957  |        |      |        | 1230.8% |       |   |         | 10,013 |        |   |         | 10,013 |        |   |        |       |        |   |        | 0.0%   |      
|                                                                                                        | Nevada                       |                             |        | 1,374      |                           |   |         | 1,074  |            |   |        | 300    |        |      |        | 27.9%   |       |   |         | 2,418  |        |   |         | 2,014  |        |   |        | 404    |        |   |        | 20.1%  |      
|                                                                                                        | Florida                      |                             |        | 901        |                           |   |         | 4,555  |            |   |        | (3,654 | )      |      |        | -80.2%  |       |   |         | 4,376  |        |   |         | 11,898 |        |   |        | (7,522 | )      |   |        | -63.2% |      
|                                                                                                        | Other                        |                             |        | 226        |                           |   |         | 599    |            |   |        | (373   | )      |      |        | -62.3%  |       |   |         | 1,993  |        |   |         | 1,402  |        |   |        | 591    |        |   |        | 42.2%  |      
|                                                                                                        |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |       
|                                                                                                        |                              | Total                       |        | $          | 31,081                    |   |         | $      | 30,568     |   |        | $      | 513    |      |        |         | 1.7%  |   |         | $      | 78,672 |   |         | $      | 75,975 |   |        | $      | 2,697  |   |        |        | 3.5%  | 
|                                                                                                        |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |       
|Net premiums written                                                                                    |                              | $                           | 26,615 |            |                           | $ | 27,002  |        |            | $ | (387   | )      |        |      | -1.4%  |         |       | $ | 66,734  |        |        | $ | 65,570  |        |        | $ | 1,164  |        |        |   | 1.8%   |       
|                                                                                                        |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |       
|Net premiums earned                                                                                     |                              | $                           | 38,375 |            |                           | $ | 35,024  |        |            | $ | 3,351  |        |        |      | 9.6%   |         |       | $ | 77,860  |        |        | $ | 67,975  |        |        | $ | 9,885  |        |        |   | 14.5%  |       
|Incurred loss and loss adjustment expenses:                                                             |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |        |        |   |        |        |        |   |        |       
|                                                                                                        | Current accident year losses |                             |        | 37,233     |                           |   |         | 39,321 |            |   |        | (2,088 | )      |      |        | -5.3%   |       |   |         | 77,419 |        |   |         | 77,795 |        |   |        | (376   | )      |   |        | -0.5%  |      
|                                                                                                        | Prior year losses            |                             |        | 250        |                           |   |         | 1,000  |            |   |        | (750   | )      |      |        | -75.0%  |       |   |         | 1,250  |        |   |         | 2,500  |        |   |        | (1,250 | )      |   |        | -50.0% |      
|                                                                                                        |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |       
|                                                                                                        |                              | Total                       |        |            | 37,483                    |   |         |        | 40,321     |   |        |        | (2,838 | )    |        |         | -7.0% |   |         |        | 78,669 |   |         |        | 80,295 |   |        |        | (1,626 | ) |        |        | -2.0% | 
|Underwriting expenses                                                                                   |                              |                             | 7,076  |            |                           |   | 6,672   |        |            |   | 404    |        |        |      | 6.1%   |         |       |   | 14,892  |        |        |   | 13,067  |        |        |   | 1,825  |        |        |   | 14.0%  |       
|                                                                                                        |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |       
|Underwriting loss                                                                                       |                              | $                           | (6,184 | )          |                           | $ | (11,969 | )      |            | $ | 5,785  |        |        |      | -48.3% |         |       | $ | (15,701 | )      |        | $ | (25,387 | )      |        | $ | 9,686  |        |        |   | -38.2% |       
|                                                                                                        |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |       
|Income (loss) before federal income taxes
    and cumulative effect of a change in accounting principle |                              | $                           | 2,947  |            |                           | $ | (2,658  | )      |            | $ | 5,605  |        |        |      | 210.9% |         |       | $ | 1,658   |        |        | $ | (8,583  | )      |        | $ | 10,241 |        |        |   | 119.3% |       
|                                                                                                        |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |       
|Loss ratio:                                                                                             |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |        |        |   |        |        |        |   |        |       
|                                                                                                        | Accident year                |                             |        | 97.0%      |                           |   |         | 112.3% |            |   |        | -15.3% |        |      |        |         |       |   |         | 99.4%  |        |   |         | 114.4% |        |   |        | -15.0% |        |   |        |        |      
|                                                                                                        | Prior years                  |                             |        | 0.7%       |                           |   |         | 2.9%   |            |   |        | -2.2%  |        |      |        |         |       |   |         | 1.6%   |        |   |         | 3.7%   |        |   |        | -2.1%  |        |   |        |        |      
|                                                                                                        |                              |                             |        |            |                           |   |         |        |            |   |        |        |        |      |        |         |       |   |         |        |        |   |         |       
|                                                                                                        | Calendar year                |                             |        | 97.7%      |                           |   |         | 115.1% |            |   |        | -17.4% |        |      |        |         |       |   |         | 101.0% |        |   |         | 118.1% |        |   |        | -17.1% |        |   |        |        |      
|Underwriting expense ratio                                                                              |                              |                             | 18.4%  |            |                           |   | 19.0%   |        |            |   | -0.6%  |        |        |      |        |         |       |   | 19.1%   |        |        |   | 19.2%   |        |        |   | -0.1%  |        |        |   |        |       
|Combined ratio                                                                                          |                              |                             | 116.1% |            |                           |   | 134.1%  |        |            |   | -18.0% |        |        |      |        |         |       |   | 120.1%  |        |        |   | 137.3%  |        |        |   | -17.2% |        |        |   |        |       

The increases in direct premiums written were
primarily the result of rate increases in all markets, partially
offset by a decrease in the number of policies in-force due to
the exit of our Florida market, as described below.

We believe that the current pricing environment
for medical professional liability insurance is favorable. We
expect medical professional liability direct premiums written to
increase moderately in the future as the Company is granted
additional rate increases by regulatory authorities. However,
this growth may be limited by the Companys ability to
allocate appropriate levels of statutory capital and surplus to
the medical professional liability segment. The Company is
continually seeking regulatory approval of additional rate
increases.

In the second quarter of 2002, the Company
announced its intention to discontinue writing medical
professional liability insurance in Florida. Medical
professional liability direct premiums written in the state of
Florida for the year ended December 31, 2002 were
$23.6 million, and the Company reported net loss and loss
adjustment expenses for that period of $35.2 million
relating to its Florida business. The Florida Department of
Insurance has approved the Companys plan to exit this
market and in October 2002, the Company began

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##### Table of Contents



mailing non-renewal notices to medical
professional liability policyholders whose renewals would have
been effective in December 2002. Florida law requires the
Company to offer extended reporting coverage for previously
insured periods, commonly referred to as tail
policies, at the time of non-renewal. Tail policies
typically have written premiums of approximately two times the
last annual policy premium. The Company expects that some
physicians will opt for this extended reporting coverage, which
will result in additional direct premiums written in 2003.


In March 2003, the Company invested
$2.5 million, for a 49% ownership stake, in a new insurance
company, Physicians Insurance Company (PIC), managed
by the management of the Companys third-party
administrator who underwrites its Florida extended reporting
coverage. This new insurance company is seeking to write as many
of the tail policies as its capital and surplus levels will
permit, thereby limiting the Companys direct exposure to
future losses associated with underwriting Florida medical
professional liability extended reporting period coverages.
During the three months and six months ended June 30, 2003,
the Company, on a direct basis, wrote $901,000 and
$4.4 million, respectively, in Florida. This compares with
planned writings of $2.7 million and $8.6 million,
respectively. The decrease in actual verses planned writings is
in large part due to the policies being written by PIC.

The Company has lent to the President of PIC
$1 million to enable him to complete the acquisition of the
remaining 51% of outstanding shares of PICs common stock.
At June 30, 2003, approximately $700,000 of this loan
remained outstanding; however, subsequent to the balance sheet
date, the balance was paid in its entirety.

The increases in net premiums earned were greater
than the increases in direct premiums written, as direct
premiums written in 2002 in markets that have been exited
continue to be earned in 2003.

The decreases in the loss ratios, on both a
calendar year and accident year basis, were the result of the
Companys exit from the Florida market and the
discontinuance of occurrence products in the Ohio market, as
well as enhanced claims management and underwriting practices.

Prior accident year loss and loss adjustment
expense reserves developed unfavorably in the second quarter of
2003 by approximately $250,000. For the six months ended
June 30, 2003, prior year loss and loss adjustment expense
reserves developed unfavorably by $1.3 million. This
unfavorable development primarily relates to accident years 1999
through 2001 in the Companys Ohio occurrence market.
Claims on occurrence business tend to take longer to be reported
than on claims-made medical professional liability policies. In
1999, Ohio was a relatively new market for the Company. The
Companys lack of previous exposure to this market,
together with the extended reporting period on the Ohio
occurrence business, made it difficult for the Company to
estimate incurred but not reported claims. Prior year
development for the three months and six months ended
June 30, 2002 was unfavorable in the amounts of
$1.0 million and $2.5 million, respectively. The
unfavorable prior year development in 2002 occurred primarily in
the Companys Ohio occurrence and Florida markets, both of
which the Company began to exit in 2002.

The decrease in the underwriting expense ratio
for the three months ended June 30, 2003 compared to the
same period of 2002 was primarily due to the timing of certain
salary and other employee benefit costs in 2003, combined with
the increase in net premiums earned.

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##### Table of Contents



Workers Compensation Insurance
Operations

The following table sets forth the results of
operations of our workers compensation insurance
operations for the three-month and six-month periods ended
June 30, 2003 and 2002.

|                                                                                                 |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |        |        |   |         |         |         |   |        |         |        | 
|------------------------------------------------------------------------------------------------ | ---------------------------- | --------------------------- | ------ | ---------- | ------------------------- | - | ------ | ------ | ---------- | - | ------ | ------ | ------ | ---- | ------ | ------- | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------- | ------- | ------- | - | ------ | ------- | ------ | 
|                                                                                                 |                              |                             |        |           
|                                                                                                 |                              | Three Months Ended June 30, |        |            | Six Months Ended June 30, |  
|                                                                                                 |                              |                             |        |            |                           |  
|                                                                                                 |                              |                             |        | Percentage |                           |   |        |        | Percentage |  
|                                                                                                 |                              | 2003                        |        |            | 2002                      |   |        | Change |            |   | Change |        |        | 2003 |        |         | 2002   |   |        | Change |        |   | Change |       
|                                                                                                 |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |       
|                                                                                                 |                              |                            
|                                                                                                 |                              | (Dollars in thousands)      |       
|Direct premiums written:                                                                         |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |        |        |   |         |         |         |   |        |        
|                                                                                                 | Minnesota                    |                             | $      | 4,578      |                           |   | $      | 10,020 |            |   | $      | (5,442 | )      |      |        | -54.3%  |        |   | $      | 8,321  |        |   | $      | 20,139 |        |   | $       | (11,818 | )       |   |        | -58.7%  |       
|                                                                                                 | Michigan                     |                             |        | 3,480      |                           |   |        | 3,424  |            |   |        | 56     |        |      |        | 1.6%    |        |   |        | 5,156  |        |   |        | 6,431  |        |   |         | (1,275  | )       |   |        | -19.8%  |       
|                                                                                                 | Illinois                     |                             |        | 2,385      |                           |   |        | 3,058  |            |   |        | (673   | )      |      |        | -22.0%  |        |   |        | 3,432  |        |   |        | 4,543  |        |   |         | (1,111  | )       |   |        | -24.5%  |       
|                                                                                                 | Indiana                      |                             |        | 1,609      |                           |   |        | 1,962  |            |   |        | (353   | )      |      |        | -18.0%  |        |   |        | 2,174  |        |   |        | 3,372  |        |   |         | (1,198  | )       |   |        | -35.5%  |       
|                                                                                                 | Wisconsin                    |                             |        | 879        |                           |   |        | 146    |            |   |        | 733    |        |      |        | 502.1%  |        |   |        | 860    |        |   |        | 249    |        |   |         | 611     |         |   |        | 245.4%  |       
|                                                                                                 | Iowa                         |                             |        | (5         | )                         |   |        | 670    |            |   |        | (675   | )      |      |        | -100.7% |        |   |        | 85     |        |   |        | 1,033  |        |   |         | (948    | )       |   |        | -91.8%  |       
|                                                                                                 | Kentucky                     |                             |        | (112       | )                         |   |        | 680    |            |   |        | (792   | )      |      |        | -116.5% |        |   |        | (24    | )      |   |        | 3,138  |        |   |         | (3,162  | )       |   |        | -100.8% |       
|                                                                                                 | Other                        |                             |        | 128        |                           |   |        | 170    |            |   |        | (42    | )      |      |        | -24.7%  |        |   |        | 164    |        |   |        | 494    |        |   |         | (330    | )       |   |        | -66.8%  |       
|                                                                                                 |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |       
|                                                                                                 |                              | Total                       |        | $          | 12,942                    |   |        | $      | 20,130     |   |        | $      | (7,188 | )    |        |         | -35.7% |   |        | $      | 20,168 |   |        | $      | 39,399 |   |         | $       | (19,231 | ) |        |         | -48.8% | 
|                                                                                                 |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |       
|Net premiums written                                                                             |                              | $                           | 13,043 |            |                           | $ | 18,912 |        |            | $ | (5,869 | )      |        |      | -31.0% |         |        | $ | 21,348 |        |        | $ | 37,038 |        |        | $ | (15,690 | )       |         |   | -42.4% |        
|                                                                                                 |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |       
|Net premiums earned                                                                              |                              | $                           | 10,785 |            |                           | $ | 15,510 |        |            | $ | (4,725 | )      |        |      | -30.5% |         |        | $ | 23,323 |        |        | $ | 30,803 |        |        | $ | (7,480  | )       |         |   | -24.3% |        
|Incurred loss and loss adjustment expenses:                                                      |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |        |        |   |         |         |         |   |        |        
|                                                                                                 | Current accident year losses |                             |        | 8,407      |                           |   |        | 13,535 |            |   |        | (5,128 | )      |      |        | -37.9%  |        |   |        | 18,452 |        |   |        | 25,775 |        |   |         | (7,323  | )       |   |        | -28.4%  |       
|                                                                                                 | Prior year losses            |                             |        | (600       | )                         |   |        | (500   | )          |   |        | (100   | )      |      |        | 20.0%   |        |   |        | (1,400 | )      |   |        | (1,500 | )      |   |         | 100     |         |   |        | -6.7%   |       
|                                                                                                 |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |       
|                                                                                                 |                              | Total                       |        |            | 7,807                     |   |        |        | 13,035     |   |        |        | (5,228 | )    |        |         | -40.1% |   |        |        | 17,052 |   |        |        | 24,275 |   |         |         | (7,223  | ) |        |         | -29.8% | 
|Underwriting expenses                                                                            |                              |                             | 3,620  |            |                           |   | 3,876  |        |            |   | (256   | )      |        |      | -6.6%  |         |        |   | 7,903  |        |        |   | 7,762  |        |        |   | 141     |         |         |   | 1.8%   |        
|                                                                                                 |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |       
|Underwriting loss                                                                                |                              | $                           | (642   | )          |                           | $ | (1,401 | )      |            | $ | 759    |        |        |      | -54.2% |         |        | $ | (1,632 | )      |        | $ | (1,234 | )      |        | $ | (398    | )       |         |   | 32.3%  |        
|                                                                                                 |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |       
|Income before federal income taxes and cumulative
    effect of a change in accounting principle |                              | $                           | 983    |            |                           | $ | 478    |        |            | $ | 505    |        |        |      | 105.6% |         |        | $ | 1,235  |        |        | $ | 2,135  |        |        | $ | (900    | )       |         |   | -42.2% |        
|                                                                                                 |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |       
|Loss ratio:                                                                                      |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |        |        |   |         |         |         |   |        |        
|                                                                                                 | Accident year                |                             |        | 78.0%      |                           |   |        | 87.3%  |            |   |        | -9.3%  |        |      |        |         |        |   |        | 79.1%  |        |   |        | 83.7%  |        |   |         | -4.6%   |         |   |        |         |       
|                                                                                                 | Prior years                  |                             |        | -5.6%      |                           |   |        | -3.2%  |            |   |        | -2.4%  |        |      |        |         |        |   |        | -6.0%  |        |   |        | -4.9%  |        |   |         | -1.1%   |         |   |        |         |       
|                                                                                                 |                              |                             |        |            |                           |   |        |        |            |   |        |        |        |      |        |         |        |   |        |        |        |   |        |       
|                                                                                                 | Calendar year                |                             |        | 72.4%      |                           |   |        | 84.0%  |            |   |        | -11.6% |        |      |        |         |        |   |        | 73.1%  |        |   |        | 78.8%  |        |   |         | -5.7%   |         |   |        |         |       
|Underwriting expense ratio                                                                       |                              |                             | 33.6%  |            |                           |   | 25.0%  |        |            |   | 8.6%   |        |        |      |        |         |        |   | 33.9%  |        |        |   | 25.2%  |        |        |   | 8.7%    |         |         |   |        |        
|Combined ratio                                                                                   |                              |                             | 106.0% |            |                           |   | 109.0% |        |            |   | -3.0%  |        |        |      |        |         |        |   | 107.0% |        |        |   | 104.0% |        |        |   | 3.0%    |         |         |   |        |        

Beginning in June 2002, the Company filled
several executive and management positions with the intent to
improve the overall performance of this segment. Our plan was to
upgrade management expertise, re-underwrite and restructure the
book of business, and position this segment for growth.

As a result of our re-underwriting and
restructuring efforts, direct premiums written have decreased as
the Company began to exit the Kentucky market and certain other
higher-risk construction policies were non-renewed in all
markets. We expect direct premiums written in 2003 to remain
below those written in 2002 as we complete the restructuring.

The decreases in net premiums earned were not as
great as the decreases in direct premiums written as premiums
written in 2002 in markets and on products discontinued,
continue to be earned in 2003.

The restructuring of this book of business,
described above, combined with rate increases and improved
claims management, have translated into lower calendar year and
accident year loss ratios for the three months and six months
ended June 30, 2003 compared to the same periods of 2002.

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Prior year loss and loss adjustment expense
reserves developed favorably by $600,000 and $1.4 million,
respectively, during the three months and six months ended
June 30, 2003. This prior year favorable development was
related primarily to the Companys Minnesota market, and
was the result of losses on prior accident years settling for
less than originally anticipated. Favorable development on prior
year loss and loss adjustment expense reserves was $500,000 and
$1.5 million, respectively, for the three months and six
months ended June 30, 2002.

During 2003, the workers compensation
market has remained very competitive and new business growth has
not been as great as anticipated. In addition, anticipated
favorable conditions in the medical professional liability
segment have diverted many of the Companys resources to
that segment. As a result, the Company has altered its strategy
in the workers compensation segment and now anticipates
only moderate new business growth. In addition, the Company is
currently analyzing its long-term strategy as it relates to this
segment.

As a result of our change in direction for this
segment, there have been several departures among the senior
management team of this line. Salary and severance costs related
to these individuals during the first half of 2003, combined
with the decreases in net premiums earned, were the primary
reasons for the increases in the underwriting expense ratios
during the three and six month periods ending June 30,
2003. Management expects the underwriting ratio to ultimately
return to approximately the 2002 level.

Health Insurance
Operations

The following table sets forth the results of
operations of our health insurance operations for the
three-month and six-month periods ended June 30, 2003 and
2002.

|                                                                                                        |                              |                                     |        |            |                                   |   |        |        |            |   |        |       |     |      |        |       |       |   |        |        |        |   |        |        |        |   |       |       |    |  |        |      |      | 
|------------------------------------------------------------------------------------------------------- | ---------------------------- | ----------------------------------- | ------ | ---------- | --------------------------------- | - | ------ | ------ | ---------- | - | ------ | ----- | --- | ---- | ------ | ----- | ----- | - | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ----- | ----- | -- |  | ------ | ---- | ---- | 
|                                                                                                        |                              |                                     |        |           
|                                                                                                        |                              | For the Three Months Ended June 30, |        |            | For the Six Months Ended June 30, |  
|                                                                                                        |                              |                                     |        |            |                                   |  
|                                                                                                        |                              |                                     |        | Percentage |                                   |   |        |        | Percentage |  
|                                                                                                        |                              | 2003                                |        |            | 2002                              |   |        | Change |            |   | Change |       |     | 2003 |        |       | 2002  |   |        | Change |        |   | Change |       
|                                                                                                        |                              |                                     |        |            |                                   |   |        |        |            |   |        |       |     |      |        |       |       |   |        |        |        |   |        |       
|                                                                                                        |                              |                                    
|                                                                                                        |                              | (Dollars in thousands)              |       
|Direct premiums written                                                                                 |                              | $                                   | 5,741  |            |                                   | $ | 5,817  |        |            | $ | (76    | )     |     |      | -1.3%  |       |       | $ | 12,582 |        |        | $ | 11,345 |        |        | $ | 1,237 |       |    |  | 10.9%  |     
|                                                                                                        |                              |                                     |        |            |                                   |   |        |        |            |   |        |       |     |      |        |       |       |   |        |        |        |   |        |       
|Net premiums written                                                                                    |                              | $                                   | 5,463  |            |                                   | $ | 5,678  |        |            | $ | (215   | )     |     |      | -3.8%  |       |       | $ | 11,988 |        |        | $ | 11,361 |        |        | $ | 627   |       |    |  | 5.5%   |     
|                                                                                                        |                              |                                     |        |            |                                   |   |        |        |            |   |        |       |     |      |        |       |       |   |        |        |        |   |        |       
|Net premiums earned                                                                                     |                              | $                                   | 5,463  |            |                                   | $ | 5,678  |        |            | $ | (215   | )     |     |      | -3.8%  |       |       | $ | 11,988 |        |        | $ | 11,361 |        |        | $ | 627   |       |    |  | 5.5%   |     
|Incurred loss and loss adjustment expenses:                                                             |                              |                                     |        |            |                                   |   |        |        |            |   |        |       |     |      |        |       |       |   |        |        |        |   |        |        |        |   |       |       |    |  |        |     
|                                                                                                        | Current accident year losses |                                     |        | 5,347      |                                   |   |        | 4,861  |            |   |        | 486   |     |      |        | 10.0% |       |   |        | 11,208 |        |   |        | 10,657 |        |   |       | 551   |    |  |        | 5.2% |     
|                                                                                                        | Prior year losses            |                                     |        |           |                                   |   |        |       |            |   |        |      |     |      |        | 0.0%  |       |   |        | (468   | )      |   |        |       |        |   |       |      |    |  |        | 0.0% |     
|                                                                                                        |                              |                                     |        |            |                                   |   |        |        |            |   |        |       |     |      |        |       |       |   |        |        |        |   |        |       
|                                                                                                        |                              | Total                               |        |            | 5,347                             |   |        |        | 4,861      |   |        |       | 486 |      |        |       | 10.0% |   |        |        | 10,740 |   |        |        | 10,657 |   |       |       | 83 |  |        |      | 0.8% | 
|Underwriting expenses                                                                                   |                              |                                     | 995    |            |                                   |   | 1,341  |        |            |   | (346   | )     |     |      | -25.8% |       |       |   | 2,099  |        |        |   | 2,535  |        |        |   | (436  | )     |    |  | -17.2% |     
|                                                                                                        |                              |                                     |        |            |                                   |   |        |        |            |   |        |       |     |      |        |       |       |   |        |        |        |   |        |       
|Underwriting loss                                                                                       |                              | $                                   | (879   | )          |                                   | $ | (524   | )      |            | $ | (355   | )     |     |      | 67.7%  |       |       | $ | (851   | )      |        | $ | (1,831 | )      |        | $ | 980   |       |    |  | -53.5% |     
|                                                                                                        |                              |                                     |        |            |                                   |   |        |        |            |   |        |       |     |      |        |       |       |   |        |        |        |   |        |       
|Income (loss) before federal income taxes and
    cumulative effect of a change in accounting principle |                              | $                                   | (714   | )          |                                   | $ | (361   | )      |            | $ | (353   | )     |     |      | 97.8%  |       |       | $ | (510   | )      |        | $ | (1,547 | )      |        | $ | 1,037 |       |    |  | -67.0% |     
|                                                                                                        |                              |                                     |        |            |                                   |   |        |        |            |   |        |       |     |      |        |       |       |   |        |        |        |   |        |       
|Loss ratio:                                                                                             |                              |                                     |        |            |                                   |   |        |        |            |   |        |       |     |      |        |       |       |   |        |        |        |   |        |        |        |   |       |       |    |  |        |     
|                                                                                                        | Accident year                |                                     |        | 97.9%      |                                   |   |        | 85.6%  |            |   |        | 12.3% |     |      |        |       |       |   |        | 93.5%  |        |   |        | 93.8%  |        |   |       | -0.3% |    |  |        |      |     
|                                                                                                        | Prior years                  |                                     |        | 0.0%       |                                   |   |        | 0.0%   |            |   |        | 0.0%  |     |      |        |       |       |   |        | -3.9%  |        |   |        | 0.0%   |        |   |       | -3.9% |    |  |        |      |     
|                                                                                                        |                              |                                     |        |            |                                   |   |        |        |            |   |        |       |     |      |        |       |       |   |        |        |        |   |        |       
|                                                                                                        | Calendar year                |                                     |        | 97.9%      |                                   |   |        | 85.6%  |            |   |        | 12.3% |     |      |        |       |       |   |        | 89.6%  |        |   |        | 93.8%  |        |   |       | -4.2% |    |  |        |      |     
|Underwriting expense ratio                                                                              |                              |                                     | 18.2%  |            |                                   |   | 23.6%  |        |            |   | -5.4%  |       |     |      |        |       |       |   | 17.5%  |        |        |   | 22.3%  |        |        |   | -4.8% |       |    |  |        |     
|Combined ratio                                                                                          |                              |                                     | 116.1% |            |                                   |   | 109.2% |        |            |   | 6.9%   |       |     |      |        |       |       |   | 107.1% |        |        |   | 116.1% |        |        |   | -9.0% |       |    |  |        |     

All health direct premiums written are related to
our involvement with a single preferred provider organization
located in western Michigan. This coverage is provided as part
of our long-term strategic

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relationship with the physician organization that
sponsors this plan. The decrease in direct premiums written for
the three months ended June 30, 2003 compared to the same
period of 2002 was a result of a decrease in the number of
covered lives. The increase in direct premiums written for the
six months ended June 30, 2003 compared to the same period
of 2002 was the result of rate increases, partially offset by a
decrease in the number of covered lives. The number of covered
lives has been decreasing as we tighten our underwriting
standards. The following table shows the number of covered lives
and the per-member-per-month (PMPM) premium at
June 30, 2003, March 31, 2003, December 31, 2002,
and June 30, 2002.


|             |                             |         |  |                  |         |  |   |     | 
|------------ | --------------------------- | ------- |  | ---------------- | ------- |  | - | --- | 
|             |                             | Covered |  |                  | PMPM    | 
|             |                             | Lives   |  |                  | Premium | 
|             |                             |         |  |                  |         | 
|             |                             |         |  | (actual dollars) |        
|Month Ended: |                             |         |  |                  |         |  |   |    
|             | June 30, 2003               |         |  | 8,494            |         |  | $ | 210 | 
|             | March 31, 2003              |         |  | 10,438           |         |  | $ | 208 | 
|             | December 31, 2002           |         |  | 12,898           |         |  | $ | 188 | 
|             | June 30, 2002               |         |  | 11,653           |         |  | $ | 169 | 
|Change:      |                             |         |  |                  |         |  |   |    
|             | June 2003 vs. March 2003    |         |  | (1,944           | )       |  | $ | 2   | 
|             | June 2003 vs. December 2002 |         |  | (4,404           | )       |  | $ | 22  | 
|             | June 2003 vs. June 2002     |         |  | (3,159           | )       |  | $ | 41  | 

The increase in net premiums earned for the three
months and six months ended June 30, 2003 compared to
the same period of 2002 was less than the increase in direct
premiums written for the six months ended June 30, 2003,
due to a change in our reinsurance that resulted in additional
ceded premiums.

The increase in the loss ratio for the three
months ended June 30, 2003 compared to the three months
ended June 30, 2002 was the result of several large medical
claims filed in the second quarter of 2003. The decrease in the
loss ratio for the six months ended June 30, 2003 compared
to the same period of 2002 was primarily the result of favorable
development on prior year loss and loss adjustment expense
reserves of $468,000 during the first quarter of 2003. The
favorable development on prior year loss and loss adjustment
expense reserves was the result of re-underwriting efforts in
2002.

The decreases in the underwriting ratio were
primarily due to the reduction of certain corporate overhead
expenses related to the health insurance segment.

Personal
and Commercial Lines Insurance Operations

The Companys personal and commercial
insurance product segment experienced a loss before federal
income taxes and cumulative effect of a change in accounting
principle of $608,000 and $1.0 million, respectively, for
the three months and six months ended June 30, 2003.
For the three months and six months ended June 30,
2002, the personal and commercial line of business generated a
loss before federal income taxes and cumulative effect of a
change in accounting principle of $1.1 million and
$1.3 million, respectively. Loss before federal income
taxes and cumulative effect of a change in accounting principles
is closely related to the underwriting loss of the segment as
the investment income and other expenses allocated to this
segment are minimal. In the first six months of 2002, however,
this segment recorded a realized loss of $293,000 related to the
write-off of software that had previously been used to
administer policies for this segment.

The 2003 underwriting losses were the result of
ceded premium adjustments of $127,000 and $239,000 during the
three months and six months, respectively, ended
June 30, 2003, compared to adjustments of $0 and $590,000,
respectively, during the same periods of 2002. Loss and loss
adjustment expense reserves continue to develop unfavorably in
the amount of $349,000 for the three months ended
June 30, 2003 and $551,000 for the six months ended
June 30, 2003, as compared to $152,000 and $306,000 for the
same periods of 2002. In addition, through June 30, 2003,
the Company has paid approximately $100,000 for third-party
administrative service related to one of its alternative-risk
transfer programs that is in run-off, as well as guarantee fund
assessments of approximately $112,000. There were no
underwriting or other fees during the first six months of 2002.

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In the second quarter of 2003, we engaged a
personal and commercial claims specialist to help the Company
bring the personal and commercial business to closure. We
anticipate that all outstanding personal and commercial claims
will settle by year end 2003. This segment, however, will
continue to generate income (loss) in the second half of 2003,
and potentially beyond, due to the development of unpaid loss
and loss adjustment expenses.

Corporate
and Other

For this segment, loss before federal income
taxes and cumulative effect of a change in accounting principle
for the three months ended June 30, 2003 was $905,000
compared to $583,000 for the same period of 2002. The increase
was primarily attributable to a $307,000 increase in general and
administrative expenses allocated to this segment and an
increase in interest expense as a result of the issuance of TPS
discussed in Note 5 of the Condensed Consolidated Financial
Statements. The increase in the loss was partially offset by an
increase in other income.

The increase in the loss before federal income
taxes and cumulative effect of a change in accounting principle
for the six months ended June 30, 2003 to
$1.2 million from $385,000 for the same period of 2002, is
again attributable to a $442,000 increase in general and
administrative expenses for the same periods, as well as a
decrease in investment income related to this segment. In the
first quarter of 2002, APCapital had a portion of its assets
invested in long-term bonds that generated significantly more
interest than the short-term holdings of this segment in 2003.

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Consolidated
Results of Operations

The following table sets forth our results of
operations on a consolidated basis. The discussion that follows
should be read in connection with the Condensed Consolidated
Financial Statements, and Notes thereto, included elsewhere in
this report.

|                                                          |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |        |         |         |        |        |        |        |        |        |        |       | 
|--------------------------------------------------------- | ------------------------------ | ------------------------------------------------------------------------------------------------------- | ------------------------------- | ---------- | --------------------------------- | ------ | ------ | ------ | ---------- | ------ | ------ | ------ | ----- | ------ | -------- | ------ | ------ | ------ | ------- | ------ | --- | ------- | ------- | ------ | ------- | ------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ----- | 
|                                                          |                                |                                                                                                         |                                 |           
|                                                          |                                | For the Three Months Ended June 30,                                                                     |                                 |            | For the Six Months Ended June 30, |       
|                                                          |                                |                                                                                                         |                                 |            |                                   |       
|                                                          |                                |                                                                                                         |                                 | Percentage |                                   |        |        |        | Percentage |       
|                                                          |                                | 2003                                                                                                    |                                 |            | 2002                              |        |        | Change |            |        | Change |        |       | 2003   |          |        | 2002   |        |         | Change |     |         | Change  |       
|                                                          |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |       
|                                                          |                                |                                                                                                        
|                                                          |                                | (Dollars in thousands)                                                                                  |                                
|Net premiums earned by insurance segment:                 |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |        |         |         |        |        |        |        |        |       
|                                                          | Medical professional liability |                                                                                                         | $                               | 38,375     |                                   |        | $      | 35,024 |            |        | $      | 3,351  |       |        |          | 9.6%   |        |        | $       | 77,860 |     |         | $       | 67,975 |         |         | $      | 9,885  |        |        |        | 14.5%  |       
|                                                          | Workers compensation          |                                                                                                         |                                 | 10,785     |                                   |        |        | 15,510 |            |        |        | (4,725 | )     |        |          | -30.5% |        |        |         | 23,323 |     |         |         | 30,803 |         |         |        | (7,480 | )      |        |        | -24.3% |       
|Health                                                    |                                |                                                                                                         | 5,463                           |            |                                   |        | 5,678  |        |            |        | (215   | )      |       |        | -3.8%    |        |        |        | 11,988  |        |     |         | 11,361  |        |         |         | 627    |        |        |        | 5.5%   |       
|                                                          | Personal and commercial        |                                                                                                         |                                 | (127       | )                                 |        |        | (590   | )          |        |        | 463    |       |        |          | -78.5% |        |        |         | (239   | )   |         |         | (590   | )       |         |        | 351    |        |        |        | -59.5% |       
|                                                          |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |       
|                                                          |                                |                                                                                                         | Total net premiums earned       |            |                                   | 54,496 |        |        |            | 55,622 |        |        |       | (1,126 | )        |        |        | -2.0%  |         |        |     | 112,932 |         |        |         | 109,549 |        |        |        | 3,383  |        |        |        | 3.1%  | 
|                                                          |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |       
|Investment income                                         |                                |                                                                                                         | 10,424                          |            |                                   |        | 11,851 |        |            |        | (1,427 | )      |       |        | -12.0%   |        |        |        | 20,809  |        |     |         | 22,687  |        |         |         | (1,878 | )      |        |        | -8.3%  |       
|Net realized gains (losses)                               |                                |                                                                                                         | 1,151                           |            |                                   |        | (2     | )      |            |        | 1,153  |        |       |        | 57650.0% |        |        |        | 1,148   |        |     |         | (288    | )      |         |         | 1,436  |        |        |        | 498.6% |       
|Other income                                              |                                |                                                                                                         | 196                             |            |                                   |        | 128    |        |            |        | 68     |        |       |        | 53.1%    |        |        |        | 357     |        |     |         | 262     |        |         |         | 95     |        |        |        | 36.3%  |       
|                                                          |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |       
|                                                          |                                |                                                                                                         | Total revenues and other income |            |                                   | 66,267 |        |        |            | 67,599 |        |        |       | (1,332 | )        |        |        | -2.0%  |         |        |     | 135,246 |         |        |         | 132,210 |        |        |        | 3,036  |        |        |        | 2.3%  | 
|                                                          |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |       
|Losses and loss adjustment expenses                       |                                |                                                                                                         | 51,030                          |            |                                   |        | 58,369 |        |            |        | (7,339 | )      |       |        | -12.6%   |        |        |        | 107,012 |        |     |         | 115,533 |        |         |         | (8,521 | )      |        |        | -7.4%  |       
|Underwriting expenses                                     |                                |                                                                                                         | 11,820                          |            |                                   |        | 11,886 |        |            |        | (66    | )      |       |        | -0.6%    |        |        |        | 25,107  |        |     |         | 23,361  |        |         |         | 1,746  |        |        |        | 7.5%   |       
|Investment expenses                                       |                                |                                                                                                         | 598                             |            |                                   |        | 1,009  |        |            |        | (411   | )      |       |        | -40.7%   |        |        |        | 1,149   |        |     |         | 1,920   |        |         |         | (771   | )      |        |        | -40.2% |       
|Interest expense                                          |                                |                                                                                                         | 278                             |            |                                   |        | 93     |        |            |        | 185    |        |       |        | 198.9%   |        |        |        | 373     |        |     |         | 183     |        |         |         | 190    |        |        |        | 103.8% |       
|Amortization expense                                      |                                |                                                                                                         | 95                              |            |                                   |        |       |        |            |        | 95     |        |       |        |          |        |        |        | 139     |        |     |         |        |        |         |         | 139    |        |        |        |        |       
|General and administrative expenses                       |                                |                                                                                                         | 743                             |            |                                   |        | 436    |        |            |        | 307    |        |       |        | 70.4%    |        |        |        | 1,278   |        |     |         | 836     |        |         |         | 442    |        |        |        | 52.9%  |       
|                                                          |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |       
|                                                          |                                |                                                                                                         | Total expenses                  |            |                                   | 64,564 |        |        |            | 71,793 |        |        |       | (7,229 | )        |        |        | -10.1% |         |        |     | 135,058 |         |        |         | 141,833 |        |        |        | (6,775 | )      |        |        | -4.8% | 
|                                                          |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |       
|                                                          |                                | Income (loss) before federal income taxes and
    cumulative effect of a change in accounting principle |                                 |            | 1,703                             |        |        |        | (4,194     | )      |        |        | 5,897 |        |          |        | 140.6% |        |         |        | 188 |         |         |        | (9,623  | )       |        |        | 9,811  |        |        |        | 102.0% |      
|Federal income tax expense (benefit)                      |                                |                                                                                                         | 596                             |            |                                   |        | (1,475 | )      |            |        | 2,071  |        |       |        | 140.4%   |        |        |        | 66      |        |     |         | (3,373  | )      |         |         | 3,439  |        |        |        | 102.0% |       
|                                                          |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |       
|                                                          |                                | Income (loss) before cumulative effect of
    a change in accounting principle                          |                                 |            | 1,107                             |        |        |        | (2,719     | )      |        |        | 3,826 |        |          |        | 140.7% |        |         |        | 122 |         |         |        | (6,250  | )       |        |        | 6,372  |        |        |        | 102.0% |      
|Cumulative effect of a change in
    accounting principle |                                |                                                                                                         |                                |            |                                   |        |       |        |            |        |       |        |       |        |          |        |        |        |        |        |     |         | (9,079  | )      |         |         | 9,079  |        |        |        | 100.0% |       
|                                                          |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |       
|                                                          |                                | Net income (loss)                                                                                       |                                 | $          | 1,107                             |        |        | $      | (2,719     | )      |        | $      | 3,826 |        |          |        | 140.7% |        |         | $      | 122 |         |         | $      | (15,329 | )       |        | $      | 15,451 |        |        |        | 100.8% |      
|                                                          |                                |                                                                                                         |                                 |            |                                   |        |        |        |            |        |        |        |       |        |          |        |        |        |         |        |     |         |         |       
|Loss ratio                                                |                                |                                                                                                         | 93.6%                           |            |                                   |        | 104.9% |        |            |        | -11.3% |        |       |        |          |        |        |        | 94.8%   |        |     |         | 105.5%  |        |         |         | -10.7% |        |        |        |        |       
|Underwriting ratio                                        |                                |                                                                                                         | 21.7%                           |            |                                   |        | 21.4%  |        |            |        | 0.3%   |        |       |        |          |        |        |        | 22.2%   |        |     |         | 21.3%   |        |         |         | 0.9%   |        |        |        |        |       
|Combined ratio                                            |                                |                                                                                                         | 115.3%                          |            |                                   |        | 126.3% |        |            |        | -11.0% |        |       |        |          |        |        |        | 117.0%  |        |     |         | 126.8%  |        |         |         | -9.8%  |        |        |        |        |       

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Net premiums earned for the three months ended
June 30, 2003 decreased $1.1 million, or 2.0% compared
to the same period of 2002. This decrease was primarily the
result of the exit of our Florida medical professional liability
market and the restructuring of our workers compensation
book of business, partially offset by rate increases. For the
six months ended June 30, 2003, net premiums earned
increased $3.4 million, or 3.1% compared to the same period
of 2002. This increase was primarily the result of rate
increases, partially offset by the items mentioned above.

The decrease in investment income was the result
of the Companys unusually large cash position during the
first half of 2003 and lower short-term interest rates compared
to the same period of 2002. We delayed investing a portion of
the cash flow generated during the first half of 2003 due to the
very low interest rate environment and our reluctance to lock-in
longer-term interest rates at prevailing levels. The average
yield on the Companys cash and cash equivalents was
approximately 1% during the six months ended June 30,
2003, which reduced the Companys average yield on its
investment portfolio to 5.46% for the six months ended
June 30, 2003, from 6.10% for the same period of 2002.
Included in investment income for the three months and six
months ended June 30, 2003 is approximately $400,000
relating to the increase in the fair value of derivative
instruments. See Item 3  Quantitative and
Qualitative Disclosures About Market Risk for further
discussion regarding derivative instruments.

Net realized gains for the three months and six
months ended June 30, 2003 include a $1.0 million
charge for an other than temporary impairment
(OTTI) on enhanced equipment trust certificates
issued by Delta Airlines. There were no OTTI recorded during the
six months ended June 30, 2002.

Loss and loss adjustment expenses decreased
primarily as a result of our exit from the Florida medical
professional liability market, the discontinuance of medical
professional liability occurrence policies in Ohio, the
restructuring of our workers compensation book of business,
enhanced claims management practices and the tightening of
underwriting standards in all segments. The decreases in the
loss ratios were primarily the result of rate increases
implemented in each of our various insurance segments, as well
as the actions described above.

Underwriting expenses for the six months ended
June 30, 2003 increased $1.7 million or 7.5% compared
to the same period of 2002. The increase was primarily due to
salary and other employee benefit costs associated with the new
workers compensation management team prior to their
departure, severance costs associated with these departures, and
the amortization of deferred acquisition costs as acquisition
costs deferred in 2002 on higher written premium volumes in that
period are being expensed as the associated premiums are earned.
The increases in the underwriting expense ratios were primarily
the result of the items mentioned above, partially offset by
rate increases.

The decreases in investment expenses were
primarily due to higher depreciation expense on several of the
Companys investment real estate properties in 2002.

The increases in interest expense were the result
of the issuance of $30 million of mandatorily redeemable
trust preferred securities in May of 2003. See Note 5 of
the Condensed Consolidated Financial Statements contained
elsewhere in this report.

Amortization expense in 2003 relates to a
definite-lived intangible asset acquired in connection with the
Companys investment in Physicians Insurance Company, as
well as capitalized debt issue costs associated with the
Companys issuance of $30 million of trust preferred
securities in May 2003. The investment in Physicians
Insurance Company is discussed more fully in our discussion of
medical professional liability operating results contained
elsewhere in this report. See Note 5 of the Condensed
Consolidated Financial Statements contained elsewhere in this
report for a discussion of the trust preferred securities.

The increases in the Companys general and
administrative expenses were primarily the result of a new
errors and omissions liability insurance policy acquired in mid
2002 as well as increased legal, audit, and other professional
fees pertaining to compliance with the new Sarbanes-Oxley
legislation and related SEC rules.

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The effective tax rates were 35.0% and 35.1%,
respectively, for the three months and six months ended
June 30, 2003 compared to 35.2% and 35.1%, respectively,
for the three months and six months ended June 30, 2002.

The cumulative effect of a change in accounting
principle recorded in 2002 was the result of the write-off of
goodwill. See Note 4 to the Condensed Consolidated
Financial Statements included elsewhere in this report for
further information regarding the write-off of goodwill.

Liquidity, Capital Resources and Financial
Condition

The primary sources of our liquidity, on both a
short- and long-term basis, are funds provided by insurance
premiums collected, net investment income, recoveries from
reinsurance, and proceeds from the maturity or sale of invested
assets. We also enter into financing transactions from time to
time to acquire additional capital. The primary uses of cash, on
both a short- and long-term basis, are losses, loss adjustment
expenses, operating expenses, the acquisition of invested
assets, reinsurance premiums and taxes.

APCapital is a holding company whose only
material assets are the capital stock of APAssurance and its
other subsidiaries, and cash. APCapitals ongoing cash flow
consists primarily of dividends and other permissible payments
from its subsidiaries and investment earnings on funds held. The
payment of dividends to APCapital by its insurance subsidiaries
is subject to limitations imposed by applicable state law.

The Company is indebted to its President and
Chief Executive Officer (CEO) in the amount of
$7.0 million (reflected on our balance sheet at its present
value of $5.8 million at June 30, 2003) in connection
with the purchase of Stratton-Cheeseman Management Company. The
indebtedness is due in annual installments with the final
installment due April 2008. See the table at the end of
this section for further information regarding the timing and
amounts of these payments. The amount of the annual payments
will increase or decrease by $200,000 for each corresponding
half-grade level increase or decrease in the Companys A.M.
Best Company, Inc. rating. Certain events, such as the
termination, death or disability of the President and CEO, or a
change in control of the Company, could accelerate these
payments.

In May 2003, the Company issued trust
preferred securities totaling $30 million. The trust
preferred securities were issued in two separate transactions of
$15 million each to unrelated investors. These securities
bear interest at a variable rate based on LIBOR, payable
quarterly, and must be redeemed in a lump sum in 30 years.
See Note 5 of the Condensed Consolidated Financial Statements,
contained elsewhere in this report, for a description of the
trust preferred securities and the transactions in which they
were issued.

At December 31, 2002, the Company had
planned expenditures of approximately $3.4 million related
to various information technology initiatives. At June 30,
2003, approximately half of these expenditures half been
completed.

The Companys net cash flow used in
operations was approximately $10.3 million for the six
months ended June 30, 2003, compared to $16.6 million
provided by operations for the six months ended June 30,
2002. The decrease in cash provided by operations was primarily
the result of the decrease in net premiums written to
$99.8 million for the six months ended June 30, 2003,
from $113.4 million for the six months ended June 30,
2002.

At June 30, 2003, the Company had
$206.7 million of cash available and an investment
portfolio of $626.1 million. The portfolio includes
$21.1 million of bonds maturing in the next year. On a
long-term basis, fixed income securities are purchased on a
basis intended to provide adequate cash flows from future
maturities. As of June 30, 2003, $399.7 million of
bonds mature in the next one to five years and
$140.2 million mature in the next six to ten years. In
addition, the Company has $20.1 million of mortgage-backed
securities that provide periodic principal repayments.

Premiums receivable decreased $8.9 million,
or 14.2%, to $53.7 million at June 30, 2003, compared
to $62.5 million at December 31, 2002. Premiums
receivable represent premiums written, but not yet collected.
Because many of our products have payment options that may allow
the insured to pay their premium over a period of up to nine
months, when comparing the June 30, 2003 and
December 31, 2002 premiums receivable

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balances, it is most useful to look at the direct
premiums written for the three quarters immediately preceding
the balance sheet date. Direct premiums written during the three
quarters preceding June 30, 2003, were $166.8 million
compared to direct premiums written during the three quarters
preceding December 31, 2002 of $195.7 million. This
decrease in direct premiums written of $28.9 million, or
14.8%, was the primary reason for the decrease in the premium
receivable balance from December 31, 2002 to June 30,
2003.


Reinsurance recoverable increased
$9.7 million to $107.8 million at June 30, 2003,
compared to $98.1 million at December 31, 2002. The
increase was primarily the result of higher medical professional
liability case reserves as the claims staff for that segment
continues to enhance its claims handling process. We have a net
reinsurance recoverable from Gerling Global
(Gerling) of approximately $10 million at
June 30, 2003. In 2002, Gerlings parent company put
Gerlings United States subsidiary into run off resulting
in a series of A.M. Best rating downgrades for Gerling. We have
discussed the possibility of a settlement with Gerling; however,
their offer was approximately one half, or $5 million, of
our net recoverable balance. We continue to believe that Gerling
has adequate surplus and cash flow to satisfy its obligations to
us and we have not experienced any difficulties in collecting
amounts due from Gerling; however, there can be no assurance
that amounts currently recoverable from Gerling will ultimately
be collected. Because the Company has not experienced any
difficulties in collecting amounts from Gerling, and in light of
Gerlings current surplus levels and cash flows, we
determined not to accept the settlement offer because we do not
believe that it is in the Companys best long-term economic
interest to accept the commutation settlement proposed by
Gerling. We will continue to monitor Gerlings financial
strength and liquidity and may pursue a settlement in the future
if circumstances change.

Deferred federal income taxes decreased
$5.8 million to $36.7 million at June 30, 2003
compared to December 31, 2002. The decrease in the deferred
federal income tax asset was primarily the result of the tax
effect of the increase in the unrealized appreciation on
investment securities during the period. Our deferred federal
income taxes primarily relate to deductible temporary
differences (DTDs) for unpaid loss and loss
adjustment expense reserves and unearned premiums, as well as
minimum tax credit carryforwards. Most of these DTDs
reverse in the next three years. While the Company has
experienced substantial losses over the last three years, we
believe that these DTDs will more likely than not be
realized as premium rate increases and other underwriting
actions taken by management are expected to generate taxable
income in those years.

Loss and loss adjustment expense reserves
decreased $5.0 million, or 0.8% to $632.5 million at
June 30, 2003, from $637.5 million at
December 31, 2002. This decrease was due to decreased
exposure, primarily in the workers compensation line of business
and our Florida medical professional liability market.

The unearned premium reserve decreased
$14.7 million, or 14.2%, to $88.7 million at
June 30, 2003, as compared to $103.4 million at
December 31, 2002. The decrease was primarily attributable
to the decrease in workers compensation direct premiums
written.

The Companys total shareholders
equity increased $9.0 million to $289.3 million at
June 30, 2003 compared to December 31, 2002. This
increase was almost entirely related to net unrealized
appreciation on our investment securities. The market value of
our fixed income security portfolio is inversely related to
interest rates. Therefore, as interest rates have declined, the
market value of the Companys fixed income security
portfolio has increased. Net unrealized appreciation, net of
deferred federal income taxes, on the Companys investments
was $33.3 million at June 30, 2003, an increase of
$8.7 million compared to December 31, 2002.

In March, July and November 2001,
May 2002, and twice in August 2002, APCapitals
Board of Directors authorized six separate programs to purchase
5% of its outstanding common stock, representing a total of
approximately 3,115,000 shares. APCapitals purchase of any
of its shares is subject to limitations that may be imposed by
applicable securities laws and regulations and the rules of the
Nasdaq Stock Market. The timing of the purchases and the number
of shares to be bought at any one time depend on market
conditions and the Companys capital requirements. During
the first half of 2003, APCapital did not repurchase any shares
under these authorizations. A total of 2,924,270 shares have
been repurchased pursuant to these authorizations through
June 30, 2003, at a cost of $52.7 million. As of
June 30, 2003, the Company has approximately 191,000 shares
of its August 28, 2002 stock repurchase program remaining
to be purchased

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under the existing authorizations. There can be
no assurance that the Company will repurchase the remaining
shares authorized to be purchased, or that any additional
repurchases will be authorized by the Companys Board of
Directors.


Based on historical trends, market conditions and
our business plans, we believe that our existing resources and
sources of funds will be sufficient to meet our short-term and
long-term liquidity needs. However, economic, market and
regulatory conditions may change, and there can be no assurance
that our funds will be sufficient to meet our short-term
liquidity needs.

In addition to the Companys recent issuance
of trust preferred securities, the Company is contractually
obligated by a note payable to an officer and long-term
operating leases. The following table shows the nature and
timing of the Companys contractual obligations as of
June 30, 2003.

|                                                  |       |                        |        |           |        |   |       |       |  |       |       |       |           |         |       |       |  |   |        |        | 
|------------------------------------------------- | ----- | ---------------------- | ------ | --------- | ------ | - | ----- | ----- |  | ----- | ----- | ----- | --------- | ------- | ----- | ----- |  | - | ------ | ------ | 
|                                                  |       |                       
|                                                  |       | Payments Due by Period |       
|                                                  |       |                        |       
|                                                  |       |                        |        | Less Than |        |   | 1 - 3 |       |  | 3 - 5 |       |       | More Than |        
|Contractual Obligations                           |       | Total                  |        |           | 1 Year |   |       | Years |  |       | Years |       |           | 5 Years |      
|                                                  |       |                        |        |           |        |   |       |       |  |       |       |       |           |         |      
|                                                  |       |                       
|                                                  |       | (In thousands)         |       
|Note payable to officer                           |       | $                      | 7,000  |           |        | $ | 1,000 |       |  | $     | 2,500 |       |           | $       | 3,500 |       |  | $ |       |       
|Operating leases                                  |       |                        | 6,500  |           |        |   | 1,461 |       |  |       | 1,942 |       |           |         | 1,213 |       |  |   | 1,885  |       
|Mandatorily redeemable trust preferred securities |       |                        | 30,000 |           |        |   |      |       |  |       |      |       |           |         |      |       |  |   | 30,000 |       
|                                                  |       |                        |        |           |        |   |       |       |  |       |       |       |           |         |      
|                                                  | Total |                        | $      | 43,500    |        |   | $     | 2,461 |  |       | $     | 4,442 |           |         | $     | 4,713 |  |   | $      | 31,885 | 
|                                                  |       |                        |        |           |        |   |       |       |  |       |       |       |           |         |      

Significant Accounting Policies

The preparation of financial statements in
conformity with GAAP requires us to make estimates and
assumptions that affect amounts reported in the accompanying
condensed consolidated financial statements and related
footnotes. These estimates and assumptions are evaluated on an
on-going basis based on historical developments, market
conditions, industry trends and other information we believe to
be reasonable under the circumstances. There can be no assurance
that actual results will conform to our estimates and
assumptions, and that reported results of operations will not be
materially adversely affected by the need to make accounting
adjustments to reflect changes in these estimates and
assumptions from time to time.

The policies relating to unpaid losses and loss
adjustment expenses, investments, taxes, reinsurance and the
reserve for extended reporting period claims are those we
believe to be the most sensitive to estimates and judgments.
They are more fully described in Item 7 of our most recent
Annual Report on Form 10-K and in Note 1 to our
consolidated financial statements contained in that report.
Other than as described below, there have been no material
changes to these policies during the most recent quarter or the
estimates made pursuant to those policies.

The Company has invested in mortgage-backed
interest-only certificates that have been determined to include
an embedded derivative financial instrument as defined by SFAS
No. 133. The Companys accounting policy for
derivative financial instruments is described in Note 1 of
the Condensed Consolidated Financial Statements contained
elsewhere in this report.

Effects of New Accounting
Pronouncements

The Financial Accounting Standards Board
(FASB) has recently issued several new Statements
and Interpretations. In addition, the American Institute of
Certified Public Accountants (AICPA) has issued a
number of new Statements of Position (SOP). None of
the newly promulgated FASB Statements or Interpretations or the
AICPA SOPs are expected to have a material impact on the
Companys financial position or results of operations for
the year ended December 31, 2003.

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Item 3.     Quantitative
and Qualitative Disclosures About Market Risk

General

Market risk is the risk of loss due to adverse
changes in market rates and prices. As of June 30, 2003,
the majority of our investment portfolio was invested in fixed
maturity securities, which are interest-sensitive assets, and
cash and cash equivalents. Accordingly, our primary market risk
is exposure to changes in interest rates. The fixed maturity
securities primarily consisted of U.S. government and agency
bonds, high-quality corporate bonds, high-yield corporate bonds,
mortgage-backed securities and tax-exempt U.S. municipal bonds.

Qualitative Information About Market
Risk

Investments in our portfolio have varying degrees
of risk. The primary market risk exposure to the fixed maturity
portfolio is interest rate risk, which is limited somewhat by
our management of duration. The distribution of maturities and
sector concentrations are monitored on a regular basis.

At June 30, 2003, approximately 91.6% of our
fixed maturity portfolio (excluding approximately
$4 million of private placement issues) was considered
investment grade. Non-investment grade securities typically bear
more credit risk than those of investment grade quality. Credit
risk is the risk that amounts due the Company by creditors may
not ultimately be collected.

We periodically review our investment portfolio
for any potential credit quality or collection issues and for
any securities with respect to which we consider any decline in
market value to be other than temporary. Investments which are
considered to be OTTI are written down to their estimated net
realizable value as of the end of the period. We utilize both
quantitative and qualitative evaluation methods to evaluate the
potential for OTTI. During the three months ended June 30,
2003, we recorded an impairment charge of $1.0 million on
enhanced equipment trust certificates we own that were issued by
Delta Airlines.

In June 2003, the Company invested
approximately $20 million in mortgage-backed securities and
allocated an additional $50 million for high-yield
corporate bonds and $6 million for equity investments.
Through June 30, 2003, approximately $20 million of
the high-yield allocation and $500,000 of the equity allocation
had been invested. High-yield corporate bonds are typically not
investment grade.

Approximately $15 million of the
mortgage-backed securities purchased are interest-only
certificates. Unlike traditional fixed-maturity securities, the
fair value of these investments is not inversely related to
interest rates, but rather, moves in the same direction as
interest rates as the underlying financial instruments are
mortgage-backed securities. With mortgage-backed securities, as
interest rates rise, prepayments will decrease, which means that
the interest-only certificates will generate interest for a
longer period of time than originally anticipated, which in turn
will increase the market value of these investments.

In addition, approximately $8 million of
these interest-only certificates have an inverse floating rate
of interest tied to LIBOR. The Company has determined that these
inverse floating interest-only certificates contain
an embedded derivative as defined by SFAS No. 133. Because
the Company cannot readily segregate the fair value of the
embedded derivative from the host debt instrument, the entire
change in the fair value of these inverse floating interest-only
certificates is reported in earnings as investment income. For
the three months ended June 30, 2003, approximately
$400,000 was included in investment income for the change in
fair value of the inverse floating interest-only certificates.

Quantitative Information About Market
Risk

At June 30, 2003, our fixed income security
portfolio was valued at $592.3 million and had an average
modified duration of 3.24 years, compared to a portfolio
valued at $618.9 million with an average modified duration
of 3.20 years at December 31, 2002. The following table
shows the effects of a change in interest rates on the fair
value and modified duration of our portfolio. We have assumed an
immediate increase or decrease

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of 1% or 2% in interest rate for illustrative
purposes. You should not consider this assumption, or the values
shown in the table, to be a prediction of actual future results.


|                |  |                        |         |  |                        |   |         |          |  |  |           |  |  |           |         |  |          |   |         |   |  |  |      | 
|--------------- |  | ---------------------- | ------- |  | ---------------------- | - | ------- | -------- |  |  | --------- |  |  | --------- | ------- |  | -------- | - | ------- | - |  |  | ---- | 
|                |  |                        |         | 
|                |  | June 30, 2003          |         |  | December 31, 2002      |  
|                |  |                        |         |  |                        |  
|                |  | Portfolio              |         |  | Change in              |   |         | Modified |  |  | Portfolio |  |  | Change in |         |  | Modified |  
|Change in Rates |  | Value                  |         |  | Value                  |   |         | Duration |  |  | Value     |  |  | Value     |         |  | Duration |  
|                |  |                        |         |  |                        |   |         |          |  |  |           |  |  |           |         |  |          |  
|                |  |                        |         | 
|                |  | (Dollars in thousands) |         |  | (Dollars in thousands) |  
|+2%             |  | $                      | 560,580 |  |                        | $ | (31,723 | )        |  |  | 3.02      |  |  | $         | 581,066 |  |          | $ | (37,833 | ) |  |  | 2.94 | 
|+1%             |  |                        | 576,970 |  |                        |   | (15,333 | )        |  |  | 3.03      |  |  |           | 599,244 |  |          |   | (19,655 | ) |  |  | 2.97 | 
|0               |  |                        | 592,303 |  |                        |   |         |          |  |  | 3.24      |  |  |           | 618,899 |  |          |   |         |   |  |  | 3.20 | 
|-1%             |  |                        | 607,520 |  |                        |   | 15,217  |          |  |  | 3.31      |  |  |           | 639,729 |  |          |   | 20,830  |   |  |  | 3.26 | 
|-2%             |  |                        | 626,521 |  |                        |   | 34,218  |          |  |  | 3.42      |  |  |           | 661,713 |  |          |   | 42,814  |   |  |  | 3.37 | 

Item 4.     Controls
and Procedures

As of the end of the period covered by this
report, the Company carried out an evaluation, under the
supervision and with the participation of the Companys
management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and
procedures pursuant to Rule 13a-15 of the Securities
Exchange Act of 1934. Based upon that evaluation, the
Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls
and procedures are effective to cause the material information
required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934 to be
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms. There have
been no significant changes in the Companys internal
controls or in other factors which could significantly affect
internal controls subsequent to the date the Company carried out
its evaluation.

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PART II. OTHER INFORMATION


Item 2.     Changes
in Securities and Use of Proceeds

(a) On May 7, 2003, the Board of
Directors approved an amendment to the Companys Bylaws.
The effect of the amendment is to clarify that electronic
transmittal of proxies is permissible, as provided by applicable
Michigan law. The Bylaws, as amended, are attached to this
Report as Exhibit 3.2.

(c) In May 2003, subsidiary trusts of
the Company issued, in two separate issues of $15 million
each, mandatorily redeemable trust preferred securities
(TPS) to, in each case, a trust formed by an
institutional investor. The issuance on May 15, 2003 was to
a trust formed by FTN Financial Capital Markets and Keefe,
Bruyette & Woods, Inc. The issuance on May 22, 2003 was
to a trust formed by Sandler ONeill & Partners L.P.
The Companys trusts received a total of $29.1 million
in net proceeds, after the deduction of a total of approximately
$906,000 of commissions paid to the placement agents in the
transactions. The proceeds of the two issuances were invested in
debentures issued by the Company, as described in Note 5 of the
Condensed Consolidated Financial Statements included elsewhere
in this report.

The Companys trusts sold the TPS in
non-public offerings pursuant to Section 4(2) of the
Securities Act of 1933, as amended, or alternatively, in
offshore transactions pursuant to Regulation S. The Company
believes these exemptions were available because, in each
offering, the TPS were sold in a private transaction to a trust
organized outside the United States by one or two institutional
accredited investors sophisticated and experienced with
investments similar to the TPS, subject to resale limitations
and offering restrictions.

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

The Company held its Annual Meeting of
Shareholders on May 7, 2003, at which the shareholders
elected two directors. Each of the nominees for director at the
meeting was an incumbent and all nominees were elected. The
following table sets forth the number of votes for and withheld
with respect to each nominee.

|                          |  |       |           |  |          |  |         | 
|------------------------- |  | ----- | --------- |  | -------- |  | ------- | 
|                          |  | Votes |           |  | Votes    | 
|Nominee                   |  | For   |           |  | Withheld | 
|                          |  |       |           |  |          | 
|Billy B. Baumann, M.D.    |  |       | 8,383,457 |  |          |  | 46,891  | 
|Lloyd A. Schwartz, C.P.A. |  |       | 8,193,912 |  |          |  | 236,436 | 

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Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits.

| |      |  |  |                                                                                                                                                                                                        
| | ---- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.2  |  |  | Bylaws, as amended May 7, 2003.                                                                                                                                                                        
| | 4.1  |  |  | Indenture relating to Floating Rate Junior
    Subordinated Deferrable Interest Debentures Dated As Of
    May 15, 2003                                                                                
| | 4.2  |  |  | Indenture relating to Floating Rate Junior
    Subordinated Debt Securities Dated As Of May 22, 2003                                                                                                   
| | 10.1 |  |  | Amended And Restated Declaration Of Trust Dated
    As Of May 15, 2003 by and among U.S. Bank National
    Association, American Physicians Capital, Inc., William B.
    Cheeseman and Frank H. Freund
| | 10.2 |  |  | Amended And Restated Declaration Of Trust Dated
    As Of May 22, 2003 of APCapital Trust II                                                                                                           
| | 10.3 |  |  | Placement Agreement, dated April 25, 2003
    between the Company, American Physicians Capital Statutory
    Trust I, FTN Financial Capital Markets and Keefe
    Bruyette & Woods, Inc.               
| | 10.4 |  |  | Placement Agreement, Dated As Of May 13,
    2003, with Sandler ONeill & Partners L.P.                                                                                                                
| | 10.5 |  |  | Guarantee Agreement Dated As Of May 15, 2003
    by and between U.S. Bank National Association and American
    Physicians Capital, Inc.                                                               
| | 10.6 |  |  | Guarantee Agreement Dated As Of May 22, 2003
    by and between Wilmington Trust Company and American Physicians
    Capital, Inc.                                                                     
| | 10.7 |  |  | Executive Employment Agreement, dated as of
    June 2, 2003, between Thomas Chase and American Physicians
    Assurance Corporation                                                                   
| | 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.                      

(b) Reports on Form 8-K.

The Company filed reports on Form 8-K on
(1) May 9, 2003, disclosing under Items 9 and 12
that it had issued a press release announcing its financial
results for the three months ended March 31, 2003 and
certain other information. This Form 8-K contained summary
financial information furnished in its press release.
(2) May 16, 2003, disclosing under Item 5 that it
had issued a press release announcing the completion of a trust
preferred pooled transaction, and (3) May 23, 2003,
disclosing under Item 5 that it had issued a press release
announcing the completion of a second trust preferred pooled
transaction.

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SIGNATURES


Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.

Date: August 14, 2003



| |                                  
| | ---------------------------------
| | AMERICAN PHYSICIANS CAPITAL, INC.



| |     |                         
| | --- | ------------------------
| | By: | /s/ WILLIAM B. CHEESEMAN

| |                                           
| | ------------------------------------------
| |                                           
| | William B. Cheeseman                      
| | Its: President and Chief Executive Officer



| |     |                    
| | --- | -------------------
| | By: | /s/ FRANK H. FREUND

| |                                          
| | -----------------------------------------
| |                                          
| | Frank H. Freund                          
| | Its: Executive Vice President, Treasurer,
| | Chief Financial Officer and              
| | principal accounting officer             

29



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EXHIBIT INDEX


|            |      |  |                     |                                                                                                                                                                                                        
|----------- | ---- |  | ------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |      |  | Exhibit Description
|            |      |  |                    
|            | 3.2  |  |                     | Bylaws, as amended May 7, 2003.                                                                                                                                                                        
|            | 4.1  |  |                     | Indenture relating to Floating Rate Junior
    Subordinated Deferrable Interest Debentures Dated As Of
    May 15, 2003                                                                                
|            | 4.2  |  |                     | Indenture relating to Floating Rate Junior
    Subordinated Debt Securities Dated As Of May 22, 2003                                                                                                   
|            | 10.1 |  |                     | Amended And Restated Declaration Of Trust Dated
    As Of May 15, 2003 by and among U.S. Bank National
    Association, American Physicians Capital, Inc., William B.
    Cheeseman and Frank H. Freund
|            | 10.2 |  |                     | Amended And Restated Declaration Of Trust Dated
    As Of May 22, 2003 of APCapital Trust II                                                                                                           
|            | 10.3 |  |                     | Placement Agreement, dated April 25, 2003
    between the Company, American Physicians Capital Statutory Trust
    I, FTN Financial Capital Markets and Keefe Bruyette & Woods,
    Inc.               
|            | 10.4 |  |                     | Placement Agreement, Dated As Of May 13,
    2003, with Sandler ONeill & Partners L.P.                                                                                                                
|            | 10.5 |  |                     | Guarantee Agreement Dated As Of May 15, 2003
    by and between U.S. Bank National Association and American
    Physicians Capital, Inc.                                                               
|            | 10.6 |  |                     | Guarantee Agreement Dated As Of May 22, 2003
    by and between Wilmington Trust Company and American Physicians
    Capital, Inc.                                                                     
|            | 10.7 |  |                     | Executive Employment Agreement, dated as of
    June 2, 2003, between Thomas Chase and American Physicians
    Assurance Corporation                                                                   
|            | 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.                      

30