##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 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.
  Michigan
(State or other jurisdiction of 
incorporation or organization)
    
    38-3543910
(IRS employer
identification number)
     þ o
  o o
  Large accelerated filer o
    
    Accelerated Filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Income
    
    
    4Condensed Consolidated Statements of Shareholders Equity
    
    
    5Condensed Consolidated Statements of Comprehensive Income
    
    
    6Condensed Consolidated Statements of Cash Flows
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 4. Controls and Procedures
    
    
    44PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 6. Exhibits
    
    
    46Signatures
    
    
    47Exhibit Index
    
    
    48EX-31.1EX-31.2EX-32.1EX-99.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)AssetsInvestments:Fixed-income securitiesAvailable-for-sale, at fair value
    
    $
    243,482
    
    
    $
    222,941Held-to-maturity, at amortized cost
    
    
    398,364
    
    
    
    481,750Other investments
    
    
    27,206
    
    
    
    24,320Total investments
    
    
    669,052
    
    
    
    729,011Cash and cash equivalents
    
    
    145,020
    
    
    
    101,637Premiums receivable
    
    
    31,588
    
    
    
    34,024Reinsurance recoverable
    
    
    74,949
    
    
    
    86,397Deferred federal income taxes
    
    
    15,342
    
    
    
    18,573Property and equipment, net of accumulated depreciation
    
    
    8,186
    
    
    
    8,678Other assets
    
    
    25,724
    
    
    
    27,503Total assets
    
    $
    969,861
    
    
    $
    1,005,823LiabilitiesUnpaid losses and loss adjustment expenses
    
    $
    625,036
    
    
    $
    644,396Unearned premiums
    
    
    55,665
    
    
    
    55,984Long-term debt
    
    
    25,928
    
    
    
    25,928Other liabilities
    
    
    18,906
    
    
    
    25,478Total liabilities
    
    
    725,535
    
    
    
    751,786Commitments & ContingenciesShareholders EquityCommon stock, no par value, 50,000,000 shares
authorized: 10,424,706 and 11,749,069 shares outstanding
at September 30, 2009 and December 31, 2008, respectively (Note 2)
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    
    
    
    
    Retained earnings
    
    
    231,514
    
    
    
    246,173Accumulated other comprehensive income:Net unrealized appreciation on investments,
net of deferred federal income taxes
    
    
    12,812
    
    
    
    7,864Total shareholders equity
    
    
    244,326
    
    
    
    254,037Total liabilities and shareholders equity
    
    $
    969,861
    
    
    $
    1,005,823
  3




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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Income (Unaudited)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net premiums written
    
    $
    33,344
    
    
    $
    36,257
    
    
    $
    85,453
    
    
    $
    93,931Change in net unearned premiums
    
    
    (5,084
    )
    
    
    (5,760
    )
    
    
    495
    
    
    
    (367
    )Net premiums earned
    
    
    28,260
    
    
    
    30,497
    
    
    
    85,948
    
    
    
    93,564Investment income
    
    
    7,375
    
    
    
    8,886
    
    
    
    23,593
    
    
    
    28,078Net realized gains (losses)
    
    
    3
    
    
    
    22
    
    
    
    3
    
    
    
    (686
    )Other income
    
    
    163
    
    
    
    158
    
    
    
    598
    
    
    
    553Total revenues and other income
    
    
    35,801
    
    
    
    39,563
    
    
    
    110,142
    
    
    
    121,509Losses and loss adjustment expenses
    
    
    14,684
    
    
    
    16,537
    
    
    
    43,409
    
    
    
    50,402Underwriting expenses
    
    
    6,674
    
    
    
    6,366
    
    
    
    21,125
    
    
    
    20,005Investment expenses
    
    
    255
    
    
    
    234
    
    
    
    794
    
    
    
    737Interest expense
    
    
    317
    
    
    
    509
    
    
    
    1,046
    
    
    
    1,752General and administrative expenses
    
    
    248
    
    
    
    247
    
    
    
    838
    
    
    
    833Other expenses
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    Total expenses
    
    
    22,178
    
    
    
    23,893
    
    
    
    67,172
    
    
    
    73,729Income before federal income taxes
    
    
    13,623
    
    
    
    15,670
    
    
    
    42,970
    
    
    
    47,780Federal income tax expense
    
    
    3,872
    
    
    
    4,502
    
    
    
    12,142
    
    
    
    14,195Net income
    
    $
    9,751
    
    
    $
    11,168
    
    
    $
    30,828
    
    
    $
    33,585Net income  per common share (Note 4)Basic
    
    $
    0.92
    
    
    $
    0.87
    
    
    $
    2.77
    
    
    $
    2.58Diluted
    
    $
    0.91
    
    
    $
    0.85
    
    
    $
    2.73
    
    
    $
    2.53
  4




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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Shareholders Equity (Unaudited)
  AccumulatedAdditional
    
    
    
    
    
    
    OtherShares
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveOutstanding
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    TotalBalance, December 31, 2008
    
    
    11,749,069
    
    
    $
    
    
    
    $
    246,173
    
    
    $
    7,864
    
    
    $
    254,037Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    30,828
    
    
    
    
    
    
    
    30,828Other comprehensive income, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,948
    
    
    
    4,948Total comprehensive income, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,776Options exercised
    
    
    178,647
    
    
    
    2,056
    
    
    
    
    
    
    
    
    
    
    
    2,056Amortization of unearned stock compensation, net of tax
Shares tendered/netted in connection with option exercise
    
    
    (99,733
    )
    
    
    (3,435
    )
    
    
    (4
    )
    
    
    
    
    
    
    (3,439
    )Cash dividends to shareholders, $0.2475 per share
    
    
    
    
    
    
    
    
    
    
    (2,726
    )
    
    
    
    
    
    
    (2,726
    )Excess tax benefits from share-based awards
    
    
    
    
    
    
    1,380
    
    
    
    
    
    
    
    
    
    
    
    1,380Fractional shares retired in connection with stock-split
    
    
    (44
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Purchase and retirement of common stock
    
    
    (1,403,233
    )
    
    
    
    
    
    
    (42,757
    )
    
    
    
    
    
    
    (42,757
    )Balance, September 30, 2009
    
    
    10,424,706
    
    
    $
    
    
    
    $
    231,514
    
    
    $
    12,812
    
    
    $
    244,326
 AccumulatedAdditional
    
    
    
    
    
    
    OtherShares
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveOutstanding
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    TotalBalance, December 31, 2007
    
    
    13,503,653
    
    
    $
    
    
    
    $
    257,502
    
    
    $
    6,055
    
    
    $
    263,557Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    45,196
    
    
    
    
    
    
    
    45,196Other comprehensive income, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,809
    
    
    
    1,809Total comprehensive income, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,005Options exercised
    
    
    25,973
    
    
    
    344
    
    
    
    
    
    
    
    
    
    
    
    344Amortization of unearned stock compensation, net of tax
Shares tendered/netted in connection with option exercise
    
    
    (1,931
    )
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    (63
    )Cash dividends to shareholders, $0.2275 per share
    
    
    
    
    
    
    
    
    
    
    (3,813
    )
    
    
    
    
    
    
    (3,813
    )Excess tax benefits from share-based awards
    
    
    
    
    
    
    164
    
    
    
    
    
    
    
    
    
    
    
    164Fair value compensation of share-based awards
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44Purchase and retirement of common stock
    
    
    (1,778,627
    )
    
    
    (489
    )
    
    
    (52,712
    )
    
    
    
    
    
    
    (53,201
    )Balance, December 31, 2008
    
    
    11,749,069
    
    
    $
    
    
    
    $
    246,173
    
    
    $
    7,864
    
    
    $
    254,037
  5




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American Physicians Capital, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Comprehensive Income (Unaudited)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    9,751
    
    
    $
    11,168
    
    
    $
    30,828
    
    
    $
    33,585Other comprehensive income (loss):Unrealized appreciation (depreciation) on available-for-sale investment
securities arising during the period
    
    
    7,779
    
    
    
    (2,125
    )
    
    
    8,453
    
    
    
    (2,910
    )Amortization of net unrealized appreciation on held-to-maturity
investment securities related to their transfer from the
available-for-sale category
    
    
    (281
    )
    
    
    (247
    )
    
    
    (840
    )
    
    
    (752
    )Adjustment for net realized gains (losses) on available-for-sale investment
securities included in net income
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    (819
    )Other comprehensive income (loss) before tax
    
    
    7,498
    
    
    
    (2,364
    )
    
    
    7,613
    
    
    
    (4,481
    )Deferred federal income tax expense (benefit)
    
    
    2,625
    
    
    
    (827
    )
    
    
    2,665
    
    
    
    (1,568
    )Other comprehensive income (loss)
    
    
    4,873
    
    
    
    (1,537
    )
    
    
    4,948
    
    
    
    (2,913
    )Comprehensive income
    
    $
    14,624
    
    
    $
    9,631
    
    
    $
    35,776
    
    
    $
    30,672
  6




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American Physicians Capital, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
  Nine Months EndedSeptember 30,2009
    
    
    2008Cash flows from (for) operating activitiesNet income
    
    $
    30,828
    
    
    $
    33,585Adjustments to reconcile net income to net cash
from operating activities:Depreciation and amortization
    
    
    4,105
    
    
    
    3,074Net realized (gains) losses
    
    
    (3
    )
    
    
    686Deferred federal income taxes
    
    
    566
    
    
    
    1,522Current federal income taxes
    
    
    1,112
    
    
    
    1,573Excess tax benefits from share-based awards
    
    
    (1,380
    )
    
    
    (136
    )Share-based compensation
    
    
    
    
    
    
    44Loss on equity method investees
    
    
    108
    
    
    
    85Changes in:Unpaid loss and loss adjustment expenses
    
    
    (19,360
    )
    
    
    (11,381
    )Unearned premiums
    
    
    (319
    )
    
    
    753Other assets and liabilities
    
    
    7,779
    
    
    
    (4,069
    )Net cash from operating activities
    
    
    23,436
    
    
    
    25,736Cash flows from (for) investing activitiesPurchasesAvailable-for-sale  fixed income
    
    
    (12,988
    )
    
    
    (21,255
    )Held-to-maturity  fixed income
    
    
    
    
    
    
    (96,766
    )Other investments
    
    
    (3,626
    )
    
    
    (3,607
    )Property and equipment
    
    
    (162
    )
    
    
    (3,022
    )Proceeds from sales and maturitiesAvailable-for-sale  fixed income
    
    
    472
    
    
    
    52,446Held-to-maturity  fixed income
    
    
    81,261
    
    
    
    105,021Other investments
    
    
    
    
    
    
    150Property and equipment
    
    
    8
    
    
    
    2Other
    
    
    49
    
    
    
    5,846Net cash from investing activities
    
    
    65,014
    
    
    
    38,815Cash flows from (for) financing activitiesCommon stock repurchased
    
    
    (42,757
    )
    
    
    (23,524
    )Excess tax benefits from share-based awards
    
    
    1,380
    
    
    
    136Taxes paid in connection with net option exercise
    
    
    (1,503
    )
    
    
    Change in payable for shares repurchased
    
    
    420
    
    
    
    (2,331
    )Repayment of long-term debt
    
    
    
    
    
    
    (5,000
    )Cash dividends paid
    
    
    (2,726
    )
    
    
    (2,915
    )Proceeds from stock options exercised
    
    
    120
    
    
    
    154Other
    
    
    (1
    )
    
    
    Net cash for financing activities
    
    
    (45,067
    )
    
    
    (33,480
    )Net increase in cash and cash equivalents
    
    
    43,383
    
    
    
    31,071Cash and cash equivalents, beginning of period
    
    
    101,637
    
    
    
    87,498Cash and cash equivalents, end of period
    
    $
    145,020
    
    
    $
    118,569
  7




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American Physicians Capital, Inc. and Subsidiaries  Notes to unaudited Condensed Consolidated Financial Statements
 1. Significant Accounting Policies
 Basis of Consolidation and Reporting
      Reclassifications
  Use of Estimates
  8




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Nature of Business
  2. Stock Split
  3. Effects of New Accounting Pronouncements
    9




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SFAS Nos. 167 and 166
    4. Income Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share data)Numerator for basic and diluted income per
common share:Net income
    
    $
    9,751
    
    
    $
    11,168
    
    
    $
    30,828
    
    
    $
    33,585Denominator:Denominator for basic income per common
share  weighted average shares outstanding
    
    
    10,580
    
    
    
    12,893
    
    
    
    11,113
    
    
    
    13,028Effect of dilutive stock options and awards
    
    
    170
    
    
    
    259
    
    
    
    180
    
    
    
    262Denominator for diluted income per common
share  adjusted weighted average
shares outstanding
    
    
    10,750
    
    
    
    13,152
    
    
    
    11,293
    
    
    
    13,290Net income  basic
    
    $
    0.92
    
    
    $
    0.87
    
    
    $
    2.77
    
    
    $
    2.58Net income  diluted
    
    $
    0.91
    
    
    $
    0.85
    
    
    $
    2.73
    
    
    $
    2.53
 10




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5. Investments
  September 30, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost/Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Available-for-saleStates and political subdivisions
    
    $
    148,986
    
    
    $
    11,020
    
    
    $
    
    
    
    $
    160,006Corporate securities
    
    
    77,961
    
    
    
    5,823
    
    
    
    (385
    )
    
    
    83,399Mortgage-backed securities
    
    
    87
    
    
    
    
    
    
    
    (10
    )
    
    
    77Total fixed-income securities
    
    
    227,034
    
    
    
    16,843
    
    
    
    (395
    )
    
    
    243,482Equity securities (1)
    
    
    19,631
    
    
    
    2,356
    
    
    
    (103
    )
    
    
    21,884Total available-for-sale securities
    
    $
    246,665
    
    
    $
    19,199
    
    
    $
    (498
    )
    
    $
    265,366
 December 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost/Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Available-for-saleStates and political subdivisions
    
    $
    150,098
    
    
    $
    5,844
    
    
    $
    (20
    )
    
    $
    155,922Corporate securities
    
    
    65,381
    
    
    
    2,898
    
    
    
    (1,339
    )
    
    
    66,940Mortgage-backed securities
    
    
    99
    
    
    
    
    
    
    
    (20
    )
    
    
    79Total fixed-income securities
    
    
    215,578
    
    
    
    8,742
    
    
    
    (1,379
    )
    
    
    222,941Equity securities (1)
    
    
    16,515
    
    
    
    2,885
    
    
    
    
    
    
    
    19,400Total available-for-sale securities
    
    $
    232,093
    
    
    $
    11,627
    
    
    $
    (1,379
    )
    
    $
    242,341
 
 (1)
    
    Available-for-sale equity securities are included in Other investments on the
accompanying unaudited Condensed Consolidated Balance Sheets.  11




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September 30, 2009Gross
    
    
    GrossUnrecognized
    
    
    UnrecognizedCarrying
    
    
    Holding
    
    
    Holding
    
    
    EstimatedValue
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Held-to-maturityU.S. government obligations
    
    $
    14,953
    
    
    $
    61
    
    
    $
    
    
    
    $
    15,014States and political subdivisions
    
    
    225,629
    
    
    
    14,268
    
    
    
    
    
    
    
    239,897Corporate securities
    
    
    36,113
    
    
    
    825
    
    
    
    (137
    )
    
    
    36,801Mortgage-backed securities
    
    
    121,669
    
    
    
    2,882
    
    
    
    (7
    )
    
    
    124,544Total held-to-maturity
fixed-income securities
    
    $
    398,364
    
    
    $
    18,036
    
    
    $
    (144
    )
    
    $
    416,256
 December 31, 2008Gross
    
    
    GrossUnrecognized
    
    
    UnrecognizedCarrying
    
    
    Holding
    
    
    Holding
    
    
    EstimatedValue
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Held-to-maturityU.S. government obligations
    
    $
    64,458
    
    
    $
    676
    
    
    $
    
    
    
    $
    65,134States and political subdivisions
    
    
    228,685
    
    
    
    4,567
    
    
    
    (291
    )
    
    
    232,961Corporate securities
    
    
    37,824
    
    
    
    369
    
    
    
    (409
    )
    
    
    37,784Mortgage-backed securities
    
    
    150,783
    
    
    
    1,435
    
    
    
    (755
    )
    
    
    151,463Total held-to-maturity
fixed-income securities
    
    $
    481,750
    
    
    $
    7,047
    
    
    $
    (1,455
    )
    
    $
    487,342
  12




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September 30, 2009Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized or
    
    
    
    
    
    
    Unrealized or
    
    
    
    
    
    
    Unrealized orFair
    
    
    Unrecognized
    
    
    Fair
    
    
    Unrecognized
    
    
    Fair
    
    
    UnrecognizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In thousands)Available-for-saleCorporate securities
    
    $
    3,966
    
    
    $
    (34
    )
    
    $
    6,149
    
    
    $
    (351
    )
    
    $
    10,115
    
    
    $
    (385
    )Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    (10
    )
    
    
    77
    
    
    
    (10
    )Subtotal fixed-income securities
    
    
    3,966
    
    
    
    (34
    )
    
    
    6,226
    
    
    
    (361
    )
    
    
    10,192
    
    
    
    (395
    )Equity securities
    
    
    6,405
    
    
    
    (103
    )
    
    
    
    
    
    
    
    
    
    
    6,405
    
    
    
    (103
    )Subtotal available-for-sale securities
    
    
    10,371
    
    
    
    (137
    )
    
    
    6,226
    
    
    
    (361
    )
    
    
    16,597
    
    
    
    (498
    )Held-to-maturityCorporate securities
    
    $
    5,906
    
    
    $
    (137
    )
    
    $
    
    
    
    $
    
    
    
    $
    5,906
    
    
    $
    (137
    )Mortgage-backed securities
    
    
    1,074
    
    
    
    (6
    )
    
    
    59
    
    
    
    (1
    )
    
    
    1,133
    
    
    
    (7
    )Subtotal held-to-maturity
    
    
    6,980
    
    
    
    (143
    )
    
    
    59
    
    
    
    (1
    )
    
    
    7,039
    
    
    
    (144
    )Total temporarily
impaired securities
    
    $
    17,351
    
    
    $
    (280
    )
    
    $
    6,285
    
    
    $
    (362
    )
    
    $
    23,636
    
    
    $
    (642
    )
 December 31, 2008Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized or
    
    
    
    
    
    
    Unrealized or
    
    
    
    
    
    
    Unrealized orFair
    
    
    Unrecognized
    
    
    Fair
    
    
    Unrecognized
    
    
    Fair
    
    
    UnrecognizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In thousands)Available-for-saleStates and political subdivisions
    
    $
    3,168
    
    
    $
    (20
    )
    
    $
    
    
    
    $
    
    
    
    $
    3,168
    
    
    $
    (20
    )Corporate securities
    
    
    9,241
    
    
    
    (1,359
    )
    
    
    
    
    
    
    
    
    
    
    9,241
    
    
    
    (1,359
    )Subtotal available-for-sale
    
    
    12,409
    
    
    
    (1,379
    )
    
    
    
    
    
    
    
    
    
    
    12,409
    
    
    
    (1,379
    )Held-to-maturityStates and political subdivisions
    
    
    56,445
    
    
    
    (291
    )
    
    
    
    
    
    
    
    
    
    
    56,445
    
    
    
    (291
    )Corporate securities
    
    
    14,244
    
    
    
    (409
    )
    
    
    
    
    
    
    
    
    
    
    14,244
    
    
    
    (409
    )Mortgage-backed securities
    
    
    27,763
    
    
    
    (558
    )
    
    
    10,480
    
    
    
    (197
    )
    
    
    38,243
    
    
    
    (755
    )Subtotal held-to-maturity
    
    
    98,452
    
    
    
    (1,258
    )
    
    
    10,480
    
    
    
    (197
    )
    
    
    108,932
    
    
    
    (1,455
    )Total temporarily
impaired securities
    
    $
    110,861
    
    
    $
    (2,637
    )
    
    $
    10,480
    
    
    $
    (197
    )
    
    $
    121,341
    
    
    $
    (2,834
    )
   13




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##### Table of Contents



EstimatedFair Value(In thousands)Available-for-saleLess than one year
    
    $
    6,555One to five years
    
    
    181,185Five to ten years
    
    
    48,149More than ten years
    
    
    7,516Mortgage-backed securities
    
    
    77Total available-for-sale
    
    $
    243,482
 Carrying
    
    
    EstimatedValue
    
    
    Fair Value(In thousands)Held-to-maturityLess than one year
    
    $
    11,426
    
    
    $
    11,579One to five years
    
    
    68,003
    
    
    
    71,242Five to ten years
    
    
    158,372
    
    
    
    168,402More than ten years
    
    
    38,894
    
    
    
    40,490Mortgage-backed securities
    
    
    121,669
    
    
    
    124,543Total held-to-maturity
    
    $
    398,364
    
    
    $
    416,256
 6. Fair Values
  
    
    Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement date.
    
    Level 2: Significant observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities in active markets; quoted prices for identical or
similar assets or liabilities in markets that are not active; or other inputs that are
observable or can be derived from or corroborated by observable market data by
correlation or other means.
    
    Level 3: Significant unobservable inputs that reflect a reporting entitys own
assumptions about the assumptions that market participants would use in pricing an asset
or liability.
  14




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Valuation of Investments
  Investments Measured at Fair Value on a Recurring Basis
 Available-for-sale fixed-income securities
    15




---



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
    
    How are other sources, such as Bloomberg, pricing this security?
    
    What have been the historic prices of the security?
    
    Is there any news which would affect the price of the security?
    
    How are similar securities being priced?
     Available-for-sale equity securities
  16




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##### Table of Contents



September 30, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Available-for-sale investments:
    
    (in thousands)Fixed-income securities
    
    $
    243,482
    
    
    $
    
    
    
    $
    237,340
    
    
    $
    6,142Equity securities (1)
    
    
    21,884
    
    
    
    21,884
    
    
    
    
    
    
    
    Total
    
    $
    265,366
    
    
    $
    21,884
    
    
    $
    237,340
    
    
    $
    6,142
 December 31, 2008Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Available-for-sale investments:
    
    (in thousands)Fixed-income securities
    
    $
    222,941
    
    
    $
    
    
    
    $
    216,722
    
    
    $
    6,219Equity securities (1)
    
    
    19,400
    
    
    
    19,400
    
    
    
    
    
    
    
    Total
    
    $
    242,341
    
    
    $
    19,400
    
    
    $
    216,722
    
    
    $
    6,219
 
 (1)
    
    Included in other investments on the accompanying unaudited Condensed Consolidated Balance
Sheets.   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Available-for-sale fixed-income securities
    
    (in thousands)
    
    
    (in thousands)Beginning balance
    
    $
    6,145
    
    
    $
    6,724
    
    
    $
    6,219
    
    
    $
    6,911Principal paydowns
    
    
    (15
    )
    
    
    (313
    )
    
    
    (84
    )
    
    
    (523
    )Net unrealized appreciation included
in other comprehensive income
    
    
    12
    
    
    
    (76
    )
    
    
    7
    
    
    
    (53
    )Ending balance
    
    $
    6,142
    
    
    $
    6,335
    
    
    $
    6,142
    
    
    $
    6,335
 Investment Measured at Fair Value on a Nonrecurring Basis
 Held-to-maturity fixed-income securities
 17




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Other Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  Fair Value of Financial Instruments
  18




---



##### Table of Contents



7. Unpaid Losses and Loss Adjustment Expenses
  Nine MonthsEnded
    
    
    Year EndedSeptember 30, 2009
    
    
    December 31, 2008(in thousands)Beginning balance, gross
    
    $
    644,396
    
    
    $
    664,117Less, reinsurance recoverables
    
    
    (81,546
    )
    
    
    (104,648
    )Net reserves, beginning balance
    
    
    562,850
    
    
    
    559,469Incurred related toCurrent year
    
    
    70,585
    
    
    
    97,490Prior years
    
    
    (27,176
    )
    
    
    (32,179
    )43,409
    
    
    
    65,311Paid related toCurrent year
    
    
    (2,236
    )
    
    
    (3,012
    )Prior years
    
    
    (52,720
    )
    
    
    (58,918
    )(54,956
    )
    
    
    (61,930
    )Net reserves, ending balance
    
    
    551,303
    
    
    
    562,850Plus, reinsurance recoverables
    
    
    73,733
    
    
    
    81,546Ending balance, gross
    
    $
    625,036
    
    
    $
    644,396Development as a % of
beginning net reserves
    
    
    -4.8
    %
    
    
    -5.8
    %
    19




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20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    Increased competition could adversely affect our ability to sell our products at
premium rates we deem adequate, which may result in a decrease in premium volume.
    
    Our reserves for unpaid losses and loss adjustment expenses are based on estimates
that may prove to be inadequate to cover our losses.
    
    An interruption or change in current marketing and agency relationships could reduce
the amount of premium we are able to write.
    
    If we are unable to obtain or collect on ceded reinsurance, our results of
operations and financial condition may be adversely affected.
    
    Our geographic concentration in certain Midwestern states and New Mexico ties our
performance to the business, economic, regulatory and legislative conditions in those
states.
    
    A downgrade in the A.M. Best Company rating of our primary insurance subsidiary
could reduce the amount of business we are able to write.
 21




---



##### Table of Contents




    
    Changes in interest rates could adversely impact our results of operation, cash
flows and financial condition.
    
    Market illiquidity and volatility associated with the current financial crisis makes
the fair values of our investments increasingly difficult to estimate, and may have
other unforeseen consequences that we are currently unable to predict.
    
    The unpredictability of court decisions could have a material impact on our
operations.
    
    Our business could be adversely affected by the loss of one or more key employees.
    
    The insurance industry is subject to regulatory oversight that may impact the manner
in which we operate our business, our ability to obtain future premium rate increases,
the type and amount of our investments, the levels of capital and surplus deemed
adequate to protect policyholder interests, or the ability of our insurance
subsidiaries to pay dividends to the holding company.
    
    Our status as an insurance holding company with no direct operations could adversely
affect our ability to meet our debt obligations and fund future cash dividends and
share repurchases.
    
    Legislative or judicial changes in the tort system may have adverse or unintended
consequences that could materially and adversely affect our results of operations and
financial condition.
    
    Applicable law and various provisions in our articles and bylaws may prevent and
discourage unsolicited attempts to acquire APCapital that you may believe are in your
best interests or that might result in a substantial profit to you.
  Overview of APCapital
  22




---



##### Table of Contents



Description of Ratios and Other Metrics Analyzed
  Underwriting Gain or Loss:
 Loss Ratio:
 Underwriting Expense Ratio:
 23




---



##### Table of Contents



Combined Ratio:
 Investment Yield:
 Return on Equity:
 Book Value per Share:
   24




---



##### Table of Contents



Non-GAAP Financial Measures
 Accident Year Loss Ratio:
 Net of Tax Investment Yield:
   25




---



##### Table of Contents



For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Pre-tax investment income
    
    $
    7,375
    
    
    $
    8,886
    
    
    $
    23,593
    
    
    $
    28,078Less 85% of tax-exempt
investment income
    
    
    (3,057
    )
    
    
    (3,068
    )
    
    
    (9,217
    )
    
    
    (8,056
    )Taxable investment income
    
    
    4,318
    
    
    
    5,818
    
    
    
    14,376
    
    
    
    20,022Federal statutory tax rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Federal income tax expense
    
    $
    1,511
    
    
    $
    2,036
    
    
    $
    5,032
    
    
    $
    7,008Pre-tax investment income1
    
    $
    29,500
    
    
    $
    35,544
    
    
    $
    31,457
    
    
    $
    37,437Federal income tax expense1
    
    
    (6,044
    )
    
    
    (8,144
    )
    
    
    (6,709
    )
    
    
    (9,344
    )Net of tax investment income
    
    $
    23,456
    
    
    $
    27,400
    
    
    $
    24,748
    
    
    $
    28,093Average cash and invested assets
    
    $
    798,666
    
    
    $
    843,499
    
    
    $
    810,694
    
    
    $
    845,648Pre-tax investment yield
    
    
    3.69
    %
    
    
    4.21
    %
    
    
    3.88
    %
    
    
    4.43
    %Reducition in yield related to
federal income tax expense
    
    
    -0.76
    %
    
    
    -0.97
    %
    
    
    -0.83
    %
    
    
    -1.10
    %Net of tax investment yield
    
    
    2.93
    %
    
    
    3.24
    %
    
    
    3.05
    %
    
    
    3.33
    %
 
 1
    
    These amounts represent corresponding amounts from the table immediately preceding,
annualized to give effecty to a full years income. Critical Accounting Policies
   26




---



##### Table of Contents



Investments
     27




---



##### Table of Contents




    
    Few recent transactions;
    
    Price quotations that are not based on current information;
    
    Significant increases in implied liquidity risk premiums and yields;
    
    Wide bid-ask spreads or a significant increase in bid-ask spreads;
    
    Significant decline or absence of a market for new issuances; and
    
    Little publicly released information
    
    
    The remaining payment terms of the security;
    
    Prepayment risk and speeds;
    
    The financial condition of the issuer;
 28




---



##### Table of Contents




    
    Expected defaults; and
    
    The value of any underlying collateral.
    
    
    Our ability and intent to retain the investment for a period of time sufficient to allow
for an anticipated recovery in value;
    
    The duration and extent to which the fair value has been less than cost;
    
    The financial condition, near-term and long-term earnings and cash flow prospects of the
issuer, including relevant industry conditions and trends, and implications of rating
agency actions; and
    
    The specific reasons that a security is in a significant unrealized loss position,
including market conditions that could affect access to liquidity.
  29




---



##### Table of Contents



Results of Operations  Three and Nine Months Ended September 30, 2009 Compared to the Three and
Nine Months Ended September 30, 2008
  Three Months EndedSeptember 30,
    
    
    Change2009
    
    
    2008
    
    
    Dollar
    
    
    Percentage(2)(dollars in thousands)Direct premiums written
    
    $
    34,658
    
    
    $
    37,820
    
    
    $
    (3,162
    )
    
    
    -8.4
    %Net premiums written
    
    $
    33,344
    
    
    $
    36,257
    
    
    $
    (2,913
    )
    
    
    -8.0
    %Net premiums earned
    
    $
    28,260
    
    
    $
    30,497
    
    
    $
    (2,237
    )
    
    
    -7.3
    %Losses and loss adjustment expensesCurrent year losses
    
    
    23,549
    
    
    
    24,085
    
    
    
    (536
    )
    
    
    2.2
    %Prior year losses
    
    
    (8,865
    )
    
    
    (7,548
    )
    
    
    (1,317
    )
    
    
    17.4
    %Total
    
    
    14,684
    
    
    
    16,537
    
    
    
    (1,853
    )
    
    
    11.2
    %Underwriting expenses
    
    
    6,674
    
    
    
    6,366
    
    
    
    308
    
    
    
    -4.8
    %Total underwriting gain
    
    
    6,902
    
    
    
    7,594
    
    
    
    (692
    )
    
    
    -9.1
    %Other revenue (expense) itemsInvestment income
    
    
    7,375
    
    
    
    8,886
    
    
    
    (1,511
    )
    
    
    -17.0
    %Net realized losses
    
    
    3
    
    
    
    22
    
    
    
    (19
    )
    
    
    86.4
    %Other income
    
    
    163
    
    
    
    158
    
    
    
    5
    
    
    
    3.2
    %Other expenses (1)
    
    
    (820
    )
    
    
    (990
    )
    
    
    170
    
    
    
    17.2
    %Total other revenue and expense items
    
    
    6,721
    
    
    
    8,076
    
    
    
    (1,355
    )
    
    
    -16.8
    %Income before federal income taxes
    
    
    13,623
    
    
    
    15,670
    
    
    
    (2,047
    )
    
    
    -13.1
    %Federal income tax expense
    
    
    3,872
    
    
    
    4,502
    
    
    
    (630
    )
    
    
    14.0
    %Net income
    
    $
    9,751
    
    
    $
    11,168
    
    
    $
    (1,417
    )
    
    
    -12.7
    %Loss Ratio:Accident year
    
    
    83.3
    %
    
    
    79.0
    %
    
    
    
    
    
    
    4.3
    %Prior years
    
    
    -31.3
    %
    
    
    -24.8
    %
    
    
    
    
    
    
    -6.5
    %Calendar year
    
    
    52.0
    %
    
    
    54.2
    %
    
    
    
    
    
    
    -2.2
    %Underwriting expense ratio
    
    
    23.6
    %
    
    
    20.9
    %
    
    
    
    
    
    
    2.7
    %Combined ratio
    
    
    75.6
    %
    
    
    75.1
    %
    
    
    
    
    
    
    0.5
    %Pre-tax investment yield
    
    
    3.69
    %
    
    
    4.21
    %
    
    
    
    
    
    
    -0.5
    %Return on beginning equity (annualized)
    
    
    15.4
    %
    
    
    16.9
    %
    
    
    
    
    
    
    -1.5
    %
 
 (1)
    
    Other expenses includes investment expenses, interest expense, general and
administrative expenses and other expenses as reported in the unaudited Condensed
Consolidated Statements of Income included elsewhere in this report.(2)
    
    The percentage change represents the items change relative to its impact on net
income. A positive percentage change indicates a change in that line item representing
an increase to net income, while a negative percentage change represents a decrease to
net income. 30




---



##### Table of Contents



Nine Months EndedSeptember 30,
    
    
    Change2009
    
    
    2008
    
    
    Dollar
    
    
    Percentage(2)(dollars in thousands)Direct premiums written
    
    $
    89,025
    
    
    $
    97,935
    
    
    $
    (8,910
    )
    
    
    -9.1
    %Net premiums written
    
    $
    85,453
    
    
    $
    93,931
    
    
    $
    (8,478
    )
    
    
    -9.0
    %Net premiums earned
    
    $
    85,948
    
    
    $
    93,564
    
    
    $
    (7,616
    )
    
    
    -8.1
    %Losses and loss adjustment expensesCurrent year losses
    
    
    70,585
    
    
    
    73,373
    
    
    
    (2,788
    )
    
    
    3.8
    %Prior year losses
    
    
    (27,176
    )
    
    
    (22,971
    )
    
    
    (4,205
    )
    
    
    18.3
    %Total
    
    
    43,409
    
    
    
    50,402
    
    
    
    (6,993
    )
    
    
    13.9
    %Underwriting expenses
    
    
    21,125
    
    
    
    20,005
    
    
    
    1,120
    
    
    
    -5.6
    %Total underwriting gain
    
    
    21,414
    
    
    
    23,157
    
    
    
    (1,743
    )
    
    
    -7.5
    %Other revenue (expense) itemsInvestment income
    
    
    23,593
    
    
    
    28,078
    
    
    
    (4,485
    )
    
    
    -16.0
    %Net realized losses
    
    
    3
    
    
    
    (686
    )
    
    
    689
    
    
    
    100.4
    %Other income
    
    
    598
    
    
    
    553
    
    
    
    45
    
    
    
    8.1
    %Other expenses (1)
    
    
    (2,638
    )
    
    
    (3,322
    )
    
    
    684
    
    
    
    20.6
    %Total other revenue and expense items
    
    
    21,556
    
    
    
    24,623
    
    
    
    (3,067
    )
    
    
    -12.5
    %Income before federal income taxes
    
    
    42,970
    
    
    
    47,780
    
    
    
    (4,810
    )
    
    
    -10.1
    %Federal income tax expense
    
    
    12,142
    
    
    
    14,195
    
    
    
    (2,053
    )
    
    
    14.5
    %Net income
    
    $
    30,828
    
    
    $
    33,585
    
    
    $
    (2,757
    )
    
    
    -8.2
    %Loss Ratio:Accident year
    
    
    82.1
    %
    
    
    78.4
    %
    
    
    
    
    
    
    3.7
    %Prior years
    
    
    -31.6
    %
    
    
    -24.5
    %
    
    
    
    
    
    
    -7.1
    %Calendar year
    
    
    50.5
    %
    
    
    53.9
    %
    
    
    
    
    
    
    -3.4
    %Underwriting expense ratio
    
    
    24.6
    %
    
    
    21.4
    %
    
    
    
    
    
    
    3.2
    %Combined ratio
    
    
    75.1
    %
    
    
    75.3
    %
    
    
    
    
    
    
    -0.2
    %Pre-tax investment yield
    
    
    3.88
    %
    
    
    4.43
    %
    
    
    
    
    
    
    -0.6
    %Return on beginning equity (annualized)
    
    
    16.2
    %
    
    
    17.0
    %
    
    
    
    
    
    
    -0.8
    %
 
 (1)
    
    Other expenses includes investment expenses, interest expense, general and
administrative expenses and other expenses as reported in the unaudited Condensed
Consolidated Statements of Income included elsewhere in this report.(2)
    
    The percentage change represents the items change relative to its impact on net income. A
positive percentage change indicates a change in that line item representing an increase to
net income, while a negative percentage change represents a decrease to net income. 31




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##### Table of Contents



Overview
  Premiums Written and Earned
  For the Three Months Ended September 30,
    
    
    For the Nine Months Ended September 30,Change
    
    
    
    
    
    
    
    
    
    
    Change2009
    
    
    2008
    
    
    Dollar
    
    
    Percentage
    
    
    2009
    
    
    2008
    
    
    Dollar
    
    
    Percentage(dollars in thousands)
    
    
    
    
    
    
    
    
    
    
    (dollars in thousands)Direct premiums writtenMichigan
    
    $
    13,149
    
    
    $
    14,030
    
    
    $
    (881
    )
    
    
    -6.3
    %
    
    $
    30,701
    
    
    $
    33,279
    
    
    $
    (2,578
    )
    
    
    -7.7
    %Illinois
    
    
    11,109
    
    
    
    11,407
    
    
    
    (298
    )
    
    
    -2.6
    %
    
    
    26,444
    
    
    
    27,213
    
    
    
    (769
    )
    
    
    -2.8
    %Ohio
    
    
    4,122
    
    
    
    5,093
    
    
    
    (971
    )
    
    
    -19.1
    %
    
    
    14,072
    
    
    
    17,370
    
    
    
    (3,298
    )
    
    
    -19.0
    %New Mexico
    
    
    4,888
    
    
    
    5,207
    
    
    
    (319
    )
    
    
    -6.1
    %
    
    
    13,075
    
    
    
    14,231
    
    
    
    (1,156
    )
    
    
    -8.1
    %Kentucky
    
    
    840
    
    
    
    809
    
    
    
    31
    
    
    
    3.8
    %
    
    
    3,227
    
    
    
    3,520
    
    
    
    (293
    )
    
    
    -8.3
    %Other
    
    
    550
    
    
    
    1,274
    
    
    
    (724
    )
    
    
    -56.8
    %
    
    
    1,506
    
    
    
    2,322
    
    
    
    (816
    )
    
    
    -35.1
    %Total
    
    $
    34,658
    
    
    $
    37,820
    
    
    $
    (3,162
    )
    
    
    -8.4
    %
    
    $
    89,025
    
    
    $
    97,935
    
    
    $
    (8,910
    )
    
    
    -9.1
    %Net premiums written
    
    $
    33,344
    
    
    $
    36,257
    
    
    $
    (2,913
    )
    
    
    -8.0
    %
    
    $
    85,453
    
    
    $
    93,931
    
    
    $
    (8,478
    )
    
    
    -9.0
    %Ratio of net premiums
written to direct
    
    
    96.2
    %
    
    
    95.9
    %
    
    
    
    
    
    
    0.3
    %
    
    
    96.0
    %
    
    
    95.9
    %
    
    
    
    
    
    
    0.1
    %
    32




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##### Table of Contents



Loss and Loss Adjustment Expenses
     33




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##### Table of Contents



Underwriting Expenses
  Investment Income
   34




---



##### Table of Contents



Net Realized Losses
  Other Expenses
  Income Taxes
  Liquidity and Capital Resources
   35




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##### Table of Contents



Parent Company
      36




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##### Table of Contents



Consolidated
   For the Nine Months EndedSeptember 30,2009
    
    
    2008(dollars in thousands)Cash from (for):Premiums received
    
    $
    89,446
    
    
    $
    92,967Investment income collected
    
    
    26,682
    
    
    
    30,101Loss and loss adjustment expenses paid
    
    
    (47,958
    )
    
    
    (52,209
    )Commissions and other acquisition cost
    
    
    (8,188
    )
    
    
    (9,064
    )Net reinsurance impact
    
    
    1,026
    
    
    
    18Income taxes paid
    
    
    (11,843
    )
    
    
    (11,236
    )Salaries and other employee costs
    
    
    (16,292
    )
    
    
    (15,114
    )Other
    
    
    (9,437
    )
    
    
    (9,727
    )Net cash flows from operations
    
    $
    23,436
    
    
    $
    25,736
  Financial Condition
  Statutory Capital and Surplus
  37




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##### Table of Contents



Reserves for Unpaid Losses and Loss Adjustment Expenses
   September 30,
    
    December 31,2009
    
    2008
    
    Change
    
    % Change(In thousands, except claim and per claim data)Net case reserves
    
    $
    236,206
    
    
    $
    236,093
    
    
    $
    113
    
    
    
    0.0
    %Number of open claims
    
    
    1,359
    
    
    
    1,418
    
    
    
    (59
    )
    
    
    -4.2
    %Average net case reserve
per open claim
    
    $
    173,809
    
    
    $
    166,497
    
    
    $
    7,312
    
    
    
    4.4
    %Net IBNR reserves
    
    $
    290,816
    
    
    $
    303,856
    
    
    $
    (13,040
    )
    
    
    -4.3
    %Total net reserves
    
    $
    527,022
    
    
    $
    539,949
    
    
    $
    (12,927
    )
    
    
    -2.4
    %
  38




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##### Table of Contents



Investments
  September 30, 2009
    
    
    December 31, 2008Carrying
    
    
    % of
    
    
    Carrying
    
    
    % ofValue (1)
    
    
    Portfolio
    
    
    Value (1)
    
    
    PortfolioU.S. government obligations
    
    $
    14,953
    
    
    
    2.3
    %
    
    $
    64,458
    
    
    
    9.2
    %Tax-exempt municipal securities
    
    
    384,551
    
    
    
    59.9
    %
    
    
    383,547
    
    
    
    54.4
    %Corporate securities
    
    
    120,596
    
    
    
    18.8
    %
    
    
    105,824
    
    
    
    15.0
    %Mortgage-backed securities
    
    
    121,746
    
    
    
    19.0
    %
    
    
    150,862
    
    
    
    21.4
    %Total fixed-income securities
    
    $
    641,846
    
    
    
    100.0
    %
    
    $
    704,691
    
    
    
    100.0
    %
 
 (1)
    
    Carrying value for available-for-sale securities is fair value, whereas held-to-maturity
securities are carried at amortized cost. 39




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##### Table of Contents



September 30, 2009
    
    
    December 31, 2008Carrying
    
    
    % of
    
    
    Carrying
    
    
    % ofValue (1)
    
    
    Total
    
    
    Value (1)
    
    
    TotalRatingAAA
    
    $
    291,959
    
    
    
    45.4
    %
    
    $
    377,392
    
    
    
    53.6
    %AA
    
    
    248,693
    
    
    
    38.7
    %
    
    
    234,543
    
    
    
    33.3
    %A
    
    
    66,627
    
    
    
    10.4
    %
    
    
    63,723
    
    
    
    9.0
    %BBB
    
    
    22,276
    
    
    
    3.5
    %
    
    
    22,812
    
    
    
    3.2
    %BB
    
    
    6,149
    
    
    
    1.0
    %
    
    
    
    
    
    
    0.0
    %635,704
    
    
    
    99.0
    %
    
    
    698,470
    
    
    
    99.1
    %Private Placement
    
    
    6,142
    
    
    
    1.0
    %
    
    
    6,221
    
    
    
    0.9
    %Total
    
    $
    641,846
    
    
    
    100.0
    %
    
    $
    704,691
    
    
    
    100.0
    %Average Rating
    
    AA+
    
    
    
    
    
    AA+
 
 (1)
    
    Carrying value is fair value for available-for-sale securities and amortized
cost for held-to-maturity securities.  40




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##### Table of Contents



Other Significant Balance Sheet Items
    41




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##### Table of Contents



Contractual Obligations and Off-Balance Sheet Arrangements
  Effects of New Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 General
   Qualitative Information About Market Risk
   42




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##### Table of Contents



Quantitative Information About Market Risk
 Interest Rate Risk
  September 30, 2009
    
    
    December 31, 2008Portfolio
    
    
    Change in
    
    
    Modified
    
    
    Portfolio
    
    
    Change in
    
    
    ModifiedChange in Rates
    
    Value
    
    
    Value
    
    
    Duration
    
    
    Value
    
    
    Value
    
    
    Duration(dollars in thousands)
    
    
    (dollars in thousands)+2%
    
    $
    230,036
    
    
    $
    (13,446
    )
    
    
    2.70
    
    
    $
    209,579
    
    
    $
    (13,362
    )
    
    
    3.22+1%
    
    
    236,458
    
    
    
    (7,024
    )
    
    
    2.73
    
    
    
    216,320
    
    
    
    (6,621
    )
    
    
    3.160
    
    
    243,482
    
    
    
    
    
    
    
    2.99
    
    
    
    222,941
    
    
    
    
    
    
    
    3.43-1%
    
    
    251,058
    
    
    
    7,576
    
    
    
    3.06
    
    
    
    231,609
    
    
    
    8,668
    
    
    
    3.50-2%
    
    
    257,983
    
    
    
    14,501
    
    
    
    3.13
    
    
    
    239,957
    
    
    
    17,016
    
    
    
    3.57
 43




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##### Table of Contents



Equity Price Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   44




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  45




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Total NumberTotal
    
    
    
    
    
    of Shares
    
    Maximum DollarNumber of
    
    Average
    
    Repurchased as
    
    Value of Shares that May Yet BeShares
    
    Price Paid
    
    Part of Publicly
    
    Repurchased Under the Plans or ProgramsRepurchased
    
    per Share
    
    Announced Plans
    
    Discretionary Plan(a)
    
    Rule 10b5-1 Plan (b)For the month ended July 31, 2009
    
    
    129,333
    
    
    $
    29.72
    
    
    
    129,333
    
    
    $
    15,955,191
    
    
    $
    15,248,488For the month ended August 31, 2009
    
    
    76,100
    
    
    $
    32.09
    
    
    
    76,100
    
    
    $
    15,955,191
    
    
    $
    12,806,384For the month ended September 30, 2009
    
    
    107,800
    
    
    $
    30.59
    
    
    
    107,800
    
    
    $
    15,955,191
    
    
    $
    9,509,042For the three months ended September 30, 2009
    
    
    313,233
    
    
    $
    30.60
    
    
    
    313,233
    
    
    $
    15,955,191
    
    
    $
    9,509,042
 
 (a)
    
    On February 7, 2008, the Board of Directors authorized the repurchase of additional common
shares with a cost of up to $25 million at managements discretion. The timing of the repurchases
and the number of shares to be bought at any time depend on market conditions and the Companys
capital resources and requirements. The discretionary plan has no expiration date and may be
terminated or discontinued at any time or from time to time.(b)
    
    On June 23, 2009, the Companys Board authorized the repurchase of an additional $20 million of
the Companys common shares pursuant to the Rule 10b5-1 plan in 2009. In addition to the share
repurchase authorizations outstanding at September 30, 2009, included in the table above, on
October 2, 2009, the Companys Board authorized an additional $10 million of the Companys common
shares pursuant to our Rule 10b5-1 plan, which is not included in the table above. The Rule 10b5-1
plan share repurchases will continue to be made pursuant to a formula in the plan, and the plan
will expire when all of the allocated dollars in the plan have been used. The Company may terminate
the Rule 10b5-1 plan at any time. 
 Item 6. Exhibits
 Exhibits.
  46




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##### Table of Contents



SIGNATURES
   AMERICAN PHYSICIANS CAPITAL, INC.By:
    /s/ R. Kevin ClintonR. Kevin ClintonIts: President and Chief Executive OfficerBy:
    /s/ Frank H. FreundFrank H. FreundIts: Executive Vice President, Treasurer and Chief
Financial Officer 46




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Exhibit Description3.1
    
    Amended and Restated  Bylaws, as amended October 29, 2009
(APCapitals Current Report on Form 8-k dated November 5, 2009)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 1934.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) under the
Securities Exchange Act of 1934.99.1
    
    Fixed-Income Security Detail of American Physicians Capital, Inc. and
Subsidiaries Investment Portfolio as of September 30, 2009.
 47