##### 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 March 31, 2010
 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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  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
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    38PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 6. Exhibits
    
    
    39Signatures
    
    
    40Exhibit Index
    
    
    41EX-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
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)AssetsInvestments:Fixed-income securitiesAvailable-for-sale, at fair value
    
    $
    244,253
    
    
    $
    205,073Held-to-maturity, at amortized cost
    
    
    351,505
    
    
    
    368,851Other investments
    
    
    57,456
    
    
    
    53,303Total investments
    
    
    653,214
    
    
    
    627,227Cash and cash equivalents
    
    
    139,580
    
    
    
    172,162Premiums receivable
    
    
    26,653
    
    
    
    29,662Reinsurance recoverable
    
    
    65,869
    
    
    
    63,283Deferred federal income taxes
    
    
    16,649
    
    
    
    17,328Property and equipment, net of accumulated depreciation
    
    
    8,012
    
    
    
    8,090Other assets
    
    
    23,032
    
    
    
    26,762Total assets
    
    $
    933,009
    
    
    $
    944,514LiabilitiesUnpaid losses and loss adjustment expenses
    
    $
    601,496
    
    
    $
    608,807Unearned premiums
    
    
    50,195
    
    
    
    50,670Long-term debt
    
    
    25,928
    
    
    
    25,928Other liabilities
    
    
    21,242
    
    
    
    22,069Total liabilities
    
    
    698,861
    
    
    
    707,474Commitments & ContingenciesShareholders EquityCommon stock, no par value, 50,000,000 shares
authorized: 9,600,387 and 9,986,187 shares outstanding
at March 31, 2010 and December 31, 2009, respectively
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    
    
    
    
    Retained earnings
    
    
    223,697
    
    
    
    226,952Accumulated other comprehensive income:Net unrealized appreciation on investments,
net of deferred federal income taxes
    
    
    10,451
    
    
    
    10,088Total shareholders equity
    
    
    234,148
    
    
    
    237,040Total liabilities and shareholders equity
    
    $
    933,009
    
    
    $
    944,514
  3




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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Income (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Net premiums written
    
    $
    26,035
    
    
    $
    28,720Change in net unearned premiums
    
    
    660
    
    
    
    586Net premiums earned
    
    
    26,695
    
    
    
    29,306Investment income
    
    
    6,366
    
    
    
    8,190Net realized gains
    
    
    326
    
    
    
    Other income
    
    
    249
    
    
    
    223Total revenues and other income
    
    
    33,636
    
    
    
    37,719Losses and loss adjustment expenses
    
    
    13,792
    
    
    
    15,612Underwriting expenses
    
    
    6,627
    
    
    
    7,132Investment expenses
    
    
    222
    
    
    
    324Interest expense
    
    
    297
    
    
    
    385General and administrative expenses
    
    
    319
    
    
    
    263Total expenses
    
    
    21,257
    
    
    
    23,716Income before federal income taxes
    
    
    12,379
    
    
    
    14,003Federal income tax expense
    
    
    3,428
    
    
    
    3,916Net income
    
    $
    8,951
    
    
    $
    10,087Net income  per common shareBasic
    
    $
    0.91
    
    
    $
    0.87Diluted
    
    $
    0.90
    
    
    $
    0.85
  4




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##### Table of Contents



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, 2009
    
    
    9,986,187
    
    
    $
    
    
    
    $
    226,952
    
    
    $
    10,088
    
    
    $
    237,040Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    8,951
    
    
    
    
    
    
    
    8,951Other
comprehensive
income, net of
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    363
    
    
    
    363Total comprehensive
income, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,314Cash dividends to
shareholders, $0.11
per share
    
    
    
    
    
    
    
    
    
    
    (873
    )
    
    
    
    
    
    
    (873
    )Purchase and
retirement of common
stock
    
    
    (385,800
    )
    
    
    
    
    
    
    (11,333
    )
    
    
    
    
    
    
    (11,333
    )Balance, March 31, 2010
    
    
    9,600,387
    
    
    $
    
    
    
    $
    223,697
    
    
    $
    10,451
    
    
    $
    234,148
 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
    
    
    
    
    
    
    
    
    
    
    10,087
    
    
    
    
    
    
    
    10,087Other
comprehensive
loss, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,653
    )
    
    
    (2,653
    )Total comprehensive
income, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,434Options exercised
    
    
    164,667
    
    
    
    1,873
    
    
    
    
    
    
    
    
    
    
    
    1,873Shares tendered/netted
in connection with
option exercise
    
    
    (94,293
    )
    
    
    (3,176
    )
    
    
    (105
    )
    
    
    
    
    
    
    (3,281
    )Cash dividends to
shareholders, $0.09
per share
    
    
    
    
    
    
    
    
    
    
    (959
    )
    
    
    
    
    
    
    (959
    )Excess tax benefits
from share-based
awards
    
    
    
    
    
    
    1,303
    
    
    
    
    
    
    
    
    
    
    
    1,303Purchase and
retirement of common
stock
    
    
    (393,600
    )
    
    
    
    
    
    
    (12,315
    )
    
    
    
    
    
    
    (12,315
    )Balance, March 31, 2009
    
    
    11,425,843
    
    
    $
    
    
    
    $
    242,881
    
    
    $
    5,211
    
    
    $
    248,092
  5




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American Physicians Capital, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Net income
    
    $
    8,951
    
    
    $
    10,087Other comprehensive income (loss):Unrealized appreciation (depreciation) on available-for-sale investment
securities arising during the period
    
    
    875
    
    
    
    (3,779
    )Amortization of net unrealized appreciation on held-to-maturity
investment securities related to their transfer from the
available-for-sale category
    
    
    (317
    )
    
    
    (303
    )Other comprehensive income (loss) before tax
    
    
    558
    
    
    
    (4,082
    )Deferred federal income tax expense (benefit)
    
    
    195
    
    
    
    (1,429
    )Other comprehensive income (loss)
    
    
    363
    
    
    
    (2,653
    )Comprehensive income
    
    $
    9,314
    
    
    $
    7,434
 
 6




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American Physicians Capital, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Cash Flows

(Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Cash flows from (for) operating activitiesNet income
    
    $
    8,951
    
    
    $
    10,087Adjustments to reconcile net income to net cash from operating activities:Depreciation and amortization
    
    
    1,618
    
    
    
    1,326Net realized gains
    
    
    (326
    )
    
    
    Deferred federal income taxes
    
    
    483
    
    
    
    648Current federal income taxes
    
    
    2,945
    
    
    
    3,306Excess tax benefits from share-based awards
    
    
    
    
    
    
    (1,303
    )(Income) Loss on equity method investees
    
    
    (111
    )
    
    
    Changes in:Unpaid loss and loss adjustment expenses
    
    
    (7,311
    )
    
    
    801Unearned premiums
    
    
    (475
    )
    
    
    (340
    )Other assets and liabilities
    
    
    (5,023
    )
    
    
    (234
    )Net cash from operating activities
    
    
    751
    
    
    
    14,291Cash flows from (for) investing activitiesPurchasesAvailable-for-sale  fixed income
    
    
    (43,599
    )
    
    
    (5,959
    )Held-to-maturity  fixed income
    
    
    (23,004
    )
    
    
    Other investments
    
    
    (2,097
    )
    
    
    (1,314
    )Property and equipment
    
    
    (97
    )
    
    
    (50
    )Proceeds from sales and maturitiesAvailable-for-sale  fixed income
    
    
    2,884
    
    
    
    395Held-to-maturity  fixed income
    
    
    39,803
    
    
    
    22,085Other
    
    
    5,210
    
    
    
    108Net cash (for) from investing activities
    
    
    (20,900
    )
    
    
    15,265Cash flows from (for) financing activitiesCommon stock repurchased
    
    
    (11,333
    )
    
    
    (12,315
    )Excess tax benefits from share-based awards
    
    
    
    
    
    
    1,303Taxes paid in connection with net option exercise
    
    
    
    
    
    
    (1,448
    )Change in payable for shares repurchased
    
    
    (227
    )
    
    
    915Cash dividends paid
    
    
    (873
    )
    
    
    (959
    )Proceeds from stock options exercised
    
    
    
    
    
    
    40Net cash for financing activities
    
    
    (12,433
    )
    
    
    (12,464
    )Net (decrease) increase in cash and cash equivalents
    
    
    (32,582
    )
    
    
    17,092Cash and cash equivalents, beginning of period
    
    
    172,162
    
    
    
    101,637Cash and cash equivalents, end of period
    
    $
    139,580
    
    
    
    118,729
  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
    Use of Estimates
   8




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Nature of Business
  2. Stock Split
  3. Effects of New Accounting Pronouncements
 Fair Value Measurements 
 4. Income Per Share
  9




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Three Months EndedMarch 31,2010
    
    
    2009(In thousands, except per share data)Numerator for basic and diluted income per common share:Net income
    
    $
    8,951
    
    
    $
    10,087Denominator:Denominator for basic income per common share  weighted average shares outstanding
    
    
    9,791
    
    
    
    11,652Effect of dilutive stock options and awards
    
    
    134
    
    
    
    201Denominator for diluted income per common share  adjusted weighted average shares outstanding
    
    
    9,925
    
    
    
    11,853Net income  basic
    
    $
    0.91
    
    
    $
    0.87Net income  diluted
    
    $
    0.90
    
    
    $
    0.85
  5. Investments
  March 31, 2010Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost/Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Available-for-saleStates and political subdivisions
    
    $
    190,740
    
    
    $
    9,663
    
    
    $
    (311
    )
    
    $
    200,092Corporate securities
    
    
    42,174
    
    
    
    2,042
    
    
    
    (138
    )
    
    
    44,078Mortgage-backed securities
    
    
    79
    
    
    
    4
    
    
    
    
    
    
    
    83Total fixed-income securities
    
    
    232,993
    
    
    
    11,709
    
    
    
    (449
    )
    
    
    244,253Equity securities (1)
    
    
    17,704
    
    
    
    4,322
    
    
    
    
    
    
    
    22,026Total available-for-sale securities
    
    $
    250,697
    
    
    $
    16,031
    
    
    $
    (449
    )
    
    $
    266,279
 10




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December 31, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost/Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Available-for-saleStates and political subdivisions
    
    $
    150,488
    
    
    $
    10,629
    
    
    $
    
    
    
    $
    161,117Corporate securities
    
    
    42,173
    
    
    
    2,117
    
    
    
    (418
    )
    
    
    43,872Mortgage-backed securities
    
    
    82
    
    
    
    2
    
    
    
    
    
    
    
    84Total fixed-income securities
    
    
    192,743
    
    
    
    12,748
    
    
    
    (418
    )
    
    
    205,073Equity securities (1)
    
    
    15,607
    
    
    
    2,377
    
    
    
    
    
    
    
    17,984Total available-for-sale securities
    
    $
    208,350
    
    
    $
    15,125
    
    
    $
    (418
    )
    
    $
    223,057
 
 (1)
    
    Available-for-sale equity securities are included in Other investments on the
accompanying Condensed Consolidated Balance Sheets.  March 31, 2010Gross
    
    
    GrossUnrecognized
    
    
    UnrecognizedCarrying
    
    
    Holding
    
    
    Holding
    
    
    EstimatedValue
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Held-to-maturityStates and political subdivisions
    
    $
    241,133
    
    
    $
    11,830
    
    
    $
    (152
    )
    
    $
    252,811Corporate securities
    
    
    28,822
    
    
    
    602
    
    
    
    (51
    )
    
    
    29,373Mortgage-backed securities
    
    
    81,550
    
    
    
    1,943
    
    
    
    (118
    )
    
    
    83,375Total held-to-maturity fixed-income securities
    
    $
    351,505
    
    
    $
    14,375
    
    
    $
    (321
    )
    
    $
    365,559
 December 31, 2009Gross
    
    
    GrossUnrecognized
    
    
    UnrecognizedCarrying
    
    
    Holding
    
    
    Holding
    
    
    EstimatedValue
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Held-to-maturityStates and political subdivisions
    
    $
    225,069
    
    
    $
    12,808
    
    
    $
    
    
    
    $
    237,877Corporate securities
    
    
    34,467
    
    
    
    646
    
    
    
    (150
    )
    
    
    34,963Mortgage-backed securities
    
    
    109,315
    
    
    
    2,219
    
    
    
    (8
    )
    
    
    111,526Total held-to-maturity fixed-income securities
    
    $
    368,851
    
    
    $
    15,673
    
    
    $
    (158
    )
    
    $
    384,366
 11




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March 31, 2010Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized or
    
    
    
    
    
    
    Unrealized or
    
    
    
    
    
    
    Unrealized orFair
    
    
    Unrecognized
    
    
    Fair
    
    
    Unrecognized
    
    
    Fair
    
    
    UnrecognizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesDescription of Securities
    
    (In thousands)Available-for-saleStates and political subdivisions
    
    $
    37,555
    
    
    $
    (311
    )
    
    $
    
    
    
    $
    
    
    
    $
    37,555
    
    
    $
    (311
    )Corporate securities
    
    
    
    
    
    
    
    
    
    
    10,362
    
    
    
    (138
    )
    
    
    10,362
    
    
    
    (138
    )Subtotal available-for-sale
    
    
    37,555
    
    
    
    (311
    )
    
    
    10,362
    
    
    
    (138
    )
    
    
    47,917
    
    
    
    (449
    )Held-to-maturityStates and political subdivisions
    
    $
    17,312
    
    
    $
    (152
    )
    
    $
    
    
    
    $
    
    
    
    $
    17,312
    
    
    $
    (152
    )Corporate securities
    
    
    
    
    
    
    
    
    
    
    5,988
    
    
    
    (51
    )
    
    
    5,988
    
    
    
    (51
    )Mortgage-backed securities
    
    
    12,087
    
    
    
    (118
    )
    
    
    
    
    
    
    
    
    
    
    12,087
    
    
    
    (118
    )Subtotal held-to-maturity
    
    
    29,399
    
    
    
    (270
    )
    
    
    5,988
    
    
    
    (51
    )
    
    
    35,387
    
    
    
    (321
    )Total temporarily impaired securities
    
    $
    66,954
    
    
    $
    (581
    )
    
    $
    16,350
    
    
    $
    (189
    )
    
    
    $83,304
    
    
    $
    (770
    )
 December 31, 2009Less Than 12 Months
    
    
    12 Months or More
    
    

TotalUnrealized or
    
    
    
    
    
    
    Unrealized or
    
    
    
    
    
    
    Unrealized orFair
    
    
    Unrecognized
    
    
    Fair
    
    
    Unrecognized
    
    
    Fair
    
    
    UnrecognizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesDescription of Securities
    
    (In thousands)Available-for-saleCorporate securities
    
    $
    
    
    
    $
    
    
    
    $
    10,082
    
    
    $
    (418
    )
    
    $
    10,082
    
    
    $
    (418
    )Subtotal available-for-sale
    
    
    
    
    
    
    
    
    
    
    10,082
    
    
    
    (418
    )
    
    
    10,082
    
    
    
    (418
    )Held-to-maturityCorporate securities
    
    $
    
    
    
    $
    
    
    
    $
    5,890
    
    
    $
    (150
    )
    
    $
    5,890
    
    
    $
    (150
    )Mortgage-backed securities
    
    
    4,564
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    4,564
    
    
    
    (8
    )Subtotal held-to-maturity
    
    
    4,564
    
    
    
    (8
    )
    
    
    5,890
    
    
    
    (150
    )
    
    
    10,454
    
    
    
    (158
    )Total temporarily impaired securities
    
    $
    4,564
    
    
    $
    (8
    )
    
    $
    15,972
    
    
    $
    (568
    )
    
    $
    20,536
    
    
    $
    (576
    )
  12




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EstimatedFair Value(In thousands)Available-for-saleLess than one year
    
    $
    13,650One to five years
    
    
    172,155Five to ten years
    
    
    19,369More than ten years
    
    
    38,996Mortgage-backed securities
    
    
    83Total available-for-sale
    
    $
    244,253
 Carrying
    
    
    EstimatedValue
    
    
    Fair Value(In thousands)Held-to-maturityLess than one year
    
    $
    17,052
    
    
    $
    17,429One to five years
    
    
    67,182
    
    
    
    70,243Five to ten years
    
    
    151,343
    
    
    
    159,206More than ten years
    
    
    34,378
    
    
    
    35,306Mortgage-backed securities
    
    
    81,550
    
    
    
    83,375Total held-to-maturity
    
    $
    351,505
    
    
    $
    365,559
 13




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##### Table of Contents



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.
  Valuation of Investments
  Investments Measured at Fair Value on a Recurring Basis
 Available-for-sale fixed-income securities
  14




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##### Table of Contents




    
    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?
     15




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##### Table of Contents



Available-for-sale equity securities
  March 31, 2010Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(in thousands)Available-for-sale investments:Fixed-income securities
    
    $
    244,253
    
    
    $
    
    
    
    $
    238,130
    
    
    $
    6,123Equity securities (1)
    
    
    22,026
    
    
    
    22,026
    
    
    
    
    
    
    
    Total
    
    $
    266,279
    
    
    $
    22,026
    
    
    $
    238,130
    
    
    $
    6,123
 Decmber 31, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(in thousands)Available-for-sale investments:Fixed-income securities
    
    $
    205,073
    
    
    $
    
    
    
    $
    198,947
    
    
    $
    6,126Equity securities (1)
    
    
    17,984
    
    
    
    17,984
    
    
    
    
    
    
    
    Total
    
    $
    223,057
    
    
    $
    17,984
    
    
    $
    198,947
    
    
    $
    6,126
 
 (1)
    
    Included in other investments on the accompanying Condensed Consolidated Balance Sheets.   16




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##### Table of Contents



For the Three Months EndedMarch 31,2010
    
    
    2009(in thousands)Available-for-sale fixed-income securitiesBeginning balance
    
    $
    6,126
    
    
    $
    6,219Principal paydowns
    
    
    (3
    )
    
    
    (16
    )Net unrealized appreciation included
in other comprehensive income
    
    
    
    
    
    
    3Ending balance
    
    $
    6,123
    
    
    $
    6,206
 Investment Measured at Fair Value on a Nonrecurring Basis
 Held-to-maturity fixed-income securities
 Other Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  Fair Value of Financial Instruments
  17




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##### Table of Contents



March 31, 2010
    
    December 31, 2009Carrying
    
    Fair
    
    Carrying
    
    FairAmount (1)
    
    Value
    
    Amount
    
    Value(in thousands)
    
    (in thousands)Financial assets:Stilwell Associates, L.P.
    
    $
    15,000
    
    
    $
    13,047
    
    
    $
    15,000
    
    
    $
    15,000Stilwell Value Partners I, L.P.
    
    
    7,500
    
    
    
    7,473
    
    
    
    7,500
    
    
    
    7,500Stilwell Value Partners VI, L.P.
    
    
    7,500
    
    
    
    7,345
    
    
    
    7,500
    
    
    
    7,500
 
 (1)
    
    Limited Partnerships are included in the Other Investments line of the accompanying balance sheet. 7. Unpaid Losses and Loss Adjustment Expenses
  Three MonthsEnded
    
    
    Year EndedMarch 31, 2010
    
    
    December 31, 2009(in thousands)Beginning balance, gross
    
    $
    608,807
    
    
    $
    644,396Less, reinsurance recoverables
    
    
    (62,316
    )
    
    
    (81,546
    )Net reserves, beginning balance
    
    
    546,491
    
    
    
    562,850Incurred related toCurrent year
    
    
    21,913
    
    
    
    94,121Prior years
    
    
    (8,121
    )
    
    
    (36,559
    )13,792
    
    
    
    57,562Paid related toCurrent year
    
    
    (270
    )
    
    
    (3,733
    )Prior years
    
    
    (18,397
    )
    
    
    (70,187
    )(18,667
    )
    
    
    (73,920
    )Net reserves, ending balance
    
    
    541,616
    
    
    
    546,492Plus, reinsurance recoverables
    
    
    59,880
    
    
    
    62,315Ending balance, gross
    
    $
    601,496
    
    
    $
    608,807Development as a % of
beginning net reserves
    
    
    -1.5
    %
    
    
    -6.5
    %
  18




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19




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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.
 
    
    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. 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.
 20




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##### Table of Contents




    
    A downgrade in the A.M. Best Company rating of our primary insurance subsidiary
could reduce the amount of business we are able to write.
 
    
    Changes in interest rates could adversely impact our results of operation, cash
flows and financial condition.
 
    
    The unpredictability of court decisions could have a material impact on our
operations.
 
    
    Our business could be adversely affected by the loss of one or more key employees.
 
    
    The insurance industry is subject to regulatory oversight that may impact the manner
in which we operate our business, our ability to obtain future premium rate increases,
the type and amount of our investments, the levels of capital and surplus deemed
adequate to protect policyholder interests, or the ability of our insurance
subsidiaries to pay dividends to the holding company.
 
    
    Our status as an insurance holding company with no direct operations could adversely
affect our ability to meet our debt obligations and fund future cash dividends and
share repurchases.
 
    
    Legislative or judicial changes in the tort system may have adverse or unintended
consequences that could materially and adversely affect our results of operations and
financial condition.
 
    
    Applicable law and various provisions in our articles and bylaws may prevent and
discourage unsolicited attempts to acquire APCapital that you may believe are in your
best interests or that might result in a substantial profit to our shareholders.
  Overview of APCapital
  21




---



##### Table of Contents



Description of Ratios and Other Metrics Analyzed
  Underwriting Gain or Loss:
 Loss Ratio:
 Underwriting Expense Ratio:
 22




---



##### Table of Contents



Combined Ratio:
 Investment Yield:
 Return on Equity:
 Book Value per Share:
   23




---



##### Table of Contents



Non-GAAP Financial Measures
 Accident Year Loss Ratio:
 Critical Accounting Policies
   24




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##### Table of Contents



Results of Operations  Three Months Ended March 31, 2010 Compared to the Three Months Ended
March 31, 2009
  Change2010
    
    
    2009
    
    
    Dollar
    
    
    Percentage(2)(dollars in thousands)Direct premiums written
    
    $
    27,296
    
    
    $
    30,121
    
    
    $
    (2,825
    )
    
    
    -9.4
    %Net premiums written
    
    $
    26,035
    
    
    $
    28,720
    
    
    $
    (2,685
    )
    
    
    -9.3
    %Net premiums earned
    
    $
    26,695
    
    
    $
    29,306
    
    
    $
    (2,611
    )
    
    
    -8.9
    %Losses and loss adjustment expensesCurrent year losses
    
    
    21,913
    
    
    
    23,836
    
    
    
    (1,923
    )
    
    
    8.1
    %Prior year losses
    
    
    (8,121
    )
    
    
    (8,224
    )
    
    
    103
    
    
    
    -1.3
    %Total
    
    
    13,792
    
    
    
    15,612
    
    
    
    (1,820
    )
    
    
    11.7
    %Underwriting expenses
    
    
    6,627
    
    
    
    7,132
    
    
    
    (505
    )
    
    
    7.1
    %Total underwriting gain
    
    
    6,276
    
    
    
    6,562
    
    
    
    (286
    )
    
    
    -4.4
    %Other revenue (expense) itemsInvestment income
    
    
    6,366
    
    
    
    8,190
    
    
    
    (1,824
    )
    
    
    -22.3
    %Net realized gain
    
    
    326
    
    
    
    
    
    
    
    326
    
    
    
    0.0
    %Other income
    
    
    249
    
    
    
    223
    
    
    
    26
    
    
    
    11.7
    %Other expenses (1)
    
    
    (838
    )
    
    
    (972
    )
    
    
    134
    
    
    
    13.8
    %Total other revenue and expense items
    
    
    6,103
    
    
    
    7,441
    
    
    
    (1,338
    )
    
    
    -18.0
    %Income before federal income taxes
    
    
    12,379
    
    
    
    14,003
    
    
    
    (1,624
    )
    
    
    -11.6
    %Federal income tax expense
    
    
    3,428
    
    
    
    3,916
    
    
    
    (488
    )
    
    
    12.5
    %Net income
    
    $
    8,951
    
    
    $
    10,087
    
    
    $
    (1,136
    )
    
    
    -11.3
    %Loss Ratio:Accident year
    
    
    82.1
    %
    
    
    81.3
    %
    
    
    
    
    
    
    0.8
    %Prior years
    
    
    -30.4
    %
    
    
    -28.0
    %
    
    
    
    
    
    
    -2.4
    %Calendar year
    
    
    51.7
    %
    
    
    53.3
    %
    
    
    
    
    
    
    -1.6
    %Underwriting expense ratio
    
    
    24.8
    %
    
    
    24.3
    %
    
    
    
    
    
    
    0.5
    %Combined ratio
    
    
    76.5
    %
    
    
    77.6
    %
    
    
    
    
    
    
    -1.1
    %Pre-tax investment yield
    
    
    3.24
    %
    
    
    3.98
    %
    
    
    
    
    
    
    -0.7
    %Return on beginning equity (annualized)
    
    
    15.1
    %
    
    
    15.9
    %
    
    
    
    
    
    
    -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. 25




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##### Table of Contents



Overview
  Premiums Written and Earned
  Change2010
    
    
    2009
    
    
    Dollar
    
    
    Percentage(dollars in thousands)Direct premiums writtenMichigan
    
    $
    7,768
    
    
    $
    8,669
    
    
    $
    (901
    )
    
    
    -10.4
    %Illinois
    
    
    8,099
    
    
    
    8,347
    
    
    
    (248
    )
    
    
    -3.0
    %Ohio
    
    
    4,806
    
    
    
    5,873
    
    
    
    (1,067
    )
    
    
    -18.2
    %New Mexico
    
    
    4,351
    
    
    
    4,809
    
    
    
    (458
    )
    
    
    -9.5
    %Other
    
    
    2,272
    
    
    
    2,423
    
    
    
    (151
    )
    
    
    -6.2
    %Total
    
    $
    27,296
    
    
    $
    30,121
    
    
    $
    (2,825
    )
    
    
    -9.4
    %Net premiums written
    
    $
    26,035
    
    
    $
    28,720
    
    
    $
    (2,685
    )
    
    
    -9.3
    %Ratio of net premiums
written to direct
    
    
    95.4
    %
    
    
    95.3
    %
    
    
    
    
    
    
    0.1
    %
    26




---



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Loss and Loss Adjustment Expenses
     27




---



##### Table of Contents



Underwriting Expenses
  Investment Income
  28




---



##### Table of Contents



Net Realized Losses
  Other Expenses
  Income Taxes
  Liquidity and Capital Resources
   29




---



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Parent Company
      30




---



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Consolidated
    31




---



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Financial Condition
  Statutory Capital and Surplus
  Reserves for Unpaid Losses and Loss Adjustment Expenses
   32




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##### Table of Contents



March 31,
    
    December 31,2010
    
    2009
    
    Change
    
    % Change(In thousands, except claim and per claim data)Net case reserves
    
    $
    253,063
    
    
    $
    236,244
    
    
    $
    16,819
    
    
    
    7.1
    %Number of open claims
    
    
    1,372
    
    
    
    1,290
    
    
    
    82
    
    
    
    6.4
    %Average net case reserve
per open claim
    
    $
    184,448
    
    
    $
    183,135
    
    
    $
    1,313
    
    
    
    0.7
    %Net IBNR reserves
    
    $
    264,048
    
    
    $
    285,373
    
    
    $
    (21,325
    )
    
    
    -7.5
    %Total net reserves
    
    $
    517,111
    
    
    $
    521,617
    
    
    $
    (4,506
    )
    
    
    -0.9
    %
     Investments
  33




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##### Table of Contents



March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    % of
    
    
    Carrying
    
    
    % ofValue (1)
    
    
    Portfolio
    
    
    Value (1)
    
    
    PortfolioTax-exempt municipal securities
    
    $
    440,698
    
    
    
    74.0
    %
    
    $
    385,111
    
    
    
    67.1
    %Corporate securities
    
    
    73,427
    
    
    
    12.3
    %
    
    
    79,414
    
    
    
    13.8
    %Mortgage-backed securities
    
    
    81,633
    
    
    
    13.7
    %
    
    
    109,399
    
    
    
    19.1
    %Total fixed-income securities
    
    $
    595,758
    
    
    
    100.0
    %
    
    $
    573,924
    
    
    
    100.0
    %
 
 (1)
    
    Carrying value for available-for-sale securities is fair value, whereas held-to-maturity
securities are carried at amortized cost.   March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    % of
    
    
    Carrying
    
    
    % ofRating
    
    Value (1)
    
    
    Total
    
    
    Value (1)
    
    
    TotalAAA
    
    $
    236,231
    
    
    
    39.7
    %
    
    $
    250,783
    
    
    
    43.7
    %AA
    
    
    265,507
    
    
    
    44.6
    %
    
    
    227,576
    
    
    
    39.7
    %A
    
    
    65,866
    
    
    
    11.1
    %
    
    
    67,672
    
    
    
    11.8
    %BBB
    
    
    15,635
    
    
    
    2.6
    %
    
    
    15,650
    
    
    
    2.6
    %BB
    
    
    6,396
    
    
    
    1.1
    %
    
    
    6,117
    
    
    
    1.1
    %589,635
    
    
    
    99.0
    %
    
    
    567,798
    
    
    
    98.9
    %Private Placement
    
    
    6,123
    
    
    
    1.0
    %
    
    
    6,126
    
    
    
    1.1
    %Total
    
    $
    595,758
    
    
    
    100.0
    %
    
    $
    573,924
    
    
    
    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. 34




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##### Table of Contents



Other Significant Balance Sheet Items
    Contractual Obligations and Off-Balance Sheet Arrangements
  35




---



##### Table of Contents



Effects of New Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 General
   Qualitative Information About Market Risk
    36




---



##### Table of Contents



Quantitative Information About Market Risk
 Interest Rate Risk
  March 31, 2010
    
    
    December 31, 2009Portfolio
    
    
    Change in
    
    
    Modified
    
    
    Portfolio
    
    
    Change in
    
    
    ModifiedChange in Rates
    
    Value
    
    
    Value
    
    
    Duration
    
    
    Value
    
    
    Value
    
    
    Duration(dollars in thousands)
    
    
    (dollars in thousands)+2%
    
    $
    232,071
    
    
    $
    (12,182
    )
    
    
    2.57
    
    
    $
    195,468
    
    
    $
    (9,605
    )
    
    
    2.31+1%
    
    
    238,001
    
    
    
    (6,252
    )
    
    
    2.43
    
    
    
    200,063
    
    
    
    (5,010
    )
    
    
    2.300
    
    
    244,253
    
    
    
    
    
    
    
    2.67
    
    
    
    205,073
    
    
    
    
    
    
    
    2.61-1%
    
    
    251,008
    
    
    
    6,755
    
    
    
    2.74
    
    
    
    210,490
    
    
    
    5,417
    
    
    
    2.63-2%
    
    
    257,827
    
    
    
    13,574
    
    
    
    2.82
    
    
    
    214,889
    
    
    
    9,816
    
    
    
    2.69
 Equity Price Risk
  37




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  38




---



##### 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 January 31, 2010
    
    
    114,200
    
    
    $
    29.39
    
    
    
    114,200
    
    
    $
    15,955,191
    
    
    $
    22,824,850For the month ended February 28, 2010
    
    
    162,300
    
    
    $
    27.90
    
    
    
    162,300
    
    
    $
    15,955,191
    
    
    $
    18,297,409For the month ended March 31, 2010
    
    
    109,300
    
    
    $
    31.55
    
    
    
    109,300
    
    
    $
    15,697,179
    
    
    $
    15,106,605For the three months ended March 31, 2010
    
    
    385,800
    
    
    $
    29.37
    
    
    
    385,800
    
    
    $
    15,697,179
    
    
    $
    15,106,605
 
 (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 December 4 and 11, 2008, the Board authorized the repurchase of an
additional $10 million and $20 million of the Companys common shares
pursuant to the Rule 10b5-1 plan in 2008, as well as the rollover of
any unused authorization into 2009. On December
3, 2009 the Board authorized the repurchase of an additional $20
million of the Companys common shares
pursuant to the Rule 10b5-1 plan in 2009, as well as the rollover of
any unused authorization into 2010.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.
  39




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##### Table of Contents



SIGNATURES
   AMERICAN PHYSICIANS CAPITAL, INC.By:
    /s/ R. Kevin ClintonR. Kevin ClintonIts: President and Chief Executive Officer By:
    /s/ Frank H. FreundFrank H. FreundIts: Executive Vice President, Treasurer and 
Chief Financial Officer 40




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Exhibit Description31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934.32.1
    
    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 March 31, 2010.
 41