##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

Form 10-Q

|  |  |                                                                                                                                                                                                                 |  | 
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF
    THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2003                                                                    |  | 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF
    THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period
    from                to                
    Commission File Number: 000-32057 |  | 

American Physicians Capital, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Michigan                                                           |  | 38-3543910                              
|(State or other jurisdiction of
    incorporation or organization) |  | (IRS employer
    identification number)

1301 North Hagadorn Road, East Lansing,
Michigan 48823

(Address of principal executive offices)(Zip
Code)


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

Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act: Common Stock, no par value


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

YESxNOo

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

YESxNOo

The number of shares outstanding of the
registrants common stock, no par value per share, as of
May 13, 2003 was 8,706,533.



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TABLE OF CONTENTS



|                                                                                                        |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS                                                                                      
|PART I. FINANCIAL INFORMATION                                                                          
|CONDENSED CONSOLIDATED BALANCE SHEETS                                                                  
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)                                                
|CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                              
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                        
|AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                                                                        | ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                                        | ITEM 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II. OTHER INFORMATION                                                                             
|                                                                                                        | ITEM 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                             
|CERTIFICATION OF DISCLOSURE                                                                            
|EXHIBIT INDEX                                                                                          
|906 Certification of Chief Executive Officer                                                           
|906 Certification of Chief Financial Officer                                                           



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TABLE OF CONTENTS


|                              |                                                                                                   |  |    |    | 
|----------------------------- | ------------------------------------------------------------------------------------------------- |  | -- | -- | 
|PART I. FINANCIAL INFORMATION |                                                                                                   |  |    |   
|                              | Item 1. Financial Statements (Unaudited)                                                          |  |    |    | 
|                              | Condensed
    Consolidated Balance Sheets                                                         |  |    | 3  | 
|                              | Condensed
    Consolidated Statements of Income                                                   |  |    | 4  | 
|                              | Condensed
    Consolidated Statements of Comprehensive Income                                     |  |    | 5  | 
|                              | Condensed
    Consolidated Statements of Cash Flows                                               |  |    | 6  | 
|                              | Notes
    to Condensed Consolidated Financial Statements                                          |  |    | 7  | 
|                              | Item 2. Managements Discussion
    and Analysis of Financial Condition and Results of Operations |  |    | 11 | 
|                              | Item 3. Quantitative and Qualitative
    Disclosures About Market Risk                            |  |    | 20 | 
|                              | Item 4. Controls and Procedures                                                                   |  |    | 21 | 
|PART II. OTHER INFORMATION    |                                                                                                   |  |    |   
|                              | Item 6. Exhibits and Reports on
    Form 8-K                                                      |  |    | 22 | 
|Signatures                    |                                                                                                   |  | 23 |   
|Certification of Disclosure   |                                                                                                   |  | 24 |   
|Exhibit Index                 |                                                                                                   |  | 26 |   

2



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PART I. FINANCIAL INFORMATION


AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES






CONDENSED CONSOLIDATED BALANCE
SHEETS


ITEM 1. Financial Statements

|                                                                                                                                                                   |                                                                                      |                                            |         |         |              |   |         |         |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ------- | ------------ | - | ------- | ------- | --------- | 
|                                                                                                                                                                   |                                                                                      | March 31,                                  |         |         | December 31, |  
|                                                                                                                                                                   |                                                                                      | 2003                                       |         |         | 2002         |  
|                                                                                                                                                                   |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                   |                                                                                      | (Unaudited)                                |         |         |             
|                                                                                                                                                                   |                                                                                      |                                           
|                                                                                                                                                                   |                                                                                      | (In thousands, except share data)          |        
|Assets                                                                                                                                                             |                                                                                      |                                            |         |         |              |   |         |        
|Investments:                                                                                                                                                       |                                                                                      |                                            |         |         |              |   |         |        
|                                                                                                                                                                   | Fixed maturities, at fair value                                                      |                                            | $       | 567,731 |              |   | $       | 618,899 |          
|                                                                                                                                                                   | Equity securities, at fair value                                                     |                                            |         | 2,494   |              |   |         | 44      |          
|                                                                                                                                                                   | Other investments                                                                    |                                            |         | 30,638  |              |   |         | 30,788  |          
|                                                                                                                                                                   |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                   |                                                                                      | Total investments                          |         |         | 600,863      |   |         |         | 649,731   | 
|Cash and cash equivalents                                                                                                                                          |                                                                                      |                                            | 199,208 |         |              |   | 151,825 |        
|Premiums receivable                                                                                                                                                |                                                                                      |                                            | 58,273  |         |              |   | 62,531  |        
|Reinsurance recoverable                                                                                                                                            |                                                                                      |                                            | 103,113 |         |              |   | 98,128  |        
|Federal income tax recoverable                                                                                                                                     |                                                                                      |                                            | 2,015   |         |              |   | 1,100   |        
|Deferred federal income taxes                                                                                                                                      |                                                                                      |                                            | 41,027  |         |              |   | 42,542  |        
|Property and equipment, net of accumulated
    depreciation                                                                                                        |                                                                                      |                                            | 14,331  |         |              |   | 14,352  |        
|Other intangible assets                                                                                                                                            |                                                                                      |                                            | 506     |         |              |   |        |        
|Other assets                                                                                                                                                       |                                                                                      |                                            | 39,533  |         |              |   | 38,709  |        
|                                                                                                                                                                   |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                   |                                                                                      | Total assets                               |         | $       | 1,058,869    |   |         | $       | 1,058,918 | 
|                                                                                                                                                                   |                                                                                      |                                            |         |         |              |  
|Liabilities                                                                                                                                                        |                                                                                      |                                            |         |         |              |   |         |        
|Unpaid losses and loss adjustment expenses                                                                                                                         |                                                                                      | $                                          | 639,331 |         |              | $ | 637,494 |        
|Unearned premiums                                                                                                                                                  |                                                                                      |                                            | 101,013 |         |              |   | 103,420 |        
|Note payable, officer                                                                                                                                              |                                                                                      |                                            | 6,662   |         |              |   | 6,567   |        
|Other liabilities                                                                                                                                                  |                                                                                      |                                            | 31,189  |         |              |   | 31,148  |        
|                                                                                                                                                                   |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                   |                                                                                      | Total liabilities                          |         |         | 778,195      |   |         |         | 778,629   | 
|                                                                                                                                                                   |                                                                                      |                                            |         |         |              |  
|Shareholders Equity                                                                                                                                               |                                                                                      |                                            |         |         |              |   |         |        
|Common stock, no par value, 50,000,000 shares
    authorized: 8,701,533 and 8,695,452 shares outstanding at
    March 31, 2003 and December 31, 2002, respectively |                                                                                      |                                            |        |         |              |   |        |        
|Additional paid-in-capital                                                                                                                                         |                                                                                      |                                            | 92,148  |         |              |   | 92,148  |        
|Retained earnings                                                                                                                                                  |                                                                                      |                                            | 163,198 |         |              |   | 164,183 |        
|Unearned stock compensation                                                                                                                                        |                                                                                      |                                            | (603    | )       |              |   | (678    | )      
|Accumulated other comprehensive income:                                                                                                                            |                                                                                      |                                            |         |         |              |   |         |        
|                                                                                                                                                                   | Net unrealized appreciation on investments, net
    of deferred federal income taxes |                                            |         | 25,931  |              |   |         | 24,636  |          
|                                                                                                                                                                   |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                   |                                                                                      | Total shareholders equity                 |         |         | 280,674      |   |         |         | 280,289   | 
|                                                                                                                                                                   |                                                                                      |                                            |         |         |              |  
|                                                                                                                                                                   |                                                                                      | Total liabilities and shareholders equity |         | $       | 1,058,869    |   |         | $       | 1,058,918 | 
|                                                                                                                                                                   |                                                                                      |                                            |         |         |              |  

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

3



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AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES






CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)


|                                                                          |                                                                                                |                       |        |        |      |   |        |         |  
|------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------- | ------ | ------ | ---- | - | ------ | ------- | -
|                                                                          |                                                                                                |                      
|                                                                          |                                                                                                | Three Months Ended    |       
|                                                                          |                                                                                                | March 31,             |       
|                                                                          |                                                                                                |                       |       
|                                                                          |                                                                                                | 2003                  |        |        | 2002 |  
|                                                                          |                                                                                                |                       |        |        |      |  
|                                                                          |                                                                                                |                      
|                                                                          |                                                                                                | (In thousands, except |       
|                                                                          |                                                                                                | per share data)       |       
|Net premiums written                                                      |                                                                                                | $                     | 54,837 |        |      | $ | 62,377 |        
|Change in net unearned premiums                                           |                                                                                                |                       | 3,599  |        |      |   | (8,450 | )      
|                                                                          |                                                                                                |                       |        |        |      |  
|                                                                          | Net premiums earned                                                                            |                       |        | 58,436 |      |   |        | 53,927  |  
|Investment income                                                         |                                                                                                |                       | 10,385 |        |      |   | 10,836 |        
|Net realized losses                                                       |                                                                                                |                       | (3     | )      |      |   | (286   | )      
|Other income                                                              |                                                                                                |                       | 161    |        |      |   | 134    |        
|                                                                          |                                                                                                |                       |        |        |      |  
|                                                                          | Total revenues and other income                                                                |                       |        | 68,979 |      |   |        | 64,611  |  
|                                                                          |                                                                                                |                       |        |        |      |  
|Losses and loss adjustment expenses                                       |                                                                                                |                       | 55,982 |        |      |   | 57,168 |        
|Underwriting expenses                                                     |                                                                                                |                       | 13,287 |        |      |   | 11,471 |        
|Investment expenses                                                       |                                                                                                |                       | 551    |        |      |   | 911    |        
|Interest expense                                                          |                                                                                                |                       | 95     |        |      |   | 90     |        
|Amortization expense                                                      |                                                                                                |                       | 44     |        |      |   |       |        
|General and administrative expenses                                       |                                                                                                |                       | 535    |        |      |   | 400    |        
|                                                                          |                                                                                                |                       |        |        |      |  
|                                                                          | Total expenses                                                                                 |                       |        | 70,494 |      |   |        | 70,040  |  
|                                                                          |                                                                                                |                       |        |        |      |  
|                                                                          | Loss before federal income taxes and cumulative
    effect of a change in accounting principle |                       |        | (1,515 | )    |   |        | (5,429  | )
|Federal income tax benefit                                                |                                                                                                |                       | (530   | )      |      |   | (1,900 | )      
|                                                                          |                                                                                                |                       |        |        |      |  
|                                                                          | Loss before cumulative effect of a change in
    accounting principle                          |                       |        | (985   | )    |   |        | (3,529  | )
|Cumulative effect of a change in accounting
    principle                 |                                                                                                |                       |       |        |      |   | (9,079 | )      
|                                                                          |                                                                                                |                       |        |        |      |  
|                                                                          | Net loss                                                                                       |                       | $      | (985   | )    |   | $      | (12,608 | )
|                                                                          |                                                                                                |                       |        |        |      |  
|Net loss before cumulative effect of a change in
    accounting principle |                                                                                                |                       |        |        |      |   |        |        
|                                                                          | Basic                                                                                          |                       | $      | (0.11  | )    |   | $      | (0.35   | )
|                                                                          | Diluted                                                                                        |                       | $      | (0.11  | )    |   | $      | (0.35   | )
|Cumulative effect of a change in accounting
    principle                 |                                                                                                |                       |        |        |      |   |        |        
|                                                                          | Basic                                                                                          |                       | $      |       |      |   | $      | (0.91   | )
|                                                                          | Diluted                                                                                        |                       | $      |       |      |   | $      | (0.91   | )
|Net loss per common share                                                 |                                                                                                |                       |        |        |      |   |        |        
|                                                                          | Basic                                                                                          |                       | $      | (0.11  | )    |   | $      | (1.26   | )
|                                                                          | Diluted                                                                                        |                       | $      | (0.11  | )    |   | $      | (1.26   | )

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

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AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES






CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME


(UNAUDITED)


|                                   |                                                                     |                                         |                             |       |      |     |         |        |       |         |  
|---------------------------------- | ------------------------------------------------------------------- | --------------------------------------- | --------------------------- | ----- | ---- | --- | ------- | ------ | ----- | ------- | -
|                                   |                                                                     |                                        
|                                   |                                                                     | Three Months Ended                      |                            
|                                   |                                                                     | March 31,                               |                            
|                                   |                                                                     |                                         |                            
|                                   |                                                                     | 2003                                    |                             |       | 2002 |    
|                                   |                                                                     |                                         |                             |       |      |    
|                                   |                                                                     |                                        
|                                   |                                                                     | (In thousands)                          |                            
|Net loss                           |                                                                     | $                                       | (985                        | )     |      | $   | (12,608 | )     
|Other comprehensive income (loss): |                                                                     |                                         |                             |       |      |     |         |       
|                                   | Unrealized appreciation (depreciation) on
    investment securities |                                         |                             | 1,992 |      |     |         | (7,416 | )    
|                                   |                                                                     | Effect of deferred federal income taxes |                             |       | (697 | )   |         |        | 2,595 |        
|                                   |                                                                     |                                         |                             |       |      |    
|                                   |                                                                     |                                         | Comprehensive income (loss) |       | $    | 310 |         |        | $     | (17,429 | )
|                                   |                                                                     |                                         |                             |       |      |    

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

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AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(UNAUDITED)


|                                     |                                                                                               |                                                          |                                                          |      |        |         |   |        |         |         |  
|------------------------------------ | --------------------------------------------------------------------------------------------- | -------------------------------------------------------- | -------------------------------------------------------- | ---- | ------ | ------- | - | ------ | ------- | ------- | -
|                                     |                                                                                               |                                                         
|                                     |                                                                                               | Three Months Ended                                       |                                                         
|                                     |                                                                                               | March 31,                                                |                                                         
|                                     |                                                                                               |                                                          |                                                         
|                                     |                                                                                               | 2003                                                     |                                                          |      | 2002   |        
|                                     |                                                                                               |                                                          |                                                          |      |        |        
|                                     |                                                                                               |                                                         
|                                     |                                                                                               | (In thousands)                                           |                                                         
|Cash flows from operating activities |                                                                                               |                                                          |                                                          |      |        |         |   |       
|                                     | Net loss                                                                                      |                                                          | $                                                        | (985 | )      |         | $ | (3,529 | )      
|                                     | Adjustments to reconcile net loss to net cash
    (used in) provided by operating activities: |                                                          |                                                          |      |        |         |   |        |        
|                                     |                                                                                               | Depreciation and amortization                            |                                                          |      | 891    |         |   |        | 776     |        
|                                     |                                                                                               | Net realized losses                                      |                                                          |      | 3      |         |   |        | 286     |        
|                                     |                                                                                               | Change in deferred federal income taxes                  |                                                          |      | 778    |         |   |        | 3,942   |        
|                                     |                                                                                               | Increase in unpaid loss and loss adjustment
    expenses |                                                          |      | 1,837  |         |   |        | 9,006   |        
|                                     |                                                                                               | Change in unearned premiums                              |                                                          |      | (2,407 | )       |   |        | 11,153  |        
|                                     |                                                                                               | Changes in other assets and liabilities                  |                                                          |      | (2,975 | )       |   |        | (13,574 | )      
|                                     |                                                                                               |                                                          |                                                          |      |        |        
|                                     |                                                                                               |                                                          | Net cash (used in) provided by operating
    activities  |      |        | (2,858  | ) |        |         | 8,060   |  
|                                     |                                                                                               |                                                          |                                                          |      |        |        
|Cash flows from investing activities |                                                                                               |                                                          |                                                          |      |        |         |   |       
|                                     | Purchases                                                                                     |                                                          |                                                          |      |        |         |   |        |        
|                                     |                                                                                               | Available-for-sale  fixed maturities                    |                                                          |      | (1,151 | )       |   |        | (67,428 | )      
|                                     |                                                                                               | Available-for-sale  equity securities                   |                                                          |      | (2,450 | )       |   |        |        |        
|                                     |                                                                                               | Property and equipment                                   |                                                          |      | (431   | )       |   |        | (262    | )      
|                                     | Sales and maturities                                                                          |                                                          |                                                          |      |        |         |   |        |        
|                                     |                                                                                               | Available-for-sale  fixed maturities                    |                                                          |      | 54,273 |         |   |        | 10,261  |        
|                                     |                                                                                               |                                                          |                                                          |      |        |        
|                                     |                                                                                               |                                                          | Net cash provided by (used in) investing
    activities  |      |        | 50,241  |   |        |         | (57,429 | )
|                                     |                                                                                               |                                                          |                                                          |      |        |        
|Cash flows from financing activities |                                                                                               |                                                          |                                                          |      |        |         |   |       
|                                     | Common stock repurchased                                                                      |                                                          |                                                          |     |        |         |   | (5,196 | )      
|                                     | Proceeds from stock options exercised                                                         |                                                          |                                                          |     |        |         |   | 238    |        
|                                     |                                                                                               |                                                          |                                                          |      |        |        
|                                     |                                                                                               |                                                          | Net cash used in financing
    activities                |      |        |        |   |        |         | (4,958  | )
|                                     |                                                                                               |                                                          |                                                          |      |        |        
|                                     |                                                                                               |                                                          | Net increase (decrease) in cash and cash
    equivalents |      |        | 47,383  |   |        |         | (54,327 | )
|                                     |                                                                                               |                                                          | Cash and cash equivalents, beginning of
    period       |      |        | 151,825 |   |        |         | 106,444 |  
|                                     |                                                                                               |                                                          |                                                          |      |        |        
|                                     |                                                                                               |                                                          | Cash and cash equivalents, end of
    period             |      | $      | 199,208 |   |        | $       | 52,117  |  
|                                     |                                                                                               |                                                          |                                                          |      |        |        

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

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AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)

1.     Basis of
Presentation

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

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

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

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

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

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

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

Stock-based Compensation

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

7



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AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

If compensation had been determined on the fair
value at the grant date for awards in the quarters ended
March 31, 2003 and 2002, respectively, consistent with the
provisions of SFAS No. 123, our net loss and net loss per
share would have been follows:

|                                                                                                                                                       |             |                       |     |        |      |  |     |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------- | --------------------- | --- | ------ | ---- |  | --- | ------- | -
|                                                                                                                                                       |             |                      
|                                                                                                                                                       |             | March 31,             |    
|                                                                                                                                                       |             |                       |    
|                                                                                                                                                       |             | 2003                  |     |        | 2002 | 
|                                                                                                                                                       |             |                       |     |        |      | 
|                                                                                                                                                       |             |                      
|                                                                                                                                                       |             | (In thousands, except |    
|                                                                                                                                                       |             | per share data)       |    
|Net loss                                                                                                                                               |             |                       |     |        |      |  |     |        
|                                                                                                                                                       | As reported |                       | $   | (985   | )    |  | $   | (12,608 | )
|                                                                                                                                                       | Pro forma   |                       | $   | (1,295 | )    |  | $   | (13,049 | )
|Stock based employee compensation expense
    included in reported net loss, net of related tax effects                                                |             |                       |    |        |      |  |    |        
|Total stock based employee compensation expense
    determined under fair value based method for all awards granted
    since 2000, net of related tax |             |                       | 310 |        |      |  | 441 |        
|Diluted loss per share                                                                                                                                 |             |                       |     |        |      |  |     |        
|                                                                                                                                                       | As reported |                       | $   | (0.11  | )    |  | $   | (1.26   | )
|                                                                                                                                                       | Pro forma   |                       | $   | (0.15  | )    |  | $   | (1.30   | )

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

The weighted-average fair value of options
granted, measured on the grant date using the Black-Scholes
model, was $7.93 per share for the three months ended
March 31, 2002. There were no options granted during the
three months ended March 31, 2003.

The fair value of each option grant is estimated
on the date of grant using the Black-Scholes valuation model
with the following weighted average assumptions:

|                         |  |         |  |  |      |  |       |  
|------------------------ |  | ------- |  |  | ---- |  | ----- | -
|                         |  | 2003(1) |  |  | 2002 | 
|                         |  |         |  |  |      | 
|Risk-free interest rate  |  |         |  |  |      |  | 4.45  | %
|Volatility assumption    |  |         |  |  |      |  | 35.00 | %
|Expected life of options |  |         |  |  |      |  | 5.00  |  
|Dividend yield           |  |         |  |  |      |  | 0.00  | %




|    |                                                                                
|--- | -------------------------------------------------------------------------------
|(1) | There were no options granted during the
    three months ended March 31, 2003.

2.     Loss Per
Share

Net loss per common share is computed by dividing
net loss by the weighted average number of shares of common
stock and common stock equivalents (e.g., stock options and
stock awards) outstanding, calculated on a daily basis. The
weighted average shares outstanding were 8,594,572 and
10,029,243 for the three months ended March 31, 2003
and 2002, respectively.

8



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##### Table of Contents



AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                              |                                                                                                  |                       |       |       |      |   |       |         |  
|----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | --------------------- | ----- | ----- | ---- | - | ----- | ------- | -
|                                                                              |                                                                                                  |                      
|                                                                              |                                                                                                  | Three Months Ended    |      
|                                                                              |                                                                                                  | March 31,             |      
|                                                                              |                                                                                                  |                       |      
|                                                                              |                                                                                                  | 2003                  |       |       | 2002 |  
|                                                                              |                                                                                                  |                       |       |       |      |  
|                                                                              |                                                                                                  |                      
|                                                                              |                                                                                                  | (In thousands, except |      
|                                                                              |                                                                                                  | per share data)       |      
|Numerator for basic and diluted loss per
    common share:                    |                                                                                                  |                       |       |       |      |   |       |        
|                                                                              | Loss before cumulative effect of a change in
    accounting principle                            |                       | $     | (985  | )    |   | $     | (3,529  | )
|                                                                              | Cumulative effect of a change in accounting
    principle                                        |                       |       |      |      |   |       | (9,079  | )
|                                                                              |                                                                                                  |                       |       |       |      |  
|                                                                              | Net loss                                                                                         |                       | $     | (985  | )    |   | $     | (12,608 | )
|                                                                              |                                                                                                  |                       |       |       |      |  
|Denominator:                                                                  |                                                                                                  |                       |       |       |      |   |       |        
|                                                                              | Denominator for basic loss per common
    share  weighted average shares outstanding            |                       |       | 8,595 |      |   |       | 10,029  |  
|                                                                              | Effect of dilutive stock options and awards(1)                                                   |                       |       |      |      |   |       |        |  
|                                                                              |                                                                                                  |                       |       |       |      |  
|                                                                              | Denominator for diluted loss per common
    share  adjusted weighted average shares outstanding |                       | $     | 8,595 |      |   | $     | 10,029  |  
|                                                                              |                                                                                                  |                       |       |       |      |  
|Loss before cumulative effect of a change in
    accounting principle  basic |                                                                                                  | $                     | (0.11 | )     |      | $ | (0.35 | )      
|Cumulative effect of a change in accounting
    principle  basic             |                                                                                                  | $                     |      |       |      | $ | (0.91 | )      
|Net loss  basic                                                              |                                                                                                  | $                     | (0.11 | )     |      | $ | (1.26 | )      




|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As the Company was in a net loss position for the
    three months ended March 31, 2003 and 2002, no effect of
    options or other stock awards was calculated as the impact would
    be anti-dilutive.

3.     Segment
Information

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

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

9



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##### Table of Contents



AMERICAN PHYSICIANS CAPITAL, INC. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|              |                                |                |   |         |              |  |   |         |           | 
|------------- | ------------------------------ | -------------- | - | ------- | ------------ |  | - | ------- | --------- | 
|              |                                | March 31,      |   |         | December 31, | 
|              |                                | 2003           |   |         | 2002         | 
|              |                                |                |   |         |              | 
|              |                                |               
|              |                                | (In thousands) |  
|Total assets: |                                |                |   |         |              |  |   |        
|              | Medical professional liability |                | $ | 876,828 |              |  | $ | 859,804 |          
|              | Workers compensation          |                |   | 143,014 |              |  |   | 153,612 |          
|              | Health                         |                |   | 14,114  |              |  |   | 19,003  |          
|              | Personal and commercial        |                |   | 3,378   |              |  |   | 4,089   |          
|              | Corporate and other            |                |   | 21,535  |              |  |   | 22,410  |          
|              |                                |                |   |         |              | 
|              |                                | Total          |   | $       | 1,058,869    |  |   | $       | 1,058,918 | 
|              |                                |                |   |         |              | 

|                                               |                                |                    |   |        |        |   |   |        |        |  
|---------------------------------------------- | ------------------------------ | ------------------ | - | ------ | ------ | - | - | ------ | ------ | -
|                                               |                                |                   
|                                               |                                | Three Months Ended |  
|                                               |                                | March 31,          |  
|                                               |                                |                    |  
|                                               |                                | 2003               |   |        | 2002   |  
|                                               |                                |                    |   |        |        |  
|                                               |                                |                   
|                                               |                                | (In thousands)     |  
|Total revenue:                                 |                                |                    |   |        |        |   |   |       
|                                               | Medical professional liability |                    | $ | 48,272 |        |   | $ | 41,201 |       
|                                               | Workers compensation          |                    |   | 13,875 |        |   |   | 16,947 |       
|                                               | Health                         |                    |   | 6,712  |        |   |   | 5,816  |       
|                                               | Personal and commercial        |                    |   | (149   | )      |   |   | (18    | )     
|                                               | Corporate and other            |                    |   | 269    |        |   |   | 665    |       
|                                               |                                |                    |   |        |        |  
|                                               |                                | Total              |   | $      | 68,979 |   |   | $      | 64,611 |  
|                                               |                                |                    |   |        |        |  
|Income (loss) before federal income
    taxes: |                                |                    |   |        |        |   |   |       
|                                               | Medical professional liability |                    | $ | (1,289 | )      |   | $ | (5,925 | )     
|                                               | Workers compensation          |                    |   | 252    |        |   |   | 1,657  |       
|                                               | Health                         |                    |   | 204    |        |   |   | (1,186 | )     
|                                               | Personal and commercial        |                    |   | (402   | )      |   |   | (183   | )     
|                                               | Corporate and other            |                    |   | (280   | )      |   |   | 208    |       
|                                               |                                |                    |   |        |        |  
|                                               |                                | Total              |   | $      | (1,515 | ) |   | $      | (5,429 | )
|                                               |                                |                    |   |        |        |  

4.     Goodwill

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

10



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 2. | Managements Discussion and Analysis of
    Financial Condition and Results of Operations

The following discussion and analysis should be
read in conjunction with the condensed consolidated financial
statements and the notes thereto included elsewhere in this
report and the Companys Annual Report on Form 10-K
for the year ended December 31, 2002. The following
discussion of our financial condition and results of operations
contains certain forward-looking statements related to our
anticipated future financial condition and operating results and
our current business plans. When we use words such as
believes, expects,
anticipates, estimates or similar
expressions, we are making forward-looking statements. These
forward-looking statements represent our outlook only as of the
date of this report. While we believe that any forward-looking
statements we have made are reasonable, actual results could
differ materially since these statements are based on our
current expectations and are subject to risks and uncertainties.
These risks and uncertainties are detailed from time to time in
reports filed by the Company with the Securities and Exchange
Commission. See, for example, the disclosures in
Item 1  Business  Uncertainties
Relating to Forward-Looking Statements of the
Companys Annual Report on Form 10-K for the year
ended December 31, 2002, and in other reports filed by the
Company with the Securities and Exchange Commission. Other
factors not currently anticipated by management may also
materially and adversely affect the Companys financial
position and results of operations. The Company does not
undertake, and expressly disclaims any obligation, to update or
alter its forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
applicable law.

The following analysis utilizes financial results
and ratios that are determined in accordance with accounting
principles generally accepted in the United States of America
(GAAP). The property/ casualty insurance industry
utilizes some unique financial ratios that can be derived from
GAAP amounts that help investors better understand our
operations. A description of these ratios is contained in
Item 7  Managements Discussion and
Analysis of Financial Condition and Results of
Operations  Description of Ratios Analyzed of
the Companys Annual Report on Form 10-K for the year
ended December 31, 2002.

In addition to our reported GAAP loss ratios, we
also report accident year loss ratios, which exclude prior year
loss reserve development. We believe this ratio is useful in
evaluating our current underwriting performance, as it focuses
on the relationships between current premiums earned and current
losses. Our method of calculating these measures may differ from
those used by other companies and, therefore, comparability may
be limited.

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

11



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##### Table of Contents



The following table sets forth, for the
three-month periods ended March 31, 2003 and 2002, the
amount of direct premiums written, net premiums written, and net
premiums earned for each of our insurance operating segments.

|                         |                                |                              |   |        |        |  |  |        |        |  |       |        |        |  |  |       |        | 
|------------------------ | ------------------------------ | ---------------------------- | - | ------ | ------ |  |  | ------ | ------ |  | ----- | ------ | ------ |  |  | ----- | ------ | 
|                         |                                |                             
|                         |                                | Three Months Ended March 31, |  
|                         |                                |                              |  
|                         |                                |                              |   |       
|                         |                                | 2003                         |   |        | 2002   | 
|                         |                                |                              |   |        |        | 
|                         |                                |                              |   | % of   |        |  |  |        | % of   | 
|                         |                                | Amount                       |   |        | Total  |  |  | Amount |        |  | Total |       
|                         |                                |                              |   |        |        |  |  |        |        |  |       |       
|                         |                                |                             
|                         |                                | (dollars in thousands)       |  
|Direct premiums written: |                                |                              |   |        |        |  |  |        |        |  |       |        |        |  |  |      
|                         | Medical professional liability |                              | $ | 47,591 |        |  |  | 77.2%  |        |  | $     | 45,403 |        |  |  | 64.3% |       
|                         | Workers compensation          |                              |   | 7,226  |        |  |  | 11.7%  |        |  |       | 19,268 |        |  |  | 27.3% |       
|                         | Health                         |                              |   | 6,841  |        |  |  | 11.1%  |        |  |       | 5,528  |        |  |  | 7.8%  |       
|                         | Other                          |                              |   |       |        |  |  | 0.0%   |        |  |       | 360    |        |  |  | 0.6%  |       
|                         |                                |                              |   |        |        |  |  |        |        |  |       |       
|                         |                                | Total                        |   | $      | 61,658 |  |  |        | 100.0% |  |       | $      | 70,559 |  |  |       | 100.0% | 
|                         |                                |                              |   |        |        |  |  |        |        |  |       |       
|Net premiums written:    |                                |                              |   |        |        |  |  |        |        |  |       |        |        |  |  |      
|                         | Medical professional liability |                              | $ | 40,119 |        |  |  | 73.2%  |        |  | $     | 38,567 |        |  |  | 61.8% |       
|                         | Workers compensation          |                              |   | 8,305  |        |  |  | 15.1%  |        |  |       | 18,126 |        |  |  | 29.1% |       
|                         | Health                         |                              |   | 6,525  |        |  |  | 11.9%  |        |  |       | 5,684  |        |  |  | 9.1%  |       
|                         | Other                          |                              |   | (112   | )      |  |  | -0.2%  |        |  |       |       |        |  |  | 0.0%  |       
|                         |                                |                              |   |        |        |  |  |        |        |  |       |       
|                         |                                | Total                        |   | $      | 54,837 |  |  |        | 100.0% |  |       | $      | 62,377 |  |  |       | 100.0% | 
|                         |                                |                              |   |        |        |  |  |        |        |  |       |       
|Net premiums earned:     |                                |                              |   |        |        |  |  |        |        |  |       |        |        |  |  |      
|                         | Medical professional liability |                              | $ | 39,485 |        |  |  | 67.6%  |        |  | $     | 32,951 |        |  |  | 61.1% |       
|                         | Workers compensation          |                              |   | 12,538 |        |  |  | 21.5%  |        |  |       | 15,292 |        |  |  | 28.4% |       
|                         | Health                         |                              |   | 6,525  |        |  |  | 11.2%  |        |  |       | 5,684  |        |  |  | 10.5% |       
|                         | Other                          |                              |   | (112   | )      |  |  | -0.3%  |        |  |       |       |        |  |  | 0.0%  |       
|                         |                                |                              |   |        |        |  |  |        |        |  |       |       
|                         |                                | Total                        |   | $      | 58,436 |  |  |        | 100.0% |  |       | $      | 53,927 |  |  |       | 100.0% | 
|                         |                                |                              |   |        |        |  |  |        |        |  |       |       

12



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##### Table of Contents



Results of Operations 
Three Months Ended March 31, 2003, Compared to
Three Months Ended March 31, 2002

Medical
Professional Liability Insurance Operations

The following table sets forth summary premium,
loss and expense information regarding the underwriting results
of our medical professional liability insurance operations for
the three-month periods ended March 31, 2003 and 2002.

|                                            |                     |                        |        |        |        |   |         |            |        |   |        |        |       |  |        |        |      | 
|------------------------------------------- | ------------------- | ---------------------- | ------ | ------ | ------ | - | ------- | ---------- | ------ | - | ------ | ------ | ----- |  | ------ | ------ | ---- | 
|                                            |                     |                        |        |        |        |   |         | Percentage |       
|                                            |                     | 2003                   |        |        | 2002   |   |         | Change     |        |   | Change |       
|                                            |                     |                        |        |        |        |   |         |            |        |   |        |       
|                                            |                     |                       
|                                            |                     | (dollars in thousands) |       
|Direct premiums written:                    |                     |                        |        |        |        |   |         |            |        |   |        |        |       |  |        |       
|                                            | Michigan            |                        | $      | 8,442  |        |   | $       | 7,610      |        |   | $      | 832    |       |  |        | 10.9%  |     
|                                            | Ohio                |                        |        | 7,905  |        |   |         | 9,020      |        |   |        | (1,115 | )     |  |        | -12.4% |     
|                                            | Illinois            |                        |        | 12,930 |        |   |         | 7,016      |        |   |        | 5,914  |       |  |        | 84.3%  |     
|                                            | Florida             |                        |        | 3,475  |        |   |         | 7,343      |        |   |        | (3,868 | )     |  |        | -52.7% |     
|                                            | Kentucky            |                        |        | 8,215  |        |   |         | 10,172     |        |   |        | (1,957 | )     |  |        | -19.2% |     
|                                            | New Mexico          |                        |        | 3,813  |        |   |         | 2,503      |        |   |        | 1,310  |       |  |        | 52.3%  |     
|                                            | Nevada              |                        |        | 1,044  |        |   |         | 940        |        |   |        | 104    |       |  |        | 11.1%  |     
|                                            | Other               |                        |        | 1,767  |        |   |         | 799        |        |   |        | 968    |       |  |        | 121.2% |     
|                                            |                     |                        |        |        |        |   |         |            |        |   |        |       
|                                            |                     | Total                  |        | $      | 47,591 |   |         | $          | 45,403 |   |        | $      | 2,188 |  |        |        | 4.8% | 
|                                            |                     |                        |        |        |        |   |         |            |        |   |        |       
|Net premiums written                        |                     | $                      | 40,119 |        |        | $ | 38,567  |            |        | $ | 1,552  |        |       |  | 4.0%   |       
|                                            |                     |                        |        |        |        |   |         |            |        |   |        |       
|Net premiums earned                         |                     | $                      | 39,485 |        |        | $ | 32,951  |            |        | $ | 6,534  |        |       |  | 19.8%  |       
|Incurred loss and loss adjustment expenses: |                     |                        |        |        |        |   |         |            |        |   |        |        |       |  |        |       
|                                            | Current year losses |                        |        | 40,186 |        |   |         | 38,474     |        |   |        | 1,712  |       |  |        | 4.4%   |     
|                                            | Prior year losses   |                        |        | 1,000  |        |   |         | 1,500      |        |   |        | (500   | )     |  |        | -33.3% |     
|                                            |                     |                        |        |        |        |   |         |            |        |   |        |       
|                                            |                     | Total                  |        |        | 41,186 |   |         |            | 39,974 |   |        |        | 1,212 |  |        |        | 3.0% | 
|Underwriting expenses                       |                     |                        | 7,816  |        |        |   | 6,395   |            |        |   | 1,421  |        |       |  | 22.2%  |       
|                                            |                     |                        |        |        |        |   |         |            |        |   |        |       
|Underwriting loss                           |                     | $                      | (9,517 | )      |        | $ | (13,418 | )          |        | $ | 3,901  |        |       |  | -29.1% |       
|                                            |                     |                        |        |        |        |   |         |            |        |   |        |       
|Loss ratio:                                 |                     |                        |        |        |        |   |         |            |        |   |        |        |       |  |        |       
|                                            | Calendar year       |                        |        | 104.3% |        |   |         | 121.3%     |        |   |        | -17.0% |       |  |        |        |     
|                                            | Accident year       |                        |        | 101.8% |        |   |         | 116.8%     |        |   |        | -15.0% |       |  |        |        |     
|Underwriting expense ratio                  |                     |                        | 19.8%  |        |        |   | 19.4%   |            |        |   | 0.4%   |        |       |  |        |       
|Combined ratio:                             |                     |                        |        |        |        |   |         |            |        |   |        |        |       |  |        |       
|                                            | Calendar year       |                        |        | 124.1% |        |   |         | 140.7%     |        |   |        | -16.6% |       |  |        |        |     
|                                            | Accident year       |                        |        | 121.6% |        |   |         | 136.2%     |        |   |        | -14.6% |       |  |        |        |     

The increase in direct premiums written was
primarily the result of premium rate increases. Although the
Company has experienced significant policy growth in its
Illinois market, it has been mostly offset by a decrease in the
number of policies in-force in its Kentucky and Ohio markets,
primarily due to significant rate increases and tighter
underwriting standards in those markets. In addition, there has
been a significant decrease in the number of policies in-force
in our Florida market, as described below. The Company is
continually seeking regulatory approval of additional rate
increases.

In the second quarter of 2002, the Company
announced its intention to discontinue writing medical
professional liability insurance in Florida. Medical
professional liability direct premiums written in the state of
Florida for the year ended December 31, 2002 were
$23.6 million, and the Company reported net loss and loss
adjustment expenses for that period of $35.2 million
relating to its Florida business. The Florida Department of
Insurance has approved the Companys plan to exit this
market and in October 2002, the Company began mailing
non-renewal notices to medical professional liability
policyholders whose renewals would have been effective in
December 2002. Florida law requires the Company to offer
extended reporting coverage for previously insured periods,
commonly referred to as tail policies, at the time
of non-renewal. Tail policies

13



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##### Table of Contents



typically have written premiums of approximately
two times the last annual policy premium. The Company expects
that some physicians will opt for this extended reporting
coverage, which will result in additional direct premiums
written in 2003. The amount of these future premiums cannot be
reasonably estimated due to the uncertainty regarding the number
of physicians who will opt for the coverage.


In January 2003, the Company invested in a
start up insurance company managed by the Companys former
third-party-administrator who underwrote its Florida medical
professional liability business. This start up insurance
company, Physicians Insurance Company, would seek to write as
many of the tail policies as its capital and surplus levels
would permit, thereby limiting APCapitals direct exposure
to future losses associated with underwriting Florida medical
professional liability extended reporting period coverages.

Net premiums earned increased 19.8%, compared to
a 4.8% increase in direct premiums written. The increase in net
premiums earned was greater than the increase in direct premiums
written as premiums written in 2002 continue to be earned in the
first quarter of 2003.

The decrease in the loss ratio for the three
months ended March 31, 2003, compared to the same period in
2002, was primarily the result of the premium rate increases
described above.

Prior accident year loss reserves have developed
unfavorably in the first quarter of 2003 by approximately
$1 million. This unfavorable development primarily relates
to accident years 1999 through 2001 in the Companys Ohio
occurrence market. Claims on occurrence business tend to take
longer to be reported than on claims-made medical professional
liability policies. In 1999, Ohio was a relatively new market
for the Company. The newness of the market, together with the
extended reporting period on the Ohio occurrence business, made
it difficult for the Company to estimate incurred but not
reported claims. In 2002, the Company ceased writing occurrence
business in Ohio. Without the unfavorable development on prior
accident years, the loss ratio for the three months ended
March 31, 2003 would have been 101.8%, which compares
favorably with the accident year loss ratio of 106.1% for the
entire 2002 accident year. The 4.3% decrease in the accident
year loss ratio from accident year 2002 to 2003 was primarily
the result of premium rate increases, the exit of our Florida
market, as described above, and enhanced claims management.

The increase in the underwriting expense ratio
was primarily the result of a decrease in our ceded commission
rate to 20% for the 2003 treaty year, from 25% for the 2002
treaty year. In addition, the Company paid $225,000, its
deductible amount, to settle a bad faith claim in Florida during
the three months ended March 31, 2003.

The principal agency through which the Company
writes medical professional liability insurance is SCW Agency
Group, Inc. (SCW), which is principally owned by
William Cheeseman, the Companys president and chief
executive officer. The Companys relationship with SCW is
more fully described in the Companys Annual Report on
Form 10-K for the year ended December 31, 2002. During
the three months ended March 31, 2003, direct premiums
written for the Company by SCW totaled $17.7 million and
commissions incurred related to SCW totaled $1.4 million,
compared to $19.6 million and $1.6 million,
respectively, during the three months ended March 31, 2002.

14



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##### Table of Contents



Workers
Compensation Insurance Operations

The following table sets forth summary premium,
loss and expense information regarding the underwriting results
of our workers compensation insurance operations for the
three-month periods ended March 31, 2003 and 2002.

|                                            |                     |                        |        |        |       |   |        |            |        |   |        |        |         |   |         |        |        | 
|------------------------------------------- | ------------------- | ---------------------- | ------ | ------ | ----- | - | ------ | ---------- | ------ | - | ------ | ------ | ------- | - | ------- | ------ | ------ | 
|                                            |                     |                        |        |        |       |   |        | Percentage |       
|                                            |                     | 2003                   |        |        | 2002  |   |        | Change     |        |   | Change |       
|                                            |                     |                        |        |        |       |   |        |            |        |   |        |       
|                                            |                     |                       
|                                            |                     | (dollars in thousands) |       
|Direct premiums written:                    |                     |                        |        |        |       |   |        |            |        |   |        |        |         |   |         |       
|                                            | Minnesota           |                        | $      | 3,743  |       |   | $      | 10,119     |        |   | $      | (6,376 | )       |   |         | -63.0% |       
|                                            | Michigan            |                        |        | 1,676  |       |   |        | 3,007      |        |   |        | (1,331 | )       |   |         | -44.3% |       
|                                            | Illinois            |                        |        | 1,047  |       |   |        | 1,485      |        |   |        | (438   | )       |   |         | -29.5% |       
|                                            | Indiana             |                        |        | 565    |       |   |        | 1,410      |        |   |        | (845   | )       |   |         | -59.9% |       
|                                            | Kentucky            |                        |        | 88     |       |   |        | 2,458      |        |   |        | (2,370 | )       |   |         | -96.4% |       
|                                            | Iowa                |                        |        | 90     |       |   |        | 363        |        |   |        | (273   | )       |   |         | -75.2% |       
|                                            | Other               |                        |        | 17     |       |   |        | 426        |        |   |        | (409   | )       |   |         | -96.0% |       
|                                            |                     |                        |        |        |       |   |        |            |        |   |        |       
|                                            |                     | Total                  |        | $      | 7,226 |   |        | $          | 19,268 |   |        | $      | (12,042 | ) |         |        | -62.5% | 
|                                            |                     |                        |        |        |       |   |        |            |        |   |        |       
|Net premiums written                        |                     | $                      | 8,305  |        |       | $ | 18,126 |            |        | $ | (9,821 | )      |         |   | -54.2%  |       
|                                            |                     |                        |        |        |       |   |        |            |        |   |        |       
|Net premiums earned                         |                     | $                      | 12,538 |        |       | $ | 15,292 |            |        | $ | (2,754 | )      |         |   | -18.0%  |       
|Incurred loss and loss adjustment expenses: |                     |                        |        |        |       |   |        |            |        |   |        |        |         |   |         |       
|                                            | Current year losses |                        |        | 10,045 |       |   |        | 12,240     |        |   |        | (2,195 | )       |   |         | -17.9% |       
|                                            | Prior year losses   |                        |        | (800   | )     |   |        | (1,000     | )      |   |        | 200    |         |   |         | -20.0% |       
|                                            |                     |                        |        |        |       |   |        |            |        |   |        |       
|                                            |                     | Total                  |        |        | 9,245 |   |        |            | 11,240 |   |        |        | (1,995  | ) |         |        | -17.7% | 
|Underwriting expenses                       |                     |                        | 4,283  |        |       |   | 3,886  |            |        |   | 397    |        |         |   | 10.2%   |       
|                                            |                     |                        |        |        |       |   |        |            |        |   |        |       
|Underwriting (loss) gain                    |                     | $                      | (990   | )      |       | $ | 166    |            |        | $ | (1,156 | )      |         |   | -696.4% |       
|                                            |                     |                        |        |        |       |   |        |            |        |   |        |       
|Loss ratio:                                 |                     |                        |        |        |       |   |        |            |        |   |        |        |         |   |         |       
|                                            | Calendar year       |                        |        | 73.7%  |       |   |        | 73.5%      |        |   |        | 0.2%   |         |   |         |        |       
|                                            | Accident year       |                        |        | 80.1%  |       |   |        | 80.0%      |        |   |        | 0.1%   |         |   |         |        |       
|Underwriting expense ratio                  |                     |                        | 34.2%  |        |       |   | 25.4%  |            |        |   | 8.8%   |        |         |   |         |       
|Combined ratio:                             |                     |                        |        |        |       |   |        |            |        |   |        |        |         |   |         |       
|                                            | Calendar year       |                        |        | 107.9% |       |   |        | 98.9%      |        |   |        | 9.0%   |         |   |         |        |       
|                                            | Accident year       |                        |        | 114.3% |       |   |        | 105.4%     |        |   |        | 8.9%   |         |   |         |        |       

The decrease in direct premiums written was
primarily the result of the Companys efforts to
restructure its workers compensation book of business as
described below.

In June 2002, the Company filled several
executive and management positions in its workers
compensation segment to improve the overall performance of this
segment, reduce risk exposure and improve profitability. In the
fourth quarter of 2002, the Company began to exit the Kentucky
workers compensation market, as well as non-renew certain
higher-risk construction industry policies in all markets. These
actions had the effect of significantly decreasing workers
compensation direct premiums written for the three months ended
March 31, 2003 compared to the same period of 2002. We
expect direct premiums written to continue to decrease in the
near future as we complete these restructuring efforts, but we
expect growth in direct written premiums written later in 2003
after the planned changes have been implemented. These efforts
to restructure the book of business include exiting certain
higher-risk specialties (e.g., construction industry policies)
and poor performing markets, and replacing this business with
smaller accounts in industries with lower risk and mid-level
accounts in underserved markets where we can add value with
accident prevention and assertive claims management services.

The decrease in net premiums earned was not as
great as the decrease in direct premiums written as premiums
written in 2002 continue to be earned in 2003.

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On a calendar year and accident year basis, the
workers compensation loss ratio was relatively consistent
with the prior year, as losses decreased at a rate similar to
the decrease in net premiums earned. As a result of our exit
from certain underperforming markets, as described above, and
improved claim processing, we experienced an $800,000 favorable
adjustment to prior year loss and loss adjustment expense
reserves.

The increase in the underwriting expense ratio
resulted primarily from the Companys hiring of several
workers compensation executives and managers in mid-2002,
as well as severance costs related to the restructuring of this
segment.

Health Insurance
Operations

The following table sets forth summary premium,
loss and expense information regarding the underwriting results
of our health insurance operations for the three-month periods
ended March 31, 2003 and 2002.

|                                            |                     |                        |       |        |       |   |        |            |       |   |        |        |      |   |         |      |       | 
|------------------------------------------- | ------------------- | ---------------------- | ----- | ------ | ----- | - | ------ | ---------- | ----- | - | ------ | ------ | ---- | - | ------- | ---- | ----- | 
|                                            |                     |                        |       |        |       |   |        | Percentage |      
|                                            |                     | 2003                   |       |        | 2002  |   |        | Change     |       |   | Change |       
|                                            |                     |                        |       |        |       |   |        |            |       |   |        |       
|                                            |                     |                       
|                                            |                     | (dollars in thousands) |      
|Direct premiums written                     |                     | $                      | 6,841 |        |       | $ | 5,528  |            |       | $ | 1,313  |        |      |   | 23.8%   |     
|                                            |                     |                        |       |        |       |   |        |            |       |   |        |       
|Net premiums written                        |                     | $                      | 6,525 |        |       | $ | 5,684  |            |       | $ | 841    |        |      |   | 14.8%   |     
|                                            |                     |                        |       |        |       |   |        |            |       |   |        |       
|Net premiums earned                         |                     | $                      | 6,525 |        |       | $ | 5,684  |            |       | $ | 841    |        |      |   | 14.8%   |     
|Incurred loss and loss adjustment expenses: |                     |                        |       |        |       |   |        |            |       |   |        |        |      |   |         |     
|                                            | Current year losses |                        |       | 5,861  |       |   |        | 5,796      |       |   |        | 65     |      |   |         | 1.1% |      
|                                            | Prior year losses   |                        |       | (468   | )     |   |        |           |       |   |        |       |      |   |         | 0.0% |      
|                                            |                     |                        |       |        |       |   |        |            |       |   |        |       
|                                            |                     | Total                  |       |        | 5,393 |   |        |            | 5,796 |   |        |        | (403 | ) |         |      | -7.0% | 
|Underwriting expenses                       |                     |                        | 1,104 |        |       |   | 1,194  |            |       |   | (90    | )      |      |   | -7.5%   |     
|                                            |                     |                        |       |        |       |   |        |            |       |   |        |       
|Underwriting gain (loss)                    |                     | $                      | 28    |        |       | $ | (1,306 | )          |       | $ | 1,334  |        |      |   | -102.1% |     
|                                            |                     |                        |       |        |       |   |        |            |       |   |        |       
|Loss ratio:                                 |                     |                        |       |        |       |   |        |            |       |   |        |        |      |   |         |     
|                                            | Calendar year       |                        |       | 82.7%  |       |   |        | 102.0%     |       |   |        | -19.3% |      |   |         |      |      
|                                            | Accident year       |                        |       | 89.8%  |       |   |        | 102.0%     |       |   |        | -12.2% |      |   |         |      |      
|Underwriting expense ratio                  |                     |                        | 16.9% |        |       |   | 21.0%  |            |       |   | -4.1%  |        |      |   |         |     
|Combined ratio:                             |                     |                        |       |        |       |   |        |            |       |   |        |        |      |   |         |     
|                                            | Calendar year       |                        |       | 99.6%  |       |   |        | 123.0%     |       |   |        | -23.4% |      |   |         |      |      
|                                            | Accident year       |                        |       | 106.7% |       |   |        | 123.0%     |       |   |        | -16.3% |      |   |         |      |      

All health direct premiums written were related
to our involvement with a single preferred provider organization
located in western Michigan. This coverage is provided as part
of our long-term strategic relationship with the physician
organization that sponsors this plan. The increase in direct
premiums written was the result of premium rate increases,
offset by a decrease in the number of covered lives. The
following table shows the number of covered lives and the
per-member-per-month (PMPM) premium at
March 31, 2003, December 31, 2002, and March 31,
2002.

|             |                              |         |  |        |         |  |   |        | 
|------------ | ---------------------------- | ------- |  | ------ | ------- |  | - | ------ | 
|             |                              | Covered |  |        | PMPM    | 
|             |                              | Lives   |  |        | Premium | 
|             |                              |         |  |        |         | 
|Month Ended: |                              |         |  |        |         |  |   |       
|             | March 31, 2003               |         |  | 10,438 |         |  | $ | 208.02 | 
|             | December 31, 2002            |         |  | 12,898 |         |  | $ | 188.28 | 
|             | March 31, 2002               |         |  | 11,410 |         |  | $ | 160.20 | 
|Change:      |                              |         |  |        |         |  |   |       
|             | March 2003 vs. December 2002 |         |  | (2,460 | )       |  | $ | 19.74  | 
|             | March 2003 vs. March 2002    |         |  | (972   | )       |  | $ | 47.82  | 

The increase in net premiums earned was less than
the increase in direct premiums written due to a change in
reinsurance which resulted in additional ceded premiums.

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The decrease in the loss and loss adjustment
expense ratio was primarily the result of premium rate increases
combined with tighter underwriting standards. The favorable
development on prior year loss and loss adjustment expense
reserves was the result of re-underwriting efforts in 2002.

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

Personal
and Commercial Lines Insurance Operations

The Companys personal and commercial
insurance product segment experienced an underwriting loss of
$354,000 for the three months ended March 31, 2003,
compared to an underwriting loss of $154,000 for the three
months ended March 31, 2002. This segment will continue to
generate income (loss) due to the development of unpaid
loss and loss adjustment expenses.

Corporate
and Other

Investment income, excluding net realized
investment losses, was $10.4 million for the three months
ended March 31, 2003, a decrease of $451,000, or 4.2%,
compared to the three months ended March 31, 2002. The
decrease in investment income was the result of the
Companys unusually large cash position during the first
quarter of 2003, and low short-term interest rates, compared to
the same period of 2002. The Company delayed investing a portion
of its cash flow during the first quarter of 2003 due to the
very low interest rate environment and its reluctance to lock-in
long term interest rates at prevailing levels. The average yield
on the Companys cash and cash equivalents was
approximately 1% during the three months ended March 31,
2003, which reduced the Companys average yield on its
investment portfolio down to 5.48% for the three months ended
March 31, 2003, compared to 5.84% for the same period of
2002. Net realized losses were $3,000 and $286,000 during the
three-month periods ended March 31, 2003 and 2002,
respectively.

The market value of the Companys fixed
income security portfolio is inversely related to interest
rates. Therefore, as interest rates have declined, the market
value of the Companys fixed income security portfolio has
increased. Unrealized gains, net of deferred federal income
taxes, on the Companys investments were $25.9 million
at March 31, 2003, an increase of $1.3 million
compared to December 31, 2002.

Investment expenses were $551,000 during the
three months ended March 31, 2003. This represents a
decrease of $360,000, or 39.5%, compared to the same period of
2002. The decrease in investment expenses was primarily due to
higher depreciation expense on several of the Companys
investment real estate properties in the first quarter of 2002.

The Companys general and administrative
expenses increased $135,000 to $535,000 during the three months
ended March 31, 2003, compared to the same period of 2002.
The increase was primarily the result of a new errors and
omissions liability insurance policy acquired in mid 2002.

The Company recorded amortization expense of
$44,000 during the three months ended March 31, 2003, on a
definite-lived intangible asset acquired in connection with its
investment in Physicians Insurance Company. The Company did not
record any amortization expense in the first quarter of 2002.
The investment in Physicians Insurance Company is discussed
under Results of Operations  Three Months
Ended March 31, 2003 Compared to Three Months Ended
March 31, 2002  Medical Professional Liability
Insurance Operations.

The Company recorded $530,000 in federal income
tax benefit for the three months ended March 31, 2003,
compared to a $1.9 million benefit during the same period
of 2002. The effective tax rate was 35.0% for the three months
ended March 31, 2003, and 2002.

Net loss for the three months ended
March 31, 2003 was $985,000 on revenues of
$69.0 million, compared to a net loss of $3.5 million
on revenues of $64.6 million for the three months ended
March 31, 2002. The decrease in the net loss was due
primarily to premium rate increases and enhanced claims
management in our Medical Professional Liability operating
segment.

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##### Table of Contents



Liquidity,
Capital Resources and Financial Condition

The primary sources of our liquidity, on both a
short- and long-term basis, are funds provided by insurance
premiums collected, net investment income, recoveries from
reinsurance, and proceeds from the maturity or sale of invested
assets. The primary uses of cash, on both a short- and long-term
basis, are losses, loss adjustment expenses, operating expenses,
reinsurance premiums, and taxes.

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

The Companys only indebtedness is to its
President and Chief Executive Officer (CEO) in the
amount of $8.0 million (reflected on our balance sheet at
its present value of $6.7 million) in connection with the
purchase of Stratton Cheeseman Management Company. The
indebtedness is due in annual installments with the final
installment due April 2008. See table at the end of this
section for further information regarding the timing and amounts
of these payments. The amount of the annual payments will
increase or decrease by $200,000 for each corresponding
half-grade level increase or decrease in the Companys A.M.
Best Company, Inc. rating. Certain events, such as the
termination, death or disability of the President and CEO, or a
change in control of the Company, could accelerate these
payments.

At December 31, 2002, the Company had
planned expenditures of approximately $3.4 million related
to various information technology initiatives. At March 31,
2003, these expenditures are progressing as planned.

The Companys net cash flow used in
operations was approximately $2.9 million for the three
months ended March 31, 2003, compared to $8.1 million
provided by operations for the three months ended March 31,
2002. The decrease was primarily the result of the decrease in
direct premiums written to $61.7 million for the three
months ended March 31, 2003, from $70.6 million for
the three months ended March 31, 2002.

At March 31, 2003, the Company had
$199.2 million of cash available and an investment
portfolio of $600.9 million. The portfolio includes
$22.9 million of bonds maturing in the next year. On a
long-term basis, fixed income securities are purchased on a
basis intended to provide adequate cash flows from future
maturities. As of March 31, 2003, $358.9 million of
bonds mature in the next one to five years and
$167.5 million mature in the next six to ten years. In
addition, the Company has $1.8 million of mortgage-backed
securities that provide periodic principal repayments.

Premiums receivable decreased $4.2 million
to $58.3 million at March 31, 2003, compared to
$62.5 million at December 31, 2002. The decrease is
directly attributable to the $8.9 million decrease in
direct premiums written during the three months ended
March 31, 2003 compared to the same period of 2002.

Reinsurance recoverable increased
$5.0 million to $103.1 million at March 31, 2003,
compared to $98.1 million at December 31, 2002. The
increase was primarily the result of higher medical professional
liability case reserves, as the claims staff for that segment
continues to enhance its claims handling process. We have a net
reinsurance recoverable from Gerling Global
(Gerling) of approximately $10 million. In
2002, Gerlings parent company put Gerlings United
States subsidiary into run off resulting in a series of A.M.
Best rating downgrades for Gerling. We continue to believe that
Gerling has adequate surplus and cash flow to satisfy its
obligations to us and we have not experienced any difficulties
in collecting amounts due from Gerling. However, we are
continuing to monitor Gerling and may pursue an economic
settlement or commutation with Gerling, which could require us
to recognize a loss, if we determine that is the best long-term
course of action.

Loss and loss adjustment expense reserves
increased $1.8 million, or 0.3% to $639.3 million at
March 31, 2003, from $637.5 million at
December 31, 2002. This increase was due to increased
writings in the medical professional liability lines.

The unearned premium reserve decreased
$2.4 million, or 2.3%, to $101.0 million at
March 31, 2003, from $103.4 million at
December 31, 2002. The decrease was primarily due to
decreased policy counts in our

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##### Table of Contents



Kentucky and Ohio medical professional liability
markets, which renew in January, as well as the decrease in
workers compensation direct premiums written.


In March, July and November 2001,
May 2002, and twice in August 2002, APCapitals
Board of Directors authorized six separate programs to purchase
5% of its outstanding common stock, representing a total of
approximately 3,115,000 shares. APCapitals purchase of any
of its shares is subject to limitations that may be imposed by
applicable securities laws and regulations and the rules of the
Nasdaq Stock Market. The timing of the purchases and the number
of shares to be bought at any one time depend on market
conditions and the Companys capital requirements. During
the first quarter of 2003, APCapital did not repurchase any
shares under these authorizations. A total of 2,924,270 shares
have been repurchased pursuant to these authorizations through
March 31, 2003, at a cost of $52.7 million. As of
March 31, 2003, the Company has approximately 191,000
shares of its August 28, 2002 stock repurchase program
remaining to be purchased under the existing authorizations.
There can be no assurance that the Company will repurchase the
remaining shares authorized to be purchased, or that any
additional repurchases will be authorized by the Companys
Board of Directors.

The Company expects to borrow between
$15 million and $30 million during the second quarter
of 2003 to increase its available cash resources and surplus.
This indebtedness is expected to have a term of approximately
30 years. Based on historical trends, market conditions and
our business plans, we believe that our existing resources and
sources of funds, including these borrowings, will be sufficient
to meet our short-term and long-term liquidity needs. However,
economic, market and regulatory conditions may change, and there
can be no assurance that our funds will be sufficient to meet
our short-term liquidity needs.

The following table shows (in thousands) the
nature and timing of the Companys contractual obligations
as of March 31, 2003.

|                        |       |                        |       |           |        |   |       |       |  |       |       |       |           |         |       |       |  |   |       |       | 
|----------------------- | ----- | ---------------------- | ----- | --------- | ------ | - | ----- | ----- |  | ----- | ----- | ----- | --------- | ------- | ----- | ----- |  | - | ----- | ----- | 
|                        |       |                       
|                        |       | Payments Due by Period |      
|                        |       |                        |      
|                        |       |                        |       | Less Than |        |   | 1 - 3 |       |  | 3 - 5 |       |       | More Than |        
|Contractual Obligations |       | Total                  |       |           | 1 Year |   |       | Years |  |       | Years |       |           | 5 Years |      
|                        |       |                        |       |           |        |   |       |       |  |       |       |       |           |         |      
|Note payable to officer |       | $                      | 8,000 |           |        | $ | 1,000 |       |  | $     | 2,000 |       |           | $       | 3,000 |       |  | $ | 2,000 |      
|Operating leases        |       |                        | 3,205 |           |        |   | 1,297 |       |  |       | 1,367 |       |           |         | 541   |       |  |   |      |      
|                        |       |                        |       |           |        |   |       |       |  |       |       |       |           |         |      
|                        | Total |                        | $     | 11,205    |        |   | $     | 2,297 |  |       | $     | 3,367 |           |         | $     | 3,541 |  |   | $     | 2,000 | 
|                        |       |                        |       |           |        |   |       |       |  |       |       |       |           |         |      

Significant Accounting Policies

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

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

Effects of New Accounting
Pronouncements

The Financial Accounting Standards Board
(FASB) has recently issued several new Statements
and Interpretations. In addition, the American Institute of
Certified Public Accountants (AICPA) has issued a
number of new Statements of Position (SOP). None of
the newly promulgated FASB Statements or

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##### Table of Contents



Interpretations, or the AICPA SOPs are expected
to have a material impact on the Companys financial
position or results of operations for the year ended
December 31, 2003.







ITEM 3.     Quantitative
and Qualitative Disclosures About Market Risk


General

Market risk is the risk of loss due to adverse
changes in market rates and prices. As of March 31, 2003,
the majority of our investment portfolio was invested in fixed
maturity securities, which are interest-sensitive assets, and
cash and cash equivalents. Accordingly, our primary market risk
is exposure to changes in interest rates. The fixed maturity
securities primarily consisted of U.S. government and agency
bonds, high-quality corporate bonds, mortgage-backed securities
and tax-exempt U.S. municipal bonds.

Qualitative Information About Market
Risk

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

We periodically review the investment portfolio
for any potential credit quality or collection issues and for
any securities with respect to which we consider any decline in
market value to be other than temporary. Investments which are
considered to be other than temporarily impaired
(OTTI) are written down to their estimated net
realizable value. We utilize both quantitative and qualitative
evaluation methods to evaluate the potential for OTTI. At
March 31, 2003, approximately 94.2% of our fixed maturity
portfolio (excluding approximately $4 million of private
placement issues) was considered investment grade. There were no
impairments during the quarter ended March 31, 2003.

In addition to the OTTI write downs noted above,
we are closely monitoring $6.5 million of enhanced
equipment trust certificates we own that were issued by Delta
Airlines. These certificates had an unrealized loss of
approximately $2.5 million at March 31, 2003. These
certificates have experienced a significant decline in market
value only during the last six months. We believe this
unrealized loss is a temporary condition at March 31, 2003.
However, if the outlook for Delta does not improve in the second
quarter, we believe a write down of the Delta certificates as of
June 30, 2003 may be necessary.

Quantitative Information About Market
Risk

At March 31, 2003, our fixed income security
portfolio was valued at $567.7 million and had an average
modified duration of 3.31 years, compared to a portfolio
valued at $618.9 million with an average modified duration
of 3.20 years at December 31, 2002. The following
table shows the effects of a change in interest rates on the
fair value and duration of our portfolio. We have assumed an
immediate increase or decrease of 1% or 2% in interest rate for
illustrative purposes. You should not consider this assumption,
or the values shown in the table, to be a prediction of actual
future results.

|                |  |                        |         |  |                        |   |         |          |  |  |           |  |  |           |         |  |          |   |         |   |  |  |      | 
|--------------- |  | ---------------------- | ------- |  | ---------------------- | - | ------- | -------- |  |  | --------- |  |  | --------- | ------- |  | -------- | - | ------- | - |  |  | ---- | 
|                |  |                        |         | 
|                |  | March 31, 2003         |         |  | December 31, 2002      |  
|                |  |                        |         |  |                        |  
|                |  | Portfolio              |         |  | Change in              |   |         | Modified |  |  | Portfolio |  |  | Change in |         |  | Modified |  
|Change in Rates |  | Value                  |         |  | Value                  |   |         | Duration |  |  | Value     |  |  | Value     |         |  | Duration |  
|                |  |                        |         |  |                        |   |         |          |  |  |           |  |  |           |         |  |          |  
|                |  |                        |         | 
|                |  | (dollars in thousands) |         |  | (dollars in thousands) |  
|+2%             |  | $                      | 531,819 |  |                        | $ | (35,912 | )        |  |  | 3.05      |  |  | $         | 581,066 |  |          | $ | (37,833 | ) |  |  | 2.94 | 
|+1%             |  |                        | 548,833 |  |                        |   | (18,898 | )        |  |  | 3.15      |  |  |           | 599,244 |  |          |   | (19,655 | ) |  |  | 2.97 | 
|0               |  |                        | 567,731 |  |                        |   |         |          |  |  | 3.31      |  |  |           | 618,899 |  |          |   |         |   |  |  | 3.20 | 
|-1%             |  |                        | 587,471 |  |                        |   | 19,740  |          |  |  | 3.36      |  |  |           | 639,729 |  |          |   | 20,830  |   |  |  | 3.26 | 
|-2%             |  |                        | 608,323 |  |                        |   | 40,592  |          |  |  | 3.46      |  |  |           | 661,713 |  |          |   | 42,814  |   |  |  | 3.37 | 

20



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##### Table of Contents



ITEM 4.     Controls
and Procedures

Within the 90 days prior to the date of this
report, the Company carried out an evaluation, under the
supervision and with the participation of the Companys
management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and
procedures pursuant to Rule 13a-15 of the Securities
Exchange Act of 1934. Based upon that evaluation, the
Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls
and procedures are effective to cause material information
required to be disclosed by the Company in the reports it files
or submits under the Securities Exchange Act of 1934, to be
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms. There have been no
significant changes in the Companys internal controls or
in other factors which could significantly affect internal
controls subsequent to the date the Company carried out its
evaluation.

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##### Table of Contents








PART II. OTHER INFORMATION







ITEM 6.     Exhibits
and Reports on Form 8-K


(a) Exhibits.



| |      |                                                                                     
| | ---- | ------------------------------------------------------------------------------------
| | 99.1 | Certification by the Chief Executive Officer
    pursuant to 18 U.S.C. Section 1350.
|
| | 99.2 | Certification by the Chief Financial Officer
    pursuant to 18 U.S.C. Section 1350.

(b) Reports on Form 8-K.

There were no Reports on Form 8-K filed
during the three months ended March 31, 2003.

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##### Table of Contents








SIGNATURES


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

Date: May 15, 2003



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



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

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



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

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

23



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##### Table of Contents








| |                            
| | ---------------------------
| | CERTIFICATION OF DISCLOSURE



| |                                      
| | -------------------------------------
| | I, William B. Cheeseman certify that:



| |                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this quarterly report on
    Form 10-Q of American Physicians Capital, Inc.;                                                                                                                                                                                                                                                      
|
| | 2. Based on my knowledge, this quarterly
    report does not contain any untrue statement of a material fact
    or omit to state a material fact necessary to make the
    statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period
    covered by this quarterly report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    quarterly report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. The registrants other certifying
    officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                             



| |                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this quarterly report is being prepared;
|
| | b. evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c. presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. The registrants other certifying
    officers and I have disclosed, based on our most recent
    evaluation to the registrants auditors and the audit
    committee of registrants board of directors (or persons
    performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b. any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. The registrants other certifying
    officers and I have indicated in this quarterly report whether
    or not there were significant changes in internal controls or in
    other factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: May 15, 2003



| |                                      
| | -------------------------------------
| | /s/ WILLIAM B. CHEESEMAN             
| |                                      
| | William B. Cheeseman                 
| | President and Chief Executive Officer
| | American Physicians Capital, Inc.    

24



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##### Table of Contents



CERTIFICATION OF DISCLOSURE

I, Frank H. Freund certify that:



| |                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this quarterly report on
    Form 10-Q of American Physicians Capital, Inc.;                                                                                                                                                                                                                                                      
|
| | 2. Based on my knowledge, this quarterly
    report does not contain any untrue statement of a material fact
    or omit to state a material fact necessary to make the
    statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period
    covered by this quarterly report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    quarterly report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. The registrants other certifying
    officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                             



| |                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this quarterly report is being prepared;
|
| | b. evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c. presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. The registrants other certifying
    officers and I have disclosed, based on our most recent
    evaluation to the registrants auditors and the audit
    committee of registrants board of directors (or persons
    performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b. any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. The registrants other certifying
    officers and I have indicated in this quarterly report whether
    or not there were significant changes in internal controls or in
    other factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: May 15, 2003



| |                                     
| | ------------------------------------
| | /s/ FRANK H. FREUND                 
| |                                     
| | Frank H. Freund                     
| | Executive Vice President, Treasurer,
| | Chief Financial Officer and         
| | principal accounting officer        
| | American Physicians Capital, Inc.   

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EXHIBIT INDEX


|            |      |  |                     |                                                                                     
|----------- | ---- |  | ------------------- | ------------------------------------------------------------------------------------
|Exhibit No. |      |  | Exhibit Description
|            |      |  |                    
|            | 99.1 |  |                     | Certification by the Chief Executive Officer
    pursuant to 18 U.S.C. Section 1350.
|            | 99.2 |  |                     | Certification by the Chief Financial Officer
    pursuant to 18 U.S.C. Section 1350.

26