##### 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, 2002                                                          |  | 
| 
| 
|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(State or other jurisdiction of
    incorporation or organization) |  | 38-3543910(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.

YESþNOo

The number of shares outstanding of the
registrants common stock, no par value per share, as of
May 10, 2002 was 9,932,182.



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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 (UNAUDITED)                                  
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                             
|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 2. Changes in Securities and Use of Proceeds.                                           
|ITEM 4. Submission of Matters to a Vote of Security Holders                                  
|ITEM 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                   
|Bylaws, As Amended March 9, 2002                                                             



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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 |  |    | 10 | 
|                              | Item 3. Quantitative and Qualitative
    Disclosures About Market Risk                            |  |    | 14 | 
|PART II. OTHER INFORMATION    |                                                                                                   |  |    |   
|                              | Item 2. Changes in Securities and Use
    of Proceeds                                             |  |    | 16 | 
|                              | Item 4. Submission of Matters to a Vote
    of Security Holders                                   |  |    | 16 | 
|                              | Item 6. Exhibits and Reports on
    Form 8-K                                                      |  |    | 16 | 
|SIGNATURES                    |                                                                                                   |  | 17 |   

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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, |  
|                                                                                                                                                                    |                                                                                      | 2002                                           |         |         | 2001         |  
|                                                                                                                                                                    |                                                                                      |                                                |         |         |              |  
|                                                                                                                                                                    |                                                                                      | (Unaudited)                                    |         |         |             
|                                                                                                                                                                    |                                                                                      |                                               
|                                                                                                                                                                    |                                                                                      | (In thousands, except                          |        
|                                                                                                                                                                    |                                                                                      | share data)                                    |        
|Assets                                                                                                                                                              |                                                                                      |                                                |         |         |              |   |         |        
|Investments:                                                                                                                                                        |                                                                                      |                                                |         |         |              |   |         |        
|                                                                                                                                                                    | Fixed maturities, at fair value                                                      |                                                | $       | 654,571 |              |   | $       | 605,867 |          
|                                                                                                                                                                    | Equity securities, at fair value                                                     |                                                |         | 647     |              |   |         | 656     |          
|                                                                                                                                                                    | Other investments                                                                    |                                                |         | 39,089  |              |   |         | 39,541  |          
|                                                                                                                                                                    |                                                                                      |                                                |         |         |              |  
|                                                                                                                                                                    |                                                                                      | Total investments                              |         |         | 694,307      |   |         |         | 646,064   | 
|Cash and cash equivalents                                                                                                                                           |                                                                                      |                                                | 52,117  |         |              |   | 106,444 |        
|Premiums receivable                                                                                                                                                 |                                                                                      |                                                | 69,699  |         |              |   | 64,194  |        
|Reinsurance recoverable                                                                                                                                             |                                                                                      |                                                | 96,194  |         |              |   | 95,887  |        
|Federal income tax recoverable                                                                                                                                      |                                                                                      |                                                | 12,759  |         |              |   | 11,266  |        
|Deferred federal income taxes                                                                                                                                       |                                                                                      |                                                | 44,553  |         |              |   | 45,940  |        
|Property and equipment, net of accumulated
    depreciation                                                                                                         |                                                                                      |                                                | 14,271  |         |              |   | 14,742  |        
|Goodwill, net of accumulated amortization                                                                                                                           |                                                                                      |                                                | 13,968  |         |              |   | 13,968  |        
|Other assets                                                                                                                                                        |                                                                                      |                                                | 45,623  |         |              |   | 40,412  |        
|                                                                                                                                                                    |                                                                                      |                                                |         |         |              |  
|                                                                                                                                                                    |                                                                                      | Total assets                                   |         | $       | 1,043,491    |   |         | $       | 1,038,917 | 
|                                                                                                                                                                    |                                                                                      |                                                |         |         |              |  
|Liabilities                                                                                                                                                         |                                                                                      |                                                |         |         |              |   |         |        
|Unpaid losses and loss adjustment expenses                                                                                                                          |                                                                                      | $                                              | 606,052 |         |              | $ | 597,046 |        
|Unearned premiums                                                                                                                                                   |                                                                                      |                                                | 111,209 |         |              |   | 100,056 |        
|Other liabilities                                                                                                                                                   |                                                                                      |                                                | 32,573  |         |              |   | 34,850  |        
|                                                                                                                                                                    |                                                                                      |                                                |         |         |              |  
|                                                                                                                                                                    |                                                                                      | Total liabilities                              |         |         | 749,834      |   |         |         | 731,952   | 
|                                                                                                                                                                    |                                                                                      |                                                |         |         |              |  
|Shareholders Equity                                                                                                                                                |                                                                                      |                                                |         |         |              |   |         |        
|Common stock, no par value, 50,000,000 shares
    authorized: 9,968,112 and 10,238,122 shares outstanding at
    March 31, 2002 and December 31, 2001, respectively |                                                                                      |                                                |         |         |              |   |         |        
|Additional paid-in-capital                                                                                                                                          |                                                                                      |                                                | 114,430 |         |              |   | 119,463 |        
|Retained earnings                                                                                                                                                   |                                                                                      |                                                | 179,145 |         |              |   | 182,674 |        
|Unearned stock compensation                                                                                                                                         |                                                                                      |                                                | (926    | )       |              |   | (1,001  | )      
|Accumulated other comprehensive income:                                                                                                                             |                                                                                      |                                                |         |         |              |   |         |        
|                                                                                                                                                                    | Net unrealized appreciation on investments, net
    of deferred federal income taxes |                                                |         | 1,008   |              |   |         | 5,829   |          
|                                                                                                                                                                    |                                                                                      |                                                |         |         |              |  
|                                                                                                                                                                    |                                                                                      | Total shareholders equity                     |         |         | 293,657      |   |         |         | 306,965   | 
|                                                                                                                                                                    |                                                                                      |                                                |         |         |              |  
|                                                                                                                                                                    |                                                                                      | Total liabilities and shareholders
    equity |         | $       | 1,043,491    |   |         | $       | 1,038,917 | 
|                                                                                                                                                                    |                                                                                      |                                                |         |         |              |  

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 INCOME
(UNAUDITED)


|                                     |                                   |                       |        |        |      |   |        |        | 
|------------------------------------ | --------------------------------- | --------------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                                     |                                   |                      
|                                     |                                   | Three Months Ended    |       
|                                     |                                   | March 31,             |       
|                                     |                                   |                       |       
|                                     |                                   | 2002                  |        |        | 2001 |  
|                                     |                                   |                       |        |        |      |  
|                                     |                                   |                      
|                                     |                                   | (In thousands, except |       
|                                     |                                   | per share data)       |       
|Net premiums written                 |                                   | $                     | 62,377 |        |      | $ | 50,506 |       
|Change in unearned premiums          |                                   |                       | (8,450 | )      |      |   | (1,256 | )     
|                                     |                                   |                       |        |        |      |  
|                                     | Net premiums earned               |                       |        | 53,927 |      |   |        | 49,250 | 
|Investment income                    |                                   |                       | 10,836 |        |      |   | 12,510 |       
|Net realized losses                  |                                   |                       | (286   | )      |      |   | (201   | )     
|Other income                         |                                   |                       | 118    |        |      |   | 330    |       
|                                     |                                   |                       |        |        |      |  
|                                     | Total revenues                    |                       |        | 64,595 |      |   |        | 61,889 | 
|                                     |                                   |                       |        |        |      |  
|Losses and loss adjustment expenses  |                                   |                       | 57,164 |        |      |   | 43,533 |       
|Underwriting expenses                |                                   |                       | 11,543 |        |      |   | 10,728 |       
|Investment expenses                  |                                   |                       | 754    |        |      |   | 532    |       
|Interest expense                     |                                   |                       | 90     |        |      |   | 122    |       
|Amortization expense                 |                                   |                       |       |        |      |   | 533    |       
|General and administrative expenses  |                                   |                       | 473    |        |      |   | 391    |       
|                                     |                                   |                       |        |        |      |  
|                                     | Total expenses                    |                       |        | 70,024 |      |   |        | 55,839 | 
|                                     |                                   |                       |        |        |      |  
|                                     | (Loss) income before income taxes |                       |        | (5,429 | )    |   |        | 6,050  | 
|Federal income tax (benefit) expense |                                   |                       | (1,900 | )      |      |   | 1,913  |       
|                                     |                                   |                       |        |        |      |  
|                                     | Net (loss) income                 |                       | $      | (3,529 | )    |   | $      | 4,137  | 
|                                     |                                   |                       |        |        |      |  
|Net (loss) income per common share   |                                   |                       |        |        |      |   |        |       
|                                     | Basic                             |                       | $      | (0.35  | )    |   | $      | 0.36   | 
|                                     | Diluted                           |                       | $      | (0.35  | )    |   | $      | 0.36   | 

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,          |       
|                                   |                                                                                                                                |                    |       
|                                   |                                                                                                                                | 2002               |        |        | 2001 |  
|                                   |                                                                                                                                |                    |        |        |      |  
|                                   |                                                                                                                                |                   
|                                   |                                                                                                                                | (In thousands)     |       
|Net (loss) income                  |                                                                                                                                | $                  | (3,529 | )      |      | $ | 4,137 |      
|Other comprehensive (loss) income: |                                                                                                                                |                    |        |        |      |   |       |      
|                                   | Unrealized (losses) gains on investment
    securities net of deferred income taxes of ($2,595) in 2002 and
    $2,985 in 2001 |                    |        | (4,821 | )    |   |       | 5,538 | 
|                                   |                                                                                                                                |                    |        |        |      |  
|                                   | Comprehensive (loss) income                                                                                                    |                    | $      | (8,350 | )    |   | $     | 9,675 | 
|                                   |                                                                                                                                |                    |        |        |      |  

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                                |                                                        
|                                     |                                                                                       |                                         |                                                        
|                                     |                                                                                       | 2002                                    |                                                         |         | 2001  |        
|                                     |                                                                                       |                                         |                                                         |         |       |        
|                                     |                                                                                       |                                        
|                                     |                                                                                       | (In thousands)                          |                                                        
|Cash flows from operating activities |                                                                                       |                                         |                                                         |         |       |         |   |         
|                                     | Net (loss) income                                                                     |                                         | $                                                       | (3,529  | )     |         | $ | 4,137    |        
|                                     | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                         |                                                         |         |       |         |   |          |        
|                                     |                                                                                       | Depreciation and amortization           |                                                         |         | 776   |         |   |          | 1,145   |         
|                                     |                                                                                       | Net realized losses                     |                                                         |         | 286   |         |   |          | 201     |         
|                                     |                                                                                       | Deferred federal income taxes           |                                                         |         | 3,942 |         |   |          | (81     | )       
|                                     |                                                                                       | Changes in other assets and liabilities |                                                         |         | 6,585 |         |   |          | (18,068 | )       
|                                     |                                                                                       |                                         |                                                         |         |       |        
|                                     |                                                                                       |                                         | Net cash provided by (used in) operating
    activities |         |       | 8,060   |   |          |         | (12,666  | )
|                                     |                                                                                       |                                         |                                                         |         |       |        
|Cash flows from investing activities |                                                                                       |                                         |                                                         |         |       |         |   |         
|                                     | Purchases Available-for-sale  fixed
    maturities                                   |                                         |                                                         | (67,428 | )     |         |   | (185,404 | )      
|                                     |                                                                                       | Property and equipment                  |                                                         |         | (262  | )       |   |          | (475    | )       
|                                     | Sales and maturities
    Available-for-sale  fixed maturities                        |                                         |                                                         | 10,261  |       |         |   | 35,812   |        
|                                     |                                                                                       | Available-for-sale  equity securities  |                                                         |         |      |         |   |          | 179     |         
|                                     |                                                                                       | Other investments                       |                                                         |         |      |         |   |          | 35      |         
|                                     |                                                                                       | Property and equipment                  |                                                         |         |      |         |   |          | 1,892   |         
|                                     |                                                                                       |                                         |                                                         |         |       |        
|                                     |                                                                                       |                                         | Net cash used in investing
    activities               |         |       | (57,429 | ) |          |         | (147,961 | )
|                                     |                                                                                       |                                         |                                                         |         |       |        
|Cash flows from financing activities |                                                                                       |                                         |                                                         |         |       |         |   |         
|                                     | Purchase of treasury stock                                                            |                                         |                                                         | (5,196  | )     |         |   |         |        
|                                     | Other sources                                                                         |                                         |                                                         | 238     |       |         |   |         |        
|                                     |                                                                                       |                                         |                                                         |         |       |        
|                                     |                                                                                       |                                         | Net cash used in financing
    activities               |         |       | (4,958  | ) |          |         |         |  
|                                     |                                                                                       |                                         |                                                         |         |       |        
|                                     |                                                                                       |                                         | Net decrease in cash and cash
    equivalents           |         |       | (54,327 | ) |          |         | (160,627 | )
|                                     |                                                                                       |                                         | Cash and cash equivalents, beginning of
    period      |         |       | 106,444 |   |          |         | 255,878  |  
|                                     |                                                                                       |                                         |                                                         |         |       |        
|                                     |                                                                                       |                                         | Cash and cash equivalents, end of
    period            |         | $     | 52,117  |   |          | $       | 95,251   |  
|                                     |                                                                                       |                                         |                                                         |         |       |        

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,
Insurance Corporation of America (ICA), APSpecialty
Insurance Corporation (APS), APConsulting LLC,
APDirect Sales LLC, Alpha Advisors, Inc., APIndemnity (Bermuda),
Ltd., APManagement, Ltd. and American Physicians Assurance
Corporation (APA), 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 (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, 2002, are not necessarily indicative of the
results to be expected for the year ending December 31,
2002. 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,
2001.

In preparing the financial statements, management
is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of
the balance sheets and revenues and expenses for the periods
then ended. Actual results may 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. Although considerable variability is inherent in these
estimates, management believes that the reserves are adequate.
The estimates are reviewed regularly and adjusted as necessary.
Such adjustments are reflected in current operations.

2.  Shareholders Equity and
Net Income Per Share

In March, July and November 2001,
APCapitals Board of Directors authorized three separate
programs to purchase 5% outstanding common stock, representing
approximately 1,689,000 shares. The Company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 quarter, the Company purchased 281,400 shares at a cost of
$5,196,000 pursuant to these authorizations. This brings the
total shares repurchased to 1,650,570 through March 31,
2002 at a total cost of $30,420,000.

Net income per share is computed by dividing net
income by the weighted average number of shares of common stock
and common stock equivalents (stock options and stock awards)
outstanding, calculated on a daily basis. The weighted average
common shares used for determining basic income per common share
were 10,029,243 for the three months ended March 31, 2002.
The weighted average common shares used for determining basic
income per common share were 11,451,661 for the three months
ended March 31, 2001.

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

3.  Goodwill

During the quarter ended March 31, 2002, the
Company adopted Statement of Financial Accounting Standard
(SFAS) No. 142. The Company has only one
intangible asset, which is the goodwill associated with the
purchase of Stratton Cheeseman Management Company in 1999. The
Company is currently analyzing the valuation of goodwill, as
required by SFAS No. 142. Any impairment adjustment, as a
result of SFAS No. 142 implementation, would be recorded in
the second quarter of 2002. No amortization was recorded during
the quarter ended March 31, 2002. At March 31, 2002,
goodwill totaled $17.8 million, with accumulated amortization of
$3.9 million, or net goodwill of $13.9 million. For
the quarter end March 31, 2001, the Company recorded
amortization expense of $533,000, or $.03 per share, net of
tax.

4.  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, personal and commercial lines,
other, and corporate and investments. The accounting policies of
the segments are the same as those described in the footnotes 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.
Reported segment results would change if different allocation
methods were applied. Effective January 1, 2001, the
Company began non-renewing personal and commercial policies. As
of December 31, 2001, all net written premiums related to
personal and commercial policies previously issued had been
fully earned. Therefore, there were no net earned premiums
related to the personal and commercial segment in the first
quarter of 2002. The personal and commercial segment will
continue to generate income (loss) before taxes due to the
development of unpaid loss and loss adjustment expenses
associated with this segment. The Company does, however, write a
small amount of direct personal and commercial business in
connection with one of the APConsulting alternative risk
transfer programs. Direct premiums written related to this
program were approximately $360,000 for the three-months ended
March 31, 2002. This premium and risk were 100% ceded to a
reinsurer.

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The Company does not allocate assets, investment
income and income taxes to operating segments. Segment
information, for which results are regularly reviewed by
management in making decisions about resources to be allocated
to the segments and assess their performance, is summarized as
follows:

|                                   |                           |                                         |   |         |        |   |   |        |        | 
|---------------------------------- | ------------------------- | --------------------------------------- | - | ------- | ------ | - | - | ------ | ------ | 
|                                   |                           |                                        
|                                   |                           | Three Months Ended                      |  
|                                   |                           | March 31                                |  
|                                   |                           |                                         |  
|                                   |                           | 2002                                    |   |         | 2001   |  
|                                   |                           |                                         |   |         |        |  
|                                   |                           |                                        
|                                   |                           | (In thousands)                          |  
|Revenues:                          |                           |                                         |   |         |        |   |   |       
|                                   | Professional liability    |                                         | $ | 32,951  |        |   | $ | 29,355 |       
|                                   | Workers compensation     |                                         |   | 15,292  |        |   |   | 13,065 |       
|                                   | Personal and commercial   |                                         |   |        |        |   |   | 2,644  |       
|                                   | Other                     |                                         |   | 5,684   |        |   |   | 4,187  |       
|                                   | Corporate and investments |                                         |   | 10,668  |        |   |   | 12,638 |       
|                                   |                           |                                         |   |         |        |  
|                                   |                           | Total revenue                           |   | $       | 64,595 |   |   | $      | 61,889 | 
|                                   |                           |                                         |   |         |        |  
|(Loss) income before income taxes: |                           |                                         |   |         |        |   |   |       
|                                   | Professional liability    |                                         | $ | (13,447 | )      |   | $ | (1,257 | )     
|                                   | Workers compensation     |                                         |   | 138     |        |   |   | (1,546 | )     
|                                   | Personal and commercial   |                                         |   | (154    | )      |   |   | (2,072 | )     
|                                   | Other                     |                                         |   | (1,317  | )      |   |   | (133   | )     
|                                   | Corporate and investments |                                         |   | 9,351   |        |   |   | 11,058 |       
|                                   |                           |                                         |   |         |        |  
|                                   |                           | Total (loss) income before income taxes |   | $       | (5,429 | ) |   | $      | 6,050  | 
|                                   |                           |                                         |   |         |        |  

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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, 2001. The following
discussion of our financial condition and results of operations
contains certain forward-looking statements relating to our
anticipated future financial condition and operating results and
our current business plans. These forward-looking statements
represent our outlook only as of the date of this report. While
we believe any forward-looking statements we have made are
reasonable, actual results could differ materially since the
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 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 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.

Results of Operations  Three Months
Ended March 31, 2002 Compared to Three Months Ended
March 31, 2001

We operate primarily in four insurance product
segments: Medical Professional Liability, Workers
Compensation, Health/ Other and Personal and Commercial Lines.
See Note 4 to the Notes to Condensed Consolidated Financial
Statements for further information regarding the operating
results of our business segments.

Medical
Professional Liability Insurance Operations

Medical professional liability net premiums
earned were $33.0 million for the three months ended
March 31, 2002, an increase of $3.6 million, or 12.2%,
compared to the three months ended March 31, 2001. The
increase in net premiums earned was mainly due to rate increases
and reduced discounts instituted by the Company in all states,
especially Kentucky and Ohio, where rates were raised
approximately 30% and 50% respectively, effective
January 1, 2002. The Company also experienced greater
penetration in the Illinois market. The Company is continuously
seeking regulatory approval of significant additional rate
increases in other markets.

Medical professional liability incurred loss and
loss adjustment expenses totaled $40.0 million for the
three months ended March 31, 2002, an increase of
$15.1 million, or 60.6%, compared to the three months ended
March 31, 2001. The incurred loss and loss adjustment
expense ratio increased to 121.3% for the three months ended
March 31, 2002 from 84.7% for the same period of 2001. The
higher loss ratio for the three months ended March 31,
2002, compared to the same period in 2001, was primarily the
result of continued higher reported loss levels in the
Companys newer medical professional liability markets.
This trend of increasing loss levels was first noted in the
quarter ended September 30, 2001. Another factor
contributing to the higher comparative loss ratios is the
relatively higher policy limits in states where the reported
loss levels have been increasing. Offsetting these two adverse
factors would be higher premium dollars due to the
aforementioned premium rate increases.

The 2002 loss and loss adjustment expense ratio
includes $1.5 million of adverse development on prior
accident years. As a result of these additional prior year
losses, the accident year loss and loss and adjustment expense
ratio is 116.8% for the quarter ended March 31, 2002. The
loss and loss adjustment expense ratio reported in the first
quarter of 2001 changed significantly due to reserve adjustments
taken in the third quarter of 2001, which revised 2001 accident
year losses to 121.9%. Accordingly, the accident year loss and
loss adjustment expense ratio for the first quarter of 2002
actually improved from the 2001 accident year ratio. This
improvement is directly the result of the rate increases
implemented by the Company.

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Medical professional liability underwriting
expenses were $6.4 million for the three months ended
March 31, 2002, an increase of $0.7 million, or 12.1%,
compared to the same period of 2001. The underwriting expense
ratio was 19.5% for the three months ended March 31, 2002,
compared to 19.6% for the same period of 2001. The decrease in
the medical professional liability underwriting expense ratio
was primarily the result of holding underwriting salaries and
employee relation costs constant with the same period last year,
while net earned premiums increased 12.2%.

Workers
Compensation Insurance Operations

Workers compensation net premiums earned
were $15.3 million for the three months ended
March 31, 2002, an increase of $2.2 million, or 16.8%,
compared to the three months ended March 31, 2001. The
increases in net premiums earned were due primarily to premium
rate increases and reduced credits, as well as policy growth in
Kentucky. The Company is seeking regulatory approval of
significant additional rate increases.

Workers compensation incurred loss and loss
adjustment expenses totaled $11.2 million for the three
months ended March 31, 2002, an increase of $0.1 million,
or 0.9%, compared to the same period of 2001. The incurred loss
and loss adjustment expense ratio decreased to 73.5% for the
three months ended March 31, 2002 from 85.0% for the same
period of 2001. The 2002 loss and loss adjustment expense ratio
includes $1.0 million of positive prior accident year
development. As a result, the accident year loss and loss
adjustment expense ratio is 79.7%. The decreasing loss ratio was
due to an overall pattern of increasing premium rates and
reducing discounts in all markets.

Workers compensation underwriting expenses
were $3.9 million for the three months ended March 31,
2002, an increase of $0.4 million, or 11.4%, compared to
the same period of 2001. The underwriting expense ratio
decreased to 25.6% for the three months ended March 31,
2002, from 26.9% for the same period of 2001. These decreases
resulted primarily from the Companys expense reduction
initiatives and lower assessments and fees.

Health Insurance
Operations

Health net premiums earned were $5.7 million
for the three months ended March 31, 2002, an increase of
$1.5 million, or 35.7% compared to the three months ended
March 31, 2001. The increase in net premiums earned was
exclusively 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 which sponsors this plan.

Health incurred loss and loss adjustment expense
totaled $5.8 million for the three months ended
March 31, 2002, an increase of $2.3 million, or 65.7%
compared to the three months ended March 31, 2001. The
incurred loss and loss adjustment expense ratio increased to
102.0% for the three months ended March 31, 2002 from 82.4%
for the same period of 2001. The increase in loss and loss
adjustment expense ratio was primarily the result of the overall
trend of increasing medical costs. Working with our plan
sponsor, we are implementing rate increases up to 25%, and
tightening underwriting standards.

Health underwriting expenses were
$1.2 million for the three months ended March 31,
2002, an increase of $0.3 million, or 33.3%, compared to
the same period of 2001. The health underwriting expense ratio
increased to 21.2% for the three months ended March 31,
2002 from 20.8% for the same period of 2001. The slight increase
in the underwriting ratio was primarily due to higher
commissions and third-party administrator expenses associated
with the health line of business.

Personal and
Commercial Lines Insurance Operations

As a result of the Companys exit of the
personal and commercial lines of business, there were no
personal and commercial net premiums earned for the three months
ended March 31, 2002, a decrease of $2.6 million, or
100%, compared to the three months ended March 31, 2001.
There was, however, a small amount of direct premiums,
approximately $360,000, written in connection with one of the
APConsulting

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alternative risk arrangements. This premium and
risk were 100% ceded to a reinsurer, along with any underwriting
expenses associated with the direct writings.


Personal and commercial incurred loss and loss
adjustment expenses totaled $0.1 million for the three
months ended March 31, 2002, a decrease of
$4.0 million or 97.6%, as compared to the three months
ended March 31, 2001. Incurred loss and loss adjustment
expenses for the three months ended March 31, 2002,
represent unfavorable development of December 31, 2001
unpaid loss and loss adjustment expenses as the Company is not
retaining any risk related to new personal and commercial
business.

As previously mentioned, there were no net
underwriting expenses associated with the personal and
commercial line of business for the three months ended
March 31, 2002. Personal and commercial underwriting
expenses for the three months ended March 31, 2001 were
$0.6 million, which equated to an underwriting ratio of
22.5%.

Corporate,
Investments and Other

Net investment income, excluding realized
investment losses, was $10.8 million for the three months
ended March 31, 2002, a decrease of $1.7 million, or
13.6%, compared to the three months ended March 31, 2001.
The decline in investment income was the result of a lower
interest rate environment in the first quarter of 2002 compared
to 2001, and the reduction of invested assets due to our share
repurchase program. Net realized losses were $286,000 and
$201,000 during the three month periods ended March 31,
2002 and 2001, respectively. The Company maintains a portfolio
of cash and short-term investments to meet operating cash needs,
fund the share repurchase program, and for potential
acquisitions.

The Companys general and administrative
expenses increased $81,000 to $473,000 during the three months
ended March 31, 2002 as compared to the prior year. The
increase was primarily the result of increased costs associated
with the Companys preparation for the 2002 annual meeting,
and other corporate matters that were not present in the first
quarter of 2001. These costs include stock market listing fees,
investor relations fees, legal costs, shareholder meeting costs,
securities reporting expenses and costs associated with the
Companys share repurchase program. Management expects the
general and administrative expenses from 2002 to be more
representative of continuing operations.

During the quarter ended March 31, 2002, the
Company adopted SFAS No. 142. The Company has only one
intangible asset, which is goodwill associated with the purchase
of Stratton Cheeseman Management Company in 1999. Management is
currently analyzing the valuation of goodwill, as required by
SFAS No. 142. Any impairment adjustment, as a result of
SFAS No. 142 implementation, would be recorded in the
second quarter of 2002. No amortization was recorded during the
quarter ended March 31, 2002. At March 31, 2002,
goodwill totaled $17.8 million, with accumulated
amortization of $3.9 million, or net goodwill of
$13.9 million. For the quarter end March 31, 2001, the
Company recorded amortization expense of $533,000, or $.03 per
share, net of tax.

The Company recorded $1.9 million in federal
income tax benefit for the three months ended March 31,
2002, compared to a $1.9 million expense during the same
period in 2001. The effective tax rate was 35.0% for the three
months ended March 31, 2002, compared to 31.6% for the
three months ended March 31, 2001. The Company has reduced
its tax exempt interest income, thereby increasing the effective
rate.

Net loss for the three months ended
March 31, 2002 was $3.5 million on revenues of
$64.6 million compared to net income of $4.1 million
on revenues of $61.9 million for the three months ended
March 31, 2001. The decrease in net income was due
primarily to increased incurred losses.

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. In addition, the Company is
indebted to a related party in the amount of $9.0 million
in connection with the purchase of

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Stratton-Cheeseman Management Company. The
indebtedness is due in annual installments, without interest,
over the next seven years. At March 31, 2002, the Company
had no material commitments for capital expenditures.


The Companys net cash flow generated by
operations was approximately $8.1 million for the three
months ended March 31, 2002, compared to $12.7 million
used in operations for the three months ended March 31,
2001. The improvement in cash flows generated from operations
was primarily the result of increased premium rates coupled with
lower loss and loss adjustment expense payments.

At March 31, 2002, the Company had
$52.1 million of cash available, and an investment
portfolio of $694.3 million. The portfolio includes
$29.9 million of bonds maturing in the next year to meet
short-term cash flow needs. 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, 2002,
$277.8 million of bonds mature in the next one to five
years and $285.6 million mature in the next five to ten
years.

Total assets increased $4.6 million to
$1,043.5 million at March 31, 2002, compared to
$1,038.9 million at December 31, 2001. The increase
was due primarily to increases in prepaid reinsurance premiums
and premiums receivable.

Loss and loss adjustment expense reserves
increased $9.1 million, 1.5% to $606.1 million at
March 31, 2002, from $597.0 million at
December 31, 2001. This increase was due to increased
writings in both the workers compensation and medical
professional liability lines.

The unearned premium reserve increased
$11.1 million, or 11.1% to $111.2 million at
March 31, 2002, from $100.1 million at
December 31, 2001. The increase was primarily due to
premium rate increases in the first quarter of 2002.

In March, July and November 2001, the
Companys Board of Directors authorized programs to
purchase outstanding common stock, totalling approximately
1,689,000 shares. The Company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 2002, the Company purchased
281,400 shares at a cost of $5.2 million under these
authorizations. A total of 1,650,570 shares have been
repurchased pursuant to these authorizations through
March 31, 2002 at a cost of $30.4 million.

On May 8, 2002, the Companys Board of
Directors authorized the repurchase of an additional
499,000 shares. The Company intends to continue
repurchasing its shares, in the market and otherwise, when
appropriate, using available cash resources.

Based on historical trends, market conditions and
our business plans, we believe that our existing resources and
sources of funds will be sufficient to meet our short- and
long-term liquidity needs over the next 18 months and
beyond. Because economic, market and regulatory conditions may
change, there can be no assurance that our funds will be
sufficient to meet these liquidity needs.

Effects of New Accounting
Pronouncements

In June 2001, the Financial Accounting
Standards Board issued SFAS No. 142, Goodwill and
Other Intangible Assets. With the adoption of SFAS
No. 142, goodwill is no longer amortized, but rather, is
reviewed at least annually for impairment in accordance with the
provisions set forth in the statement. In addition, SFAS
No. 142 introduced the concept of definite and indefinite
lived intangible assets. Definite lived intangible assets are
amortized over their useful life, unless circumstances indicate
that the asset has been impaired. Indefinite lived intangible
assets, similar to goodwill, are no longer amortized, but rather
reviewed annually for impairment.

In accordance with the transitional guidance
given in SFAS No. 142, the Company has up to six months
from the date of adoption to complete the initial impairment
review required under SFAS No. 142. Accordingly, the
Company is still reviewing the impairment testing provisions of
SFAS No. 142, as they relate

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to the Companys recorded goodwill, and a
transitional impairment adjustment, if any, will be recorded in
the second quarter of 2002. Without regards to the impairment
testing provisions, the Company expects that the adoption of
SFAS No. 142 will have a significant impact on its 2002
operating results, as goodwill will no longer be amortized. No
amortization expense was recorded for the three months ended
March 31, 2002, compared to $533,000, or $0.03 per share,
for the three months ended March 31, 2001. At
March 31, 2002, goodwill totaled $17.8 million, with
accumulated amortization of $3.9 million, or
$13.9 million of goodwill on a net basis.


In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, effective
for fiscal years beginning after December 15, 2001. This
Statement supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, and the accounting and reporting provisions
of Accounting Principles Board Opinion No. 30
Reporting the Results of Operations  Reporting
the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions (APB No. 30). SFAS No. 144
generally retains the basic accounting model for the
identification and measurement of impairments to long-lived
assets to be held, and long-lived assets to be disposed. SFAS
No. 144 broadens the definition of discontinued
operations, as previously defined by APB No. 30, but
does not allow for the accrual of future operating losses, as
was previously permitted under that standard. SFAS No. 144
also addresses several implementation and financial statement
presentation issues not previously addressed under U.S. GAAP.
SFAS No. 144 excludes from its scope financial accounting
and reporting for the impairment of goodwill and other
intangible assets. The implementation of SFAS No. 144 did
not have an effect on the Companys consolidated financial
position or results of operations for the three month period
ended March 31, 2002.






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. We invest primarily in fixed
maturity securities, which are interest-sensitive assets.
Accordingly, our primary market risk is exposure to changes in
interest rates.

As of March 31, 2002, the majority of our
investment portfolio was invested in fixed maturity securities
and short-term investments. 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 regularly examine the quality distribution of
our investment portfolio for evidence of impairment. When a
security in our investment portfolio has a decline in market
value, which is other than temporary, we are required by GAAP to
reduce the carrying value of such security to its net realizable
value. All declines in market values of our investment
securities at March 31, 2002 were deemed to be temporary
with the exception of an investment in Frontier Bonds, which
were written down $5.9 million during 2001.

Quantitative Information About Market
Risk

Our fixed income security portfolio was valued at
$654.6 million at March 31, 2002, and had an average
modified duration of 4.07 years. 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

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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.


|                 |  |                       |       |            |          |   |       |          |  |  |      | 
|---------------- |  | --------------------- | ----- | ---------- | -------- | - | ----- | -------- |  |  | ---- | 
|                 |  | Portfolio             |       |            | Change   |   |       | Modified | 
|Changes in Rates |  | Value                 |       |            | in Value |   |       | Duration | 
|                 |  |                       |       |            |          |   |       |          | 
|                 |  |                       |       | (in years) |         
|                 |  | (dollars in millions) |       |            |         
|+2%              |  | $                     | 599.6 |            |          | $ | (55.0 | )        |  |  | 4.16 | 
|+1%              |  |                       | 626.4 |            |          |   | (28.2 | )        |  |  | 4.20 | 
|0                |  |                       | 654.6 |            |          |   |      |          |  |  | 4.07 | 
|-1%              |  |                       | 680.7 |            |          |   | 26.1  |          |  |  | 3.57 | 
|-2%              |  |                       | 706.6 |            |          |   | 52.0  |          |  |  | 3.67 | 

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PART II. OTHER INFORMATION







ITEM 2.     Changes
in Securities and Use of Proceeds.


(a) On March 9, 2002, the Board of
Directors approved an amendment to the Companys bylaws.
The effect of the amendment is to (1) make clear that the
Company may issue shares in uncertificated form to the extent
permitted by applicable law and (2) revise the time periods
during which shareholders who wish to bring matters before the
annual meeting of shareholders must give notice to the Company.

To be timely, a shareholders notice of
nominees to the Board of Directors or other business to be
brought before an annual meeting shall be delivered to the
Secretary of the Company not later than the 90th day prior to
the first anniversary of the preceding years annual
meeting. If the date of the annual meeting is advanced by more
than 30 days or delayed by more than 60 days from such
anniversary date, the notice must be delivered not later than
the later of the 90th day prior to such annual meeting or the
10th day following the day on which public announcement of the
date of such meeting is first made.






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


The Company held its Annual Meeting of
Shareholders on May 8, 2002, at which the shareholders
elected three directors. Each of the nominees for director at
the meeting was an incumbent and all nominees were elected. The
following table sets forth the number of votes for and withheld
with respect to each nominee.

|                          |  |       |           |  |          |  |         | 
|------------------------- |  | ----- | --------- |  | -------- |  | ------- | 
|                          |  | Votes |           |  | Votes    | 
|Nominee                   |  | For   |           |  | Withheld | 
|                          |  |       |           |  |          | 
|Myron R. Emerick, D.O     |  |       | 8,188,024 |  |          |  | 285,411 | 
|AppaRao Mukkamala, M.D.   |  |       | 8,188,524 |  |          |  | 284,911 | 
|Spencer L. Schneider, J.D |  |       | 8,388,834 |  |          |  | 84,601  | 






ITEM 6.     Exhibits
and Reports on Form 8-K


(a) Exhibits.



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.2 Bylaws, as amended March 9, 2002
    (filed as an exhibit to the Companys 2001 Annual Report on
    Form 10-K and incorporated herein by reference).

(b) Reports on Form 8-K.

The Company filed reports on Form 8-K on
February 11, 2002, disclosing under Item 5 the date of
the annual meeting of shareholders and the date by which notice
of nominees or other matters to be brought before the meeting
must be given to the Company, and February 21, 2002,
disclosing under Item 5 an agreement with the Stilwell
Group to appoint Spencer L. Schneider, a representative of the
Stilwell Group, to the Companys Board of Directors.
Neither Form 8-K included any financial statements.

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SIGNATURES


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

Date: May 14, 2002



| |                                           
| | ------------------------------------------
| | 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          

17