##### 









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO


SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the Fiscal Year Ended December 31, 2005                                                 
| 
|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


o þ


o þ


þ o


S-K 10-K 10-K.


12b-2


o þ o


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












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|        |          
|------- | ---------
|Item 1. | Business.

General








1



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##### 





|                         |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        |  |        |         |         |  |       |        |        | 
|------------------------ | ------------------------------ | ------------------------- | ------ | ------- | ------- |  | ----- | ------ | ------ |  | ------ | ------- | ------- | ------ | ----- | ------ | ------ |  | ------ | ------- | ------- |  | ----- | ------ | ------ | 
|                         |                                | Year Ended December 31,   |       
|                         |                                |                           |       
|                         |                                | 2005                      |        |         | 2004    |  |       | 2003   |       
|                         |                                |                           |        |         |         |  |       |        |       
|                         |                                |                           |        | % of    |         |  |       |        | % of   |  |        |         |         | % of   |      
|                         |                                | Amount                    |        |         | Total   |  |       | Amount |        |  | Total  |         |         | Amount |       |        | Total  | 
|                         |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|                         |                                | (Dollars in thousands)    |       
|Direct premiums written: |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        |  |        |         |         |  |       |       
|                         | Medical professional liability |                           | $      | 183,454 |         |  |       | 98.9%  |        |  | $      | 203,034 |         |        |       | 94.9%  |        |  | $      | 195,742 |         |  |       | 76.4%  |       
|                         | Workers compensation          |                           |        | (278    | )       |  |       | -0.1%  |        |  |        | 5       |         |        |       | 0.0%   |        |  |        | 37,337  |         |  |       | 14.6%  |       
|                         | Health                         |                           |        | 2,335   |         |  |       | 1.3%   |        |  |        | 10,906  |         |        |       | 5.1%   |        |  |        | 23,156  |         |  |       | 9.0%   |       
|                         | Personal and commercial        |                           |        |        |         |  |       | 0.0%   |        |  |        |        |         |        |       | 0.0%   |        |  |        |        |         |  |       | 0.0%   |       
|                         |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|                         |                                | Total                     |        | $       | 185,511 |  |       |        | 100.0% |  |        | $       | 213,945 |        |       |        | 100.0% |  |        | $       | 256,235 |  |       |        | 100.0% | 
|                         |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|Net premiums written:    |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        |  |        |         |         |  |       |       
|                         | Medical professional liability |                           | $      | 157,780 |         |  |       | 100.3% |        |  | $      | 175,042 |         |        |       | 93.9%  |        |  | $      | 164,157 |         |  |       | 73.1%  |       
|                         | Workers compensation          |                           |        | (2,605  | )       |  |       | -1.7%  |        |  |        | 1,058   |         |        |       | 0.6%   |        |  |        | 38,521  |         |  |       | 17.1%  |       
|                         | Health                         |                           |        | 2,207   |         |  |       | 1.4%   |        |  |        | 10,331  |         |        |       | 5.5%   |        |  |        | 22,208  |         |  |       | 9.9%   |       
|                         | Personal and commercial        |                           |        |        |         |  |       | 0.0%   |        |  |        |        |         |        |       | 0.0%   |        |  |        | (239    | )       |  |       | -0.1%  |       
|                         |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|                         |                                | Total                     |        | $       | 157,382 |  |       |        | 100.0% |  |        | $       | 186,431 |        |       |        | 100.0% |  |        | $       | 224,647 |  |       |        | 100.0% | 
|                         |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|Total revenue:           |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        |  |        |         |         |  |       |       
|Net premiums earned:     |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        |  |        |         |         |  |       |       
|                         | Medical professional liability |                           | $      | 163,570 |         |  |       | 76.8%  |        |  | $      | 173,835 |         |        |       | 69.3%  |        |  | $      | 158,777 |         |  |       | 58.5%  |       
|                         | Workers compensation          |                           |        | (1,494  | )       |  |       | -0.7%  |        |  |        | 16,413  |         |        |       | 6.5%   |        |  |        | 43,844  |         |  |       | 16.2%  |       
|                         | Health                         |                           |        | 2,207   |         |  |       | 1.0%   |        |  |        | 10,331  |         |        |       | 4.1%   |        |  |        | 22,208  |         |  |       | 8.2%   |       
|                         | Personal and commercial        |                           |        |        |         |  |       | 0.0%   |        |  |        |        |         |        |       | 0.0%   |        |  |        | (239    | )       |  |       | -0.1%  |       
|                         |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|                         |                                | Total net premiums earned |        |         | 164,283 |  |       |        | 77.2%  |  |        |         | 200,579 |        |       |        | 80.0%  |  |        |         | 224,590 |  |       |        | 82.8%  | 
|Investment income        |                                |                           | 45,163 |         |         |  | 21.2% |        |        |  | 47,373 |         |         |        | 18.9% |        |        |  | 43,294 |         |         |  | 16.0% |       
|Net realized gains       |                                |                           | 2,033  |         |         |  | 1.0%  |        |        |  | 1,551  |         |         |        | 0.6%  |        |        |  | 2,403  |         |         |  | 0.9%  |       
|Other income             |                                |                           | 1,386  |         |         |  | 0.7%  |        |        |  | 1,177  |         |         |        | 0.5%  |        |        |  | 1,104  |         |         |  | 0.4%  |       
|                         |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|                         | Total revenue                  |                           | $      | 212,865 |         |  |       | 100.0% |        |  | $      | 250,680 |         |        |       | 100.0% |        |  | $      | 271,391 |         |  |       | 100.0% |       
|                         |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 





2



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##### 



Medical Professional Liability Operations


Products and Services.




Marketing.








3



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##### 





Underwriting and Pricing.








Claims Management.




Reserve for Unpaid Loss and Loss Adjustment Expenses.


4



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##### 











Reinsurance.




5



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##### 





|                                  |  |                        |    |         |                  |   |                  |           |  |         |                  |  |  |  |      |  
|--------------------------------- |  | ---------------------- | -- | ------- | ---------------- | - | ---------------- | --------- |  | ------- | ---------------- |  |  |  | ---- | -
|                                  |  |                        |    |         |                  |   |                  | % of 2005 | 
|                                  |  |                        |    | Amounts |                  |   | 2005 Total Ceded |           |  | Amounts |                 
|                                  |  | A.M. Best              |    |         | Recoverable From |   |                  | Premiums  |  |         | Recoverable From | 
|Reinsurer                         |  | Rating                 |    |         | Reinsurers       |   |                  | Written   |  |         | Reinsurers       | 
|                                  |  |                        |    |         |                  |   |                  |           |  |         |                  | 
|                                  |  | (Dollars in thousands) |   
|Hannover Ruckversicherungs        |  |                        | A  |         |                  | $ | 46,948           |           |  | $       | 8,525            |  |  |  | 39.1 | %
|American Re-Insurance Company     |  |                        | A  |         |                  |   | 25,297           |           |  |         | 5,287            |  |  |  | 21.0 | %
|Transatlantic Reinsurance Company |  |                        | A+ |         |                  |   | 11,587           |           |  |         | 73               |  |  |  | 9.6  | %



Capital and Surplus.


Competition




A.M. Best Company Rating






Important Agency Relationship




6



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##### 







5-year


Insurance Regulatory Matters


General.




Holding Company Regulation.




7



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##### 





Change of Control.


Risk-Based Capital Requirements.




IRIS Requirements.




Guaranty Fund.


8



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##### 



Employees




Uncertainties Relating To Forward-Looking Statements










|         |              
|-------- | -------------
|Item 1A. | Risk Factors.





| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Increased competition could adversely affect our ability
    to sell our products at premium rates we deem adequate, which
    may result in a decrease in premium volume, a decrease in our
    profitability, or both.





| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Our reserves for unpaid losses and loss adjustment
    expenses are based on estimates that may prove to be inadequate
    to cover our losses.



9



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##### 







| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Our exit from various markets and lines of business may
    prove more costly than originally anticipated.







| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Tort reform legislation may have adverse or unintended
    consequences that could materially and adversely affect our
    results of operations and financial condition.







| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to obtain or collect on ceded
    reinsurance, our results of operations and financial condition
    may be adversely affected.



10



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##### 







| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | The insurance industry is subject to regulatory oversight
    that may impact the manner in which we operate our
    business.





| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | place limitations on the types and amounts of our investments,                                                
|
| |  | review and approve or deny premium rate increases,                                                            
|
| |  | set standards of solvency to be met and maintained,                                                           
|
| |  | review reserve levels,                                                                                        
|
| |  | review change in control transactions,                                                                        
|
| |  | limit the ability to pay dividends,                                                                           
|
| |  | prescribe the form and content of, and to examine, our
    statutory-basis financial statements, and          
|
| |  | place limitations on our ability to transact business with and
    between our affiliated insurance companies.





| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our geographic concentration in certain Midwestern states
    and New Mexico ties our performance to the business, economic,
    regulatory and legislative conditions in those states.





| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | An interruption or change in current marketing and agency
    relationships could reduce the amount of premium we are able to
    write.



11



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##### 





| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | A downgrade in the financial strength rating of our
    insurance subsidiaries could reduce the amount of business we
    are able to write.





| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Changes in interest rates could adversely impact our
    results of operation, cash flows and financial condition.





| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our status as an insurance holding company with no direct
    operations could adversely affect our ability to meet our debt
    obligations and fund future share repurchases.





| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Applicable law and various provisions in our articles and
    bylaws will prevent and discourage unsolicited attempts to
    acquire APCapital that you may believe are in your best
    interests or that might result in a substantial profit to
    you.



12



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##### 





|         |                           
|-------- | --------------------------
|Item 1B. | Unresolved Staff Comments.





|        |           
|------- | ----------
|Item 2. | Properties





|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings





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



PART II




|        |                                                                                                                           
|------- | --------------------------------------------------------------------------------------------------------------------------
|Item 5. | Market Price For Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|                              |  |            |       |  |     |   |       | 
|----------------------------- |  | ---------- | ----- |  | --- | - | ----- | 
|                              |  | Sale Price |      
|                              |  |            |      
|                              |  | High       |       |  | Low |  
|                              |  |            |       |  |     |  
|2005                          |  |            |       |  |     |   |       | 
|October 1  December 31, 2005 |  | $          | 49.25 |  |     | $ | 41.42 | 
|July 1  September 30, 2005   |  |            | 50.55 |  |     |   | 35.94 | 
|April 1  June 30, 2005       |  |            | 37.24 |  |     |   | 29.17 | 
|January 1  March 31, 2005    |  |            | 37.66 |  |     |   | 32.58 | 
|2004                          |  |            |       |  |     |   |       | 
|October 1  December 31, 2004 |  | $          | 37.99 |  |     | $ | 30.00 | 
|July 1  September 30, 2004   |  |            | 31.83 |  |     |   | 22.69 | 
|April 1  June 30, 2004       |  |            | 25.60 |  |     |   | 20.50 | 
|January 1  March 31, 2004    |  |            | 22.22 |  |     |   | 16.60 | 



13



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##### 







|                                                        |  |                         |         |  |                     |   |                       |                          |  |  |       | 
|------------------------------------------------------- |  | ----------------------- | ------- |  | ------------------- | - | --------------------- | ------------------------ |  |  | ----- | 
|Equity Compensation Plans                               | 
|                                                        | 
|                                                        |  | Number of shares        |        
|                                                        |  | remaining available for |        
|                                                        |  | Number of shares to     |         |  |                     |   | future issuance under |                         
|                                                        |  | be issued upon          |         |  | Weighted-average    |   |                       | equity compensation      | 
|                                                        |  | exercise of             |         |  | exercise price of   |   |                       | plans (excluding shares  | 
|Plan Category                                           |  | outstanding options     |         |  | outstanding options |   |                       | reflected in column (a)) | 
|                                                        |  |                         |         |  |                     |   |                       |                          | 
|                                                        |  | (a)                     |         |  | (b)                 |   |                       | (c)                      | 
|Equity compensation plans approved by shareholders:     |  |                         | 517,400 |  |                     | $ | 22.80                 |                          |  |  | 2,850 | 
|Equity compensation plans not approved by shareholders: |  |                         |        |  |                     |   |                      |                          |  |  |      | 



|                                             |  |           |         |  |            |   |                 |                     |  |                |                    |  |  |  |         | 
|-------------------------------------------- |  | --------- | ------- |  | ---------- | - | --------------- | ------------------- |  | -------------- | ------------------ |  |  |  | ------- | 
|                                             |  | Total     |         |  |            |   | Total Number of |                     |  | Maximum Number |                   
|                                             |  | Number of |         |  | Average    |   |                 | Shares Purchased    |  |                | of Shares that May | 
|                                             |  | Shares    |         |  | Price Paid |   |                 | as Part of Publicly |  |                | Yet Be Purchased   | 
|                                             |  | Purchased |         |  | per Share  |   |                 | Announced Plans     |  |                | Under the Plans(1) | 
|                                             |  |           |         |  |            |   |                 |                     |  |                |                    | 
|For the month ended October 31, 2005         |  |           |        |  |            | $ |                |                     |  |                |                   |  |  |  | 153,469 | 
|For the month ended November 30, 2005        |  |           | 23,100  |  |            | $ | 45.39           |                     |  |                | 23,100             |  |  |  | 555,369 | 
|For the month ended December 31, 2005        |  |           | 145,500 |  |            | $ | 45.43           |                     |  |                | 145,500            |  |  |  | 409,869 | 
|For the three months ended December 31, 2005 |  |           | 168,600 |  |            | $ | 45.42           |                     |  |                | 168,600            |  |  |  | 409,869 | 
|For the year ended December 31, 2005         |  |           | 433,500 |  |            | $ | 39.35           |                     |  |                | 433,500            |  |  |  | 409,869 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On November 2, 2005, the Board of Directors authorized the
    purchase of an additional five percent of the Companys
    outstanding common shares, or approximately 425,000. There is no
    expiration date with respect to this authorization. This brings
    the total number of shares authorized to be repurchased under
    publicly announced plans to 4,040,439, of which, 3,630,570 have
    been purchased at an average price per share of $21.33.

14



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##### 





|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |           |         |         |   |            |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------- | --------- | ------- | ------- | - | --------- | ------- | ------- | - | --------- | ------- | ------- | ---- | --------- | ------- | ------- | - | ---------- | ------- | ------- | 
|                                                                                                                                                  |                                                                   | For the Year Ended December 31,               |          
|                                                                                                                                                  |                                                                   |                                               |          
|                                                                                                                                                  |                                                                   | 2005                                          |           |         | 2004    |   |           | 2003    |         |   | 2002(a)   |         |         | 2001 |          
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|                                                                                                                                                  |                                                                   | (Dollars in thousands, except per share data) |          
|Revenue:                                                                                                                                          |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |           |         |         |   |            |        
|                                                                                                                                                  | Direct premiums written                                           |                                               | $         | 185,511 |         |   | $         | 213,945 |         |   | $         | 256,235 |         |      | $         | 266,260 |         |   | $          | 230,765 |        
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|                                                                                                                                                  | Net premiums written                                              |                                               | $         | 157,382 |         |   | $         | 186,431 |         |   | $         | 224,647 |         |      | $         | 238,417 |         |   | $          | 208,779 |        
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|                                                                                                                                                  | Net premiums earned                                               |                                               | $         | 164,283 |         |   | $         | 200,579 |         |   | $         | 224,590 |         |      | $         | 235,551 |         |   | $          | 202,371 |        
|                                                                                                                                                  | Investment income                                                 |                                               |           | 45,163  |         |   |           | 47,373  |         |   |           | 43,294  |         |      |           | 44,775  |         |   |            | 47,883  |        
|                                                                                                                                                  | Net realized gains (losses)                                       |                                               |           | 2,033   |         |   |           | 1,551   |         |   |           | 2,403   |         |      |           | (163    | )       |   |            | (5,651  | )      
|                                                                                                                                                  | Other income                                                      |                                               |           | 1,387   |         |   |           | 1,177   |         |   |           | 1,104   |         |      |           | 376     |         |   |            | 546     |        
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|                                                                                                                                                  |                                                                   | Total revenues and other income               |           |         | 212,866 |   |           |         | 250,680 |   |           |         | 271,391 |      |           |         | 280,539 |   |            |         | 245,149 | 
|Losses and expenses:                                                                                                                              |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |           |         |         |   |            |        
|                                                                                                                                                  | Losses and loss adjustment expenses                               |                                               |           | 127,124 |         |   |           | 177,786 |         |   |           | 252,742 |         |      |           | 242,028 |         |   |            | 257,848 |        
|                                                                                                                                                  | Underwriting expenses                                             |                                               |           | 33,080  |         |   |           | 42,681  |         |   |           | 51,104  |         |      |           | 48,593  |         |   |            | 45,111  |        
|                                                                                                                                                  | Investment expenses                                               |                                               |           | 1,411   |         |   |           | 2,460   |         |   |           | 2,940   |         |      |           | 2,515   |         |   |            | 1,788   |        
|                                                                                                                                                  | Interest expense                                                  |                                               |           | 2,337   |         |   |           | 1,714   |         |   |           | 1,370   |         |      |           | 373     |         |   |            | 400     |        
|                                                                                                                                                  | Amortization expense                                              |                                               |           | 806     |         |   |           | 1,096   |         |   |           | 389     |         |      |           |        |         |   |            | 2,514   |        
|                                                                                                                                                  | Other expenses                                                    |                                               |           | 3,241   |         |   |           | 5,193   |         |   |           | 3,729   |         |      |           | 1,971   |         |   |            | 4,718   |        
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|                                                                                                                                                  |                                                                   | Total losses and expenses                     |           |         | 167,999 |   |           |         | 230,930 |   |           |         | 312,274 |      |           |         | 295,480 |   |            |         | 312,379 | 
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|Income (loss) before federal income tax (benefit) expense and
    minority interest and cumulative effect of a change in
    accounting principle |                                                                   |                                               | 44,867    |         |         |   | 19,750    |         |         |   | (40,883   | )       |         |      | (14,941   | )       |         |   | (67,230    | )      
|                                                                                                                                                  | Federal income tax (benefit) expense                              |                                               |           | (27,952 | )       |   |           | (290    | )       |   |           | 36,296  |         |      |           | (5,529  | )       |   |            | (23,450 | )      
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|Income (loss) before minority interest and cumulative effect of
    a change in accounting principle                                              |                                                                   |                                               | 72,819    |         |         |   | 20,040    |         |         |   | (77,179   | )       |         |      | (9,412    | )       |         |   | (43,780    | )      
|                                                                                                                                                  | Minority interest in net (income) loss of consolidated subsidiary |                                               |           | (453    | )       |   |           | (10     | )       |   |           | 348     |         |      |           |        |         |   |            |        |        
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|Income (loss) before cumulative effect of a change in accounting
    principle                                                                    |                                                                   |                                               | 72,366    |         |         |   | 20,030    |         |         |   | (76,831   | )       |         |      | (9,412    | )       |         |   | (43,780    | )      
|Cumulative effect of a change in accounting principle                                                                                             |                                                                   |                                               |          |         |         |   |          |         |         |   |          |         |         |      | (9,079    | )       |         |   |           |        
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|Net income (loss)                                                                                                                                 |                                                                   | $                                             | 72,366    |         |         | $ | 20,030    |         |         | $ | (76,831   | )       |         | $    | (18,491   | )       |         | $ | (43,780    | )      
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|Net income (loss) per share  basic                                                                                                               |                                                                   | $                                             | 8.48      |         |         | $ | 2.37      |         |         | $ | (9.02     | )       |         | $    | (1.98     | )       |         | $ | (3.95      | )      
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|Weighted average shares outstanding  basic                                                                                                       |                                                                   |                                               | 8,538,134 |         |         |   | 8,455,299 |         |         |   | 8,520,335 |         |         |      | 9,339,739 |         |         |   | 11,071,529 |        
|Net income (loss) per share  diluted                                                                                                             |                                                                   | $                                             | 8.29      |         |         | $ | 2.30      |         |         | $ | (9.02     | )       |         | $    | (1.98     | )       |         | $ | (3.95      | )      
|                                                                                                                                                  |                                                                   |                                               |           |         |         |   |           |         |         |   |           |         |         |      |          
|Weighted average shares outstanding  diluted(b)                                                                                                  |                                                                   |                                               | 8,729,244 |         |         |   | 8,721,286 |         |         |   |           | (b)     |         |      |           | (b)     |         |   |            | (b)    

15



---



##### 








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Net loss for the year ended December 31, 2002 includes a
    $9.1 million charge, net of tax, for the write-off of
    goodwill related to the adoption of Statement of Financial
    Accounting Standards No. 142
    (SFAS No. 142), Goodwill and Other
    Intangible Assets. In accordance with the transitional
    guidance given in SFAS No. 142, this write-off,
    related to the adoption of the standard, was treated as a
    cumulative effect of a change in accounting principle.



|    |  |                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | As the Company was in a net loss position for the years ended
    December 31, 2003, 2002 and 2001, no effect of awards or
    options were calculated as the impact would have been
    anti-dilutive.

|                    |                                                    |                                       |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |           |  
|------------------- | -------------------------------------------------- | ------------------------------------- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - | ---- | - | --------- | - |  | - | --------- | -
|                    |                                                    | At or For the Year Ended December 31, |  
|                    |                                                    |                                       |  
|                    |                                                    | 2005                                  |   |           | 2004 |  |   | 2003      |   |  | 2002 |           |   | 2001 |  
|                    |                                                    |                                       |   |           |      |  |   |           |   |  |      |           |   |      |  
|Balance Sheet Data: |                                                    |                                       |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |          
|                    | Total cash and investments                         |                                       | $ | 854,359   |      |  | $ | 858,098   |   |  | $    | 834,005   |   |      | $ | 801,556   |   |  | $ | 752,508   |  
|                    | Total assets                                       |                                       |   | 1,109,328 |      |  |   | 1,069,899 |   |  |      | 1,063,046 |   |      |   | 1,058,918 |   |  |   | 1,038,917 |  
|                    | Total liabilities                                  |                                       |   | 845,475   |      |  |   | 865,575   |   |  |      | 859,037   |   |      |   | 778,629   |   |  |   | 731,952   |  
|                    | Total GAAP shareholders equity(a)                 |                                       |   | 261,212   |      |  |   | 202,124   |   |  |      | 201,808   |   |      |   | 280,289   |   |  |   | 306,965   |  
|GAAP Ratios:        |                                                    |                                       |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |          
|                    | Loss ratio                                         |                                       |   | 77.4      | %    |  |   | 88.6      | % |  |      | 112.5     | % |      |   | 102.7     | % |  |   | 127.4     | %
|                    | Underwriting expense ratio                         |                                       |   | 20.1      |      |  |   | 21.3      |   |  |      | 22.8      |   |      |   | 20.6      |   |  |   | 22.3      |  
|                    | Combined ratio                                     |                                       |   | 97.5      |      |  |   | 109.9     |   |  |      | 135.3     |   |      |   | 123.3     |   |  |   | 149.7     |  
|Statutory Data      |                                                    |                                       |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |          
|                    | Loss ratio                                         |                                       |   | 77.6      | %    |  |   | 88.6      | % |  |      | 112.5     | % |      |   | 103.2     | % |  |   | 131.1     | %
|                    | Underwriting expense ratio(b)                      |                                       |   | 22.7      |      |  |   | 23.8      |   |  |      | 23.3      |   |      |   | 20.9      |   |  |   | 24.3      |  
|                    | Combined ratio                                     |                                       |   | 100.3     |      |  |   | 112.4     |   |  |      | 135.8     |   |      |   | 124.1     |   |  |   | 155.4     |  
|                    | Surplus                                            |                                       | $ | 240,135   |      |  | $ | 210,874   |   |  | $    | 150,270   |   |      | $ | 190,216   |   |  | $ | 203,069   |  
|                    | Ratio of statutory net premiums written to surplus |                                       |   | 0.64      | x    |  |   | 0.87      | x |  |      | 1.49      | x |      |   | 1.25      | x |  |   | 1.03      | x






|    |                                                     
|--- | ----------------------------------------------------
|(a) | No dividends were paid during the periods presented.



|    |  |                                                                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | The statutory underwriting expense ratio is calculated by
    dividing statutory underwriting expenses by net premiums written
    as opposed to the GAAP underwriting expense ratio, which uses
    net premiums earned as the denominator.



|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Overview




16



---



##### 









Critical Accounting Policies






| |                                           
| | ------------------------------------------
| | Unpaid Losses and Loss Adjustment Expenses





17



---



##### 















| |            
| | -----------
| | Investments

held-to held-to


held-to


yield-to




18



---



##### 









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





| |                                             
| | --------------------------------------------
| | Reserve for Extended Reporting Period Claims





| |                    
| | -------------------
| | Revenue Recognition



19



---



##### 





| |            
| | -----------
| | Reinsurance









| |             
| | ------------
| | Income Taxes











20



---



##### 





| |                                  
| | ---------------------------------
| | Deferred Policy Acquisition Costs



Description of Ratios Analyzed






| |           
| | ----------
| | Loss Ratio





| |                           
| | --------------------------
| | Underwriting Expense Ratio





| |               
| | --------------
| | Combined Ratio





21



---



##### 



Results of Operations




| |                                   
| | ----------------------------------
| | Consolidated Results of Operations



|                                                                  |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |         |   |         |         |         |   |        |       |        |  
|----------------------------------------------------------------- | ------------------------------ | --------------------------------------------------------------- | ------- | ------- | ------- |  | ------- | ---------- | ------- |  | ------- | ------- | ------- | ---- | ---------- | ----- | ------ | - | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------ | ----- | ------ | -
|                                                                  |                                |                                                                 |         |         |         |  |         | Percentage |         |  |         |         |         |      | Percentage |      
|                                                                  |                                | 2005                                                            |         |         | 2004    |  |         | Change     |         |  | Change  |         |         | 2003 |            |       | Change |   |         | Change  |        
|                                                                  |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |        
|                                                                  |                                | (Dollars in thousands)                                          |        
|Net premiums earned by insurance segment:                         |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |         |   |         |         |         |   |        |      
|                                                                  | Medical professional liability |                                                                 | $       | 163,570 |         |  | $       | 173,835    |         |  | $       | (10,265 | )       |      |            | -5.9  | %      |   | $       | 158,777 |         |   | $       | 15,058  |         |   |        | 9.5   | %     
|                                                                  | Other insurance lines          |                                                                 |         | 713     |         |  |         | 26,744     |         |  |         | (26,031 | )       |      |            | -97.3 | %      |   |         | 65,813  |         |   |         | (39,069 | )       |   |        | -59.4 | %     
|                                                                  |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |        
|                                                                  |                                | Total net premiums earned                                       |         |         | 164,283 |  |         |            | 200,579 |  |         |         | (36,296 | )    |            |       | -18.1  | % |         |         | 224,590 |   |         |         | (24,011 | ) |        |       | -10.7  | %
|                                                                  |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |        
|Investment income                                                 |                                |                                                                 | 45,163  |         |         |  | 47,373  |            |         |  | (2,210  | )       |         |      | -4.7       | %     |        |   | 43,294  |         |         |   | 4,079   |         |         |   | 9.4    | %    
|Net realized gains                                                |                                |                                                                 | 2,033   |         |         |  | 1,551   |            |         |  | 482     |         |         |      | 31.1       | %     |        |   | 2,403   |         |         |   | (852    | )       |         |   | -35.5  | %    
|Other income                                                      |                                |                                                                 | 1,387   |         |         |  | 1,177   |            |         |  | 210     |         |         |      | 17.8       | %     |        |   | 1,104   |         |         |   | 73      |         |         |   | 6.6    | %    
|                                                                  |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |        
|                                                                  |                                | Total revenues and other income                                 |         |         | 212,866 |  |         |            | 250,680 |  |         |         | (37,814 | )    |            |       | -15.1  | % |         |         | 271,391 |   |         |         | (20,711 | ) |        |       | -7.6   | %
|                                                                  |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |        
|Losses and loss adjustment expenses                               |                                |                                                                 | 127,124 |         |         |  | 177,786 |            |         |  | (50,662 | )       |         |      | -28.5      | %     |        |   | 252,742 |         |         |   | (74,956 | )       |         |   | -29.7  | %    
|Underwriting expenses                                             |                                |                                                                 | 33,080  |         |         |  | 42,681  |            |         |  | (9,601  | )       |         |      | -22.5      | %     |        |   | 51,104  |         |         |   | (8,423  | )       |         |   | -16.5  | %    
|Investment expenses                                               |                                |                                                                 | 1,411   |         |         |  | 2,460   |            |         |  | (1,049  | )       |         |      | -42.6      | %     |        |   | 2,940   |         |         |   | (480    | )       |         |   | -16.3  | %    
|Interest expense                                                  |                                |                                                                 | 2,337   |         |         |  | 1,714   |            |         |  | 623     |         |         |      | 36.3       | %     |        |   | 1,370   |         |         |   | 344     |         |         |   | 25.1   | %    
|Amortization expense                                              |                                |                                                                 | 806     |         |         |  | 1,096   |            |         |  | (290    | )       |         |      | -26.5      | %     |        |   | 389     |         |         |   | 707     |         |         |   | 181.7  | %    
|General and administrative expenses                               |                                |                                                                 | 2,704   |         |         |  | 3,918   |            |         |  | (1,214  | )       |         |      | -31.0      | %     |        |   | 2,921   |         |         |   | 997     |         |         |   | 34.1   | %    
|Other expenses                                                    |                                |                                                                 | 537     |         |         |  | 1,275   |            |         |  | (738    | )       |         |      | -57.9      | %     |        |   | 808     |         |         |   | 467     |         |         |   | 57.8   | %    
|                                                                  |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |        
|                                                                  |                                | Total other revenue and expense items                           |         |         | 167,999 |  |         |            | 230,930 |  |         |         | (62,931 | )    |            |       | -27.3  | % |         |         | 312,274 |   |         |         | (81,344 | ) |        |       | -26.0  | %
|                                                                  |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |        
|                                                                  |                                | Income (loss) before federal income taxes and minority interest |         |         | 44,867  |  |         |            | 19,750  |  |         |         | 25,117  |      |            |       | 127.2  | % |         |         | (40,883 | ) |         |         | 60,633  |   |        |       | -148.3 | %
|Federal income tax (benefit) expense                              |                                |                                                                 | (27,952 | )       |         |  | (290    | )          |         |  | (27,662 | )       |         |      | 9538.6     | %     |        |   | 36,296  |         |         |   | (36,586 | )       |         |   | -100.8 | %    
|                                                                  |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |        
|                                                                  |                                | Income (loss) before minority interest                          |         |         | 72,819  |  |         |            | 20,040  |  |         |         | 52,779  |      |            |       | 263.4  | % |         |         | (77,179 | ) |         |         | 97,219  |   |        |       | -126.0 | %
|Minority interest in net (income) loss of consolidated subsidiary |                                |                                                                 | (453    | )       |         |  | (10     | )          |         |  | (443    | )       |         |      | 4430.0     | %     |        |   | 348     |         |         |   | (358    | )       |         |   | -102.9 | %    
|                                                                  |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |        
|                                                                  |                                | Net income (loss)                                               |         | $       | 72,366  |  |         | $          | 20,030  |  |         | $       | 52,336  |      |            |       | 261.3  | % |         | $       | (76,831 | ) |         | $       | 96,861  |   |        |       | -126.1 | %
|                                                                  |                                |                                                                 |         |         |         |  |         |            |         |  |         |         |         |      |            |       |        |   |         |         |        

2005 Compared to 2004.




22



---



##### 























23



---



##### 





2004 Compared to 2003.
















24



---



##### 





| |                                                    
| | ---------------------------------------------------
| | Medical Professional Liability Insurance Operations



|                                                                |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |         |         |        |        |         |         |        |       |        |       |  
|--------------------------------------------------------------- | -------------------------- | ---------------------------- | ------- | ------ | ------- | ------- | ------- | ---------- | ------- | ------- | ------- | ------ | ------- | ------- | ---------- | ----- | ------ | ----- | ------- | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------ | ----- | ------ | ----- | -
|                                                                |                            |                              |         |        |         |         |         | Percentage |         |         |         |        |         |         | Percentage |      
|                                                                |                            | 2005                         |         |        | 2004    |         |         | Change     |         |         | Change  |        |         | 2003    |            |       | Change |       |         | Change |        
|                                                                |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |        
|                                                                |                            | (Dollars in thousands)       |        
|Direct premiums written:                                        |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |         |         |        |        |         |         |        |      
|                                                                | Michigan                   |                              | $       | 53,489 |         |         | $       | 59,903     |         |         | $       | (6,414 | )       |         |            | -10.7 | %      |       | $       | 54,629 |         |         | $      | 5,274  |         |         |        | 9.7   | %     
|                                                                | Illinois                   |                              |         | 54,536 |         |         |         | 55,439     |         |         |         | (903   | )       |         |            | -1.6  | %      |       |         | 54,108 |         |         |        | 1,331  |         |         |        | 2.5   | %     
|                                                                | Ohio                       |                              |         | 31,234 |         |         |         | 35,861     |         |         |         | (4,627 | )       |         |            | -12.9 | %      |       |         | 35,793 |         |         |        | 68     |         |         |        | 0.2   | %     
|                                                                | New Mexico                 |                              |         | 21,667 |         |         |         | 20,534     |         |         |         | 1,133  |         |         |            | 5.5   | %      |       |         | 16,268 |         |         |        | 4,266  |         |         |        | 26.2  | %     
|                                                                | Kentucky                   |                              |         | 10,337 |         |         |         | 13,877     |         |         |         | (3,540 | )       |         |            | -25.5 | %      |       |         | 15,747 |         |         |        | (1,870 | )       |         |        | -11.9 | %     
|                                                                | Florida                    |                              |         | 251    |         |         |         | 959        |         |         |         | (708   | )       |         |            | -73.8 | %      |       |         | 6,882  |         |         |        | (5,923 | )       |         |        | -86.1 | %     
|                                                                | Florida  PIC              |                              |         | 8,392  |         |         |         | 7,805      |         |         |         | 587    |         |         |            | 7.5   | %      |       |         | 3,801  |         |         |        | 4,004  |         |         |        | 105.3 | %     
|                                                                | Nevada                     |                              |         | 330    |         |         |         | 3,686      |         |         |         | (3,356 | )       |         |            | -91.0 | %      |       |         | 4,833  |         |         |        | (1,147 | )       |         |        | -23.7 | %     
|                                                                | Other                      |                              |         | 3,218  |         |         |         | 4,970      |         |         |         | (1,752 | )       |         |            | -35.3 | %      |       |         | 3,681  |         |         |        | 1,289  |         |         |        | 35.0  | %     
|                                                                |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |        
|                                                                |                            | Total                        |         | $      | 183,454 |         |         | $          | 203,034 |         |         | $      | (19,580 | )       |            |       | -9.6   | %     |         | $      | 195,742 |         |        | $      | 7,292   |         |        |       | 3.7    | %    
|                                                                |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |        
|Net premiums written                                            |                            | $                            | 157,780 |        |         | $       | 175,042 |            |         | $       | (17,262 | )      |         |         | -9.9       | %     |        | $     | 164,157 |        |         | $       | 10,885 |        |         |         | 6.6    | %    
|                                                                |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |        
|Net premiums earned                                             |                            | $                            | 163,570 |        |         | $       | 173,835 |            |         | $       | (10,265 | )      |         |         | -5.9       | %     |        | $     | 158,777 |        |         | $       | 15,058 |        |         |         | 9.5    | %    
|Incurred loss and loss adjustment expenses:                     |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |         |         |        |        |         |         |        |      
|                                                                |                            | Current accident year losses |         |        | 131,081 |         |         |            | 148,230 |         |         |        | (17,149 | )       |            |       | -11.6  | %     |         |        | 153,180 |         |        |        | (4,950  | )       |        |       | -3.2   | %    
|                                                                |                            | Gerling Global commutation   |         |        |        |         |         |            | 4,139   |         |         |        | (4,139  | )       |            |       | -100.0 | %     |         |        |        |         |        |        | 4,139   |         |        |       |        |      
|                                                                |                            | Prior year losses            |         |        | (6,425  | )       |         |            | (6,850  | )       |         |        | 425     |         |            |       | -6.2   | %     |         |        | 44,250  |         |        |        | (51,100 | )       |        |       | -115.5 | %    
|                                                                |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |        
|                                                                |                            |                              | Total   |        |         | 124,656 |         |            |         | 145,519 |         |        |         | (20,863 | )          |       |        | -14.3 | %       |        |         | 197,430 |        |        |         | (51,911 | )      |       |        | -26.3 | %
|Underwriting expenses                                           |                            |                              | 32,759  |        |         |         | 35,320  |            |         |         | (2,561  | )      |         |         | -7.3       | %     |        |       | 31,315  |        |         |         | 4,005  |        |         |         | 12.8   | %    
|                                                                |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |        
|Underwriting income (loss)                                      |                            | $                            | 6,155   |        |         | $       | (7,004  | )          |         | $       | 13,159  |        |         |         | -187.9     | %     |        | $     | (69,968 | )      |         | $       | 62,964 |        |         |         | -90.0  | %    
|                                                                |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |        
|Income (loss) before federal income taxes and minority interest |                            | $                            | 49,507  |        |         | $       | 36,472  |            |         | $       | 13,035  |        |         |         | 35.7       | %     |        | $     | (33,821 | )      |         | $       | 70,293 |        |         |         | -207.8 | %    
|                                                                |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |        
|Loss ratio:                                                     |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |         |         |        |        |         |         |        |      
|                                                                | Accident year              |                              |         | 80.1   | %       |         |         | 85.3       | %       |         |         | -5.2   | %       |         |            |       |        |       |         | 96.5   | %       |         |        | -11.2  | %       |         |        |       |       
|                                                                | Gerling Global commutation |                              |         | 0.0    | %       |         |         | 2.4        | %       |         |         | -2.4   | %       |         |            |       |        |       |         | 0.0    | %       |         |        | 2.4    | %       |         |        |       |       
|                                                                | Prior years                |                              |         | -3.9   | %       |         |         | -4.0       | %       |         |         | 0.1    | %       |         |            |       |        |       |         | 27.8   | %       |         |        | -31.8  | %       |         |        |       |       
|                                                                |                            |                              |         |        |         |         |         |            |         |         |         |        |         |         |            |       |        |       |         |        |        
|                                                                | Calendar year              |                              |         | 76.2   | %       |         |         | 83.7       | %       |         |         | -7.5   | %       |         |            |       |        |       |         | 124.3  | %       |         |        | -40.6  | %       |         |        |       |       
|Underwriting expense ratio                                      |                            |                              | 20.0    | %      |         |         | 20.3    | %          |         |         | -0.3    | %      |         |         |            |       |        |       | 19.7    | %      |         |         | 0.6    | %      |         |         |        |      
|Combined ratio                                                  |                            |                              | 96.2    | %      |         |         | 104.0   | %          |         |         | -7.8    | %      |         |         |            |       |        |       | 144.0   | %      |         |         | -40.0  | %      |         |         |        |      

2005 Compared to 2004.


25



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26



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##### 



2004 Compared to 2003.








27



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##### 





| |                                 
| | --------------------------------
| | Other Insurance Lines Operations



|                                                                |                              |                        |        |       |       |   |         |            |        |   |         |         |         |      |            |        |        |   |        |        |        |   |         |         |         |   |       |         |       |  
|--------------------------------------------------------------- | ---------------------------- | ---------------------- | ------ | ----- | ----- | - | ------- | ---------- | ------ | - | ------- | ------- | ------- | ---- | ---------- | ------ | ------ | - | ------ | ------ | ------ | - | ------- | ------- | ------- | - | ----- | ------- | ----- | -
|                                                                |                              |                        |        |       |       |   |         | Percentage |        |   |         |         |         |      | Percentage |       
|                                                                |                              | 2005                   |        |       | 2004  |   |         | Change     |        |   | Change  |         |         | 2003 |            |        | Change |   |        | Change |       
|                                                                |                              |                        |        |       |       |   |         |            |        |   |         |         |         |      |            |        |        |   |        |        |       
|                                                                |                              | (Dollars in thousands) |       
|Direct premiums written                                         |                              | $                      | 2,057  |       |       | $ | 10,911  |            |        | $ | (8,854  | )       |         |      | -81.1      | %      |        | $ | 60,494 |        |        | $ | (49,583 | )       |         |   | -82.0 | %      
|                                                                |                              |                        |        |       |       |   |         |            |        |   |         |         |         |      |            |        |        |   |        |        |       
|Net premiums written                                            |                              | $                      | (398   | )     |       | $ | 11,389  |            |        | $ | (11,787 | )       |         |      | -103.5     | %      |        | $ | 60,490 |        |        | $ | (49,101 | )       |         |   | -81.2 | %      
|                                                                |                              |                        |        |       |       |   |         |            |        |   |         |         |         |      |            |        |        |   |        |        |       
|Net premiums earned                                             |                              | $                      | 713    |       |       | $ | 26,744  |            |        | $ | (26,031 | )       |         |      | -97.3      | %      |        | $ | 65,813 |        |        | $ | (39,069 | )       |         |   | -59.4 | %      
|Incurred loss and loss adjustment expenses:                     |                              |                        |        |       |       |   |         |            |        |   |         |         |         |      |            |        |        |   |        |        |        |   |         |         |         |   |       |        
|                                                                | Current accident year losses |                        |        | 415   |       |   |         | 23,371     |        |   |         | (22,956 | )       |      |            | -98.2  | %      |   |        | 56,119 |        |   |         | (32,748 | )       |   |       | -58.4   | %    
|                                                                | Gerling Global commutation   |                        |        |      |       |   |         | 271        |        |   |         | (271    | )       |      |            | -100.0 | %      |   |        |       |        |   |         | 271     |         |   |       |         |      
|                                                                | Prior year losses            |                        |        | 2,053 |       |   |         | 8,625      |        |   |         | (6,572  | )       |      |            | -76.2  | %      |   |        | (807   | )      |   |         | 9,432   |         |   |       | -1168.8 | %    
|                                                                |                              |                        |        |       |       |   |         |            |        |   |         |         |         |      |            |        |        |   |        |        |       
|                                                                |                              | Total                  |        |       | 2,468 |   |         |            | 32,267 |   |         |         | (29,799 | )    |            |        | -92.4  | % |        |        | 55,312 |   |         |         | (23,045 | ) |       |         | -41.7 | %
|Underwriting expenses                                           |                              |                        | 321    |       |       |   | 7,361   |            |        |   | (7,040  | )       |         |      | -95.6      | %      |        |   | 19,789 |        |        |   | (12,428 | )       |         |   | -62.8 | %      
|                                                                |                              |                        |        |       |       |   |         |            |        |   |         |         |         |      |            |        |        |   |        |        |       
|Underwriting loss                                               |                              | $                      | (2,076 | )     |       | $ | (12,884 | )          |        | $ | 10,808  |         |         |      | -83.9      | %      |        | $ | (9,288 | )      |        | $ | (3,596  | )       |         |   | 38.7  | %      
|                                                                |                              |                        |        |       |       |   |         |            |        |   |         |         |         |      |            |        |        |   |        |        |       
|Income (loss) before federal income taxes and minority interest |                              | $                      | 784    |       |       | $ | (9,374  | )          |        | $ | 10,158  |         |         |      | -108.4     | %      |        | $ | (3,706 | )      |        | $ | (5,668  | )       |         |   | 152.9 | %      
|                                                                |                              |                        |        |       |       |   |         |            |        |   |         |         |         |      |            |        |        |   |        |        |       
|Loss ratio:                                                     |                              |                        |        |       |       |   |         |            |        |   |         |         |         |      |            |        |        |   |        |        |        |   |         |         |         |   |       |        
|                                                                | Accident year                |                        |        | 58.2  | %     |   |         | 87.4       | %      |   |         | -29.2   | %       |      |            |        |        |   |        | 85.3   | %      |   |         | 2.1     | %       |   |       |         |      
|                                                                | Gerling Global commutation   |                        |        | 0.0   | %     |   |         | 1.0        | %      |   |         | -1.0    | %       |      |            |        |        |   |        | 0.0    | %      |   |         | 1.0     | %       |   |       |         |      
|                                                                | Prior years                  |                        |        | 287.9 | %     |   |         | 32.3       | %      |   |         | 255.6   | %       |      |            |        |        |   |        | -1.3   | %      |   |         | 33.6    | %       |   |       |         |      
|                                                                |                              |                        |        |       |       |   |         |            |        |   |         |         |         |      |            |        |        |   |        |        |       
|                                                                | Calendar year                |                        |        | 346.1 | %     |   |         | 120.7      | %      |   |         | 225.4   | %       |      |            |        |        |   |        | 84.0   | %      |   |         | 36.7    | %       |   |       |         |      
|Underwriting expense ratio                                      |                              |                        | 45.0   | %     |       |   | 27.5    | %          |        |   | 17.5    | %       |         |      |            |        |        |   | 30.1   | %      |        |   | -2.6    | %       |         |   |       |        
|Combined ratio                                                  |                              |                        | 391.1  | %     |       |   | 148.2   | %          |        |   | 242.9   | %       |         |      |            |        |        |   | 114.1  | %      |        |   | 34.1    | %       |         |   |       |        

2005 Compared to 2004.






2004 Compared to 2003.


28



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Liquidity and Capital Resources




12-month












29



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|                                           |                                                  |                         |          |        |      |   |          |        |  |   |          |        | 
|------------------------------------------ | ------------------------------------------------ | ----------------------- | -------- | ------ | ---- | - | -------- | ------ |  | - | -------- | ------ | 
|                                           |                                                  | Year Ended December 31, |         
|                                           |                                                  |                         |         
|                                           |                                                  | 2005                    |          |        | 2004 |   |          | 2003   | 
|                                           |                                                  |                         |          |        |      |   |          |        | 
|Premiums received, net of reinsurance      |                                                  | $                       | 165,391  |        |      | $ | 190,882  |        |  | $ | 230,933  |       
|Net paid loss and loss adjustment expenses |                                                  |                         | (136,798 | )      |      |   | (160,594 | )      |  |   | (220,121 | )     
|                                           |                                                  |                         |          |        |      |   |          |        | 
|                                           | Net premiums received in excess of loss payments |                         | $        | 28,593 |      |   | $        | 30,288 |  |   | $        | 10,812 | 
|                                           |                                                  |                         |          |        |      |   |          |        | 



held-to




Financial Condition




30



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| |                              
| | -----------------------------
| | Statutory Capital and Surplus





| |                                                            
| | -----------------------------------------------------------
| | Reserves for Unpaid Losses and Loss Adjustment
    Expenses



|                         |  |             |       |  |         |          |       |          |              |   |              |  |  |   |        | 
|------------------------ |  | ----------- | ----- |  | ------- | -------- | ----- | -------- | ------------ | - | ------------ |  |  | - | ------ | 
|                         |  |             |       |  |         | Average  |       |          |             
|                         |  |             |       |  |         | Net Case |       |          | Average Paid |  
|                         |  | Number      |       |  | Number  |          |       | Reserve  |              |   | Claim per    | 
|At or For the Year Ended |  | of Reported |       |  | of Open |          |       | Per Open |              |   | Claim Closed | 
|December 31,             |  | Claims      |       |  | Claims  |          |       | Claim    |              |   | With Payment | 
|                         |  |             |       |  |         |          |       |          |              |   |              | 
|2005                     |  |             | 1,513 |  |         |          | 2,991 |          |              | $ | 122,413      |  |  | $ | 75,898 | 
|2004                     |  |             | 1,786 |  |         |          | 3,342 |          |              |   | 117,010      |  |  |   | 59,258 | 
|2003                     |  |             | 2,657 |  |         |          | 4,447 |          |              |   | 87,656       |  |  |   | 66,279 | 



|                                                     |                                |                |         |         |           |   |        |          |  |   |         |         |  
|---------------------------------------------------- | ------------------------------ | -------------- | ------- | ------- | --------- | - | ------ | -------- |  | - | ------- | ------- | -
|                                                     |                                | Medical        |         |         | Other     |   |        |         
|                                                     |                                | Professional   |         |         | Insurance |   |        | All      | 
|                                                     |                                | Liability      |         |         | Lines     |   |        | Segments | 
|                                                     |                                |                |         |         |           |   |        |          | 
|                                                     |                                | (In thousands) |        
|Balance, December 31, 2004                           |                                | $              | 634,304 |         |           | $ | 59,326 |          |  | $ | 693,630 |        
|                                                     | Less, reinsurance recoverables |                |         | 97,949  |           |   |        | 3,842    |  |   |         | 101,791 |  
|                                                     |                                |                |         |         |           |   |        |          | 
|Net reserves, December 31, 2004                      |                                |                | 536,355 |         |           |   | 55,484 |          |  |   | 591,839 |        
|Incurred related to                                  |                                |                |         |         |           |   |        |          |  |   |         |        
|                                                     | Current year                   |                |         | 131,081 |           |   |        | 415      |  |   |         | 131,496 |  
|                                                     | Prior years                    |                |         | (6,425  | )         |   |        | 2,053    |  |   |         | (4,372  | )
|                                                     |                                |                |         |         |           |   |        |          | 
|                                                     |                                |                | 124,656 |         |           |   | 2,468  |          |  |   | 127,124 |        
|                                                     |                                |                |         |         |           |   |        |          | 
|Paid related to                                      |                                |                |         |         |           |   |        |          |  |   |         |        
|                                                     | Current year                   |                |         | 3,394   |           |   |        | 1,660    |  |   |         | 5,054   |  
|                                                     | Prior years                    |                |         | 110,936 |           |   |        | 20,808   |  |   |         | 131,744 |  
|                                                     |                                |                |         |         |           |   |        |          | 
|                                                     |                                |                | 114,330 |         |           |   | 22,468 |          |  |   | 136,798 |        
|                                                     |                                |                |         |         |           |   |        |          | 
|Net reserves, December 31, 2005                      |                                |                | 546,681 |         |           |   | 35,484 |          |  |   | 582,165 |        
|                                                     | Plus, reinsurance recoverables |                |         | 105,047 |           |   |        | 2,645    |  |   |         | 107,692 |  
|                                                     |                                |                |         |         |           |   |        |          | 
|Balance, December 31, 2005                           |                                | $              | 651,728 |         |           | $ | 38,129 |          |  | $ | 689,857 |        
|                                                     |                                |                |         |         |           |   |        |          | 
|Development as a % of December 31, 2004 net reserves |                                |                | -1.2    | %       |           |   | 3.7    | %        |  |   | -0.7    | %      
|                                                     |                                |                |         |         |           |   |        |          | 



31



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32



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|                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|------------------------------------------------------------------------------------------- | ----------------- | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- |  | 
|                                                                                            |                   | 1995 |         |         | 1996 |   |         | 1997    |  |   | 1998    |         |  | 1999 |         |         | 2000 |   |         | 2001    |  |   | 2002    |         |  | 2003 |         |         | 2004 |   |         | 2005    | 
|                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 
|Liability for unpaid losses and loss adjustment expenses net of
    reinsurance recoverable |                   | $    | 334,264 |         |      | $ | 346,455 |         |  | $ | 352,836 |         |  | $    | 371,982 |         |      | $ | 393,582 |         |  | $ | 413,954 |         |  | $    | 505,555 |         |      | $ | 542,026 |         |  | $ | 574,647 |         |  | $ | 591,839 |         |  | $ | 582,165 | 
|Cumulative net paid as of:                                                                  |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         | 
|                                                                                            | End of year       |      |         | 47,113  |      |   |         | 69,750  |  |   |         | 86,703  |  |      |         | 85,290  |      |   |         | 95,471  |  |   |         | 124,479 |  |      |         | 161,770 |      |   |         | 181,658 |  |   |         | 142,633 |  |   |         | 131,744 |  |   |         |  | 
|                                                                                            | Two years later   |      |         | 89,260  |      |   |         | 134,184 |  |   |         | 152,656 |  |      |         | 146,497 |      |   |         | 182,541 |  |   |         | 236,653 |  |      |         | 293,852 |      |   |         | 295,350 |  |   |         | 260,555 |  |   |         |         |  |   |         |  | 
|                                                                                            | Three Years later |      |         | 122,734 |      |   |         | 181,144 |  |   |         | 188,665 |  |      |         | 198,774 |      |   |         | 251,448 |  |   |         | 322,226 |  |      |         | 367,289 |      |   |         | 381,057 |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Four years later  |      |         | 148,000 |      |   |         | 205,824 |  |   |         | 215,426 |  |      |         | 231,748 |      |   |         | 292,766 |  |   |         | 363,871 |  |      |         | 420,662 |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Five Years later  |      |         | 158,041 |      |   |         | 219,944 |  |   |         | 232,323 |  |      |         | 251,810 |      |   |         | 312,968 |  |   |         | 390,450 |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Six years later   |      |         | 165,250 |      |   |         | 227,840 |  |   |         | 243,012 |  |      |         | 262,260 |      |   |         | 326,266 |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Seven Years later |      |         | 170,750 |      |   |         | 234,429 |  |   |         | 248,282 |  |      |         | 271,563 |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Eight years later |      |         | 175,597 |      |   |         | 238,387 |  |   |         | 251,623 |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Nine Years later  |      |         | 178,206 |      |   |         | 241,369 |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Ten Years later   |      |         | 180,147 |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|Re-estimated Net Liability as of:                                                           |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         | 
|                                                                                            | End of year       |      |         | 273,025 |      |   |         | 324,233 |  |   |         | 327,542 |  |      |         | 350,114 |      |   |         | 383,004 |  |   |         | 435,069 |  |      |         | 511,185 |      |   |         | 585,469 |  |   |         | 580,832 |  |   |         | 587,468 |  |   |         |  | 
|                                                                                            | Two years later   |      |         | 259,103 |      |   |         | 302,696 |  |   |         | 314,613 |  |      |         | 334,827 |      |   |         | 373,400 |  |   |         | 449,871 |  |      |         | 538,980 |      |   |         | 590,665 |  |   |         | 584,111 |  |   |         |         |  |   |         |  | 
|                                                                                            | Three Years later |      |         | 238,572 |      |   |         | 291,406 |  |   |         | 290,490 |  |      |         | 313,248 |      |   |         | 374,729 |  |   |         | 458,846 |  |      |         | 540,239 |      |   |         | 592,617 |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Four years later  |      |         | 221,226 |      |   |         | 267,788 |  |   |         | 273,982 |  |      |         | 303,540 |      |   |         | 366,818 |  |   |         | 456,519 |  |      |         | 541,887 |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Five Years later  |      |         | 196,949 |      |   |         | 258,838 |  |   |         | 268,754 |  |      |         | 296,834 |      |   |         | 359,753 |  |   |         | 455,208 |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Six years later   |      |         | 192,521 |      |   |         | 254,272 |  |   |         | 266,546 |  |      |         | 291,144 |      |   |         | 359,400 |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Seven Years later |      |         | 189,708 |      |   |         | 251,718 |  |   |         | 263,160 |  |      |         | 292,253 |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Eight years later |      |         | 188,400 |      |   |         | 249,707 |  |   |         | 262,650 |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Nine Years later  |      |         | 186,948 |      |   |         | 249,218 |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                            | Ten Years later   |      |         | 186,616 |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|Net cumulative (deficiency) redundancy                                                      |                   |      | 147,648 |         |      |   | 97,237  |         |  |   | 90,186  |         |  |      | 79,729  |         |      |   | 34,182  |         |  |   | (41,254 | )       |  |      | (36,332 | )       |      |   | (50,591 | )       |  |   | (9,464  | )       |  |   | 4,371   |         |  |   |         | 
|Gross liability  end of year                                                               |                   |      | 359,330 |         |      |   | 392,626 |         |  |   | 407,746 |         |  |      | 422,987 |         |      |   | 457,072 |         |  |   | 483,273 |         |  |      | 597,046 |         |      |   | 637,494 |         |  |   | 673,605 |         |  |   | 693,630 |         |  |   | 689,857 | 
|Reinsurance Recoverables                                                                    |                   |      | 25,066  |         |      |   | 46,171  |         |  |   | 54,910  |         |  |      | 51,005  |         |      |   | 63,490  |         |  |   | 69,319  |         |  |      | 91,491  |         |      |   | 95,468  |         |  |   | 98,958  |         |  |   | 101,791 |         |  |   | 107,692 | 
|                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 
|Net Liability  end of year                                                                 |                   |      | 334,264 |         |      |   | 346,455 |         |  |   | 352,836 |         |  |      | 371,982 |         |      |   | 393,582 |         |  |   | 413,954 |         |  |      | 505,555 |         |      |   | 542,026 |         |  |   | 574,647 |         |  |   | 591,839 |         |  |   | 582,165 | 
|                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 
|Gross re-estimated liability  latest                                                       |                   |      | 193,584 |         |      |   | 296,202 |         |  |   | 321,543 |         |  |      | 373,905 |         |      |   | 440,261 |         |  |   | 538,207 |         |  |      | 638,761 |         |      |   | 696,578 |         |  |   | 691,971 |         |  |   | 691,019 |         |  |   |         | 
|Re-estimated reinsurance recoverables  latest                                              |                   |      | 6,968   |         |      |   | 46,984  |         |  |   | 58,893  |         |  |      | 81,652  |         |      |   | 80,861  |         |  |   | 82,999  |         |  |      | 96,874  |         |      |   | 103,961 |         |  |   | 107,860 |         |  |   | 103,551 |         |  |   |         | 
|                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 
|Net re-estimated liability  latest                                                         |                   |      | 186,616 |         |      |   | 249,218 |         |  |   | 262,650 |         |  |      | 292,253 |         |      |   | 359,400 |         |  |   | 455,208 |         |  |      | 541,887 |         |      |   | 592,617 |         |  |   | 584,111 |         |  |   | 587,468 |         |  |   |         | 
|                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 
|Gross cumulative (deficiency) redundancy                                                    |                   |      | 165,746 |         |      |   | 96,424  |         |  |   | 86,203  |         |  |      | 49,082  |         |      |   | 16,811  |         |  |   | (54,934 | )       |  |      | (41,715 | )       |      |   | (59,084 | )       |  |   | (18,366 | )       |  |   | 2,611   |         |  |   |         | 
|                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 



|                                                                           |  |  |         |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |         |   |  |  |         |   |  |  |         |   |  |  |        |   |  |  |       |  |  |  |  | 
|-------------------------------------------------------------------------- |  |  | ------- |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------- | - |  |  | ------- | - |  |  | ------- | - |  |  | ------ | - |  |  | ----- |  |  |  |  | 
|Net cumulative (deficiency) redundancy (excluding Gerling
    commutation) |  |  | 147,648 |  |  |  | 97,237 |  |  |  | 90,186 |  |  |  | 79,729 |  |  |  | 34,207 |  |  |  | (41,080 | ) |  |  | (35,602 | ) |  |  | (47,902 | ) |  |  | (5,053 | ) |  |  | 4,371 |  |  |  |  | 



33



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##### 







Reserve Ranges




|                               |  |                           |         |  |          |   |         |          |  |   |         | 
|------------------------------ |  | ------------------------- | ------- |  | -------- | - | ------- | -------- |  | - | ------- | 
|                               |  | Net Loss and LAE Reserves |        
|                               |  |                           |        
|                               |  | Low End                   |         |  | Recorded |   |         | High End | 
|                               |  | of Range                  |         |  | Reserves |   |         | of Range | 
|                               |  |                           |         |  |          |   |         |          | 
|                               |  | (In thousands)            |        
|Medical Professional Liability |  | $                         | 501,747 |  |          | $ | 546,681 |          |  | $ | 588,316 | 
|Other Insurance Lines          |  |                           | 31,054  |  |          |   | 35,484  |          |  |   | 38,907  | 
|                               |  |                           |         |  |          |   |         |          | 
|Total                          |  | $                         | 532,801 |  |          | $ | 582,165 |          |  | $ | 627,223 | 
|                               |  |                           |         |  |          |   |         |          | 





|                  |  |                |         |  
|----------------- |  | -------------- | ------- | -
|                  |  | Increase       |        
|                  |  | (Decrease) in  |        
|                  |  | Pre-Tax Income |        
|                  |  |                |        
|                  |  | (In thousands) |        
|Low end of range  |  | $              | 49,364  |  
|High end of range |  | $              | (45,058 | )



34



---



##### 







| |                                      
| | -------------------------------------
| | Other Significant Balance Sheet Items









paid-in


Off-Balance Sheet Arrangements




35



---



##### 



Contractual Obligations




|                                                         |       |                        |         |           |        |   |         |         |  |     |         |         |           |         |         |         |  |   |        |        | 
|-------------------------------------------------------- | ----- | ---------------------- | ------- | --------- | ------ | - | ------- | ------- |  | --- | ------- | ------- | --------- | ------- | ------- | ------- |  | - | ------ | ------ | 
|                                                         |       | Payments Due by Period |        
|                                                         |       |                        |        
|                                                         |       |                        |         | Less Than |        |   | 1-3     |         |  | 3-5 |         |         | More Than |        
|Contractual Obligations                                  |       | Total                  |         |           | 1 Year |   |         | Years   |  |     | Years   |         |           | 5 Years |        
|                                                         |       |                        |         |           |        |   |         |         |  |     |         |         |           |         |        
|                                                         |       | (In thousands)         |        
|Reserves for unpaid loss and loss adjustment expenses(1) |       | $                      | 689,857 |           |        | $ | 204,729 |         |  | $   | 295,152 |         |           | $       | 134,293 |         |  | $ | 55,683 |       
|Operating leases                                         |       |                        | 5,937   |           |        |   | 1,092   |         |  |     | 1,536   |         |           |         | 1,426   |         |  |   | 1,883  |       
|Long-term debt(2)                                        |       |                        | 30,928  |           |        |   |        |         |  |     |        |         |           |         |        |         |  |   | 30,928 |       
|                                                         |       |                        |         |           |        |   |         |         |  |     |         |         |           |         |        
|                                                         | Total |                        | $       | 726,722   |        |   | $       | 205,821 |  |     | $       | 296,688 |           |         | $       | 135,719 |  |   | $      | 88,494 | 
|                                                         |       |                        |         |           |        |   |         |         |  |     |         |         |           |         |        






|    |                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Companys reserves for unpaid loss and loss adjustment
    expenses are an estimate of future cash flows necessary to
    fulfill insurance obligations based on insured events that have
    already occurred, but the amount and timing of the cash outflow
    is uncertain.
|   
|(2) | The long-term debt is more fully described in Note 8 of the
    Notes to Consolidated Financial Statements.                                                                                                                                                                        

Effects of New Accounting Pronouncements






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk

General






Qualitative Information About Market Risk




held-to


36



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##### 







held-to held-to




Quantitative Information About Market Risk




|                |  |                        |         |  |                        |   |        |          |  |  |           |  |  |           |         |  |          |   |         |   |  |  |      | 
|--------------- |  | ---------------------- | ------- |  | ---------------------- | - | ------ | -------- |  |  | --------- |  |  | --------- | ------- |  | -------- | - | ------- | - |  |  | ---- | 
|                |  | December 31, 2005      |         |  | December 31, 2004      |  
|                |  |                        |         |  |                        |  
|                |  | Portfolio              |         |  | Change in              |   |        | Modified |  |  | Portfolio |  |  | Change in |         |  | Modified |  
|Change in Rates |  | Value                  |         |  | Value                  |   |        | Duration |  |  | Value     |  |  | Value     |         |  | Duration |  
|                |  |                        |         |  |                        |   |        |          |  |  |           |  |  |           |         |  |          |  
|                |  | (Dollars in thousands) |         |  | (Dollars in thousands) |  
|+2%             |  | $                      | 215,014 |  |                        | $ | (9,087 | )        |  |  | 1.89      |  |  | $         | 612,330 |  |          | $ | (45,376 | ) |  |  | 4.58 | 
|+1%             |  |                        | 219,173 |  |                        |   | (4,928 | )        |  |  | 2.16      |  |  |           | 639,822 |  |          |   | (17,884 | ) |  |  | 3.63 | 
|0               |  |                        | 224,101 |  |                        |   |        |          |  |  | 2.27      |  |  |           | 657,706 |  |          |   |         |   |  |  | 2.77 | 
|-1%             |  |                        | 228,991 |  |                        |   | 4,890  |          |  |  | 2.36      |  |  |           | 665,172 |  |          |   | 7,466   |   |  |  | 1.89 | 
|-2%             |  |                        | 234,917 |  |                        |   | 10,816 |          |  |  | 2.50      |  |  |           | 677,559 |  |          |   | 19,853  |   |  |  | 1.97 | 

37



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##### 





|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














Internal Control  Integrated Framework








38



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




10-K)








39



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


December 31, 2005 and 2004


|                                                          |                                                                                            |                                            |         |         |           |   |         |         |           | 
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ------- | --------- | - | ------- | ------- | --------- | 
|                                                          |                                                                                            | December 31,                               |        
|                                                          |                                                                                            |                                            |        
|                                                          |                                                                                            | 2005                                       |         |         | 2004      |  
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | (In thousands,                             |        
|                                                          |                                                                                            | except share data)                         |        
|ASSETS                                                   
|Investments:                                              |                                                                                            |                                            |         |         |           |   |         |        
|                                                          | Fixed-income securities                                                                    |                                            |         |         |           |   |         |         |          
|                                                          | Available-for-sale, at fair value                                                          |                                            | $       | 224,101 |           |   | $       | 657,706 |          
|                                                          |                                                                                            | Held-to-maturity, at amortized cost        |         |         | 345,702   |   |         |         |          | 
|                                                          | Equity securities available-for-sale, at fair value                                        |                                            |         | 208     |           |   |         | 1,163   |          
|                                                          | Other investments                                                                          |                                            |         | 11,360  |           |   |         | 8,293   |          
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | Total investments                          |         |         | 581,371   |   |         |         | 667,162   | 
|Cash and cash equivalents                                 |                                                                                            |                                            | 272,988 |         |           |   | 190,936 |        
|Premiums receivable                                       |                                                                                            |                                            | 50,729  |         |           |   | 54,614  |        
|Reinsurance recoverable                                   |                                                                                            |                                            | 109,368 |         |           |   | 103,312 |        
|Federal income taxes recoverable                          |                                                                                            |                                            |        |         |           |   | 1,569   |        
|Deferred federal income taxes                             |                                                                                            |                                            | 44,039  |         |           |   |        |        
|Property and equipment, net                               |                                                                                            |                                            | 11,157  |         |           |   | 12,181  |        
|Other assets                                              |                                                                                            |                                            | 39,676  |         |           |   | 40,125  |        
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | Total assets                               |         | $       | 1,109,328 |   |         | $       | 1,069,899 | 
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                         
|LIABILITIES                                              
|Unpaid losses and loss adjustment expenses                |                                                                                            | $                                          | 689,857 |         |           | $ | 693,630 |        
|Unearned premiums                                         |                                                                                            |                                            | 82,098  |         |           |   | 90,040  |        
|Long-term debt                                            |                                                                                            |                                            | 30,928  |         |           |   | 30,928  |        
|Federal income taxes payable                              |                                                                                            |                                            | 762     |         |           |   |        |        
|Accrued expenses and other liabilities                    |                                                                                            |                                            | 41,830  |         |           |   | 50,977  |        
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | Total liabilities                          |         |         | 845,475   |   |         |         | 865,575   | 
|Commitments and Contingencies                             |                                                                                            |                                            |         |         |           |   |         |        
|Minority Interest in Consolidated Subsidiary              |                                                                                            |                                            | 2,641   |         |           |   | 2,200   |        
|Shareholders Equity                                      |                                                                                            |                                            |         |         |           |   |         |        
|Common stock, no par value, 50,000,000 shares authorized: |                                                                                            |                                            |         |         |           |   |         |        
|                                                          | 8,333,417 and 8,671,984 shares outstanding at
    December 31, 2005 and 2004, respectively |                                            |         |        |           |   |         |        |          
|Additional paid-in-capital                                |                                                                                            |                                            | 74,444  |         |           |   | 86,956  |        
|Retained earnings                                         |                                                                                            |                                            | 179,748 |         |           |   | 107,382 |        
|Unearned stock compensation                               |                                                                                            |                                            | (84     | )       |           |   | (368    | )      
|Accumulated other comprehensive income:                   |                                                                                            |                                            |         |         |           |   |         |        
|                                                          | Net unrealized appreciation on investments, net of deferred
    federal income taxes       |                                            |         | 7,104   |           |   |         | 8,154   |          
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | Total shareholders equity                 |         |         | 261,212   |   |         |         | 202,124   | 
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | Total liabilities and shareholders equity |         | $       | 1,109,328 |   |         | $       | 1,069,899 | 
|                                                          |                                                                                            |                                            |         |         |           |  



40



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME


For the Years Ended December 31, 2005, 2004, and 2003


|                                                                  |                                 |                                       |         |         |      |   |         |         |  |   |         |         |  
|----------------------------------------------------------------- | ------------------------------- | ------------------------------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | -
|                                                                  |                                 | Year Ended December 31,               |        
|                                                                  |                                 |                                       |        
|                                                                  |                                 | 2005                                  |         |         | 2004 |   |         | 2003    | 
|                                                                  |                                 |                                       |         |         |      |   |         |         | 
|                                                                  |                                 | (In thousands, except per share data) |        
|Revenues and Other Income                                         |                                 |                                       |         |         |      |   |         |         |  |   |         |        
|Net premiums written                                              |                                 | $                                     | 157,382 |         |      | $ | 186,431 |         |  | $ | 224,647 |        
|Change in unearned premiums                                       |                                 |                                       | 6,901   |         |      |   | 14,148  |         |  |   | (57     | )      
|                                                                  |                                 |                                       |         |         |      |   |         |         | 
|Net premiums earned                                               |                                 |                                       | 164,283 |         |      |   | 200,579 |         |  |   | 224,590 |        
|Investment income                                                 |                                 |                                       | 45,163  |         |      |   | 47,373  |         |  |   | 43,294  |        
|Net realized gains                                                |                                 |                                       | 2,033   |         |      |   | 1,551   |         |  |   | 2,403   |        
|Other income                                                      |                                 |                                       | 1,387   |         |      |   | 1,177   |         |  |   | 1,104   |        
|                                                                  |                                 |                                       |         |         |      |   |         |         | 
|                                                                  | Total revenues and other income |                                       |         | 212,866 |      |   |         | 250,680 |  |   |         | 271,391 |  
|Expenses                                                          |                                 |                                       |         |         |      |   |         |         |  |   |         |        
|Losses and loss adjustment expenses                               |                                 |                                       | 127,124 |         |      |   | 177,786 |         |  |   | 252,742 |        
|Underwriting expenses                                             |                                 |                                       | 33,080  |         |      |   | 42,681  |         |  |   | 51,104  |        
|Investment expenses                                               |                                 |                                       | 1,411   |         |      |   | 2,460   |         |  |   | 2,940   |        
|Interest expense                                                  |                                 |                                       | 2,337   |         |      |   | 1,714   |         |  |   | 1,370   |        
|Amortization expense                                              |                                 |                                       | 806     |         |      |   | 1,096   |         |  |   | 389     |        
|General and administrative expenses                               |                                 |                                       | 2,704   |         |      |   | 3,918   |         |  |   | 2,921   |        
|Other expenses                                                    |                                 |                                       | 537     |         |      |   | 1,275   |         |  |   | 808     |        
|                                                                  |                                 |                                       |         |         |      |   |         |         | 
|                                                                  | Total expenses                  |                                       |         | 167,999 |      |   |         | 230,930 |  |   |         | 312,274 |  
|                                                                  |                                 |                                       |         |         |      |   |         |         | 
|Income (loss) before income taxes and minority interest           |                                 |                                       | 44,867  |         |      |   | 19,750  |         |  |   | (40,883 | )      
|Federal income tax (benefit) expense                              |                                 |                                       | (27,952 | )       |      |   | (290    | )       |  |   | 36,296  |        
|                                                                  |                                 |                                       |         |         |      |   |         |         | 
|Income (loss) before minority interest                            |                                 |                                       | 72,819  |         |      |   | 20,040  |         |  |   | (77,179 | )      
|Minority interest in net (income) loss of consolidated subsidiary |                                 |                                       | (453    | )       |      |   | (10     | )       |  |   | 348     |        
|                                                                  |                                 |                                       |         |         |      |   |         |         | 
|                                                                  | Net income (loss)               |                                       | $       | 72,366  |      |   | $       | 20,030  |  |   | $       | (76,831 | )
|                                                                  |                                 |                                       |         |         |      |   |         |         | 
|Earnings Per Share:                                               |                                 |                                       |         |         |      |   |         |         |  |   |         |        
|Net income (loss)                                                 |                                 |                                       |         |         |      |   |         |         |  |   |         |        
|                                                                  | Basic                           |                                       | $       | 8.48    |      |   | $       | 2.37    |  |   | $       | (9.02   | )
|                                                                  | Diluted                         |                                       | $       | 8.29    |      |   | $       | 2.30    |  |   | $       | (9.02   | )
|Weighted Average Shares Outstanding:                              |                                 |                                       |         |         |      |   |         |         |  |   |         |        
|                                                                  | Basic                           |                                       |         | 8,538   |      |   |         | 8,455   |  |   |         | 8,520   |  
|                                                                  | Diluted                         |                                       |         | 8,729   |      |   |         | 8,721   |  |   |         | 8,520   |  



41



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


AND COMPREHENSIVE INCOME


For the Years Ended December 31, 2005, 2004 and 2003


|                                                                                   |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   |         |         |  
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | --------------------------------- | --------- | ---------- | ------- | - | ------- | -------- | -------- | ----------- | ------------ | ------- | - | ------------- | ---- | - | ----- | - | ------ | ------- | - | - | ------- | ------- | -
|                                                                                   |                                                                                                             |                                   |           |            |         |   |         |          |          | Accumulated |              |         |  
|                                                                                   |                                                                                                             |                                   |           | Additional |         |   |         |          | Unearned |             |              | Other   |   |               |     
|                                                                                   |                                                                                                             | Shares                            |           |            | Paid-In |   |         | Retained |          |             | Stock        |         |   | Comprehensive |      |   |      
|                                                                                   |                                                                                                             | Outstanding                       |           |            | Capital |   |         | Earnings |          |             | Compensation |         |   | Income        |      |   | Total |  
|                                                                                   |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |  
|                                                                                   |                                                                                                             | (In thousands, except share data) |          
|Balance, December 31, 2002                                                         |                                                                                                             |                                   | 8,695,492 |            |         |   | 92,148  |          |          |             | 164,183      |         |   |               | (678 | ) |       |   | 24,636 |         |   |   | 280,289 |        
|Comprehensive loss                                                                 |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   |         |        
|                                                                                   | Net loss                                                                                                    |                                   |           |            |         |   |         |          |          |             |              | (76,831 | ) |               |      |   |       |   |        |         |   |   |         | (76,831 | )
|                                                                                   | Unrealized appreciation on investment securities, net of taxes
    of $2,678                                |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        | 4,971   |   |   |         | 4,971   |  
|                                                                                   |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |  
|Total comprehensive loss, net of taxes                                             |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   | (71,860 | )      
|Options exercised                                                                  |                                                                                                             |                                   | 25,800    |            |         |   | 440     |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   | 440     |        
|Amortization of unearned stock compensation, net of tax                            |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               | 300  |   |       |   |        |         |   |   | 300     |        
|Incremental tax benefit of vested restricted stock and exercised
    stock options |                                                                                                             |                                   |           |            |         |   | 261     |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   | 261     |        
|Purchase and retirement of common stock                                            |                                                                                                             |                                   | (272,800  | )          |         |   | (7,676  | )        |          |             |              |         |   |               |      |   |       |   |        |         |   |   | (7,676  | )      
|Forfeiture of unearned stock compensation                                          |                                                                                                             |                                   | (2,685    | )          |         |   | (36     | )        |          |             |              |         |   |               | 90   |   |       |   |        |         |   |   | 54      |        
|                                                                                   |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |  
|Balance, December 31, 2003                                                         |                                                                                                             |                                   | 8,445,807 |            |         |   | 85,137  |          |          |             | 87,352       |         |   |               | (288 | ) |       |   | 29,607 |         |   |   | 201,808 |        
|Comprehensive loss                                                                 |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   |         |        
|                                                                                   | Net income                                                                                                  |                                   |           |            |         |   |         |          |          |             |              | 20,030  |   |               |      |   |       |   |        |         |   |   |         | 20,030  |  
|                                                                                   | Unrealized depreciation on investment securities, net of taxes
    of $7,512                                |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        | (13,952 | ) |   |         | (13,952 | )
|                                                                                   | Minority interest in unrealized depreciation on investment
    securities                                   |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        | 11      |   |   |         | 11      |  
|                                                                                   | Change in deferred tax valuation allowance                                                                  |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        | (7,512  | ) |   |         | (7,512  | )
|                                                                                   |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |  
|Total comprehensive loss, net of taxes                                             |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   | (1,423  | )      
|Options exercised                                                                  |                                                                                                             |                                   | 365,264   |            |         |   | 6,788   |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   | 6,788   |        
|Amortization of unearned stock compensation, net of tax                            |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               | 262  |   |       |   |        |         |   |   | 262     |        
|Incremental tax benefit of vested restricted stock and exercised
    stock options |                                                                                                             |                                   |           |            |         |   | 1,775   |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   | 1,775   |        
|Restricted stock grants and unearned stock compensation                            |                                                                                                             |                                   | 30,000    |            |         |   | 516     |          |          |             |              |         |   |               | (335 | ) |       |   |        |         |   |   | 181     |        
|Unrestricted stock grants                                                          |                                                                                                             |                                   | 1,000     |            |         |   | 27      |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   | 27      |        
|Shares repurchased in connection with option exercise                              |                                                                                                             |                                   | (166,017  | )          |         |   | (5,454  | )        |          |             |              |         |   |               |      |   |       |   |        |         |   |   | (5,454  | )      
|Forfeiture of unearned stock compensation                                          |                                                                                                             |                                   | (4,070    | )          |         |   | (58     | )        |          |             |              |         |   |               | 21   |   |       |   |        |         |   |   | (37     | )      
|Change in deferred tax valuation allowance                                         |                                                                                                             |                                   |           |            |         |   | (1,775  | )        |          |             |              |         |   |               | (28  | ) |       |   |        |         |   |   | (1,803  | )      
|                                                                                   |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |  
|Balance, December 31, 2004                                                         |                                                                                                             |                                   | 8,671,984 |            |         | $ | 86,956  |          |          | $           | 107,382      |         |   | $             | (368 | ) |       | $ | 8,154  |         |   | $ | 202,124 |        
|Comprehensive income                                                               |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   |         |        
|                                                                                   | Net income                                                                                                  |                                   |           |            |         |   |         |          |          |             |              | 72,366  |   |               |      |   |       |   |        |         |   |   |         | 72,366  |  
|                                                                                   | Unrealized depreciation on available-for-sale investment
    securities, net of taxes of $4,260             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        | (7,910  | ) |   |         | (7,910  | )
|                                                                                   | Amortization of unrealized appreciation on held-to-maturity
    investment securities, net of taxes of $357 |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        | (664    | ) |   |         | (664    | )
|                                                                                   | Minority interest in unrealized depreciation on investment
    securities                                   |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        | 12      |   |   |         | 12      |  
|Change in deferred tax valuation allowance                                         |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   | 7,512  |         |   |   | 7,512   |        
|                                                                                   |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |  
|Total comprehensive income, net of taxes                                           |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   | 71,316  |        
|Options exercised                                                                  |                                                                                                             |                                   | 97,536    |            |         |   | 1,719   |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   | 1,719   |        
|Amortization of unearned stock compensation, net of tax                            |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               | 241  |   |       |   |        |         |   |   | 241     |        
|Incremental tax benefit of vested restricted stock and exercised
    stock options |                                                                                                             |                                   |           |            |         |   | 1,095   |          |          |             |              |         |   |               |      |   |       |   |        |         |   |   | 1,095   |        
|Purchase and retirement of common stock                                            |                                                                                                             |                                   | (433,500  | )          |         |   | (17,057 | )        |          |             |              |         |   |               |      |   |       |   |        |         |   |   | (17,057 | )      
|Forfeiture of unearned stock compensation                                          |                                                                                                             |                                   | (2,603    | )          |         |   | (44     | )        |          |             |              |         |   |               | 15   |   |       |   |        |         |   |   | (29     | )      
|Change in deferred tax valuation allowance                                         |                                                                                                             |                                   |           |            |         |   | 1,775   |          |          |             |              |         |   |               | 28   |   |       |   |        |         |   |   | 1,803   |        
|                                                                                   |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |  
|Balance, December 31, 2005                                                         |                                                                                                             |                                   | 8,333,417 |            |         | $ | 74,444  |          |          | $           | 179,748      |         |   | $             | (84  | ) |       | $ | 7,104  |         |   | $ | 261,212 |        
|                                                                                   |                                                                                                             |                                   |           |            |         |   |         |          |          |             |              |         |   |               |      |   |       |  



42



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


For the Years Ended December 31, 2005, 2004, and 2003


|                                                                                                                                              |                                                                                             |                                                                   |                                                      |                                                     |          |        |         |        |          |         |         |         |          |         |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------------- | -------- | ------ | ------- | ------ | -------- | ------- | ------- | ------- | -------- | ------- | ------- | -
|                                                                                                                                              |                                                                                             | Year Ended December 31,                                           |                                                     
|                                                                                                                                              |                                                                                             |                                                                   |                                                     
|                                                                                                                                              |                                                                                             | 2005                                                              |                                                      |                                                     | 2004     |        |         | 2003   |         
|                                                                                                                                              |                                                                                             |                                                                   |                                                      |                                                     |          |        |         |        |         
|                                                                                                                                              |                                                                                             | (In thousands)                                                    |                                                     
|Cash flows from operating activities                                                                                                          |                                                                                             |                                                                   |                                                      |                                                     |          |        |         |        |          |         |         |        
|                                                                                                                                              | Net income (loss)                                                                           |                                                                   | $                                                    | 72,366                                              |          |        | $       | 20,030 |          |         | $       | (76,831 | )       
|                                                                                                                                              | Adjustments to reconcile net income (loss) to net cash provided
    by operating activities |                                                                   |                                                      |                                                     |          |        |         |        |          |         |         |         |         
|                                                                                                                                              |                                                                                             | Depreciation and amortization                                     |                                                      |                                                     | 5,259    |        |         |        | 8,306    |         |         |         | 7,058    |        
|                                                                                                                                              |                                                                                             | Net realized gains                                                |                                                      |                                                     | (2,033   | )      |         |        | (1,551   | )       |         |         | (2,403   | )      
|                                                                                                                                              |                                                                                             | Loss on equity method investees                                   |                                                      |                                                     | 100      |        |         |        | 342      |         |         |         | 1,775    |        
|                                                                                                                                              |                                                                                             | Change in fair value of derivatives                               |                                                      |                                                     | 1,095    |        |         |        | 338      |         |         |         | (432     | )      
|                                                                                                                                              |                                                                                             | Deferred federal income taxes                                     |                                                      |                                                     | (30,246  | )      |         |        |         |         |         |         | 39,865   |        
|                                                                                                                                              |                                                                                             | Minority interest in net income (loss) of consolidated subsidiary |                                                      |                                                     | 453      |        |         |        | 10       |         |         |         | (348     | )      
|                                                                                                                                              |                                                                                             | Federal income taxes recoverable/payable                          |                                                      |                                                     | 1,569    |        |         |        | (2,371   | )       |         |         | (134     | )      
|                                                                                                                                              |                                                                                             | Changes in:                                                       |                                                      |                                                     |          |        |         |        |          |         |         |         |          |        
|                                                                                                                                              |                                                                                             |                                                                   | Premiums receivable                                  |                                                     |          | 3,885  |         |        |          | 10,748  |         |         |          | (2,831  | )      
|                                                                                                                                              |                                                                                             |                                                                   | Reinsurance recoverable                              |                                                     |          | (6,056 | )       |        |          | 340     |         |         |          | (5,524  | )      
|                                                                                                                                              |                                                                                             |                                                                   | Unpaid losses and loss adjustment expenses           |                                                     |          | (3,773 | )       |        |          | 20,025  |         |         |          | 36,111  |        
|                                                                                                                                              |                                                                                             |                                                                   | Unearned premiums                                    |                                                     |          | (7,942 | )       |        |          | (13,766 | )       |         |          | 386     |        
|                                                                                                                                              |                                                                                             |                                                                   | Accrued expenses and other liabilities               |                                                     |          | 325    |         |        |          | (3,210  | )       |         |          | 13,550  |        
|                                                                                                                                              |                                                                                             |                                                                   | Other assets                                         |                                                     |          | 3,198  |         |        |          | 2,871   |         |         |          | (730    | )      
|                                                                                                                                              |                                                                                             |                                                                   |                                                      |                                                     |          |        |         |        |         
|                                                                                                                                              |                                                                                             |                                                                   |                                                      | Net cash provided by operating activities           |          |        | 38,200  |        |          |         | 42,112  |         |          |         | 9,512   |  
|Cash flows from investing activities                                                                                                          |                                                                                             |                                                                   |                                                      |                                                     |          |        |         |        |          |         |         |        
|                                                                                                                                              | Purchases                                                                                   |                                                                   |                                                      |                                                     |          |        |         |        |          |         |         |         |         
|                                                                                                                                              |                                                                                             | Available-for-sale  fixed maturities                             |                                                      |                                                     | (22,046  | )      |         |        | (267,853 | )       |         |         | (254,421 | )      
|                                                                                                                                              |                                                                                             | Held-to-maturity  fixed maturities                               |                                                      |                                                     | (112,912 | )      |         |        |         |         |         |         |         |        
|                                                                                                                                              |                                                                                             | Available-for-sale  equity securities                            |                                                      |                                                     | (606     | )      |         |        | (50,034  | )       |         |         | (19,030  | )      
|                                                                                                                                              |                                                                                             | Other investments                                                 |                                                      |                                                     | (7,579   | )      |         |        |         |         |         |         | (1,407   | )      
|                                                                                                                                              |                                                                                             | Physicians Insurance Company, net of cash acquired                |                                                      |                                                     |         |        |         |        |         |         |         |         | 2,550    |        
|                                                                                                                                              |                                                                                             | Intangible assets                                                 |                                                      |                                                     |         |        |         |        |         |         |         |         | (1,800   | )      
|                                                                                                                                              |                                                                                             | Property and equipment                                            |                                                      |                                                     | (1,089   | )      |         |        | (1,120   | )       |         |         | (4,111   | )      
|                                                                                                                                              | Sales and maturities                                                                        |                                                                   |                                                      |                                                     |          |        |         |        |          |         |         |         |         
|                                                                                                                                              |                                                                                             | Available-for-sale  fixed maturities                             |                                                      |                                                     | 144,591  |        |         |        | 285,019  |         |         |         | 187,629  |        
|                                                                                                                                              |                                                                                             | Held-to-maturity  fixed maturities                               |                                                      |                                                     | 62,014   |        |         |        |         |         |         |         |         |        
|                                                                                                                                              |                                                                                             | Available-for-sale  equity securities                            |                                                      |                                                     | 1,531    |        |         |        | 55,928   |         |         |         | 9,700    |        
|                                                                                                                                              |                                                                                             | Other investments                                                 |                                                      |                                                     | 3,536    |        |         |        | 19,519   |         |         |         | 4        |        
|                                                                                                                                              |                                                                                             | Property and equipment                                            |                                                      |                                                     | 32       |        |         |        | 35       |         |         |         | 8        |        
|                                                                                                                                              | Cash from miscellaneous sources                                                             |                                                                   |                                                      | 2,707                                               |          |        |         |       |          |         |         |        |         
|                                                                                                                                              | Pending securities transactions                                                             |                                                                   |                                                      | (12,846                                             | )        |        |         | 8,143  |          |         |         | (680    | )       
|                                                                                                                                              |                                                                                             |                                                                   |                                                      |                                                     |          |        |         |        |         
|                                                                                                                                              |                                                                                             |                                                                   |                                                      | Net cash provided by (used in) investing activities |          |        | 57,333  |        |          |         | 49,637  |         |          |         | (81,558 | )
|Cash flows from financing activities                                                                                                          |                                                                                             |                                                                   |                                                      |                                                     |          |        |         |        |          |         |         |        
|                                                                                                                                              | Principal payment on note payable                                                           |                                                                   |                                                      |                                                    |          |        |         | (6,000 | )        |         |         | (1,000  | )       
|                                                                                                                                              | Common stock repurchased                                                                    |                                                                   |                                                      | (17,057                                             | )        |        |         |       |          |         |         | (7,676  | )       
|                                                                                                                                              | Federal income tax effect of share based awards                                             |                                                                   |                                                      | 1,095                                               |          |        |         | 1,775  |          |         |         | 261     |         
|                                                                                                                                              | Debt issue costs                                                                            |                                                                   |                                                      |                                                    |          |        |         |       |          |         |         | (906    | )       
|                                                                                                                                              | Issuance of long-term debt                                                                  |                                                                   |                                                      |                                                    |          |        |         |       |          |         |         | 30,928  |         
|                                                                                                                                              | Proceeds from stock options exercised                                                       |                                                                   |                                                      | 1,719                                               |          |        |         | 1,334  |          |         |         | 440     |         
|                                                                                                                                              | Other                                                                                       |                                                                   |                                                      |                                                    |          |        |         | 27     |          |         |         | 225     |         
|                                                                                                                                              |                                                                                             |                                                                   |                                                      |                                                     |          |        |         |        |         
|                                                                                                                                              |                                                                                             |                                                                   |                                                      | Net cash (used in) provided by financing activities |          |        | (14,243 | )      |          |         | (2,864  | )       |          |         | 22,272  |  
|                                                                                                                                              |                                                                                             |                                                                   | Net increase (decrease) in cash and cash equivalents |                                                     |          | 81,290 |         |        |          | 88,885  |         |         |          | (49,774 | )      
|                                                                                                                                              |                                                                                             |                                                                   |                                                      | Cash and cash equivalents, beginning of period      |          |        | 190,936 |        |          |         | 102,051 |         |          |         | 151,825 |  
|                                                                                                                                              |                                                                                             |                                                                   |                                                      |                                                     |          |        |         |        |         
|                                                                                                                                              |                                                                                             |                                                                   |                                                      | Cash and cash equivalents, end of period            |          | $      | 272,988 |        |          | $       | 190,936 |         |          | $       | 102,051 |  
|                                                                                                                                              |                                                                                             |                                                                   |                                                      |                                                     |          |        |         |        |         
|Supplemental disclosures of cash flow information                                                                                            
|Federal income taxes of $(1,132,000), $308,000, and
    $(3,752,000), net, were (received) paid during 2005, 2004
    and 2003, respectively.
|Interest payments of $2,200,000, $1,672,000, and $822,000 were
    made during 2005, 2004 and 2003, respectively.                            
|In 2003, the Company purchased 49% of the outstanding common
    stock of Physicians Insurance Company for $2,450,000.                       
|Cash acquired in connection with the purchase was $5,000,000.                                                                                



43



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                
|-- | -------------------------------
|1. | Significant Accounting Policies



| |                                     
| | ------------------------------------
| | Basis of Consolidation and Reporting

PIC-FL




| |                 
| | ----------------
| | Use of Estimates







| |                   
| | ------------------
| | Nature of Business







44



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                            
|-- | -------------------------------------------
|1. | Significant Accounting Policies (continued)



| |            
| | -----------
| | Investments



| |                                              
| | ---------------------------------------------
| | Fixed Income and Equity Investment Securities

held-to held-to


held-to




yield-to




held-to




45



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                            
|-- | -------------------------------------------
|1. | Significant Accounting Policies (continued)





| |                  
| | -----------------
| | Other Investments





| |                                 
| | --------------------------------
| | Derivative Financial Instruments







| |                          
| | -------------------------
| | Cash and cash equivalents





| |                                                            
| | -----------------------------------------------------------
| | Premiums written and receivable and related credit
    risk





| |                                  
| | ---------------------------------
| | Deferred policy acquisition costs



46



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                            
|-- | -------------------------------------------
|1. | Significant Accounting Policies (continued)





| |                                     
| | ------------------------------------
| | Property, equipment and depreciation





| |                                                   
| | --------------------------------------------------
| | Unpaid losses and loss adjustment expense reserves









| |                                                          
| | ---------------------------------------------------------
| | Reserve for death, disability and retirement
    benefits



47



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                            
|-- | -------------------------------------------
|1. | Significant Accounting Policies (continued)



| |                    
| | -------------------
| | Revenue recognition





| |            
| | -----------
| | Reinsurance







| |             
| | ------------
| | Income taxes







48



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                            
|-- | -------------------------------------------
|1. | Significant Accounting Policies (continued)

paid-in








| |                         
| | ------------------------
| | Stock-based compensation



49



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                            
|-- | -------------------------------------------
|1. | Significant Accounting Policies (continued)



|                                                                                                                                                                       |             |                                       |        |      |      |   |        |      |  |   |         |       |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------------------------- | ------ | ---- | ---- | - | ------ | ---- |  | - | ------- | ----- | -
|                                                                                                                                                                       |             | For the Year Ended December 31,       |       
|                                                                                                                                                                       |             |                                       |       
|                                                                                                                                                                       |             | 2005                                  |        |      | 2004 |   |        | 2003 | 
|                                                                                                                                                                       |             |                                       |        |      |      |   |        |      | 
|                                                                                                                                                                       |             | (In thousands, except per share data) |       
|Net income (loss), as reported                                                                                                                                         |             | $                                     | 72,366 |      |      | $ | 20,030 |      |  | $ | (76,831 | )    
|Add: Stock-based employee compensation expense included in
    reported net income (loss), net of related tax effects                                                  |             |                                       | 227    |      |      |   | 260    |      |  |   | 367     |      
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards granted
    since 2000, net of related tax effects |             |                                       | (563   | )    |      |   | (921   | )    |  |   | (1,455  | )    
|                                                                                                                                                                       |             |                                       |        |      |      |   |        |      | 
|Pro forma net income (loss)                                                                                                                                            |             | $                                     | 72,030 |      |      | $ | 19,369 |      |  | $ | (77,919 | )    
|                                                                                                                                                                       |             |                                       |        |      |      |   |        |      | 
|Basic net income (loss) per share                                                                                                                                      |             |                                       |        |      |      |   |        |      |  |   |         |      
|                                                                                                                                                                       | As reported |                                       | $      | 8.48 |      |   | $      | 2.37 |  |   | $       | (9.02 | )
|                                                                                                                                                                       | Pro forma   |                                       | $      | 8.44 |      |   | $      | 2.29 |  |   | $       | (9.15 | )
|Diluted net income (loss) per share(1)                                                                                                                                 |             |                                       |        |      |      |   |        |      |  |   |         |      
|                                                                                                                                                                       | As reported |                                       | $      | 8.29 |      |   | $      | 2.30 |  |   | $       | (9.02 | )
|                                                                                                                                                                       | Pro forma   |                                       | $      | 8.25 |      |   | $      | 2.22 |  |   | $       | (9.15 | )
|Basic Weighted Average Shares                                                                                                                                          |             |                                       | 8,538  |      |      |   | 8,455  |      |  |   | 8,520   |      
|Diluted Weighted Average Shares(1)                                                                                                                                     |             |                                       | 8,729  |      |      |   | 8,721  |      |  |   | 8,520   |      






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







| |                   
| | ------------------
| | Minority interests





50



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                            
|-- | -------------------------------------------
|1. | Significant Accounting Policies (continued)







| |                            
| | ---------------------------
| | Net income (loss) per share





| |                 
| | ----------------
| | Reclassification





|   |                                         
|-- | ----------------------------------------
|2. | Effects of New Accounting Pronouncements





51



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                     
|-- | ----------------------------------------------------
|2. | Effects of New Accounting Pronouncements (continued)



paid-in








|   |                     
|-- | --------------------
|3. | Comprehensive Income

held-to


52



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                 
|-- | --------------------------------
|3. | Comprehensive Income (continued)

held-to




|   |            
|-- | -----------
|4. | Investments



|                   |                                   |                                                  |   |         |            |  |       |            |       |  |            |      |      |   |   |         |         | 
|------------------ | --------------------------------- | ------------------------------------------------ | - | ------- | ---------- |  | ----- | ---------- | ----- |  | ---------- | ---- | ---- | - | - | ------- | ------- | 
|                   |                                   | 2005                                             |  
|                   |                                   |                                                  |  
|                   |                                   |                                                  |   | Gross   |            |  | Gross |            |       | 
|                   |                                   | Amortized                                        |   |         | Unrealized |  |       | Unrealized |       |  | Estimated  |     
|                   |                                   | Cost/Cost                                        |   |         | Gains      |  |       | Losses     |       |  | Fair Value |     
|                   |                                   |                                                  |   |         |            |  |       |            |       |  |            |     
|                   |                                   | (In thousands)                                   |  
|Available-for-sale |                                   |                                                  |   |         |            |  |       |            |       |  |            |      |      |   |   |        
|                   | U.S. government obligations       |                                                  | $ | 3,752   |            |  | $     | 55         |       |  | $          | (19  | )    |   | $ | 3,788   |        
|                   | States and political subdivisions |                                                  |   | 16,106  |            |  |       | 145        |       |  |            |      |      |   |   | 16,251  |        
|                   | Corporate securities              |                                                  |   | 197,926 |            |  |       | 6,028      |       |  |            | (230 | )    |   |   | 203,724 |        
|                   | Mortgage-backed securities        |                                                  |   | 287     |            |  |       | 57         |       |  |            | (6   | )    |   |   | 338     |        
|                   |                                   |                                                  |   |         |            |  |       |            |       |  |            |     
|                   |                                   | Total available-for-sale fixed-income securities |   |         | 218,071    |  |       |            | 6,285 |  |            |      | (255 | ) |   |         | 224,101 | 
|                   | Equity securities                 |                                                  |   | 208     |            |  |       |           |       |  |            |     |      |   |   | 208     |        
|                   |                                   |                                                  |   |         |            |  |       |            |       |  |            |     
|                   |                                   | Total available-for-sale securities              |   | $       | 218,279    |  |       | $          | 6,285 |  |            | $    | (255 | ) |   | $       | 224,309 | 
|                   |                                   |                                                  |   |         |            |  |       |            |       |  |            |     

|                   |                                   |                                                  |   |         |            |  |       |            |        |  |            |      |      |   |   |         |         | 
|------------------ | --------------------------------- | ------------------------------------------------ | - | ------- | ---------- |  | ----- | ---------- | ------ |  | ---------- | ---- | ---- | - | - | ------- | ------- | 
|                   |                                   | 2004                                             |  
|                   |                                   |                                                  |  
|                   |                                   |                                                  |   | Gross   |            |  | Gross |            |        | 
|                   |                                   | Amortized                                        |   |         | Unrealized |  |       | Unrealized |        |  | Estimated  |     
|                   |                                   | Cost/Cost                                        |   |         | Gains      |  |       | Losses     |        |  | Fair Value |     
|                   |                                   |                                                  |   |         |            |  |       |            |        |  |            |     
|                   |                                   | (In thousands)                                   |  
|Available-for-sale |                                   |                                                  |   |         |            |  |       |            |        |  |            |      |      |   |   |        
|                   | U.S. government obligations       |                                                  | $ | 150,787 |            |  | $     | 1,020      |        |  | $          | (242 | )    |   | $ | 151,565 |        
|                   | States and political subdivisions |                                                  |   | 5,173   |            |  |       | 331        |        |  |            |     |      |   |   | 5,504   |        
|                   | Corporate securities              |                                                  |   | 342,046 |            |  |       | 20,185     |        |  |            | (24  | )    |   |   | 362,207 |        
|                   | Mortgage-backed securities        |                                                  |   | 125,838 |            |  |       | 2,816      |        |  |            | (300 | )    |   |   | 128,354 |        
|                   | Other debt securities             |                                                  |   | 9,767   |            |  |       | 309        |        |  |            |     |      |   |   | 10,076  |        
|                   |                                   |                                                  |   |         |            |  |       |            |        |  |            |     
|                   |                                   | Total available-for-sale fixed-income securities |   |         | 633,611    |  |       |            | 24,661 |  |            |      | (566 | ) |   |         | 657,706 | 
|                   | Equity securities                 |                                                  |   | 1,079   |            |  |       | 84         |        |  |            |     |      |   |   | 1,163   |        
|                   |                                   |                                                  |   |         |            |  |       |            |        |  |            |     
|                   |                                   | Total available-for-sale securities              |   | $       | 634,690    |  |       | $          | 24,745 |  |            | $    | (566 | ) |   | $       | 658,869 | 
|                   |                                   |                                                  |   |         |            |  |       |            |        |  |            |     

53



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                        
|-- | -----------------------
|4. | Investments (continued)



held-to held-to


|                 |                                   |                                                |   |              |         |  |              |         |     |  |            |        |        |   |   |         |         | 
|---------------- | --------------------------------- | ---------------------------------------------- | - | ------------ | ------- |  | ------------ | ------- | --- |  | ---------- | ------ | ------ | - | - | ------- | ------- | 
|                 |                                   | 2005                                           |  
|                 |                                   |                                                |  
|                 |                                   |                                                |   | Gross        |         |  | Gross        |         |     | 
|                 |                                   |                                                |   | Unrecognized |         |  | Unrecognized |         |     | 
|                 |                                   | Carrying                                       |   |              | Holding |  |              | Holding |     |  | Estimated  |       
|                 |                                   | Value                                          |   |              | Gains   |  |              | Losses  |     |  | Fair Value |       
|                 |                                   |                                                |   |              |         |  |              |         |     |  |            |       
|                 |                                   | (In thousands)                                 |  
|Held-to-maturity |                                   |                                                |   |              |         |  |              |         |     |  |            |        |        |   |   |        
|                 | U.S. government obligations       |                                                | $ | 82,628       |         |  |              |         |     |  | $          | (1,638 | )      |   | $ | 80,990  |        
|                 | States and political subdivisions |                                                |   | 2,879        |         |  |              |         |     |  |            | (28    | )      |   |   | 2,851   |        
|                 | Corporate securities              |                                                |   | 69,681       |         |  |              | 173     |     |  |            | (1,572 | )      |   |   | 68,282  |        
|                 | Mortgage-backed securities        |                                                |   | 190,514      |         |  |              | 51      |     |  |            | (3,753 | )      |   |   | 186,812 |        
|                 |                                   |                                                |   |              |         |  |              |         |     |  |            |       
|                 |                                   | Total held-to-maturity fixed-income securities |   | $            | 345,702 |  |              | $       | 224 |  |            | $      | (6,991 | ) |   | $       | 338,935 | 
|                 |                                   |                                                |   |              |         |  |              |         |     |  |            |       



|                                                                                                                                                                |                                   |                |        |       |      |   |        |       | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | -------------- | ------ | ----- | ---- | - | ------ | ----- | 
|                                                                                                                                                                |                                   | December 31,   |       
|                                                                                                                                                                |                                   |                |       
|                                                                                                                                                                |                                   | 2005           |        |       | 2004 |  
|                                                                                                                                                                |                                   |                |        |       |      |  
|                                                                                                                                                                |                                   | (In thousands) |       
|Net unrealized appreciation on available-for-sale securities                                                                                                    |                                   | $              | 6,030  |       |      | $ | 24,085 |      
|Net unrealized appreciation on held-to-maturity securities                                                                                                      |                                   |                | 4,865  |       |      |   |       |      
|Deferred federal income taxes                                                                                                                                   |                                   |                | (3,813 | )     |      |   | (8,430 | )    
|Impact of changes of the deferred tax asset valuation allowance
    as a result of changes in net unrealized appreciation on
    investment securities (Note 7) |                                   |                |       |       |      |   | (7,512 | )    
|Minority interest in net unrealized depreciation, net of tax                                                                                                    |                                   |                | 22     |       |      |   | 11     |      
|                                                                                                                                                                |                                   |                |        |       |      |  
|                                                                                                                                                                | Total net unrealized appreciation |                | $      | 7,104 |      |   | $      | 8,154 | 
|                                                                                                                                                                |                                   |                |        |       |      |  

54



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                        
|-- | -----------------------
|4. | Investments (continued)

held-to


|                              |                                            |                |        |         |      |  |       |         |   |  |        |       | 
|----------------------------- | ------------------------------------------ | -------------- | ------ | ------- | ---- |  | ----- | ------- | - |  | ------ | ----- | 
|                              |                                            | 2005           |        |         | 2004 |  |       | 2003    |  
|                              |                                            |                |        |         |      |  |       |         |  
|                              |                                            | (In thousands) |       
|Available-for-sale:           |                                            |                |        |         |      |  |       |         |   |  |        |      
|                              | Fixed maturities                           |                | $      | (12,086 | )    |  | $     | (21,088 | ) |  | $      | 7,212 | 
|                              | Equity securities                          |                |        | (84     | )    |  |       | (376    | ) |  |        | 437   | 
|Held-to-maturity amortization |                                            |                | (1,021 | )       |      |  |      |         |   |  |       |      
|Deferred income taxes         |                                            |                | 4,617  |         |      |  | 7,512 |         |   |  | (2,678 | )    
|                              |                                            |                |        |         |      |  |       |         |  
|                              | Net unrealized (depreciation) appreciation |                | $      | (8,574  | )    |  | $     | (13,952 | ) |  | $      | 4,971 | 
|                              |                                            |                |        |         |      |  |       |         |  

held-to


|                                     |                                       |                     |         |               |                   |   |        |        |               |   |              |       |  |               |      |      |              |   |         |         |  |   |        |        |  
|------------------------------------ | ------------------------------------- | ------------------- | ------- | ------------- | ----------------- | - | ------ | ------ | ------------- | - | ------------ | ----- |  | ------------- | ---- | ---- | ------------ | - | ------- | ------- |  | - | ------ | ------ | -
|                                     |                                       | December 31, 2005   |        
|                                     |                                       |                     |        
|                                     |                                       | Less Than 12 Months |         |               | 12 Months or More |   |        | Total  |              
|                                     |                                       |                     |         |               |                   |   |        |        |              
|                                     |                                       |                     |         | Unrealized or |                   |   |        |        | Unrealized or |   |              |       |  | Unrealized or |     
|                                     |                                       | Fair                |         |               | Unrecognized      |   |        | Fair   |               |   | Unrecognized |       |  | Fair          |      |      | Unrecognized |  
|Description of Securities            |                                       | Value               |         |               | Losses            |   |        | Value  |               |   | Losses       |       |  | Value         |      |      | Losses       |  
|                                     |                                       |                     |         |               |                   |   |        |        |               |   |              |       |  |               |      |      |              |  
|                                     |                                       | (In thousands)      |        
|Available-for-sale                   |                                       |                     |         |               |                   |   |        |        |               |   |              |       |  |               |      |      |              |   |         |         |  |   |        |       
|U.S. government obligations          |                                       | $                   |        |               |                   | $ | (19    | )      |               | $ |             |       |  | $             |     |      |              | $ |        |         |  | $ | (19    | )     
|Corporate securities                 |                                       |                     | 3,974   |               |                   |   | (76    | )      |               |   | 6,230        |       |  |               | (154 | )    |              |   | 10,204  |         |  |   | (230   | )     
|Mortgage-backed securities           |                                       |                     | 1       |               |                   |   | (6     | )      |               |   |             |       |  |               |     |      |              |   | 1       |         |  |   | (6     | )     
|                                     |                                       |                     |         |               |                   |   |        |        |               |   |              |       |  |               |      |      |              |  
|                                     | Subtotal fixed income                 |                     |         | 3,975         |                   |   |        | (101   | )             |   |              | 6,230 |  |               |      | (154 | )            |   |         | 10,205  |  |   |        | (255   | )
|Held-to-maturity                     |                                       |                     |         |               |                   |   |        |        |               |   |              |       |  |               |      |      |              |   |         |         |  |   |        |       
|U.S. government obligations          |                                       | $                   | 80,990  |               |                   | $ | (1,638 | )      |               | $ |             |       |  | $             |     |      |              | $ | 80,990  |         |  | $ | (1,638 | )     
|States and political subdivisions    |                                       |                     | 2,852   |               |                   |   | (28    | )      |               |   |             |       |  |               |     |      |              |   | 2,852   |         |  |   | (28    | )     
|Corporate securities                 |                                       |                     | 48,246  |               |                   |   | (1,572 | )      |               |   |             |       |  |               |     |      |              |   | 48,246  |         |  |   | (1,572 | )     
|Mortgage-backed securities           |                                       |                     | 179,981 |               |                   |   | (3,753 | )      |               |   |             |       |  |               |     |      |              |   | 179,981 |         |  |   | (3,753 | )     
|                                     |                                       |                     |         |               |                   |   |        |        |               |   |              |       |  |               |      |      |              |  
|                                     | Subtotal fixed income                 |                     |         | 312,069       |                   |   |        | (6,991 | )             |   |              |      |  |               |      |     |              |   |         | 312,069 |  |   |        | (6,991 | )
|Available-for-sale equity securities |                                       |                     |        |               |                   |   |       |        |               |   |             |       |  |               |     |      |              |   |        |         |  |   |       |       
|                                     |                                       |                     |         |               |                   |   |        |        |               |   |              |       |  |               |      |      |              |  
|                                     | Total temporarily impaired securities |                     | $       | 316,044       |                   |   | $      | (7,092 | )             |   | $            | 6,230 |  |               | $    | (154 | )            |   | $       | 322,274 |  |   | $      | (7,246 | )
|                                     |                                       |                     |         |               |                   |   |        |        |               |   |              |       |  |               |      |      |              |  

55



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                        
|-- | -----------------------
|4. | Investments (continued)



|                            |                                       |                     |        |        |                   |   |       |       |   |            |   |       |  |   |            |   |  |   |        |        |  |   |      |      |  
|--------------------------- | ------------------------------------- | ------------------- | ------ | ------ | ----------------- | - | ----- | ----- | - | ---------- | - | ----- |  | - | ---------- | - |  | - | ------ | ------ |  | - | ---- | ---- | -
|                            |                                       | December 31, 2004   |       
|                            |                                       |                     |       
|                            |                                       | Less Than 12 Months |        |        | 12 Months or More |   | Total |      
|                            |                                       |                     |        |        |                   |   |       |      
|                            |                                       | Fair                |        |        | Unrealized        |   |       | Fair  |   | Unrealized |   | Fair  |  |   | Unrealized |  
|Description of Securities   |                                       | Value               |        |        | Losses(1)         |   |       | Value |   | Losses(1)  |   | Value |  |   | Losses(1)  |  
|                            |                                       |                     |        |        |                   |   |       |       |   |            |   |       |  |   |            |  
|                            |                                       | (In thousands)      |       
|Available-for-sale          |                                       |                     |        |        |                   |   |       |       |   |            |   |       |  |   |            |   |  |   |        |        |  |   |      |     
|U.S. government obligations |                                       | $                   | 45,895 |        |                   | $ | (242  | )     |   | $          |  |       |  | $ |           |   |  | $ | 45,895 |        |  | $ | (242 | )   
|Corporate securities        |                                       |                     | 15,137 |        |                   |   | (24   | )     |   |            |  |       |  |   |           |   |  |   | 15,137 |        |  |   | (24  | )   
|Mortgage-backed securities  |                                       |                     | 148    |        |                   |   | (54   | )     |   |            |  |       |  |   |           |   |  |   | 148    |        |  |   | (54  | )   
|                            |                                       |                     |        |        |                   |   |       |       |   |            |   |       |  |   |            |   |  |  
|                            | Subtotal fixed maturities             |                     |        | 61,180 |                   |   |       | (320  | ) |            |   |      |  |   |            |  |  |   |        | 61,180 |  |   |      | (320 | )
|Equity securities           |                                       |                     |       |        |                   |   |      |       |   |            |  |       |  |   |           |   |  |   |       |        |  |   |     |     
|                            |                                       |                     |        |        |                   |   |       |       |   |            |   |       |  |   |            |   |  |  
|                            | Total temporarily impaired securities |                     | $      | 61,180 |                   |   | $     | (320  | ) |            | $ |      |  |   | $          |  |  |   | $      | 61,180 |  |   | $    | (320 | )
|                            |                                       |                     |        |        |                   |   |       |       |   |            |   |       |  |   |            |   |  |  






|    |                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Note that the table above excludes approximately ($246,000) of
    unrealized loss related to derivative securities. These losses
    have been excluded as any changes in the fair value of the
    related securities is already included in income. See Note
    1  Derivative Financial Instruments.

56



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                        
|-- | -----------------------
|4. | Investments (continued)



|                                  |                         |                     |                                         |        |        |        |        |        |        |        |        |        |        |        |  
|--------------------------------- | ----------------------- | ------------------- | --------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | -
|                                  |                         | 2005                |                                         |        | 2004   |        |        | 2003   |       
|                                  |                         |                     |                                         |        |        |        |        |        |       
|                                  |                         | (In thousands)      |                                        
|Interest income                   |                         | $                   | 44,451                                  |        |        | $      | 46,108 |        |        | $      | 43,892 |       
|Dividend income                   |                         |                     | 60                                      |        |        |        | 160    |        |        |        | 37     |       
|Other investment income (loss)    |                         |                     | 652                                     |        |        |        | 1,105  |        |        |        | (635   | )     
|                                  |                         |                     |                                         |        |        |        |        |        |       
|                                  | Total investment income |                     |                                         | 45,163 |        |        |        | 47,373 |        |        |        | 43,294 |       
|                                  |                         | Investment expenses |                                         |        | (1,411 | )      |        |        | (2,460 | )      |        |        | (2,940 | )     
|                                  |                         |                     |                                         |        |        |        |        |        |       
|                                  |                         |                     | Net investment income                   |        | $      | 43,752 |        |        | $      | 44,913 |        |        | $      | 40,354 |  
|                                  |                         |                     |                                         |        |        |        |        |        |       
|Gross realized gains on disposal  |                         |                     |                                         |        |        |        |        |        |        |        |        |       
|                                  | Fixed income            |                     | $                                       | 3,065  |        |        | $      | 7,639  |        |        | $      | 3,354  |       
|                                  | Equity securities       |                     |                                         | 121    |        |        |        | 3,374  |        |        |        | 647    |       
|                                  | Other invested assets   |                     |                                         |       |        |        |        | 651    |        |        |        |       |       
|                                  |                         |                     |                                         |        |        |        |        |        |       
|                                  |                         |                     | Total gross realized gains              |        |        | 3,186  |        |        |        | 11,664 |        |        |        | 4,001  |  
|Gross realized losses on disposal |                         |                     |                                         |        |        |        |        |        |        |        |        |       
|                                  | Fixed income            |                     |                                         | (329   | )      |        |        | (1,406 | )      |        |        | (262   | )     
|                                  | Equity securities       |                     |                                         | (68    | )      |        |        | (2,072 | )      |        |        | (6     | )     
|                                  | Other invested assets   |                     |                                         | (66    | )      |        |        | (1,709 | )      |        |        | (31    | )     
|                                  | Property and equipment  |                     |                                         | (47    | )      |        |        | (94    | )      |        |        | (7     | )     
|                                  |                         |                     |                                         |        |        |        |        |        |       
|                                  |                         |                     | Total gross realized losses on disposal |        |        | (510   | )      |        |        | (5,281 | )      |        |        | (306   | )
|Other than temporary impairments  |                         |                     | (643                                    | )      |        |        | (4,832 | )      |        |        | (1,292 | )     
|                                  |                         |                     |                                         |        |        |        |        |        |       
|                                  |                         |                     | Net realized gains                      |        | $      | 2,033  |        |        | $      | 1,551  |        |        | $      | 2,403  |  
|                                  |                         |                     |                                         |        |        |        |        |        |       

held-to


|                   |                            |                          |   |         |         | 
|------------------ | -------------------------- | ------------------------ | - | ------- | ------- | 
|                   |                            | Estimated                |  
|                   |                            | Fair Value               |  
|                   |                            |                          |  
|                   |                            | (In thousands)           |  
|Available-for-sale |                            |                          |   |        
|                   | Less than one year         |                          | $ | 58,813  |        
|                   | One to five years          |                          |   | 134,881 |        
|                   | Five to ten years          |                          |   | 21,509  |        
|                   | More than ten years        |                          |   | 8,560   |        
|                   | Mortgage-backed securities |                          |   | 338     |        
|                   |                            |                          |  
|                   |                            | Total available-for-sale |   | $       | 224,101 | 
|                   |                            |                          |  

57



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                        
|-- | -----------------------
|4. | Investments (continued)

|                 |                            |                        |   |         |            |  |   |         |         | 
|---------------- | -------------------------- | ---------------------- | - | ------- | ---------- |  | - | ------- | ------- | 
|                 |                            | Carrying               |   |         | Estimated  | 
|                 |                            | Value                  |   |         | Fair Value | 
|                 |                            |                        |   |         |            | 
|                 |                            | (In thousands)         |  
|Held-to-maturity |                            |                        |   |         |            |  |   |        
|                 | Less than one year         |                        | $ |        |            |  | $ |        |        
|                 | One to five years          |                        |   | 25,489  |            |  |   | 25,334  |        
|                 | Five to ten years          |                        |   | 94,309  |            |  |   | 92,272  |        
|                 | More than ten years        |                        |   | 35,390  |            |  |   | 34,518  |        
|                 | Mortgage-backed securities |                        |   | 190,514 |            |  |   | 186,811 |        
|                 |                            |                        |   |         |            | 
|                 |                            | Total held-to-maturity |   | $       | 345,702    |  |   | $       | 338,935 | 
|                 |                            |                        |   |         |            | 









|   |                           
|-- | --------------------------
|5. | Deferred Acquisition Costs



|                          |  |                |         |   |      |   |         |      |  |   |         |  
|------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                          |  | 2005           |         |   | 2004 |   |         | 2003 | 
|                          |  |                |         |   |      |   |         |      | 
|                          |  | (In thousands) |        
|Balance, January 1        |  | $              | 8,082   |   |      | $ | 10,461  |      |  | $ | 10,877  |  
|Additions                 |  |                | 18,782  |   |      |   | 20,670  |      |  |   | 24,954  |  
|Amortization              |  |                | (18,987 | ) |      |   | (22,749 | )    |  |   | (25,370 | )
|Recoverability write-offs |  |                |        |   |      |   | (300    | )    |  |   |        |  
|                          |  |                |         |   |      |   |         |      | 
|Balance, December 31      |  | $              | 7,877   |   |      | $ | 8,082   |      |  | $ | 10,461  |  
|                          |  |                |         |   |      |   |         |      | 





58



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                            
|-- | ---------------------------
|6. | Property and Equipment, Net



|                                     |  |                |         |   |      |   |         |  
|------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                     |  | 2005           |         |   | 2004 |  
|                                     |  |                |         |   |      |  
|                                     |  | (In thousands) |        
|Land                                 |  | $              | 571     |   |      | $ | 571     |  
|Building (occupied by the Company)   |  |                | 10,499  |   |      |   | 10,499  |  
|Computer equipment and software      |  |                | 11,974  |   |      |   | 12,219  |  
|Furniture and leasehold improvements |  |                | 4,050   |   |      |   | 3,727   |  
|                                     |  |                |         |   |      |  
|                                     |  |                | 27,094  |   |      |   | 27,016  |  
|Accumulated depreciation             |  |                | (15,937 | ) |      |   | (14,835 | )
|                                     |  |                |         |   |      |  
|                                     |  | $              | 11,157  |   |      | $ | 12,181  |  
|                                     |  |                |         |   |      |  





|   |                                           
|-- | ------------------------------------------
|7. | Unpaid Losses and Loss Adjustment Expenses



|                                                                                 |                                |                |         |          |      |   |         |         |   |   |         |         |  
|-------------------------------------------------------------------------------- | ------------------------------ | -------------- | ------- | -------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                 |                                | 2005           |         |          | 2004 |   |         | 2003    |  
|                                                                                 |                                |                |         |          |      |   |         |         |  
|                                                                                 |                                | (In thousands) |        
|Balance, beginning of year                                                       |                                | $              | 693,630 |          |      | $ | 673,605 |         |   | $ | 637,494 |        
|                                                                                 | Less, reinsurance recoverables |                |         | (101,791 | )    |   |         | (98,958 | ) |   |         | (95,468 | )
|                                                                                 |                                |                |         |          |      |   |         |         |  
|Net balance, beginning of year                                                   |                                |                | 591,839 |          |      |   | 574,647 |         |   |   | 542,026 |        
|Incurred related to                                                              |                                |                |         |          |      |   |         |         |   |   |         |        
|                                                                                 | Current year                   |                |         | 131,496  |      |   |         | 171,600 |   |   |         | 209,299 |  
|                                                                                 | Prior years                    |                |         | (4,372   | )    |   |         | 6,186   |   |   |         | 43,443  |  
|                                                                                 |                                |                |         |          |      |   |         |         |  
|                                                                                 | Total incurred                 |                |         | 127,124  |      |   |         | 177,786 |   |   |         | 252,742 |  
|                                                                                 |                                |                |         |          |      |   |         |         |  
|Paid related to                                                                  |                                |                |         |          |      |   |         |         |   |   |         |        
|                                                                                 | Current year                   |                |         | 5,054    |      |   |         | 17,961  |   |   |         | 38,464  |  
|                                                                                 | Prior years                    |                |         | 131,744  |      |   |         | 142,633 |   |   |         | 181,657 |  
|                                                                                 |                                |                |         |          |      |   |         |         |  
|                                                                                 | Total paid                     |                |         | 136,798  |      |   |         | 160,594 |   |   |         | 220,121 |  
|                                                                                 |                                |                |         |          |      |   |         |         |  
|Net balance, end of year                                                         |                                |                | 582,165 |          |      |   | 591,839 |         |   |   | 574,647 |        
|                                                                                 | Plus, reinsurance recoverables |                |         | 107,692  |      |   |         | 101,791 |   |   |         | 98,958  |  
|                                                                                 |                                |                |         |          |      |   |         |         |  
|Balance, end of period                                                           |                                | $              | 689,857 |          |      | $ | 693,630 |         |   | $ | 673,605 |        
|                                                                                 |                                |                |         |          |      |   |         |         |  
|Prior year development as a percentage of beginning of the year
    net reserves |                                |                | -0.7    | %        |      |   | 1.1     | %       |   |   | 8.0     | %      
|                                                                                 |                                |                |         |          |      |   |         |         |  



59



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




7.     Unpaid Losses and Loss
Adjustment Expenses (Continued)












|   |               
|-- | --------------
|8. | Long-Term Debt









60



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




8.     Long-Term Debt (continued)








|   |            
|-- | -----------
|9. | Reinsurance



|                               |     |                |         |         |        |   |         |         |  |   |         |         |  |         |         |         |        |   |         |         |  |   |         |         | 
|------------------------------ | --- | -------------- | ------- | ------- | ------ | - | ------- | ------- |  | - | ------- | ------- |  | ------- | ------- | ------- | ------ | - | ------- | ------- |  | - | ------- | ------- | 
|                               |     | 2005           |         |         | 2004   |   |         | 2003    | 
|                               |     |                |         |         |        |   |         |         | 
|                               |     | Written        |         |         | Earned |   |         | Written |  |   | Earned  |         |  | Written |         |         | Earned |  
|                               |     |                |         |         |        |   |         |         |  |   |         |         |  |         |         |         |        |  
|                               |     | (In thousands) |        
|Direct                         |     | $              | 185,511 |         |        | $ | 192,437 |         |  | $ | 213,945 |         |  | $       | 227,528 |         |        | $ | 256,236 |         |  | $ | 256,458 |        
|Ceded                          |     |                | (25,587 | )       |        |   | (26,628 | )       |  |   | (30,482 | )       |  |         | (30,100 | )       |        |   | (36,343 | )       |  |   | (36,014 | )      
|Assumed                        |     |                | (2,542  | )       |        |   | (1,526  | )       |  |   | 2,968   |         |  |         | 3,151   |         |        |   | 4,754   |         |  |   | 4,146   |        
|                               |     |                |         |         |        |   |         |         |  |   |         |         |  |         |         |         |        |  
|                               | Net |                | $       | 157,382 |        |   | $       | 164,283 |  |   | $       | 186,431 |  |         | $       | 200,579 |        |   | $       | 224,647 |  |   | $       | 224,590 | 
|                               |     |                |         |         |        |   |         |         |  |   |         |         |  |         |         |         |        |  
|Assumed as a percentage of net |     |                | -1.6    | %       |        |   | -0.9    | %       |  |   | 1.6     | %       |  |         | 1.6     | %       |        |   | 2.1     | %       |  |   | 1.8     | %      
|                               |     |                |         |         |        |   |         |         |  |   |         |         |  |         |         |         |        |  





61



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




9.     Reinsurance (continued)




|                                  |  |                |         |  |      |   |         | 
|--------------------------------- |  | -------------- | ------- |  | ---- | - | ------- | 
|                                  |  | December 31,   |        
|                                  |  |                |        
|                                  |  | 2005           |         |  | 2004 |  
|                                  |  |                |         |  |      |  
|                                  |  | (In thousands) |        
|Hannover Ruckversicherungs        |  | $              | 46,948  |  |      | $ | 43,561  | 
|American Re-Insurance Company     |  |                | 25,297  |  |      |   | 21,556  | 
|Transatlantic Reinsurance Company |  |                | 11,587  |  |      |   | 13,583  | 
|Aspen Re                          |  |                | 6,000   |  |      |   | 2,669   | 
|Lloyds of London                  |  |                | 4,007   |  |      |   | 3,066   | 
|General Reinsurance Corporation   |  |                | 3,398   |  |      |   | 6,594   | 
|Montpelier                        |  |                | 2,671   |  |      |   | 1,338   | 
|PMA Capital Insurance Corporation |  |                | 2,568   |  |      |   | 2,488   | 
|Swiss Re                          |  |                | 2,430   |  |      |   | 1,337   | 
|Others                            |  |                | 15,324  |  |      |   | 19,023  | 
|                                  |  |                |         |  |      |  
|                                  |  | $              | 120,230 |  |      | $ | 115,215 | 
|                                  |  |                |         |  |      |  



|                                                       |                                     |                |         |         |      |   |         |         | 
|------------------------------------------------------ | ----------------------------------- | -------------- | ------- | ------- | ---- | - | ------- | ------- | 
|                                                       |                                     | December 31,   |        
|                                                       |                                     |                |        
|                                                       |                                     | 2005           |         |         | 2004 |  
|                                                       |                                     |                |         |         |      |  
|                                                       |                                     | (In thousands) |        
|Reinsurance recoverable                                |                                     | $              | 109,368 |         |      | $ | 103,312 |        
|Prepaid reinsurance premium (included in other assets) |                                     |                | 10,862  |         |      |   | 11,903  |        
|                                                       |                                     |                |         |         |      |  
|                                                       | Amounts recoverable from reinsurers |                | $       | 120,230 |      |   | $       | 115,215 | 
|                                                       |                                     |                |         |         |      |  





|    |             
|--- | ------------
|10. | Income Taxes



|                                 |                           |                |         |         |      |   |        |      |   |   |         |        | 
|-------------------------------- | ------------------------- | -------------- | ------- | ------- | ---- | - | ------ | ---- | - | - | ------- | ------ | 
|                                 |                           | 2005           |         |         | 2004 |   |        | 2003 |  
|                                 |                           |                |         |         |      |   |        |      |  
|                                 |                           | (In thousands) |        
|Current provision (benefit)      |                           | $              | 2,294   |         |      | $ | (2,680 | )    |   | $ | (3,620  | )     
|Deferred provision (benefit)     |                           |                | 13,805  |         |      |   | 9,011  |      |   |   | (10,756 | )     
|Deferred tax valuation allowance |                           |                | (44,051 | )       |      |   | (6,621 | )    |   |   | 50,672  |       
|                                 |                           |                |         |         |      |   |        |      |  
|                                 | Total (benefit) provision |                | $       | (27,952 | )    |   | $      | (290 | ) |   | $       | 36,296 | 
|                                 |                           |                |         |         |      |   |        |      |  

62



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




10.     Income Taxes (continued)




|                                  |                     |               |         |         |   |      |        |        |  |   |        |        |   |  |       |        |  |   |         |        |   |  |        |         | 
|--------------------------------- | ------------------- | ------------- | ------- | ------- | - | ---- | ------ | ------ |  | - | ------ | ------ | - |  | ----- | ------ |  | - | ------- | ------ | - |  | ------ | ------- | 
|                                  |                     | 2005          |         |         |   |      |        |        |  |   |       
|                                  |                     |               |         |         |   |      |        |        |  |   |       
|                                  |                     |               |         | 2004    |   |      |        |        | 
|                                  |                     |               |         |         |   |      |        |        | 
|                                  |                     |               |         |         |   | 2003 |       
|                                  |                     |               |         |         |   |      |       
|                                  |                     | )             |        
|                                  |                     | (In thousands |        
|Income (loss) before income taxes |                     | $             | 44,867  |         |   |      |        |        |  | $ | 19,750 |        |   |  |       |        |  | $ | (40,883 | )      |   |  |        |        
|                                  |                     |               |         |         |   |      |        |        |  |   |        |        |   |  |       |        |  |  
|Tax at statutory rate             |                     | $             | 15,694  |         |   |      | 35.0%  |        |  | $ | 6,913  |        |   |  | 35.0% |        |  | $ | (14,309 | )      |   |  | 35.0%  |        
|Tax effect of:                    |                     |               |         |         |   |      |        |        |  |   |        |        |   |  |       |        |  |   |         |        |   |  |        |        
|                                  | Tax exempt interest |               |         | (217    | ) |      |        | -0.5%  |  |   |        | (338   | ) |  |       | -1.7%  |  |   |         | (486   | ) |  |        | 1.2%    | 
|                                  | Other items, net    |               |         | 622     |   |      |        | 1.4%   |  |   |        | (244   | ) |  |       | -1.2%  |  |   |         | 419    |   |  |        | -1.0%   | 
|                                  | Valuation allowance |               |         | (44,051 | ) |      |        | -98.2% |  |   |        | (6,621 | ) |  |       | -33.5% |  |   |         | 50,672 |   |  |        | -123.9% | 
|                                  |                     |               |         |         |   |      |        |        |  |   |        |        |   |  |       |        |  |  
|                                  |                     | $             | (27,952 | )       |   |      | -62.3% |        |  | $ | (290   | )      |   |  | -1.5% |        |  | $ | 36,296  |        |   |  | -88.8% |        
|                                  |                     |               |         |         |   |      |        |        |  |   |        |        |   |  |       |        |  |  



|                                      |                                     |                                                   |   |        |        |  |   |        |         |  
|------------------------------------- | ----------------------------------- | ------------------------------------------------- | - | ------ | ------ |  | - | ------ | ------- | -
|                                      |                                     | 2005                                              |   |        | 2004   | 
|                                      |                                     |                                                   |   |        |        | 
|                                      |                                     | (In thousands)                                    |  
|Deferred tax assets arising from      |                                     |                                                   |   |        |        |  |   |       
|                                      | Losses and loss adjustment expenses |                                                   | $ | 23,378 |        |  | $ | 27,612 |        
|                                      | Net operating loss carryforwards    |                                                   |   | 7,447  |        |  |   | 14,225 |        
|                                      | Unearned and audit premiums         |                                                   |   | 6,383  |        |  |   | 6,884  |        
|                                      | Minimum tax credits                 |                                                   |   | 8,761  |        |  |   | 8,445  |        
|                                      | Realized losses on investments      |                                                   |   | 820    |        |  |   | 2,633  |        
|                                      | Goodwill                            |                                                   |   | 4,170  |        |  |   | 4,509  |        
|                                      | Other                               |                                                   |   | 1,478  |        |  |   | 2,598  |        
|                                      |                                     |                                                   |   |        |        | 
|                                      |                                     | Total deferred tax assets                         |   |        | 52,437 |  |   |        | 66,906  |  
|Deferred tax liabilities arising from |                                     |                                                   |   |        |        |  |   |       
|                                      | Deferred policy acquisition costs   |                                                   |   | 2,757  |        |  |   | 2,758  |        
|                                      | Net unrealized gains on securities  |                                                   |   | 3,813  |        |  |   | 8,430  |        
|                                      | Other                               |                                                   |   | 1,828  |        |  |   | 2,352  |        
|                                      |                                     |                                                   |   |        |        | 
|                                      |                                     | Total deferred tax liabilities                    |   |        | 8,398  |  |   |        | 13,540  |  
|                                      |                                     |                                                   |   |        |        | 
|                                      |                                     | Net deferred tax asset before valuation allowance |   |        | 44,039 |  |   |        | 53,366  |  
|                                      |                                     | Valuation allowance                               |   |        |       |  |   |        | (53,366 | )
|                                      |                                     |                                                   |   |        |        | 
|                                      | Net deferred tax asset              |                                                   | $ | 44,039 |        |  | $ |       |        
|                                      |                                     |                                                   |   |        |        | 



63



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




10.     Income Taxes (continued)




|                                         |                                             |                                                                                                   |         |   |        |   |         |      |        |   |         |   |         |  
|---------------------------------------- | ------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------- | - | ------ | - | ------- | ---- | ------ | - | ------- | - | ------- | -
|                                         |                                             | 2005                                                                                              |         |   | 2004   |   |         | 2003 |       
|                                         |                                             |                                                                                                   |         |   |        |   |         |      |       
|                                         |                                             | (In thousands)                                                                                    |        
|Valuation allowance balance, January 1   |                                             | $                                                                                                 | (53,366 | ) |        | $ | (50,672 | )    |        | $ |        |  
|                                         | Change in valuation allowance allocated to: |                                                                                                   |         |   |        |   |         |      |        |   |         |   |        
|                                         |                                             | Federal income tax benefit (expense) from operations                                              |         |   | 51,563 |   |         |      | 6,621  |   |         |   | (50,672 | )
|                                         |                                             | Reclass benefit from continuing operations to other
    comprehensive income                      |         |   | (7,512 | ) |         |      |       |   |         |   |        |  
|                                         |                                             | Unrealized depreciation on investment securities allocated to
    other comprehensive income      |         |   | 7,512  |   |         |      | (7,512 | ) |         |   |        |  
|                                         |                                             | Incremental tax benefit from stock based compensation allocated
    to additional paid-in-capital |         |   | 1,775  |   |         |      | (1,775 | ) |         |   |        |  
|                                         |                                             | Other items allocated to shareholders equity                                                     |         |   | 28     |   |         |      | (28    | ) |         |   |        |  
|                                         |                                             |                                                                                                   |         |   |        |   |         |      |       
|Valuation allowance balance, December 31 |                                             | $                                                                                                 |        |   |        | $ | (53,366 | )    |        | $ | (50,672 | )
|                                         |                                             |                                                                                                   |         |   |        |   |         |      |       



|                                                         |  |                |        |        |            |   |         |            |  |  |      | 
|-------------------------------------------------------- |  | -------------- | ------ | ------ | ---------- | - | ------- | ---------- |  |  | ---- | 
|                                                         |  |                |        | Annual |            |   | Year of |           
|                                                         |  | Amount         |        |        | Limitation |   |         | Expiration | 
|                                                         |  |                |        |        |            |   |         |            | 
|                                                         |  | (In thousands) |       
|New Mexico Physicians Mutual Liability Company merger(1) |  | $              | 2,846  |        |            | $ | 575     |            |  |  | 2010 | 
|State Mutual Insurance Company merger(1)                 |  | $              | 2,036  |        |            | $ | 340     |            |  |  | 2011 | 
|2003 net operating loss(2)                               |  | $              | 16,396 |        |            |   | N/A     |            |  |  | 2018 | 






|    |                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | American Physicians merged with New Mexico Physicians Mutual
    Liability Company and State Mutual Insurance Company in 1997. As
    a result, the net operating losses acquired in these mergers are
    subject to certain change in control limitations.
|   
|(2) | There are no limitations on the annual use of net operating
    losses related to the tax year ended December 31,2003.                                                                                                                                      





|    |                     
|--- | --------------------
|11. | Shareholders Equity



64



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




11.     Shareholders Equity
(continued)




|                                   |  |                                                  |           |  |                                 |   |         |      |  |   |      |  |  |   |         | 
|---------------------------------- |  | ------------------------------------------------ | --------- |  | ------------------------------- | - | ------- | ---- |  | - | ---- |  |  | - | ------- | 
|                                   |  | Inception                                        |           |  | For the Year Ended December 31, |  
|                                   |  | to Date                                          |           |  |                                 |  
|                                   |  | Totals                                           |           |  | 2005                            |   |         | 2004 |  |   | 2003 | 
|                                   |  |                                                  |           |  |                                 |   |         |      |  |   |      | 
|                                   |  | (Dollars in thousands, except per share amounts) |          
|Number of shares repurchased       |  |                                                  | 3,630,570 |  |                                 |   | 433,500 |      |  |   |     |  |  |   | 272,800 | 
|Cost of shares repurchased         |  | $                                                | 77,441    |  |                                 | $ | 17,057  |      |  | $ |     |  |  | $ | 7,676   | 
|Average cost per share repurchased |  | $                                                | 21.33     |  |                                 | $ | 39.35   |      |  | $ |     |  |  | $ | 28.14   | 







|    |                                    
|--- | -----------------------------------
|12. | Fair Value of Financial Instruments



held-to held-to




|    |                                     
|--- | ------------------------------------
|13. | Restructuring Charges and Exit Costs



| |                     
| | --------------------
| | Termination Benefits



65



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




13.     Restructuring Charges and
Exit Costs (continued)




|                          |  |                |     |   |      |   |      |      |  |   |      |  
|------------------------- |  | -------------- | --- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                          |  | 2005           |     |   | 2004 |   |      | 2003 | 
|                          |  |                |     |   |      |   |      |      | 
|                          |  | (In thousands) |    
|Balance, January 1        |  | $              | 101 |   |      | $ | 727  |      |  | $ | 216  |  
|Employee separation costs |  |                | 65  |   |      |   | 185  |      |  |   | 808  |  
|Payments                  |  |                | (69 | ) |      |   | (811 | )    |  |   | (297 | )
|                          |  |                |     |   |      |   |      |      | 
|Balance, December 31      |  | $              | 97  |   |      | $ | 101  |      |  | $ | 727  |  
|                          |  |                |     |   |      |   |      |      | 



| |                           
| | --------------------------
| | Contract Termination Costs





|                                |  |                |       |   |      |   |       |  
|------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | -
|                                |  | 2005           |       |   | 2004 |  
|                                |  |                |       |   |      |  
|                                |  | (In thousands) |      
|Balance, January 1              |  | $              | 921   |   |      | $ |      |  
|Payments                        |  |                | (334  | ) |      |   | (170  | )
|Contract termination costs      |  |                | 345   |   |      |   | 1,091 |  
|Changes in estimated cash flows |  |                | 127   |   |      |   |      |  
|Discount accretion              |  |                | 61    |   |      |   |      |  
|                                |  |                |       |   |      |  
|Balance, December 31            |  | $              | 1,120 |   |      | $ | 921   |  
|                                |  |                |       |   |      |  







|    |                           
|--- | --------------------------
|14. | Related Party Transactions





66



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




14.     Related Party Transactions
(continued)












|    |                       
|--- | ----------------------
|15. | Employee Benefit Plans





|    |                         
|--- | ------------------------
|16. | Stock Based Compensation





67



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




16.     Stock Based Compensation
(continued)




|                                         |  |         |         |   |                |   |       |         |  |  |                |   |  |         |       |  |                |  |         |   |  |   |       | 
|---------------------------------------- |  | ------- | ------- | - | -------------- | - | ----- | ------- |  |  | -------------- | - |  | ------- | ----- |  | -------------- |  | ------- | - |  | - | ----- | 
|                                         |  | 2005    |         |   | 2004           |   |       | 2003    | 
|                                         |  |         |         |   |                |   |       |         | 
|                                         |  | Number  |         |   | Weighted       |   |       | Number  |  |  | Weighted       |   |  | Number  |       |  | Weighted       | 
|                                         |  | of      |         |   | Average        |   |       | of      |  |  | Average        |   |  | of      |       |  | Average        | 
|                                         |  | Options |         |   | Exercise Price |   |       | Options |  |  | Exercise Price |   |  | Options |       |  | Exercise Price | 
|                                         |  |         |         |   |                |   |       |         |  |  |                |   |  |         |       |  |                | 
|Options outstanding at beginning of year |  |         | 519,436 |   |                | $ | 18.71 |         |  |  | 873,200        |   |  | $       | 18.01 |  |                |  | 987,500 |   |  | $ | 18.39 | 
|Granted during the year                  |  |         | 95,500  |   |                | $ | 39.75 |         |  |  | 100,000        |   |  | $       | 21.54 |  |                |  | 5,000   |   |  | $ | 18.48 | 
|Exercised during the year                |  |         | (97,536 | ) |                | $ | 17.63 |         |  |  | (365,264       | ) |  | $       | 15.50 |  |                |  | (25,800 | ) |  | $ | 16.55 | 
|Canceled during the year                 |  |         |        |   |                |   |      |         |  |  | (88,500        | ) |  | $       | 18.58 |  |                |  | (93,500 | ) |  | $ | 17.88 | 
|                                         |  |         |         |   |                |   |       |         |  |  |                |   |  |         |       |  |                | 
|Options outstanding at end of year       |  |         | 517,400 |   |                | $ | 22.80 |         |  |  | 519,436        |   |  | $       | 18.71 |  |                |  | 873,200 |   |  | $ | 18.01 | 
|                                         |  |         |         |   |                |   |       |         |  |  |                |   |  |         |       |  |                | 
|Options exercisable                      |  |         | 353,200 |   |                | $ | 18.47 |         |  |  | 344,226        |   |  | $       | 18.51 |  |                |  | 466,320 |   |  | $ | 18.54 | 
|                                         |  |         |         |   |                |   |       |         |  |  |                |   |  |         |       |  |                | 



|                                           |       |             |                     |         |           |  |      |       |  |           |        |  |  |       |         |         |  |   |       |  | 
|------------------------------------------ | ----- | ----------- | ------------------- | ------- | --------- |  | ---- | ----- |  | --------- | ------ |  |  | ----- | ------- | ------- |  | - | ----- |  | 
|Options Outstanding                        |       |             | Options Exercisable |        
|                                           |       |             |                     |        
|                                           |       | Wtd. Avg.   |                     |         |           |  |     
|                                           |       | Remaining   |                     |         | Wtd. Avg. |  |      |       |  | Wtd. Avg. |       
|                                           |       | Contractual |                     |         | Exercise  |  |      |       |  | Exercise  |       
|Range of Exercise Prices                   |       | Number      |                     |         | Life      |  |      | Price |  |           | Number |  |  | Price |        
|                                           |       |             |                     |         |           |  |      |       |  |           |        |  |  |       |        
|$13.50 - $13.50                            |       |             | 94,500              |         |           |  | 4.93 |       |  | $         | 13.50  |  |  |       | 94,500  |         |  | $ | 13.50 | 
|$13.51 - $20.00                            |       |             | 24,500              |         |           |  | 6.67 |       |  | $         | 17.03  |  |  |       | 22,800  |         |  | $ | 16.92 | 
|$20.01 - $39.74                            |       |             | 302,900             |         |           |  | 6.68 |       |  | $         | 20.82  |  |  |       | 235,900 |         |  | $ | 20.61 | 
|$39.75 - $39.75                            |       |             | 95,500              |         |           |  | 9.59 |       |  | $         | 39.75  |  |  |       |        |         |  |   | N/A   | 
|                                           |       |             |                     |         |           |  |      |       |  |           |        |  |  |       |        
|                                           | Total |             |                     | 517,400 |           |  |      |       |  |           |        |  |  |       |         | 353,200 |  |   |       |  | 
|                                           |       |             |                     |         |           |  |      |       |  |           |        |  |  |       |        
|Options available for grant at end of year |       |             | 2,850               |         |           |  |      |       |  |           |        |  |  |       |         |         |  |   |       | 
|                                           |       |             |                     |         |           |  |      |       |  |           |        |  |  |       |        





68



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




16.     Stock Based Compensation
(continued)




|                                                              |                           |            |         |         |                 |   |       |            |  |   |                 |         |   |            |       |       |                 |   |         |         |   |   |       |       | 
|------------------------------------------------------------- | ------------------------- | ---------- | ------- | ------- | --------------- | - | ----- | ---------- |  | - | --------------- | ------- | - | ---------- | ----- | ----- | --------------- | - | ------- | ------- | - | - | ----- | ----- | 
|                                                              |                           | 2005       |         |         | 2004            |   |       | 2003       | 
|                                                              |                           |            |         |         |                 |   |       |            | 
|                                                              |                           | Number of  |         |         | Weighted        |   |       | Number of  |  |   | Weighted        |         |   | Number of  |       |       | Weighted        |  
|                                                              |                           | Restricted |         |         | Average         |   |       | Restricted |  |   | Average         |         |   | Restricted |       |       | Average         |  
|                                                              |                           | Shares     |         |         | Intrinsic Value |   |       | Shares     |  |   | Intrinsic Value |         |   | Shares     |       |       | Intrinsic Value |  
|                                                              |                           |            |         |         |                 |   |       |            |  |   |                 |         |   |            |       |       |                 |  
|Restricted shares outstanding as of the beginning of the year |                           |            | 52,480  |         |                 | $ | 15.51 |            |  |   | 47,025          |         |   | $          | 13.50 |       |                 |   | 107,891 |         |   | $ | 13.86 |      
|                                                              | Granted during the year   |            |         |        |                 |   |       |           |  |   |                 | 30,000  |   |            | $     | 17.20 |                 |   |         | 0       |   |   |       |       | 
|                                                              | Vested during the year    |            |         | (33,798 | )               |   | $     | 14.53      |  |   |                 | (20,475 | ) |            | $     | 13.50 |                 |   |         | (51,210 | ) |   | $     | 13.50 | 
|                                                              | Forfeited during the year |            |         | (2,603  | )               |   | $     | 17.07      |  |   |                 | (4,070  | ) |            | $     | 14.86 |                 |   |         | (9,656  | ) |   | $     | 17.51 | 
|                                                              |                           |            |         |         |                 |   |       |            |  |   |                 |         |   |            |       |       |                 |  
|Restricted shares outstanding as of the end of the year       |                           |            | 16,079  |         |                 | $ | 17.20 |            |  |   | 52,480          |         |   | $          | 15.51 |       |                 |   | 47,025  |         |   | $ | 13.50 |      
|                                                              |                           |            |         |         |                 |   |       |            |  |   |                 |         |   |            |       |       |                 |  
|Compensation cost recognized                                  |                           | $          | 349,000 |         |                 |   |       |            |  | $ | 373,000         |         |   |            |       |       |                 | $ | 565,000 |         |   |   |       |      
|                                                              |                           |            |         |         |                 |   |       |            |  |   |                 |         |   |            |       |       |                 |  

paid-in




|                                      |  |                    |          |   |                 |   |       |                 |  |   |       |  
|------------------------------------- |  | ------------------ | -------- | - | --------------- | - | ----- | --------------- |  | - | ----- | -
|                                      |  | 2005               |          |   | 2004            |   |       | 2003            | 
|                                      |  | (Binomial Lattice) |          |   | (Black-Scholes) |   |       | (Black-Scholes) | 
|                                      |  |                    |          |   |                 |   |       |                 | 
|Risk-free interest rate               |  |                    | 4.44     | % |                 |   | 3.12  | %               |  |   | 2.79  | %
|Dividend yield                        |  |                    | 0.00     | % |                 |   | 0.00  | %               |  |   | 0.00  | %
|Expected volatility                   |  |                    | 25% - 40 | % |                 |   | 40.00 | %               |  |   | 35.00 | %
|Expected term (years)                 |  |                    | 4.0      |   |                 |   | 5.0   |                 |  |   | 5.0   |  
|Weighted average estimated fair value |  | $                  | 7.27     |   |                 | $ | 8.55  |                 |  | $ | 6.54  |  



69



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                   
|--- | ------------------
|17. | Earnings Per Share





|                                                                    |                                                                                                           |                                 |   |        |      |  |   |        |      |  |   |         |       |  
|------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------------- | - | ------ | ---- |  | - | ------ | ---- |  | - | ------- | ----- | -
|                                                                    |                                                                                                           | 2005                            |   |        | 2004 |  |   | 2003   |     
|                                                                    |                                                                                                           |                                 |   |        |      |  |   |        |     
|                                                                    |                                                                                                           | (In thousands, except per share |  
|                                                                    |                                                                                                           | amounts)                        |  
|Numerator for basic and diluted income (loss) per common
    share: |                                                                                                           |                                 |   |        |      |  |   |        |      |  |   |        
|                                                                    | Net income (loss)                                                                                         |                                 | $ | 72,366 |      |  | $ | 20,030 |      |  | $ | (76,831 | )    
|                                                                    |                                                                                                           |                                 |   |        |      |  |   |        |     
|Denominator:                                                        |                                                                                                           |                                 |   |        |      |  |   |        |      |  |   |        
|                                                                    | Denominator for basic income (loss) per common share 
    weighted average shares outstanding            |                                 |   | 8,538  |      |  |   | 8,455  |      |  |   | 8,520   |      
|                                                                    | Effect of dilutive stock options and awards(1)                                                            |                                 |   | 191    |      |  |   | 266    |      |  |   |        |      
|                                                                    |                                                                                                           |                                 |   |        |      |  |   |        |     
|                                                                    | Denominator for diluted income (loss) per common
    share  adjusted weighted average shares outstanding |                                 |   | 8,729  |      |  |   | 8,721  |      |  |   | 8,520   |      
|                                                                    |                                                                                                           |                                 |   |        |      |  |   |        |     
|Income (loss) per common share:                                     |                                                                                                           |                                 |   |        |      |  |   |        |      |  |   |        
|                                                                    | Net income (loss)                                                                                         |                                 |   |        |      |  |   |        |      |  |   |         |      
|                                                                    |                                                                                                           | Basic                           |   | $      | 8.48 |  |   | $      | 2.37 |  |   | $       | (9.02 | )
|                                                                    |                                                                                                           | Diluted                         |   | $      | 8.29 |  |   | $      | 2.30 |  |   | $       | (9.02 | )






|    |                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As the Company was in a net loss position for the year ended
    December 31, 2003, the effect of options or other
    stock-based awards was not calculated as they would have been
    anti-dilutive.



|    |                              
|--- | -----------------------------
|18. | Commitments and Contingencies





70



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




18.     Commitments and
Contingencies (continued)














|    |                             
|--- | ----------------------------
|19. | GAAP and Statutory Reporting





| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Deferred policy acquisition costs are charged against operations
    as incurred for statutory accounting purposes.                                      
|
| |  | Assets designated as nonadmitted assets are charged
    directly to surplus for statutory accounting purposes.                                         
|
| |  | Bonds and U.S. government securities are generally carried
    at amortized cost for statutory accounting purposes.                                      
|
| |  | Unpaid losses and loss adjustment expenses and unearned premiums
    are reported net of the impact of reinsurance for statutory
    accounting purposes.

71



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




19.     GAAP and Statutory Reporting
(continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Deferred federal income taxes applicable to operations are
    recorded in income for GAAP, whereas changes in deferred federal
    income taxes are recorded in surplus for statutory accounting
    purposes.                                                                                                                                                                                                                                                                                                                                                
|
| |  | A valuation allowance is required under GAAP when it is
    determined that gross deferred tax assets cannot be realized, in
    whole or in part. For statutory accounting purposes, the
    valuation allowance is replaced with a more objective admitted
    asset test, which is intended to serve the same purpose as the
    GAAP valuation allowance. This more quantitative approach under
    statutory accounting can sometimes result in differing amounts
    of deferred tax assets being carried for GAAP and statutory
    accounting purposes.
|
| |  | American Physicians investment in PIC-FL is not
    consolidated, but rather, accounted for based on the equity
    method of accounting.                                                                                                                                                                                                                                                                                                                                                                                                                     



|                                                           |  |                |         |  |         |   |         |      |  |   |         |  
|---------------------------------------------------------- |  | -------------- | ------- |  | ------- | - | ------- | ---- |  | - | ------- | -
|                                                           |  | 2005(1)        |         |  | 2004(1) |   |         | 2003 | 
|                                                           |  |                |         |  |         |   |         |      | 
|                                                           |  | (In thousands) |        
|Statutory surplus, December 31                             |  | $              | 240,135 |  |         | $ | 210,874 |      |  | $ | 150,270 |  
|                                                           |  |                |         |  |         |   |         |      | 
|Statutory net income (loss) for the year ended December 31 |  | $              | 48,953  |  |         | $ | 19,216  |      |  | $ | (36,434 | )
|                                                           |  |                |         |  |         |   |         |      | 






|    |                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Effective March 31, 2004, ownership of APSpecialty was
    transferred from the holding company, APCapital, to American
    Physicians as a surplus contibution. The amount of statutory
    surplus reflected at December 31, 2005 and 2004 does not
    include APSpecialtys surplus as it is already recorded by
    American Physicians.

12-month




|    |                    
|--- | -------------------
|20. | Segment Information





72



---



##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




20.     Segment Information
(continued)




|              |      |                |   |           |           |  |  |           |  |  |              |         |  |              |  |          |   |  |   |           | 
|------------- | ---- | -------------- | - | --------- | --------- |  |  | --------- |  |  | ------------ | ------- |  | ------------ |  | -------- | - |  | - | --------- | 
|              |      | Medical        |   |           | Other     |  |  |           |  |  |              |        
|              |      | Professional   |   |           | Insurance |  |  | Corporate |  |  | Intersegment |         |  |             
|Total assets: |      | Liability      |   |           | Lines     |  |  | and Other |  |  | Eliminations |         |  | Consolidated | 
|              |      |                |   |           |           |  |  |           |  |  |              |         |  |              | 
|              |      | (In thousands) |  
|December 31,  |      |                |   |           |           |  |  |           |  |  |              |         |  |              |  |          |   |  |   |          
|              | 2005 |                | $ | 1,044,130 |           |  |  | 55,153    |  |  |              | 289,919 |  |              |  | (279,874 | ) |  | $ | 1,109,328 | 
|              | 2004 |                | $ | 977,230   |           |  |  | 75,704    |  |  |              | 227,106 |  |              |  | (210,141 | ) |  | $ | 1,069,899 | 

|                                                        |                                     |                                      |        |         |           |   |     |           |       |   |              |       |       |              |   |      |      |   |        |         |         | 
|------------------------------------------------------- | ----------------------------------- | ------------------------------------ | ------ | ------- | --------- | - | --- | --------- | ----- | - | ------------ | ----- | ----- | ------------ | - | ---- | ---- | - | ------ | ------- | ------- | 
|                                                        |                                     | For the Year Ended December 31, 2005 |       
|                                                        |                                     |                                      |       
|                                                        |                                     | Medical                              |        |         | Other     |   |     |          
|                                                        |                                     | Professional                         |        |         | Insurance |   |     | Corporate |       |   | Intersegment |       |       |             
|                                                        |                                     | Liability                            |        |         | Lines     |   |     | and Other |       |   | Eliminations |       |       | Consolidated |  
|                                                        |                                     |                                      |        |         |           |   |     |           |       |   |              |       |       |              |  
|                                                        |                                     | (In thousands)                       |       
|Revenues:                                               |                                     |                                      |        |         |           |   |     |           |       |   |              |       |       |              |   |      |      |   |        |        
|                                                        | Net premiums earned                 |                                      | $      | 163,570 |           |   | $   | 713       |       |   | $            |      |       |              | $ |     |      |   | $      | 164,283 |        
|                                                        | Investment income                   |                                      |        | 42,150  |           |   |     | 2,893     |       |   |              | 120   |       |              |   |     |      |   |        | 45,163  |        
|                                                        | Other revenue items                 |                                      |        | 3,098   |           |   |     | 152       |       |   |              | 827   |       |              |   | (657 | )    |   |        | 3,420   |        
|                                                        |                                     |                                      |        |         |           |   |     |           |       |   |              |       |       |              |  
|                                                        |                                     | Total revenues                       |        |         | 208,818   |   |     |           | 3,758 |   |              |       | 947   |              |   |      | (657 | ) |        | $       | 212,866 | 
|                                                       
|Expenses:                                               |                                     |                                      |        |         |           |   |     |           |       |   |              |       |       |              |   |      |      |   |        |        
|                                                        | Loss and loss adjustment expenses   |                                      |        | 124,656 |           |   |     | 2,468     |       |   |              |      |       |              |   |     |      |   |        | 127,124 |        
|                                                        | Underwriting expenses               |                                      |        | 32,759  |           |   |     | 321       |       |   |              |      |       |              |   |     |      |   |        | 33,080  |        
|                                                        | General and administrative expenses |                                      |        |         |           |   |     |           |       |   |              | 2,704 |       |              |   |     |      |   |        | 2,704   |        
|                                                        | Other expense items                 |                                      |        | 1,896   |           |   |     | 185       |       |   |              | 3,667 |       |              |   | (657 | )    |   |        | 5,091   |        
|                                                        |                                     |                                      |        |         |           |   |     |           |       |   |              |       |       |              |  
|                                                        |                                     | Total expenses                       |        |         | 159,311   |   |     |           | 2,974 |   |              |       | 6,371 |              |   |      | (657 | ) |        |         | 167,999 | 
|                                                        |                                     |                                      |        |         |           |   |     |           |       |   |              |       |       |              |  
|Income (loss) before income taxes and minority interest |                                     | $                                    | 49,507 |         |           | $ | 784 |           |       | $ | (5,424       | )     |       | $            |  |      |      | $ | 44,867 |        
|                                                        |                                     |                                      |        |         |           |   |     |           |       |   |              |       |       |              |  

73



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




20.     Segment Information
(continued)


|                                                        |                                     |                                      |        |         |           |   |        |           |        |   |              |       |       |              |   |      |      |   |        |         |         | 
|------------------------------------------------------- | ----------------------------------- | ------------------------------------ | ------ | ------- | --------- | - | ------ | --------- | ------ | - | ------------ | ----- | ----- | ------------ | - | ---- | ---- | - | ------ | ------- | ------- | 
|                                                        |                                     | For the Year Ended December 31, 2004 |       
|                                                        |                                     |                                      |       
|                                                        |                                     | Medical                              |        |         | Other     |   |        |          
|                                                        |                                     | Professional                         |        |         | Insurance |   |        | Corporate |        |   | Intersegment |       |       |             
|                                                        |                                     | Liability                            |        |         | Lines     |   |        | and Other |        |   | Eliminations |       |       | Consolidated |  
|                                                        |                                     |                                      |        |         |           |   |        |           |        |   |              |       |       |              |  
|                                                        |                                     | (In thousands)                       |       
|Revenues:                                               |                                     |                                      |        |         |           |   |        |           |        |   |              |       |       |              |   |      |      |   |        |        
|                                                        | Net premiums earned                 |                                      | $      | 173,835 |           |   | $      | 26,744    |        |   | $            |      |       |              | $ |     |      |   | $      | 200,579 |        
|                                                        | Investment income                   |                                      |        | 43,273  |           |   |        | 4,050     |        |   |              | 50    |       |              |   |     |      |   |        | 47,373  |        
|                                                        | Other revenue items                 |                                      |        | 3,172   |           |   |        | 133       |        |   |              | 43    |       |              |   | (620 | )    |   |        | 2,728   |        
|                                                        |                                     |                                      |        |         |           |   |        |           |        |   |              |       |       |              |  
|                                                        |                                     | Total revenues                       |        |         | 220,280   |   |        |           | 30,927 |   |              |       | 93    |              |   |      | (620 | ) |        | $       | 250,680 | 
|                                                       
|Expenses:                                               |                                     |                                      |        |         |           |   |        |           |        |   |              |       |       |              |   |      |      |   |        |        
|                                                        | Loss and loss adjustment expenses   |                                      |        | 145,519 |           |   |        | 32,267    |        |   |              |      |       |              |   |     |      |   |        | 177,786 |        
|                                                        | Underwriting expenses               |                                      |        | 35,320  |           |   |        | 7,361     |        |   |              |      |       |              |   |     |      |   |        | 42,681  |        
|                                                        | General and administrative expenses |                                      |        |        |           |   |        |          |        |   |              | 3,918 |       |              |   |     |      |   |        | 3,918   |        
|                                                        | Other expense items                 |                                      |        | 2,969   |           |   |        | 673       |        |   |              | 3,523 |       |              |   | (620 | )    |   |        | 6,545   |        
|                                                        |                                     |                                      |        |         |           |   |        |           |        |   |              |       |       |              |  
|                                                        |                                     | Total expenses                       |        |         | 183,808   |   |        |           | 40,301 |   |              |       | 7,441 |              |   |      | (620 | ) |        |         | 230,930 | 
|                                                        |                                     |                                      |        |         |           |   |        |           |        |   |              |       |       |              |  
|Income (loss) before income taxes and minority interest |                                     | $                                    | 36,472 |         |           | $ | (9,374 | )         |        | $ | (7,348       | )     |       | $            |  |      |      | $ | 19,750 |        
|                                                        |                                     |                                      |        |         |           |   |        |           |        |   |              |       |       |              |  

|                                               |                                     |                                      |         |         |           |   |        |           |        |   |              |       |       |              |   |      |      |   |         |         |         | 
|---------------------------------------------- | ----------------------------------- | ------------------------------------ | ------- | ------- | --------- | - | ------ | --------- | ------ | - | ------------ | ----- | ----- | ------------ | - | ---- | ---- | - | ------- | ------- | ------- | 
|                                               |                                     | For the Year Ended December 31, 2003 |        
|                                               |                                     |                                      |        
|                                               |                                     | Medical                              |         |         | Other     |   |        |          
|                                               |                                     | Professional                         |         |         | Insurance |   |        | Corporate |        |   | Intersegment |       |       |             
|                                               |                                     | Liability                            |         |         | Lines     |   |        | and Other |        |   | Eliminations |       |       | Consolidated |  
|                                               |                                     |                                      |         |         |           |   |        |           |        |   |              |       |       |              |  
|                                               |                                     | (In thousands)                       |        
|Revenues:                                      |                                     |                                      |         |         |           |   |        |           |        |   |              |       |       |              |   |      |      |   |         |        
|                                               | Net premiums earned                 |                                      | $       | 158,777 |           |   | $      | 65,813    |        |   | $            |      |       |              | $ |     |      |   | $       | 224,590 |        
|                                               | Investment income                   |                                      |         | 36,282  |           |   |        | 6,650     |        |   |              | 362   |       |              |   |     |      |   |         | 43,294  |        
|                                               | Other revenue items                 |                                      |         | 2,874   |           |   |        | 330       |        |   |              | 881   |       |              |   | (578 | )    |   |         | 3,507   |        
|                                               |                                     |                                      |         |         |           |   |        |           |        |   |              |       |       |              |  
|                                               |                                     | Total revenues                       |         |         | 197,933   |   |        |           | 72,793 |   |              |       | 1,243 |              |   |      | (578 | ) |         | $       | 271,391 | 
|                                              
|Expenses:                                      |                                     |                                      |         |         |           |   |        |           |        |   |              |       |       |              |   |      |      |   |         |        
|                                               | Loss and loss adjustment expenses   |                                      |         | 197,430 |           |   |        | 55,312    |        |   |              |      |       |              |   |     |      |   |         | 252,742 |        
|                                               | Underwriting expenses               |                                      |         | 31,315  |           |   |        | 19,789    |        |   |              |      |       |              |   |     |      |   |         | 51,104  |        
|                                               | General and administrative expenses |                                      |         |        |           |   |        |          |        |   |              | 2,921 |       |              |   |     |      |   |         | 2,921   |        
|                                               | Other expense items                 |                                      |         | 3,009   |           |   |        | 1,398     |        |   |              | 1,678 |       |              |   | (578 | )    |   |         | 5,507   |        
|                                               |                                     |                                      |         |         |           |   |        |           |        |   |              |       |       |              |  
|                                               |                                     | Total expenses                       |         |         | 231,754   |   |        |           | 76,499 |   |              |       | 4,599 |              |   |      | (578 | ) |         |         | 312,274 | 
|                                               |                                     |                                      |         |         |           |   |        |           |        |   |              |       |       |              |  
|Loss before income taxes and minority interest |                                     | $                                    | (33,821 | )       |           | $ | (3,706 | )         |        | $ | (3,356       | )     |       | $            |  |      |      | $ | (40,883 | )      
|                                               |                                     |                                      |         |         |           |   |        |           |        |   |              |       |       |              |  

74



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##### 



AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                     
|--- | ------------------------------------
|21. | Quarterly Financial Data (Unaudited)



|     |             |                                       |         |               |                   |   |        |                |              |   |          |        |  |  |   |      | 
|---- | ----------- | ------------------------------------- | ------- | ------------- | ----------------- | - | ------ | -------------- | ------------ | - | -------- | ------ |  |  | - | ---- | 
|     |             |                                       |         |               |                   |   |        | Net Income Per |             
|     |             |                                       |         | Income Before |                   |   |        |                | Common Share |  
|     |             | Total                                 |         |               | Taxes and         |   |        | Net            |              |   | Assuming |       
|     |             | Revenues                              |         |               | Minority Interest |   |        | Income         |              |   | Dilution |       
|     |             |                                       |         |               |                   |   |        |                |              |   |          |       
|     |             | (In thousands, except per share data) |        
|2005 |             |                                       |         |               |                   |   |        |                |              |   |          |        |  |  |   |     
|     | 1st Quarter |                                       | $       | 54,703        |                   |   | $      | 7,591          |              |   | $        | 7,332  |  |  | $ | 0.82 | 
|     | 2nd Quarter |                                       |         | 51,843        |                   |   |        | 9,767          |              |   |          | 47,782 |  |  |   | 5.44 | 
|     | 3rd Quarter |                                       |         | 50,717        |                   |   |        | 10,561         |              |   |          | 6,825  |  |  |   | 0.79 | 
|     | 4th Quarter |                                       |         | 55,603        |                   |   |        | 16,948         |              |   |          | 10,427 |  |  |   | 1.21 | 
|     |             |                                       |         |               |                   |   |        |                |              |   |          |       
|     |             |                                       | $       | 212,866       |                   |   | $      | 44,867         |              |   | $        | 72,366 |  |  |   |      | 
|     |             |                                       |         |               |                   |   |        |                |              |   |          |       
|2004 |             |                                       |         |               |                   |   |        |                |              |   |          |        |  |  |   |     
|     | 1st Quarter |                                       | $       | 69,103        |                   |   | $      | 4,781          |              |   | $        | 5,874  |  |  | $ | 0.69 | 
|     | 2nd Quarter |                                       |         | 63,576        |                   |   |        | 3,576          |              |   |          | 3,098  |  |  |   | 0.36 | 
|     | 3rd Quarter |                                       |         | 59,526        |                   |   |        | 4,773          |              |   |          | 4,549  |  |  |   | 0.52 | 
|     | 4th Quarter |                                       |         | 58,475        |                   |   |        | 6,620          |              |   |          | 6,509  |  |  |   | 0.73 | 
|     |             |                                       |         |               |                   |   |        |                |              |   |          |       
|     |             | $                                     | 250,680 |               |                   | $ | 19,750 |                |              | $ | 20,030   |        |  |  |   |     
|     |             |                                       |         |               |                   |   |        |                |              |   |          |       

75



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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








10-K










76



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##### 



SCHEDULE II  SUPPLEMENTARY INSURANCE
INFORMATION


AMERICAN PHYSICIANS CAPITAL, INC. (PARENT COMPANY)


CONDENSED BALANCE SHEETS


December 31, 2005 and 2004


|                                                                                                                                                         |                                            |                |         |         |      |   |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------------- | ------- | ------- | ---- | - | ------- | ------- | 
|                                                                                                                                                         |                                            | December 31,   |        
|                                                                                                                                                         |                                            |                |        
|                                                                                                                                                         |                                            | 2005           |         |         | 2004 |  
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                         |                                            | (In thousands) |        
|ASSETS                                                                                                                                                  
|Investments in subsidiaries                                                                                                                              |                                            | $              | 280,823 |         |      | $ | 218,732 |        
|Investment in statutory trusts                                                                                                                           |                                            |                | 928     |         |      |   | 928     |        
|Cash and cash equivalents                                                                                                                                |                                            |                | 5,337   |         |      |   | 4,231   |        
|Deferred federal income taxes                                                                                                                            |                                            |                | 1,787   |         |      |   |        |        
|Intangible asset                                                                                                                                         |                                            |                |        |         |      |   | 312     |        
|Federal income taxes recoverable from affiliates                                                                                                         |                                            |                | 3,247   |         |      |   | 9,740   |        
|Other assets                                                                                                                                             |                                            |                | 855     |         |      |   | 1,619   |        
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                         | Total Assets                               |                | $       | 292,977 |      |   | $       | 235,562 | 
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                        
|LIABILITIES                                                                                                                                             
|Long-term debt                                                                                                                                           |                                            | $              | 30,928  |         |      | $ | 30,928  |        
|Accrued expenses and other liabilities                                                                                                                   |                                            |                | 837     |         |      |   | 2,510   |        
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                         | Total liabilities                          |                |         | 31,765  |      |   |         | 33,438  | 
|Shareholders Equity                                                                                                                                     |                                            |                |         |         |      |   |         |        
|Common stock, no par value, 50,000,000 shares authorized,
    8,333,417 and 8,671,984 shares outstanding at
    December 31, 2005 and 2004, respectively |                                            |                |         |         |      |   |         |        
|Additional paid-in capital                                                                                                                               |                                            |                | 74,444  |         |      |   | 86,956  |        
|Retained earnings                                                                                                                                        |                                            |                | 179,748 |         |      |   | 107,382 |        
|Unearned stock compensation                                                                                                                              |                                            |                | (84     | )       |      |   | (368    | )      
|Accumulated other comprehensive income, net of deferred federal
    income taxes                                                                         |                                            |                | 7,104   |         |      |   | 8,154   |        
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                         | Total shareholders equity                 |                |         | 261,212 |      |   |         | 202,124 | 
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                         | Total liabilities and shareholders equity |                | $       | 292,977 |      |   | $       | 235,562 | 
|                                                                                                                                                         |                                            |                |         |         |      |  



77



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SCHEDULE II  SUPPLEMENTARY INSURANCE
INFORMATION


AMERICAN PHYSICIANS CAPITAL, INC. (PARENT COMPANY)




CONDENSED STATEMENTS OF OPERATIONS


Years Ended December 31, 2005, 2004 and 2003


|                                                      |                                                                                |                         |        |        |      |   |        |        |   |   |         |         |  
|----------------------------------------------------- | ------------------------------------------------------------------------------ | ----------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------- | ------- | -
|                                                      |                                                                                | Year Ended December 31, |       
|                                                      |                                                                                |                         |       
|                                                      |                                                                                | 2005                    |        |        | 2004 |   |        | 2003   |  
|                                                      |                                                                                |                         |        |        |      |   |        |        |  
|                                                      |                                                                                | (In thousands)          |       
|Revenues                                              |                                                                                |                         |        |        |      |   |        |        |   |   |         |        
|Investment income                                     |                                                                                | $                       | 107    |        |      | $ | 36     |        |   | $ | 344     |        
|Other income                                          |                                                                                |                         |       |        |      |   |       |        |   |   | 15      |        
|                                                      |                                                                                |                         |        |        |      |   |        |        |  
|                                                      | Total revenues                                                                 |                         |        | 107    |      |   |        | 36     |   |   |         | 359     |  
|Expenses                                              |                                                                                |                         |        |        |      |   |        |        |   |   |         |        
|Interest expense                                      |                                                                                |                         | 2,274  |        |      |   | 1,714  |        |   |   | 1,008   |        
|Amortization expense                                  |                                                                                |                         | 494    |        |      |   | 494    |        |   |   | 128     |        
|General and administrative expenses                   |                                                                                |                         | 2,561  |        |      |   | 3,732  |        |   |   | 2,813   |        
|                                                      |                                                                                |                         |        |        |      |   |        |        |  
|                                                      | Total expenses                                                                 |                         |        | 5,329  |      |   |        | 5,940  |   |   |         | 3,949   |  
|                                                      | Loss before income taxes and equity in undistributed loss of
    subsidiaries  |                         |        | (5,222 | )    |   |        | (5,904 | ) |   |         | (3,590  | )
|Federal income tax expense (benefit)                  |                                                                                |                         | 2,853  |        |      |   | (8,736 | )      |   |   | 393     |        
|                                                      |                                                                                |                         |        |        |      |   |        |        |  
|                                                      | (Loss) income before equity in undistributed income (loss) of
    subsidiaries |                         |        | (8,075 | )    |   |        | 2,832  |   |   |         | (3,983  | )
|Equity in undistributed income (loss) of subsidiaries |                                                                                |                         | 80,441 |        |      |   | 17,198 |        |   |   | (72,848 | )      
|                                                      |                                                                                |                         |        |        |      |   |        |        |  
|                                                      | Net income (loss)                                                              |                         | $      | 72,366 |      |   | $      | 20,030 |   |   | $       | (76,831 | )
|                                                      |                                                                                |                         |        |        |      |   |        |        |  



78



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SCHEDULE II  SUPPLEMENTARY INSURANCE
INFORMATION


AMERICAN PHYSICIANS CAPITAL, INC. (PARENT COMPANY)


CONDENSED STATEMENTS OF CASH FLOWS


Years Ended December 31, 2005, 2004 and 2003


|                                                                                         |                                                          |                                                     |         |        |         |   |         |        |         |   |         |      |         |  
|---------------------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------------------------- | ------- | ------ | ------- | - | ------- | ------ | ------- | - | ------- | ---- | ------- | -
|                                                                                         |                                                          | Year Ended December 31,                             |        
|                                                                                         |                                                          |                                                     |        
|                                                                                         |                                                          | 2005                                                |         |        | 2004    |   |         | 2003   |        
|                                                                                         |                                                          |                                                     |         |        |         |   |         |        |        
|                                                                                         |                                                          | (In thousands)                                      |        
|Cash flows from operating activities                                                     |                                                          |                                                     |         |        |         |   |         |        |         |   |         |     
|Net income (loss)                                                                        |                                                          | $                                                   | 72,366  |        |         | $ | 20,030  |        |         | $ | (76,831 | )   
|Adjustments to reconcile net income (loss) to net cash used in
    operating activities: |                                                          |                                                     |         |        |         |   |         |        |         |   |         |     
|Equity in undistributed (income) loss of subsidiaries                                    |                                                          |                                                     | (80,441 | )      |         |   | (17,198 | )      |         |   | 72,848  |     
|Amortization                                                                             |                                                          |                                                     | 662     |        |         |   | 691     |        |         |   | 518     |     
|Deferred federal income taxes                                                            |                                                          |                                                     | (122    | )      |         |   | 0       |        |         |   | 942     |     
|Changes in:                                                                              |                                                          |                                                     |         |        |         |   |         |        |         |   |         |     
|                                                                                         | Federal or intercompany income taxes recoverable/payable |                                                     |         | 6,493  |         |   |         | (9,740 | )       |   |         | 207  |        
|                                                                                         | Accrued expenses and other liabilities                   |                                                     |         | (1,673 | )       |   |         | 1,402  |         |   |         | 504  |        
|                                                                                         | Other assets                                             |                                                     |         | 764    |         |   |         | 112    |         |   |         | (544 | )      
|                                                                                         |                                                          |                                                     |         |        |         |   |         |        |        
|                                                                                         |                                                          | Net cash used in operating activities               |         |        | (1,951  | ) |         |        | (4,703  | ) |         |      | (2,356  | )
|                                                                                         |                                                          |                                                     |         |        |         |   |         |        |        
|Cash flows from investing activities                                                     |                                                          |                                                     |         |        |         |   |         |        |         |   |         |     
|Acquisition of intangible asset                                                          |                                                          |                                                     |        |        |         |   |        |        |         |   | (625    | )   
|Dividends from subsidiaries                                                              |                                                          |                                                     | 17,300  |        |         |   |        |        |         |   |        |     
|Net contributions to subsidiaries                                                        |                                                          |                                                     |        |        |         |   | (20,200 | )      |         |   | (10,928 | )   
|                                                                                         |                                                          |                                                     |         |        |         |   |         |        |        
|                                                                                         |                                                          | Net cash provided by (used in) investing activities |         |        | 17,300  |   |         |        | (20,200 | ) |         |      | (11,553 | )
|                                                                                         |                                                          |                                                     |         |        |         |   |         |        |        
|Cash flows from financing activities                                                     |                                                          |                                                     |         |        |         |   |         |        |         |   |         |     
|Common stock repurchased                                                                 |                                                          |                                                     | (17,057 | )      |         |   |        |        |         |   | (7,676  | )   
|Debt issuance costs                                                                      |                                                          |                                                     |        |        |         |   |        |        |         |   | (906    | )   
|Issuance of long-term debt                                                               |                                                          |                                                     |        |        |         |   |        |        |         |   | 30,928  |     
|Windfall tax benefit of stock-based awards                                             |                                                          |                                                     | 1,095   |        |         |   |        |        |         |   |        |     
|Stock options exercised                                                                  |                                                          |                                                     | 1,719   |        |         |   | 1,334   |        |         |   | 440     |     
|Other                                                                                    |                                                          |                                                     |        |        |         |   | 27      |        |         |   | 225     |     
|                                                                                         |                                                          |                                                     |         |        |         |   |         |        |        
|                                                                                         |                                                          | Net cash (used in) provided by financing activities |         |        | (14,243 | ) |         |        | 1,361   |   |         |      | 23,011  |  
|                                                                                         |                                                          |                                                     |         |        |         |   |         |        |        
|Net increase (decrease) in cash and cash equivalents                                     |                                                          |                                                     | 1,106   |        |         |   | (23,542 | )      |         |   | 9,102   |     
|Cash and cash equivalents, beginning of year                                             |                                                          |                                                     | 4,231   |        |         |   | 27,773  |        |         |   | 18,671  |     
|                                                                                         |                                                          |                                                     |         |        |         |   |         |        |        
|Cash and cash equivalents, end of year                                                   |                                                          | $                                                   | 5,337   |        |         | $ | 4,231   |        |         | $ | 27,773  |     
|                                                                                         |                                                          |                                                     |         |        |         |   |         |        |        



79



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##### 



SCHEDULE II  SUPPLEMENTARY INSURANCE
INFORMATION


AMERICAN PHYSICIANS CAPITAL, INC. (PARENT COMPANY)


NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT


Year Ended December 31, 2005




|    |                        
|--- | -----------------------
|(1) | Description of Business







| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | American Physicians Assurance Corporation  a stock
    insurance company incorporated under Michigan law (American
    Physicians).                                                                       
|
| | Insurance Corporation of America  a stock insurance
    company incorporated under Michigan law (ICA).                                                                                                    
|
| | APSpecialty Insurance Corporation  a stock insurance
    company incorporated under Michigan law (APSpecialty).                                                                                           
|
| | Alpha Advisors, Inc.  an Illinois corporation that
    provides investment management services.                                                                                                           
|
| | APIndemnity (Bermuda) Ltd.  a Bermuda company that
    provides a rent-a-captive vehicle for clients and prospects.                                                                                       
|
| | APManagement Ltd.  a Bermuda company that provides
    management and compliance services to APIndemnity and to clients
    and prospects of the financial group.                                         
|
| | American Physicians Capital Statutory Trust I  a
    trust formed in Connecticut for the purpose of issuing
    mandatorily redeemable trust preferred securities to
    institutional investors (Note 8).
|
| | APCapital Trust II  a trust formed in Delaware
    for the purpose of issuing mandatorily redeemable trust
    preferred securities to institutional investors (Note 8).                                  





|    |               
|--- | --------------
|(2) | Long Term Debt





|    |                     
|--- | --------------------
|(3) | Federal Income Taxes



|                    |  |                     
|------------------- |  | --------------------
|American Physicians |  | ICA                 
|APSpecialty         |  | Alpha Advisors, Inc.





|    |                         
|--- | ------------------------
|(4) | Dividends Received/ Paid





80



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##### 



SCHEDULE III  SUPPLEMENTARY INSURANCE
INFORMATION


AMERICAN PHYSICIANS CAPITAL, INC. (PARENT COMPANY)


|                               |       |                                            |       |              |               |   |         |          |  |              |          |        |     |         |     |     |            |        |          |            |             |        |             |        |       |           |         |         |          |   |        |        |  |   |        |        |  |   |         |         | 
|------------------------------ | ----- | ------------------------------------------ | ----- | ------------ | ------------- | - | ------- | -------- |  | ------------ | -------- | ------ | --- | ------- | --- | --- | ---------- | ------ | -------- | ---------- | ----------- | ------ | ----------- | ------ | ----- | --------- | ------- | ------- | -------- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------- | 
|                               |       | At or for the Year Ended December 31, 2005 |      
|                               |       |                                            |      
|                               |       |                                            |       | Amortization |               |   |        
|                               |       | Deferred                                   |       |              | Unpaid Losses |   |         |          |  | Other Policy |          |        |     |         | (1) |     |            | Losses |          |            | of Deferred |        |             |       
|                               |       | Policy                                     |       |              | and Loss      |   |         |          |  | Claims and   |          |        | Net |         |     | Net |            |        | and Loss |            |             | Policy |             |        | Other |           |         | Net     |         
|                               |       | Acquisition                                |       |              | Adjustment    |   |         | Unearned |  |              | Benefits |        |     | Premium |     |     | Investment |        |          | Adjustment |             |        | Acquisition |        |       | Operating |         |         | Premiums |  
|Segment                        |       | Costs                                      |       |              | Expenses      |   |         | Premiums |  |              | Payable  |        |     | Revenue |     |     | Income     |        |          | Expenses   |             |        | Costs       |        |       | Expenses  |         |         | Written  |  
|                               |       |                                            |       |              |               |   |         |          |  |              |          |        |     |         |     |     |            |        |          |            |             |        |             |        |       |           |         |         |          |  
|                               |       | (In thousands)                             |      
|Medical professional liability |       | $                                          | 7,877 |              |               | $ | 651,727 |          |  | $            | 82,088   |        |     | $       |    |     |            | $      | 163,570  |            |             | $      | 40,938      |        |       | $         | 124,656 |         |          | $ | 18,987 |        |  | $ | 13,772 |        |  | $ | 157,780 |        
|Other insurance                |       |                                            |      |              |               |   | 38,130  |          |  |              | 10       |        |     |         |    |     |            |        | 713      |            |             |        | 2,812       |        |       |           | 2,468   |         |          |   |       |        |  |   | 321    |        |  |   | (398    | )      
|Corporate and other            |       |                                            |      |              |               |   |        |          |  |              |         |        |     |         |    |     |            |        |         |            |             |        | (655        | )      |       |           |        |         |          |   |       |        |  |   |       |        |  |   |        |        
|Intersegment eliminations      |       |                                            |      |              |               |   |        |          |  |              |         |        |     |         |    |     |            |        |         |            |             |        | 657         |        |       |           |        |         |          |   |       |        |  |   |       |        |  |   |        |        
|                               |       |                                            |       |              |               |   |         |          |  |              |          |        |     |         |     |     |            |        |          |            |             |        |             |        |       |           |         |         |          |  
|                               | Total |                                            | $     | 7,877        |               |   | $       | 689,857  |  |              | $        | 82,098 |     |         | $   |    |            |        | $        | 164,283    |             |        | $           | 43,752 |       |           | $       | 127,124 |          |   | $      | 18,987 |  |   | $      | 14,093 |  |   | $       | 157,382 | 
|                               |       |                                            |       |              |               |   |         |          |  |              |          |        |     |         |     |     |            |        |          |            |             |        |             |        |       |           |         |         |          |  

|                               |       |                                            |       |              |               |   |         |          |  |                |          |        |     |         |     |     |            |        |          |            |             |        |             |        |       |           |         |         |          |   |        |        |  |   |        |        |  |   |         |         | 
|------------------------------ | ----- | ------------------------------------------ | ----- | ------------ | ------------- | - | ------- | -------- |  | -------------- | -------- | ------ | --- | ------- | --- | --- | ---------- | ------ | -------- | ---------- | ----------- | ------ | ----------- | ------ | ----- | --------- | ------- | ------- | -------- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------- | 
|                               |       | At or for the Year Ended December 31, 2004 |      
|                               |       |                                            |      
|                               |       |                                            |       | Amortization |               |   |        
|                               |       | Deferred                                   |       |              | Unpaid Losses |   |         |          |  | Other Policy   |          |        |     |         | (1) |     |            | Losses |          |            | of Deferred |        |             |       
|                               |       | Policy                                     |       |              | and Loss      |   |         |          |  | Claims and     |          |        | Net |         |     | Net |            |        | and Loss |            |             | Policy |             |        | Other |           |         | Net     |         
|                               |       | Acquisition                                |       |              | Adjustment    |   |         | Unearned |  |                | Benefits |        |     | Premium |     |     | Investment |        |          | Adjustment |             |        | Acquisition |        |       | Operating |         |         | Premiums |  
|Segment                        |       | Costs                                      |       |              | Expenses      |   |         | Premiums |  |                | Payable  |        |     | Revenue |     |     | Income     |        |          | Expenses   |             |        | Costs       |        |       | Expenses  |         |         | Written  |  
|                               |       |                                            |       |              |               |   |         |          |  |                |          |        |     |         |     |     |            |        |          |            |             |        |             |        |       |           |         |         |          |  
|                               |       |                                            |       |              |               |   |         |          |  | (In thousands) |          |        |     |         |     |     |            |        |         
|Medical professional liability |       | $                                          | 8,082 |              |               | $ | 634,304 |          |  | $              | 88,919   |        |     | $       |    |     |            | $      | 173,835  |            |             | $      | 41,008      |        |       | $         | 145,519 |         |          | $ | 20,191 |        |  | $ | 15,129 |        |  | $ | 175,042 |        
|Other insurance                |       |                                            |      |              |               |   | 59,326  |          |  |                | 1,121    |        |     |         |    |     |            |        | 26,744   |            |             |        | 3,841       |        |       |           | 32,267  |         |          |   | 2,558  |        |  |   | 4,803  |        |  |   | 11,389  |        
|Corporate and other            |       |                                            |      |              |               |   |        |          |  |                |         |        |     |         |    |     |            |        |         |            |             |        | (556        | )      |       |           |        |         |          |   |       |        |  |   |       |        |  |   |        |        
|Intersegment eliminations      |       |                                            |      |              |               |   |        |          |  |                |         |        |     |         |    |     |            |        |         |            |             |        | 620         |        |       |           |        |         |          |   |       |        |  |   |       |        |  |   |        |        
|                               |       |                                            |       |              |               |   |         |          |  |                |          |        |     |         |     |     |            |        |          |            |             |        |             |        |       |           |         |         |          |  
|                               | Total |                                            | $     | 8,082        |               |   | $       | 693,630  |  |                | $        | 90,040 |     |         | $   |    |            |        | $        | 200,579    |             |        | $           | 44,913 |       |           | $       | 177,786 |          |   | $      | 22,749 |  |   | $      | 19,932 |  |   | $       | 186,431 | 
|                               |       |                                            |       |              |               |   |         |          |  |                |          |        |     |         |     |     |            |        |          |            |             |        |             |        |       |           |         |         |          |  

|                               |       |                                            |         |              |            |   |        |            |  |   |             |         |  |           |        |        |          |   |        |        |  |   |         |         | 
|------------------------------ | ----- | ------------------------------------------ | ------- | ------------ | ---------- | - | ------ | ---------- |  | - | ----------- | ------- |  | --------- | ------ | ------ | -------- | - | ------ | ------ |  | - | ------- | ------- | 
|                               |       | At or for the Year Ended December 31, 2003 |        
|                               |       |                                            |        
|                               |       |                                            |         | Amortization |            |   |       
|                               |       | Net                                        |         |              | (1)        |   |        | Losses     |  |   | of Deferred |         |  |          
|                               |       | Premium                                    |         |              | Net        |   |        | and Loss   |  |   | Policy      |         |  | Other     |        |        | Net      |  
|                               |       | Revenue                                    |         |              | Investment |   |        | Adjustment |  |   | Acquisition |         |  | Operating |        |        | Premiums |  
|Segment                        |       | (In thousands)                             |         |              | Income     |   |        | Expenses   |  |   | Costs       |         |  | Expenses  |        |        | Written  |  
|                               |       |                                            |         |              |            |   |        |            |  |   |             |         |  |           |        |        |          |  
|Medical professional liability |       | $                                          | 158,777 |              |            | $ | 33,748 |            |  | $ | 197,430     |         |  | $         | 19,376 |        |          | $ | 11,939 |        |  | $ | 164,157 |        
|Other insurance                |       |                                            | 65,813  |              |            |   | 6,208  |            |  |   | 55,312      |         |  |           | 5,994  |        |          |   | 13,795 |        |  |   | 60,490  |        
|Corporate and other            |       |                                            |        |              |            |   | (180   | )          |  |   |            |         |  |           |       |        |          |   |       |        |  |   |        |        
|Intersegment eliminations      |       |                                            |        |              |            |   | 578    |            |  |   |            |         |  |           |       |        |          |   |       |        |  |   |        |        
|                               |       |                                            |         |              |            |   |        |            |  |   |             |         |  |           |        |        |          |  
|                               | Total |                                            | $       | 224,590      |            |   | $      | 40,354     |  |   | $           | 252,742 |  |           | $      | 25,370 |          |   | $      | 25,734 |  |   | $       | 224,647 | 
|                               |       |                                            |         |              |            |   |        |            |  |   |             |         |  |           |        |        |          |  






|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net investment income is allocated to each of the segments based
    on that segments ownership of the underlying
    income producing assets.

81



---



##### 





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure





|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Evaluation of Disclosure Controls and Procedures




13a-15(b).


Remediation of Previously Existing Material Weakness


10-K 10-Q


Managements Report in Internal Control Over Financial
Reporting




Internal Control 
Integrated Framework Internal
Control  Integrated Framework.


82



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Internal Control  Integrated Framework


















83



---



##### 



Changes in Internal Control over Financial Reporting




Item 9B.Other
Information




PART III




|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant





|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation





|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters





|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions





|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



84



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##### 



PART IV




|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules



Financial
Statements:




| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Reports of independent registered public accounting firms                                 
|
| | Consolidated balance sheets as of December 31, 2005 and 2004                              
|
| | Consolidated statements of income for the years ended
    December 31, 2005, 2004 and 2003



| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated statements of shareholders equity and
    comprehensive income for the years ended December 31, 2005,
    2004 and 2003



| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Consolidated statements of cash flows for the years ended
    December 31, 2005, 2004 and 2003
|
| | Notes to consolidated financial statements                                                    

Financial Statement Schedules:




| |                                                  
| | -------------------------------------------------
| | II. Condensed financial information of registrant
|
| | III. Supplementary insurance information         

S-X




85



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##### 



SIGNATURES






| |                                      
| | -------------------------------------
| | American Physicians
    Capital, Inc.



| |     |                     
| | --- | --------------------
| | By: | /s/ R. Kevin Clinton

| |                                           
| | ------------------------------------------
| |                                           
| | R. Kevin Clinton                          
| | Its: President and Chief Executive Officer



|                                                             |  |                                                                                                                             |  | 
|------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------- |  | 
|Signature                                                    |  | Title                                                                                                                      
|                                                             |  |                                                                                                                            
|                                                            
|/s/ R. Kevin ClintonR. Kevin Clinton                         |  | President, Chief Executive Officer and Director
    (principal executive officer)                                          
|                                                            
|/s/ Frank H. FreundFrank H. Freund                           |  | Executive Vice President, Treasurer,
    Chief Financial Officer
    (principal financial and principal accounting officer)
|                                                            
|/s/ Thomas R.
    Berglund, M.D.Thomas R. Berglund, M.D.     |  | Director and Chairman of the Board                                                                                         
|                                                            
|/s/ Billy B.
    Baumann, M.D.Billy B. Baumann, M.D.         |  | Director                                                                                                                   
|                                                            
|/s/ Daniel L. GormanDaniel L. Gorman                         |  | Director                                                                                                                   
|                                                            
|/s/ AppaRao
    Mukkamala, M.D.AppaRao Mukkamala, M.D.       |  | Director                                                                                                                   
|                                                            
|/s/ D. Joseph
    Olson, J.D.D. Joseph Olson, J.D.           |  | Director                                                                                                                   
|                                                            
|/s/ Spencer L.
    Schneider, J.D.Spencer L. Schneider, J.D. |  | Director                                                                                                                   
|                                                            
|/s/ Lloyd A. SchwartzLloyd A. Schwartz                       |  | Director                                                                                                                   
|                                                            
|/s/ Joseph StilwellJoseph Stilwell                           |  | Director                                                                                                                   

86



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##### 



EXHIBIT INDEX




|        |         |  |             |                                                                                                                                                                                                           
|------- | ------- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |            
|Number  |         |  | Description
|        |         |  |            
|        | 2.1     |  |             | Plan of Conversion, dated June 28, 2000, as amended
    September 22, 2000(2)                                                                                                                             
|        | 3.1     |  |             | Articles of Incorporation(2)                                                                                                                                                                              
|        | 3.2     |  |             | Amended and Restated Bylaws, as amended January 26, 2005(12)                                                                                                                                              
|        | 4.1     |  |             | Indenture relating to Floating Rate Junior Subordinated
    Deferrable Interest Debentures Dated as of May 15, 2003(7)                                                                                    
|        | 4.2     |  |             | Indenture relating to Floating Rate Junior Subordinated Debt
    Securities Dated as of May 22, 2003(7)                                                                                                   
|        | *10.1   |  |             | American Physicians Capital, Inc. Stock Compensation Plan(3)                                                                                                                                              
|        | 10.5    |  |             | American Physicians/SCW Sales Agency Agreement (Medical
    Professional Liability  Michigan Only), dated
    January 1, 2000(2)                                                                         
|        | 10.6    |  |             | KMIC Insurance Company Agency Agreement, dated October 13,
    1998(2)                                                                                                                                    
|        | 10.10   |  |             | Agency Agreement between American Physicians and Stratton,
    Cheeseman, Walsh-Nevada, Inc., dated May 25, 1999(2)                                                                                       
|        | 10.11   |  |             | Sub-Agent Agreement between SCW Agency Group, Inc. and Managed
    Insurance Services, Inc., dated April 11, 2000(2)                                                                                      
|        | 10.12   |  |             | MSMS/American Physicians Marketing Support Agreement, effective
    January 1, 2000, and American Physicians(2)                                                                                           
|        | *10.18  |  |             | Form of Stock Option Agreement with Directors, dated
    December 5, 2000(4)                                                                                                                              
|        | *10.19  |  |             | Form of Stock Option Agreement with Executives, dated
    December 5, 2000(4)                                                                                                                             
|        | *10.20  |  |             | Form of Restricted Stock Award with Directors, dated
    December 5, 2000(4)                                                                                                                              
|        | *10.21  |  |             | Form of Restricted Stock Award with Executives, dated
    December 5, 2000(4)                                                                                                                             
|        | 10.22   |  |             | Standstill Agreement, dated February 20, 2002, between the
    Company, Stilwell Value Partners, L.P. and various affiliated
    entities and individuals(5)                                              
|        | 10.26   |  |             | Amended And Restated Declaration Of Trust Dated As Of
    May 15, 2003 by and among U.S. Bank National
    Association, American Physicians Capital, Inc., William B.
    Cheeseman and Frank H. Freund(6)
|        | 10.27   |  |             | Amended And Restated Declaration Of Trust Dated As Of
    May 22, 2003 of APCapital Trust II(7)                                                                                                           
|        | 10.28   |  |             | Placement Agreement, dated April 25, 2003 between the
    Company, American Physicians Capital Statutory Trust I, FTN
    Financial Capital Markets and Keefe Bruyette & Woods,
    Inc.(7)               
|        | 10.29   |  |             | Placement Agreement, Dated As Of May 13, 2003, with Sandler
    ONeill & Partners L.P.(7)                                                                                                                
|        | 10.30   |  |             | Guarantee Agreement Dated As Of May 15, 2003 by and between
    U.S. Bank National Association and American Physicians
    Capital, Inc.(7)                                                               
|        | 10.31   |  |             | Guarantee Agreement Dated As Of May 22, 2003 by and between
    Wilmington Trust Company and American Physicians Capital, Inc.(7)                                                                         
|        | **10.35 |  |             | Master Agency Agreement between American Physicians Assurance
    Corporation and SCW Agency Group, Inc., effective
    January 1, 2004(8)                                                                
|        | 10.37   |  |             | Standstill Agreement, dated April 7, 2004 between the
    company and Daniel L. Gorman(9)                                                                                                                 
|        | 10.41   |  |             | Standstill Agreement, dated November 10, 2004, between the
    Company, Stilwell Value Partners, L.P. and various affiliated
    entities and individuals(11)                                             

87



---



##### 



|        |        |  |             |                                                                                                                                                                                                                                             
|------- | ------ |  | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  |            
|Number  |        |  | Description
|        |        |  |            
|        | *10.42 |  |             | Form of Executive Employment Agreement dated February 23,
    2005, by and between American Physicians Assurance Corporation
    and each of R. Kevin Clinton, Frank H. Freund and Annette E.
    Flood(13)                                 
|        | 10.44  |  |             | Summary of Incentive Compensation Plan as of March 2005(15)                                                                                                                                                                                 
|        | 10.45  |  |             | Amendment No. 1, dated May 9, 2005, to the Standstill
    Agreement, dated April 7, 2004, between the Company and
    Daniel L. Gorman(18)                                                                                                  
|        | 21.1   |  |             | Subsidiaries of APCapital (8)                                                                                                                                                                                                               
|        | 23.1   |  |             | Consent of BDO Seidman, LLP(1)                                                                                                                                                                                                              
|        | 23.2   |  |             | Consent of PricewaterhouseCoopers LLP(1)                                                                                                                                                                                                    
|        | 31.1   |  |             | Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a) under the Securities Exchange Act of 1934.(1)                                                                                                                       
|        | 31.2   |  |             | Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a) under the Securities Exchange Act of 1934.(1)                                                                                                                       
|        | 32.1   |  |             | Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350 and
    Rule 13a-14(b) under the Securities Exchange Act of 1934.(1)                                                            
|        | 99.1   |  |             | Stock Purchase Agreement with Exhibits, dated as of
    September 17, 2004, by and among American Physicians
    Assurance Corporation and certain shareholders of Physicians
    Insurance Company of Wisconsin, Inc.(10)                  
|        | 99.2   |  |             | Amendment No. 1 to Stock Purchase Agreement with Exhibits,
    dated as of November 30, 2004, by and among American
    Physicians Assurance Corporation and certain shareholders of
    Physicians Insurance Company of Wisconsin, Inc.(14)
|        | 99.3   |  |             | Stock Pledge Agreement, dated as of December 31, 2004
    between Daniel R. ONeal and American Physicians Assurance
    Corporation(14)                                                                                                    
|        | 99.4   |  |             | Promissory Note from Daniel R. ONeal to American
    Physicians Assurance Corporation, dated December 31, 2004
    (14)                                                                                                                    
|        | 99.5   |  |             | Amendment No. 2 to Stock Purchase Agreement with Exhibits,
    dated as of April 11, 2005, by and among American
    Physicians Assurance Corporation and certain shareholders of
    Physicians Insurance Company of Wisconsin, Inc. (16)  
|        | 99.6   |  |             | Termination of Stock Purchase Agreement, dated August 31,
    2005, by and among American Physicians Assurance Corporation and
    certain shareholders of Physicians Insurance Company of
    Wisconsin, Inc. (17)                         






| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *  | Current management contracts or compensatory plans or
    arrangements.                                                                                                                                                                                       
|
| | ** | Portions of this exhibit have been omitted pursuant to
    APCapitals request to the Secretary of the Securities and
    Exchange Commission for confidential treatment pursuant to
    Rule 24b-2 under
    the Securities Exchange Act of 1934, as amended.



| |     |                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Filed herewith.                                                                                                                                     
|
| | (2) | Filed as an exhibit to APCapitals Registration Statement
    on Form S-1 (no.
    333-41136), as amended,
    and incorporated herein by reference.
|
| | (3) | Filed as an exhibit to APCapitals Registration Statement
    on Form S-8 (no.
    333-56428) and
    incorporated herein by reference.             
|
| | (4) | Filed as an exhibit to APCapitals 2000 Annual Report on
    Form 10-K and
    incorporated herein by reference.                                    
|
| | (5) | Filed as an exhibit to APCapitals 2001 Annual Report on
    Form 10-K and
    incorporated herein by reference.                                    
|
| | (6) | Filed as an exhibit to APCapitals 2002 Annual Report on
    Form 10-K and
    incorporated herein by reference.                                    

88



---



##### 





| |     |                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (7) | Filed as an exhibit to APCapitals Quarterly Report on
    Form 10-Q, as
    amended, for the quarterly period ended June 30, 2003 and
    incorporated herein by reference.
|
| | (8) | Filed as an exhibit to APCapitals 2003 Annual Report on
    Form 10-K, as
    amended, and incorporated herein by reference.                                               
|
| | (9) | Filed as an exhibit to APCapitals Current Report on
    Form 8-K dated
    April  7, 2004 and incorporated herein by reference.                                            



|     |                                                                                                                                                                          
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Filed as an exhibit to APCapitals Quarterly Report on
    Form 10-Q for the
    quarterly period ended September 30, 2004 and incorporated
    herein by reference.     
|    
|(11) | Filed as an exhibit to APCapitals Current Report on
    Form 8-K dated
    November 15, 2004 and incorporated herein by reference.                                      
|    
|(12) | Filed as an exhibit to APCapitals Current Report on
    Form 8-K dated
    January 31, 2005 and incorporated herein by reference.                                       
|    
|(13) | Filed as an exhibit to APCapitals Current Report on
    Form 8-K dated
    February 28, 2005 and incorporated herein by reference.                                      
|    
|(14) | Filed as an exhibit to APCapitals 2004 Annual Report on
    Form 10-K, as
    amended, and incorporated herein by reference.                                            
|    
|(15) | Filed as an exhibit to APCapitals Current Report on
    Form 8-K dated
    March  10, 2005 and incorporated herein by reference.                                        
|    
|(16) | Filed as an exhibit to APCapitals 2005 Quarterly Report on
    Form 10-Q for the
    quarterly period ended March 31, 2005 and incorporated
    herein by reference.    
|    
|(17) | Filed as an exhibit to APCapitals 2005 Quarterly Report on
    Form 10-Q for the
    quarterly period ended September 30, 2005 and incorporated
    herein by reference.
|    
|(18) | Filed as an exhibit to APCapitals Current Report on
    Form 8-K dated
    May  9, 2005 and incorporated herein by reference.                                           

89