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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, 2004                                                 
| 
|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


þ o




þ o






DOCUMENTS INCORPORATED BY REFERENCE












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TABLE OF CONTENTS



|                                                                                                                           |  |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Item 1. Business                                                                                                          
|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
|Item 6. Selected Financial Data                                                                                           
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                             
|Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                                       
|Item 8. Financial Statements and Supplementary Data                                                                       
|CONSOLIDATED BALANCE SHEETS                                                                                               
|CONSOLIDATED STATEMENTS OF INCOME                                                                                         
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME                                                  
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                     
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                
|CONDENSED BALANCE SHEET                                                                                                   
|CONDENSED STATEMENTS OF OPERATIONS                                                                                        
|CONDENSED STATEMENTS OF CASH FLOW                                                                                         
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                              
|Item 9A. Controls and Procedures                                                                                          
|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                                                                           
|PART IV                                                                                                                   
|Item 15. Exhibits and Financial Statement Schedules                                                                       
|EXHIBIT INDEX                                                                                                             
|Consent of PricewaterhouseCoopers LLP                                                                                     
|302 Certification of Chief Executive Officer                                                                              
|302 Certification of Chief Executive Officer                                                                              
|906 Certification of Chief Executive & Chief Financial Officers                                                           
|Amendment No.1 to Stock Purchase Agreement                                                                                
|Stock Pledge Agreement                                                                                                    
|Promissory Note                                                                                                           



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

General








1



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Summary Premium Volume and Revenue By Line




|                            |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        |  |        |         |         |  |       |        |        | 
|--------------------------- | ------------------------------ | ------------------------- | ------ | ------- | ------- |  | ----- | ------ | ------ |  | ------ | ------- | ------- | ------ | ----- | ------ | ------ |  | ------ | ------- | ------- |  | ----- | ------ | ------ | 
|                            |                                | Year Ended December 31,   |       
|                            |                                |                           |       
|                            |                                | 2004                      |        |         | 2003    |  |       | 2002   |       
|                            |                                |                           |        |         |         |  |       |        |       
|                            |                                |                           |        | % of    |         |  |       |        | % of   |  |        |         |         | % of   |      
|                            |                                | Amount                    |        |         | Total   |  |       | Amount |        |  | Total  |         |         | Amount |       |        | Total  | 
|                            |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|                            |                                | (Dollars in thousands)    |       
|Direct premiums written:    |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        |  |        |         |         |  |       |       
|                            | Medical professional liability |                           | $      | 203,034 |         |  |       | 94.9%  |        |  | $      | 195,742 |         |        |       | 76.4%  |        |  | $      | 177,253 |         |  |       | 66.6%  |       
|                            | Other insurance lines          |                           |        | 10,911  |         |  |       | 5.1%   |        |  |        | 60,493  |         |        |       | 23.6%  |        |  |        | 89,007  |         |  |       | 33.4%  |       
|                            |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|                            |                                | Total                     |        | $       | 213,945 |  |       |        | 100.0% |  |        | $       | 256,235 |        |       |        | 100.0% |  |        | $       | 266,260 |  |       |        | 100.0% | 
|                            |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|Net premiums written:       |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        |  |        |         |         |  |       |       
|                            | Medical professional liability |                           | $      | 175,042 |         |  |       | 93.9%  |        |  | $      | 164,157 |         |        |       | 73.1%  |        |  | $      | 154,583 |         |  |       | 64.8%  |       
|                            | Other insurance lines          |                           |        | 11,389  |         |  |       | 6.1%   |        |  |        | 60,490  |         |        |       | 26.9%  |        |  |        | 83,834  |         |  |       | 35.2%  |       
|                            |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|                            |                                | Total                     |        | $       | 186,431 |  |       |        | 100.0% |  |        | $       | 224,647 |        |       |        | 100.0% |  |        | $       | 238,417 |  |       |        | 100.0% | 
|                            |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|Total revenue:              |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        |  |        |         |         |  |       |       
|Net premiums earned:        |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        |  |        |         |         |  |       |       
|                            | Medical professional liability |                           | $      | 173,835 |         |  |       | 69.3%  |        |  | $      | 158,777 |         |        |       | 58.5%  |        |  | $      | 148,646 |         |  |       | 53.0%  |       
|                            | Other insurance lines          |                           |        | 26,744  |         |  |       | 10.7%  |        |  |        | 65,813  |         |        |       | 24.3%  |        |  |        | 86,905  |         |  |       | 31.0%  |       
|                            |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|                            |                                | Total net premiums earned |        |         | 200,579 |  |       |        | 80.0%  |  |        |         | 224,590 |        |       |        | 82.8%  |  |        |         | 235,551 |  |       |        | 84.0%  | 
|Investment income           |                                |                           | 47,373 |         |         |  | 18.9% |        |        |  | 43,294 |         |         |        | 16.0% |        |        |  | 44,775 |         |         |  | 16.0% |       
|Net realized gains (losses) |                                |                           | 1,551  |         |         |  | 0.6%  |        |        |  | 2,403  |         |         |        | 0.9%  |        |        |  | (163   | )       |         |  | -0.1% |       
|Other income                |                                |                           | 1,177  |         |         |  | 0.5%  |        |        |  | 1,104  |         |         |        | 0.4%  |        |        |  | 376    |         |         |  | 0.1%  |       
|                            |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 
|                            | Total revenue                  |                           | $      | 250,680 |         |  |       | 100.0% |        |  | $      | 271,391 |         |        |       | 100.0% |        |  | $      | 280,539 |         |  |       | 100.0% |       
|                            |                                |                           |        |         |         |  |       |        |        |  |        |         |         |        |       |        |        | 

Medical Professional Liability


Products and Services.




2



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Marketing.








Underwriting and Pricing.




3



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Claims Management.




Other Insurance








A.M. Best Company Rating




4



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Other Financial Subsidiaries




Reinsurance








5



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|                                  |  |                        |     |         |                  |   |                  |           |  |         |                  |  |  |  |       | 
|--------------------------------- |  | ---------------------- | --- | ------- | ---------------- | - | ---------------- | --------- |  | ------- | ---------------- |  |  |  | ----- | 
|                                  |  |                        |     |         |                  |   |                  | % of 2004 | 
|                                  |  |                        |     | Amounts |                  |   | 2004 Total Ceded |           |  | Amounts |                 
|                                  |  | A.M. Best              |     |         | Recoverable From |   |                  | Premiums  |  |         | Recoverable From | 
|Reinsurer                         |  | Rating                 |     |         | Reinsurers       |   |                  | Written   |  |         | Reinsurers       | 
|                                  |  |                        |     |         |                  |   |                  |           |  |         |                  | 
|                                  |  | (Dollars in thousands) |    
|Hannover Ruckversicherungs        |  |                        | A   |         |                  | $ | 43,561           |           |  | $       | 9,862            |  |  |  | 37.8% | 
|American Re-Insurance Company     |  |                        | A+  |         |                  |   | 21,556           |           |  |         | 6,622            |  |  |  | 18.7% | 
|Transatlantic Reinsurance Company |  |                        | A+  |         |                  |   | 13,583           |           |  |         | 236              |  |  |  | 11.8% | 
|General Reinsurance Corporation   |  |                        | A++ |         |                  |   | 6,594            |           |  |         | 32               |  |  |  | 5.7%  | 



Loss and Loss Adjustment Expense Reserves








6



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|                               |                                |                        |         |         |         |   |         |         |         |   |         |         |         | 
|------------------------------ | ------------------------------ | ---------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                               |                                | 2004                   |         |         | 2003    |   |         | 2002    |        
|                               |                                |                        |         |         |         |   |         |         |        
|                               |                                | (Dollars in thousands) |        
|Balance, beginning of year     |                                | $                      | 673,605 |         |         | $ | 637,494 |         |         | $ | 597,046 |        
|                               | Less, reinsurance recoverables |                        |         | (98,958 | )       |   |         | (95,468 | )       |   |         | (91,491 | )      
|                               |                                |                        |         |         |         |   |         |         |        
|Net balance, beginning of year |                                |                        | 574,647 |         |         |   | 542,026 |         |         |   | 505,555 |        
|Incurred related to:           |                                |                        |         |         |         |   |         |         |         |   |         |        
|                               | Current year                   |                        |         | 171,600 |         |   |         | 209,299 |         |   |         | 236,398 |        
|                               | Prior years                    |                        |         | 6,186   |         |   |         | 43,443  |         |   |         | 5,630   |        
|                               |                                |                        |         |         |         |   |         |         |        
|                               |                                | Total incurred         |         |         | 177,786 |   |         |         | 252,742 |   |         |         | 242,028 | 
|                               |                                |                        |         |         |         |   |         |         |        
|Paid related to:               |                                |                        |         |         |         |   |         |         |         |   |         |        
|                               | Current year                   |                        |         | 17,961  |         |   |         | 38,464  |         |   |         | 43,867  |        
|                               | Prior years                    |                        |         | 142,633 |         |   |         | 181,657 |         |   |         | 161,690 |        
|                               |                                |                        |         |         |         |   |         |         |        
|                               |                                | Total paid             |         |         | 160,594 |   |         |         | 220,121 |   |         |         | 205,557 | 
|                               |                                |                        |         |         |         |   |         |         |        
|Net balance, end of year       |                                |                        | 591,839 |         |         |   | 574,647 |         |         |   | 542,026 |        
|                               | Plus, reinsurance recoverables |                        |         | 101,791 |         |   |         | 98,958  |         |   |         | 95,468  |        
|                               |                                |                        |         |         |         |   |         |         |        
|Balance, end of period         |                                | $                      | 693,630 |         |         | $ | 673,605 |         |         | $ | 637,494 |        
|                               |                                |                        |         |         |         |   |         |         |        





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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                   | 1994 |         |         | 1995 |   |         | 1996    |  |   | 1997    |         |  | 1998 |         |         | 1999 |   |         | 2000    |  |   | 2001    |         |  | 2002 |         |         | 2003 |   |         | 2004    | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 
|Liability for unpaid losses and loss adjustment expenses net of
    reinsurance recoverable                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                   | $    | 341,254 |         |      | $ | 334,264 |         |  | $ | 346,455 |         |  | $    | 352,836 |         |      | $ | 371,982 |         |  | $ | 393,582 |         |  | $    | 413,954 |         |      | $ | 505,555 |         |  | $ | 542,026 |         |  | $ | 574,647 |         |  | $ | 591,839 | 
|Cumulative net paid as of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | End of year       |      |         | 59,982  |      |   |         | 47,113  |  |   |         | 69,750  |  |      |         | 86,703  |      |   |         | 85,290  |  |   |         | 95,471  |  |      |         | 124,479 |      |   |         | 161,770 |  |   |         | 181,658 |  |   |         | 142,633 |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Two years later   |      |         | 93,724  |      |   |         | 89,260  |  |   |         | 134,184 |  |      |         | 152,656 |      |   |         | 146,497 |  |   |         | 182,541 |  |      |         | 236,653 |      |   |         | 293,852 |  |   |         | 295,350 |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Three years later |      |         | 122,509 |      |   |         | 122,734 |  |   |         | 181,144 |  |      |         | 188,665 |      |   |         | 198,774 |  |   |         | 251,448 |  |      |         | 322,226 |      |   |         | 367,289 |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Four years later  |      |         | 142,127 |      |   |         | 148,000 |  |   |         | 205,824 |  |      |         | 215,426 |      |   |         | 231,748 |  |   |         | 292,766 |  |      |         | 363,871 |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Five years later  |      |         | 154,716 |      |   |         | 158,041 |  |   |         | 219,944 |  |      |         | 232,323 |      |   |         | 251,810 |  |   |         | 312,968 |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Six years later   |      |         | 160,204 |      |   |         | 165,250 |  |   |         | 227,840 |  |      |         | 243,012 |      |   |         | 262,260 |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Seven years later |      |         | 165,133 |      |   |         | 170,750 |  |   |         | 234,429 |  |      |         | 248,282 |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Eight years later |      |         | 169,316 |      |   |         | 175,597 |  |   |         | 238,387 |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Nine years later  |      |         | 172,854 |      |   |         | 178,206 |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Ten years later   |      |         | 175,273 |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|Re-estimated Net Liability as of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | End of year       |      |         | 300,626 |      |   |         | 273,025 |  |   |         | 324,233 |  |      |         | 327,542 |      |   |         | 350,114 |  |   |         | 383,004 |  |      |         | 435,069 |      |   |         | 511,185 |  |   |         | 585,469 |  |   |         | 580,832 |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Two years later   |      |         | 251,083 |      |   |         | 259,103 |  |   |         | 302,696 |  |      |         | 314,613 |      |   |         | 334,827 |  |   |         | 373,400 |  |      |         | 449,871 |      |   |         | 538,980 |  |   |         | 590,665 |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Three years later |      |         | 239,185 |      |   |         | 238,572 |  |   |         | 291,406 |  |      |         | 290,490 |      |   |         | 313,248 |  |   |         | 374,729 |  |      |         | 458,846 |      |   |         | 540,239 |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Four years later  |      |         | 221,973 |      |   |         | 221,226 |  |   |         | 267,788 |  |      |         | 273,982 |      |   |         | 303,540 |  |   |         | 366,818 |  |      |         | 456,519 |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Five years later  |      |         | 207,930 |      |   |         | 196,949 |  |   |         | 258,838 |  |      |         | 268,754 |      |   |         | 296,834 |  |   |         | 359,753 |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Six years later   |      |         | 187,451 |      |   |         | 192,521 |  |   |         | 254,272 |  |      |         | 266,546 |      |   |         | 291,144 |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Seven years later |      |         | 185,398 |      |   |         | 189,708 |  |   |         | 251,718 |  |      |         | 263,160 |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Eight years later |      |         | 184,033 |      |   |         | 188,400 |  |   |         | 249,707 |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Nine years later  |      |         | 183,996 |      |   |         | 186,948 |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Ten years later   |      |         | 182,683 |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |   |         |         |  |   |         |  | 
|Net cumulative (deficiency) redundancy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                   |      | 158,571 |         |      |   | 147,316 |         |  |   | 96,748  |         |  |      | 89,676  |         |      |   | 80,838  |         |  |   | 33,829  |         |  |      | (42,565 | )       |      |   | (34,684 | )       |  |   | (48,639 | )       |  |   | (6,185  | )       |  |   |         | 
|Gross liability  end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                   |      | 367,332 |         |      |   | 359,330 |         |  |   | 392,626 |         |  |      | 407,746 |         |      |   | 422,987 |         |  |   | 457,072 |         |  |      | 483,273 |         |      |   | 597,046 |         |  |   | 637,494 |         |  |   | 673,605 |         |  |   | 693,630 | 
|Reinsurance Recoverables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                   |      | 26,078  |         |      |   | 25,066  |         |  |   | 46,171  |         |  |      | 54,910  |         |      |   | 51,005  |         |  |   | 63,490  |         |  |      | 69,319  |         |      |   | 91,491  |         |  |   | 95,468  |         |  |   | 98,958  |         |  |   | 101,791 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 
|Net Liability  end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                   |      | 341,254 |         |      |   | 334,264 |         |  |   | 346,455 |         |  |      | 352,836 |         |      |   | 371,982 |         |  |   | 393,582 |         |  |      | 413,954 |         |      |   | 505,555 |         |  |   | 542,026 |         |  |   | 574,647 |         |  |   | 591,839 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 
|Gross re-estimated liability  latest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                   |      | 198,272 |         |      |   | 197,042 |         |  |   | 296,974 |         |  |      | 322,330 |         |      |   | 372,566 |         |  |   | 440,543 |         |  |      | 539,902 |         |      |   | 643,302 |         |  |   | 698,345 |         |  |   | 689,193 |         |  |   |         | 
|Re-estimated reinsurance recoverables  latest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                   |      | 15,589  |         |      |   | 10,094  |         |  |   | 47,267  |         |  |      | 59,170  |         |      |   | 81,422  |         |  |   | 80,790  |         |  |      | 83,383  |         |      |   | 103,063 |         |  |   | 107,680 |         |  |   | 108,361 |         |  |   |         | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 
|Net re-estimated liability  latest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   |      | 182,683 |         |      |   | 186,948 |         |  |   | 249,707 |         |  |      | 263,160 |         |      |   | 291,144 |         |  |   | 359,753 |         |  |      | 456,519 |         |      |   | 540,239 |         |  |   | 590,665 |         |  |   | 580,832 |         |  |   |         | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 
|Gross cumulative (deficiency) redundancy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                   |      | 169,060 |         |      |   | 162,288 |         |  |   | 95,652  |         |  |      | 85,416  |         |      |   | 50,421  |         |  |   | 16,529  |         |  |      | (56,629 | )       |      |   | (46,256 | )       |  |   | (60,851 | )       |  |   | (15,588 | )       |  |   |         | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                   |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         |  |   |         |         |  |      |         |         |      |   |         |         | 
|During 2004, the Gerling Global Reinsurance Corporation
    (Gerling) commuted their reinsurance contracts with APCapital.
    The transaction produced a net loss of $4.4 million on
    prior years reserves as a result of APCapital reassuming
    Gerlings obligation for loss and LAE in return for
    consideration which was discounted for the time value of money.
    For illustrative purposes, the following cumulative
    (deficiency)/redundancy amounts exclude the effect of prior year
    development due to the Gerling commutation:
|Net cumulative (deficiency) redundancy (excluding Gerling
    commutation)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |      | 158,571 |         |      |   | 147,316 |         |  |   | 96,748  |         |  |      | 89,676  |         |      |   | 80,838  |         |  |   | 33,854  |         |  |      | (42,391 | )       |      |   | (33,954 | )       |  |   | (45,950 | )       |  |   | (1,774  | )       |  |   |         | 

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##### Table of Contents







Reserve Ranges




|                  |  |                           |         |  |           |   |        |       |  |   |         | 
|----------------- |  | ------------------------- | ------- |  | --------- | - | ------ | ----- |  | - | ------- | 
|                  |  | Net Loss and LAE Reserves |        
|                  |  |                           |        
|                  |  | Medical                   |         |  |          
|                  |  | Professional              |         |  | Other     |   |        |      
|                  |  | Liability                 |         |  | Insurance |   |        | Total | 
|                  |  |                           |         |  |           |   |        |       | 
|                  |  | (In thousands)            |        
|Low end of range  |  | $                         | 493,446 |  |           | $ | 51,642 |       |  | $ | 545,088 | 
|Carried reserves  |  |                           | 536,354 |  |           |   | 55,485 |       |  |   | 591,839 | 
|High end of range |  |                           | 579,262 |  |           |   | 59,452 |       |  |   | 638,714 | 





|                  |  |                |         |  
|----------------- |  | -------------- | ------- | -
|                  |  | Impact on      |        
|                  |  | Pre-tax Income |        
|                  |  |                |        
|Low end of range  |  | $              | (42,908 | )
|High end of range |  |                | 42,908  |  

10



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##### Table of Contents



Statutory vs. GAAP Reserves




Investments




Competition






Segment Information




Insurance Regulatory Matters


General.


11



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##### Table of Contents





Holding Company Regulation.




Change of Control.


Risk-Based Capital Requirements.




IRIS Requirements.


12



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##### Table of Contents







|                                                   |                                                        |             |                |       |  |        |    
|-------------------------------------------------- | ------------------------------------------------------ | ----------- | -------------- | ----- |  | ------ | ---
|Ratios by Company                                  |                                                        | Usual Range |                | Value | 
|                                                   |                                                        |             |                |       | 
|Company: APSpecialty Insurance Corporation         |                                                        |             |                |       |  |       
|                                                   | Change in net writings                                 |             | <33% and> -33% |       |  | 999.0% | (1)
|                                                  
|Company: Insurance Corporation of America          |                                                        |             |                |       |  |       
|                                                   | Change in net writings                                 |             | <33% and> -33% |       |  | -99.0% | (2)
|                                                   | Two-year overall operating ratio                       |             | <100%          |       |  | 119.0% | (3)
|                                                   | Change in policyholders surplus                       |             | <50% and> -10% |       |  | -23.0% | (4)
|                                                   | One-year reserve development to policyholders surplus |             | <20%           |       |  | 90.0%  | (5)
|                                                   | Two-year reserve development to policyholders surplus |             | <20%           |       |  | 147.0% | (5)
|                                                  
|Company: American Physicians Assurance Corporation |                                                        |             |                |       |  |       
|                                                   | Change in net writings                                 |             | <33% or> -33%  |       |  | 37.0%  | (6)
|                                                   | Two-year overall operating ratio                       |             | <100%          |       |  | 102.0% | (7)
|                                                   | Change in policyholders surplus                       |             | <50% and> -10% |       |  | 30.0%  | (8)
|                                                   | Two-year reserve development to policyholders surplus |             | <20%           |       |  | 30.0%  | (9)






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The increase in APSpecialtys net premiums written is
    primarily the result of a 2003 novation that resulted in certain
    reserve and unearned premium balances being transferred to its
    sister companies, ICA and American Physicians. The novation,
    which is an outright transfer of the rights and obligations
    associated with the policies affected, was completed to align
    the Companys major lines of business within specific
    insurance companies. In connection with the novation, written
    and earned premiums equal to the novated reserve and unearned
    premium balances were also transferred, which resulted in a
    reduction of net premiums written of $1.8 million. Without
    the effects of the novation, the results of this ratio would
    have been 24%, which is within the normal range.
|   
|(2) | This ratio is outside of the acceptable range due to
    discontinuing the workers compensation line beginning in 2003,
    as well as the additional $79.0 million in net premiums
    written recorded as a result of the novation described above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(3) | ICAs two year operating ratio is elevated because of
    $12.8 million adverse development reported for
    workers compensation, and is further complicated by the
    2003 novation. When the balances were novated, losses equal to
    the reserves transferred were incurred along with an equal
    amount of earned premiums, which resulted in a loss ratio of
    100% on a significant portion of ICAs business recorded
    during 2003.                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(4) | The decrease in ICAs statutory surplus was primarily the
    result of an operating loss for the workers compensation
    line of business. The ratio would have been worse without the
    fourth quarter surplus contribution of $4.0 million from
    APCapital, ICAs parent company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(5) | The one-year and two-year reserve development to surplus ratios
    are outside the usual range due to the Companys
    recognition of $12.8 million adverse development in
    workers compensation, particularly in the 2000 to 2002
    accident years. The two year ratio is further impacted by the
    2003 novation because almost all of the Companys
    workers compensation reserves are now reported on ICA,
    development attributed to this line is also reported on ICA. The
    two year reserve development compares reserves for accident
    years 2002 and prior to surplus as of December 31, 2002.
    ICAs December 31, 2002 surplus, which was used as the
    denominator in the calculation, was not proportionate to the
    December 31, 2002                                                                   

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##### Table of Contents



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | workers compensation reserves, and the corresponding
    potential for adverse development, which was one of the primary
    reasons an additional $15 million of surplus was
    contributed to ICA in 2003. If ICAs December 31, 2003
    surplus were used as the denominator in the calculation, the
    resulting two-year development ratio would have been 75%, which
    is explained primarily by the adverse development in
    workers compensation.               
|   
|(6) | The change in net writings ratio value of 37% is primarily the
    result of the 2003 novation discussed above, which resulted in a
    reduction of American Physicians net premium writings in 2003
    related to novated balances of approximately $77.3 million.
    Had net premiums written not been reduced in 2003 as a result of
    the novation, the ratio would have been -13%, which is well
    within the NAICs usual range.                                    
|   
|(7) | The two year overall operating result ratio value of 102% is
    primarily the result of a two year loss ratio of approximately
    100%. The unusually high loss ratio is a factor of
    (a) adverse development on prior year loss reserves of
    approximately $46.4 million in 2003, and (b) a
    decrease in net premiums earned during 2003 of approximately
    $57.4 million related to the intercompany novation.                                                    
|   
|(8) | The increase in American Physicians statutory surplus was
    primarily the result of a cash surplus contribution of
    $25 million in January 2004 from its parent, APCapital. In
    addition, effective March 31, 2004, APCapital contributed
    all of the outstanding common stock of its subsidiary
    APSpecialty to American Physicians. The contribution of
    APSpecialtys common stock resulted in a $20.5 million
    increase in American Physicians surplus.
|   
|(9) | The two year reserve development to surplus ratio value is
    outside of the usual range as a result of the significant
    adverse development on prior year loss reserves in 2003 related
    to the medical professional liability line of business.                                                                                                                                                                                                                         

Guaranty Fund.




Employees




Filings Under the Securities Exchange Act of 1934




Uncertainties Relating To Forward-Looking Statements






14



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##### Table of Contents







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The process of estimating the reserves for unpaid losses and
    loss adjustment expenses involves significant judgment and is
    complex and imprecise due to the number of variables and
    assumptions inherent in the estimation process. These variables
    include the effects on ultimate loss payments of internal
    factors such as changes in claims handling practices and changes
    in the mix of our products, as well as external factors such as
    changes in loss severity trends, economic inflation, judicial
    trends and legislative and regulatory changes. In addition,
    medical professional liability claims may take several years to
    resolve due to typical delays in reporting claims to us, the
    often lengthy discovery process, and the time necessary to
    defend the claim. Also, claims with similar characteristics may
    result in very different ultimate losses depending on the state
    or region where the claim occurred. All of these factors
    contribute to the variability in estimating ultimate loss
    payments, especially since the effects of many of these
    variables cannot be directly quantified, particularly on a
    prospective basis. The assumptions and methodologies used in
    estimating and establishing the reserve for unpaid losses and
    loss adjustment expenses are continually reviewed and any
    adjustments are reflected as income or expense in the period in
    which the adjustment is made. Any such adjustments could
    materially and adversely affect our results of operations for
    the period with respect to which the adjustment is made. Due to
    the current volatility of losses in the medical professional
    liability and workers compensation industries, adjustments
    have occurred in each of the last several years, and additional
    adjustments may occur in the future.
|
| |  | A deterioration in the current accident year experience could
    result in a portion or all of our deferred policy acquisition
    costs not being recoverable, which would result in a charge to
    income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Our exit from various markets and lines of business, including
    without limitation our exit from, the workers
    compensation, health and personal and commercial lines of
    business, as well as various geographic markets, could result in
    future charges to income due to unforeseen costs or the need for
    unanticipated reserve enhancements. Additional reserve
    enhancements may be necessary due to the volatility of loss
    reserves on these run-off lines. Run-off lines typically have
    increased volatility as paid claim trends often emerge
    differently than those that have been historically indicated,
    thus increasing the uncertainty inherent in reserve estimates,
    especially on longer-tailed lines such as workers
    compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | If we are unable to timely and effectively convert data from our
    New Mexico policy administration information system to the same
    system as used for the underwriting and claims function in our
    other locations, underwriting and claim controls related to our
    New Mexico operations may continue to operate ineffectively. As
    a result, errors or inaccuracies in our processing and recording
    of premiums, paid losses and loss adjustment expenses and case
    reserves may not be detected on a timely basis. Although we are
    taking steps to remediate these control deficiencies, there can
    be no assurance that we will be effective in doing so. If our
    remediation efforts are unsuccessful, there will continue to be
    a more than remote likelihood that a material misstatement in
    our financial statements relating to our New Mexico operation
    will not be detected.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Substantial jury awards against our insureds could impose
    liability on us exceeding our policy limits or the funds we have
    reserved for the payment of claims.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Tort reform is currently being considered in various forms by
    Congress. If enacted, such reform could preempt state tort
    reforms currently in effect in the markets in which we do
    business. If federal reforms are less favorable than those
    currently in place in our markets, such reforms could have a
    material adverse effect on our business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | If the marketplace puts pressure on pricing increases, we may
    not be able to obtain expected rate increases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | If competitive or other conditions change, our revenues may
    decrease or our expenses may increase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

15



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | If we experience substantial increases in claims frequency or
    severity patterns, our profitability may decline.                                                                                                                                                                                                                                        
|
| |  | We may be unable to collect the full amount of reinsurance
    recoverable from PMA Capital Insurance Company and/or Converium
    Reinsurance (NA), Inc., as well as our other reinsurers, if
    their cash flow or surplus levels are inadequate to make claim
    payments, which could result in a future charge to income.                           
|
| |  | If reinsurance rates rise significantly or reinsurance from
    creditworthy reinsurers becomes unavailable or reinsurers are
    unable to pay our claims, our results of operations and
    financial condition may be adversely affected.                                                                                                               
|
| |  | The concentration of our business in Michigan, Illinois, Ohio
    and New Mexico leaves us vulnerable to various factors specific
    to those states.                                                                                                                                                                                                     
|
| |  | If our current relationship with medical associations and
    physicians does not continue, our ability to market our products
    and compete successfully may be harmed.                                                                                                                                                                                 
|
| |  | The passing of tort reform at a national level may have a
    material adverse impact on our results of operations pertaining
    to certain markets that currently have tort reform in place at
    the state level.                                                                                                                                      
|
| |  | An interruption or change in our relationship with SCW Agency
    Group, an insurance sales agency that is principally owned by
    our former President and CEO, could reduce our insurance
    premiums and net income. This agency accounts for substantially
    more of our medical professional liability premiums written than
    any other agency.
|
| |  | If any of the member companies in the various guaranty
    associations in which we participate were to become insolvent,
    we could be assessed by the relevant association in an amount
    that could materially affect our financial condition or results
    of operations.                                                                         
|
| |  | We may not be able to obtain regulatory approval for rate
    increases, which may negatively affect our profitability.                                                                                                                                                                                                                                    
|
| |  | If we fail to comply with insurance industry regulations, or if
    those regulations become more burdensome to us, we may not be
    able to operate profitably.                                                                                                                                                                                          
|
| |  | A reduction in our A.M. Best Company rating could make it more
    difficult for us to sell our products.                                                                                                                                                                                                                                                  
|
| |  | Changes in prevailing interest rates and other negative changes
    in financial market conditions may reduce our revenues, cash
    flows or assets, including the amount of unrealized gains on
    investments shown on our balance sheet.                                                                                                              
|
| |  | An increase in short-term interest rates will increase our debt
    service costs related to our variable rate long-term debt.                                                                                                                                                                                                                             
|
| |  | Changes in current market conditions may adversely impact the
    property value of real estate investments that we currently hold.                                                                                                                                                                                                                        
|
| |  | A downturn in general economic conditions or significant
    increase in inflation in the markets in which we compete could
    negatively affect our profitability.                                                                                                                                                                                       








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



16



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##### Table of Contents










|        |                  
|------- | -----------------
|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 |  
|                              |  |            |       |  |     |  
|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 | 
|2003                          |  |            |       |  |     |   |       | 
|October 1  December 31, 2003 |  | $          | 28.95 |  |     | $ | 15.44 | 
|July 1  September 30, 2003   |  |            | 29.22 |  |     |   | 23.92 | 
|April 1  June 30, 2003       |  |            | 25.79 |  |     |   | 20.59 | 
|January 1  March 31, 2003    |  |            | 22.88 |  |     |   | 18.30 | 



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##### Table of Contents









|                                                        |  |                         |         |  |                     |   |                       |                          |  |  |        | 
|------------------------------------------------------- |  | ----------------------- | ------- |  | ------------------- | - | --------------------- | ------------------------ |  |  | ------ | 
|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:     |  |                         | 519,436 |  |                     | $ | 18.71                 |                          |  |  | 94,048 | 
|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(1) |         |  | per Share  |   |                 | Announced Plans     |  |                | Under the Plans(2) | 
|                                             |  |              |         |  |            |   |                 |                     |  |                |                    | 
|                                             |  | (a)          |         |  | (b)        |   |                 | (c)                 |  |                | (d)                | 
|For the month ended
    October 31, 2004     |  |              |        |  |            |   |                |                     |  |                |                   |  |  |  | 418,369 | 
|For the month ended November 30, 2004        |  |              |        |  |            |   |                |                     |  |                |                   |  |  |  | 418,369 | 
|For the month ended December 31, 2004        |  |              | 166,017 |  |            | $ | 32.85           |                     |  |                |                   |  |  |  | 418,369 | 
|For the three months ended December 31, 2004 |  |              | 166,017 |  |            | $ | 32.85           |                     |  |                |                   |  |  |  | 418,369 | 
|For the year ended
    December 31, 2004     |  |              | 166,017 |  |            | $ | 32.85           |                     |  |                |                   |  |  |  | 418,369 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In December 2004, Mr. Cheeseman, the Companys former
    President and Chief Executive Officer, exercised 290,614 stock
    options. As permitted by the Plan (see Note 17 of the Notes
    to Consolidated Financial Statements), Mr. Cheeseman
    tendered mature shares in lieu of a cash payment.                                                                                                                                         
|   
|(2) | On September 11, 2003, APCapitals Board of Directors
    authorized the Company to purchase an additional
    500,000 shares of its outstanding common stock. 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 3,615,439, of which, 3,197,070 have
    been purchased at an average price per share of $18.89.

18



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##### Table of Contents








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



|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |         |         |         |   |        |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ------ | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------ | ------- | ------- | 
|                                                                                                                                                  |                                              | For the Year Ended December 31,       |       
|                                                                                                                                                  |                                              |                                       |       
|                                                                                                                                                  |                                              | 2004                                  |        |         | 2003    |   |         | 2002(a) |         |   | 2001    |         |         | 2000 |        
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        
|                                                                                                                                                  |                                              | (In thousands, except per share data) |       
|Revenue:                                                                                                                                          |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |         |         |         |   |        |        
|                                                                                                                                                  | Direct premiums written                      |                                       | $      | 213,945 |         |   | $       | 256,235 |         |   | $       | 266,260 |         |      | $       | 230,765 |         |   | $      | 203,169 |        
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        
|                                                                                                                                                  | Net premiums written                         |                                       | $      | 186,431 |         |   | $       | 224,647 |         |   | $       | 238,417 |         |      | $       | 208,779 |         |   | $      | 187,076 |        
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        
|                                                                                                                                                  | Net premiums earned                          |                                       | $      | 200,579 |         |   | $       | 224,590 |         |   | $       | 235,551 |         |      | $       | 202,371 |         |   | $      | 180,342 |        
|                                                                                                                                                  | Investment income                            |                                       |        | 47,373  |         |   |         | 43,294  |         |   |         | 44,775  |         |      |         | 47,883  |         |   |        | 36,784  |        
|                                                                                                                                                  | Net realized gains (losses)                  |                                       |        | 1,551   |         |   |         | 2,403   |         |   |         | (163    | )       |      |         | (5,651  | )       |   |        | 1,164   |        
|                                                                                                                                                  | Other income                                 |                                       |        | 1,177   |         |   |         | 1,104   |         |   |         | 376     |         |      |         | 546     |         |   |        | 2,428   |        
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        
|                                                                                                                                                  |                                              | Total revenues and other income       |        |         | 250,680 |   |         |         | 271,391 |   |         |         | 280,539 |      |         |         | 245,149 |   |        |         | 220,718 | 
|Losses and expenses:                                                                                                                              |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |         |         |         |   |        |        
|                                                                                                                                                  | Losses and loss adjustment expenses          |                                       |        | 177,786 |         |   |         | 252,742 |         |   |         | 242,028 |         |      |         | 257,848 |         |   |        | 153,518 |        
|                                                                                                                                                  | Underwriting expenses                        |                                       |        | 42,681  |         |   |         | 51,104  |         |   |         | 48,593  |         |      |         | 45,111  |         |   |        | 42,158  |        
|                                                                                                                                                  | Investment expenses                          |                                       |        | 2,460   |         |   |         | 2,940   |         |   |         | 2,515   |         |      |         | 1,788   |         |   |        | 2,978   |        
|                                                                                                                                                  | Interest expense                             |                                       |        | 1,714   |         |   |         | 1,370   |         |   |         | 373     |         |      |         | 400     |         |   |        | 716     |        
|                                                                                                                                                  | Amortization expense                         |                                       |        | 1,096   |         |   |         | 389     |         |   |         |        |         |      |         | 2,514   |         |   |        | 2,328   |        
|                                                                                                                                                  | Other expenses                               |                                       |        | 5,193   |         |   |         | 3,729   |         |   |         | 1,971   |         |      |         | 4,718   |         |   |        | 2,275   |        
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        
|                                                                                                                                                  |                                              | Total losses and expenses             |        |         | 230,930 |   |         |         | 312,274 |   |         |         | 295,480 |      |         |         | 312,379 |   |        |         | 203,973 | 
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        
|Income (loss) before federal income tax (benefit) expense and
    minority interest and cumulative effect of a change in
    accounting principle |                                              |                                       | 19,750 |         |         |   | (40,883 | )       |         |   | (14,941 | )       |         |      | (67,230 | )       |         |   | 16,745 |        
|                                                                                                                                                  | Federal income tax (benefit) expense         |                                       |        | (290    | )       |   |         | 36,296  |         |   |         | (5,529  | )       |      |         | (23,450 | )       |   |        | 4,800   |        
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        
|Income (loss) before minority interest and cumulative effect of
    a change in accounting principle                                              |                                              |                                       | 20,040 |         |         |   | (77,179 | )       |         |   | (9,412  | )       |         |      | (43,780 | )       |         |   | 11,945 |        
|                                                                                                                                                  | Minority interest in consolidated subsidiary |                                       |        | (10     | )       |   |         | 348     |         |   |         |        |         |      |         |        |         |   |        |        |        
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        
|Income (loss) before cumulative effect of a change in accounting
    principle                                                                    |                                              |                                       | 20,030 |         |         |   | (76,831 | )       |         |   | (9,412  | )       |         |      | (43,780 | )       |         |   | 11,945 |        
|Cumulative effect of a change in accounting principle                                                                                             |                                              |                                       |       |         |         |   |        |         |         |   | (9,079  | )       |         |      |        |         |         |   |       |        
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        
|Net income (loss)                                                                                                                                 |                                              | $                                     | 20,030 |         |         | $ | (76,831 | )       |         | $ | (18,491 | )       |         | $    | (43,780 | )       |         | $ | 11,945 |        
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        
|Net income (loss) per share  basic(b)                                                                                                            |                                              | $                                     | 2.37   |         |         | $ | (9.02   | )       |         | $ | (1.98   | )       |         | $    | (3.95   | )       |         | $ | 0.07   |        
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        
|Net income (loss) per share  diluted(b)                                                                                                          |                                              | $                                     | 2.30   |         |         | $ | (9.02   | )       |         | $ | (1.98   | )       |         | $    | (3.95   | )       |         | $ | 0.07   |        
|                                                                                                                                                  |                                              |                                       |        |         |         |   |         |         |         |   |         |         |         |      |        






|    |  |                                                                                                                                                                                                                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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

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|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | 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) |  | The weighted average shares outstanding for the years ended
    December 31, 2004, 2003, 2002 and 2001, were 8,455,299,
    8,520,335, 9,339,739 and 11,071,529 basic common shares,
    respectively. The diluted weighted average shares outstanding as
    of December 31, 2004 were 8,721,286. 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. The weighted average
    shares outstanding for the period from December 13, 2000,
    the date of the conversion, to December 31, 2000 were
    11,134,981 basic common shares and 11,260,797 common shares
    assuming dilution. There were no cash dividends declared during
    the periods presented.

|                    |                                                    |                                       |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |         |  
|------------------- | -------------------------------------------------- | ------------------------------------- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - | ---- | - | --------- | - |  | - | ------- | -
|                    |                                                    | At or For the Year Ended December 31, |  
|                    |                                                    |                                       |  
|                    |                                                    | 2004                                  |   |           | 2003 |  |   | 2002      |   |  | 2001 |           |   | 2000 |  
|                    |                                                    |                                       |   |           |      |  |   |           |   |  |      |           |   |      |  
|Balance Sheet Data: |                                                    |                                       |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |        
|                    | Total cash and investments                         |                                       | $ | 858,098   |      |  | $ | 834,005   |   |  | $    | 801,556   |   |      | $ | 752,508   |   |  | $ | 762,023 |  
|                    | Total assets                                       |                                       |   | 1,069,899 |      |  |   | 1,063,046 |   |  |      | 1,058,918 |   |      |   | 1,038,917 |   |  |   | 977,976 |  
|                    | Total liabilities                                  |                                       |   | 865,575   |      |  |   | 859,037   |   |  |      | 778,629   |   |      |   | 731,952   |   |  |   | 608,551 |  
|                    | Total GAAP shareholders equity(a)                 |                                       |   | 202,124   |      |  |   | 201,808   |   |  |      | 280,289   |   |      |   | 306,965   |   |  |   | 369,425 |  
|GAAP Ratios:        |                                                    |                                       |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |        
|                    | Loss ratio                                         |                                       |   | 88.6      | %    |  |   | 112.5     | % |  |      | 102.7     | % |      |   | 127.4     | % |  |   | 85.1    | %
|                    | Underwriting expense ratio                         |                                       |   | 21.3      |      |  |   | 22.8      |   |  |      | 20.6      |   |      |   | 22.3      |   |  |   | 23.4    |  
|                    | Combined ratio                                     |                                       |   | 109.9     |      |  |   | 135.3     |   |  |      | 123.3     |   |      |   | 149.7     |   |  |   | 108.5   |  
|Statutory Data      |                                                    |                                       |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |        
|                    | Loss ratio                                         |                                       |   | 88.6      | %    |  |   | 112.5     | % |  |      | 103.2     | % |      |   | 131.1     | % |  |   | 85.2    | %
|                    | Underwriting expense ratio(b)                      |                                       |   | 23.8      |      |  |   | 23.3      |   |  |      | 20.9      |   |      |   | 24.3      |   |  |   | 24.7    |  
|                    | Combined ratio                                     |                                       |   | 112.4     |      |  |   | 135.8     |   |  |      | 124.1     |   |      |   | 155.4     |   |  |   | 109.9   |  
|                    | Surplus                                            |                                       | $ | 210,874   |      |  | $ | 150,270   |   |  | $    | 190,216   |   |      | $ | 203,069   |   |  | $ | 246,089 |  
|                    | Ratio of statutory net premiums written to surplus |                                       |   | 0.87      | x    |  |   | 1.49      | x |  |      | 1.25      | x |      |   | 1.03      | x |  |   | 0.76    | 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



20



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Overview of APCapitals Operations




The Economics of Property & Casualty Insurance














21



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##### Table of Contents







The Medical Professional Liability Insurance Market










| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | Exited unprofitable markets such as Florida and Nevada;                                                            
|
| |  | Ceased writing occurrence-based policies in all markets with the
    exception of Michigan, Indiana and New Mexico;
|
| |  | Discontinued writing certain high-risk specialties;                                                                
|
| |  | Implemented on-site risk management assessments on all new
    business in Ohio, Kentucky and Illinois;            
|
| |  | Implemented a unique communication skills assessment in targeted
    markets; and                                  
|
| |  | Reduced policy limits.                                                                                             





22



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Important Agency Relationship








23



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##### Table of Contents











Significant Accounting Policies






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



24



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25



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##### Table of Contents





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











| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                 



|               |       |                |      |      |            |   |     |            |   |   |             |     |            |   |   |   |  |   |   |   | 
|-------------- | ----- | -------------- | ---- | ---- | ---------- | - | --- | ---------- | - | - | ----------- | --- | ---------- | - | - | - |  | - | - | - | 
|Security Type  |       | <3 Months      |      |      | 3-6 Months |   |     | 6-9 Months |   |   | 9-12 Months |     | >12 Months
|               |       |                |      |      |            |   |     |            |   |   |             |     |           
|               |       | (In thousands)
|Fixed maturity |       | $              | (226 | )    |            | $ | (65 | )          |   | $ | (29         | )   |            | $ |  |   |  | $ |  |  
|               |       |                |      |      |            |   |     |            |   |   |             |     |            |   |  
|               | Total |                | $    | (226 | )          |   | $   | (65        | ) |   | $           | (29 | )          |   | $ |  |  |   | $ |  | 
|               |       |                |      |      |            |   |     |            |   |   |             |     |            |   |  

26



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##### Table of Contents













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





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



27



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##### Table of Contents















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





| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | Future reversals of existing taxable temporary differences
    (i.e., deferred tax liabilities);
|
| |  | Taxable income available in available carryback years;                                          
|
| |  | Tax planning strategies; and                                                                    
|
| |  | Future taxable income exclusive of reversing temporary
    differences and carryforwards.       



28



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



29



---



##### Table of Contents



Description of Ratios Analyzed






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





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





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





30



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##### Table of Contents



Results of Operations




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



|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |         |   |        |         |         |   |          |        |         | 
|----------------------------------------------------------------- | ------------------------------ | -------------------------------------------------------------------------------------------------------------------------- | ------- | ------- | ------- |  | ------- | ---------- | ------- | - | ------- | ------- | ------- | ---- | ---------- | ------ | ------ |  | ------- | ------- | ------- | - | ------ | ------- | ------- | - | -------- | ------ | ------- | 
|                                                                  |                                |                                                                                                                            |         |         |         |  |         | Percentage |         |   |         |         |         |      | Percentage |       
|                                                                  |                                | 2004                                                                                                                       |         |         | 2003    |  |         | Change     |         |   | Change  |         |         | 2002 |            |        | Change |  |         | Change  |        
|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |        
|                                                                  |                                | (Dollars in thousands)                                                                                                     |        
|Net premiums earned by insurance segment:                         |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |         |   |        |         |         |   |          |       
|                                                                  | Medical professional liability |                                                                                                                            | $       | 173,835 |         |  | $       | 158,777    |         |   | $       | 15,058  |         |      |            | 9.5%   |        |  | $       | 148,646 |         |   | $      | 10,131  |         |   |          | 6.8%   |        
|                                                                  | Other insurance lines          |                                                                                                                            |         | 26,744  |         |  |         | 65,813     |         |   |         | (39,069 | )       |      |            | -59.4% |        |  |         | 86,905  |         |   |        | (21,092 | )       |   |          | -24.3% |        
|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |        
|                                                                  |                                | Total net premiums earned                                                                                                  |         |         | 200,579 |  |         |            | 224,590 |   |         |         | (24,011 | )    |            |        | -10.7% |  |         |         | 235,551 |   |        |         | (10,961 | ) |          |        | -4.7%   | 
|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |        
|Investment income                                                 |                                |                                                                                                                            | 47,373  |         |         |  | 43,294  |            |         |   | 4,079   |         |         |      | 9.4%       |        |        |  | 44,775  |         |         |   | (1,481 | )       |         |   | -3.3%    |       
|Net realized gains (losses)                                       |                                |                                                                                                                            | 1,551   |         |         |  | 2,403   |            |         |   | (852    | )       |         |      | 35.5%      |        |        |  | (163    | )       |         |   | 2,566  |         |         |   | 1,574.2% |       
|Other income                                                      |                                |                                                                                                                            | 1,177   |         |         |  | 1,104   |            |         |   | 73      |         |         |      | 6.6%       |        |        |  | 376     |         |         |   | 728    |         |         |   | 193.6%   |       
|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |        
|                                                                  |                                | Total revenues and other income                                                                                            |         |         | 250,680 |  |         |            | 271,391 |   |         |         | (20,711 | )    |            |        | -7.6%  |  |         |         | 280,539 |   |        |         | (9,148  | ) |          |        | -3.3%   | 
|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |        
|Losses and loss adjustment expenses                               |                                |                                                                                                                            | 177,786 |         |         |  | 252,742 |            |         |   | (74,956 | )       |         |      | -29.7%     |        |        |  | 242,028 |         |         |   | 10,714 |         |         |   | 4.4%     |       
|Underwriting expenses                                             |                                |                                                                                                                            | 42,681  |         |         |  | 51,104  |            |         |   | (8,423  | )       |         |      | -16.5%     |        |        |  | 48,593  |         |         |   | 2,511  |         |         |   | 5.2%     |       
|Investment expenses                                               |                                |                                                                                                                            | 2,460   |         |         |  | 2,940   |            |         |   | (480    | )       |         |      | -16.3%     |        |        |  | 3,091   |         |         |   | (151   | )       |         |   | -4.9%    |       
|Interest expense                                                  |                                |                                                                                                                            | 1,714   |         |         |  | 1,370   |            |         |   | 344     |         |         |      | 25.1%      |        |        |  | 373     |         |         |   | 997    |         |         |   | 267.3%   |       
|Amortization expense                                              |                                |                                                                                                                            | 1,096   |         |         |  | 389     |            |         |   | 707     |         |         |      | 181.7%     |        |        |  |        |         |         |   | 389    |         |         |   |          |       
|General and administrative expenses                               |                                |                                                                                                                            | 3,918   |         |         |  | 2,921   |            |         |   | 997     |         |         |      | 34.1%      |        |        |  | 1,395   |         |         |   | 1,526  |         |         |   | 109.4%   |       
|Other expenses                                                    |                                |                                                                                                                            | 1,275   |         |         |  | 808     |            |         |   | 467     |         |         |      | 57.8%      |        |        |  |        |         |         |   | 808    |         |         |   |          |       
|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |        
|                                                                  |                                | Total expenses                                                                                                             |         |         | 230,930 |  |         |            | 312,274 |   |         |         | (81,344 | )    |            |        | -26.0% |  |         |         | 295,480 |   |        |         | 16,794  |   |          |        | 5.7%    | 
|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |        
|                                                                  |                                | Income (loss) before federal income taxes, minority interest and
    cumulative effect of a change in accounting principle |         |         | 19,750  |  |         |            | (40,883 | ) |         |         | 60,633  |      |            |        | 148.3% |  |         |         | (14,941 | ) |        |         | (25,942 | ) |          |        | -173.6% | 
|Federal income tax (benefit) expense                              |                                |                                                                                                                            | (290    | )       |         |  | 36,296  |            |         |   | (36,586 | )       |         |      | 100.8%     |        |        |  | (5,529  | )       |         |   | 41,825 |         |         |   | 756.5%   |       
|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |        
|                                                                  |                                | Income (loss) before minority interest and cumulative effect of
    a change in accounting principle                       |         |         | 20,040  |  |         |            | (77,179 | ) |         |         | 97,219  |      |            |        | 126.0% |  |         |         | (9,412  | ) |        |         | (67,767 | ) |          |        | -720.0% | 
|Minority interest in net (income) loss of consolidated subsidiary |                                |                                                                                                                            | (10     | )       |         |  | 348     |            |         |   | (358    | )       |         |      | 102.9%     |        |        |  |        |         |         |   | 348    |         |         |   |          |       
|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |        
|                                                                  |                                | Income (loss) before cumulative effect of a change in accounting
    principle                                             |         |         | 20,030  |  |         |            | (76,831 | ) |         |         | 96,861  |      |            |        | 126.1% |  |         |         | (9,412  | ) |        |         | (67,419 | ) |          |        | -716.3% | 
|Cumulative effect of a change in accounting principle             |                                |                                                                                                                            |        |         |         |  |        |            |         |   |        |         |         |      |            |        |        |  | (9,079  | )       |         |   | 9,079  |         |         |   |          |       
|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |        
|                                                                  |                                | Net income (loss)                                                                                                          |         | $       | 20,030  |  |         | $          | (76,831 | ) |         | $       | 96,861  |      |            |        | 126.1% |  |         | $       | (18,491 | ) |        | $       | (58,340 | ) |          |        | -315.5% | 
|                                                                  |                                |                                                                                                                            |         |         |         |  |         |            |         |   |         |         |         |      |            |        |        |  |         |         |        
|Loss ratio                                                        |                                |                                                                                                                            | 88.6%   |         |         |  | 112.5%  |            |         |   | -23.9%  |         |         |      |            |        |        |  | 102.7%  |         |         |   | 9.8%   |         |         |   |          |       
|Underwriting ratio                                                |                                |                                                                                                                            | 21.3%   |         |         |  | 22.8%   |            |         |   | -1.5%   |         |         |      |            |        |        |  | 20.6%   |         |         |   | 2.2%   |         |         |   |          |       
|Combined ratio                                                    |                                |                                                                                                                            | 109.9%  |         |         |  | 135.3%  |            |         |   | -25.4%  |         |         |      |            |        |        |  | 123.3%  |         |         |   | 12.0%  |         |         |   |          |       

2004 Compared to 2003.


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2003 Compared to 2002.










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



|                                                                                                                           |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |         |         |         |         |        |        |        |        |        |       | 
|-------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------------------------- | ------- | ------ | ------- | ------- | ------- | ---------- | ------- | ------- | ------ | ------ | ------- | ------- | ---------- | ------ | ------- | ------ | ------- | ------ | ------- | ------- | ------- | ------- | ------ | ------ | ------ | ------ | ------ | ----- | 
|                                                                                                                           |                            |                              |         |        |         |         |         | Percentage |         |         |        |        |         |         | Percentage |       
|                                                                                                                           |                            | 2004                         |         |        | 2003    |         |         | Change     |         |         | Change |        |         | 2002    |            |        | Change  |        |         | Change |        
|                                                                                                                           |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |        
|                                                                                                                           |                            | (Dollars in thousands)       |        
|Direct premiums written:                                                                                                   |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |         |         |         |         |        |        |        |       
|                                                                                                                           | Michigan                   |                              | $       | 59,903 |         |         | $       | 54,629     |         |         | $      | 5,274  |         |         |            | 9.7%   |         |        | $       | 50,077 |         |         | $       | 4,552   |        |        |        | 9.1%   |       
|                                                                                                                           | Illinois                   |                              |         | 55,439 |         |         |         | 54,108     |         |         |        | 1,331  |         |         |            | 2.5%   |         |        |         | 35,429 |         |         |         | 18,679  |        |        |        | 52.7%  |       
|                                                                                                                           | Ohio                       |                              |         | 35,861 |         |         |         | 35,793     |         |         |        | 68     |         |         |            | 0.2%   |         |        |         | 33,731 |         |         |         | 2,062   |        |        |        | 6.1%   |       
|                                                                                                                           | New Mexico                 |                              |         | 20,534 |         |         |         | 16,268     |         |         |        | 4,266  |         |         |            | 26.2%  |         |        |         | 11,448 |         |         |         | 4,820   |        |        |        | 42.1%  |       
|                                                                                                                           | Kentucky                   |                              |         | 13,877 |         |         |         | 15,747     |         |         |        | (1,870 | )       |         |            | -11.9% |         |        |         | 15,742 |         |         |         | 5       |        |        |        | 0.0%   |       
|                                                                                                                           | Florida                    |                              |         | 959    |         |         |         | 6,882      |         |         |        | (5,923 | )       |         |            | -86.1% |         |        |         | 23,637 |         |         |         | (16,755 | )      |        |        | -70.9% |       
|                                                                                                                           | Florida  PIC              |                              |         | 7,805  |         |         |         | 3,801      |         |         |        | 4,004  |         |         |            | 105.3% |         |        |         |       |         |         |         | 3,801   |        |        |        |        |       
|                                                                                                                           | Nevada                     |                              |         | 3,686  |         |         |         | 4,833      |         |         |        | (1,147 | )       |         |            | -23.7% |         |        |         | 4,595  |         |         |         | 238     |        |        |        | 5.2%   |       
|                                                                                                                           | Other                      |                              |         | 4,970  |         |         |         | 3,681      |         |         |        | 1,289  |         |         |            | 35.0%  |         |        |         | 2,594  |         |         |         | 1,087   |        |        |        | 41.9%  |       
|                                                                                                                           |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |        
|                                                                                                                           |                            | Total                        |         | $      | 203,034 |         |         | $          | 195,742 |         |        | $      | 7,292   |         |            |        | 3.7%    |        |         | $      | 177,253 |         |         | $       | 18,489 |        |        |        | 10.4%  |      
|                                                                                                                           |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |        
|Net premiums written                                                                                                       |                            | $                            | 175,042 |        |         | $       | 164,157 |            |         | $       | 10,885 |        |         |         | 6.6%       |        |         | $      | 154,583 |        |         | $       | 9,574   |         |        |        | 6.2%   |       
|                                                                                                                           |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |        
|Net premiums earned                                                                                                        |                            | $                            | 173,835 |        |         | $       | 158,777 |            |         | $       | 15,058 |        |         |         | 9.5%       |        |         | $      | 148,646 |        |         | $       | 10,131  |         |        |        | 6.8%   |       
|Incurred loss and loss adjustment expenses:                                                                                |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |         |         |         |         |        |        |        |       
|                                                                                                                           |                            | Current accident year losses |         |        | 148,230 |         |         |            | 153,180 |         |        |        | (4,950  | )       |            |        | -3.2%   |        |         |        | 157,750 |         |         |         | (4,570 | )      |        |        | -2.9%  |      
|                                                                                                                           |                            | Gerling Global commutation   |         |        | 4,139   |         |         |            |        |         |        |        | 4,139   |         |            |        |         |        |         |        |        |         |         |         |       |        |        |        |        |      
|                                                                                                                           |                            | Prior year losses            |         |        | (6,850  | )       |         |            | 44,250  |         |        |        | (51,100 | )       |            |        | -115.5% |        |         |        | 4,500   |         |         |         | 39,750 |        |        |        | 883.3% |      
|                                                                                                                           |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |        
|                                                                                                                           |                            |                              | Total   |        |         | 145,519 |         |            |         | 197,430 |        |        |         | (51,911 | )          |        |         | -26.3% |         |        |         | 162,250 |         |         |        | 35,180 |        |        |        | 21.7% | 
|Underwriting expenses                                                                                                      |                            |                              | 35,320  |        |         |         | 31,315  |            |         |         | 4,005  |        |         |         | 12.8%      |        |         |        | 27,157  |        |         |         | 4,158   |         |        |        | 15.3%  |       
|                                                                                                                           |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |        
|Underwriting loss                                                                                                          |                            | $                            | (7,004  | )      |         | $       | (69,968 | )          |         | $       | 62,964 |        |         |         | -90.0%     |        |         | $      | (40,761 | )      |         | $       | (29,207 | )       |        |        | 71.7%  |       
|                                                                                                                           |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |        
|Income (loss) before federal income taxes, minority interest and
    cumulative effect of a change in accounting principle |                            | $                            | 36,472  |        |         | $       | (33,821 | )          |         | $       | 68,632 |        |         |         | -202.9%    |        |         | $      | (5,219  | )      |         | $       | (28,602 | )       |        |        | 548.0% |       
|                                                                                                                           |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |        
|Loss ratio:                                                                                                                |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |         |         |         |         |        |        |        |       
|                                                                                                                           | Accident year              |                              |         | 85.3%  |         |         |         | 96.5%      |         |         |        | -11.2% |         |         |            |        |         |        |         | 106.1% |         |         |         | -9.6%   |        |        |        |        |       
|                                                                                                                           | Gerling Global commutation |                              |         | 2.4%   |         |         |         | 0.0%       |         |         |        | 2.4%   |         |         |            |        |         |        |         | 0.0%   |         |         |         | 0.0%    |        |        |        |        |       
|                                                                                                                           | Prior years                |                              |         | -4.0%  |         |         |         | 27.8%      |         |         |        | -31.8% |         |         |            |        |         |        |         | 3.1%   |         |         |         | 24.7%   |        |        |        |        |       
|                                                                                                                           |                            |                              |         |        |         |         |         |            |         |         |        |        |         |         |            |        |         |        |         |        |        
|                                                                                                                           | Calendar year              |                              |         | 83.7%  |         |         |         | 124.3%     |         |         |        | -40.6% |         |         |            |        |         |        |         | 109.2% |         |         |         | 15.1%   |        |        |        |        |       
|Underwriting expense ratio                                                                                                 |                            |                              | 20.3%   |        |         |         | 19.7%   |            |         |         | 0.6%   |        |         |         |            |        |         |        | 18.3%   |        |         |         | 1.4%    |         |        |        |        |       
|Combined ratio                                                                                                             |                            |                              | 104.0%  |        |         |         | 144.0%  |            |         |         | -40.0% |        |         |         |            |        |         |        | 127.5%  |        |         |         | 16.5%   |         |        |        |        |       

2004 Compared to 2003.


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2003 Compared to 2002.






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



|                                                                                                                  |                              |                        |         |        |        |   |        |            |        |   |         |         |         |      |            |          |        |   |         |        |        |   |         |         |         |   |        |        |        | 
|----------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---------------------- | ------- | ------ | ------ | - | ------ | ---------- | ------ | - | ------- | ------- | ------- | ---- | ---------- | -------- | ------ | - | ------- | ------ | ------ | - | ------- | ------- | ------- | - | ------ | ------ | ------ | 
|                                                                                                                  |                              |                        |         |        |        |   |        | Percentage |        |   |         |         |         |      | Percentage |         
|                                                                                                                  |                              | 2004                   |         |        | 2003   |   |        | Change     |        |   | Change  |         |         | 2002 |            |          | Change |   |         | Change |       
|                                                                                                                  |                              |                        |         |        |        |   |        |            |        |   |         |         |         |      |            |          |        |   |         |        |       
|                                                                                                                  |                              | (Dollars in thousands) |        
|Direct premiums written                                                                                           |                              | $                      | 10,911  |        |        | $ | 60,494 |            |        | $ | (49,583 | )       |         |      | -82.0%     |          |        | $ | 88,627  |        |        | $ | (28,133 | )       |         |   | -31.7% |       
|                                                                                                                  |                              |                        |         |        |        |   |        |            |        |   |         |         |         |      |            |          |        |   |         |        |       
|Net premiums written                                                                                              |                              | $                      | 11,389  |        |        | $ | 60,490 |            |        | $ | (49,101 | )       |         |      | -81.2%     |          |        | $ | 84,266  |        |        | $ | (23,776 | )       |         |   | -28.2% |       
|                                                                                                                  |                              |                        |         |        |        |   |        |            |        |   |         |         |         |      |            |          |        |   |         |        |       
|Net premiums earned                                                                                               |                              | $                      | 26,744  |        |        | $ | 65,813 |            |        | $ | (39,069 | )       |         |      | -59.4%     |          |        | $ | 86,905  |        |        | $ | (21,092 | )       |         |   | -24.3% |       
|Incurred loss and loss adjustment expenses:                                                                       |                              |                        |         |        |        |   |        |            |        |   |         |         |         |      |            |          |        |   |         |        |        |   |         |         |         |   |        |       
|                                                                                                                  | Current accident year losses |                        |         | 23,371 |        |   |        | 56,119     |        |   |         | (32,748 | )       |      |            | -58.4%   |        |   |         | 79,778 |        |   |         | (23,659 | )       |   |        | -29.7% |       
|                                                                                                                  | Gerling Global commutation   |                        |         | 271    |        |   |        |           |        |   |         | 271     |         |      |            |          |        |   |         |       |        |   |         |        |         |   |        |        |       
|                                                                                                                  | Prior year losses            |                        |         | 8,625  |        |   |        | (807       | )      |   |         | 9,432   |         |      |            | -1168.8% |        |   |         |       |        |   |         | (807    | )       |   |        |        |       
|                                                                                                                  |                              |                        |         |        |        |   |        |            |        |   |         |         |         |      |            |          |        |   |         |        |       
|                                                                                                                  |                              | Total                  |         |        | 32,267 |   |        |            | 55,312 |   |         |         | (23,045 | )    |            |          | -41.7% |   |         |        | 79,778 |   |         |         | (24,466 | ) |        |        | -30.7% | 
|Underwriting expenses                                                                                             |                              |                        | 7,361   |        |        |   | 19,789 |            |        |   | (12,428 | )       |         |      | -62.8%     |          |        |   | 21,436  |        |        |   | (1,647  | )       |         |   | -7.7%  |       
|                                                                                                                  |                              |                        |         |        |        |   |        |            |        |   |         |         |         |      |            |          |        |   |         |        |       
|Underwriting loss                                                                                                 |                              | $                      | (12,884 | )      |        | $ | (9,288 | )          |        | $ | (3,596  | )       |         |      | 38.7%      |          |        | $ | (14,309 | )      |        | $ | 5,021   |         |         |   | -35.1% |       
|                                                                                                                  |                              |                        |         |        |        |   |        |            |        |   |         |         |         |      |            |          |        |   |         |        |       
|Loss before federal income taxes, minority interest and
    cumulative effect of a change in accounting principle |                              | $                      | (9,374  | )      |        | $ | (3,706 | )          |        | $ | (5,668  | )       |         |      | 152.9%     |          |        | $ | (8,705  | )      |        | $ | 4,999   |         |         |   | -57.4% |       
|                                                                                                                  |                              |                        |         |        |        |   |        |            |        |   |         |         |         |      |            |          |        |   |         |        |       
|Loss ratio:                                                                                                       |                              |                        |         |        |        |   |        |            |        |   |         |         |         |      |            |          |        |   |         |        |        |   |         |         |         |   |        |       
|                                                                                                                  | Accident year                |                        |         | 87.4%  |        |   |        | 85.3%      |        |   |         | 2.1%    |         |      |            |          |        |   |         | 91.8%  |        |   |         | -6.5%   |         |   |        |        |       
|                                                                                                                  | Gerling Global commutation   |                        |         | 1.0%   |        |   |        | 0.0%       |        |   |         | 1.0%    |         |      |            |          |        |   |         | 0.0%   |        |   |         | 0.0%    |         |   |        |        |       
|                                                                                                                  | Prior years                  |                        |         | 32.3%  |        |   |        | -1.3%      |        |   |         | 33.6%   |         |      |            |          |        |   |         | 0.0%   |        |   |         | -1.3%   |         |   |        |        |       
|                                                                                                                  |                              |                        |         |        |        |   |        |            |        |   |         |         |         |      |            |          |        |   |         |        |       
|                                                                                                                  | Calendar year                |                        |         | 120.7% |        |   |        | 84.0%      |        |   |         | 36.7%   |         |      |            |          |        |   |         | 91.8%  |        |   |         | -7.8%   |         |   |        |        |       
|Underwriting expense ratio                                                                                        |                              |                        | 27.5%   |        |        |   | 30.1%  |            |        |   | -2.6%   |         |         |      |            |          |        |   | 24.7%   |        |        |   | 5.4%    |         |         |   |        |       
|Combined ratio                                                                                                    |                              |                        | 148.2%  |        |        |   | 114.1% |            |        |   | 34.1%   |         |         |      |            |          |        |   | 116.5%  |        |        |   | -2.4%   |         |         |   |        |       

2004 Compared to 2003.




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2003 Compared to 2002.








| |                    
| | -------------------
| | Corporate and Other

2004 Compared to 2003.


2003 Compared to 2002.


Liquidity and Capital Resources




38



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Financial Condition






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





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





40



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|                         |  |             |       |  |         |          |       |          |              |   |              |  |  |   |        | 
|------------------------ |  | ----------- | ----- |  | ------- | -------- | ----- | -------- | ------------ | - | ------------ |  |  | - | ------ | 
|                         |  |             |       |  |         | 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 | 
|                         |  |             |       |  |         |          |       |          |              |   |              | 
|2004                     |  |             | 1,786 |  |         |          | 3,342 |          |              | $ | 117,010      |  |  | $ | 59,258 | 
|2003                     |  |             | 2,657 |  |         |          | 4,447 |          |              |   | 87,656       |  |  |   | 66,279 | 
|2002                     |  |             | 3,018 |  |         |          | 4,863 |          |              |   | 70,905       |  |  |   | 65,645 | 





|                                                     |                                |                |         |         |           |   |        |          |   |   |         |         |  
|---------------------------------------------------- | ------------------------------ | -------------- | ------- | ------- | --------- | - | ------ | -------- | - | - | ------- | ------- | -
|                                                     |                                | Medical        |         |         | Other     |   |        |         
|                                                     |                                | Professional   |         |         | Insurance |   |        | All      |  
|                                                     |                                | Liability      |         |         | Lines     |   |        | Segments |  
|                                                     |                                |                |         |         |           |   |        |          |  
|                                                     |                                | (In thousands) |        
|Balance, December 31, 2003                           |                                | $              | 598,330 |         |           | $ | 75,275 |          |   | $ | 673,605 |        
|                                                     | Less, reinsurance recoverables |                |         | 91,002  |           |   |        | 7,956    |   |   |         | 98,958  |  
|                                                     |                                |                |         |         |           |   |        |          |  
|Net reserves, December 31, 2003                      |                                |                | 507,328 |         |           |   | 67,319 |          |   |   | 574,647 |        
|Incurred related to                                  |                                |                |         |         |           |   |        |          |   |   |         |        
|                                                     | Current year                   |                |         | 148,230 |           |   |        | 23,371   |   |   |         | 171,601 |  
|                                                     | Gerling Global commutation     |                |         | 4,139   |           |   |        | 271      |   |   |         | 4,410   |  
|                                                     | Prior years                    |                |         | (6,850  | )         |   |        | 8,625    |   |   |         | 1,775   |  
|                                                     |                                |                |         |         |           |   |        |          |  
|                                                     |                                |                | 145,519 |         |           |   | 32,267 |          |   |   | 177,786 |        
|                                                     |                                |                |         |         |           |   |        |          |  
|Paid related to                                      |                                |                |         |         |           |   |        |          |   |   |         |        
|                                                     | Current year                   |                |         | 4,964   |           |   |        | 12,997   |   |   |         | 17,961  |  
|                                                     | Gerling Global commutation     |                |         | (13,136 | )         |   |        | (364     | ) |   |         | (13,500 | )
|                                                     | Prior years                    |                |         | 124,664 |           |   |        | 31,469   |   |   |         | 156,133 |  
|                                                     |                                |                |         |         |           |   |        |          |  
|                                                     |                                |                | 116,492 |         |           |   | 44,102 |          |   |   | 160,594 |        
|                                                     |                                |                |         |         |           |   |        |          |  
|Net reserves, December 31, 2004                      |                                |                | 536,355 |         |           |   | 55,484 |          |   |   | 591,839 |        
|                                                     | Plus, reinsurance recoverables |                |         | 97,949  |           |   |        | 3,842    |   |   |         | 101,791 |  
|Balance, December 31, 2004                           |                                | $              | 634,304 |         |           | $ | 59,326 |          |   | $ | 693,630 |        
|                                                     |                                |                |         |         |           |   |        |          |  
|Development as a % of December 31, 2003 net reserves |                                |                | -0.5    | %       |           |   | 13.2   | %        |   |   | 1.1     | %      
|                                                     |                                |                |         |         |           |   |        |          |  



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

















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Off-Balance Sheet Arrangements




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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) |       | $                      | 693,630 |           |        | $ | 209,936 |         |  | $   | 298,056 |         |           | $       | 129,245 |         |  | $ | 56,393 |       
|Operating leases                                         |       |                        | 6,413   |           |        |   | 1,068   |         |  |     | 1,721   |         |           |         | 1,237   |         |  |   | 2,387  |       
|Long-term debt(2)                                        |       |                        | 30,928  |           |        |   |        |         |  |     |        |         |           |         |        |         |  |   | 30,928 |       
|                                                         |       |                        |         |           |        |   |         |         |  |     |         |         |           |         |        
|                                                         | Total |                        | $       | 730,971   |        |   | $       | 211,004 |  |     | $       | 299,777 |           |         | $       | 130,482 |  |   | $      | 89,708 | 
|                                                         |       |                        |         |           |        |   |         |         |  |     |         |         |           |         |        






|    |                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 9 of the
    Notes to Consolidated Financial Statements.                                                                                                                                                                        

Effects of New Accounting Pronouncements










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

General






Qualitative Information About Market Risk
















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Quantitative Information About Market Risk




Entire Fixed Maturity Portfolio (Including Interest Only
Certificates)


|                |  |                        |         |  |                        |   |         |          |  |  |           |  |  |           |         |  |          |   |         |   |  |  |      | 
|--------------- |  | ---------------------- | ------- |  | ---------------------- | - | ------- | -------- |  |  | --------- |  |  | --------- | ------- |  | -------- | - | ------- | - |  |  | ---- | 
|                |  | December 31, 2004      |         |  | December 31, 2003      |  
|                |  |                        |         |  |                        |  
|                |  | Portfolio              |         |  | Change in              |   |         | Modified |  |  | Portfolio |  |  | Change in |         |  | Modified |  
|Change in Rates |  | Value                  |         |  | Value                  |   |         | Duration |  |  | Value     |  |  | Value     |         |  | Duration |  
|                |  |                        |         |  |                        |   |         |          |  |  |           |  |  |           |         |  |          |  
|                |  | (Dollars in thousands) |         |  | (Dollars in thousands) |  
|+2%             |  | $                      | 612,330 |  |                        | $ | (45,376 | )        |  |  | 4.58      |  |  | $         | 664,072 |  |          | $ | (30,561 | ) |  |  | 3.07 | 
|+1%             |  |                        | 639,822 |  |                        |   | (17,884 | )        |  |  | 3.63      |  |  |           | 680,389 |  |          |   | (14,244 | ) |  |  | 2.81 | 
|0               |  |                        | 657,706 |  |                        |   |         |          |  |  | 2.77      |  |  |           | 694,633 |  |          |   |         |   |  |  | 2.89 | 
|-1%             |  |                        | 665,172 |  |                        |   | 7,466   |          |  |  | 1.89      |  |  |           | 708,257 |  |          |   | 13,624  |   |  |  | 2.80 | 
|-2%             |  |                        | 677,559 |  |                        |   | 19,853  |          |  |  | 1.97      |  |  |           | 726,316 |  |          |   | 31,683  |   |  |  | 2.87 | 

Interest Only Certificates


|                |  |                        |        |  |                        |   |        |          |  |  |           |  |  |           |        |  |          |   |        |   |  |  |      | 
|--------------- |  | ---------------------- | ------ |  | ---------------------- | - | ------ | -------- |  |  | --------- |  |  | --------- | ------ |  | -------- | - | ------ | - |  |  | ---- | 
|                |  | December 31, 2004      |        |  | December 31, 2003      |  
|                |  |                        |        |  |                        |  
|                |  | Portfolio              |        |  | Change in              |   |        | Modified |  |  | Portfolio |  |  | Change in |        |  | Modified |  
|Change in Rates |  | Value                  |        |  | Value                  |   |        | Duration |  |  | Value     |  |  | Value     |        |  | Duration |  
|                |  |                        |        |  |                        |   |        |          |  |  |           |  |  |           |        |  |          |  
|                |  | (Dollars in thousands) |        |  | (Dollars in thousands) |  
|+2%             |  | $                      | 10,289 |  |                        | $ | 3,153  |          |  |  | 4.18      |  |  | $         | 19,217 |  |          | $ | 5,751  |   |  |  | 1.57 | 
|+1%             |  |                        | 10,713 |  |                        |   | 3,577  |          |  |  | 3.67      |  |  |           | 17,792 |  |          |   | 4,326  |   |  |  | 1.44 | 
|0               |  |                        | 7,136  |  |                        |   |        |          |  |  | 1.99      |  |  |           | 13,466 |  |          |   |        |   |  |  | 1.02 | 
|-1%             |  |                        | 2,240  |  |                        |   | (4,896 | )        |  |  | 0.68      |  |  |           | 7,136  |  |          |   | (6,330 | ) |  |  | 1.03 | 
|-2%             |  |                        | 1,601  |  |                        |   | (5,535 | )        |  |  | 0.56      |  |  |           | 5,536  |  |          |   | (7,930 | ) |  |  | 0.42 | 

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Consolidated Financial Statements




Internal Control Over Financial Reporting


Internal Control  Integrated
Framework






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Internal Control  Integrated
Framework


Internal Control  Integrated
Framework Internal Control  Integrated Framework








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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES







CONSOLIDATED BALANCE SHEETS


December 31, 2004 and 2003


|                                                          |                                                                                            |                                            |         |         |           |   |         |         |           | 
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ------- | --------- | - | ------- | ------- | --------- | 
|                                                          |                                                                                            | 2004                                       |         |         | 2003      |  
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | (In thousands,                             |        
|                                                          |                                                                                            | except share data)                         |        
|ASSETS                                                   
|Investments:                                              |                                                                                            |                                            |         |         |           |   |         |        
|                                                          | Fixed maturities, at fair value                                                            |                                            | $       | 657,706 |           |   | $       | 694,633 |          
|                                                          | Equity securities, at fair value                                                           |                                            |         | 2,091   |           |   |         | 7,545   |          
|                                                          | Other investments                                                                          |                                            |         | 7,365   |           |   |         | 29,776  |          
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | Total investments                          |         |         | 667,162   |   |         |         | 731,954   | 
|Cash and cash equivalents                                 |                                                                                            |                                            | 190,936 |         |           |   | 102,051 |        
|Premiums receivable                                       |                                                                                            |                                            | 54,614  |         |           |   | 65,362  |        
|Reinsurance recoverable                                   |                                                                                            |                                            | 103,312 |         |           |   | 103,652 |        
|Federal income taxes recoverable                          |                                                                                            |                                            | 1,569   |         |           |   | 973     |        
|Property and equipment, net                               |                                                                                            |                                            | 12,181  |         |           |   | 16,490  |        
|Intangible assets, net                                    |                                                                                            |                                            | 625     |         |           |   | 1,539   |        
|Other assets                                              |                                                                                            |                                            | 39,500  |         |           |   | 41,025  |        
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | Total assets                               |         | $       | 1,069,899 |   |         | $       | 1,063,046 | 
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                         
|LIABILITIES                                              
|Unpaid losses and loss adjustment expenses                |                                                                                            | $                                          | 693,630 |         |           | $ | 673,605 |        
|Unearned premiums                                         |                                                                                            |                                            | 90,040  |         |           |   | 103,806 |        
|Note payable, officer                                     |                                                                                            |                                            |        |         |           |   | 6,000   |        
|Long-term debt                                            |                                                                                            |                                            | 30,928  |         |           |   | 30,928  |        
|Accrued expenses and other liabilities                    |                                                                                            |                                            | 50,977  |         |           |   | 44,698  |        
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | Total liabilities                          |         |         | 865,575   |   |         |         | 859,037   | 
|                                                          |                                                                                            |                                            |         |         |           |  
|Commitments and Contingencies (Note 19)                   |                                                                                            |                                            |         |         |           |   |         |        
|Minority Interest in Consolidated Subsidiary              |                                                                                            |                                            | 2,200   |         |           |   | 2,201   |        
|Shareholders Equity                                      |                                                                                            |                                            |         |         |           |   |         |        
|Common stock, no par value, 50,000,000 shares authorized: |                                                                                            |                                            |         |         |           |   |         |        
|                                                          | 8,671,984 and 8,445,807 shares outstanding at
    December 31, 2004 and 2003, respectively |                                            |         |        |           |   |         |        |          
|Additional paid-in-capital                                |                                                                                            |                                            | 86,956  |         |           |   | 85,137  |        
|Retained earnings                                         |                                                                                            |                                            | 107,382 |         |           |   | 87,352  |        
|Unearned stock compensation                               |                                                                                            |                                            | (368    | )       |           |   | (288    | )      
|Accumulated other comprehensive income:                   |                                                                                            |                                            |         |         |           |   |         |        
|                                                          | Net unrealized appreciation on investments, net of deferred
    federal income taxes       |                                            |         | 8,154   |           |   |         | 29,607  |          
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | Total shareholders equity                 |         |         | 202,124   |   |         |         | 201,808   | 
|                                                          |                                                                                            |                                            |         |         |           |  
|                                                          |                                                                                            | Total liabilities and shareholders equity |         | $       | 1,069,899 |   |         | $       | 1,063,046 | 
|                                                          |                                                                                            |                                            |         |         |           |  



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES







CONSOLIDATED STATEMENTS OF INCOME


For the Years Ended December 31, 2004, 2003, and 2002


|                                                                                                                   |                                 |                                       |         |         |      |   |         |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------------------------ | ------------------------------- | ------------------------------------- | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                   |                                 | Year Ended December 31,               |        
|                                                                                                                   |                                 |                                       |        
|                                                                                                                   |                                 | 2004                                  |         |         | 2003 |   |         | 2002    |  
|                                                                                                                   |                                 |                                       |         |         |      |   |         |         |  
|                                                                                                                   |                                 | (In thousands, except per share data) |        
|Revenues and Other Income                                                                                          |                                 |                                       |         |         |      |   |         |         |   |   |         |        
|Net premiums written                                                                                               |                                 | $                                     | 186,431 |         |      | $ | 224,647 |         |   | $ | 238,417 |        
|Change in unearned premiums                                                                                        |                                 |                                       | 14,148  |         |      |   | (57     | )       |   |   | (2,866  | )      
|                                                                                                                   |                                 |                                       |         |         |      |   |         |         |  
|Net premiums earned                                                                                                |                                 |                                       | 200,579 |         |      |   | 224,590 |         |   |   | 235,551 |        
|Investment income                                                                                                  |                                 |                                       | 47,373  |         |      |   | 43,294  |         |   |   | 44,775  |        
|Net realized gains (losses)                                                                                        |                                 |                                       | 1,551   |         |      |   | 2,403   |         |   |   | (163    | )      
|Other income, net                                                                                                  |                                 |                                       | 1,177   |         |      |   | 1,104   |         |   |   | 376     |        
|                                                                                                                   |                                 |                                       |         |         |      |   |         |         |  
|                                                                                                                   | Total revenues and other income |                                       |         | 250,680 |      |   |         | 271,391 |   |   |         | 280,539 |  
|Expenses                                                                                                           |                                 |                                       |         |         |      |   |         |         |   |   |         |        
|Losses and loss adjustment expenses                                                                                |                                 |                                       | 177,786 |         |      |   | 252,742 |         |   |   | 242,028 |        
|Underwriting expenses                                                                                              |                                 |                                       | 42,681  |         |      |   | 51,104  |         |   |   | 48,593  |        
|Investment expenses                                                                                                |                                 |                                       | 2,460   |         |      |   | 2,940   |         |   |   | 3,091   |        
|Interest expense                                                                                                   |                                 |                                       | 1,714   |         |      |   | 1,370   |         |   |   | 373     |        
|Amortization expense                                                                                               |                                 |                                       | 1,096   |         |      |   | 389     |         |   |   |        |        
|General and administrative expenses                                                                                |                                 |                                       | 3,918   |         |      |   | 2,921   |         |   |   | 1,395   |        
|Other expenses                                                                                                     |                                 |                                       | 1,275   |         |      |   | 808     |         |   |   |        |        
|                                                                                                                   |                                 |                                       |         |         |      |   |         |         |  
|                                                                                                                   | Total expenses                  |                                       |         | 230,930 |      |   |         | 312,274 |   |   |         | 295,480 |  
|                                                                                                                   |                                 |                                       |         |         |      |   |         |         |  
|Income (loss) before income taxes, minority interest and
    cumulative effect of a change in accounting principle |                                 |                                       | 19,750  |         |      |   | (40,883 | )       |   |   | (14,941 | )      
|Federal income tax (benefit) expense                                                                               |                                 |                                       | (290    | )       |      |   | 36,296  |         |   |   | (5,529  | )      
|                                                                                                                   |                                 |                                       |         |         |      |   |         |         |  
|Income (loss) before minority interest and cumulative effect of
    a change in accounting principle               |                                 |                                       | 20,040  |         |      |   | (77,179 | )       |   |   | (9,412  | )      
|Minority interest in net (income) loss of consolidated subsidiary                                                  |                                 |                                       | (10     | )       |      |   | 348     |         |   |   |        |        
|                                                                                                                   |                                 |                                       |         |         |      |   |         |         |  
|Income (loss) before cumulative effect of a change in accounting
    principle                                     |                                 |                                       | 20,030  |         |      |   | (76,831 | )       |   |   | (9,412  | )      
|Cumulative effect of a change in accounting principle, net of
    tax (Note 4)                                     |                                 |                                       |        |         |      |   |        |         |   |   | (9,079  | )      
|                                                                                                                   |                                 |                                       |         |         |      |   |         |         |  
|                                                                                                                   | Net income (loss)               |                                       | $       | 20,030  |      |   | $       | (76,831 | ) |   | $       | (18,491 | )
|                                                                                                                   |                                 |                                       |         |         |      |   |         |         |  
|Earnings Per Share:                                                                                                |                                 |                                       |         |         |      |   |         |         |   |   |         |        
|Income (loss) before cumulative effect of a change in accounting
    principle                                     |                                 |                                       |         |         |      |   |         |         |   |   |         |        
|                                                                                                                   | Basic                           |                                       | $       | 2.37    |      |   | $       | (9.02   | ) |   | $       | (1.01   | )
|                                                                                                                   | Diluted                         |                                       | $       | 2.30    |      |   | $       | (9.02   | ) |   | $       | (1.01   | )
|Cumulative effect of a change in accounting principle                                                              |                                 |                                       |         |         |      |   |         |         |   |   |         |        
|                                                                                                                   | Basic                           |                                       | $       |        |      |   | $       |        |   |   | $       | (0.97   | )
|                                                                                                                   | Diluted                         |                                       | $       |        |      |   | $       |        |   |   | $       | (0.97   | )
|Net income (loss)                                                                                                  |                                 |                                       |         |         |      |   |         |         |   |   |         |        
|                                                                                                                   | Basic                           |                                       | $       | 2.37    |      |   | $       | (9.02   | ) |   | $       | (1.98   | )
|                                                                                                                   | Diluted                         |                                       | $       | 2.30    |      |   | $       | (9.02   | ) |   | $       | (1.98   | )



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES







CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


AND COMPREHENSIVE INCOME


For the Years Ended December 31, 2004, 2003 and 2002


|                                                                                   |                                                                                                               |                                   |            |            |         |   |         |          |          |             |              |         |   |               |        |   |       |   |        |         |   |   |         |         |  
|---------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | --------------------------------- | ---------- | ---------- | ------- | - | ------- | -------- | -------- | ----------- | ------------ | ------- | - | ------------- | ------ | - | ----- | - | ------ | ------- | - | - | ------- | ------- | -
|                                                                                   |                                                                                                               |                                   |            |            |         |   |         |          |          | Accumulated |              |         |  
|                                                                                   |                                                                                                               |                                   |            | Additional |         |   |         |          | Unearned |             |              | Other   |   |               |       
|                                                                                   |                                                                                                               | Shares                            |            |            | Paid-In |   |         | Retained |          |             | Stock        |         |   | Comprehensive |        |   |      
|                                                                                   |                                                                                                               | Outstanding                       |            |            | Capital |   |         | Earnings |          |             | Compensation |         |   | Income        |        |   | Total |  
|                                                                                   |                                                                                                               |                                   |            |            |         |   |         |          |          |             |              |         |   |               |        |   |       |  
|                                                                                   |                                                                                                               | (In thousands, except share data) |           
|Balance, December 31, 2001                                                         |                                                                                                               |                                   | 10,238,122 |            |         | $ | 119,463 |          |          | $           | 182,674      |         |   | $             | (1,001 | ) |       | $ | 5,829  |         |   | $ | 306,965 |        
|Comprehensive income                                                               |                                                                                                               |                                   |            |            |         |   |         |          |          |             |              |         |   |               |        |   |       |   |        |         |   |   |         |        
|                                                                                   | Net loss                                                                                                      |                                   |            |            |         |   |         |          |          |             |              | (18,491 | ) |               |        |   |       |   |        |         |   |   |         | (18,491 | )
|                                                                                   | Unrealized appreciation on investment securities, net of taxes
    of $10,125 and reclassification adjustment |                                   |            |            |         |   |         |          |          |             |              |         |   |               |        |   |       |   |        | 18,807  |   |   |         | 18,807  |  
|                                                                                   |                                                                                                               |                                   |            |            |         |   |         |          |          |             |              |         |   |               |        |   |       |  
|Total comprehensive income, net of taxes                                           |                                                                                                               |                                   |            |            |         |   |         |          |          |             |              |         |   |               |        |   |       |   |        |         |   |   | 316     |        
|Purchase and retirement of common stock                                            |                                                                                                               |                                   | (1,555,100 | )          |         |   | (27,483 | )        |          |             |              |         |   |               |        |   |       |   |        |         |   |   | (27,483 | )      
|Options exercised                                                                  |                                                                                                               |                                   | 18,000     |            |         |   | 243     |          |          |             |              |         |   |               |        |   |       |   |        |         |   |   | 243     |        
|Amortization of unearned stock compensation                                        |                                                                                                               |                                   |            |            |         |   |         |          |          |             |              |         |   |               | 301    |   |       |   |        |         |   |   | 301     |        
|Forfeiture of unearned stock compensation                                          |                                                                                                               |                                   | (5,530     | )          |         |   | (75     | )        |          |             |              |         |   |               | 22     |   |       |   |        |         |   |   | (53     | )      
|                                                                                   |                                                                                                               |                                   |            |            |         |   |         |          |          |             |              |         |   |               |        |   |       |  
|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 and reclassification adjustment  |                                   |            |            |         |   |         |          |          |             |              |         |   |               |        |   |       |   |        | 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 and reclassification adjustment  |                                   |            |            |         |   |         |          |          |             |              |         |   |               |        |   |       |   |        | (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 |        
|                                                                                   |                                                                                                               |                                   |            |            |         |   |         |          |          |             |              |         |   |               |        |   |       |  



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES







CONSOLIDATED STATEMENTS OF CASH FLOWS


For the Years Ended December 31, 2004, 2003, and 2002


|                                                                                                                                               |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |          |         |         |         |         |        |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------------- | -------- | ------- | ------- | ------- | -------- | ------- | ------- | ------- | ------- | ------ | ------- | -
|                                                                                                                                               |                                                                                             | 2004                                                              |                                                      |                                                     | 2003     |         |         | 2002    |         
|                                                                                                                                               |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |         
|                                                                                                                                               |                                                                                             | (In thousands)                                                    |                                                     
|Cash flows from operating activities                                                                                                           |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |          |         |         |        
|                                                                                                                                               | Net income (loss)                                                                           |                                                                   | $                                                    | 20,030                                              |          |         | $       | (76,831 | )        |         | $       | (18,491 | )      
|                                                                                                                                               | Adjustments to reconcile net income (loss) to net cash provided
    by operating activities |                                                                   |                                                      |                                                     |          |         |         |         |          |         |         |         |        
|                                                                                                                                               |                                                                                             | Depreciation and amortization                                     |                                                      |                                                     | 8,306    |         |         |         | 7,058    |         |         |         | 4,056   |       
|                                                                                                                                               |                                                                                             | Net realized (gains) losses                                       |                                                      |                                                     | (1,551   | )       |         |         | (2,403   | )       |         |         | 163     |       
|                                                                                                                                               |                                                                                             | Loss on equity method investees                                   |                                                      |                                                     | 342      |         |         |         | 1,775    |         |         |         | 750     |       
|                                                                                                                                               |                                                                                             | Change in fair value of derivatives                               |                                                      |                                                     | 338      |         |         |         | (432     | )       |         |         |        |       
|                                                                                                                                               |                                                                                             | Deferred federal income taxes                                     |                                                      |                                                     |         |         |         |         | 39,865   |         |         |         | (6,903  | )     
|                                                                                                                                               |                                                                                             | Goodwill impairment                                               |                                                      |                                                     |         |         |         |         |         |         |         |         | 13,968  |       
|                                                                                                                                               |                                                                                             | Minority interest in net income (loss) of consolidated subsidiary |                                                      |                                                     | 10       |         |         |         | (348     | )       |         |         |        |       
|                                                                                                                                               |                                                                                             | Changes in:                                                       |                                                      |                                                     |          |         |         |         |          |         |         |         |         |       
|                                                                                                                                               |                                                                                             |                                                                   | Premiums receivable                                  |                                                     |          | 10,748  |         |         |          | (2,831  | )       |         |         | 1,663  |        
|                                                                                                                                               |                                                                                             |                                                                   | Reinsurance recoverable                              |                                                     |          | 340     |         |         |          | (5,524  | )       |         |         | (2,241 | )      
|                                                                                                                                               |                                                                                             |                                                                   | Federal income taxes recoverable/payable             |                                                     |          | (596    | )       |         |          | 127     |         |         |         | 10,166 |        
|                                                                                                                                               |                                                                                             |                                                                   | Unpaid losses and loss adjustment expenses           |                                                     |          | 20,025  |         |         |          | 36,111  |         |         |         | 40,448 |        
|                                                                                                                                               |                                                                                             |                                                                   | Unearned premiums                                    |                                                     |          | (13,766 | )       |         |          | 386     |         |         |         | 3,364  |        
|                                                                                                                                               |                                                                                             |                                                                   | Accrued expenses and other liabilities               |                                                     |          | 6,279   |         |         |          | 13,550  |         |         |         | 3,492  |        
|                                                                                                                                               |                                                                                             |                                                                   | Other assets                                         |                                                     |          | 1,525   |         |         |          | (1,410  | )       |         |         | 1,703  |        
|                                                                                                                                               |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |         
|                                                                                                                                               |                                                                                             |                                                                   |                                                      | Net cash provided by operating activities           |          |         | 52,030  |         |          |         | 9,093   |         |         |        | 52,138  |  
|                                                                                                                                               |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |         
|Cash flows from investing activities                                                                                                           |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |          |         |         |        
|                                                                                                                                               | Purchases                                                                                   |                                                                   |                                                      |                                                     |          |         |         |         |          |         |         |         |        
|                                                                                                                                               |                                                                                             | Available-for-sale  fixed maturities                             |                                                      |                                                     | (267,853 | )       |         |         | (254,421 | )       |         |         | (85,765 | )     
|                                                                                                                                               |                                                                                             | Available-for-sale  equity securities                            |                                                      |                                                     | (50,034  | )       |         |         | (19,030  | )       |         |         |        |       
|                                                                                                                                               |                                                                                             | Other investments                                                 |                                                      |                                                     |         |         |         |         | (1,407   | )       |         |         | (270    | )     
|                                                                                                                                               |                                                                                             | Physicians Insurance Company, net of cash acquired                |                                                      |                                                     |         |         |         |         | 2,550    |         |         |         |        |       
|                                                                                                                                               |                                                                                             | Intangible assets                                                 |                                                      |                                                     |         |         |         |         | (1,800   | )       |         |         |        |       
|                                                                                                                                               |                                                                                             | Property and equipment                                            |                                                      |                                                     | (1,120   | )       |         |         | (4,111   | )       |         |         | (1,668  | )     
|                                                                                                                                               | Sales and maturities                                                                        |                                                                   |                                                      |                                                     |          |         |         |         |          |         |         |         |        
|                                                                                                                                               |                                                                                             | Available-for-sale  fixed maturities                             |                                                      |                                                     | 285,019  |         |         |         | 187,629  |         |         |         | 101,997 |       
|                                                                                                                                               |                                                                                             | Available-for-sale  equity securities                            |                                                      |                                                     | 55,928   |         |         |         | 9,700    |         |         |         | 347     |       
|                                                                                                                                               |                                                                                             | Other investments                                                 |                                                      |                                                     | 19,519   |         |         |         | 4        |         |         |         | 6,842   |       
|                                                                                                                                               |                                                                                             | Property and equipment                                            |                                                      |                                                     | 35       |         |         |         | 8        |         |         |         |        |       
|                                                                                                                                               |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |         
|                                                                                                                                               |                                                                                             |                                                                   |                                                      | Net cash provided by (used in) investing activities |          |         | 41,494  |         |          |         | (80,878 | )       |         |        | 21,483  |  
|                                                                                                                                               |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |         
|Cash flows from financing activities                                                                                                           |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |          |         |         |        
|                                                                                                                                               | Principal payment on note payable                                                           |                                                                   |                                                      | (6,000                                              | )        |         |         | (1,000  | )        |         |         | (1,000  | )      
|                                                                                                                                               | Common stock repurchased                                                                    |                                                                   |                                                      |                                                    |          |         |         | (7,676  | )        |         |         | (27,483 | )      
|                                                                                                                                               | Debt issue costs                                                                            |                                                                   |                                                      |                                                    |          |         |         | (906    | )        |         |         |        |        
|                                                                                                                                               | Issuance of long-term debt                                                                  |                                                                   |                                                      |                                                    |          |         |         | 30,928  |          |         |         |        |        
|                                                                                                                                               | Proceeds from stock options exercised                                                       |                                                                   |                                                      | 1,334                                               |          |         |         | 440     |          |         |         | 243     |        
|                                                                                                                                               | Other                                                                                       |                                                                   |                                                      | 27                                                  |          |         |         | 225     |          |         |         |        |        
|                                                                                                                                               |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |         
|                                                                                                                                               |                                                                                             |                                                                   |                                                      | Net cash (used in) provided by financing activities |          |         | (4,639  | )       |          |         | 22,011  |         |         |        | (28,240 | )
|                                                                                                                                               |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |         
|                                                                                                                                               |                                                                                             |                                                                   | Net increase (decrease) in cash and cash equivalents |                                                     |          | 88,885  |         |         |          | (49,774 | )       |         |         | 45,381 |        
|                                                                                                                                               |                                                                                             |                                                                   |                                                      | Cash and cash equivalents, beginning of period      |          |         | 102,051 |         |          |         | 151,825 |         |         |        | 106,444 |  
|                                                                                                                                               |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |         
|                                                                                                                                               |                                                                                             |                                                                   |                                                      | Cash and cash equivalents, end of period            |          | $       | 190,936 |         |          | $       | 102,051 |         |         | $      | 151,825 |  
|                                                                                                                                               |                                                                                             |                                                                   |                                                      |                                                     |          |         |         |         |         
|Supplemental disclosures of cash flow information                                                                                             
|Federal income taxes of $308,000, $(3,752,000), and
    $(13,619,000), net, were paid (received) during 2004, 2003
    and 2002, respectively.
|Interest payments of $1,672,000, $822,000 and $0 were made
    during 2004, 2003 and 2002, 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.                                                                                 



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES







NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




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



| |                                     
| | ------------------------------------
| | Basis of consolidation and reporting





| |                   
| | ------------------
| | Nature of business









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







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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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













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







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



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



| |                                
| | -------------------------------
| | Premiums written and receivable





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





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





| |                                           
| | ------------------------------------------
| | Unpaid losses and loss adjustment expenses







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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



| |                                             
| | --------------------------------------------
| | Reserve for extended reporting period claims





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







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







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



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





| |         
| | --------
| | Goodwill





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





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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                                                                                                                                                                       |             |                                      |        |      |      |   |         |       |   |   |         |       |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------------------------ | ------ | ---- | ---- | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                                                                                                                       |             | 2004                                 |        |      | 2003 |   |         | 2002  |  
|                                                                                                                                                                       |             |                                      |        |      |      |   |         |       |  
|                                                                                                                                                                       |             | (In thousands, except per share data |       
|Net income (loss), as reported                                                                                                                                         |             | $                                    | 20,030 |      |      | $ | (76,831 | )     |   | $ | (18,491 | )    
|Add: Stock-based employee compensation expense included in
    reported net loss, net of related tax effects                                                           |             |                                      | 260    |      |      |   | 367     |       |   |   | 275     |      
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards granted
    since 2000, net of related tax effects |             |                                      | (921   | )    |      |   | (1,455  | )     |   |   | (2,318  | )    
|                                                                                                                                                                       |             |                                      |        |      |      |   |         |       |  
|Pro forma net income (loss)                                                                                                                                            |             | $                                    | 19,369 |      |      | $ | (77,919 | )     |   | $ | (20,534 | )    
|                                                                                                                                                                       |             |                                      |        |      |      |   |         |       |  
|Basic net income (loss) per share                                                                                                                                      |             |                                      |        |      |      |   |         |       |   |   |         |      
|                                                                                                                                                                       | As reported |                                      | $      | 2.37 |      |   | $       | (9.02 | ) |   | $       | (1.98 | )
|                                                                                                                                                                       | Pro forma   |                                      | $      | 2.29 |      |   | $       | (9.15 | ) |   | $       | (2.20 | )
|Diluted net income (loss) per share(1)                                                                                                                                 |             |                                      |        |      |      |   |         |       |   |   |         |      
|                                                                                                                                                                       | As reported |                                      | $      | 2.30 |      |   | $       | (9.02 | ) |   | $       | (1.98 | )
|                                                                                                                                                                       | Pro forma   |                                      | $      | 2.22 |      |   | $       | (9.15 | ) |   | $       | (2.20 | )
|Basic Weighted Average Shares                                                                                                                                          |             |                                      | 8,455  |      |      |   | 8,520   |       |   |   | 9,340   |      
|Diluted Weighted Average Shares(1)                                                                                                                                     |             |                                      | 8,721  |      |      |   | 8,520   |       |   |   | 9,340   |      






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



|                                         |  |      |       |   |      |  |       |      |  |  |       |  
|---------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                         |  | 2004 |       |   | 2003 |  |       | 2002 | 
|                                         |  |      |       |   |      |  |       |      | 
|Risk-free interest rate                  |  |      | 3.12  | % |      |  | 2.79  | %    |  |  | 4.09  | %
|Dividend yield                           |  |      | 0.00  | % |      |  | 0.00  | %    |  |  | 0.00  | %
|Weighted average volatility assumption   |  |      | 40.00 | % |      |  | 35.00 | %    |  |  | 35.00 | %
|Weighted average life of options (years) |  |      | 5.00  |   |      |  | 5.00  |      |  |  | 5.00  |  







| |                   
| | ------------------
| | Minority Interests



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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









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





| |                 
| | ----------------
| | Use of estimates







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



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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









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





|   |                               
|-- | ------------------------------
|4. | Goodwill and Intangible Assets



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                           
|-- | ------------------------------------------
|4. | Goodwill and Intangible Assets (continued)









|   |            
|-- | -----------
|5. | Investments



|                   |                                   |                          |   |         |            |  |       |            |        |  |            |      |      |   |   |         |         | 
|------------------ | --------------------------------- | ------------------------ | - | ------- | ---------- |  | ----- | ---------- | ------ |  | ---------- | ---- | ---- | - | - | ------- | ------- | 
|                   |                                   | 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  |        
|                   |                                   |                          |   |         |            |  |       |            |        |  |            |     
|                   |                                   | Fixed maturities         |   |         | 633,611    |  |       |            | 24,661 |  |            |      | (566 | ) |   |         | 657,706 | 
|                   | Equity securities                 |                          |   | 2,007   |            |  |       | 84         |        |  |            |     |      |   |   | 2,091   |        
|                   |                                   |                          |   |         |            |  |       |            |        |  |            |     
|                   |                                   | Total available-for-sale |   | $       | 635,618    |  |       | $          | 24,745 |  |            | $    | (566 | ) |   | $       | 659,797 | 
|                   |                                   |                          |   |         |            |  |       |            |        |  |            |     

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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                        
|-- | -----------------------
|5. | Investments (continued)

|                   |                                   |                          |   |         |            |  |       |            |        |  |            |      |      |   |   |         |         | 
|------------------ | --------------------------------- | ------------------------ | - | ------- | ---------- |  | ----- | ---------- | ------ |  | ---------- | ---- | ---- | - | - | ------- | ------- | 
|                   |                                   | 2003                     |  
|                   |                                   |                          |  
|                   |                                   |                          |   | Gross   |            |  | Gross |            |        | 
|                   |                                   | Amortized                |   |         | Unrealized |  |       | Unrealized |        |  | Estimated  |     
|                   |                                   | Cost/Cost                |   |         | Gains      |  |       | Losses     |        |  | Fair Value |     
|                   |                                   |                          |   |         |            |  |       |            |        |  |            |     
|                   |                                   | (In thousands)           |  
|Available-for-sale |                                   |                          |   |         |            |  |       |            |        |  |            |      |      |   |   |        
|                   | U.S. government obligations       |                          | $ | 54,168  |            |  | $     | 1,927      |        |  | $          | (4   | )    |   | $ | 56,091  |        
|                   | States and political subdivisions |                          |   | 32,932  |            |  |       | 1,404      |        |  |            | (18  | )    |   |   | 34,318  |        
|                   | Corporate securities              |                          |   | 475,866 |            |  |       | 37,896     |        |  |            | (75  | )    |   |   | 513,687 |        
|                   | Mortgage-backed securities        |                          |   | 60,440  |            |  |       | 2,546      |        |  |            | (557 | )    |   |   | 62,429  |        
|                   | Other debt securities             |                          |   | 25,706  |            |  |       | 2,402      |        |  |            |     |      |   |   | 28,108  |        
|                   |                                   |                          |   |         |            |  |       |            |        |  |            |     
|                   |                                   | Fixed maturities         |   |         | 649,112    |  |       |            | 46,175 |  |            |      | (654 | ) |   |         | 694,633 | 
|                   | Equity securities                 |                          |   | 7,085   |            |  |       | 567        |        |  |            | (107 | )    |   |   | 7,545   |        
|                   |                                   |                          |   |         |            |  |       |            |        |  |            |     
|                   |                                   | Total available-for-sale |   | $       | 656,197    |  |       | $          | 46,742 |  |            | $    | (761 | ) |   | $       | 702,178 | 
|                   |                                   |                          |   |         |            |  |       |            |        |  |            |     





|                            |                                       |                     |        |        |                   |   |       |       |   |            |   |       |  |   |            |   |  |   |        |        |  |   |      |      |  
|--------------------------- | ------------------------------------- | ------------------- | ------ | ------ | ----------------- | - | ----- | ----- | - | ---------- | - | ----- |  | - | ---------- | - |  | - | ------ | ------ |  | - | ---- | ---- | -
|                            |                                       | 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)      |       
|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 included in income. See
    Note 1  Derivative Financial
    Information.



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                        
|-- | -----------------------
|5. | Investments (continued)



|                               |                         |                     |                              |        |        |        |        |        |        |        |        |        |        |        |  
|------------------------------ | ----------------------- | ------------------- | ---------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | -
|                               |                         | 2004                |                              |        | 2003   |        |        | 2002   |       
|                               |                         |                     |                              |        |        |        |        |        |       
|                               |                         | (In thousands)      |                             
|Interest income                |                         | $                   | 46,108                       |        |        | $      | 43,892 |        |        | $      | 44,435 |       
|Dividend income                |                         |                     | 160                          |        |        |        | 37     |        |        |        |       |       
|Other investment income (loss) |                         |                     | 1,105                        |        |        |        | (635   | )      |        |        | 340    |       
|                               |                         |                     |                              |        |        |        |        |        |       
|                               | Total investment income |                     |                              | 47,373 |        |        |        | 43,294 |        |        |        | 44,775 |       
|                               |                         | Investment expenses |                              |        | (2,460 | )      |        |        | (2,940 | )      |        |        | (3,091 | )     
|                               |                         |                     |                              |        |        |        |        |        |       
|                               |                         |                     | Net investment income        |        | $      | 44,913 |        |        | $      | 40,354 |        |        | $      | 41,684 |  
|                               |                         |                     |                              |        |        |        |        |        |       
|Gross realized gains           |                         |                     |                              |        |        |        |        |        |        |        |        |       
|                               | Fixed maturities        |                     | $                            | 7,639  |        |        | $      | 3,354  |        |        | $      | 2,575  |       
|                               | Equity securities       |                     |                              | 3,374  |        |        |        | 647    |        |        |        | 48     |       
|                               | Other invested assets   |                     |                              | 651    |        |        |        |       |        |        |        | 20     |       
|                               |                         |                     |                              |        |        |        |        |        |       
|                               |                         |                     | Total gross realized gains   |        |        | 11,664 |        |        |        | 4,001  |        |        |        | 2,643  |  
|                               |                         |                     |                              |        |        |        |        |        |       
|Gross realized losses          |                         |                     |                              |        |        |        |        |        |        |        |        |       
|                               | Fixed maturities        |                     |                              | (1,406 | )      |        |        | (1,554 | )      |        |        | (2,262 | )     
|                               | Equity securities       |                     |                              | (2,561 | )      |        |        | (6     | )      |        |        |       |       
|                               | Other invested assets   |                     |                              | (2,759 | )      |        |        | (31    | )      |        |        | (251   | )     
|                               |                         |                     |                              |        |        |        |        |        |       
|                               |                         |                     | Total gross realized losses  |        |        | (6,726 | )      |        |        | (1,591 | )      |        |        | (2,513 | )
|                               |                         |                     |                              |        |        |        |        |        |       
|                               |                         |                     | Net realized investment gain |        | $      | 4,938  |        |        | $      | 2,410  |        |        | $      | 130    |  
|                               |                         |                     |                              |        |        |        |        |        |       





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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                        
|-- | -----------------------
|5. | Investments (continued)



|                    |                       |                |         |         |      |   |       |        |   |   |        |         |  
|------------------- | --------------------- | -------------- | ------- | ------- | ---- | - | ----- | ------ | - | - | ------ | ------- | -
|                    |                       | 2004           |         |         | 2003 |   |       | 2002   |  
|                    |                       |                |         |         |      |   |       |        |  
|                    |                       | (In thousands) |        
|Available-for-sale: |                       |                |         |         |      |   |       |        |   |   |        |        
|                    | Fixed maturities      |                | $       | (21,088 | )    |   | $     | 7,212  |   |   | $      | 29,244  |  
|                    | Equity securities     |                |         | (376    | )    |   |       | 437    |   |   |        | (312    | )
|                    | Deferred income taxes |                |         | 7,512   |      |   |       | (2,678 | ) |   |        | (10,125 | )
|                    |                       |                |         |         |      |   |       |        |  
|                    |                       | $              | (13,952 | )       |      | $ | 4,971 |        |   | $ | 18,807 |        
|                    |                       |                |         |         |      |   |       |        |  



|                   |                            |                |   |         |            |  |   |         |         | 
|------------------ | -------------------------- | -------------- | - | ------- | ---------- |  | - | ------- | ------- | 
|                   |                            | Amortized      |   |         | Estimated  | 
|                   |                            | Cost           |   |         | Fair Value | 
|                   |                            |                |   |         |            | 
|                   |                            | (In thousands) |  
|Available-for-sale |                            |                |   |         |            |  |   |        
|                   | Less than one year         |                | $ | 74,283  |            |  | $ | 75,313  |        
|                   | One to five years          |                |   | 216,671 |            |  |   | 230,689 |        
|                   | Five to ten years          |                |   | 99,528  |            |  |   | 104,762 |        
|                   | More than ten years        |                |   | 117,292 |            |  |   | 118,588 |        
|                   | Mortgage-backed securities |                |   | 125,837 |            |  |   | 128,354 |        
|                   |                            |                |   |         |            | 
|                   |                            | Total          |   | $       | 633,611    |  |   | $       | 657,706 | 
|                   |                            |                |   |         |            | 







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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                           
|-- | --------------------------
|6. | Deferred Acquisition Costs



|                          |  |                |         |   |      |   |         |      |  |   |         |  
|------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                          |  | 2004           |         |   | 2003 |   |         | 2002 | 
|                          |  |                |         |   |      |   |         |      | 
|                          |  | (In thousands) |        
|Balance, January 1        |  | $              | 10,461  |   |      | $ | 10,877  |      |  | $ | 10,712  |  
|Additions                 |  |                | 20,670  |   |      |   | 24,954  |      |  |   | 28,191  |  
|Amortization              |  |                | (22,749 | ) |      |   | (25,370 | )    |  |   | (28,026 | )
|Recoverability write-offs |  |                | (300    | ) |      |   |        |      |  |   |        |  
|                          |  |                |         |   |      |   |         |      | 
|Balance, December 31      |  | $              | 8,082   |   |      | $ | 10,461  |      |  | $ | 10,877  |  
|                          |  |                |         |   |      |   |         |      | 







|   |                            
|-- | ---------------------------
|7. | Property and Equipment, Net



|                                     |  |                |         |   |      |   |         |  
|------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                     |  | 2004           |         |   | 2003 |  
|                                     |  |                |         |   |      |  
|                                     |  | (In thousands) |        
|Land                                 |  | $              | 571     |   |      | $ | 571     |  
|Building (occupied by the Company)   |  |                | 10,499  |   |      |   | 10,499  |  
|Computer equipment and software      |  |                | 12,219  |   |      |   | 14,198  |  
|Furniture and leasehold improvements |  |                | 3,727   |   |      |   | 4,901   |  
|                                     |  |                |         |   |      |  
|                                     |  |                | 27,016  |   |      |   | 30,169  |  
|Accumulated depreciation             |  |                | (14,835 | ) |      |   | (13,679 | )
|                                     |  |                |         |   |      |  
|                                     |  | $              | 12,181  |   |      | $ | 16,490  |  
|                                     |  |                |         |   |      |  





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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                           
|-- | ------------------------------------------
|8. | Unpaid Losses and Loss Adjustment Expenses



|                               |                                |                |         |         |      |   |         |         |   |   |         |         |  
|------------------------------ | ------------------------------ | -------------- | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                               |                                | 2004           |         |         | 2003 |   |         | 2002    |  
|                               |                                |                |         |         |      |   |         |         |  
|                               |                                | (In thousands) |        
|Balance, beginning of year     |                                | $              | 673,605 |         |      | $ | 637,494 |         |   | $ | 597,046 |        
|                               | Less, reinsurance recoverables |                |         | (98,958 | )    |   |         | (95,468 | ) |   |         | (91,491 | )
|                               |                                |                |         |         |      |   |         |         |  
|Net balance, beginning of year |                                |                | 574,647 |         |      |   | 542,026 |         |   |   | 505,555 |        
|Incurred related to            |                                |                |         |         |      |   |         |         |   |   |         |        
|                               | Current year                   |                |         | 171,600 |      |   |         | 209,299 |   |   |         | 236,398 |  
|                               | Prior years                    |                |         | 6,186   |      |   |         | 43,443  |   |   |         | 5,630   |  
|                               |                                |                |         |         |      |   |         |         |  
|                               | Total incurred                 |                |         | 177,786 |      |   |         | 252,742 |   |   |         | 242,028 |  
|                               |                                |                |         |         |      |   |         |         |  
|Paid related to                |                                |                |         |         |      |   |         |         |   |   |         |        
|                               | Current year                   |                |         | 17,961  |      |   |         | 38,464  |   |   |         | 43,867  |  
|                               | Prior years                    |                |         | 142,633 |      |   |         | 181,657 |   |   |         | 161,690 |  
|                               |                                |                |         |         |      |   |         |         |  
|                               | Total paid                     |                |         | 160,594 |      |   |         | 220,121 |   |   |         | 205,557 |  
|                               |                                |                |         |         |      |   |         |         |  
|Net balance, end of year       |                                |                | 591,839 |         |      |   | 574,647 |         |   |   | 542,026 |        
|                               | Plus, reinsurance recoverables |                |         | 101,791 |      |   |         | 98,958  |   |   |         | 95,468  |  
|                               |                                |                |         |         |      |   |         |         |  
|Balance, end of period         |                                | $              | 693,630 |         |      | $ | 673,605 |         |   | $ | 637,494 |        
|                               |                                |                |         |         |      |   |         |         |  









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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                       
|-- | ------------------------------------------------------
|8. | Unpaid Losses and Loss Adjustment Expenses (continued)







|   |               
|-- | --------------
|9. | Long Term Debt













|    |            
|--- | -----------
|10. | Reinsurance



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                        
|--- | -----------------------
|10. | Reinsurance (continued)



|                               |     |                |         |         |        |   |         |         |  |   |         |         |  |         |         |         |        |   |         |         |  |   |         |         | 
|------------------------------ | --- | -------------- | ------- | ------- | ------ | - | ------- | ------- |  | - | ------- | ------- |  | ------- | ------- | ------- | ------ | - | ------- | ------- |  | - | ------- | ------- | 
|                               |     | 2004           |         |         | 2003   |   |         | 2002    | 
|                               |     |                |         |         |        |   |         |         | 
|                               |     | Written        |         |         | Earned |   |         | Written |  |   | Earned  |         |  | Written |         |         | Earned |  
|                               |     |                |         |         |        |   |         |         |  |   |         |         |  |         |         |         |        |  
|                               |     | (In thousands) |        
|Direct                         |     | $              | 213,945 |         |        | $ | 227,528 |         |  | $ | 256,236 |         |  | $       | 256,458 |         |        | $ | 266,260 |         |  | $ | 262,847 |        
|Ceded                          |     |                | (30,482 | )       |        |   | (30,100 | )       |  |   | (36,343 | )       |  |         | (36,014 | )       |        |   | (29,769 | )       |  |   | (29,271 | )      
|Assumed                        |     |                | 2,968   |         |        |   | 3,151   |         |  |   | 4,754   |         |  |         | 4,146   |         |        |   | 1,926   |         |  |   | 1,975   |        
|                               |     |                |         |         |        |   |         |         |  |   |         |         |  |         |         |         |        |  
|                               | Net |                | $       | 186,431 |        |   | $       | 200,579 |  |   | $       | 224,647 |  |         | $       | 224,590 |        |   | $       | 238,417 |  |   | $       | 235,551 | 
|                               |     |                |         |         |        |   |         |         |  |   |         |         |  |         |         |         |        |  
|Assumed as a percentage of net |     |                | 1.6     | %       |        |   | 1.6     | %       |  |   | 2.1     | %       |  |         | 1.8     | %       |        |   | 0.8     | %       |  |   | 0.8     | %      
|                               |     |                |         |         |        |   |         |         |  |   |         |         |  |         |         |         |        |  







|                                             |  |                |         |  |      |   |         | 
|-------------------------------------------- |  | -------------- | ------- |  | ---- | - | ------- | 
|                                             |  | 2004           |         |  | 2003 |  
|                                             |  |                |         |  |      |  
|                                             |  | (In thousands) |        
|Hannover Ruckversicherungs                   |  | $              | 43,561  |  |      | $ | 34,348  | 
|Gerling Global Reinsurance Corporation       |  |                |        |  |      |   | 17,528  | 
|American Re-Insurance Company                |  |                | 21,556  |  |      |   | 13,507  | 
|Transatlantic Reinsurance Company            |  |                | 13,583  |  |      |   | 11,284  | 
|General Reinsurance Corporation              |  |                | 6,594   |  |      |   | 5,250   | 
|PMA Capital Insurance Corporation            |  |                | 2,488   |  |      |   | 4,739   | 
|Lloyds of London                             |  |                | 3,066   |  |      |   | 4,515   | 
|Workers Compensation Reinsurance Association |  |                | 1,105   |  |      |   | 2,427   | 
|Medical Assurance Company                    |  |                |        |  |      |   | 2,363   | 
|Employers Reinsurance Corporation            |  |                | 1,113   |  |      |   | 1,762   | 
|Converium Reinsurance                        |  |                | 1,503   |  |      |   | 1,718   | 
|Others                                       |  |                | 20,646  |  |      |   | 15,730  | 
|                                             |  |                |         |  |      |  
|                                             |  | $              | 115,215 |  |      | $ | 115,171 | 
|                                             |  |                |         |  |      |  

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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                        
|--- | -----------------------
|10. | Reinsurance (continued)



|                                                                                                           |                                     |                |         |         |      |   |         |         | 
|---------------------------------------------------------------------------------------------------------- | ----------------------------------- | -------------- | ------- | ------- | ---- | - | ------- | ------- | 
|                                                                                                           |                                     | December 31,   |        
|                                                                                                           |                                     |                |        
|                                                                                                           |                                     | 2004           |         |         | 2003 |  
|                                                                                                           |                                     |                |         |         |      |  
|                                                                                                           |                                     | (In thousands) |        
|Reinsurance recoverable                                                                                    |                                     | $              | 103,312 |         |      | $ | 103,652 |        
|Prepaid reinsurance premium (included in other assets on the
    accompanying Consolidated Balance Sheets) |                                     |                | 11,903  |         |      |   | 11,519  |        
|                                                                                                           |                                     |                |         |         |      |  
|                                                                                                           | Amounts recoverable from reinsurers |                | $       | 115,215 |      |   | $       | 115,171 | 
|                                                                                                           |                                     |                |         |         |      |  





|    |             
|--- | ------------
|11. | Income Taxes



|                                 |  |                |        |   |      |   |         |      |  |   |        |  
|-------------------------------- |  | -------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                 |  | 2004           |        |   | 2003 |   |         | 2002 | 
|                                 |  |                |        |   |      |   |         |      | 
|                                 |  | (In thousands) |       
|Current benefit                  |  | $              | (2,680 | ) |      | $ | (3,620  | )    |  | $ | (3,478 | )
|Deferred benefit                 |  |                | 9,011  |   |      |   | (10,756 | )    |  |   | (2,051 | )
|Deferred tax valuation allowance |  |                | (6,621 | ) |      |   | 50,672  |      |  |   |       |  
|                                 |  |                |        |   |      |   |         |      | 
|                                 |  | $              | (290   | ) |      | $ | 36,296  |      |  | $ | (5,529 | )
|                                 |  |                |        |   |      |   |         |      | 



|                                  |                     |                |        |        |      |  |       |        |  |   |         |        |   |  |        |         |  |   |         |      |   |  |       |       | 
|--------------------------------- | ------------------- | -------------- | ------ | ------ | ---- |  | ----- | ------ |  | - | ------- | ------ | - |  | ------ | ------- |  | - | ------- | ---- | - |  | ----- | ----- | 
|                                  |                     | 2004           |        |        | 2003 |  |       | 2002   | 
|                                  |                     |                |        |        |      |  |       |        | 
|                                  |                     | (In thousands) |       
|Income (loss) before income taxes |                     | $              | 19,750 |        |      |  |       |        |  | $ | (40,883 | )      |   |  |        |         |  | $ | (14,941 | )    |   |  |       |      
|                                  |                     |                |        |        |      |  |       |        |  |   |         |        |   |  |        |         |  |  
|Tax at statutory rate             |                     |                | 6,913  |        |      |  | 35.0% |        |  |   | (14,309 | )      |   |  | 35.0%  |         |  |   | (5,229  | )    |   |  | 35.0% |      
|Tax effect of:                    |                     |                |        |        |      |  |       |        |  |   |         |        |   |  |        |         |  |   |         |      |   |  |       |      
|                                  | Tax exempt interest |                |        | (338   | )    |  |       | -1.7%  |  |   |         | (486   | ) |  |        | 1.2%    |  |   |         | (525 | ) |  |       | 3.5%  | 
|                                  | Other items, net    |                |        | (244   | )    |  |       | -1.2%  |  |   |         | 419    |   |  |        | -1.0%   |  |   |         | 225  |   |  |       | -1.5% | 
|                                  | Valuation allowance |                |        | (6,621 | )    |  |       | -33.5% |  |   |         | 50,672 |   |  |        | -123.9% |  |   |         |     |   |  |       | 0.0%  | 
|                                  |                     |                |        |        |      |  |       |        |  |   |         |        |   |  |        |         |  |  
|                                  |                     | $              | (290   | )      |      |  | -1.5% |        |  | $ | 36,296  |        |   |  | -88.8% |         |  | $ | (5,529  | )    |   |  | 37.0% |      
|                                  |                     |                |        |        |      |  |       |        |  |   |         |        |   |  |        |         |  |  



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




11.     Income Taxes (continued)






|                                      |                                     |                                                   |   |        |         |   |   |        |         |  
|------------------------------------- | ----------------------------------- | ------------------------------------------------- | - | ------ | ------- | - | - | ------ | ------- | -
|                                      |                                     | 2004                                              |   |        | 2003    |  
|                                      |                                     |                                                   |   |        |         |  
|                                      |                                     | (In thousands)                                    |  
|Deferred tax assets arising from      |                                     |                                                   |   |        |         |   |   |       
|                                      | Losses and loss adjustment expenses |                                                   | $ | 27,612 |         |   | $ | 29,385 |        
|                                      | Net operating loss carryforwards    |                                                   |   | 14,225 |         |   |   | 15,658 |        
|                                      | Unearned and audit premiums         |                                                   |   | 6,884  |         |   |   | 7,732  |        
|                                      | Minimum tax credits                 |                                                   |   | 8,445  |         |   |   | 8,242  |        
|                                      | Realized losses on investments      |                                                   |   | 2,633  |         |   |   | 4,257  |        
|                                      | Goodwill                            |                                                   |   | 4,509  |         |   |   | 4,827  |        
|                                      | Other                               |                                                   |   | 2,598  |         |   |   | 2,604  |        
|                                      |                                     |                                                   |   |        |         |  
|                                      |                                     | Total deferred tax assets                         |   |        | 66,906  |   |   |        | 72,705  |  
|                                      |                                     |                                                   |   |        |         |  
|Deferred tax liabilities arising from |                                     |                                                   |   |        |         |   |   |       
|                                      | Deferred policy acquisition costs   |                                                   |   | 2,758  |         |   |   | 3,656  |        
|                                      | Net unrealized gains on securities  |                                                   |   | 8,430  |         |   |   | 15,942 |        
|                                      | Other                               |                                                   |   | 2,352  |         |   |   | 2,435  |        
|                                      |                                     |                                                   |   |        |         |  
|                                      |                                     | Total deferred tax liabilities                    |   |        | 13,540  |   |   |        | 22,033  |  
|                                      |                                     |                                                   |   |        |         |  
|                                      |                                     | Net deferred tax asset before valuation allowance |   |        | 53,366  |   |   |        | 50,672  |  
|                                      |                                     |                                                   |   |        |         |  
|                                      |                                     | Valuation allowance                               |   |        | (53,366 | ) |   |        | (50,672 | )
|                                      |                                     |                                                   |   |        |         |  
|                                      | Net deferred tax asset              |                                                   | $ |       |         |   | $ |       |        
|                                      |                                     |                                                   |   |        |         |  



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




11.     Income Taxes (continued)




|                                         |                                             |                                                                                                   |         |   |        |   |         |   |         |  
|---------------------------------------- | ------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------- | - | ------ | - | ------- | - | ------- | -
|                                         |                                             | 2004                                                                                              |         |   | 2003   |  
|                                         |                                             |                                                                                                   |         |   |        |  
|                                         |                                             | (In thousands)                                                                                    |        
|Valuation allowance balance, January 1   |                                             | $                                                                                                 | (50,672 | ) |        | $ |        |  
|                                         | Change in valuation allowance allocated to: |                                                                                                   |         |   |        |   |         |   |        
|                                         |                                             | Federal income tax benefit (expense) from continuing operations                                   |         |   | 6,621  |   |         |   | (50,672 | )
|                                         |                                             | Unrealized depreciation on investment securities allocated to
    other comprehensive income      |         |   | (7,512 | ) |         |   |        |  
|                                         |                                             | Incremental tax benefit from stock based compensation allocated
    to additional paid in capital |         |   | (1,775 | ) |         |   |        |  
|                                         |                                             | Unearned stock compensation                                                                       |         |   | (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(2) |  | $              | 2,906  |        |            | $ | 575     |            |  |  | 2010 | 
|State Mutual Insurance Company merger(2)                 |  | $              | 2,377  |        |            | $ | 340     |            |  |  | 2011 | 
|2003 net operating loss                                  |  | $              | 35,360 |        |            |   | (1      | )          |  |  | 2018 | 






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





|    |                     
|--- | --------------------
|12. | Shareholders Equity





|                                   |  |                                                  |           |  |                                 |   |      |  |  |      |         |  |  |   |           | 
|---------------------------------- |  | ------------------------------------------------ | --------- |  | ------------------------------- | - | ---- |  |  | ---- | ------- |  |  | - | --------- | 
|                                   |  | Inception                                        |           |  | For the Year Ended December 31, |  
|                                   |  | to Date                                          |           |  |                                 |  
|                                   |  | Totals                                           |           |  | 2004                            |   | 2003 |  |  | 2002 |        
|                                   |  |                                                  |           |  |                                 |   |      |  |  |      |        
|                                   |  | (Dollars in thousands, except per share amounts) |          
|Number of shares repurchased       |  |                                                  | 3,197,070 |  |                                 |   |     |  |  |      | 272,800 |  |  |   | 1,555,100 | 
|Cost of shares repurchased         |  | $                                                | 60,384    |  |                                 | $ |     |  |  | $    | 7,676   |  |  | $ | 27,483    | 
|Average cost per share repurchased |  | $                                                | 18.89     |  |                                 | $ |     |  |  | $    | 28.14   |  |  | $ | 17.67     | 

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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




12.     Shareholders Equity
(continued)








|    |                                    
|--- | -----------------------------------
|13. | Fair Value of Financial Instruments







|    |                                     
|--- | ------------------------------------
|14. | Restructuring Charges and Exit Costs



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







|                     |  |                |      |   |      |   |      |      |  |   |       |  
|-------------------- |  | -------------- | ---- | - | ---- | - | ---- | ---- |  | - | ----- | -
|                     |  | 2004           |      |   | 2003 |   |      | 2002 | 
|                     |  |                |      |   |      |   |      |      | 
|                     |  | (In thousands) |     
|Balance, January 1   |  | $              | 727  |   |      | $ | 216  |      |  | $ | 1,130 |  
|Employee separations |  |                | 185  |   |      |   | 808  |      |  |   |      |  
|Payments             |  |                | (811 | ) |      |   | (297 | )    |  |   | (914  | )
|                     |  |                |      |   |      |   |      |      | 
|Balance, December 31 |  | $              | 101  |   |      | $ | 727  |      |  | $ | 216   |  
|                     |  |                |      |   |      |   |      |      | 



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                 
|--- | ------------------------------------------------
|14. | Restructuring Charges and Exit Costs (continued)





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





|                           |  |                |       |  
|-------------------------- |  | -------------- | ----- | -
|                           |  | 2004           |      
|                           |  |                |      
|                           |  | (In thousands) |      
|Balance, January 1         |  | $              |      |  
|Contract termination costs |  |                | 1,091 |  
|Payments                   |  |                | (170  | )
|                           |  |                |      
|Balance, December 31       |  | $              | 921   |  
|                           |  |                |      





|    |                           
|--- | --------------------------
|15. | Related Party Transactions









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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                       
|--- | --------------------------------------
|15. | Related Party Transactions (continued)









|    |                       
|--- | ----------------------
|16. | Employee Benefit Plans





|    |                         
|--- | ------------------------
|17. | Stock Based Compensation





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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                     
|--- | ------------------------------------
|17. | Stock Based Compensation (continued)



|                                         |  |         |          |   |                |   |       |         |  |  |                |   |  |         |       |  |                |  |         |   |  |   |       | 
|---------------------------------------- |  | ------- | -------- | - | -------------- | - | ----- | ------- |  |  | -------------- | - |  | ------- | ----- |  | -------------- |  | ------- | - |  | - | ----- | 
|                                         |  | 2004    |          |   | 2003           |   |       | 2002    | 
|                                         |  |         |          |   |                |   |       |         | 
|                                         |  | 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 |  |         | 873,200  |   |                | $ | 18.01 |         |  |  | 987,500        |   |  | $       | 18.39 |  |                |  | 792,500 |   |  | $ | 17.80 | 
|Granted during the year                  |  |         | 100,000  |   |                | $ | 21.54 |         |  |  | 5,000          |   |  | $       | 18.48 |  |                |  | 263,000 |   |  | $ | 18.72 | 
|Exercised during the year                |  |         | (365,264 | ) |                | $ | 15.50 |         |  |  | (25,800        | ) |  | $       | 16.55 |  |                |  | (18,000 | ) |  | $ | 13.50 | 
|Canceled during the year                 |  |         | (88,500  | ) |                | $ | 18.58 |         |  |  | (93,500        | ) |  | $       | 17.88 |  |                |  | (50,000 | ) |  | $ | 20.58 | 
|                                         |  |         |          |   |                |   |       |         |  |  |                |   |  |         |       |  |                | 
|Options outstanding at end of year       |  |         | 519,436  |   |                | $ | 18.71 |         |  |  | 873,200        |   |  | $       | 18.01 |  |                |  | 987,500 |   |  | $ | 18.39 | 
|                                         |  |         |          |   |                |   |       |         |  |  |                |   |  |         |       |  |                | 



|                                           |       |             |                     |         |           |  |      |       |  |           |        |  |  |       |         |         |  |   |       |  | 
|------------------------------------------ | ----- | ----------- | ------------------- | ------- | --------- |  | ---- | ----- |  | --------- | ------ |  |  | ----- | ------- | ------- |  | - | ----- |  | 
|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                            |       |             | 134,000             |         |           |  | 5.93 |       |  | $         | 13.50  |  |  |       | 89,000  |         |  | $ | 13.50 | 
|$13.51 - $20.00                            |       |             | 26,700              |         |           |  | 7.71 |       |  | $         | 17.15  |  |  |       | 14,850  |         |  | $ | 16.90 | 
|$20.01 - $21.54                            |       |             | 358,736             |         |           |  | 7.57 |       |  | $         | 20.77  |  |  |       | 240,376 |         |  | $ | 20.46 | 
|                                           |       |             |                     |         |           |  |      |       |  |           |        |  |  |       |        
|                                           | Total |             |                     | 519,436 |           |  |      |       |  |           |        |  |  |       |         | 344,226 |  |   |       |  | 
|                                           |       |             |                     |         |           |  |      |       |  |           |        |  |  |       |        
|Options available for grant at end of year |       |             | 94,048              |         |           |  |      |       |  |           |        |  |  |       |         |         |  |   |       | 
|                                           |       |             |                     |         |           |  |      |       |  |           |        |  |  |       |        





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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                     
|--- | ------------------------------------
|17. | Stock Based Compensation (continued)



|                                                              |                           |            |         |         |            |   |       |            |  |   |            |         |   |            |       |       |            |   |         |         |   |   |       |       | 
|------------------------------------------------------------- | ------------------------- | ---------- | ------- | ------- | ---------- | - | ----- | ---------- |  | - | ---------- | ------- | - | ---------- | ----- | ----- | ---------- | - | ------- | ------- | - | - | ----- | ----- | 
|                                                              |                           | 2004       |         |         | 2003       |   |       | 2002       | 
|                                                              |                           |            |         |         |            |   |       |            | 
|                                                              |                           | Number of  |         |         | Weighted   |   |       | Number of  |  |   | Weighted   |         |   | Number of  |       |       | Weighted   |  
|                                                              |                           | Restricted |         |         | Average    |   |       | Restricted |  |   | Average    |         |   | Restricted |       |       | Average    |  
|                                                              |                           | Shares     |         |         | Fair Value |   |       | Shares     |  |   | Fair Value |         |   | Shares     |       |       | Fair Value |  
|                                                              |                           |            |         |         |            |   |       |            |  |   |            |         |   |            |       |       |            |  
|Restricted shares outstanding as of the beginning of the year |                           |            | 47,025  |         |            | $ | 13.50 |            |  |   | 107,891    |         |   | $          | 13.86 |       |            |   | 133,030 |         |   | $ | 13.50 |      
|                                                              | Granted during the year   |            |         | 30,000  |            |   | $     | 17.20      |  |   |            | 0       |   |            |       |       |            |   |         | 6,971   |   |   | $     | 19.05 | 
|                                                              | Vested during the year    |            |         | (20,475 | )          |   | $     | 13.50      |  |   |            | (51,210 | ) |            | $     | 13.50 |            |   |         | (26,580 | ) |   | $     | 13.50 | 
|                                                              | Forfeited during the year |            |         | (4,070  | )          |   | $     | 14.86      |  |   |            | (9,656  | ) |            | $     | 17.51 |            |   |         | (5,530  | ) |   | $     | 13.50 | 
|                                                              |                           |            |         |         |            |   |       |            |  |   |            |         |   |            |       |       |            |  
|Restricted shares outstanding as of the end of the year       |                           |            | 52,480  |         |            | $ | 15.51 |            |  |   | 47,025     |         |   | $          | 13.50 |       |            |   | 107,891 |         |   | $ | 13.86 |      
|                                                              |                           |            |         |         |            |   |       |            |  |   |            |         |   |            |       |       |            |  
|Compensation cost recognized                                  |                           | $          | 373,000 |         |            |   |       |            |  | $ | 565,000    |         |   |            |       |       |            | $ | 421,000 |         |   |   |       |      
|                                                              |                           |            |         |         |            |   |       |            |  |   |            |         |   |            |       |       |            |  





|    |                   
|--- | ------------------
|18. | Earnings Per Share



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                               
|--- | ------------------------------
|18. | Earnings Per Share (continued)



|                                                                    |                                                                                                           |                                 |   |        |      |  |   |         |       |   |   |         |       |  
|------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------------- | - | ------ | ---- |  | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                    |                                                                                                           | 2004                            |   |        | 2003 |  |   | 2002    |      
|                                                                    |                                                                                                           |                                 |   |        |      |  |   |         |      
|                                                                    |                                                                                                           | (In thousands, except per share |  
|                                                                    |                                                                                                           | amounts)                        |  
|Numerator for basic and diluted income (loss)
    per common share: |                                                                                                           |                                 |   |        |      |  |   |         |       |   |   |        
|                                                                    | Income (loss) before cumulative effect of a change in accounting
    principle                            |                                 | $ | 20,030 |      |  | $ | (76,831 | )     |   | $ | (9,412  | )    
|                                                                    | Cumulative effect of a change in accounting principle                                                     |                                 |   |       |      |  |   |        |       |   |   | (9,079  | )    
|                                                                    |                                                                                                           |                                 |   |        |      |  |   |         |      
|                                                                    | Net income (loss)                                                                                         |                                 | $ | 20,030 |      |  | $ | (76,831 | )     |   | $ | (18,491 | )    
|                                                                    |                                                                                                           |                                 |   |        |      |  |   |         |      
|Denominator:                                                        |                                                                                                           |                                 |   |        |      |  |   |         |       |   |   |        
|                                                                    | Denominator for basic income (loss) per common share 
    weighted average shares outstanding            |                                 |   | 8,455  |      |  |   | 8,520   |       |   |   | 9,340   |      
|                                                                    | Effect of dilutive stock options and awards(1)                                                            |                                 |   | 266    |      |  |   |        |       |   |   |        |      
|                                                                    |                                                                                                           |                                 |   |        |      |  |   |         |      
|                                                                    | Denominator for diluted income (loss) per common
    share  adjusted weighted average shares outstanding |                                 |   | 8,721  |      |  |   | 8,520   |       |   |   | 9,340   |      
|                                                                    |                                                                                                           |                                 |   |        |      |  |   |         |      
|Income (loss) per common share:                                     |                                                                                                           |                                 |   |        |      |  |   |         |       |   |   |        
|                                                                    | Income (loss) before cumulative effect of a change in accounting
    principle                            |                                 |   |        |      |  |   |         |       |   |   |         |      
|                                                                    |                                                                                                           | Basic                           |   | $      | 2.37 |  |   | $       | (9.02 | ) |   | $       | (1.01 | )
|                                                                    |                                                                                                           | Diluted                         |   | $      | 2.30 |  |   | $       | (9.02 | ) |   | $       | (1.01 | )
|                                                                    | Cumulative effect of a change in accounting principle                                                     |                                 |   |        |      |  |   |         |       |   |   |         |      
|                                                                    |                                                                                                           | Basic                           |   | $      |     |  |   | $       |      |   |   | $       | (0.97 | )
|                                                                    |                                                                                                           | Diluted                         |   | $      |     |  |   | $       |      |   |   | $       | (0.97 | )
|                                                                    | Net income (loss)                                                                                         |                                 |   |        |      |  |   |         |       |   |   |         |      
|                                                                    |                                                                                                           | Basic                           |   | $      | 2.37 |  |   | $       | (9.02 | ) |   | $       | (1.98 | )
|                                                                    |                                                                                                           | Diluted                         |   | $      | 2.30 |  |   | $       | (9.02 | ) |   | $       | (1.98 | )






|    |                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As the Company was in a net loss position for the years ended
    December 31, 2003 and 2002, the effect of options or other
    stock-based awards was not calculated as they would have been
    anti-dilutive.



|    |                              
|--- | -----------------------------
|19. | Commitments and Contingencies



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                          
|--- | -----------------------------------------
|19. | Commitments and Contingencies (continued)















|    |                             
|--- | ----------------------------
|20. | GAAP and Statutory Reporting



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                         
|--- | ----------------------------------------
|20. | GAAP and Statutory Reporting (continued)





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | 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 is not consolidated,
    but rather, accounted for based on the equity method of
    accounting.                                                                                                                                                                                                                                                                                                                                                                                                                        



|                                                           |  |                |         |  |      |   |         |      |  |   |         |  
|---------------------------------------------------------- |  | -------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | -
|                                                           |  | 2004(1)        |         |  | 2003 |   |         | 2002 | 
|                                                           |  |                |         |  |      |   |         |      | 
|                                                           |  | (In thousands) |        
|Statutory surplus, December 31                             |  | $              | 210,874 |  |      | $ | 150,270 |      |  | $ | 190,216 |  
|                                                           |  |                |         |  |      |   |         |      | 
|Statutory net income (loss) for the year ended December 31 |  | $              | 19,216  |  |      | $ | (36,434 | )    |  | $ | (10,117 | )
|                                                           |  |                |         |  |      |   |         |      | 






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





|    |                    
|--- | -------------------
|21. | Segment Information



79



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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                
|--- | -------------------------------
|21. | Segment Information (continued)







|              |      |                |   |         |           |  |  |           |  |  |              |         |  |              |  |          |   |  |   |           | 
|------------- | ---- | -------------- | - | ------- | --------- |  |  | --------- |  |  | ------------ | ------- |  | ------------ |  | -------- | - |  | - | --------- | 
|              |      | Medical        |   |         | Other     |  |  |           |  |  |              |        
|              |      | Professional   |   |         | Insurance |  |  | Corporate |  |  | Intersegment |         |  |             
|Total assets: |      | Liability      |   |         | Lines     |  |  | and Other |  |  | Eliminations |         |  | Consolidated | 
|              |      |                |   |         |           |  |  |           |  |  |              |         |  |              | 
|              |      | (In thousands) |  
|December 31,  |      |                |   |         |           |  |  |           |  |  |              |         |  |              |  |          |   |  |   |          
|              | 2004 |                | $ | 977,230 |           |  |  | 75,704    |  |  |              | 227,106 |  |              |  | (210,141 | ) |  | $ | 1,069,899 | 
|              | 2003 |                | $ | 909,372 |           |  |  | 123,064   |  |  |              | 234,326 |  |              |  | (203,716 | ) |  | $ | 1,063,046 | 

|                                                                                                                   |                                     |                                      |        |         |           |   |        |           |        |   |              |       |       |              |   |      |      |   |        |         |         | 
|------------------------------------------------------------------------------------------------------------------ | ----------------------------------- | ------------------------------------ | ------ | ------- | --------- | - | ------ | --------- | ------ | - | ------------ | ----- | ----- | ------------ | - | ---- | ---- | - | ------ | ------- | ------- | 
|                                                                                                                   |                                     | 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, minority interest and
    cumulative effect of a change in accounting principle |                                     | $                                    | 36,472 |         |           | $ | (9,374 | )         |        | $ | (7,348       | )     |       | $            |  |      |      | $ | 19,750 |        
|                                                                                                                   |                                     |                                      |        |         |           |   |        |           |        |   |              |       |       |              |  

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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                
|--- | -------------------------------
|21. | Segment Information (continued)

|                                                                                                          |                                     |                                      |         |         |           |   |        |           |        |   |              |       |       |              |   |      |      |   |         |         |         | 
|--------------------------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------------------ | ------- | ------- | --------- | - | ------ | --------- | ------ | - | ------------ | ----- | ----- | ------------ | - | ---- | ---- | - | ------- | ------- | ------- | 
|                                                                                                          |                                     | 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, minority interest and cumulative
    effect of a change in accounting principle |                                     | $                                    | (33,821 | )       |           | $ | (3,706 | )         |        | $ | (3,356       | )     |       | $            |  |      |      | $ | (40,883 | )      
|                                                                                                          |                                     |                                      |         |         |           |   |        |           |        |   |              |       |       |              |  

|                                                                                                          |                                     |                                      |        |         |           |   |        |           |         |   |              |       |       |              |   |      |      |   |         |         |         | 
|--------------------------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------------------ | ------ | ------- | --------- | - | ------ | --------- | ------- | - | ------------ | ----- | ----- | ------------ | - | ---- | ---- | - | ------- | ------- | ------- | 
|                                                                                                          |                                     | For the Year Ended December 31, 2002 |       
|                                                                                                          |                                     |                                      |       
|                                                                                                          |                                     | Medical                              |        |         | Other     |   |        |          
|                                                                                                          |                                     | Professional                         |        |         | Insurance |   |        | Corporate |         |   | Intersegment |       |       |             
|                                                                                                          |                                     | Liability                            |        |         | Lines     |   |        | and Other |         |   | Eliminations |       |       | Consolidated |  
|                                                                                                          |                                     |                                      |        |         |           |   |        |           |         |   |              |       |       |              |  
|                                                                                                          |                                     | (In thousands)                       |       
|Revenues:                                                                                                 |                                     |                                      |        |         |           |   |        |           |         |   |              |       |       |              |   |      |      |   |         |        
|                                                                                                          | Net premiums earned                 |                                      | $      | 148,646 |           |   | $      | 86,905    |         |   | $            |      |       |              | $ |     |      |   | $       | 235,551 |        
|                                                                                                          | Investment income                   |                                      |        | 37,349  |           |   |        | 6,811     |         |   |              | 615   |       |              |   |     |      |   |         | 44,775  |        
|                                                                                                          | Other revenue items                 |                                      |        | 1,357   |           |   |        | (604      | )       |   |              | 770   |       |              |   | (560 | )    |   |         | 213     |        
|                                                                                                          |                                     |                                      |        |         |           |   |        |           |         |   |              |       |       |              |  
|                                                                                                          |                                     | Total revenues                       |        |         | 186,602   |   |        |           | 93,112  |   |              |       | 1,385 |              |   |      | (560 | ) |         | $       | 280,539 | 
|Expenses:                                                                                                 |                                     |                                      |        |         |           |   |        |           |         |   |              |       |       |              |   |      |      |   |         |        
|                                                                                                          | Loss and loss adjustment expenses   |                                      |        | 162,250 |           |   |        | 79,778    |         |   |              |      |       |              |   |     |      |   |         | 242,028 |        
|                                                                                                          | Underwriting expenses               |                                      |        | 27,157  |           |   |        | 21,436    |         |   |              |      |       |              |   |     |      |   |         | 48,593  |        
|                                                                                                          | General and administrative expenses |                                      |        |        |           |   |        |          |         |   |              | 1,395 |       |              |   |     |      |   |         | 1,395   |        
|                                                                                                          | Other expense items                 |                                      |        | 2,414   |           |   |        | 603       |         |   |              | 1,007 |       |              |   | (560 | )    |   |         | 3,464   |        
|                                                                                                          |                                     |                                      |        |         |           |   |        |           |         |   |              |       |       |              |  
|                                                                                                          |                                     | Total expenses                       |        |         | 191,821   |   |        |           | 101,817 |   |              |       | 2,402 |              |   |      | (560 | ) |         |         | 295,480 | 
|                                                                                                          |                                     |                                      |        |         |           |   |        |           |         |   |              |       |       |              |  
|Loss before income taxes, minority interest and cumulative
    effect of a change in accounting principle |                                     | $                                    | (5,219 | )       |           | $ | (8,705 | )         |         | $ | (1,017       | )     |       | $            |  |      |      | $ | (14,941 | )      
|                                                                                                          |                                     |                                      |        |         |           |   |        |           |         |   |              |       |       |              |  

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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                     
|--- | ------------------------------------
|22. | Quarterly Financial Data (Unaudited)



|     |               |                                       |         |                    |                       |   |         |         |                   |            |                |         |   |  |   |       |  
|---- | ------------- | ------------------------------------- | ------- | ------------------ | --------------------- | - | ------- | ------- | ----------------- | ---------- | -------------- | ------- | - |  | - | ----- | -
|     |               |                                       |         | Income (Loss)      |                       |   |         |         |                  
|     |               |                                       |         | Before Taxes,      |                       |   |         |         |                  
|     |               |                                       |         | Minority Interest, |                       |   |         |         | Net Income (Loss) |           
|     |               |                                       |         | and Cumulative     |                       |   | Net     |         |                   | Per Common |               
|     |               | Total                                 |         |                    | Effect of a Change in |   |         | Income  |                   |            | Share Assuming |        
|     |               | Revenues                              |         |                    | Accounting Principle  |   |         | (Loss)  |                   |            | Dilution*      |        
|     |               |                                       |         |                    |                       |   |         |         |                   |            |                |        
|     |               | (In thousands, except per share data) |        
|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         |         |   |  |   |      
|     |               |                                       |         |                    |                       |   |         |         |                   |            |                |        
|2003 |               |                                       |         |                    |                       |   |         |         |                   |            |                |         |   |  |   |      
|     | 1st Quarter   |                                       | $       | 68,979             |                       |   | $       | (1,515  | )                 |            | $              | (985    | ) |  | $ | (0.11 | )
|     | 2nd Quarter   |                                       |         | 66,267             |                       |   |         | 1,703   |                   |            |                | 1,107   |   |  |   | 0.12  |  
|     | 3rd Quarter** |                                       |         | 68,292             |                       |   |         | (42,434 | )                 |            |                | (77,055 | ) |  |   | (9.03 | )
|     | 4th Quarter   |                                       |         | 67,853             |                       |   |         | 1,363   |                   |            |                | 102     |   |  |   | 0.01  |  
|     |               |                                       |         |                    |                       |   |         |         |                   |            |                |        
|     |               | $                                     | 271,391 |                    |                       | $ | (40,883 | )       |                   | $          | (76,831        | )       |   |  |   |      
|     |               |                                       |         |                    |                       |   |         |         |                   |            |                |        






|   |  |                                                                                                                                                                                                                                                                                                     
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  |  | For periods where the Company incurred a loss, no effect of
    awards or options were calculated as the impact would be
    anti-dilutive).                                                                                                                                                        
|  
|** |  | The significant loss in the third quarter of 2003, as compared
    to the first, second and fourth quarter of the same year, was
    primarily the result of adverse development on prior year loss
    reserves (Note 8) and the establishment of a deferred tax
    valuation allowance (Note 11).

82



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SCHEDULE II  SUPPLEMENTARY INSURANCE
INFORMATION


AMERICAN PHYSICIANS CAPITAL, INC. (PARENT COMPANY)







CONDENSED BALANCE SHEET


December 31, 2004 and 2003


|                                                                                                                                                         |                                            |                |         |         |      |   |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------------- | ------- | ------- | ---- | - | ------- | ------- | 
|                                                                                                                                                         |                                            | 2004           |         |         | 2003 |  
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                         |                                            | (In thousands) |        
|ASSETS                                                                                                                                                  
|Investments in subsidiaries                                                                                                                              |                                            | $              | 218,732 |         |      | $ | 202,787 |        
|Equity securities                                                                                                                                        |                                            |                | 928     |         |      |   | 928     |        
|Cash and cash equivalents                                                                                                                                |                                            |                | 4,231   |         |      |   | 27,773  |        
|Deferred federal income taxes                                                                                                                            |                                            |                |        |         |      |   |        |        
|Intangible asset                                                                                                                                         |                                            |                | 312     |         |      |   | 625     |        
|Federal income taxes recoverable from affiliates                                                                                                         |                                            |                | 9,740   |         |      |   |        |        
|Other assets                                                                                                                                             |                                            |                | 1,619   |         |      |   | 1,731   |        
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                         | Total assets                               |                | $       | 235,562 |      |   | $       | 233,844 | 
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                        
|LIABILITIES                                                                                                                                             
|Long-term debt                                                                                                                                           |                                            | $              | 30,928  |         |      | $ | 30,928  |        
|Accrued expenses and other liabilities                                                                                                                   |                                            |                | 2,510   |         |      |   | 1,108   |        
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                         | Total liabilities                          |                |         | 33,438  |      |   |         | 32,036  | 
|                                                                                                                                                         |                                            |                |         |         |      |  
|Shareholders Equity                                                                                                                                     |                                            |                |         |         |      |   |         |        
|Common stock, no par value, 50,000,000 shares authorized,
    8,671,984 and 8,445,807 shares outstanding at
    December 31, 2004 and 2003, respectively |                                            |                |         |         |      |   |         |        
|Additional paid-in capital                                                                                                                               |                                            |                | 86,956  |         |      |   | 85,137  |        
|Retained earnings                                                                                                                                        |                                            |                | 107,382 |         |      |   | 87,352  |        
|Unearned stock compensation                                                                                                                              |                                            |                | (368    | )       |      |   | (288    | )      
|Accumulated other comprehensive income, net of deferred federal
    income taxes                                                                         |                                            |                | 8,154   |         |      |   | 29,607  |        
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                         | Total shareholders equity                 |                |         | 202,124 |      |   |         | 201,808 | 
|                                                                                                                                                         |                                            |                |         |         |      |  
|                                                                                                                                                         | Total liabilities and shareholders equity |                | $       | 235,562 |      |   | $       | 233,844 | 
|                                                                                                                                                         |                                            |                |         |         |      |  



83



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SCHEDULE II  SUPPLEMENTARY INSURANCE
INFORMATION


AMERICAN PHYSICIANS CAPITAL, INC. (PARENT COMPANY)







CONDENSED STATEMENTS OF OPERATIONS


Years Ended December 31, 2004, 2003 and 2002


|                                                      |                                                                               |                |        |        |      |   |         |         |   |   |         |         |  
|----------------------------------------------------- | ----------------------------------------------------------------------------- | -------------- | ------ | ------ | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                      |                                                                               | 2004           |        |        | 2003 |   |         | 2002    |  
|                                                      |                                                                               |                |        |        |      |   |         |         |  
|                                                      |                                                                               | (In thousands) |       
|Revenues                                              |                                                                               |                |        |        |      |   |         |         |   |   |         |        
|Investment income                                     |                                                                               | $              | 36     |        |      | $ | 344     |         |   | $ | 587     |        
|Other income                                          |                                                                               |                |       |        |      |   | 15      |         |   |   |        |        
|                                                      |                                                                               |                |        |        |      |   |         |         |  
|                                                      | Total revenues                                                                |                |        | 36     |      |   |         | 359     |   |   |         | 587     |  
|Expenses                                              |                                                                               |                |        |        |      |   |         |         |   |   |         |        
|Interest expense                                      |                                                                               |                | 1,714  |        |      |   | 1,008   |         |   |   |        |        
|Amortization expense                                  |                                                                               |                | 494    |        |      |   | 128     |         |   |   |        |        
|General and administrative expenses                   |                                                                               |                | 3,732  |        |      |   | 2,813   |         |   |   | 1,178   |        
|                                                      |                                                                               |                |        |        |      |   |         |         |  
|                                                      | Total expenses                                                                |                |        | 5,940  |      |   |         | 3,949   |   |   |         | 1,178   |  
|                                                      | Loss before income taxes and equity in undistributed loss of
    subsidiaries |                |        | (5,904 | )    |   |         | (3,590  | ) |   |         | (591    | )
|Federal income tax (benefit) expense                  |                                                                               |                | (8,736 | )      |      |   | 393     |         |   |   | (209    | )      
|                                                      |                                                                               |                |        |        |      |   |         |         |  
|                                                      | Income (loss) before equity in undistributed loss of subsidiaries             |                |        | 2,832  |      |   |         | (3,983  | ) |   |         | (382    | )
|Equity in undistributed income (loss) of subsidiaries |                                                                               |                | 17,198 |        |      |   | (72,848 | )       |   |   | (18,109 | )      
|                                                      |                                                                               |                |        |        |      |   |         |         |  
|                                                      | Net income (loss)                                                             |                | $      | 20,030 |      |   | $       | (76,831 | ) |   | $       | (18,491 | )
|                                                      |                                                                               |                |        |        |      |   |         |         |  





84



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SCHEDULE II  SUPPLEMENTARY INSURANCE
INFORMATION


AMERICAN PHYSICIANS CAPITAL, INC. (PARENT COMPANY)







CONDENSED STATEMENTS OF CASH FLOW


Years Ended December 31, 2004, 2003 and 2002


|                                                                                         |                                                          |                                                     |         |        |         |   |         |      |         |   |         |        |         |  
|---------------------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------------------------- | ------- | ------ | ------- | - | ------- | ---- | ------- | - | ------- | ------ | ------- | -
|                                                                                         |                                                          | 2004                                                |         |        | 2003    |   |         | 2002 |        
|                                                                                         |                                                          |                                                     |         |        |         |   |         |      |        
|                                                                                         |                                                          | (In thousands)                                      |        
|Cash flows from operating activities                                                     |                                                          |                                                     |         |        |         |   |         |      |         |   |         |       
|Net income (loss)                                                                        |                                                          | $                                                   | 20,030  |        |         | $ | (76,831 | )    |         | $ | (18,491 | )     
|Adjustments to reconcile net income (loss) to net cash used in
    operating activities: |                                                          |                                                     |         |        |         |   |         |      |         |   |         |       
|Equity in undistributed (income) loss of subsidiaries                                    |                                                          |                                                     | (17,198 | )      |         |   | 72,848  |      |         |   | 18,109  |       
|Amortization                                                                             |                                                          |                                                     | 691     |        |         |   | 518     |      |         |   | 323     |       
|Deferred federal income taxes                                                            |                                                          |                                                     |        |        |         |   | 942     |      |         |   | (403    | )     
|Changes in:                                                                              |                                                          |                                                     |         |        |         |   |         |      |         |   |         |       
|                                                                                         | Federal or intercompany income taxes recoverable/payable |                                                     |         | (9,740 | )       |   |         | 207  |         |   |         | 580    |        
|                                                                                         | Accrued expenses and other liabilities                   |                                                     |         | 1,402  |         |   |         | 504  |         |   |         | (1,014 | )      
|                                                                                         | Other assets                                             |                                                     |         | 112    |         |   |         | (544 | )       |   |         | 3,672  |        
|                                                                                         |                                                          |                                                     |         |        |         |   |         |      |        
|                                                                                         |                                                          | Net cash (used in) provided by operating activities |         |        | (4,703  | ) |         |      | (2,356  | ) |         |        | 2,776   |  
|                                                                                         |                                                          |                                                     |         |        |         |   |         |      |        
|Cash flows from investing activities                                                     |                                                          |                                                     |         |        |         |   |         |      |         |   |         |       
|Acquisition of intangible asset                                                          |                                                          |                                                     |        |        |         |   | (625    | )    |         |   |        |       
|Net contributions to subsidiaries                                                        |                                                          |                                                     | (20,200 | )      |         |   | (10,928 | )    |         |   |        |       
|                                                                                         |                                                          |                                                     |         |        |         |   |         |      |        
|                                                                                         |                                                          | Net cash used in investing activities               |         |        | (20,200 | ) |         |      | (11,553 | ) |         |        |        |  
|                                                                                         |                                                          |                                                     |         |        |         |   |         |      |        
|Cash flows from financing activities                                                     |                                                          |                                                     |         |        |         |   |         |      |         |   |         |       
|Common stock repurchased                                                                 |                                                          |                                                     |        |        |         |   | (7,676  | )    |         |   | (27,483 | )     
|Debt issuance costs                                                                      |                                                          |                                                     |        |        |         |   | (906    | )    |         |   |        |       
|Issuance of long-term debt                                                               |                                                          |                                                     |        |        |         |   | 30,928  |      |         |   |        |       
|Stock options exercised                                                                  |                                                          |                                                     | 1,334   |        |         |   | 440     |      |         |   | 243     |       
|Other                                                                                    |                                                          |                                                     | 27      |        |         |   | 225     |      |         |   | (75     | )     
|                                                                                         |                                                          |                                                     |         |        |         |   |         |      |        
|                                                                                         |                                                          | Net cash provided by (used in) financing activities |         |        | 1,361   |   |         |      | 23,011  |   |         |        | (27,315 | )
|                                                                                         |                                                          |                                                     |         |        |         |   |         |      |        
|Net (decrease) increase in cash and cash equivalents                                     |                                                          |                                                     | (23,542 | )      |         |   | 9,102   |      |         |   | (24,539 | )     
|Cash and cash equivalents, beginning of year                                             |                                                          |                                                     | 27,773  |        |         |   | 18,671  |      |         |   | 43,210  |       
|                                                                                         |                                                          |                                                     |         |        |         |   |         |      |        
|Cash and cash equivalents, end of year                                                   |                                                          | $                                                   | 4,231   |        |         | $ | 27,773  |      |         | $ | 18,671  |       
|                                                                                         |                                                          |                                                     |         |        |         |   |         |      |        



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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, 2004




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







| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | American Physicians Assurance Corporation  a stock
    insurance company incorporated under Michigan law (American
    Physicians), formerly Mutual Insurance Corporation Of America                     
|
| | 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), formerly
    RML Insurance Company.                                                      
|
| | APConsulting, LLC  a Michigan consulting company.                                                                                                                                                        
|
| | APDirect Sales, LLC  a Michigan corporation that
    serves as APCapitals direct sales channel.                                                                                                         
|
| | 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 9)
|
| | APCapital Trust II  a trust formed in Delaware
    for the purpose of issuing mandatorily redeemable trust
    preferred securities to institutional investors (Note 9)                                  



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





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



|                    |  |                     
|------------------- |  | --------------------
|American Physicians |  | APDirect Sales, LLC 
|APSpecialty         |  | APConsulting, LLC   
|ICA                 |  | Alpha Advisors, Inc.



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



87



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SCHEDULE III  SUPPLEMENTARY INSURANCE
INFORMATION


AMERICAN PHYSICIANS CAPITAL, INC. (PARENT COMPANY)


|                               |       |                                            |       |              |               |   |         |          |  |              |          |        |         |     |     |            |        |          |            |             |        |             |        |        |           |   |         |          |  |   |        |        |  |   |        |        |  |   |         |         | 
|------------------------------ | ----- | ------------------------------------------ | ----- | ------------ | ------------- | - | ------- | -------- |  | ------------ | -------- | ------ | ------- | --- | --- | ---------- | ------ | -------- | ---------- | ----------- | ------ | ----------- | ------ | ------ | --------- | - | ------- | -------- |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------- | 
|                               |       | 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 |               |   |        
|                               |       | 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 |       | $                                          | 8,512 |              |               | $ | 598,329 |          |  | $              | 87,330   |         |         | $   |    |            |        | $        | 158,777    |             |        | $           | 33,748 |        |           | $ | 197,430 |          |  | $ | 19,376 |        |  | $ | 11,939 |        |  | $ | 164,157 |        
|Other insurance                |       |                                            | 1,949 |              |               |   | 75,276  |          |  |                | 16,476   |         |         |     |    |            |        |          | 65,813     |             |        |             | 6,208  |        |           |   | 55,312  |          |  |   | 5,994  |        |  |   | 13,795 |        |  |   | 60,490  |        
|Corporate and other            |       |                                            |      |              |               |   |        |          |  |                |         |         |         |     |    |            |        |          |           |             |        |             | (180   | )      |           |   |        |          |  |   |       |        |  |   |       |        |  |   |        |        
|Intersegment eliminations      |       |                                            |      |              |               |   |        |          |  |                |         |         |         |     |    |            |        |          |           |             |        |             | 578    |        |           |   |        |          |  |   |       |        |  |   |       |        |  |   |        |        
|                               |       |                                            |       |              |               |   |         |          |  |                |          |         |         |     |     |            |        |          |            |             |        |             |        |        |           |   |         |          |  |  
|                               | Total |                                            | $     | 10,461       |               |   | $       | 673,605  |  |                | $        | 103,806 |         |     | $   |           |        |          | $          | 224,590     |        |             | $      | 40,354 |           |   | $       | 252,742  |  |   | $      | 25,370 |  |   | $      | 25,734 |  |   | $       | 224,647 | 
|                               |       |                                            |       |              |               |   |         |          |  |                |          |         |         |     |     |            |        |          |            |             |        |             |        |        |           |   |         |          |  |  

|                               |       |                                            |       |              |               |   |         |          |  |              |          |         |         |     |     |            |        |          |            |             |        |             |        |        |           |   |         |          |  |   |        |        |  |   |        |        |  |   |         |         | 
|------------------------------ | ----- | ------------------------------------------ | ----- | ------------ | ------------- | - | ------- | -------- |  | ------------ | -------- | ------- | ------- | --- | --- | ---------- | ------ | -------- | ---------- | ----------- | ------ | ----------- | ------ | ------ | --------- | - | ------- | -------- |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------- | 
|                               |       | At or for the Year Ended December 31, 2002 |      
|                               |       |                                            |      
|                               |       |                                            |       | 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 |       | $                                          | 8,067 |              |               | $ | 542,456 |          |  | $            | 80,433   |         |         | $   |    |            |        | $        | 148,646    |             |        | $           | 35,156 |        |           | $ | 162,250 |          |  | $ | 19,284 |        |  | $ | 7,873  |        |  | $ | 154,583 |        
|Other insurance                |       |                                            | 2,810 |              |               |   | 95,038  |          |  |              | 22,987   |         |         |     |    |            |        |          | 86,905     |             |        |             | 6,360  |        |           |   | 79,778  |          |  |   | 8,742  |        |  |   | 12,694 |        |  |   | 83,834  |        
|Corporate and other            |       |                                            |      |              |               |   |        |          |  |              |         |         |         |     |    |            |        |          |           |             |        |             | (392   | )      |           |   |        |          |  |   |        |        |  |   |        |        |  |   |        |        
|Intersegment eliminations      |       |                                            |      |              |               |   |        |          |  |              |         |         |         |     |    |            |        |          |           |             |        |             | 560    |        |           |   |        |          |  |   |        |        |  |   |        |        |  |   |        |        
|                               |       |                                            |       |              |               |   |         |          |  |              |          |         |         |     |     |            |        |          |            |             |        |             |        |        |           |   |         |          |  |  
|                               | Total |                                            | $     | 10,877       |               |   | $       | 637,494  |  |              | $        | 103,420 |         |     | $   |           |        |          | $          | 235,551     |        |             | $      | 41,684 |           |   | $       | 242,028  |  |   | $      | 28,026 |  |   | $      | 20,567 |  |   | $       | 238,417 | 
|                               |       |                                            |       |              |               |   |         |          |  |              |          |         |         |     |     |            |        |          |            |             |        |             |        |        |           |   |         |          |  |  






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

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








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

Evaluation of Disclosure Controls and Procedures






Managements Report on Internal Control Over Financial
Reporting




Internal Control  Integrated
Framework




89



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Internal Control-Integrated Framework.




Remediation of Material Weakness




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



90



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






PART IV







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



Financial Statements:




| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | Report of independent registered public accounting firm                                                                              
|
| | Consolidated balance sheets as of December 31, 2004 and 2003                                                                         
|
| | Consolidated statements of income for the years ended
    December 31, 2004, 2003 and 2002                                           
|
| | Consolidated statements of shareholders equity and
    comprehensive income for the years ended December 31, 2004,
    2003 and 2002
|
| | Consolidated statements of cash flows for the years ended
    December 31, 2004, 2003 and 2002                                       
|
| | Notes to consolidated financial statements                                                                                           

Financial Statement Schedules:




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





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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/ Myron Emerick, D.O.Myron
    Emerick, D.O.                   |  | 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                                                                                                                   

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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(13)                                                                                                                                              
|        | 4.1    |  |             | Indenture relating to Floating Rate Junior Subordinated
    Deferrable Interest Debentures Dated as of May 15, 2003(8)                                                                                    
|        | 4.2    |  |             | Indenture relating to Floating Rate Junior Subordinated Debt
    Securities Dated as of May 22, 2003(8)                                                                                                   
|        | *10.1  |  |             | American Physicians Capital, Inc. Stock Compensation Plan(3)                                                                                                                                              
|        | 10.2   |  |             | Stock Purchase Agreement, dated August 31, 1999, by and
    among American Physicians and William B. Cheeseman and
    William J. Gaugier(2)                                                              
|        | 10.3   |  |             | First Amendment, dated October 9, 2000, to Stock Purchase
    Agreement, dated August 31, 1999, by and among American
    Physicians, William B. Cheeseman and William J.
    Gaugier(2)                  
|        | 10.4   |  |             | Stock Purchase Agreement between Kentucky Medical Insurance
    Company and Stratton, Cheeseman & Walsh, Inc., dated
    March 6, 1997(2)                                                                 
|        | 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)                                                                                                                                    
|        | *10.7  |  |             | Employment Agreement between William B. Cheeseman and MICOA
    Management Company, Inc., dated October 27, 1999(4)                                                                                       
|        | 10.10  |  |             | Agency Agreement between American Physicians and Stratton,
    Cheeseman, Walsh-Nevada, Inc., dated May 25, 1999(7)                                                                                       
|        | 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)                                                                                          
|        | *10.16 |  |             | Executive Employment Agreement, dated as of October 11,
    2000, between Margo C. Runkle and American Physicians(4)                                                                                      
|        | *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)                                              
|        | 10.23  |  |             | Description of unwritten sublease arrangement between American
    Physicians and SCW Agency(6)                                                                                                           
|        | 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(8)
|        | 10.27  |  |             | Amended And Restated Declaration Of Trust Dated As Of
    May 22, 2003 of APCapital Trust II(8)                                                                                                           
|        | 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.(8)               

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|        |         |  |             |                                                                                                                                                                                                                                            
|------- | ------- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |            
|Number  |         |  | Description
|        |         |  |            
|        | 10.29   |  |             | Placement Agreement, Dated As Of May 13, 2003, with Sandler
    ONeill & Partners L.P.(8)                                                                                                                                                 
|        | 10.30   |  |             | Guarantee Agreement Dated As Of May 15, 2003 by and between
    U.S. Bank National Association and American Physicians
    Capital, Inc.(8)                                                                                                
|        | 10.31   |  |             | Guarantee Agreement Dated As Of May 22, 2003 by and between
    Wilmington Trust Company and American Physicians Capital, Inc.(8)                                                                                                          
|        | *10.32  |  |             | Executive Employment Agreement, dated as of June 2, 2003,
    between Thomas Chase and American Physicians Assurance
    Corporation(8)                                                                                                    
|        | *10.33  |  |             | Letter Agreement between William B. Cheeseman and American
    Physicians Capital, Inc., Dated As Of December 23, 2003(9)                                                                                                                  
|        | *10.34  |  |             | Consulting Agreement between William B. Cheeseman and American
    Physicians Capital, Inc., Dated As Of December 23, 2003(9)                                                                                                              
|        | **10.35 |  |             | Master Agency Agreement between American Physicians Assurance
    Corporation and SCW Agency Group, Inc., effective
    January 1, 2004(9)                                                                                                 
|        | 10.37   |  |             | Standstill Agreement, dated April 7, 2004 between the
    company and Daniel L. Gorman(9)                                                                                                                                                  
|        | 10.38   |  |             | Summary of 2004 Short-Term Incentive Plan(11)                                                                                                                                                                                              
|        | 10.39   |  |             | Amendment dated October 31, 2002, to the Standstill
    Agreement, dated February 20, 2002 between the Company,
    Stilwell Value Partners, L.P. and various affiliated entities
    and individuals(11)                                  
|        | 10.40   |  |             | Amendment, dated September 15, 2004, to the Standstill
    Agreement dated February 20, 2002, between the Company,
    Stilwell Value Partners, L.P. and various affiliated entities
    and individuals(11)                               
|        | 10.41   |  |             | Standstill Agreement, dated November 10, 2004, between the
    Company, Stilwell Value Partners, L.P. and various affiliated
    entities and individuals(12)                                                                              
|        | *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 (14)                               
|        | 21.1    |  |             | Subsidiaries of APCapital(9)                                                                                                                                                                                                               
|        | 23.1    |  |             | 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.(11)                 
|        | 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.(1)
|        | 99.3    |  |             | Stock Pledge Agreement, dated as of December 31, 2004
    between Daniel R. ONeal and American Physicians
    Assurance Corporation(1)                                                                                                    
|        | 99.4    |  |             | Promissory Note from Daniel R. ONeal to American
    Physicians Assurance Corporation, dated December 31, 2004(1)                                                                                                                         

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| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *  | 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 Current Report on
    Form 8-K dated February 21, 2002 and incorporated
    herein by reference.                                     
|
| | (6) | Filed as an exhibit to APCapitals 2001 Annual Report on
    Form 10-K and incorporated herein by reference.                                                            
|
| | (7) | Filed as an exhibit to APCapitals 2002 Annual Report on
    Form 10-K and incorporated herein by reference.                                                            
|
| | (8) | 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.
|
| | (9) | Filed as an exhibit to APCapitals 2003 Annual Report on
    Form 10-K, as amended, and incorporated herein by reference.                                               



|     |                                                                                                                                                                 
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Filed as an exhibit to APCapitals Current Report on
    Form 8-K dated April 7, 2004 and incorporated herein
    by reference.                                 
|    
|(11) | 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.
|    
|(12) | Filed as an exhibit to APCapitals Current Report on
    Form 8-K dated November 15, 2004 and incorporated
    herein by reference.                             
|    
|(13) | Filed as an exhibit to APCapitals Current Report on
    Form 8-K dated January 31, 2005 and incorporated
    herein by reference.                              
|    
|(14) | Filed as an exhibit to APCapitals Current Report on
    Form 8-K dated February 28, 2005 and incorporated
    herein by reference.                             

95