EAST LANSING, Mich., July 31, 2008 (PRIME NEWSWIRE) -- American Physicians Capital, Inc. (APCapital) (Nasdaq:ACAP) today announced net income of $11.0 million or $1.11 per diluted common share for the second quarter of 2008. This compares to net income of $16.3 million, or $1.44 per diluted common share for the second quarter of 2007. At June 30, 2008, APCapital's book value per share was $27.26 based on 9,721,252 shares outstanding.
"We continue to be careful managers of our capital and investments," said President and Chief Executive Officer R. Kevin Clinton. "Our investment portfolio remains in strong financial condition and we continue to return value to our shareholders through share repurchases and cash dividends."
"Our book-of-business continued to produce solid financial results," stated Clinton. "Loss development trends continued to be favorable, resulting in $7.0 million of positive reserve development in the second quarter. Reported claims remain at historically low levels at 261 for the second quarter, down 3.0% from the second quarter of 2007, and severity remained relatively stable."
"Quarter-over-quarter net income was down due to the unusually large amount of positive prior year development reported in the second quarter of 2007," added Clinton. "However, positive reserve development trends continued in the first half of 2008 and we've produced a year-to-date annualized return on beginning equity of 17.0%."
Reaffirm Annual Guidance for 2008
"If the current trends in frequency, severity and pricing remain stable in our book of business through 2009, we continue to believe our Company will report operating earnings of at least $4.25 per diluted share in 2008, and even higher earnings per diluted share in 2009," said Clinton.
The guidance and related assumptions are subject to the risks and uncertainties outlined in the Company's Forward-Looking Statements section of this press release.
Consolidated Income Statement
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
2008 2007 2008 2007
-------- -------- -------- --------
Direct Premiums Written $ 26,444 $ 27,847 $ 60,115 $ 64,149
======== ======== ======== ========
Net Premiums Written $ 25,499 $ 26,967 $ 57,674 $ 61,861
======== ======== ======== ========
Net Premiums Earned $ 31,420 $ 34,896 $ 63,067 $ 69,928
Incurred Loss and Loss
Adjustment Expenses:
Current Accident Year Losses 24,670 25,814 49,288 52,441
Prior Year Losses (7,003) (12,898) (15,423) (17,163)
-------- -------- -------- --------
Total 17,667 12,916 33,865 35,278
Underwriting Expenses 6,623 7,566 13,639 14,927
-------- -------- -------- --------
Underwriting Income 7,130 14,414 15,563 19,723
Investment Income 9,235 11,152 19,192 22,329
Other Income(1) 280 111 (313) 322
Other Expenses (1,115) (1,374) (2,332) (2,669)
-------- -------- -------- --------
Pre-tax Income 15,530 24,303 32,110 39,705
Federal Income Taxes 4,487 7,970 9,693 12,867
-------- -------- -------- --------
Net Income $ 11,043 $ 16,333 $ 22,417 $ 26,838
======== ======== ======== ========
Loss Ratio:
Current Accident Year 78.5% 74.0% 78.2% 75.0%
Prior Year Development -22.3% -37.0% -24.5% -24.5%
Calendar Year 56.2% 37.0% 53.7% 50.5%
Underwriting Expense Ratio 21.1% 21.7% 21.6% 21.3%
Combined Ratio 77.3% 58.7% 75.3% 71.8%
(1) Includes realized gains and losses
Direct premiums written were $26.4 million in the second quarter of 2008, down $1.4 million or 5.0% from the same period a year ago. Year-to-date, direct written premiums are down $4.0 million or 6.3%. The decline in direct premiums written was primarily the result of rate decreases in our Illinois and Ohio markets. We insured 9,154 physicians at June 30, 2008, down slightly from 9,217 at year end 2007.
Net premiums earned in the second quarter of 2008 were down $3.5 million or 10.0% from the second quarter of 2007 and were down $6.9 million or 9.8% year-to-date. The decline in net premiums earned was greater than the declines in direct premiums written due to the lag between premiums written and earned and a slight increase in the percentage of reinsurance premiums ceded.
The 2008 second quarter loss ratio was 56.2% with $7.0 million of positive development from prior accident years. For the six months ended June 30, 2008, the loss ratio was 53.7% with $15.4 million of positive prior year development. On an accident year basis, the loss ratio in the second quarter of 2008 was 78.5%, up from the 74.0% reported in the second quarter of 2007. This increase in accident year loss ratio reflects our recent premium rate decreases.
Claim frequency continued to be at historically low levels, but does appear to be leveling-off. The number of claims reported in the second quarter of 2008 was 261 down 3.0% from 269 reported in the second quarter of 2007. Our open claim count fell 5.9% from December 31, 2007 to 1,639 outstanding claims at June 30, 2008, and our average paid claims have remained relatively flat since 2002. Our average net case reserve increased to $150,000 at June 30, 2008 from $144,800 at December 31, 2007.
The underwriting expense ratio decreased slightly in the second quarter of 2008 to 21.1% from 21.7% in the second quarter of 2007, as a result of our expense control measures. Year-to-date the underwriting expense ratio is up due to the decline in net earned premiums. Other expenses in the second quarter of 2008 were down $259,000 and down $337,000 year-to-date due to lower interest on our long-term debt.
Investments
Investment income was $9.2 million in the second quarter of 2008, down from the $11.2 million for the same period in 2007. The overall investment yield decreased from 5.10% in the second quarter 2007 to 4.38% in the second quarter of 2008. Year-to-date our investment yield was 4.53% as compared to 5.11% through June 30, 2007. These decreases were primarily attributable to our increased position in tax-exempt securities, and the decline in short-term interest rates. Our year-to-date after tax yield was 3.36% through June 30, 2008 as compared to 3.60% a year ago.
Balance Sheet and Equity Information
APCapital's total assets were $1.041 billion at June 30, 2008, down $16.1 million from December 31, 2007. At June 30, 2008, the Company's total shareholders' equity was $265.0 million, up $1.4 million from December 31, 2007. Our net income of $22.4 million through the second quarter of 2008 has been offset by the Company utilizing $17.9 million of equity to repurchase its common shares and $2.0 million to pay shareholder dividends, as well as $1.4 million decline in our net unrealized gains on investments.
Capital Management
In the second quarter of 2008, APCapital repurchased 12,000 shares at an average cost of $45.17 per share. Year-to-date we have repurchased 416,000 shares at an average cost of $43.00 per share. The volume of share repurchases was down in the second quarter due to the strong market price of our stock. APCapital has the following outstanding share repurchase authorizations:
Type of (In thousands)
Date Approved Repurchase Amount Amount
By Board Plan Authorized Remaining(2)
---------------- ---------------- ---------- ------------
October 27, 2006 Rule 10b5-1 $32,000 $11,775
October 29,2007 Rule 10b5-1 $20,000 $20,000
February 7, 2008 Discretionary(1) $25,000 $21,761
---------- ------------
$77,000 $53,536
========= ============
(1) All shares will be repurchased under management's discretion in
the open market or in privately negotiated transactions during the
Company's normal trading windows.
(2) As of June 30, 2008
The share repurchase program remains an integral part of APCapital's capital management program. APCapital seeks to maintain an optimal, but flexible, level of capital during this softer market cycle.
In the second quarter of 2008, the Board of Directors declared a second quarter cash dividend of $0.10 per common share, which was paid to shareholders on June 30, 2008. Today, APCapital's Board of Directors declared a third quarter cash dividend of $0.10 per common share payable on September 30, 2008 to shareholders of record on September 12, 2008.
We have notified our trust preferred debt trustee of our intention to pay down $5.0 million on our debt on August 23, 2008. Future prepayments on our debt will be considered and will be subject to available cash resources, capital needs and other relevant factors.
Conference Call
APCapital's website, http://www.apcapital.com, will host a live Webcast of its conference call in a listen-only format to discuss 2008 second quarter results on August 1, 2008 at 10:00 a.m. Eastern time. An archived edition of the Webcast can be accessed by going to APCapital's website and selecting "For Investors," then "Webcasts." For individuals unable to access the Webcast, a telephone replay will be available by dialing 888-203-1112 or 719-457-0820 and the passcode is 1485796. The replay will be available through 11:59 p.m. Eastern time on August 8, 2008.
Corporate Description
American Physicians Capital, Inc. is a regional provider of medical professional liability insurance focused primarily in the Midwest and New Mexico markets through American Physicians Assurance Corporation and its other subsidiaries. Further information about the companies is available on the Internet at http://www.apcapital.com.
The American Physicians Capital, Inc. logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=4506
Forward-Looking Statements
Certain statements made by American Physicians Capital, Inc. in this release may constitute forward-looking statements within the meaning of the federal securities laws. When we discuss future operating results or use words such as "will," "should," "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements. These forward-looking statements represent our outlook only as of the date of this release. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive risks and uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the following:
* increased competition could adversely affect our ability to sell our products at premium rates we deem adequate, which may result in a decrease in premium volume, a decrease in our profitability, or both; * our reserves for unpaid losses and loss adjustment expenses are based on estimates that may prove to be inadequate to cover our losses; * an interruption or change in current marketing and agency relationships could reduce the amount of premium we are able to write; * if we are unable to obtain or collect on ceded reinsurance, our results of operations and financial condition may be adversely affected; * our geographic concentration in certain Midwestern states and New Mexico ties our performance to the business, economic, regulatory and legislative conditions in those states; * a downgrade in the A.M. Best Company financial strength rating of our primary insurance subsidiary could reduce the amount of business we are able to write; * changes in interest rates could adversely impact our results of operation, cash flows and financial condition; * the unpredictability of court decisions could have a material adverse financial impact on our operations; * our business could be adversely affected by the loss of one or more of our key employees; * the insurance industry is subject to regulatory oversight that may impact the manner in which we operate our business, our ability to obtain future premium rate increases, the type and amount of our investments, the levels of capital and surplus deemed adequate to protect policyholder interests, or the ability of our insurance subsidiaries to pay dividends to the holding company; * our status as an insurance holding company with no direct operations could adversely affect our ability to meet our debt obligations and fund future cash dividends and share repurchases; * legislative or judicial changes in the tort system may have adverse or unintended consequences that could materially and adversely affect our results of operations and financial condition; * applicable law and certain provisions in our articles and bylaws may prevent and discourage unsolicited attempts to acquire our Company that may be in the best interest of our shareholders or that might result in a substantial profit to our shareholders; * any other factors listed or discussed in the reports filed by APCapital with the Securities and Exchange Commission under the Securities Exchange Act of 1934.
Other factors not currently anticipated by management may also materially and adversely affect our financial condition, liquidity or results of operations. APCapital does not undertake, and expressly disclaims any obligation, to update or alter its statements whether as a result of new information, future events or otherwise, except as required by applicable law.
Definition of Non-GAAP Financial Measures
APCapital uses operating income, a non-GAAP financial measure, to evaluate APCapital's underwriting performance. Operating income differs from net income by excluding the after-tax effect of realized capital gains and (losses).
Although the investment of premiums to generate investment income and capital gains or (losses) is an integral part of an insurance company's operations, APCapital's decisions to realize capital gains or (losses) are independent of the insurance underwriting process. In addition, under applicable GAAP accounting requirements, losses may be recognized for accounting purposes as the result of other than temporary declines in the value of investment securities, without actual realization. APCapital believes that the level of realized gains and (losses) for any particular period is not indicative of the performance of our ongoing underlying insurance operations in a particular period. As a result, APCapital believes that providing operating income (loss) information makes it easier for users of APCapital's financial information to evaluate the success of APCapital's underlying insurance operations.
In addition to APCapital's reported loss ratios, management also uses accident year loss ratios, a non-GAAP financial measure, to evaluate APCapital's current underwriting performance. The accident year loss ratio excludes the effect of prior years' loss reserve development. APCapital believes that this ratio is useful to investors as it focuses on the relationships between current premiums earned and losses incurred related to the current year. Although considerable variability is inherent in the estimates of losses incurred related to the current year, APCapital believes that the current estimates are reasonable.
Summary Financial Information
American Physicians Capital, Inc.
Balance Sheet Data June 30, Dec. 31,
2008 2007
---------- ----------
(In thousands, except
per share data)
Assets:
Available-for-sale - bonds $ 229,106 $ 262,301
Held-to-maturity - bonds 493,917 497,662
Other invested assets 15,534 11,487
Cash and cash equivalents 112,070 87,498
---------- ----------
Cash and investments 850,627 858,948
Premiums receivable 30,883 35,542
Reinsurance recoverable 103,797 106,961
Deferred federal income taxes 21,840 22,439
Other assets 34,171 33,572
---------- ----------
Total assets $1,041,318 $1,057,462
========== ==========
Liabilities and Shareholders' Equity:
Unpaid losses and loss adjustment expenses $ 657,910 $ 664,117
Unearned premiums 54,775 60,080
Long-term debt 30,928 30,928
Other liabilities 32,703 38,780
---------- ----------
Total liabilities 776,316 793,905
Common stock -- --
Additional paid-in-capital -- --
Retained earnings 260,323 257,502
Accumulated other comprehensive income:
Net unrealized gains on investments,
net of deferred federal income taxes 4,679 6,055
---------- ----------
Shareholders' equity 265,002 263,557
---------- ----------
Total liabilities and shareholders' equity $1,041,318 $1,057,462
========== ==========
Shares outstanding 9,721 10,128
Book value per share $ 27.26 $ 26.02
Summary Financial Information
American Physicians Capital, Inc.
Income Statement
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2008 2007 2008 2007
-------- -------- -------- --------
(In thousands, except per share data)
Direct premiums written $ 26,444 $ 27,847 $ 60,115 $ 64,149
======== ======== ======== ========
Net premiums written $ 25,499 $ 26,967 $ 57,674 $ 61,861
======== ======== ======== ========
Net premiums earned $ 31,420 $ 34,896 $ 63,067 $ 69,928
Investment income 9,235 11,152 19,192 22,329
Net realized gains (losses) 74 (64) (708) (66)
Other income 206 175 395 388
-------- -------- -------- --------
Total revenues 40,935 46,159 81,946 92,579
Losses and loss adjustment
expenses 17,667 12,916 33,865 35,278
Underwriting expenses 6,623 7,566 13,639 14,927
Other expenses 1,115 1,374 2,332 2,669
-------- -------- -------- --------
Total expenses 25,405 21,856 49,836 52,874
-------- -------- -------- --------
Income before income taxes 15,530 24,303 32,110 39,705
Federal income tax expense 4,487 7,970 9,693 12,867
-------- -------- -------- --------
Net income $ 11,043 $ 16,333 $ 22,417 $ 26,838
======== ======== ======== ========
Adjustments to reconcile net
income to operating income:
Net income $ 11,043 $ 16,333 $ 22,417 $ 26,838
Addback:
Net realized (gains) losses,
net of tax (48) 42 460 43
-------- -------- -------- --------
Net operating income $ 10,995 $ 16,375 $ 22,877 $ 26,881
======== ======== ======== ========
Ratios:
Loss ratio(1) 56.2% 37.0% 53.7% 50.5%
Underwriting ratio(2) 21.1% 21.7% 21.6% 21.3%
Combined ratio(3) 77.3% 58.7% 75.3% 71.8%
Earnings per share data:
Net income
Basic $ 1.14 $ 1.47 $ 2.28 $ 2.38
Diluted $ 1.11 $ 1.44 $ 2.24 $ 2.33
Net operating income
Basic $ 1.13 $ 1.47 $ 2.33 $ 2.38
Diluted $ 1.11 $ 1.44 $ 2.28 $ 2.34
Basic weighted average shares
outstanding 9,728 11,135 9,822 11,285
Diluted weighted average
shares outstanding 9,928 11,353 10,019 11,501
(1) The loss ratio is calculated by dividing incurred loss and loss
adjustment expenses by net premiums earned.
(2) The underwriting ratio is calculated by dividing underwriting
expenses by net premiums earned.
(3) The combined ratio is the sum of the loss and underwriting ratios.
Summary Financial Information
American Physicians Capital, Inc.
Selected Cash Flow Information
For the Six Months
Ended June 30,
------------------
2008 2007
-------- --------
(In thousands)
Net cash from operating activities $ 18,202 $ 26,973
======== ========
Net cash from investing activities $ 28,806 $(38,536)
======== ========
Net cash for financing activities $(22,436) $(18,389)
======== ========
Net increase in cash and cash equivalents $ 24,572 $(29,952)
======== ========
American Physicians Capital, Inc.
Supplemental Statistics
Medical Professional Liability
Reported Net Premium
Three Months Ended Claim Count Earned
------------------ --------------- ----------------
(In thousands)
June 30, 2008 261 $ 31,420
March 31, 2008 232 31,657
December 31, 2007 245 33,471
September 30, 2007 191 35,517
June 30, 2007 269 34,896
March 31, 2007 247 35,034
December 31, 2006 267 37,051
September 30, 2006 297 37,774
June 30, 2006 296 37,517
March 31, 2006 308 37,448
Average Net
Average Net Paid Claim
Open Case Reserve (Trailing Four
Three Months Ended Claim Count Per Open Claim Quarter Average)
------------------ ----------- -------------- ----------------
June 30, 2008 1,639 $ 150,000 $ 65,700
March 31, 2008 1,672 148,600 63,100
December 31, 2007 1,741 144,800 67,500
September 30, 2007 1,913 144,200 70,400
June 30, 2007 2,124 136,200 69,600
March 31, 2007 2,200 138,800 56,600
December 31, 2006 2,256 137,900 59,100
September 30, 2006 2,347 138,800 57,600
June 30, 2006 2,558 136,300 63,000
March 31, 2006 2,976 120,400 78,800
December 31, 2005 2,991 122,400 75,900
September 30, 2005 3,109 119,100 67,900
June 30, 2005 3,211 116,300 68,200
March 31, 2005 3,344 114,900 65,200
Retention Ratio
-----------------------------------------------------
Six Months Ended Year Ended Six Months Ended
June 30, 2008 December 31, 2007 June 30, 2007
---------------- ----------------- ----------------
Michigan 86% 85% 87%
Illinois 88% 82% 81%
Ohio 90% 88% 87%
New Mexico 88% 88% 88%
Kentucky 91% 86% 86%
Total (all states) 88% 85% 86%