A.M. Best Affirms and Assigns Ratings to American Physicians Group and Revises Outlook to Stable.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength ratings (FSR) of B+ (Very Good) and has assigned issuer credit ratings (ICR) of "bbb-" to American Physicians Assurance Corporation (APA), APSpecialty Insurance Corporation (APIC) and American Physicians Group (APG). APA and APIC collectively form APG. Concurrently, A.M. Best has assigned an ICR of "bb-" to APG's parent company, American Physicians Capital, Inc. (ACAP) (NASDAQ:ACAP). All companies are domiciled in East Lansing, MI. The rating outlook for APA and APIC has been revised to stable from negative. All other rating outlooks are stable.

The ratings of APG reflect its improved capitalization, strong operating results reported since 2004 and improved earnings outlook and management's reduced focus on non-core business lines. In 2004, APG reported a considerable surplus gain, largely derived from a capital contribution from ACAP, the transfer of the outstanding common stock of its former sister company, APIC and improved net earnings. Overall operating earnings remain strong through reported 2005 results.

Somewhat offsetting these strengths are APG's overall poor five-year average earnings, fluctuations of policyholders' surplus in certain years and relatively constrained financial flexibility due to the limited financial resources of ACAP. Management has aggressively attempted to exit unprofitable business, while strengthening claims and underwriting functions. Furthermore, compounded annual rate increases, the continued reduction in reported and open claims and strengthened case reserves led to more normalized loss reserve development in 2004. The rating outlook reflects APG's improved underwriting fundamentals and strengthened statutory capital base.

In 2004, adverse loss reserve development experienced by APA's sister company, Insurance Corporation of America (ICA), required a capital infusion, which was funded through a dividend from APA to ACAP. In A.M. Best's view, the 2004 dividend payment did not have a negative impact on the group's current capitalization. However, A.M. Best is concerned that ACAP will continue to depend on the dividends from APA going forward, and the degree of this reliance could impact A.M. Best's view of the group's capital position.

Additionally, A.M. Best has affirmed the FSR of B- (Fair) and has assigned an ICR of "bb-" to ICA. The rating outlook for both is negative.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.