A.M. Best Affirms and Upgrades Ratings of American Physicians Capital, Inc. and American Physicians Assurance Corporation; Revises Outlook to Positive.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of B++ (Good) and upgraded the issuer credit rating (ICR) to "bbb+" from "bbb" for American Physicians Assurance Corporation (American Physicians), the primary subsidiary of American Physicians Capital, Inc. (APCapital) [NASDAQ: ACAP]. Concurrently, A.M. Best has upgraded the ICR to "bb+" from "bb" of APCapital. The outlook for these ratings has been revised to positive from stable. A.M. Best has also affirmed the FSRs of B+ (Good) and B- (Fair) and the ICRs of "bbb-" and "bb-" of APSpecialty Insurance Corporation (APSpecialty) and Insurance Corporation of America (ICA), respectively. The outlook for APSpecialty's FSR and ICR is stable, while the outlook for ICA's FSR and ICR is negative. All companies are domiciled in East Lansing, MI.

These rating actions follow APCapital's first quarter 2007 earnings announcement and take into consideration American Physicians' favorable operating performance since 2004 and American Physicians' excellent risk-adjusted capitalization and favorable earnings prospects despite the softening market.

The ratings also take into account the financial flexibility afforded by APCapital, its ready access to the capital markets and its modest financial leverage (total debt and preferred stock/total capital), which as of first quarter 2007 is 10%. At the same time, A.M. Best also considers the effects of APCapital's share repurchase activities and its demands on subsidiary capital, which is expected to be neutralized by future earnings.

The ratings also consider American Physicians' improved business position as a leading specialty provider of medical liability coverage within its five core states and the continued benefits to be gained from management's strict underwriting measures, enhanced by improved reserve margins.

Offsetting these positive rating factors are the group's poor historical operating performance prior to 2004 and the inherent market risks associated with the medical professional liability sector with regard to price competition, legislative (tort) reform, loss cost trends and regulatory challenges.

The revised rating outlook acknowledges the continued strong underwriting performance, driven by management's successful implementation of strategic underwriting initiatives, favorable near-term earnings prospects and enhanced capitalization. Critical to this outlook is American Physicians' cycle management capabilities, price discipline and ability to sustain profitability and risk-adjusted capitalization.

ICA's ratings reflect its run off status, continued adverse loss reserve development and the negative operating cash flows generated by the company over the past three years.

APSpecialty's rating affirmations recognize its run off status, more than adequate capitalization and uncertainty as it pertains to its ultimate business prospects going forward.

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.