American Physicians Capital, Inc. Reports Third Quarter 2009 Results and Increases Cash Dividend.

EAST LANSING, Mich. -- American Physicians Capital, Inc. (APCapital) (NASDAQ:ACAP) today announced net income of $9.8 million or $.91 per diluted common share for the third quarter of 2009. This compares to net income of $11.2 million, or $.85 per diluted common share for the third quarter of 2008. Year-to-date, the Company has generated net income of $30.8 million or $2.73 per diluted common share in 2009, compared to $33.6 million or $2.53 per diluted common share in the first nine months of 2008. Also today, APCapital's Board of Directors elected to increase its quarterly cash dividend by 9% to $0.09 per common share payable on December 31, 2009 to shareholders of record on December 11, 2009.

The 2009 year-to-date net income represents a return on beginning GAAP equity of 16.2%. At September 30, 2009, APCapital's book value per share was $23.44, up 8.4% during 2009, with 10,424,706 shares outstanding.

"Careful underwriting, capital management and prudent investment strategy remain our focus," said President and Chief Executive Officer R. Kevin Clinton. "We continuously look for positive growth and investment opportunities, but only at terms that are beneficial to the long-term success of our Company."

Stock Split

As previously announced, on June 23, 2009, the Company's Board of Directors declared a four-for-three stock split of its common shares to shareholders of record on July 10, 2009. Shares resulting from the stock split were distributed to shareholders on July 31, 2009. All share and per share numbers disclosed in this press release have been adjusted for this stock split.

Reaffirm Annual Guidance for 2009

"If current trends in frequency, severity and pricing remain stable in our book of business throughout the remainder of 2009, we continue to believe that we should report operating earnings for 2009 of at least $3.45 per diluted share, as adjusted for the recent stock split," 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.

[TABLE OMITTED]

Direct premiums written were $34.7 million in the third quarter of 2009, down $3.2 million or 8.4% from the same period a year ago. Year-to-date, direct premiums written are down $8.9 million or 9.1%. The declines in direct premiums written were the result of rate reductions based on lower claims frequency trends and competitive pressures. We insured 8,832 physicians at September 30, 2009, an increase from last quarter, but down from 9,068 insureds at year end 2008.

Net premiums earned in the third quarter of 2009 were down $2.2 million or 7.3% from the third quarter of 2008 and were down $7.6 million or 8.1% year-to-date. The decline in net premiums earned varied from 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.

Although direct premiums written and net premiums earned are down for the third quarter of 2009, our active share repurchase program has resulted in an increase in both direct premiums written and net premiums earned this quarter on a per share basis as compared to the third quarter of 2008.

The 2009 third quarter loss ratio was 52.0% with $8.9 million of positive development from prior accident years. For the nine months ended September 30, 2009, the loss ratio was 50.5% with $27.2 million of positive prior year development. On an accident year basis, the loss ratio for the first nine months of 2009 was 82.1%, up from the 78.4% reported in the same period of 2008. This increase in accident year loss ratio reflects our recent premium rate decreases.

Claim frequency continued to be at historically low levels, but has leveled off. The number of claims reported in the third quarter of 2009 was 237, similar to the 233 reported in the third quarter of 2008. Our open claim count is down 4.1% from December 31, 2008 to 1,359 outstanding claims at September 30, 2009. Our average paid claims have trended up slightly in recent quarters. Our average net case reserve is $173,800 at September 30, 2009 as compared to $166,500 at December 31, 2008.

The underwriting expense ratio was 23.6% in the third quarter of 2009 up from 20.9% in the third quarter of 2008. Year-to-date the underwriting expense ratio was 24.6% compared to 21.4% a year ago. These increases in the underwriting expense ratio are primarily the result of implementing our new policy and claims information system. Effective in the first quarter of 2009 we discontinued capitalizing internally developed system costs, and we are now amortizing costs previously capitalized. In addition, the decline in premium volume also increased the underwriting expense ratio. Other expenses were down $170,000 in the third quarter of 2009 and $684,000 year-to-date as compared to the same periods last year as a result of lower interest expense on our trust preferred debt.

Investments

Investment income was $7.4 million in the third quarter of 2009, down from $8.9 million for the same period in 2008. Our investment income for the first nine months of 2009 was down $4.5 million compared to the same period in 2008. Year-to-date our investment yield was 3.88% through September 30, 2009 compared to 4.43% through September 30, 2008. These decreases were primarily attributable to our increased position in tax-exempt securities, which typically have a lower yield than comparable taxable securities, and the decline in short-term interest rates. Year-to-date our pre-tax investment yield decreased 55 basis points to 3.88% for the first nine months of 2009 compared to 4.43% for the same period a year ago. However, as a result of the additional tax savings associated with the increase in our tax-exempt investment income, our year-to-date after tax-yield decreased only 27 basis points to 3.05% in 2009, as compared to 3.32% a year ago. Our bond portfolio continued to perform well with no impairments in 2009.

Balance Sheet and Equity Information

APCapital's total assets were $969.9 million at September 30, 2009, down $36.0 million from December 31, 2008. At September 30, 2009, the Company's total shareholders' equity was $244.3 million, down $9.7 million from December 31, 2008. Our net income and investment market value gains have been more than offset by our use of $42.8 million of equity to repurchase our common shares and $2.7 million to pay shareholder dividends.

Capital Management

In the third quarter of 2009, APCapital repurchased 313,200 shares at an average cost of $30.60 per share. Year-to-date through September 30, 2009 we have repurchased 1,403,200 shares at an average cost of $30.47 per share. APCapital has the following outstanding share repurchase authorizations:

[TABLE OMITTED]
[TABLE OMITTED]

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 third quarter of 2009, the Board of Directors declared a third quarter cash dividend of $0.825 per common share, which was paid to shareholders on September 30, 2009.

Conference Call

APCapital will host a live conference call to discuss third quarter 2009 financial results on Friday, October 30, 2009 at 10:00 a.m. Eastern Time. Investors are invited to participate in our live call by dialing [phone] or [phone]. A live webcast will also be available in a listen-only format on APCapital's website, http://www.apcapital.com. 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 listen to the live conference call, a telephone replay will be available by dialing [phone] or [phone] and entering the conference ID code: 8078450. The replay will be available through 11:59 p.m. Eastern Time on Thursday, November 5, 2009.

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.

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;

* market liquidity and volatility associated with the current financial crisis makes the fair values of our investments more difficult to estimate and may have other unforeseen consequences that we are currently unable to predict;

* 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.

Return on Equity

As a way of evaluating our capital management strategies we measure and monitor our return on equity, or ROE, in addition to our results of operations. We measure ROE as our net income for the period divided by our total shareholders' equity as of the beginning of the period. Other companies sometimes calculate ROE by dividing annualized net income by an average of beginning and ending shareholders' equity. Accordingly, the ROE percentage we provide may not be comparable with those provided by other companies. We also use a modified version of ROE as the basis for determining performance-based compensation.

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.

APCapital measures the performance of its investment portfolio through the use of both pre-tax and net of tax investment yields. Due to the federal income tax savings associated with state, municipal and other local government issued debt securities, and the attractive yields on these securities relative to Treasury securities with comparable durations, APCapital has increased its allocation of the overall investment portfolio into tax-exempt securities in recent years. As higher-yielding corporate, U.S. Government agency and mortgage-backed securities have matured, been called or paid down in recent years, the proceeds have been reinvested in tax-exempt securities, which typically have a lower pre-tax yield. The use of net of tax investment yields allows APCapital to monitor and measure investment performance on a more comparative basis by compensating for the decline in pre-tax yields on tax-exempt securities, with the benefit of the additional federal income tax savings.

Investment yield represents the average return on investments as determined by annualizing investment income for the period and dividing by the average ending monthly investment balance for the period. The use of the average of month ending balances may result in slightly skewed results for certain individual asset classes that are subject to fluctuations in a given month, such as cash and cash equivalents. However, APCapital believes that when calculated for the cash and invested asset portfolio in its entirety, the overall investment yield is an accurate and reliable measure for evaluating investment performance. APCapital's calculation of investment yields may differ from those employed by other companies.

The following table shows the reconciliation of pre-tax investment yields and net of tax investment yields, in accordance with calculation described above. As a property and casualty insurance company, federal income tax law limits the tax benefit of exempt interest income APCapital may deduct to 85% of the exempt interest income.

[TABLE OMITTED]
[TABLE OMITTED]
[TABLE OMITTED]
[TABLE OMITTED]
[TABLE OMITTED]
[TABLE OMITTED]
[TABLE OMITTED]
[TABLE OMITTED]
[TABLE OMITTED]
[TABLE OMITTED]