EAST LANSING, Mich., Oct. 24 /PRNewswire-FirstCall/ -- American Physicians Capital, Inc. (APCapital) today announced net income of $11.0 million or $1.37 per diluted common share for the third quarter of 2006. For the first nine months of 2006, the Company has generated net income of $30.6 million or $3.70 per share. In 2006, APCapital has generated operating income (which excludes realized gains, net of tax) of $1.36 per share in the third quarter and $3.59 per share year-to-date.
In 2005, the Company generated net income of $6.8 million or $.79 per share in the third quarter and $61.9 million or $7.08 per share year-to-date. However, the year-to-date amounts included the impact of reversing a deferred tax valuation allowance, which increased net income by $44.1 million.
"APCapital continues to generate strong earnings and growing return on equity," said President and Chief Executive Officer R. Kevin Clinton. "Our operational management has produced a solid and profitable book-of-business, and through our capital management efforts we have been able to further increase shareholder value."
Consolidated Income Statement
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Direct Premiums Written:
APCapital $51,819 $58,618 $125,742 $140,447
PIC Florida - 3,223 - 7,292
$51,819 $61,841 $125,742 $147,739
Net Premiums Written $48,304 $52,991 $117,351 $123,414
Net Premiums Earned $37,772 $40,171 $112,635 $123,744
Incurred Loss and Loss Adjustment
Expenses:
Current Accident Year Losses 27,693 32,055 85,352 99,960
Prior Year Losses (3,146) (1,261) (8,132) (2,116)
Total 24,547 30,794 77,220 97,844
Underwriting Expenses 7,373 7,538 22,784 25,247
Underwriting Income 5,852 1,839 12,631 653
Investment Income 11,338 10,752 34,010 33,582
Other Income (1) 298 (206) 2,273 (63)
Other Expenses (1,301) (1,824) (3,938) (6,253)
Pre-tax Income 16,187 10,561 44,976 27,919
Federal Income Taxes 5,162 3,705 14,376 (34,393)
Minority Interest - (31) - (373)
Net Income $11,025 $6,825 $30,600 $61,939
Loss Ratio:
Current Accident Year 73.3% 79.8% 75.8% 80.8%
Prior Year Development -8.3% -3.1% -7.2% -1.7%
Calendar Year 65.0% 76.7% 68.6% 79.1%
Underwriting Expense Ratio 19.5% 18.8% 20.2% 20.4%
Combined Ratio 84.5% 95.5% 88.8% 99.5%
(1) Includes realized gains and losses
Direct premiums written were $51.8 million in the third quarter of 2006, down $10.0 million or 16.2% from the same period a year ago. The decline in direct premiums written for the quarter was the result of no longer consolidating PIC Florida ($3.2 million) and price competition in our core medical professional liability markets.
For the first nine months of 2006, direct premiums written were down $22.0 million, or 14.9% with $9.6 million of this decrease caused by the impact of the PIC Florida and health line exit.
Net premiums earned in the third quarter of 2006 were down $2.4 million or 6.0% from the third quarter of 2005 and year-to-date are down $11.1 million or 9.0%. The decline in net premiums earned was not as great as the decline in direct premiums written due to changes in reinsurance terms made in 2006.
The 2006 third quarter loss ratio was 65.0% with $3.1 million of positive development from prior accident years. For the first nine months of 2006, the loss ratio was 68.6% with $8.1 million of positive prior year development. These ratios represent significant improvements from the 76.7% loss ratio reported in the third quarter of 2005 and the 79.1% reported for the first nine months of 2005. The lower loss ratio is the result of favorable loss development, past rate increases, a stronger book-of-business and improved claims processes.
On an accident year basis the loss ratio has decreased from 79.8% in the third quarter of 2005 to 73.3% in the third quarter of 2006. Year-to-date, the accident year loss ratio was 75.8% through September 30, 2006, compared to 80.8% for the same period a year ago. The number of medical professional liability claims reported in the third quarter of 2006 was 297, down 18% from the 361 claims reported in the third quarter of 2005.
The underwriting expense ratio increased in the third quarter of 2006 to 19.5% from 18.8% in the third quarter of 2005. However, the 2006 year-to-date underwriting expense ratio was 20.2% down slightly from 20.4% a year ago. In 2006, other expenses were down $523,000 or 28.7% in the third quarter and down $2.3 million or 37.0% year-to-date compared to the same respective periods last year. These decreases were due to a combination of lower Sarbanes- Oxley/404 costs, less investment expenses, no amortization, and reduced exit costs.
Investment income
Investment income was $11.3 million in the third quarter of 2006 and $34.0 million year-to-date. These amounts compared to $10.8 million and $33.6 million for the same periods in 2005. The overall investment yields increased from 5.18% in the third quarter 2005 to 5.29% in the third quarter of 2006. For the first nine months of 2006, our investment yield was 5.33% compared to 5.40% a year ago.
In the third quarter of 2006 our increased investment yield was the result of higher short-term rates and the improved performance of certain collateralized mortgage obligations and equity investments. However, year-to- date our yield is declining. In early 2006, we purchased $193.0 million of tax-exempt securities. We now have a 24.2% allocation of our cash and investment portfolio in tax-exempt securities. The average return on these tax-exempt securities is 3.8%.
Balance Sheet and Equity Information
APCapital's total assets were $1.1 billion at September 30, 2006, down $9.3 million from December 31, 2005. At September 30, 2006, the Company's total shareholders' equity was $265.8 million, up from $261.2 million at December 31, 2005. The increase in shareholders' equity is a result of net income of $30.6 million for the first nine months of 2006 partially offset by the Company utilizing $27.7 million of equity to repurchase shares.
APCapital's book value per common share was $34.12 at September 30, 2006, based on 7,789,982 common shares outstanding, compared to $31.35 at December 31, 2005.
Stock Repurchase Program
The Company repurchased 169,200 shares of its common stock during the third quarter of 2006 at an average cost of $47.76 per share. In the first nine months of 2006, the Company has repurchased 589,800 shares at an average cost of $46.97.
On April 6, 2006, the Company's Board of Directors authorized an additional share repurchase of $20 million of its common shares. The Board adopted a plan under Rule 10b5-1 of the Securities Exchange Act of 1934 to repurchase its common shares pursuant to this authorization. This authorization was increased by $10 million on August 21, 2006. Through September 30, 2006, the Company has utilized $21.0 million of these authorizations. Under the November 2, 2005 authorization, the Company has approximately 269,900 shares available for repurchase at September 30, 2006.
Stock Split
In September 2006, the Company's Board of Directors declared a three-for- two stock split of its common shares to shareholders of record as of the close of business on October 11, 2006. Shares resulting from the stock split are expected to be distributed to shareholders on November 1, 2006. All share and per share numbers disclosed in this press release are presented pre-stock split.
Outlook
"We remain committed to adequate pricing and thorough underwriting in an increasing competitive environment," said Clinton. "We will continue to manage our capital carefully and be watchful for growth opportunities."
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 2006 third quarter results on October 25, 2006 at 10:00 a.m. Eastern time. An archived edition of the Webcast can be accessed by going to the Company's website and selecting "For Investors," then "Webcasts." For individuals unable to access the Webcast, a telephone replay will be available by dialing 1-888-286-8010 or (617) 801-6888 and entering the conference ID code: 27454148. The replay will be available through 11:59 p.m. Eastern time on October 30, 2006.
Corporate Description
American Physicians Capital, Inc. is a regional provider of medical professional liability insurance focused primarily in the Midwest 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 Statement
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 use words such as "will," "should," "believes," "expects," "anticipates," "estimates" or similar expressions, or make statements in the section titled "Outlook," we are making forward-looking statements. While we believe any forward-looking statements we have made are reasonable, they are subject to risks and uncertainties, and actual results could differ materially. These risks and uncertainties include, but are not limited to, 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;
* our exit from various markets and lines of business may prove more costly than originally anticipated;
* tort reform legislation may have adverse or unintended consequences that could materially and adversely affect our results of operations and financial condition;
* if we are unable to obtain or collect on ceded reinsurance, our results of operations and financial condition may be adversely affected;
* the insurance industry is subject to regulatory oversight that may impact the manner in which we operate our business;
* our geographic concentration in certain Midwestern states and New Mexico ties our performance to the business, economic, regulatory and legislative conditions in those states;
* an interruption or change in current marketing and agency relationships could reduce the amount of premium we were able to write;
* a downgrade in the financial strength rating of our insurance subsidiaries could reduce the amount of business we were able to write;
* changes in interest rates could adversely impact our results of operation, cash flows and financial condition;
* our status as an insurance holding company with no direct operations could adversely affect our ability to meet our debt obligations and fund future share repurchases;
* 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.
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 law.
Definition of Non-GAAP Financial Measures
The Company 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, the Company'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, the Company believes that providing operating income (loss) information makes it easier for users of APCapital's financial information to evaluate the success of the Company's underlying insurance operations.
In addition to the Company's reported loss ratios, management also uses accident year loss ratios, a non-GAAP financial measure, to evaluate the Company'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, the Company believes that the current estimates are reasonable.
Summary Financial Information
APCapital, Inc.
Balance Sheet Data September 30, December 31,
2006 2005
(In thousands, except per share data)
Assets:
Available-for-sale - bonds $292,977 $224,101
Held-to-maturity - bonds 509,905 345,702
Other invested assets 16,664 11,568
Cash and cash equivalents 50,435 272,988
Cash and investments 869,981 854,359
Premiums receivable 48,581 50,729
Reinsurance recoverable 106,988 109,368
Deferred federal income taxes 34,458 44,039
Other assets 40,041 50,833
Total assets $1,100,049 $1,109,328
Liabilities and Shareholders'
Equity:
Unpaid losses and loss adjustment
expenses $689,126 $689,857
Unearned premiums 79,543 82,098
Long-term debt 30,928 30,928
Other liabilities 34,670 42,592
Total liabilities 834,267 845,475
Minority interest in consolidated
subsidiary - 2,641
Common stock - -
Additional paid-in-capital 48,262 74,360
Retained earnings 210,348 179,748
Accumulated other comprehensive
income:
Net unrealized appreciation on
investments, net of deferred federal
income taxes 7,172 7,104
Shareholders' equity 265,782 261,212
Total liabilities and
shareholders' equity $1,100,049 $1,109,328
Shares outstanding 7,790 8,333
Book value per share $34.12 $31.35
Summary Financial Information
APCapital, Inc.
Income Statement
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
(In thousands, except (In thousands, except
per share data) per share data)
Direct premiums written $51,819 $61,841 $125,742 $147,739
Net premiums written $48,304 $52,991 $117,351 $123,414
Net premiums earned $37,772 $40,171 $112,635 $123,744
Investment income 11,338 10,752 34,010 33,582
Net realized gains (losses) 100 (428) 1,448 (750)
Other income 198 222 825 687
Total revenues 49,408 50,717 148,918 157,263
Losses and loss adjustment
expenses 24,547 30,794 77,220 97,844
Underwriting expenses 7,373 7,538 22,784 25,247
Other expenses 1,301 1,824 3,938 6,253
Total expenses 33,221 40,156 103,942 129,344
Income before income taxes
and minority interests 16,187 10,561 44,976 27,919
Federal income tax expense
(benefit) 5,162 3,705 14,376 (34,393)
Income before minority
interests 11,025 6,856 30,600 62,312
Minority interest in net income
of consolidated subsidiary - (31) - (373)
Net income $11,025 $6,825 $30,600 $61,939
Adjustments to reconcile net
income to operating income:
Net income $11,025 $6,825 $30,600 $61,939
Add back:
Realized (gains) losses, net of
tax (65) 278 (941) 488
Net operating income $10,960 $7,103 $29,659 $62,427
Ratios:
Loss ratio (1) 65.0% 76.7% 68.6% 79.1%
Underwriting ratio (2) 19.5% 18.8% 20.2% 20.4%
Combined ratio (3) 84.5% 95.5% 88.8% 99.5%
Earnings per share data:
Net income
Basic $1.40 $0.81 $3.79 $7.23
Diluted $1.37 $0.79 $3.70 $7.08
Net operating income
Basic $1.39 $0.84 $3.67 $7.28
Diluted $1.36 $0.82 $3.59 $7.13
Basic weighted average shares
outstanding 7,864 8,444 8,082 8,572
Diluted weighted average shares
outstanding 8,041 8,652 8,260 8,754
(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
APCapital, Inc.
Selected Cash Flow Information
For the Nine Months Ended
September 30,
2006 2005
(In thousands)
Net cash from operating activities $41,145 $22,590
Net cash for (from) investing
activities $(237,482) $22,760
Net cash for financing activities $(26,216) $(6,963)
Net (decrease) increase in cash and
cash equivalents $(222,553) $38,387
APCapital, Inc.
Supplemental Statistics
Medical Professional Liability
Reported
Three Months Ended Claim Count
September 30, 2006 297
June 30, 2006 296
March 31, 2006 308
December 31, 2005 347
September 30, 2005 361
June 30, 2005 401
March 31, 2005 404
December 31, 2004 371
September 30, 2004 431
June 30, 2004 459
March 31, 2004 525
Net Premium Earned (in thousands)
APCapital
Excluding
Three Months Ended PIC Florida PIC Florida Total
September 30, 2006 $37,774 $- $37,774
June 30, 2006 37,517 - 37,517
March 31, 2006 37,448 - 37,448
December 31, 2005 39,918 671 40,589
September 30, 2005 39,305 975 40,280
June 30, 2005 39,677 869 40,546
March 31, 2005 41,356 799 42,155
December 31, 2004 42,914 737 43,651
September 30, 2004 43,496 673 44,169
June 30, 2004 43,045 514 43,559
March 31, 2004 42,074 382 42,456
Average Net
Average Net Paid Claim
Open Case Reserve (Trailing Four
Three Months Ended Claim Count Per Open Claim Quarter Average)
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
December 31, 2004 3,342 117,000 59,300
September 30, 2004 3,803 103,300 60,800
June 30, 2004 3,885 100,100 62,400
March 31, 2004 4,103 95,400 62,200
Retention Ratio
Nine Nine
Months Ended Months Ended
September Year Ended September
30, 2006 2005 30, 2005
Illinois 82% 75% 74%
Kentucky 69% 64% 63%
Michigan 86% 84% 83%
New Mexico 81% 89% 90%
Ohio 83% 82% 81%
Total (all states) 82% 82% 81%
Notes:
All values, except net premiums earned, exclude experience from investment in Physicians Insurance Company (Florida).
(Logo: http://www.newscom.com/cgi-bin/prnh/20020123/ACAPLOGO )
PRN Photo Desk,
