American Physicians Improves

American Physicians Capital, Inc. (ACAP) announced a net income of $11.0 million or $1.30 per diluted common share for the second quarter of 2009. Earnings surpassed both Zacks’ as well as the Street’s consensus of $1.09 per share. This compares to net income of $11.0 million, or $1.11 per share last year.  

Direct written premiums were $24.2 million, down 7.6% from the prior-year period, reflecting rate reductions and the loss of accounts to competitors. Insured physician count was 8,693, down 4.1% since the year-end 2008.

Net premiums earned were down $3.0 million or 9.7% from the second quarter of 2008. The decline was due to narrowed net premiums written and an increase in ceded reinsurance premiums. The underwriting expense ratio increased to 25.8% from 21.1% last year due to the implementation of a new policy and claims information system.
 
American Physicians had 254 new claims recorded during the quarter, down from 261 last year. Claims continued to settle at relatively stable amounts, with open claims falling by 4.5% from year end to 1,349.

Investment income was $8.0 million versus $9.2 million in the prior-year period. The decrease was primarily due to an increased allocation to tax-exempt securities as well as a decline in short-term interest rates. Investment yield was 3.11% versus 3.36% a year ago.

Loss ratio was 46.2% with $35.5 million of positive development from prior accident years. On an accident year basis, the loss ratio was 81.7%. This increase in accident year loss ratio reflects the recent premium rate decreases.

The previous guidance of expected annual earnings of $4.25 made during the last quarter was revised upwards to $4.60 per share.

Overall, American Physicians’ conservative balance sheet, good risk-adjusted capital levels, favorable operating performance and focused, multi-channeled distribution approach with an emphasis on an increased share of business from captive agents should benefit it going forward. Our Hold recommendation on the shares of ACAP remains in place.

Read the full analyst report on ACAP