A.M. Best Affirms Ratings of American Physicians Capital, Inc. and American Physicians Assurance Corporation

Business Wire, April 09, 2009

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of American Physicians Assurance Corporation (American Physicians), the primary member of American Physicians Group. American Physicians is the lead subsidiary of American Physicians Capital, Inc. (APCapital) (NASDAQ: ACAP). A.M. Best also has affirmed the ICR of “bbb-” of APCapital. The outlook for these ratings is stable.

Concurrently, A.M. Best has 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 the ratings of APSpecialty is stable, and the outlook for the ratings of ICA has been revised to stable from negative. All companies are domiciled in East Lansing, MI.

The ratings reflect the group’s conservative balance sheet, favorable operating performance since 2004 and its improved business position as a leading specialty provider of medical liability coverage within its five core states. The group also has maintained good risk-adjusted capital levels despite funding APCapital’s capital management initiatives via substantial dividend activity. Additionally, the ratings take into account APCapital’s guidance for 2009 and favorable earnings prospects over the near term.

The ratings further consider the financial flexibility afforded by APCapital, its ready access to the capital markets, strong interest coverage and modest financial leverage (total debt/total capital), which is 9.3% as of year-end 2008. The dividend stream from American Physicians has been utilized to repurchase stock, redeem $5 million of trust preferred debt and fund stock dividends. Going forward, A.M. Best expects that APCapital’s future demands on subsidiary capital will be neutralized by earnings.

Partially 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.

ICA’s ratings recognize its run-off status, continued adverse loss reserve development and the negative operating cash flows generated by the company. The revised outlook reflects the implementation of an adverse development cover between ICA and its sister company, American Physicians. The agreement, effective January 1, 2009, calls for American Physicians to indemnify ICA for the ultimate net loss in excess of ICA’s recorded reserves as of December 31, 2008.

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

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

The principal methodologies used in determining these ratings, including any additional methodologies and factors, which may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.