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UNITED STATES

Form 10-Q

American Physicians Capital, Inc.

1301 North Hagadorn Road, East Lansing, Michigan 48823

Registrant’s telephone number, including area code: (517) 351-1150

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  þ       NO  o

The number of shares outstanding of the registrant’s common stock, no par value per share, as of August 9, 2002 was 9,308,572.

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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES

ITEM 1.     Financial Statements

The accompanying notes are an integral part of the condensed consolidated financial statements.

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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES

The accompanying notes are an integral part of the condensed consolidated financial statements.

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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES

The accompanying notes are an integral part of the condensed consolidated financial statements.

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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES

The accompanying notes are an integral part of the condensed consolidated financial statements.

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AMERICAN PHYSICIANS CAPITAL, INC. AND SUBSIDIARIES

1.  Basis of Presentation

      The accompanying condensed consolidated financial statements include the accounts of American Physicians Capital, Inc. (“APCapital”) and its wholly owned subsidiaries, together referred to in this report as the “Company.” All significant intercompany accounts and transactions are eliminated in consolidation.

      The Company is principally engaged in the business of providing medical professional liability and workers’ compensation insurance throughout the United States with a concentration of writings in the Midwest.

      The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X as they apply to interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

      In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The operating results for the three-month and six-month periods ended June 30, 2002, are not necessarily indicative of the results to be expected for the year ending December 31, 2002. The accompanying condensed consolidated financial statements should be read with the annual consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

      In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods then ended. Actual results may differ from those estimates.

      The most significant estimates that are susceptible to significant change in the near term relate to the determination of the losses and loss adjustment expense reserves. Although considerable variability is inherent in these estimates, management believes that the reserves are adequate. The estimates are reviewed regularly and adjusted as necessary. Such adjustments are reflected in current operations.

2.  Shareholders’ Equity and Net Income Per Share

      In March, July and November 2001 and May 2002, APCapital’s Board of Directors authorized four separate programs to purchase 5% of its outstanding common stock, representing approximately 2,188,000 shares. The Company’s purchase of any of its shares is subject to limitations that may be imposed by applicable securities laws and regulations and the rules of the Nasdaq Stock Market. The timing of the purchases and the number of shares to be bought at any one time depend on market conditions and the Company’s capital requirements. During the quarter, the Company purchased 327,600 of shares pursuant to these authorizations, bringing the total number of shares purchased to 1,978,170, at a total cost of $36,061,000. As of June 30, 2002, the Company has approximately 210,000 shares of its May 2002 5% stock repurchase program remaining to be purchased.

      On August 8, 2002, the Company’s Board of Directors authorized another program to purchase an additional 5% of its outstanding common stock, or approximately 481,000 shares.

      Net income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock and common stock equivalents (e.g., stock options and stock awards) outstanding, calculated on a daily basis. The weighted average common shares used for determining basic (loss) per common share were 9,870,303 and 9,712,499, respectively, for the six months and three months ended June 30, 2002. The weighted average common shares used for determining basic income per common share were 11,413,685 and 11,376,169, for the six months and three months ended June 30, 2001, respectively. The

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

effect of dilutive stock options and awards added 175,163 and 176,772 shares for the six months and three months ended June 30, 2001, respectively.

      As the Company was in a net loss position for the six and three months ended June 30, 2002, no effect of options or other stock awards was calculated as the impact would be anti-dilutive.

3. Goodwill

      Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 142. The Company has only one intangible asset, which is the goodwill associated with the purchase of Stratton Cheeseman Management Company in 1999. As of June 30, 2002, the Company has completed the first step of the transitional impairment testing provisions contained in SFAS No. 142. As a result of this first step test, the Company believes that a goodwill impairment charge might have to be recognized related to its medical professional liability, workers’ compensation, personal and commercial and health reporting units. The Company intends to complete step two of the transitional impairment test and record any impairment charge in the fourth quarter. At June 30, 2002, goodwill totaled $17.8 million, with accumulated amortization of $3.9 million, or net goodwill of $13.9 million. The Company’s net income and earnings per share for all periods presented in the condensed consolidated statements of income, exclusive of amortization expense recognized in those periods related to goodwill no longer being amortized, would have been as follows:

4.  Segment Information

      The Company is organized and operates principally in the property and casualty insurance industry and has five reportable segments — medical professional liability, workers’ compensation, personal and commercial lines, health and other, and corporate and investments. The accounting policies of the segments are described in the notes to the financial statements included in the Company’s most recent Annual Report on Form 10-K. Expense allocations are based primarily on loss and loss adjustment expenses by line of business

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and certain other estimates for underwriting expenses. Reported segment results would change if different allocation methods were applied.

      Effective January 1, 2001, the Company began non-renewing personal and commercial policies. As of December 31, 2001, all net written premiums related to personal and commercial policies previously issued had been fully earned. The personal and commercial segment will continue to generate income (loss) before taxes due to the development of unpaid loss and loss adjustment expenses associated with this segment. The Company does, however, write a small amount of direct personal and commercial business in connection with one of its alternative-risk-transfer programs. Direct premiums written related to this program were approximately $397,000 for the six-months ended June 30, 2002 which were fully ceded to a reinsurer.

      The Company does not allocate assets, investment income or income taxes to operating segments. Segment information, for which results are regularly reviewed by management in making decisions about resources to be allocated to the segments and assessing their performance, is summarized as follows:

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      The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. The following discussion of our financial condition and results of operations contains certain forward-looking statements relating to our anticipated future financial condition and operating results and our current business plans. These forward-looking statements represent our outlook only as of the date of this report. While we believe any forward-looking statements we have made are reasonable, actual results could differ materially since the statements are based on our current expectations and are subject to risks and uncertainties. These risks and uncertainties are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission. See, for example, the disclosures in “Item 1 — Business — Uncertainties Relating to Forward-Looking Statements” of the Company’s Annual Report on Form 10-K and in other reports filed by the Company with the Securities and Exchange Commission. Other factors not currently anticipated by management may also materially and adversely affect the Company’s results of operations. The Company does not undertake, and expressly disclaims any obligation, to update or alter its forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

      We operate primarily in four insurance product segments: Medical Professional Liability, Workers’ Compensation, Health/ Other and Personal and Commercial Lines. See Note 4 to the Notes to Condensed Consolidated Financial Statements for further information regarding the operating results of our business segments.

      The following tables set forth key premium and loss financial data for each of our insurance product segments. The tables are a summary, and should be read in conjunction with management’s discussion regarding the underwriting results of each insurance product segment.

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Summary Premium Volume by Product Segment and Major Market