A.M. Best Downgrades Rating of APCapital Group

November 7, 2003

A.M. Best Co. has downgraded the financial strength rating to B++ (Very Good) from A- (Excellent) of APCapital Group, a subsidiary of American Physicians Capital, Inc. Both companies are located in East Lansing, Mich.

A.M. Best has placed the group’s rating under review with negative implications pending A.M. Best’s full review of the group’s capitalization, loss reserve adequacy and operating structure.

This rating action follows Thursday’s announcement that APCapital expects to incur a significant third quarter operating loss due to loss reserve strengthenings of an estimated $43 million before taxes ($28 million net of tax) and the impact of an estimated non-cash charge of approximately $50 million to establish a valuation allowance to eliminate the deferred tax asset. Additionally, the group announced its intention to exit the health care and workers’ compensation business lines and that the Board of Directors is exploring options to maximize shareholder value.

The rating of APCapital reflects its reduced capitalization following the announced operating loss and the negative impact on financial flexibility related to the adverse development of loss reserves, which has contributed to significant operating losses reported since year-end 2001.

Furthermore, A.M. Best believes that there is uncertainty regarding the potential impact of earnings drag due to the run-off of several business lines.

However, APCapital’s financial flexibility is somewhat improved due to the access to cash at the ultimate parent company, APCapital Inc., as well as management’s aggressive actions to shed underperforming business lines.

A.M. Best expects to meet with management during the fourth quarter of 2003 to reassess APCapital’s loss reserve position, its exit strategy from non-core markets, and holding company capital management intentions. After assessing the impact of management’s initiatives on the prospective capitalization and operating position of the group, A.M. Best expects to resolve the under review status of the rating by the end of calendar year 2003.

The financial strength rating has been downgraded to B++ (Very Good) from A- (Excellent) for APCapital Group and the following members:

American Physicians Assurance Corporation
APSpecialty Insurance Corporation
Insurance Corporation of America

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