S&P Reports: American Physicians Assurance Corp. Ratings Lowered, off Watch; Outlook Negative

February 25, 2004

Standard & Poor’s has lowered its counterparty credit and financial strength ratings on Michigan-based American Physicians Assurance Corp. (APA) to ‘BBB-‘ from ‘BBB’ and then removed the ratings from CreditWatch where they were placed on Nov. 26, 2003.

The outlook on APA is negative. The rating action is the result of continued uncertainty about future adverse medical liability reserve development in the inadequately underwritten 2002 and prior accident years as demonstrated by the $43 million third-quarter 2003 reserve strengthening constituting more than 20 percent of APA’s capital base.

The rating action also reflects the execution risk that recently implemented underwriting and pricing initiatives might be insufficient in improving historically weak underwriting performance to a good level and the potential for adverse charges in the discontinued workers’ compensation and health segment. APA’s rating is supported by its good regional niche position in the historically volatile medical malpractice business and good capitalization as measured by an estimated 130 percent consolidated capital adequacy as of February 2004.

Standard & Poor’s expects that pretax earnings, benefiting from strengthened underwriting and pricing, will improve to a good level in 2004 with no material prior year reserve additions. Capitalization is expected to remain more than 125 percent.

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