American Physicians Beats Estimates - Analyst Blog

American Physicians Service Group Inc. (AMPH) reported third quarter 2010 operating earnings of 94 cents per share, beating the Zacks Consensus Estimate of 69 cents by a substantial 25 cents. Results also compare favorably with 90 cents reported in the prior-year quarter. Operating earnings in the quarter were $6.5 million, up 3.1% from $6.3 million in the third quarter of 2009.

The quarter benefited from higher premium revenue, lower claims as well as favorable underwriting margins.

Including capital gains of $0.2 million, impairment charges of $0.3 million, loss from discontinued operations of $0.2 million, and non-recurring transaction expenses of $1.3 million, the company reported net income of $4.9 million, down 24% from $6.4 million in third-quarter 2009.

The prior-year quarter included capital gains of $0.1 million, impairment chares of $0.2 million, and gains from discontinued operations of $0.2 million. GAAP EPS was 71 cents in the quarter under review, down 23% from 92 cents reported in the third quarter of 2009.

Total revenue as reported by the company was $18.3 million, down 8% from $19.9 million in the year-ago quarter. Results were below the Zacks Consensus Estimate of $20 million. Lower earned premiums as well as lower investment income resulted in the overall decline in total revenue.

Net premiums earned declined 8% year over year to $16.1 million while investment income declined 4% year over year to $2.3 million.

Total expense in the third quarter of 2010 was $9.8 million, a decline of 7% year over year. Lower losses and loss adjustment expenses and underwriting expense, partially offset by higher general and administrative expenses, helped the company trim its expenses.

Financial Update

American Physicians ended the quarter with $15.3 million in cash and cash equivalent, down 8% from $16.7 million at third-quarter 2009 end.

Book value per share increased 15% to $25.46 as of September 30, 2010, from $22.20 as of September 30, 2009.

In September, American Physicians agreed to be acquired by ProAssurance Corporation (PRA). Per the agreement, the shareholders of American Physicians will receive $32.50 per share in cash from the acquirer and the transaction is expected to close in the fourth quarter of 2010.

American Physicians believes that ProAssurance will offer superior quality insurance protection for the policyholders. The company also believes that its shareholders, who remained insulated even during the economic turmoil, will also stand to benefit from the merger.

The company expects to incur $2.5 million of non-recurring transaction expenses in the fourth quarter of 2010 due to the merger.

The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.