Zacks_Analysts' Blog : American Physicians Beats Estimates - Analyst Blog

American Physicians Service Group Inc.’s (AMPH) second-quarter operating earnings of 88 cents per share comfortably surpassed the Zacks Consensus Estimate of 68 cents per share. The company had earned 82 cents per share in the prior-year quarter.

 

The improvement in results reflects the decrease in total expenses and revenue growth, partially offset by a decline in net premium earned. Further, the company experienced strong policyholder retention and a decrease in pending claims.

 

Quarter in Detail

 

Including the after-tax effects of realized investment gains and losses and other-than-temporary impairments, American Physicians earned a net income of $6.2 million or 90 cents per share in the quarter, compared with a net income of $4.9 million or 70 cents per share in the prior-year period. Revenues were up 3% year over year at $20.7 million, and also outpaced the Zacks Consensus Estimate of $20.0 million.

 

Revenues increased 16.7% to $2.1 million compared with the prior-year quarter in the Financial Services segment, while there was a 41.2% year-over-year increase in expenses in the segment, reflecting a decrease in professional fees. Investment income was $2.5 million, down 7.4% year over year, driven by lower yields.

 

American Physicians reported a 1.4% decrease in gross premiums written from the year-ago period to $14.5 million, partially offset by strong policy holder retention at 92%.  The company has achieved an 8% growth in the number of policyholders. Pending claims decreased 8% year over year to 521 claims.

 

Loss and loss adjustment expenses were $4.9 million, down from $6.8 million in the prior-year period. Total expenses of American Physicians decreased 8.9% to $11.4 million from $12.5 million in the year-ago quarter, primarily reflecting the significant decline in loss and loss adjustment expenses.

 

American Physicians’ solid operating performance has resulted in an increase in book value per share. The company reported a book value of $24.47 per share, up 5.7% from $23.15 per share as of December 31, 2009. Cash and investments grew 2% to $264 million from $259 million as of December 31, 2009.

 

During the quarter, the board authorized an additional $5 million for stock repurchase program, making the total authorization to $5.5 million. More share repurchases are expected in the second half of 2010.

 

Performance by Peers

 

American Physicians’ closest peer CNA Financial Corporation (CNA) also reported continued growth in book value per common share increasing 13% to $40.43 from year-end 2009, reflecting an ongoing improvement of market values in investment portfolio and consistent earnings.

 

Another peer, ProAssurance Corporation (PRA) will report its second-quarter 2010 result on Wednesday, August 4, 2010.

 

Though we expect the company’s underwriting discipline and strong capital position to provide some relief, there is limited room for significant expansion in earnings in the foreseeable future. Besides, the company's targeted nature, subjects its financial condition and results of operations to the cyclical nature of the medical professional liability insurance market. Moreover, investment income results will continue to be volatile, given its exposure to Collateralized Mortgage Obligations, which are facing increased delinquencies.

 

American Physicians currently retains its Zacks #3 Rank, which translates to a short-term Hold rating. Considering the fundamentals, we are maintaining a Neutral recommendation on the stock.