fpic10q.htm

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 ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer ¨ Accelerated Filer þ Non-accelerated Filer ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

As of July 29, 2008, there were 8,256,934 shares of the Registrant’s common stock, $.10 par value, outstanding.

			Page
Part I Financial Information
Item 1.		Financial Statements
	·	Unaudited Consolidated Statements of Financial Position as of June 30, 2008 and December 31, 2007	1
	·	Unaudited Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2008 and 2007	2
	·	Unaudited Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2008 and 2007	3
	·	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007	4
	·	Notes to the Unaudited Consolidated Financial Statements	5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.		Controls and Procedures	24


Part II Other Information
Item 1.		Legal Proceedings	25
Item 1A.		Risk Factors	25
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.		Defaults Upon Senior Securities	26
Item 4.		Submission of Matters to a Vote of Security Holders	26
Item 5.		Other Information	27
Item 6.		Exhibits	27

(in thousands, except shares authorized, issued and outstanding)	As of			As of
	June 30, 2008			December 31, 2007
Assets
Investments:
Fixed income securities, available-for-sale	$	687,228			689,172
Equity securities, available-for-sale		13,885			14,912
Short-term investments		896			1,479
Other invested assets		5,564			5,494
Total investments (Note 8)		707,573			711,057

Cash and cash equivalents		48,078			70,229
Premiums receivable (net of an allowance of $300 as of June 30, 2008 and December 31, 2007)		61,115			65,221
Accrued investment income		8,195			8,439
Reinsurance recoverable on paid losses		3,985			3,458
Due from reinsurers on unpaid losses and advance premiums		134,678			144,335
Ceded unearned premiums		10,286			9,764
Deferred policy acquisition costs		9,771			9,662
Deferred income taxes		33,528			32,566
Goodwill		10,833			10,833
Other assets		9,758			11,458
Total assets	$	1,037,800			1,077,022

Liabilities and Shareholders' Equity
Policy liabilities and accruals:
Losses and loss adjustment expenses	$	570,848			585,087
Unearned premiums		103,850			108,894
Reinsurance payable		1,437			1,268
Paid in advance and unprocessed premiums		8,796			10,981
Total policy liabilities and accruals		684,931			706,230

Long-term debt		46,083			46,083
Other liabilities		22,294			29,112
Total liabilities		753,308			781,425

Commitments and contingencies (Note 11)

Preferred stock, $0.10 par value, 50,000,000 shares authorized; none issued	$	—			—
Common stock, $0.10 par value, 50,000,000 shares authorized; 8,410,430 and 8,949,401 shares issued and outstanding as of June 30, 2008 and December 31, 2007, respectively		841			895
Additional paid-in capital		—			—
Retained earnings		288,561			295,586
Accumulated other comprehensive loss, net		(4,910	)		(884	)
Total shareholders' equity		284,492			295,597
Total liabilities and shareholders' equity	$	1,037,800			1,077,022

(in thousands, except earnings per common share)	For the Quarter Ended						For the Six Months Ended
	June 30, 2008			June 30, 2007			June 30, 2008			June 30, 2007
Revenues
Net premiums earned	$	42,823			49,415		$	87,116			101,017
Net investment income		7,599			7,745			15,346			15,731
Net realized investment losses		(30	)		(170	)		(121	)		(96	)
Other income		101			95			198			173
Total revenues		50,493			57,085			102,539			116,825

Expenses
Net losses and loss adjustment expenses		24,902			30,382			50,057			52,029
Other underwriting expenses		9,298			10,364			19,239			20,141
Interest expense on debt		931			1,112			1,996			2,200
Other expenses		—			9			8			19
Total expenses		35,131			41,867			71,300			74,389

Income before income taxes		15,362			15,218			31,239			42,436
Less: Income tax expense		5,033			5,163			10,083			14,635
Net income	$	10,329			10,055		$	21,156			27,801

Basic earnings per common share	$	1.20			1.05		$	2.43			2.86
Basic weighted average common shares outstanding		8,607			9,615			8,691			9,707

Diluted earnings per common share	$	1.16			1.01		$	2.36			2.76
Diluted weighted average common shares outstanding		8,876			9,980			8,981			10,069

				(in thousands)
	Shares of Common Stock			Common Stock			Additional Paid-in-Capital			Retained Earnings			Accumulated Other Comprehensive Loss, Net			Comprehensive Income		Total
Balances at December 31, 2007		8,949,401		$	895		$	—		$	295,586		$	(884	)			$	295,597

Net income		—			—			—			21,156			—		21,156			21,156
Other comprehensive loss, net of tax
Unrealized loss on invested assets, net of tax		—			—			—			—			(4,303	)	(4,303	)		(4,303	)
Unrealized gain on derivative financial instruments, net of tax		—			—			—			—			312		312			312
Prior service cost		—			—			—			—			14		14			14
Transition obligation		—			—			—			—			3		3			3
Net loss on pension plan		—			—			—			—			6		6			6
Other comprehensive loss																(3,968	)
Comprehensive income																17,188

Cumulative adjustment to adopt FAS 158 measurement date provisions		—			—			—			(89	)		(58	)				(147	)
Issuance of restricted stock		27,517			3			1,123			—			—					1,126
Issuance of shares		228,926			23			4,614			—			—					4,637
Repurchase of shares		(795,414	)		(80	)		(7,677	)		(28,092	)		—					(35,849	)
Share-based compensation		—			—			389			—			—					389
Income tax reductions relating to exercise of stock options		—			—			1,551			—			—					1,551
Balances as of June 30, 2008		8,410,430		$	841		$	—		$	288,561		$	(4,910	)			$	284,492

				(in thousands)
	Shares of Common Stock			Common Stock			Additional Paid-in-Capital			Retained Earnings			Accumulated Other Comprehensive Loss, Net			Comprehensive Income		Total
Balances at December 31, 2006		10,063,937		$	1,006		$	37,735		$	252,490		$	(5,977	)			$	285,254

Net income		—			—			—			27,801			—		27,801			27,801
Other comprehensive loss, net of tax
Unrealized loss on invested assets, net		—			—			—			—			(3,133	)	(3,133	)		(3,133	)
Unrealized loss on derivative financial instruments, net		—			—			—			—			(66	)	(66	)		(66	)
Prior service cost		—			—			—			—			15		15			15
Transition obligation		—			—			—			—			9		9			9
Net loss on pension plan		—			—			—			—			9		9			9
Other comprehensive income																(3,166	)
Comprehensive income																24,635

Cumulative adjustment to adopt FIN 48		—			—			—			(84	)		—					(84	)
Issuance of restricted stock		34,549			3			768			—			—					771
Issuance of shares		70,295			7			1,494			—			—					1,501
Repurchase of shares		(670,922	)		(66	)		(27,581	)		—			—					(27,647	)
Share-based compensation		—			—			642			—			—					642
Income tax reductions relating to exercise of stock options		—			—			488			—			—					488
Balances as of June 30, 2007		9,497,859		$	950		$	13,546		$	280,207		$	(9,143	)			$	285,560

(in thousands)	For the Six Months Ended
	June 30, 2008			June 30, 2007
Operating Activities
Net income	$	21,156			27,801
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion		12,817			11,830
Net realized losses on investments		121			96
Deferred policy acquisition costs, net of related amortization		(8,973	)		(8,253	)
Deferred income tax expense		1,585			223
Excess tax benefits from share-based compensation		(1,525	)		(443	)
Share-based compensation		1,516			1,412
Other Changes in Assets and Liabilities
Premiums receivable, net		4,106			11,030
Accrued investment income		244			781
Reinsurance recoverable on paid losses		(527	)		8,176
Due from reinsurers on unpaid losses and advance premiums		9,657			4,799
Ceded unearned premiums		(522	)		921
Other assets and liabilities		(4,057	)		(7,495	)
Losses and loss adjustment expenses		(14,239	)		(41,872	)
Unearned premiums		(5,044	)		(62,279	)
Reinsurance payable		169			(9,220	)
Paid in advance and unprocessed premiums		(2,185	)		(4,003	)
Net cash provided by (used in) operating activities		14,299			(66,496	)

Investing Activities
Proceeds from
Sales of fixed income securities, available-for-sale		37,255			66,752
Sales of other invested assets		5			22
Maturities of fixed income securities, available-for-sale		20,960			9,660
Maturities of short-term investments		580			29,543
Purchases of
Fixed income securities, available-for-sale		(63,565	)		(43,280	)
Equity securities		(1,500	)		(11,700	)
Other invested assets		(388	)		(38	)
Property and equipment		(110	)		(4,120	)
Net cash (used in) provided by investing activities		(6,763	)		46,839

Financing Activities
Issuance of common stock		4,637			1,501
Repurchase of common stock		(35,849	)		(27,647	)
Excess tax benefits from share-based compensation		1,525			443
Net cash used in financing activities		(29,687	)		(25,703	)

Net decrease in cash and cash equivalents		(22,151	)		(45,360	)
Cash and cash equivalents at beginning of period		70,229			138,688
Cash and cash equivalents at end of period	$	48,078			93,328

These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”). The statement of financial position as of December 31, 2007 was derived from audited financial statements, but does not include all disclosures required by GAAP. All significant transactions between the parent and consolidated subsidiaries have been eliminated. Reference is made to our Annual Report on Form 10-K for the year ended December 31, 2007, which includes information necessary for understanding our business and financial statement presentations. In particular, our significant accounting policies are presented in Note 2, Significant Accounting Policies, to the consolidated financial statements included in that report.

These consolidated interim financial statements are unaudited. These statements include all adjustments, consisting only of normal recurring accruals, that are, in the opinion of management, necessary for the fair statement of results for interim periods. The results reported in these consolidated interim financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. For example, the timing and magnitude of claim losses incurred by our insurance subsidiaries due to the estimation process inherent in determining the liability for losses and loss adjustment expenses (“LAE”) can be relatively more significant to results of interim periods than to results for a full year. Also, variations in the amount and timing of realized investment gains and losses could cause significant variations in periodic net income.

Effective January 1, 2008, we adopted the measurement provisions for financial assets and liabilities of Financial Accounting Standard (“FAS”) 157, Fair Value Measurements, which provides a framework for measuring fair value under GAAP. In February 2008, the Financial Accounting Standards Board (“FASB”) released FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The adoption of FAS 157 did not have an impact on our consolidated financial statements. For additional disclosures, see Note 9, Fair Value Measurements.

Effective January 1, 2008, we adopted the measurement date provisions of FAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, by electing the "two measurement approach" for current year-end measurement calculations. Under the "two measurement approach" we have appropriately recorded the net benefit expense for the transition period to retained earnings as of January 1, 2008. Additionally, changes in the value of plan assets and benefit obligations that occurred in the transition period between October 1, 2007 and December 31, 2007 were recorded to accumulated other comprehensive income, net of tax, at the beginning of the year. A second measurement was performed at January 1, 2008 to produce twelve months of net benefit expense to record during 2008. The impact of adopting the measurement date provisions of FAS 158 is shown in the table below:

Effective January 1, 2008, we adopted FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FAS 115, which allows entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. The adoption of FAS 159 did not have an impact on our consolidated financial statements as we did not elect to measure any additional financial instruments at fair value.

In December 2007, the FASB issued FAS 141(R), Business Combinations. This Statement applies to all transactions or other events in which an entity (the acquirer) obtains control of one or more businesses (the acquiree), including those sometimes referred to as “true mergers” or “mergers of equals” and combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority veto rights. This Statement applies to all business entities, including mutual entities that previously used the pooling-of-interests method of accounting for some business combinations. It does not apply to: (a) the formation of a joint venture, (b) the acquisition of an asset or a group of assets that does not constitute a business, (c) a combination between entities or businesses under common control, (d) a combination between not-for-profit organizations or (e) the acquisition of a for-profit business by a not-for-profit organization. FAS 141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of FAS 141(R) is not expected to have a material impact on our consolidated financial statements.

In December 2007, the FASB issued FAS 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin (“ARB”) No. 51. FAS 160 amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of FAS 141(R), Business Combinations. FAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of FAS 160 is not expected to have a material impact on our consolidated financial statements.

In March 2008, the FASB issued FAS 161, Disclosures about Derivative Instruments and Hedging Activities. The standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of FAS 161 is not expected to have a material impact on our consolidated financial statements.

We maintain three share-based compensation plans: (i) a plan for officers and key employees (the “Omnibus Plan”); (ii) a plan for non-employee directors (the “Director Plan”); and (iii) an employee stock purchase plan (the “ESPP”). For a description of these plans, see Note 9, Share-Based Compensation Plans included in our Annual Report on Form 10-K for the year ended December 31, 2007. The following table summarizes data for stock options outstanding and exercisable as of June 30, 2008:

			Options Outstanding									Options Exercisable
	Range of Prices per Share		Vested Number of Shares		Nonvested Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life in Years		Total Aggregate Intrinsic Value (in thousands)	Number of Shares		Weighted-Average Exercise Price		Total Aggregate Intrinsic Value (in thousands)
$		0.00-11.99		146,018		—	$	9.09		3.2			146,018	$	9.09
$		12.00-15.99		176,466		—		13.74		3.4			176,466		13.74
$		16.00-19.99		6,500		—		17.17		1.6			6,500		17.17
$		20.00-35.99		193,639		9,229		26.90		5.9			193,639		26.51
$		36.00-60.99		47,125		54,244		41.09		7.0			47,125		43.06
				569,748		63,473	$	21.30		4.7	$ 15,267		569,748	$	19.35	$ 14,851

During 2008, aggregate awards of 28,658 restricted stock units and 33,372 performance units were granted to employees under the Omnibus Plan. Generally, performance unit awards are subject to achieving specified levels of adjusted return on average equity during a two-year plan period. These awards also generally vest at the expiration of the same two-year period. The final determination of the number of shares to be issued in respect of an award (which can vary between 50 and 150 percent of the number of performance units subject to the award, provided a threshold performance level is achieved) is determined by the Compensation Committee of our Board of Directors.

As of June 30, 2008, there was $4.1 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our various plans, which is expected to be recognized over a weighted-average period of 1.0 years. The compensation cost related to our share-based awards that were charged to other underwriting expense was $0.8 million and $0.7 million for the three months ended June 30, 2008 and 2007, respectively and $1.5 million and $1.4 million for the six months ended June 30, 2008 and 2007, respectively.

(in thousands, except earnings per common share)	For the Quarter Ended				For the Six Months Ended
	June 30, 2008		June 30, 2007		June 30, 2008		June 30, 2007
Net income	$	10,329		10,055	$	21,156		27,801

Basic earnings per common share	$	1.20		1.05	$	2.43		2.86

Diluted earnings per common share	$	1.16		1.01	$	2.36		2.76

Basic weighted-average shares outstanding		8,607		9,615		8,691		9,707
Common stock equivalents (1)		269		365		290		362
Diluted weighted-average shares outstanding		8,876		9,980		8,981		10,069

(1)

Outstanding stock options totaling 20,000 and 101,369 for the three months ended June 30, 2008 and 2007, respectively, and 82,796 and 97,773 for the six months ended June 30, 2008 and 2007, respectively, were excluded from the calculation of diluted earnings per common share because the sum of the hypothetical amount of future proceeds from the exercise price, unrecorded compensation, and tax benefits to be credited to additional paid-in capital for all grants of stock options were higher than the average price of the common shares, and therefore were anti-dilutive.

We establish loss and LAE reserves taking into account the results of multiple actuarial techniques applied as well as other assumptions and factors regarding our business. Each actuarial technique is applied in a consistent manner from period to period and the techniques encompass a review of selected claims data, including claim and incident counts, average indemnity payments, and loss adjustment costs. Estimating liability for losses and LAE is a complex process and changes in key assumptions or trends could result in a significant change in our reserve estimates. Given the magnitude of our loss and LAE reserves, virtually any change in the level of our carried reserves will be material to our results of operations and may be material to our financial position. For additional information regarding our liability for losses and LAE see Note 4, Liability for Losses and LAE, included in our Annual Report on Form 10-K for the year ended December 31, 2007.

As a result of the continuation of favorable loss trends, we recognized favorable net loss development related to previously established reserves of $4.0 million and $4.0 million for the three months ended June 30, 2008 and 2007, respectively and $8.5 million and $18.0 million for the six months ended June 30, 2008 and 2007, respectively. The $18.0 million in favorable development for the six months ended June 30, 2007 reflects a decline in incurred losses of $14.0 million in connection with the Physicians’ Reciprocal Insurers (“PRI”) reinsurance commutation. For additional information on the PRI commutation see Note 7, Reinsurance. The favorable development recognized in 2008 reflects a decline in expected ultimate losses primarily for the 2004 through 2006 accident years as a result of reductions in our estimates of incidents to claim development, payment frequency and payment severity.

We adopted the provisions of FASB Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. As a result of the implementation of FIN 48, we recognized a $0.08 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction of the January 1, 2007 balance of retained earnings. Our liability for unrecognized tax benefits as of January 1, 2007 and June 30, 2008 was $0.6 million, 100 percent of which would affect our annual effective tax rate if recognized. We estimate that our unrecognized tax benefits will not change significantly within the next 12 months.

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, we are no longer subject to U.S. federal or state income tax examinations by tax authorities for years prior to 2004. Our income tax returns for 2005 and 2006 have not been examined by the Internal Revenue Service (the “IRS”) and remain open under the applicable statute of limitations. The IRS commenced an examination of our 2004 U.S. income tax return during 2006. The examination was closed in February 2007 with no significant adjustments.

(in thousands)	For the Quarter Ended						For the Six Months Ended
	June 30, 2008			June 30, 2007			June 30, 2008			June 30, 2007
Service cost of benefits earned during the period	$	254			236		$	508			472
Interest cost on projected benefit obligation		179			161			358			323
Expected return on plan assets		(110	)		(101	)		(220	)		(202	)
Amortization of net loss		5			6			11			12
Amortization of prior service cost		12			12			24			24
Amortization of net transition obligation		2			8			4			15
Net periodic pension cost	$	342			322		$	685			644

(in thousands)	For the Quarter Ended					For the Quarter Ended
	June 30, 2008					June 30, 2007
	Written			Earned		Written			Earned
Direct premiums	$	42,092		48,649		$	46,555		56,036
Assumed premiums		—		—			6		6
Ceded premiums		(5,128	)	(5,826	)		(5,498	)	(6,627	)
Net premiums	$	36,964		42,823		$	41,063		49,415


(in thousands)	For the Six Months Ended					For the Six Months Ended
	June 30, 2008					June 30, 2007
	Written			Earned		Written			Earned
Direct premiums	$	93,947		98,991		$	106,948		114,761
Assumed premiums		—		—			(43	)	(43	)
Commutation of assumed premiums written		—		—			(54,465	)	—
Ceded premiums		(12,397	)	(11,875	)		(12,780	)	(13,701	)
Net premiums	$	81,550		87,116		$	39,660		101,017


(in thousands)	For the Quarter Ended					For the Six Months Ended
	June 30, 2008			June 30, 2007		June 30, 2008			June 30, 2007
Losses and LAE	$	28,660		35,412		$	57,729		75,956
Commutation of assumed losses and LAE		—		—			—		(13,982	)
Reinsurance recoveries		(3,758	)	(5,030	)		(7,672	)	(9,945	)
Net losses and LAE	$	24,902		30,382		$	50,057		52,029

During February 2007, our subsidiary, First Professionals Insurance Company, Inc. (“First Professionals”), commuted, effective January 1, 2007, all assumed reinsurance treaties with PRI under which First Professionals acted as a reinsurer. These treaties provided excess of loss reinsurance and reinsurance for PRI’s death, disability and retirement risks. Under the terms of the commutation agreements, First Professionals paid cash and delivered securities with an aggregate value of $87.7 million to PRI as full settlement of all past and future obligations for policy risks previously reinsured by First Professionals. The corresponding net liabilities related to these agreements carried by First Professionals totaled $103.4 million. First Professionals recognized an after-tax gain of $9.7 million as a result of the commutation. The following effects of the reinsurance commutation are included in our consolidated financial statements for the six months ended June 30, 2007:

We purchase reinsurance from a number of companies to mitigate concentrations of credit risk, and utilize our reinsurance broker to assist us in the analysis of the credit quality of our reinsurers. We base our reinsurance buying decisions on an evaluation of the then current financial strength and stability of prospective reinsurers. However, the financial strength of our reinsurers, and their corresponding ability to pay us, may change in the future due to forces or events we cannot control or anticipate. As of June 30, 2008, our receivable from reinsurers was approximately $148.9 million. We have not experienced any difficulty in collecting amounts due from reinsurers related to the financial condition of a reinsurer. Should future events lead us to believe that any reinsurer is unable to meet its obligations, adjustments to the amounts recoverable would be reflected in the results of current operations.

	For the Quarter Ended									For the Quarter Ended
	June 30, 2008									June 30, 2007
(in thousands)	Gross realized gains		Gross realized losses			Other-than-temporary impairment losses		Net realized investment gains (losses)		Gross realized gains		Gross realized losses			Other-than-temporary impairment losses		Net realized investment gains (losses)
Fixed income securities, available-for-sale	$	257		(241	)	—		16		$	3		(74	)	—		(71	)
Other invested assets		13		(5	)	(54	)	(46	)		11		—		(110	)	(99	)
Total	$	270		(246	)	(54	)	(30	)	$	14		(74	)	(110	)	(170	)

	For the Six Months Ended									For the Six Months Ended
	June 30, 2008									June 30, 2007
(in thousands)	Gross realized gains		Gross realized losses			Other-than-temporary impairment losses		Net realized investment gains (losses)		Gross realized gains		Gross realized losses			Other-than-temporary impairment losses		Net realized investment gains (losses)
Fixed income securities, available-for-sale	$	264		(241	)	—		23		$	304		(334	)	—		(30	)
Other invested assets		2		(5	)	(141	)	(144	)		44		—		(110	)	(66	)
Total	$	266		(246	)	(141	)	(121	)	$	348		(334	)	(110	)	(96	)

	As of June 30, 2008									As of December 31, 2007
(in thousands)	Amortized cost of investments		Gross unrealized gains			Gross unrealized losses		Fair value		Amortized cost of investments		Gross unrealized gains			Gross unrealized losses		Fair value
Fixed income securities, available-for-sale and short-term investments	$	692,253		4,964		(9,093	)	688,124		$	690,364		5,159		(4,872	)	690,651
Equity securities, available-for-sale		17,003		8		(3,126	)	13,885			15,503		7		(598	)	14,912
Total	$	709,256		4,972		(12,219	)	702,009		$	705,867		5,166		(5,470	)	705,563

We adopted FAS 157, Fair Value Measurements, which provides a framework for measuring fair value under GAAP, for financial assets and liabilities effective January 1, 2008. The adoption of FAS 157 did not have an impact on our consolidated financial statements. As defined in FAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price methodology). We utilize market data or assumptions that we believe market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We have primarily applied the market approach for recurring fair value measurements and endeavor to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We then classify fair value balances based on the observability of those inputs.

Level 1	Pricing inputs are based on quoted prices available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. We’ve included the following financial instruments in this category: equity securities traded on a national stock exchange.

Level 2	Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. Pricing inputs may include benchmark curves, reported trades, broker / dealer quotes, issuer spreads, quoted forward prices, time value, volatility factors and current market and contractual prices for an underlying instrument. We’ve included the following financial instruments in this category: fixed-income securities, short-term investments, preferred stock and non-exchange-traded derivatives.

Level 3	Pricing inputs include significant inputs that are generally less observable from objective sources and may include internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant. At each balance sheet date, we perform an analysis of all instruments subject to FAS 157 and include in Level 3 all assets or liabilities whose fair value is based on significant unobservable inputs. We’ve included the following financial instruments in this category: fixed-income securities, priced solely using broker quotes or other proprietary pricing methodologies, and other invested assets.

(in thousands)			Fair Value Measurements at June 30, 2008 Using:
Description	As of June 30, 2008		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Assets
Fixed income securities, available-for-sale	$	687,228		—		685,263		1,965
Equity securities, available-for-sale		13,885		12,069		1,816		—
Short-term investments		896		—		896		—
Other invested assets		375		—		—		375
Other assets (derivative financial instruments)		326		—		326		—
Total	$	702,710		12,069		688,301		2,340

(in thousands)	Fixed Income Securities, available-for-sale			Other Invested Assets
Beginning balance, January 1, 2008	$	3,359			553
Total gains or losses (realized / unrealized)
Included in earnings		—			(146	)
Included in other comprehensive income		(15	)		(25	)
Purchases, issuances and settlements		463			(7	)
Transfers in and / or out of Level 3		(1,842	)		—
Ending balance, June 30, 2008	$	1,965			375

The amount of total gains or losses for six months
ended June 30, 2008 included in earnings attributable
to the change in unrealized gains or losses relating
to assets still held at June 30, 2008	$	—			(54	)

We are required during the term of each of the swaps to make certain fixed rate payments to SunTrust calculated on the notional amount of $35 million in exchange for receiving floating payments based on the three-month LIBOR for the same amount. The notional amounts on the contracts are not exchanged. The net effect of this accounting on our operating results is that interest expense on $35 million of our floating rate indebtedness is recorded based on fixed interest rates. No other cash payments are made unless the swaps are terminated prior to maturity, in which case the amount paid or received at settlement is established by agreement at the time of termination, and usually represents the net present value, at current interest rates, of the remaining obligations to exchange payments under the terms of the contracts.

We entered into the interest rate swaps to mitigate our floating rate interest risk on $35 million of our outstanding indebtedness, due in 2033. We expect changes in the cash flows of the interest rate swaps to exactly offset the changes in cash flows from interest rate payments attributable to fluctuations in the LIBOR base rate. The combined fair value of our derivative instruments was $0.3 million at June 30, 2008 and we have reflected this fair value in other assets. Based on the fact that, at inception, the critical terms of the hedging instruments and the hedged forecasted transaction were the same, we have concluded that we expect changes in cash flows attributable to the risk being hedged to be completely offset by the hedging derivative, and have designated these swaps as cash flow hedges. As a result, we reflected the unrealized gain on these hedges in accumulated other comprehensive income or loss. We will perform subsequent assessments of hedge effectiveness by verifying and documenting whether the critical terms of the hedging instrument and the forecasted transaction have changed during the period, rather than by quantifying the relevant changes in cash flows. If it is determined that the hedging instruments are no longer highly effective, the change in the fair value of the ineffective portion of the interest rate swaps would be included in net income rather than other comprehensive income.

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is determined to be probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. In addition, our insurance subsidiaries may become subject to claims for extra-contractual obligations or risks in excess of policy limits in connection with their insurance claims. These claims are sometimes referred to as “bad faith” actions as it is alleged that the insurance company acted in bad faith in the administration of a claim against an insured. Bad faith actions are infrequent and generally occur in instances where a jury verdict exceeds the insured’s policy limits. Under such circumstances, it is routinely alleged that the insurance company failed to negotiate a settlement of a claim in good faith within the insured’s policy limit. In recent years, policy limits for medical professional liability (“MPL”) insurance in Florida have trended downward. This trend and the current judicial climate have increased the incidence and size of jury awards in excess of policy limits against Florida medical professionals insured by our competitors and us. Such awards could ultimately result in increased frequency of claims alleging bad faith on the part of Florida MPL insurers. Our primary excess of loss reinsurance program includes an additional level of coverage for claims in excess of policy limits. (For additional information regarding this reinsurance coverage see Note 5, Reinsurance, included in our Annual Report on Form 10-K for the year ended December 31, 2007.) An award for a bad faith claim against one of our subsidiaries in excess of the applicable reinsurance could have an adverse affect on our financial condition, results of operations or cash flows. We have evaluated such exposures as of June 30, 2008, and believe our position and defenses are meritorious. However, there can be no absolute assurance as to the outcome of such exposures.

Our insurance subsidiaries are subject to assessment by the financial guaranty associations in the states in which they conduct business for the provision of funds necessary for the settlement of covered claims under certain policies of insolvent insurers. Generally, these associations can assess member insurers on the basis of written premiums in their particular states. During 2006 and 2007, the Florida Office of Insurance Regulation (“Florida OIR”) levied assessments, totaling $9.4 million and $4.2 million, respectively, on our Florida direct written premiums at the request of the Florida Insurance Guaranty Association (“FIGA”) as a result of the insolvency of a group of Florida-domiciled homeowner’s insurance companies owned by Poe Financial Group. Loss deficiencies in excess of FIGA’s estimates could result in the need for additional assessments by FIGA. Such additional assessments or assessments related to other property and casualty insurers that have or may become insolvent because of hurricane activity or otherwise could adversely impact our financial condition, results of operations or cash flows. Under Florida law, our insurance subsidiaries are entitled to recoup guaranty fund assessments from their Florida policyholders and have made the necessary filings to do so.

For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), “FPIC,” “we,” “our,” “us,” and the “Company” refer to FPIC Insurance Group, Inc., together with its subsidiaries, unless the context requires otherwise. The following MD&A should be read in conjunction with the accompanying consolidated financial statements for the three months and six months ended June 30, 2008, included in Part I, Item 1, as well as the audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2007, which was filed with the SEC on February 27, 2008.

This Quarterly Report on Form 10-Q, including the following MD&A, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements: of our plans, strategies and objectives for future operations; concerning new products, services or developments; regarding future economic conditions, performance or outlook; as to the outcome of contingencies; of beliefs or expectations; and of assumptions underlying any of the foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects” and similar words or expressions. You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions only as of the date of the filing of this Quarterly Report on Form 10-Q. Factors that might cause our results to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to:

i)	The effect of negative developments and cyclical changes in the MPL insurance business;
ii)	The effects of competition, including competition for agents to place insurance, of physicians electing to self-insure or to practice without insurance coverage, and of related trends and associated pricing pressures and developments;
iii)	Business risks that result from our size, products, and geographic concentration;
iv)	The risks and uncertainties involved in determining the rates we charge for our products and services, as well as these rates being subject to or mandated by legal requirements and regulatory approval;
v)	The actual amount of our new and renewal business;
vi)	The uncertainties involved in the loss reserving process, including the possible occurrence of insured losses with a frequency or severity exceeding our estimates;
vii)	The unpredictability of court decisions and our exposure to claims for extra contractual damages and losses in excess of policy limits;
viii)	Assessments imposed by state financial guaranty associations or other insurance regulatory bodies;
ix)	Developments in financial and securities markets that could affect our investment portfolio;
x)	Legislative, regulatory or consumer initiatives that may adversely affect our business, including initiatives seeking to lower premium rates;
xi)	The passage of additional or repeal of current tort reform measures, and the effect of such measures;
xii)	Developments in reinsurance markets that could affect our reinsurance programs or our ability to collect reinsurance recoverables;

xiii)	The loss of the services of any key members of senior management;
xiv)	Changes in our financial ratings resulting from one or more of these uncertainties or other factors and the potential impact on our agents’ ability to place insurance business on our behalf;
xv)	Other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2007, including Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, filed with the SEC on February 27, 2008.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their dates. Forward-looking statements are made in reliance on the safe harbor provision of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended and, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

We operate in the MPL insurance sector of the property and casualty insurance industry. Our primary insurance products provide protection for physicians, dentists and other healthcare providers as individual practitioners or as members of practice groups. Our insurance protects policyholders against losses arising from professional liability claims and the related defense costs with respect to injuries alleged to have been caused by medical error or malpractice. Optional coverage is available for professional corporations under which physicians or dentists practice. Through our insurance subsidiaries, we are the largest provider of MPL insurance in Florida. Based on 2007 premium data published by SNL Financial LC, which is the latest available data, Florida is the fourth largest market for MPL insurance in the United States. Our insurance subsidiaries also provide MPL insurance in selected other states. We have chosen to focus on selected markets where we believe we have advantages in terms of our market knowledge, well-established reputation, significant market presence and resources.

—	On April 8, 2008, A.M. Best affirmed the financial strength rating of our insurance subsidiaries at A- (Excellent) with a stable outlook.
—	Income from continuing operations and net income increased 3 percent (15 percent on a diluted common share basis) for the three months ended June 30, 2008 and decreased 24 percent (14 percent on a diluted common share basis) for the six months ended June 30, 2008 compared with the same periods in 2007. Excluding the impact of the PRI commutation in February 2007, income from continuing operations and net income increased 17 percent (31 percent on a diluted common share basis) for the six months ended June 30, 2008.

—	Our initiative to provide management services for alternative risk arrangements resulted in $0.3 million and $1.7 million of direct written premiums for the three months and six months ended June 30, 2008, respectively. Total policyholders related to such business totaled 108 at June 30, 2008.
—	The number of professional liability policyholders, excluding policyholders under alternative risk arrangements, increased 2 percent to 13,316 policyholders at June 30, 2008 compared to 13,010 policyholders at June 30, 2007.
—	As a result of the continuation of favorable loss trends, we recognized favorable net loss development related to previously established reserves of $4.0 million and $8.5 million for the three months and six months ended June 30, 2008, respectively.
—	In April and June 2008, our Board of Directors approved separate 500,000 share increases in our share repurchase program. On a trade date basis, we repurchased 490,570 shares of our common stock during the three months ended June 30, 2008 at an average price of $46.65 per share and as of June 30, 2008, had remaining authority from our Board of Directors to repurchase 624,875 more shares.
—	Book value per common share increased 2 percent to $33.83 as of June 30, 2008 from $33.03 as of December 31, 2007. Due to our strong capital position and in furtherance of our capital management initiatives, we received $21.0 million in dividends from our insurance subsidiaries during the first six months of 2008. The statutory surplus of our insurance subsidiaries as of June 30, 2008 was $259.2 million compared to $261.6 million as of December 31, 2007.

Proposed legislation related to MPL insurance is from time to time introduced in the state legislatures of markets where we conduct business, including Florida. Proposed legislation was introduced in the Florida legislature during the 2007 legislative session that if enacted into law, would have, among other things, required a prospective reduction in Florida MPL insurance rates. Other proposed legislation would have, among other things, required a new study of presumed savings from Florida tort reform, which would be factored into Florida MPL insurance rate making. Neither of these proposals was enacted in 2007 or reintroduced in the 2008 legislative session, but there can be no assurance that similar or other proposals affecting our industry will not be introduced or enacted in the future.

Net income was $10.3 million for the three months ended June 30, 2008, or $1.16 per diluted common share, an increase of 3 percent and 15 percent, respectively, compared to $10.1 million, or $1.01 per diluted common share, for the three months ended June 30, 2007. Net income remained relatively stable for the three months ended June 30, 2008 while the net income per diluted common share increased 15 percent as a result of share repurchases under our stock repurchase program. Net income was $21.2 million for the six months ended June 30, 2008, or $2.36 per diluted common share, a decrease of 24 percent and 15 percent, respectively, compared to $27.8 million, or $2.76 per diluted common share, for the six months ended June 30, 2007. Net income for the six months ended June 30, 2007 includes a gain of $9.7 million on the reinsurance commutation between First Professionals and PRI. Excluding the impact of the PRI reinsurance commutation, net income and diluted earnings per common share for the six months ended June 30, 2008 increased 17 percent and 31 percent, respectively, compared with the same period in 2007. This increase in net income and net income per diluted common share is primarily the result of lower net losses and LAE and other underwriting expenses, partially offset by lower net premiums earned. Share repurchases under our stock repurchase program also contributed to the increase in net income per diluted common share.

(in thousands)	For the Quarter Ended				Percentage			For the Quarter Ended
	June 30, 2008				Change			June 30, 2007
Direct premiums written	$	42,092		(1)		-10	%		46,555
Assumed premiums written		—				-100	%		6
Ceded premiums written		(5,128	)	(1)		7	%		(5,498	)
Net premiums written	$	36,964				-10	%		41,063


(in thousands)	For the Six Months Ended				Percentage			For the Six Months Ended
	June 30, 2008				Change			June 30, 2007
Direct premiums written	$	93,947		(1)		-12	%		106,948
Assumed premiums written		—				100	%		(43	)
Commutation of assumed premiums written		—				100	%		(54,465	)	(2)
Ceded premiums written		(12,397	)	(1)		3	%		(12,780	)
Net premiums written	$	81,550				106	%		39,660


	As of				Percentage			As of
	June 30, 2008				Change			June 30, 2007
Professional liability policyholders		13,316				2	%		13,010
Professional liability policyholders under alternative risk arrangements		108				—			—
Total professional liability policyholders		13,424				3	%		13,010


(1)	Includes $0.3 million and $1.7 million of premiums associated with alternative risk arrangements for the three months and six months ended June 30, 2008, respectively. Management fees for such arrangements are included in other income.
(2)	During February 2007, our subsidiary, First Professionals, commuted, effective January 1, 2007, all assumed reinsurance treaties with PRI under which First Professionals acted as a reinsurer. In connection with the commutation, First Professionals recognized an after-tax gain of $9.7 million. For additional information on the commutation, see Item 1. Financial Statements, Note 7, Reinsurance.

Direct premiums written declined 10 percent and 12 percent for the three months and six months ended June 30, 2008, respectively, compared to the same periods in 2007, primarily as a result of lower premium rates in our Florida market offset to a small extent by premiums written on alternative risk arrangements. Our policyholder retention rate in our core Florida market was 96 percent for the six months ended June 30, 2008, compared to 94 percent for the comparable period in 2007. Our national policyholder retention was 95 percent for the six months ended June 30, 2008 compared to 94 percent for the comparable period in 2007.

Net premiums written decreased 10 percent for the three months ended June 30, 2008 and increased 106 percent for the six months ended June 30, 2008, respectively, compared to the same periods in 2007. Excluding the impact of the PRI commutation on assumed premiums written for the six months ended June 30, 2007, net premiums written declined 13 percent for the six months ended June 30, 2008. The decline in net premiums written for the three months and six months ended June 30, 2008 is primarily a result of lower premium rates in our Florida market.

Net losses and LAE decreased 18 percent and 4 percent for the three months and six months ended June 30, 2008 compared to the same periods in 2007. Excluding the impact of the PRI commutation of $14.0 million for the six months ended June 30, 2007, net losses and LAE decreased 24 percent for the six months ended June 30, 2008. The declines in net losses and LAE reflects the continuation of favorable loss trends, including $4.0 million and $8.5 million of favorable prior year development for the three months and six months ended June 30, 2008, respectively compared to $4.0 million and $18.0 million for the three months and six months ended June 30, 2007, respectively. The $18.0 million in favorable development for the six months ended June 30, 2007 reflects a decline in incurred losses of $14.0 million in connection with the PRI commutation. For additional information on the PRI commutation see Item 1. Financial Statements, Note 7, Reinsurance. The favorable development recognized in 2008 reflects reductions in our estimates of incident to claim development, payment frequency and payment severity. Lower net premiums earned and a decline in the corresponding provision for losses and LAE also contributed to the decline in net losses and LAE.

Other underwriting expenses decreased 10 percent and 4 percent for the three months and six months ended June 30, 2008, respectively, compared to the same periods in 2007. The decrease in other underwriting expenses for the three months ended June 30, 2008 is primarily due to the recoupment of a guarantee fund assessment from our policyholders. Excluding the impact of the PRI reinsurance commutation of $1.7 million for the six months ended June 30, 2007, other underwriting expenses decreased 12 percent for the six months ended June 30, 2008. The decrease in other underwriting expenses for the six months ended June 30, 2008 is primarily due to higher ceding commissions, lower premium taxes and the recoupment of a guarantee fund assessment from our policyholders.

	For the Six Months Ended			Percentage			For the Six Months Ended
	June 30, 2008			Change			June 30, 2007
Net Paid Losses and LAE on Professional Liability Claims (in thousands):
Net paid losses	$	27,550			-56	%		63,046
Less: net paid losses on commuted reinsurance agreements		417			-99	%		29,538
Net paid losses excluding commuted reinsurance agreements		27,133			-19	%		33,508

Net paid LAE		27,088			4	%		26,056
Less: net paid LAE on commuted reinsurance agreements		70			119	%		32
Net paid LAE excluding commuted reinsurance agreements		27,018			4	%		26,024

Net paid losses and LAE on core professional liability business	$	54,151			-9	%		59,532

Professional Liability Claims and Incidents Closed Without Indemnity Payment:
Total professional liability claims closed without indemnity payment		280			-30	%		399
Total professional liability incidents closed without indemnity payment		203			-48	%		388
Total professional liability claims and incidents closed without indemnity payment		483			-39	%		787

Total professional liability claims with indemnity payment		146			-13	%		167

CWIP Ratio on a rolling four quarter basis(1)		32	%					29	%

CWIP Ratio, including incidents, on a rolling four quarter basis (1)		16	%					15	%

Professional Liability Claims and Incidents Reported During the Period:
Total professional liability claims reported during the period		365			8	%		338
Total professional liability incidents reported during the period		514			10	%		468
Total professional liability claims and incidents reported during the period		879			9	%		806

Total professional liability claims and incidents that remained open		3,600			-4	%		3,735

There was a 9 percent decrease in net paid losses and LAE for the six months ended June 30, 2008 compared with the same period in 2007 primarily due to lower indemnity payments. The decline was due to both fewer claims with an indemnity payment and a lower average severity per indemnity payment during 2008. The number of reported claims and incidents for the six months ended June 30, 2008 was up 9 percent compared to the same period in 2007. When adjusted for the relative composition of our book of business, the frequency of reported claims remains near historic lows and generally reflects the continued trend of lower frequency in newly reported claims and incidents in our Florida market that began in the fourth quarter of 2003. The number of professional liability claims with indemnity payment (“CWIP”) decreased 13 percent for the six months ended June 30, 2008 compared to the same period in 2007. For the four quarters ended June 30, 2008, the CWIP Ratio was 32 percent and the CWIP Ratio, including incidents, was 16 percent, compared to 29 percent and 15 percent, respectively, for the four quarters ended June 30, 2007. Our inventory of open claims and incidents declined 4 percent during the first six months of 2008 compared to the same period in 2007. It is not unusual for our claims data to fluctuate from period to period, and our claims data remains within our expectations.

Liquidity is a measure of a company’s ability to generate cash flows sufficient to meet short-term and long-term cash requirements of its business operations. As a holding company, our assets consist primarily of the stock of our subsidiaries and of other investments. The sources of liquidity available to us for the payment of operating expenses, taxes, debt-related amounts and other needs include management fees and dividends from our insurance subsidiaries. Management fees from our insurance subsidiaries are based on agreements in place with First Professionals and Anesthesiologists Professional Assurance Company, pursuant to which we provide for them substantially all management and administrative services. In accordance with limitations imposed by Florida law, our insurance subsidiaries are permitted to pay us dividends of approximately $48.2 million during 2008 without prior regulatory approval. We have received dividends of $21.0 million from our insurance subsidiaries for the six months ended June 30, 2008.

Sources of liquidity include cash from operations, sales of investments and financing arrangements. As reported in the consolidated statement of cash flows, net cash provided by operating activities was $14.3 million for the six months ended June 30, 2008 compared to net cash used in operating activities of $66.5 million for the six months ended June 30, 2007. The increase in cash provided by operating activities is primarily due to the 2007 commutation of the reinsurance agreements between First Professionals and PRI and lower net paid losses and income taxes offset by a decline in premiums received and reinsurance recoveries associated with the decline in written premiums.

Net cash used in investing activities was $6.8 million for the six months ended June 30, 2008 compared to net cash provided by investing activities of $46.8 million for the six months ended June 30, 2007. The cash flows from investing activities were higher in 2007 due to the transfer of securities in connection with the PRI commutation. The remainder of the change in cash flows from investing activities is primarily due to transactions involving fixed income securities and short-term investments, which are dependent on our cash flows from operating activities and the management of our investment portfolio.

Net cash used in financing activities was $29.7 million for the six months ended June 30, 2008 compared to $25.7 million for the six months ended June 30, 2007. The increase in net cash used in financing activities for 2008 was primarily due to the repurchase of common shares, which totaled $35.8 million for the six months ended June 30, 2008, compared to $27.6 million for the comparable period in 2007 partially offset by additional issuances of our common stock during 2008 resulting from the exercise of stock options. In addition, we recognized additional excess tax benefits as a result of the exercise of those stock options.

As of June 30, 2008, we had cash and investments of $755.7 million. Included within cash and investments were cash and cash equivalents of $48.1 million and fixed income securities, available-for-sale, and short-term investments with a fair value of approximately $69.7 million with scheduled maturities during the next 12 months. We believe that our cash and investments as of June 30, 2008, combined with expected cash flows from operating activities and the scheduled maturities of investments, will be sufficient to meet our cash needs for operating purposes for at least the next 12 months.

Capital resources consist of funds deployed or available to be deployed to support our business operations. We believe our financial strength provides us with the flexibility and capacity to obtain funds externally through debt or equity financing on both a short-term and long-term basis. Our ability to access the capital markets is dependent on, among other things, market conditions. The following table summarizes the components of our capital resources as of June 30, 2008 and December 31, 2007.

During 2003, we completed the placement of $10.0 million in senior notes and created three trusts that issued 30-year trust-preferred securities for which the proceeds from such issuances together with cash previously contributed to the trusts were used to purchase junior subordinated debentures from FPIC totaling $36.1 million. The debentures that we issued, which are reported as long-term debt in the consolidated statements of financial position, to the three trusts are subordinated to all senior indebtedness, including the senior notes, and are equal in standing with one another. In accordance with the guidance given in FASB Interpretation No. 46, “Variable Interest Entities,” we have not consolidated these subsidiary trusts.

These debt securities are uncollateralized and bear floating interest equal to the three-month LIBOR plus spreads ranging from 3.85 percent to 4.20 percent (actual interest rates ranged from 6.76 percent to 6.88 percent as of June 30, 2008). We have the option to redeem approximately $31.0 million of the senior notes and trust-preferred securities at any time (after October 2008 with respect to the remaining approximately $15.0 million of trust-preferred securities), in whole or in part, without premium or penalty. The trust-preferred securities also contain features that would allow us the option, under certain conditions, to defer interest payments for up to 20 quarters. The securities have stated maturities of 30 years and are due in May and October 2033. As discussed below, during May 2008 we replaced certain expiring interest rate collars with separate interest rate swaps to hedge the floating interest rate on $35.0 million of our outstanding indebtedness.

We have various contractual obligations that are recorded as liabilities in our consolidated financial statements and other items that represent contractual obligations, commitments and contingent liabilities that are not recorded or that are considered to possess off-balance sheet risks beyond their respective amounts otherwise reflected in our consolidated financial statements. These include: (1) derivative financial instruments, which are used to hedge interest rate risk; (2) guarantees by us and contractual obligations related to the trust-preferred securities issued by separately created, unconsolidated trusts; and (3) employee benefit plans. We were not a party to any unconsolidated arrangement or financial instrument with special purpose entities or other vehicles as of June 30, 2008 that would give rise to previously undisclosed market, credit or financing risk.

(1) Derivative financial instruments – On May 23, 2008, we entered into three separate interest rate swaps with SunTrust to mitigate our floating rate interest risk on $35 million of our outstanding indebtedness, due in 2033. Each of the swap contracts contains customary representations, warranties and covenants and has a termination date five years from its respective effective date. We are required during the term of each of the swaps to make certain fixed rate payments to SunTrust calculated on the notional amount of $35 million in exchange for receiving floating payments based on the three-month LIBOR rate for the same amount. The interest rate swaps, during their terms, fix the annual interest rate payable on our trust-preferred indebtedness at 8.135 percent for $15 million of the indebtedness, 8.14 percent for $5 million of the indebtedness and 7.9725 percent for $15 million of the indebtedness. For additional information on our derivative instruments, see Note 10, Derivative Instruments, included elsewhere herein. The following table has been updated to reflect our contractual obligations related to our long-term debt and interest rate swaps as of June 30, 2008.


(1)	All long-term debt is assumed to be settled at its contractual maturity.
(2)	Interest on $35 million of our long-term debt has been calculated considering the effect of our interest rate swaps, which fix the annual interest rate payable on our trust-preferred indebtedness until the termination of the swaps in 2013. Thereafter, interest on $35 million of trust-preferred indebtedness has been calculated using the implied LIBOR forward rate for variable rate debt. Interest on $10 million of our long-term debt has been calculated using the implied LIBOR forward rate for variable rate debt.

Market risk is the risk of loss arising from adverse changes in market and economic conditions and is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded. We have exposure to three principal types of market risk: interest rate risk, credit risk and equity price risk. Our market risk sensitive instruments are acquired for purposes other than trading. There have been no material changes in the reported market risks, as described in our Annual Report on Form 10-K for the year ended December 31, 2007, except as noted below.

Interest rate risk – long-term debt obligations and derivative financial instruments. In addition to interest rate risk associated with our investments, we are also subject to interest rate risk associated with our long-term debt and derivative financial instruments. As of June 30, 2008, we had long-term debt obligations of $46.1 million, comprised of $10.0 million in senior notes and $36.1 million in junior subordinated debentures. Our long-term debt obligations are uncollateralized and bear floating interest at rates equal to the three-month LIBOR plus an interest rate spread. Our floating interest rates are adjusted quarterly.

As noted above, during May 2008, we replaced certain expiring interest rate collars and effected three separate interest rate swaps to hedge the floating interest rate risk on $35.0 million of our outstanding indebtedness. We have designated the interest rate swaps as cash flow hedges. They are reflected at fair value in our consolidated statements of financial position and the effective portion of the related gains or losses on the agreements are recognized in shareholders’ equity (as a component of accumulated other comprehensive income or loss). The net effect of this accounting on our operating results is that interest expense on the floating interest rate debt being hedged is recorded based on fixed interest rates once a particular swap is effective. The following table provides information about our long-term debt obligations and our interest rate swaps, which are sensitive to changes in interest rates.

Credit risk – derivative financial instruments. We use interest rate-related derivative instruments to manage the exposure on our variable rate debt. By using these instruments, we expose ourselves, from time to time, to credit risk, which would be the failure of the counterparty to perform under the terms of the derivative contracts. When the fair value of a derivative contract is positive, the counterparty owes us, which creates a credit risk for FPIC. We minimize this credit risk by only entering into transactions with established, well-capitalized financial institutions.

An evaluation of the effectiveness of FPIC's disclosure controls and procedures (as defined by Rule 13a-15(e) of the Securities Exchange Act of 1934), was completed as of June 30, 2008 by FPIC’s Chief Executive Officer and Chief Financial Officer. Based on such evaluation, FPIC’s disclosure controls and procedures were found to be effective. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives, and management necessarily is required to use its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We, in common with the insurance industry in general, are subject to litigation involving claims under our insurance policies in the normal course of business. We may also become involved in legal actions not involving claims under our insurance policies from time to time. We have evaluated such exposures as of June 30, 2008, and in all cases, believe our positions and defenses are meritorious. However, there can be no absolute assurance as to the outcome of such exposures. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is determined to be probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.

In addition, our insurance subsidiaries may become subject to claims for extra-contractual obligations or risks in excess of policy limits in connection with their insurance claims, particularly in Florida. These claims are sometimes referred to as “bad faith” actions as it is alleged that the insurance company acted in bad faith in the administration of a claim against an insured. Bad faith actions are infrequent and generally occur in instances where a jury verdict exceeds the insured’s policy limits. Under such circumstances, it is routinely alleged that the insurance company failed to negotiate a settlement of a claim in good faith within the insured’s policy limit. In recent years, policy limits for MPL insurance in Florida have trended downward. This trend and the current judicial climate have increased the incidence and size of jury awards in excess of policy limits against Florida medical professionals insured by our competitors and us. Such awards could ultimately result in increased frequency of claims alleging bad faith on the part of Florida MPL insurers. We have evaluated such exposures as of June 30, 2008, and believe our position and defenses are meritorious. However, there can be no absolute assurance as to the outcome of such exposures. An award for a bad faith claim against one of our insurance subsidiaries in excess of the applicable reinsurance could have an adverse effect on our consolidated financial condition, results of operations or cash flows.

Under our stock repurchase program, we may repurchase shares at such times, and in such amounts, as management deems appropriate. Under certain circumstances, limitations may be placed on our ability to repurchase our stock by the terms of agreements relating to our junior subordinated debentures. For information regarding these limitations, see our Annual Report on Form 10-K for the year ended December 31, 2007, Item 8. Financial Statements and Supplementary Data, Note 10, Long-Term Debt, as well as the discussion under the heading “Liquidity and Capital Resources” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following table summarizes our common stock repurchases for the three months ended June 30, 2008:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs *		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs at End of Month *
April 1-30, 2008
Repurchase programs *		27,595	$	47.46		27,595		587,850
Employee transactions **		—	$	—		n/a		n/a

May 1-31, 2008
Repurchase programs *		239,675	$	46.72		239,675		348,175
Employee transactions **		—	$	—		n/a		n/a

June 1-30, 2008
Repurchase programs *		223,300	$	46.48		223,300		624,875
Employee transactions **		—	$	—		n/a		n/a

Total		490,570	$	46.65		490,570		624,875


*	In April and June 2008, our Board of Directors approved separate 500,000 share increases in our share repurchase program, which authorizes us to repurchase shares through open-market transactions, or in block transactions, or private transactions, pursuant to Rule 10b5-1 trading plans, or otherwise. This program expires on December 31, 2008.
**	Represents shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of restricted shares that vested during the quarter and the exercise of stock options.

Item 6.	Exhibits
Exhibit	Description
12	Ratio of Earnings to Fixed Charges
31.1	Certification of John R. Byers, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Charles Divita, III, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of John R. Byers, President and Chief Executive Officer, and Charles Divita, III, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit	Description
12	Ratio of Earnings to Fixed Charges
31.1	Certification of John R. Byers, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Charles Divita, III, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of John R. Byers, President and Chief Executive Officer, and Charles Divita, III, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2008
	or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________to ___________

Florida		59-3359111
(State or Other Jurisdiction of Incorporation)		(IRS Employer Identification No.)

	Performance Units and Restricted Stock
	Number of Shares			Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Contractual Term in Years	Total Aggregate Intrinsic Value (in thousands)
Nonvested, January 1, 2008		92,413		$	36.29
Granted		62,030			44.81
Vested		(45,497	)		37.09
Forfeited		(1,264	)		40.12
Nonvested, June 30, 2008		107,682		$	40.82	1.5	$ 4,880

	For the Quarter Ended						For the Six Months Ended
	June 30, 2008			June 30, 2007			June 30, 2008			June 30, 2007
Loss ratio
Current accident year		67.5	%		69.6	%		67.2	%		69.3	%
Commutation of assumed premiums written - prior accident years		0.0	%		0.0	%		0.0	%		-13.8	%
Prior accident years		-9.3	%		-8.1	%		-9.7	%		-4.0	%
Calendar year loss ratio		58.2	%		61.5	%		57.5	%		51.5	%
Underwriting expense ratio (1)		21.7	%		21.0	%		22.0	%		19.9	%
Combined ratio		79.9	%		82.5	%		79.5	%		71.4	%

Contractual Obligations (in thousands):	Total		Less Than One Year		One to Three Years		Three to Five Years		More Than Five Years
Long-term debt obligations(1)	$	46,083		—		—		—		46,083
Interest on long-term debt(2)		99,483		3,598		7,375		7,560		80,950
Total	$	145,566		3,598		7,375		7,560		127,033

(in thousands)
As of January 1, 2008	Before Application of FAS 158 Measurement Date Provisions			Adjustments to Adopt FAS 158 Measurement Date Provisions			After Application of FAS 158 Measurement Date Provisions
Retained earnings	$	295,586			(89	)		295,497
Accumulated other comprehensive loss	$	(884	)		(58	)		(942	)
Total shareholders' equity	$	294,702			(147	)		294,555


(1)	Based on three-month London Inter-Bank Offer Rate (“LIBOR”).


(1)	The underwriting expense ratio for the six months ended June 30, 2007 includes the impact of the reinsurance commutations between First Professionals and PRI effective January 1, 2007. Excluding the impact of the commutations, the underwriting expense ratio for that period would be 21.7 percent.


(1)	The closed with indemnity payment (“CWIP”) ratio is defined as the ratio of total professional liability claims with indemnity payment to the sum of total professional liability claims with indemnity payment and total professional liability claims closed without indemnity payment.

(in thousands)	June 30, 2008		Projected Cash Flows
	Fair Value		2009			2010			2011			2012			2013			Thereafter			Total
Long-term debt:
Variable rate debt (1)	$	46,083		—			—			—			—			—			46,083		$	46,083
Average interest rate (1)				7.6	%		8.2	%		8.7	%		8.9	%		9.0	%		9.1	%		9.0	%

Interest rate swaps:
Variable to Fixed (2)	$	326		(177	)		44			224			267			195			—		$	553
Average pay rate (2)				4.1	%		4.1	%		4.1	%		4.1	%		4.1	%		—			4.1	%
Average receive rate (2)				3.5	%		4.2	%		4.7	%		4.8	%		4.9	%		—			4.1	%


(1)	For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. The weighted average interest rates are based on implied forward rates in the yield curve as of June 30, 2008.
(2)	The table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the swap contract.

	Votes For	Votes Withheld
Kenneth M. Kirschner	6,622,311	614,062
David M. Shapiro, M.D.	7,040,905	195,468

John K. Anderson, Jr.	M.C. Harden, III
Richard J. Bagby, M.D.	Terence P. McCoy, M.D.
Robert O. Baratta, M.D.	John G. Rich
John R. Byers	Joan D. Ruffier

For	5,905,058
Against	327,841
Abstain	43,726
Broker non-vote	959,748
Total	7,236,373

For	7,082,534
Against	129,585
Abstain	24,253
Broker non-vote	—
Total	7,236,372

July 30, 2008
	FPIC Insurance Group, Inc.

	By:	/s/ Charles Divita, III
		Charles Divita, III Chief Financial Officer (Principal Financial and Accounting Officer)