Commerce Group Reports Q2, Year-to-Date Results

July 26, 2004

The Commerce Group, Inc. (NYSE:CGI) of Webster, Mass. today reported 2004 second quarter net earnings were $37.4 million, or $1.14 per diluted share, compared to net earnings of $71.5 million or $2.22 per diluted share for 2003.

During the second quarter of 2004, the company had net realized investment losses of $8.6 million compared to gains of $65.9 million in the second quarter of 2003.

Earned premiums were $404.5 million for the second quarter of 2004, compared to $350.3 million for 2003.

The second quarter GAAP consolidated operating combined ratio was 91.7 percent, compared to 100.5 percent for 2003. The decrease in the combined ratio was the result of a decrease in both the loss ratio and the underwriting ratio. The company’s GAAP consolidated loss ratio for the second quarter of 2004 decreased to 68.4 percent from 76.9 percent during the same period last year. The improvement was primarily the result of an increase in average earned premium revenue per automobile and a decline in the current year personal automobile physical damage claim frequency. The company’s GAAP consolidated underwriting ratio decreased to 23.3%, as compared to 23.6 percent for last year’s second quarter, primarily as a net result of lower 2004 policy year mandated Massachusetts personal automobile commission rates partially offset by higher accrued contingent commissions.

Net earnings for the first six months of 2004 were $88.4 million compared to net earnings of $84.4 million for 2003.

During the first six months of 2004, the company had net realized investment gains of $11.9 million, compared to gains of $60.0 million in the same period of 2003.

Earned premiums were $800.1 million for the six months of 2004, compared to $688.3 million for 2003.

The 2004 six month GAAP consolidated operating combined ratio was 92.7 percent, compared to 100.5 percent for 2003. The decrease in the combined ratio was the result of a decrease in the loss ratio, partially offset by an increase in the underwriting ratio. The consolidated loss ratio for the first six months of 2004 decreased to 69.8 percent from 79.0 percent during the same period last year. The company said the improvement was the result of several factors, including: an increase in average earned premium revenue per automobile; a decline in the current year personal automobile physical damage claim frequency; and a decrease in the overall Commonwealth Automobile Reinsurers (CAR is the state’s high risk reinsurance organization) deficit. The company’s GAAP consolidated underwriting ratio increased to 22.9 percent for the first six months of 2004, as compared to 21.5 percent for 2003, primarily as a net result of higher accrued contingent commissions offset by lower 2004 policy year mandated Massachusetts personal automobile commission rates.

At June 30, 2004, the company had authority to purchase approximately 858,000 additional shares of common stock under the current board of directors’ stock re-purchase authorization, which excludes treasury stock acquired as a result of officer stock option exercises. During the second quarter of 2004, the company acquired 493,361 shares of treasury stock at an average price of $45.95 per share as a result of option exercises. Also during the second quarter, the company issued approximately 924,000 shares of common stock related to all option exercises.

The Commerce Group, Inc. is headquartered in Webster, Mass. Property and casualty insurance subsidiaries include The Commerce Insurance Company and Citation Insurance Company in Massachusetts, Commerce West Insurance Company in California, and American Commerce Insurance Company in Ohio. Through its subsidiaries’ combined insurance activities, the company is ranked as the 20th largest personal automobile insurance group in the country by the Auto Insurance Report, based on 2003 direct written premium information reported by the National Association of Insurance Commissioners.

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