Commerce Net Earnings Rise, Losses Fall in 2nd Quarter

July 28, 2005

The Commerce Group Inc. out of Webster, Mass. reported that 2005 second quarter net earnings were $62.6 million, or $1.85 per diluted share, compared to net earnings of $37.4 million or $1.14 per diluted share for 2004.

During the second quarter of 2005, the company had net realized investment gains of $12.3 million or $0.24 per diluted share, compared to net realized investment losses of $8.6 million or $0.17 per diluted share in the second quarter of 2004.

Earned premiums were $427.8 million for the second quarter of 2005, compared to $404.5 million for 2004.

The second quarter GAAP consolidated combined ratio was 89.6, compared to 91.7 for 2004. 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 company’s GAAP consolidated loss ratio for the second quarter of 2005 decreased to 63.3 from 68.4 during the same period last year. The improvement was attributed to several factors, including an increase in average earned premium revenue per automobile; a decline in the current year personal automobile bodily injury claim frequency; more favorable loss reserve development compared to the second quarter of last year; and improved current year results and continued favorable prior years’ loss development from Commonwealth Automobile Reinsurers (C.A.R.), the auto insurance residual reinsurer in Massachusetts.

The company’s GAAP consolidated underwriting ratio increased to 26.3, as compared to 23.3 for last year’s second quarter, primarily as a result of significantly higher accrued agents’ profit sharing and slightly higher 2005 policy year mandated Massachusetts personal automobile commission rates. The company said that the higher accrued agents’ profit sharing is an outcome of “substantially better underwriting results for the second quarter of 2005 versus last year’s second quarter.”

Cumulative June 30, 2005 Results
Net earnings for the first six months of 2005 were $120.6 million, or $3.56 per diluted share, compared to net earnings of $88.4 million or $2.70 per diluted share for 2004.

During the first six months of 2005, the company had net realized investment gains of $20.6 million or $0.40 per diluted share, compared to net realized investment gains of $11.9 million or $0.24 per diluted share in the same period of 2004.

Earned premiums were $851.0 million for the six months of 2005, compared to $800.1 million for 2004.

The 2005 six-month GAAP consolidated combined ratio was 89.3, compared to 92.7 for 2004. 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 company’s GAAP consolidated loss ratio for the first six months of 2005 decreased to 64.6 from 69.8 during the same period last year.

The company’s GAAP consolidated underwriting ratio increased to 24.7 for the first six months of 2005, as compared to 22.9 for the same period of 2004, primarily as a result of agents’ profit sharing and slightly higher 2005 policy year mandated Massachusetts personal automobile commission rates.

The Commerce Group Inc.’s 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 19th largest personal automobile insurance group in the country by A. M. Best Company, based on 2004 direct written premium information. The company and its insurance subsidiaries are rated A+ (Superior) by A. M. Best.

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