Commerce Net Earnings Down in 2d Quarter But Up for First Half

July 28, 2006

The Commerce Group, Inc. reported 2006 second quarter results showing net earnings were $58.6 million, or $0.86 per diluted share, compared to net earnings of $62.6 million or $0.92 per diluted share for 2005.

Included in the 2006 second quarter results are net realized investment losses of $6.5 million or $0.06 per diluted share, compared to gains of $12.3 million or $0.12 per diluted share in the second quarter of 2005.

Per share data for 2006 and 2005 reflect the impact of the June 9, 2006 two-for-one split of our common stock.

Earned premiums were $414.5 million for the second quarter of 2006, compared to $427.8 million for the second quarter of 2005.

The second quarter GAAP consolidated combined ratio was 87.6%, compared to 89.6% for 2005. 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 2006 decreased to 57.4% from 63.3% during the same period last year. Commerce said the improvement was the result of decreases in the current year personal automobile bodily injury and physical damage claim frequencies compared to the same period last year; and continued improvement in the results from Commonwealth Automobile Reinsurers (CAR) due to fewer industry-wide cessions to CAR coupled with lower loss ratios on that business. The company’s GAAP consolidated underwriting ratio increased to 30.2%, as compared to 26.3% for last year’s second quarter, primarily as a result of higher accrued agents’ profit sharing and higher 2006 policy year mandated Massachusetts personal automobile commissions. The increased accrued agents’ profit sharing is a result of the lower loss ratio for the second quarter of 2006 versus last year’s second quarter. A mandated rate decrease for 2006 Massachusetts personal automobile policies enhanced the impact of the higher personal automobile commissions.

The decrease in Massachusetts written premium per automobile amounted to approximately 5.8% in the second quarter compared to last year.

In the second quarter, net investment income increased 15.6% over the same period last year to $36.1 million resulting from an increase in both invested assets and investment yields.

Cumulative June 30, 2006 Results
Net earnings for the first six months of 2006 were $125.6 million, or $1.85 per diluted share, compared to net earnings of $120.6 million or $1.78 per diluted share for 2005.

During the first six months of 2006, the company had net realized investment losses of $0.2 million, with no reportable impact on diluted EPS, compared to net realized investment gains of $20.6 million, or $0.20 per diluted share in the same period of 2005. A complete breakdown of this information is included in the attached tables.
Earned premiums were $842.9 million for the six months of 2006, compared to $851.0 million for 2005.

The 2006 six-month GAAP consolidated combined ratio was 87.1%, compared to 89.3% for 2005. 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 2006 decreased to 60.1% from 64.6% during the same period last year. The improvement was the result of the same factors which impacted the second quarter. The company’s GAAP consolidated underwriting ratio increased to 27.0% for the first six months of 2006, compared to 24.7% for the same period of 2005. The increase was the result of the same factors that impacted the second quarter.

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.

Source: Commerce Insurance

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