The Commerce Group, Inc. in Webster, Mass. reported 2007 second net earnings were $41.5 million, or $0.63 per diluted share, compared to net earnings of $58.6 million or $0.86 per diluted share for 2006.
Included in the 2006 second quarter results are net realized investment losses of $6.5 million, or $0.06 per diluted share, as compared to no reportable impact on earnings during the current year second quarter.
Earned premiums were $453.5 million for the second quarter of 2007, compared to $414.5 million for the second quarter of 2006. Written premiums were $469.7 million for the second quarter of 2007, compared to $476.6 million for the second quarter of 2006.
Massachusetts written premium per vehicle decreased approximately 8.9% in the second quarter compared to last year, while the number of insured vehicles increased 3.1%. The decline in written premium per vehicle resulted from the state mandated personal automobile premium rate decrease which was effective April 1, 2007.
The second quarter GAAP consolidated combined ratio was 97.6%, compared to 87.7% for 2006. The increase in the combined ratio was the result of an increase in the loss ratio. The company’s GAAP consolidated loss ratio for the second quarter of 2007 increased to 67.5% from 57.5% for the same period last year.
The loss ratio increase was primarily the result of several factors, including providing additional reserves of $10.3 million for State-Wide Insurance Co., a second quarter acquisition. Commerce acquired State-Wide on April 2, 2007 and said a review of its loss reserve position indicated that additional reserves were necessary, primarily for personal injury protection claims.
The loss ratio was also affected by decreased earned premium per earned exposure. The decrease in earned premium per exposure was 3.5% in Massachusetts, due to state mandated rate decreases, and 4.4% outside of Massachusetts, as a result of increased competition.
In addition, the loss ratio increased as a result of higher loss development in the insurer’s business outside Massachusetts for the 2006 accident year coupled with higher 2007 accident year loss results primarily in the homeowners line of business.
Finally, increased automobile bodily injury claim severity, partially offset by slightly lower claim frequency, also affecetd the loss ratio.
Also included in the combined ratio are higher expenses related to the American Commerce Insurance Co. agent stock option program, primarily as a result of the increase in the stock price at June 30, 2007, as compared to March 31, 2007. Expenses related to this item totaled $12.1 million for the current year second quarter versus $5.9 million for the previous year.
The company’s GAAP consolidated underwriting ratio decreased slightly to 30.1%, as compared to 30.2% for last year’s second quarter. The underwriting ratio remained consistent as increased expenses from reduced ceded reinsurance commissions resulting from the June 30, 2006 termination of its other-than-automobile quota share agreement were largely offset by a decline in agents’ profit sharing expense.
In the second quarter, net investment income increased 9.7% over the same period last year to $39.6 million as a result of increases in both invested assets and investment yields.
Source: Commerce Group
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