UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported)
April 22, 2005
THE COMMERCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 001-13672 04-2599931
(State or other (Commission File (IRS Employer
jurisdiction Number) Identification
of incorporation) No.)
211 Main Street, Webster, Massachusetts 01570
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(508) 943-9000
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the
registrant under any of the following provisions (see General
Instruction A.2 below):
[ ] Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c)
under the Exchange Act (17 CFR 240.14e-4(c))
Page 1 of 8
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The Commerce Group, Inc.
Form 8-K
April 22, 2005
Section 2. Financial Information
Item 2.02 Results of Operations and Financial Condition
The following information is being furnished under Item 2.02
- - Results of Operations and Financial Condition. Such
information, including the exhibit attached hereto, shall not be
deemed "filed" for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or otherwise subject to the
liability of that section.
On April 21, 2005, The Commerce Group, Inc. (the "Company")
issued a press release announcing its results for the quarter
ended March 31, 2005. A copy of the press release is attached as
Exhibit 99.1 to this Form 8-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
THE COMMERCE GROUP, INC.
April 22, 2005
/s/ Randall V. Becker
Randall V. Becker
Treasurer and Chief Accounting Officer
Page 2 of 8
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Exhibit 99.1
Press Release
RELEASE: Immediate (April 21, 2005)
CONTACT: Randall V. Becker, Treasurer
The Commerce Group, Inc.
(508) 949-4129
The Commerce Group, Inc.
Announces 2005 First Quarter Results
and Comparison to 2004
WEBSTER, Mass., April 21, 2005 -- The Commerce Group, Inc. (NYSE:CGI)
today reported 2005 first quarter results. Net earnings were $58.0
million, or $1.72 per diluted share, compared to net earnings of $51.0
million or $1.56 per diluted share for 2004.
Included in the 2005 first quarter results are net realized investment
gains of $8.3 million or $0.16 per diluted share, compared to gains of
$20.5 million or $0.41 per diluted share in the first quarter of 2004.
A complete breakdown of this information is included in the attached
tables.
Earned premiums were $423.2 million for the first quarter of 2005,
compared to $395.6 million for the first quarter of 2004. A schedule
of direct written premiums to earned premiums is included in the
attached tables.
The first quarter GAAP consolidated combined ratio was 89.1%, compared
to 93.7% 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 quarter of 2005 decreased to 66.0% from 71.3% during the
same period last year. The improvement was the result of several
factors, including: (1) an increase in average earned premium revenue
per automobile; (2) more favorable loss reserve development compared
to the first quarter of last year; (3) improved results from
Commonwealth Automobile Reinsurers (C.A.R.); and, (4) a decrease in
the current year personal automobile bodily injury claim frequency,
partially offset by an increase in physical damage claim frequency
primarily as a result of worse winter weather in the northeast. The
Company's GAAP consolidated underwriting ratio increased to 23.1%, as
compared to 22.4% for last year's first 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 higher accrued agents' profit sharing is an
outcome of substantially better underwriting results for the first
quarter of 2005 versus last year's first quarter.
A complete presentation of March 31, 2005 and 2004 financial statement
information is included in the financial statements attached to this
press release.
Additional supplemental financial information will be available by
April 25th on the Company's website at www.commerceinsurance.com,
under the "Links" section of the "News and Investor Information" area.
At March 31, 2005, the Company had authority to purchase approximately
858,000 shares of common stock under the current Board of Directors'
stock re-purchase authorization.
MORE
Page 3 of 8
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CGI 1Q'05 Earnings Release (page 2 of 6)
All quarterly figures are unaudited and all results are reported in
accordance with accounting principles generally accepted in the United
States (GAAP).
About The Commerce Group, Inc.
The Commerce Group, Inc. is headquartered in Webster, Massachusetts.
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 A. M. Best
Company, based on 2003 direct written premium information. The
Company and its insurance subsidiaries are rated A+ by A. M. Best.
Forward Looking Statements
This press release may contain statements that are not historical fact
and constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act.
Statements about our expectations, beliefs, plans, objectives,
assumptions or future events or performance are not historical facts
and may be forward- looking. These statements are often, but not
always, made through the use of words or phrases such as
"anticipates," "estimates," "plans," "projects," "continuing,"
"ongoing," "expects," "may," "should," "management believes," "we
believe," "we intend," and similar words or phrases.
These statements may address, among other things, our strategy for
growth, business development, regulatory approvals, market position,
expenditures, financial results and reserves. Accordingly, these
statements involve estimates, assumptions and uncertainties that could
cause actual results to differ materially from those expressed in
them. All forward-looking statements are qualified in their entirety
by reference to the factors discussed throughout this press release
and in our Forms 10-K and 10-Q, and other documents filed with the
SEC. Among the key factors that could cause actual results to differ
materially from forward-looking statements:
* the possibility of severe weather and adverse catastrophe
experiences;
* adverse trends in claim severity or frequency;
* adverse state and federal regulations and legislation;
* adverse judicial decisions;
* adverse changes to the laws, regulations and rules governing
the residual market system in Massachusetts;
* interest rate risk;
* rate making decisions for private passenger automobile policies
in Massachusetts;
* potential rate filings;
* heightened competition;
* concentration of business within Massachusetts;
* market disruption in Massachusetts, if competitors exited the
market or become insolvent;
* dependence on our executive officers; and,
* the economic, market or regulatory conditions and risks
associated with entry into new markets and diversification.
MORE
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Page 4 of 8
CGI 1Q'05 Earnings Release (page 3 of 6)
Forward Looking Statements (continued)
You should not place undue reliance on any forward-looking statement.
The risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-
looking statement made by us or on our behalf. Further, any forward-
looking statement speaks only as of the date on which it is made, and
we undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the statement
is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for us to
predict which factors will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
(Tables Follow)
Page 5 of 8
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CGI 1Q '05 Earnings Release (page 4 of 6)
<table>
<caption>
THE COMMERCE GROUP, INC. (NYSE - CGI)
CONSOLIDATED BALANCE SHEETS
March 31, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
March 31, March 31,
2005 2004
Assets
Investments
<s> <c> <c>
Fixed maturities, at market $ 1,830,932 $ 1,668,640
Preferred stocks, at market $ 494,515 $ 354,702
Common stocks, at market $ 61,896 $ 94,711
Preferred stock mutual fund, at equity $ 65,826 $ 56,387
Mortgage loans and collateral notes receivable $ 15,285 $ 15,788
Cash and cash equivalents $ 94,959 $ 164,197
Other investments $ 33,954 $ 27,435
Total investments $ 2,597,367 $ 2,381,860
Accrued investment income $ 20,256 $ 18,999
Premiums receivable $ 474,841 $ 446,995
Deferred policy acquisition costs $ 174,647 $ 168,610
Property and equipment, net $ 51,817 $ 52,137
Due from reinsurers $ 134,938 $ 120,876
Residual market receivable $ 204,894 $ 205,442
Deferred income taxes $ 55,595 $ 21,713
Receivable for securities sold $ 1,079 $ 366
Other assets $ 26,180 $ 17,446
Total assets $ 3,741,614 $ 3,434,444
Liabilities
Unpaid losses and LAE $ 1,004,157 $ 976,813
Unearned premiums $ 962,104 $ 893,028
Bonds payable $ 298,236 $ 298,035
Current income taxes $ 13,836 $ 12,403
Deferred income $ 10,814 $ 8,271
Accrued agents' profit sharing $ 116,826 $ 41,168
Payable for securities purchased $ 35,161 $ 97,046
Outstanding checks payable $ 45,261 $ 37,231
Advance premiums and commissions payable $ 27,971 $ 25,902
Other liabilities $ 69,595 $ 60,612
Total liabilities $ 2,583,961 $ 2,450,509
Minority interest $ 5,240 $ 4,548
Stockholders' equity
Preferred stock - -
Common stock $ 20,426 $ 19,673
Paid-in capital $ 144,896 $ 84,378
Net accumulated other comprehensive (loss) income $ (8,665) $ 36,484
Retained earnings $ 1,215,972 $ 1,038,273
Stockholders' equity before treasury stock $ 1,372,629 $ 1,178,808
Treasury stock $ (220,216) $ (199,421)
Total stockholders' equity $ 1,152,413 $ 979,387
Total liabilities, minority interest and stockholders' equity $ 3,741,614 $ 3,434,444
Common shares outstanding 33,588,842 32,482,700
Stockholders' equity per share $ 34.31 $ 30.15
</table>
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CGI 1Q '05 Earnings Release (page 5 of 6)
<table>
<caption>
THE COMMERCE GROUP, INC. (NYSE - CGI)
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 31, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended
March 31,
2005 2004
Revenues:
<s> <c> <c>
Earned premiums $ 423,202 $ 395,568
Net investment income $ 29,087 $ 27,815
Premium finance and service fees $ 7,203 $ 7,044
Net realized investment gains $ 8,313 $ 20,459
Other income $ 4 $ -
TOTAL REVENUES $ 467,809 $ 450,886
Expenses:
Losses and LAE $ 279,158 $ 282,182
Policy acquisition costs $ 100,372 $ 92,224
Interest expense & amortization of bond fees $ 4,519 $ 4,583
TOTAL EXPENSES $ 384,049 $ 378,989
Earnings before income taxes and minority interest $ 83,760 $ 71,897
Income taxes $ 25,488 $ 20,752
Earnings before minority interest $ 58,272 $ 51,145
Minority interest in net earnings of subsidiary $ (234) $ (105)
NET EARNINGS $ 58,038 $ 51,040
COMPREHENSIVE INCOME $ 32,970 $ 58,441
EARNINGS PER COMMON SHARE:
BASIC $ 1.73 $ 1.58
DILUTED $ 1.72 $ 1.56
Cash dividends paid per common share $ 0.33 $ 0.32
Weighted average shares outstanding:
BASIC 33,462,734 32,337,398
DILUTED 33,823,626 32,766,819
</table>
Page 7 of 8
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CGI 1Q '05 Earnings Release (page 6 of 6)
<table>
<caption>
THE COMMERCE GROUP, INC. (NYSE - CGI)
ADDITIONAL EARNINGS INFORMATION
Three Months March 31, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended
March 31,
2005 2004
ADDITIONAL EARNINGS INFORMATION:
<s> <c> <c>
Direct written premiums to earned premiums reconciliation:
Direct written premiums $ 508,665 $ 498,587
Assumed premiums $ 38,018 $ 34,078
Ceded premiums $ (64,919) $ (54,991)
Net written premiums $ 481,764 $ 477,674
Increase in unearned premiums $ (58,562) $ (82,106)
Earned premiums $ 423,202 $ 395,568
GAAP consolidated operating ratios: (1)
Loss ratio 66.0% 71.3%
Underwriting ratio 23.1% 22.4%
Combined ratio 89.1% 93.7%
GAAP operating ratios for combined insurance subsidiaries only: (2)
Loss ratio 65.5% 70.1%
Underwriting ratio 22.7% 21.6%
Combined ratio 88.2% 91.7%
Breakdown of net realized investment gains:
Fixed maturities $ 10,368 $ 9,658
Preferred stocks $ 818 $ 4,507
Common stocks $ 415 $ 4,439
Preferred stock mutual funds:
Due to (decrease) increase in NAV $ (635) $ 2,113
Venture capital fund investments $ (951) $ 1,699
Other $ 322 $ (189)
Other than temporary writedowns $ (2,024) $ (1,768)
Net realized investment gains before tax $ 8,313 $ 20,459
Income tax at 35% $ 2,910 $ 7,161
Net realized investment gains after tax $ 5,403 $ 13,298
Per diluted share net realized gains after tax $ 0.16 $ 0.41
(1) GAAP consolidated operating ratios are calculated as in (2) below using the combined
insurance subsidiaries' loss and underwriting results, adding to them the expenses
of the holding companies (corporate expenses) in order to equal the loss and underwriting
expense amounts on the income statement. For purposes of the U/W ratio, underwriting
expenses are grossed-up for the increase in deferred acquisition costs of $11,003 and
$15,003 for 2005 and 2004, respectively.
(2) GAAP operating ratios for combined insurance subsidiaries are calculated as follows:
(a) The loss ratio represents losses and LAE divided by earned premiums; and,
(b) The underwriting ratio represents underwriting expenses (excluding changes in
deferred acquisition costs), divided by net premiums written. No corporate
expenses are included in the calculations.
</table>
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