Exhibit 99.1
The Commerce Group, Inc. Announces 2005 Fourth Quarter Results
and Comparison to 2004
WEBSTER, Mass.--(BUSINESS WIRE)--Feb. 2, 2006--The Commerce Group,
Inc. (NYSE:CGI) today reported 2005 fourth quarter results. Net
earnings were $63.5 million, or $1.87 per diluted share, compared to
net earnings of $71.7 million or $2.14 per diluted share for 2004.
During the fourth quarter of 2005, the Company had net realized
investment gains of $2.1 million or $0.04 per diluted share, compared
to gains of $14.0 million or $0.27 per diluted share in the fourth
quarter of 2004. A complete breakdown of this information is included
in the attached tables.
Earned premiums were $430.6 million for the fourth quarter of
2005, compared to $425.0 million for 2004. A schedule of direct
written premiums to earned premiums is included in the attached
tables.
The fourth quarter GAAP consolidated operating combined ratio was
89.0%, compared to 87.5% for 2004. The increase in the combined ratio
was the result of an increase in the loss ratio partially offset by a
decrease in the underwriting ratio. The Company's GAAP consolidated
loss ratio for the fourth quarter of 2005 increased to 60.4% from
58.4% during the same period last year. The loss ratio increase was
the result of several factors, including an increase in loss
adjustment expenses and a small decline in the amount of favorable
loss reserve development compared to the fourth quarter of last year,
both partially offset by improved results from Commonwealth Automobile
Reinsurers and a decrease in personal automobile bodily injury claim
frequency. The Company's GAAP consolidated underwriting ratio
decreased to 28.6%, as compared to 29.1% for last year's fourth
quarter, primarily as a result of a decrease in our assessment from
the Massachusetts Insurance Insolvency Fund partially offset by
slightly higher accrued agents' profit sharing and higher 2005 policy
year mandated Massachusetts personal automobile commission rates.
Cumulative December 31, 2005 Results
Net earnings for 2005 were $243.9 million, or $7.21 per diluted
share, compared to net earnings of $214.4 million or $6.51 per diluted
share for 2004.
During 2005, the Company had net realized investment gains of
$22.9 million or $0.44 per diluted share, compared to gains of $23.6
million or $0.47 per diluted share in 2004. A complete breakdown of
this information is included in the attached tables.
Earned premiums were $1,709.9 million for 2005, compared to
$1,638.8 million for 2004. A schedule of direct written premiums to
earned premiums is included in the attached tables.
The 2005 GAAP consolidated operating combined ratio was 88.7%,
compared to 90.0% 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 2005 decreased to 61.4% from 63.8% last year. The improvement was
the result of several factors, including: (1) an increase in average
earned premium revenue per automobile; (2) improved results from
C.A.R; and, (3) a decrease in the current year personal and commercial
automobile bodily injury claim frequency. These items were partially
offset by reduced favorable voluntary loss reserve development
compared to 2004. The Company's GAAP consolidated underwriting ratio
increased to 27.3%, as compared to 26.2% last year, primarily as a
result of significantly higher accrued agents' profit sharing and
slightly higher 2005 policy year mandated Massachusetts personal
automobile commission rates, both partially offset by a decrease in
our assessment from the Massachusetts Insurance Insolvency Fund. The
higher accrued agents' profit sharing is an outcome of the improved
loss ratio for 2005 versus 2004.
A complete presentation of December 31, 2005 and 2004 financial
statement information is included in the financial statements attached
to this press release. All quarterly figures are unaudited and all
results are reported in accordance with accounting principles
generally accepted in the United States (GAAP). Additional
supplemental financial information will be available by Friday morning
on the Company's website at www.commerceinsurance.com, under the
"Links" section of the "News and Investor Information" area.
At December 31, 2005, the Company had authority to purchase
approximately 858,000 additional shares of common stock under the
current Board of Directors' stock re-purchase authorization. During
2005, the Company issued approximately 187,000 shares of common stock
related to all option exercises. Approximately 133,000 of these issued
shares were from the American Commerce Insurance Company agents' stock
option program, of which approximately 2.4 million options remain
outstanding at various exercise prices and vesting dates. The
remainder of the issued shares resulted from the stock option program
for officers, of which approximately 11,000 options remain fully
vested and outstanding.
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 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.
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," "will," "could," "likely," "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, terrorism and other adverse
catastrophic experiences;
-- adverse trends in claim severity or frequency and the
uncertainties in estimating property and casualty losses;
-- 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;
-- fluctuations in interest rates and the performance of the
financial markets in relation to the composition of our
investment portfolio;
-- premium rate making decisions for private passenger automobile
policies in Massachusetts;
-- potential rate filings;
-- heightened competition;
-- our concentration of business within Massachusetts and within
the personal automobile line of business;
-- market disruption in Massachusetts, if competitors exited the
market or become insolvent;
-- the cost and availability of reinsurance;
-- our ability to collect on reinsurance and the solvency of our
reinsurers;
-- the effectiveness of our reinsurance strategies;
-- telecommunication and information systems problems, including
failures to implement information technology projects timely
and within budget;
-- our ability to maintain favorable ratings from rating
agencies, including A.M. Best, S&P, Moody's and Fitch;
-- our ability to attract and retain independent agents;
-- our ability to retain our affinity relationships with AAA
clubs, especially in Massachusetts;
-- our dependence on a key third party service vendor for our
business in Massachusetts;
-- our dependence on our executive officers; and,
-- the economic, market or regulatory conditions and risks
associated with entry into new markets and diversification.
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.
THE COMMERCE GROUP, INC. (NYSE - CGI)
CONSOLIDATED BALANCE SHEET
December 31, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
Dec. 31, Dec. 31,
2005 2004
----------- -----------
Assets:
Investments
Fixed maturities, at market $ 2,029,173 $ 1,692,523
Preferred stocks, at market $ 393,681 $ 422,344
Common stocks, at market $ 102,344 $ 81,433
Preferred stock mutual funds, at equity $ 96,332 $ 61,429
Mortgage loans and collateral notes
receivable $ 17,746 $ 14,735
Cash and cash equivalents $ 97,942 $ 220,988
Other investments, at equity $ 28,111 $ 34,281
Total investments $ 2,765,329 $ 2,527,733
Accrued investment income $ 22,267 $ 18,643
Premiums receivable $ 475,112 $ 459,775
Deferred policy acquisition costs $ 174,415 $ 163,645
Property and equipment, net $ 61,625 $ 53,757
Due from reinsurers $ 142,923 $ 133,328
Residual market receivable $ 191,309 $ 193,618
Deferred income taxes $ 68,926 $ 43,372
Other assets $ 25,104 $ 18,372
Total assets $ 3,927,010 $ 3,612,243
Liabilities:
Unpaid losses and LAE $ 989,196 $ 990,260
Unearned premiums $ 933,160 $ 902,566
Bonds payable $ 298,388 $ 298,186
Current income taxes $ 9,601 $ 5,115
Deferred income $ 8,757 $ 9,906
Accrued agents' profit sharing $ 187,760 $ 109,432
Payable for securities purchased $ 8,019 $ 11,871
Outstanding checks payable $ 42,283 $ 39,356
Advance premiums and commissions payable $ 50,123 $ 50,190
Other liabilities $ 88,697 $ 74,079
Total liabilities $ 2,615,984 $ 2,490,961
Minority interest $ 5,957 $ 5,126
Stockholders' equity:
Preferred stock - -
Common stock $ 20,458 $ 20,364
Paid-in capital $ 148,130 $ 134,943
Net accumulated other comprehensive (loss)
income $ (6,810) $ 16,403
Retained earnings $ 1,363,507 $ 1,169,009
Stockholders' equity before treasury
stock $ 1,525,285 $ 1,340,719
Treasury stock $ (220,216) $ (224,563)
Total stockholders' equity $ 1,305,069 $ 1,116,156
Total liabilities, minority interest
and stockholders' equity $ 3,927,010 $ 3,612,243
Common shares outstanding 33,653,202 33,322,749
Stockholders' equity per share $ 38.78 $ 33.50
THE COMMERCE GROUP, INC. (NYSE - CGI)
CONSOLIDATED STATEMENT OF EARNINGS
Three Months and Years Ended December 31, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Years Ended
December 31, December 31,
------------------------ ------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Revenues:
Earned premiums $ 430,633 $ 425,003 $ 1,709,924 $ 1,638,833
Net investment
income $ 32,851 $ 29,981 $ 123,211 $ 115,711
Premium finance
and service
fees $ 6,843 $ 6,904 $ 28,298 $ 28,281
Net realized
investment
gains $ 2,107 $ 14,018 $ 22,907 $ 23,628
Other income $ 37 $ 3 $ 41 $ 118
TOTAL
REVENUES $ 472,471 $ 475,909 $ 1,884,381 $ 1,806,571
Expenses:
Losses and LAE $ 260,012 $ 248,234 $ 1,050,186 $ 1,044,840
Policy
acquisition
costs $ 116,531 $ 120,351 $ 463,297 $ 439,232
Interest expense
& amortization
of bond fees $ 4,582 $ 4,610 $ 18,293 $ 18,313
TOTAL
EXPENSES $ 381,125 $ 373,195 $ 1,531,776 $ 1,502,385
Earnings
before
income
taxes and
minority
interest $ 91,346 $ 102,714 $ 352,605 $ 304,186
Income taxes $ 27,622 $ 30,770 $ 107,768 $ 89,003
Earnings
before
minority
interest $ 63,724 $ 71,944 $ 244,837 $ 215,183
Minority interest
in net earnings
of subsidiary $ (242) $ (257) $ (925) $ (752)
NET EARNINGS $ 63,482 $ 71,687 $ 243,912 $ 214,431
COMPREHENSIVE
INCOME $ 58,348 $ 76,302 $ 220,699 $ 201,751
EARNINGS PER
COMMON SHARE:
BASIC $ 1.89 $ 2.16 $ 7.26 $ 6.54
DILUTED $ 1.87 $ 2.14 $ 7.21 $ 6.51
Cash dividends
paid per common
share $ 0.38 $ 0.33 $ 1.47 $ 1.31
Weighted average
shares
outstanding:
BASIC 33,653,201 33,247,064 33,585,858 32,802,023
DILUTED 33,864,032 33,558,547 33,847,665 32,952,714
THE COMMERCE GROUP, INC. (NYSE - CGI)
ADDITIONAL EARNINGS INFORMATION
Three Months and Years December 31, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Years Ended
December 31, December 31,
------------------- ----------------------
2005 2004 2005 2004
---------- -------- ---------- ----------
ADDITIONAL EARNINGS INFORMATION:
Direct written premiums to earned
premiums reconciliation:
Direct written premiums $404,143 $405,056 $1,874,231 $1,838,241
Assumed premiums $ 24,419 $ 25,783 $ 132,098 $ 128,152
Ceded premiums $(58,791) $(57,901) $ (270,138) $ (253,850)
Net written premiums $369,771 $372,938 $1,736,191 $1,712,543
Decrease (increase) in
unearned premiums $ 60,862 $ 52,065 $ (26,267) $ (73,710)
Earned premiums $430,633 $425,003 $1,709,924 $1,638,833
GAAP consolidated
operating ratios:(1)
Loss ratio 60.4% 58.4% 61.4% 63.8%
Underwriting ratio 28.6% 29.1% 27.3% 26.2%
Combined ratio 89.0% 87.5% 88.7% 90.0%
GAAP operating ratios for combined
insurance subsidiaries only:(2)
Loss ratio 59.5% 56.9% 60.7% 62.7%
Underwriting ratio 27.7% 27.4% 26.6% 25.4%
Combined ratio 87.2% 84.3% 87.3% 88.1%
Breakdown of net realized
investment gains:
Fixed maturities $ 1,236 $ 10,097 $ 21,135 $ 12,733
Preferred stocks $ 1,371 $ 1,148 $ 3,553 $ 12,457
Common stocks $ - $ 1,457 $ 911 $ 6,628
Preferred stock mutual
funds:
Due to increase
(decrease) in NAV $ (534) $ 3,289 $ 696 $ 3,296
Due to sales $ - $ (85) $ - $ -
Venture capital fund
investments $ (989) $ (1,105) $ 837 $ 3,668
Other $ 1,023 $ (1) $ 627 $ (205)
Other than temporary
writedowns $ - $ (782) $ (4,852) $ (14,949)
Net realized
investment gains
before tax $ 2,107 $ 14,018 $ 22,907 $ 23,628
Income tax expense at
35% $ 737 $ 4,906 $ 8,017 $ 8,270
Net realized
investment gains
after tax $ 1,370 $ 9,112 $ 14,890 $ 15,358
Per diluted share net
realized gains after
tax $ 0.04 $ 0.27 $ 0.44 $ 0.47
(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
(decrease) in deferred acquisition costs of ($10,780) and
($11,911) for the three months ended and $10,770 and $10,037 for
the years ended December 31, 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.
CONTACT: The Commerce Group, Inc.
Randall V. Becker, 508-949-4129