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The Commerce Group, Inc. and AAA S. New England Make Agreement

4 November 1998

The Commerce Group, Inc. and AAA Southern New England Agree To Acquire Automobile Club Insurance Company


    WEBSTER, Mass.--Nov. 3, 1998--The Commerce Group, Inc. and AAA Southern New England (AAA-SNE) today announced that a joint venture owned by them has entered into a definitive agreement to acquire Automobile Club Insurance Company (ACIC) from the American Automobile Association (Incorporated) (AAA) and the California State Automobile Association Inter-Insurance Bureau for a total purchase price of $78.5 million.
    ACIC writes automobile and homeowners insurance solely through agents affiliated with AAA automobile clubs. For the nine months ended September 30, 1998, ACIC reported $73 million in direct written premium, with policies issued in 23 states. ACIC had total assets of $174 million as of September 30, 1998. Commerce and AAA-SNE intend that ACIC will retain its management team and staff and continue to have its principal office in Columbus, Ohio.
    Completion of the acquisition is expected in the first quarter of 1999 and is subject to receipt of regulatory approvals as well as other customary closing conditions.
    The Commerce Insurance Company will invest approximately $91 million in the joint venture to fund the ACIC acquisition and to capitalize the joint venture that will be owned together with AAA-SNE. Of this $91 million, Commerce will invest $90 million in the form of preferred stock and an additional $800,000, representing its 80% common stock ownership. AAA-SNE will invest the remaining $200,000, representing its 20% common stock ownership. Commerce intends to consolidate ACIC for financial reporting and tax purposes.
    The Commerce Group, Inc., through its property and casualty subsidiaries, wrote $634 million in premiums for the nine months ended September 30, 1998. The Commerce Insurance Company is the leading writer of Massachusetts personal automobile insurance with a market share of more than 21%. The Commerce Insurance Company has had an affinity group marketing relationship with AAA-SNE since 1995. AAA-SNE has been an agent of The Commerce Insurance Company since 1985.


    The statements contained in this release that are not historical facts are forward looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those set forth in or implied by the forward looking statements. Certain of those risks are described in Commerce's filings with the Securities and Exchange Commission.