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The Commerce Group Announces 1999 Q4 and Year-End Earnings

27 January 2000

The Commerce Group, Inc. Announces 1999 Fourth Quarter and Year-End Earnings

    WEBSTER, Mass.--Jan. 26, 2000--The Commerce Group, Inc. today reported 1999 fourth quarter and year-end earnings. Net earnings in the fourth quarter of 1999 were $38.1 million or $1.10 per share compared to $21.8 million or $0.61 per share in the fourth quarter of 1998.
    Direct premiums written by the Company's property and casualty insurance subsidiaries were $202.6 million in the fourth quarter of 1999 compared to $163.2 million in the fourth quarter of 1998. The number of Massachusetts automobiles insured for the fourth quarter of 1999 increased approximately 3.6% over the fourth quarter of 1998, and the average written premium per exposure increased 10.0%. Net premiums written in the fourth quarter of 1999 were $190.3 million compared to $143.3 million in the same period of 1998. Earned premiums were $228.5 million in the fourth quarter of 1999, compared to $185.9 million in the fourth quarter of 1998. Included in the fourth quarter 1999 results are direct, net and earned premiums of $22.6 million, $22.1 million and $22.9 million, respectively, for American Commerce Insurance Company which was acquired in January, 1999.
    Net investment income was $24.4 million in the fourth quarter of 1999, compared to $23.1 million in the fourth quarter a year ago. For the quarter ended December 31, 1999 the Company had realized gains of $0.3 million. The Company had realized capital gains of $1.7 million or $0.03 per share during the fourth quarter of 1998.
    Premium finance and service fees were $3.5 million in the fourth quarter of 1999 as compared to $3.6 million in the same period of 1998.
    The statutory combined ratio for property and casualty operations was 93.3% in the fourth quarter of 1999 compared to 103.1% in the fourth quarter of 1998. The Company's fourth quarter 1999 loss ratio was 65.6%, compared to 77.5% for the fourth quarter of 1998. This improvement in the fourth quarter 1999 loss ratio is due to:

--   The continued acceleration of private passenger automobile earned
     premiums per exposure, coupled with improvements in bodily injury
     claims frequencies from current and prior quarters;

--   The continued favorable development of homeowner liability losses
     and a re-evaluation of case-basis liability reserves to reflect
     this favorable trend;

--   The estimate for future loss adjustment expenses has been reduced
     to reflect a decrease in current paid loss adjustment expenses
     and the initiation of certain cost reduction programs.

    The Company's statutory underwriting expense ratio in the fourth quarter of 1999 increased to 27.7% from 25.6% in the fourth quarter of 1998, primarily as a result of higher contingency commissions due to favorable underwriting results.

    Cumulative December 31, 1999 Results

    Net earnings for the year ended December 31, 1999 were $102.6 million or $2.94 per share compared to $96.5 million or $2.68 per share in 1998.
    For the year ended December 31, 1999, direct premiums written were $948.1 million compared to $796.9 million in 1998. The number of Massachusetts automobiles insured in 1999 increased approximately 0.9% over 1998, and the average written premium per exposure increased 9.1%. Net premiums written in 1999 were $912.0 million compared to $745.0 million in 1998, and earned premiums were $871.8 million in 1999 compared to $745.6 million in 1998. Included in the year-end 1999 results are direct, net and earned premiums of $85.7 million, $84.0 million and $82.6 million, respectively, for American Commerce Insurance Company which was acquired in January, 1999.
    For the year ended December 31, 1999, net investment income increased to $89.8 million compared to $86.5 million for 1998. For the year ended December 31, 1999, the Company had realized gains on investments of $8.1 million, or $0.15 per share compared to $6.8 million or $0.12 per share for 1998.
    Premium finance and service fees were $14.8 million for 1999 as compared to $13.4 million in 1998.
    For the year ended December 31,1999, the Company's loss ratio was 72.0% compared to 71.6% for 1998 and the Company's statutory underwriting expense ratio was 26.5% compared to 26.5% for 1998. For the year ended December 31, 1999, the statutory combined ratio was 98.5% compared to 98.1% for 1998.

    A Review Of The Balance Sheet

    A complete presentation of December 31, 1999 and 1998 balance sheet information is included in the tables following this press release.
    Total assets at December 31, 1999 were $1.9 billion. Total stockholders' equity was $646.6 million or $18.82 per share at December 31, 1999 compared to $705.8 million or $19.58 per share at December 31, 1998. There were 34.4 million shares of outstanding common stock on December 31, 1999 as compared to 36.0 million at December 31, 1998. During 1999, in accordance with previously announced stock buyback programs, the company acquired approximately 1.7 million shares of treasury stock at an average per share cost of $26.69. Under the ongoing program the Company may buy back an additional 1.5 million shares.
    All quarterly figures are unaudited, and all results are reported in accordance with generally accepted accounting principals (GAAP) with the exception of operating ratios which are reported on a statutory basis.

    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 Columbus, Ohio.

THE COMMERCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Thousands of Dollars)
Unaudited


                                            December 31,  December 31,
                                                1999          1998
Assets
Investments:
  Fixed maturities, at market              $  647,338     $  619,267
  Preferred stocks, at market              $  211,049     $  197,425
  Common stocks, at market                 $  301,467     $  283,961
  Mortgage loans                           $   72,451     $   73,510
  Cash and short-term investments          $   22,535     $   75,912
  Other investments                        $   14,139     $    7,825

     Total investments                     $1,268,979     $1,257,900

Accrued investment income                  $   14,697     $   13,662
Premiums receivable                        $  195,160     $  162,878
Deferred policy acquisitions costs         $   98,500     $   88,759
Property and equipment                     $   34,802     $   35,854
Due from reinsurers                        $   48,365     $   36,687
Residual market receivable
   Losses and LAE                          $  106,576     $  111,784
   Unearned premiums                       $   50,084     $   41,436
Deferred income taxes                      $   43,051     $     --
Non-compete agreement                      $    3,179     $     --
Other assets                               $    8,079     $    7,023
     Total assets                          $1,871,472     $1,755,983

Liabilities
  Losses and LAE                           $  675,188     $  596,996
  Unearned premiums                        $  457,095     $  391,424
  Current income taxes                     $   10,839     $    4,061
  Deferred income taxes                    $     --       $    3,769
  Deferred income                          $    7,464     $    6,948
  Contingent commissions accrued           $   33,468     $   22,067
  Payable for securities purchased         $    1,953     $       62
  Excess of book value of subsidiary
    interest over cost                     $   10,758     $     --
  Other liabilities                        $   26,885     $   24,871

      Total liabilities                    $1,223,650     $1,050,198

Minority Interest                          $    1,188     $     --

Stockholders' equity
  Preferred stock                          $     --       $     --
  Common stock                             $   19,000     $   19,000
  Paid-in capital                          $   29,621     $   29,621
  Net accumulated other
     comprehensive income (loss)           $  (52,867)    $   25,295
  Retained earnings                        $  734,488     $  670,556

                                           $  730,242     $  744,472

  Treasury stock                           $  (83,608)    $  (38,687)

  Total stockholders' equity               $  646,634     $  705,785

  Total liabilities &
   stockholders' equity                    $1,871,472     $1,755,983



THE COMMERCE GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended December 31, 1999 and 1998
(Thousands of Dollars, Except Per Share Data)
Unaudited

                                                Three Months Ended
                                                    December 31,
                                                1999           1998

Direct premiums written                   $   202,634    $   163,236
Net premiums written                      $   190,276    $   143,275

Revenues:
Earned premiums                           $   228,500    $   185,894
Net investment income                     $    24,447    $    23,073
Premium finance and service fees          $     3,502    $     3,625
Amortization of excess of book value
  of subsidiary interest over cost        $       968    $      --
Realized investment gains                 $       299    $     1,688
TOTAL REVENUES                            $   257,716    $   214,280

Expenses:
Losses and LAE                            $   149,419    $   143,126
Policy acquisition costs                  $    57,005    $    42,206
TOTAL EXPENSES                            $   206,424    $   185,332

Earnings before taxes                     $    51,292    $    28,948

Income taxes                              $    13,489    $     7,137
Earnings before minority interest         $    37,803    $    21,811

Minority interest                         $       291    $      --
NET EARNINGS                              $    38,094    $    21,811

COMPREHENSIVE INCOME                      $     5,143    $    21,712

BASIC AND DILUTED EARNINGS
     PER COMMON SHARE                     $      1.10    $      0.61

Net earnings per share excluding the
  after-tax impact of net realized
  investment gains                        $      1.10    $      0.58

Cash dividends paid per share             $      0.28    $      0.27

Weighted avg. shares outstanding           34,497,745     36,042,652

Statutory operating ratios
 for insurance subsidiaries
     Loss ratio                                  65.6%          77.5%
     Underwriting ratio                          27.7%          25.6%
           Combined ratio                        93.3%         103.1%



THE COMMERCE GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31, 1999 and 1998
(Thousands of Dollars, Except Per Share Data)
Unaudited

                                                    Year Ended
                                                    December 31,
                                                1999          1998

Direct premiums written                   $   948,149    $   796,858
Net premiums written                      $   911,993    $   745,048

Revenues:
Earned premiums                           $   871,830    $   745,620
Net investment income                     $    89,787    $    86,501
Premium finance and service fees          $    14,774    $    13,440
Amortization of excess of book value
  of subsidiary interest over cost        $     3,019    $      --
Realized investment gains                 $     8,130    $     6,769
TOTAL REVENUES                            $   987,540    $   852,330

Expenses:
Losses and LAE                            $   625,090    $   531,429
Policy acquisition costs                  $   233,660    $   196,434
TOTAL EXPENSES                            $   858,750    $   727,863

Earnings before taxes                     $   128,790    $   124,467

Income taxes                              $    27,154    $    27,975
Earnings before minority interest         $   101,636    $    96,492

Minority interest                         $       952    $      --
NET EARNINGS                              $   102,588    $    96,492

COMPREHENSIVE INCOME                      $    24,426    $    94,555

BASIC AND DILUTED EARNINGS
     PER COMMON SHARE                     $      2.94    $      2.68

Net earnings per share
  excluding the after-tax
  impact of net realized
  investment gains                        $      2.79    $      2.56

Cash dividends paid per share             $      1.11    $      1.07

Weighted avg. shares outstanding           34,940,074     36,042,652

Statutory operating ratios for
 insurance subsidiaries
     Loss ratio                                  72.0%          71.6%
     Underwriting ratio                          26.5%          26.5%
           Combined ratio                        98.5%          98.1%



THE COMMERCE GROUP, INC.
SUPPLEMENTAL INFORMATION
(Thousands of Dollars, Except Ratios and Other Information)
Unaudited


                                            December 31,  December 31,
                                               1999           1998

OTHER BALANCE SHEET INFORMATION:
 Fixed maturities, at cost                   $661,445       $600,482
 Preferred Stocks, at cost                   $230,934       $200,270
 Common Stocks, at cost                      $351,940       $261,360

OTHER INFORMATION:
 Massachusetts policies in force
   Private passenger automobile               615,282        609,282
   Homeowners                                 122,434        120,302
   Commercial automobile                       14,554         14,562



THE COMMERCE GROUP, INC.
SUPPLEMENTAL INFORMATION
(Thousands of Dollars, Except Ratios and Other Information)
Unaudited

                                                Three Months Ended
                                                   December 31,
                                               1999           1998
OTHER EARNINGS STATEMENT INFORMATION:
Net premiums earned of
 Massachusetts subsidiaries
  Private passenger automobile               $185,667       $168,027
  Homeowners                                 $  4,362       $  3,020
  Commercial automobile                      $  9,321       $  8,424

Net investment income, after tax             $ 20,352       $ 18,882

Pure loss ratios of
 Massachusetts subsidiaries
  Private passenger automobile                   63.0%          63.0%
  Homeowners (gross of reinsurance)              13.2%          34.4%
  Commercial automobile                          60.8%          51.9%

Mass. private passenger
 auto exposures written                       160,157        154,528
Mass. private passenger
 auto premiums written                       $147,758       $129,603


                                                   Year Ended
                                                   December 31,
                                               1999           1998
OTHER EARNINGS STATEMENT INFORMATION:
Net premiums earned of
 Massachusetts subsidiaries
  Private passenger automobile               $709,421       $656,413
  Homeowners                                 $ 16,774       $ 23,233
  Commercial automobile                      $ 37,955       $ 35,236

Net investment income, after tax             $ 74,926       $ 71,094

Pure loss ratios of
 Massachusetts subsidiaries
  Private passenger automobile                   65.7%          62.0%
  Homeowners (gross of reinsurance)              31.8%          31.8%
  Commercial automobile                          60.3%          52.2%

Mass. private passenger
 auto exposures written                       815,763        808,744
Mass. private passenger
 auto premiums written                       $722,520       $656,316