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)
July 27, 2004
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)
Registrants telephone number, including area code:
(508) 943-9000
Page 1 of 9
The Commerce Group, Inc.
Form 8-K
July 27, 2004
Item 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following information is being furnished under Item 12 -
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 July 23, 2004, The Commerce Group, Inc. (the "Company")
issued a press release announcing its results for the quarter
ended June 30, 2004. 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, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
THE COMMERCE GROUP, INC.
July 27, 2004
/s/ Randall V. Becker
Randall V. Becker
Treasurer and Accounting Officer
Page 2 of 9
Exhibit 99.1
Press Release
RELEASE: Immediate (July 23, 2004)
CONTACT: Randall V. Becker
Treasurer
(508) 949-4129
The Commerce Group, Inc.
Announces 2004 Second Quarter Results
and Comparison to 2003
WEBSTER, Mass., July 23, 2004 -- The Commerce Group, Inc. (NYSE:CGI)
today reported 2004 second quarter results. Net earnings were $37.4
million, or $1.14 per diluted share, compared to net earnings of $71.5
million or $2.22 per diluted share for 2003.
During the second quarter of 2004, the Company had net realized
investment losses of $8.6 million or $0.17 per diluted share, compared
to gains of $65.9 million or $1.53 per diluted share in the second
quarter of 2003. A complete breakdown of this information is included
in the attached tables.
Earned premiums were $404.5 million for the second quarter of 2004,
compared to $350.3 million for 2003. A schedule of direct written
premiums to earned premiums is included in the attached tables.
The second quarter GAAP consolidated operating combined ratio was
91.7%, compared to 100.5% for 2003. The decrease in the combined
ratio was the result of a decrease in both the loss ratio and the
underwriting ratio. The Companys GAAP consolidated loss ratio for the
second quarter of 2004 decreased to 68.4% from 76.9% during the same
period last year. The improvement was primarily the result of an
increase in average earned premium revenue per automobile and a
decline in the current year personal automobile physical damage claim
frequency. The Companys GAAP consolidated underwriting ratio decreased
to 23.3%, as compared to 23.6% for last years second quarter,
primarily as a net result of lower 2004 policy year mandated
Massachusetts personal automobile commission rates partially offset by
higher accrued contingent commissions.
Cumulative June 30, 2004 Results
Net earnings for the first six months of 2004 were $88.4 million, or
$2.70 per diluted share, compared to net earnings of $84.4 million or
$2.62 per diluted share for 2003.
During the first six months of 2004, the Company had net realized
investment gains of $11.9
million or $0.24 per diluted share, compared to gains of $60.0 million
or $1.33 per diluted share in the same period of 2003. A complete
breakdown of this information is included in the attached tables.
Earned premiums were $800.1 million for the six months of 2004,
compared to $688.3 million for 2003. A schedule of direct written
premiums to earned premiums is included in the attached tables.
MORE
Page 3 of 9
CGI 2Q04 Earnings Release (page 2 of 7)
The 2004 six month GAAP consolidated operating combined ratio was
92.7%, compared to 100.5% for 2003. 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 Companys GAAP
consolidated loss ratio for the first six months of 2004 decreased to
69.8% from 79.0% 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) a decline in the
current year personal automobile physical damage claim frequency; and,
(3) a decrease in the overall Commonwealth Automobile Reinsures
(C.A.R.) deficit. The Companys GAAP consolidated underwriting ratio
increased to 22.9% for the first six months of 2004, as compared to
21.5% for 2003, primarily as a net result of higher accrued contingent
commissions offset by lower 2004 policy year mandated Massachusetts
personal automobile commission rates.
A complete presentation of June 30, 2004 and 2003 financial statement
information, including a breakdown of the components of the combined
ratio and realized investment gains and losses, is included in the
financial statements attached to this press release.
Additional supplemental financial information will be available on
July 26th on the Companys website at www.commerceinsurance.com, under
the "Links" section of the "News and Investor Information" area.
At June 30, 2004, the Company had authority to purchase approximately
858,000 additional shares of common stock under the current Board of
Directors stock re-purchase authorization, which excludes treasury
stock acquired as a result of officer stock option exercises. During
the second quarter of 2004, the Company acquired 493,361 shares of
treasury stock at an average price of $45.95 per share as a result of
option exercises. Also during the second quarter, the Company issued
approximately 924,000 shares of common stock related to all option
exercises.
All quarterly figures are unedited 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 the Auto
Insurance Report, based on NAIC 2003 direct written premium
information.
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.
MORE
Page 4 of 9
CGI 2Q 04 Earnings Release (page 4 of 7)
THE COMMERCE GROUP, INC. (NYSE - CGI)
CONSOLIDATED BALANCE SHEETS
June 30, 2004 and 2003
(Thousands of Dollars, Except Per Share Data)
Unaudited
June 30, June 30,
2004 2003
Investments
Fixed maturities, at market $ 1,668,640 $ 808,990
Assets
Investments
Fixed maturities, at market $ 1,594,035 $ 918,793
Preferred stocks, at market $ 380,783 $ 349,075
Common stocks, at market $ 94,932 $ 69,454
Preferred stock mutual funds, at equity $ 51,687 $ 259,403
Mortgage loans $ 14,788 $ 19,135
Cash and cash equivalents $ 73,794 $ 142,755
Other investments $ 29,409 $ 24,749
Total investments $ 2,239,428 $ 1,783,364
Accrued investment income $ 20,100 $ 15,820
Premiums receivable $ 446,418 $ 392,743
Deferred policy acquisition costs $ 174,375 $ 157,247
Property and equipment $ 51,722 $ 51,552
Due from reinsurers $ 124,656 $ 111,679
Residual market receivable $ 222,392 $ 179,628
Current income taxes $ 6,790 $ -
Deferred income taxes $ 59,046 $ 34,912
Receivable for securities sold $ 2,282 $ 21,505
Other assets $ 17,312 $ 12,647
Total assets $ 3,364,521 $ 2,761,097
Liabilities
Losses and LAE $ 1,015,264 $ 893,248
Unearned premiums $ 943,157 $ 822,727
Bonds payable $ 298,085 $ -
Current income taxes $ - $ 15,270
Deferred income $ 9,132 $ 7,730
Contingent commissions accrued $ 33,790 $ 21,192
Payable for securities purchased $ 16 $ 52,361
Outstanding checks payable $ 37,521 $ 31,715
Other liabilities $ 63,790 $ 56,700
Total liabilities $ 2,400,755 $ 1,900,943
Minority interest $ 4,542 $ 4,228
Stockholders equity
Preferred stock - -
Common stock $ 20,135 $ 19,178
Paid-in capital $ 118,125 $ 42,140
Net accumulated other comprehensive income (loss) $ (21,821) $ 32,353
Retained earnings $ 1,064,876 $ 941,544
Stockholders equity before treasury stock $ 1,181,315 $ 1,035,215
Treasury stock $ (222,091) $ (179,289)
Total stockholders equity $ 959,224 $ 855,926
Total liabilities, minority interest and stockholders equity $ 3,364,521 $ 2,761,097
Common shares outstanding 32,913,020 31,955,030
Stockholders equity per share $ 29.14 $ 26.79
Page 6 of 9
CGI 2Q 04 Earnings Release (page 5 of 7)
THE COMMERCE GROUP, INC. (NYSE - CGI)
CONSOLIDATED STATEMENTS OF EARNINGS
Three and Six Months Ended June 30, 2004 and 2003
(Thousands of Dollars, Except Per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
Revenues:
Earned premiums $ 350,269 $ 296,410 $ 688,256 $ 577,174
Earned premiums $ 404,511 $ 350,269 $ 800,079 $ 688,256
Net investment income $ 28,209 $ 23,108 $ 56,024 $ 45,812
Premium finance and service fees $ 6,706 $ 6,915 $ 13,750 $ 13,245
Net realized investment gains (losses) $ (8,602) $ 65,864 $ 11,857 $ 60,020
Other income $ 113 $ - $ 113 $ -
TOTAL REVENUES $ 430,937 $ 446,156 $ 881,823 $ 807,333
Expenses:
Losses and LAE $ 276,506 $ 269,211 $ 558,688 $ 543,605
Policy acquisition costs $ 98,200 $ 86,268 $ 190,424 $ 155,770
Interest expense & amortization of bond fees $ 4,512 $ - $ 9,095 $ -
TOTAL EXPENSES $ 379,218 $ 355,479 $ 758,207 $ 699,375
Earnings before income taxes and minority interest $ 51,719 $ 90,677 $ 123,616 $ 107,958
Income taxes $ 14,152 $ 19,080 $ 34,904 $ 23,485
Earnings before minority interest $ 37,567 $ 71,597 $ 88,712 $ 84,473
Less the income in minority interest in subsidiary $ (177) $ (124) $ (282) $ (80)
NET EARNINGS $ 37,390 $ 71,473 $ 88,430 $ 84,393
COMPREHENSIVE INCOME (LOSS) $ (20,915) $ 75,057 $ 37,526 $ 91,482
EARNINGS PER COMMON SHARE:
BASIC $ 1.14 $ 2.24 $ 2.72 $ 2.64
DILUTED $ 1.14 $ 2.22 $ 2.70 $ 2.62
Cash dividends paid per common share $ 0.33 $ 0.32 $ 0.65 $ 0.63
Weighted average shares outstanding:
BASIC 32,684,245 31,930,507 32,484,585 31,986,847
DILUTED 32,906,206 32,156,738 32,692,519 32,187,013
Page 7 of 9
CGI 2Q 04 Earnings Release (page 6 of 7)
THE COMMERCE GROUP, INC. (NYSE - CGI)
ADDITIONAL EARNINGS INFORMATION
Three Months and Six Months June 30, 2004 and 2003
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
ADDITIONAL EARNINGS INFORMATION:
Direct written premiums to earned premiums reconciliation:
Direct written premiums $ 467,986 $ 415,787 $ 966,573 $ 864,581
Assumed premiums $ 43,492 $ 29,769 $ 77,570 $ 57,752
Ceded premiums $ (65,719) $ (60,081) $ (120,710) $ (109,823)
Net written premiums $ 445,759 $ 385,475 $ 923,433 $ 812,510
Increase in unearned premiums $ (41,248) $ (35,206) $ (123,354) $ (124,254)
Earned premiums $ 404,511 $ 350,269 $ 800,079 $ 688,256
GAAP consolidated operating ratios: (1)
Loss ratio 68.4% 76.9% 69.8% 79.0%
Underwriting ratio 23.3% 23.6% 22.9% 21.5%
Combined ratio 91.7% 100.5% 92.7% 100.5%
GAAP operating ratios for combined insurance subsidiaries only: (2)
Loss ratio 67.5% 76.1% 68.9% 78.7%
Underwriting ratio 22.5% 23.0% 22.0% 21.3%
Combined ratio 90.0% 99.1% 90.9% 100.0%
Breakdown of net realized investment gains (losses)
Fixed maturities $ (6,387) $ 12,652 $ 3,271 $ 16,025
Preferred stocks $ 2,693 $ 8,131 $ 7,200 $ 9,112
Common stocks $ 505 $ 13,485 $ 4,944 $ 13,752
Preferred stock mutual funds:
Due to increase (decrease) in NAV $ (5,259) $ 34,136 $ (3,146) $ 39,747
Due to sales $ 38 $ (1,524) $ 38 $ (1,566)
Venture capital fund investments $ (184) $ (463) $ 1,515 $ (1,051)
Other $ (8) $ (60) $ (197) $ (50)
Other than temporary writedowns $ - $ (493) $ (1,768) $ (15,949)
Net realized investment gains (losses) before tax $ (8,602) $ 65,864 $ 11,857 $ 60,020
Income tax (benefit) at 35% $ (3,011) $ 23,052 $ 4,150 $ 21,007
Net realized investment gains (losses) after tax and before
impact of tax valuation allowance $ (5,591) $ 42,812 $ 7,707 $ 39,013
Impact of tax valuation allowance $ - $ 6,316 $ - $ 3,936
Net realized investment gains (losses) after tax and after
impact of tax valuation allowance $ (5,591) $ 49,128 $ 7,707 $ 42,949
Per diluted share net realized gains (losses) after tax and
after impact of tax valuation allowance $ (0.17) $ 1.53 $ 0.24 $ 1.33
Page 8 of 9
CGI 2Q 04 Earnings Release (page 6 of 7) - Continued
THE COMMERCE GROUP, INC. (NYSE - CGI)
ADDITIONAL EARNINGS INFORMATION
Three Months and Six Months June 30, 2004 and 2003
(Thousands of Dollars, Except Per Share Data)
Unaudited
(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 $5,766 and $4,693
for the three months ended and $20,769 and $19,005 for the six months ended June 30, 2004
and 2003, 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.
Page 9 of 9