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 28, 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 9
The Commerce Group, Inc.
Form 8-K
July 28, 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 July 28, 2005, The Commerce Group, Inc. (the "Company") issued
a press release announcing its results for the quarter ended June 30,
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.
July 28, 2005
/s/ Randall V. Becker
Randall V. Becker
Treasurer and Chief Accounting Officer
Page 2 of 9
Exhibit 99.1
Press Release
RELEASE: Immediate (July 28, 2005)
CONTACT: Randall V. Becker, Treasurer
Treasurer
(508) 949-4129
The Commerce Group, Inc.
Announces 2005 Second Quarter Results
and Comparison to 2004
WEBSTER, Mass., July 28, 2005 -- The Commerce Group, Inc. (NYSE:CGI)
today reported 2005 second quarter results. Net earnings were $62.6
million, or $1.85 per diluted share, compared to net earnings of $37.4
million or $1.14 per diluted share for 2004.
During the second quarter of 2005, the Company had net realized
investment gains of $12.3 million or $0.24 per diluted share, compared
to net realized investment losses of $8.6 million or $0.17 per diluted
share in the second quarter of 2004. A complete breakdown of this
information is included in the attached tables.
Earned premiums were $427.8 million for the second quarter of 2005,
compared to $404.5 million for 2004. A schedule of direct written
premiums to earned premiums is included in the attached tables.
The second quarter GAAP consolidated combined ratio was 89.6%,
compared to 91.7% 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 second quarter of 2005 decreased to 63.3% from
68.4% 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 bodily injury claim frequency; (3) more
favorable loss reserve development compared to the second quarter of
last year; and, (4) improved current year results and continued
favorable prior years' loss development from Commonwealth Automobile
Reinsurers (C.A.R.). The Company's GAAP consolidated underwriting
ratio increased to 26.3%, as compared to 23.3% for last year's second
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 second quarter of 2005 versus last year's
second quarter.
Cumulative June 30, 2005 Results
Net earnings for the first six months of 2005 were $120.6 million, or
$3.56 per diluted share, compared to net earnings of $88.4 million or
$2.70 per diluted share for 2004.
MORE
Page 3 of 9
CGI 2Q'05 Earnings Release (page 2 of 7)
During the first six months of 2005, the Company had net realized
investment gains of $20.6 million or $0.40 per diluted share, compared
to net realized investment gains of $11.9 million or $0.24 per diluted
share in the same period of 2004. A complete breakdown of this
information is included in the attached tables.
Earned premiums were $851.0 million for the six months of 2005,
compared to $800.1 million for 2004. A schedule of direct written
premiums to earned premiums is included in the attached tables.
The 2005 six-month GAAP consolidated combined ratio was 89.3%,
compared to 92.7% 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 six months of 2005 decreased to 64.6% from
69.8% 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 2004; (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 which
primarily occurred during the first quarter of 2005. The Company's
GAAP consolidated underwriting ratio increased to 24.7% for the first
six months of 2005, as compared to 22.9% for the same period of 2004,
primarily as a result of significantly higher accrued agents' profit
sharing and slightly higher 2005 policy year mandated Massachusetts
personal automobile commission rates.
A complete presentation of June 30, 2005 and 2004 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 is available on the
Company's website at www.commerceinsurance.com, under the "Links"
section of the "News and Investor Information" area.
At June 30, 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.
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 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.
MORE
Page 4 of 9
CGI 2Q'05 Earnings Release (page 3 of 7)
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.
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 9
CGI 2Q '05 Earnings Release (page 4 of 7)
THE COMMERCE GROUP, INC. (NYSE - CGI)
CONSOLIDATED BALANCE SHEETS
June 30, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
June 30, June 30,
2005 2004
Assets:
Investments
Fixed maturities, at market $ 1,820,794 $ 1,594,035
Preferred stocks, at market $ 516,673 $ 380,783
Common stocks, at market $ 76,278 $ 94,932
Preferred stock mutual fund, at equity $ 72,115 $ 51,687
Mortgage loans and collateral notes receivable $ 16,607 $ 14,788
Cash and cash equivalents $ 79,192 $ 73,794
Other investments, at equity $ 34,837 $ 29,409
Total investments $ 2,616,496 $ 2,239,428
Accrued investment income $ 20,221 $ 20,100
Premiums receivable $ 496,327 $ 474,874
Deferred policy acquisition costs $ 184,979 $ 174,375
Property and equipment, net $ 56,174 $ 51,722
Due from reinsurers $ 138,398 $ 124,656
Residual market receivable $ 220,576 $ 222,392
Deferred income taxes $ 46,212 $ 59,046
Current income taxes $ 1,841 $ 6,790
Other assets $ 23,504 $ 19,594
Total assets $ 3,804,728 $ 3,392,977
Liabilities:
Unpaid losses and LAE $ 1,016,042 $ 1,015,264
Unearned premiums $ 1,002,638 $ 943,157
Bonds payable $ 298,286 $ 298,085
Deferred income $ 10,969 $ 9,132
Accrued agents' profit sharing $ 102,666 $ 33,790
Outstanding checks payable $ 43,515 $ 37,521
Advance premiums and commissions payable $ 31,655 $ 28,456
Other liabilities $ 68,832 $ 63,806
Total liabilities $ 2,574,603 $ 2,429,211
Minority interest $ 5,555 $ 4,542
Stockholders' equity:
Preferred stock $ - $ -
Common stock $ 20,433 $ 20,135
Paid-in capital $ 145,460 $ 118,125
Net accumulated other comprehensive income (loss) $ 13,125 $ (21,821)
Retained earnings $ 1,265,768 $ 1,064,876
Stockholders' equity before treasury stock $ 1,444,786 $ 1,181,315
Treasury stock $ (220,216) $ (222,091)
Total stockholders' equity $ 1,224,570 $ 959,224
Total liabilities, minority interest and stockholders' equity $ 3,804,728 $ 3,392,977
Common shares outstanding 33,602,705 32,913,020
Stockholders' equity per share $ 36.44 $ 29.14
Page 6 of 9
CGI 2Q '05 Earnings Release (page 5 of 7)
THE COMMERCE GROUP, INC. (NYSE - CGI)
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPRESHENSIVE INCOME
Three and Six Months Ended June 30, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Revenues:
Earned premiums $ 427,792 $ 404,511 $ 850,994 $ 800,079
Net investment income $ 31,233 $ 27,894 $ 60,320 $ 55,709
Premium finance and service fees $ 7,042 $ 7,021 $ 14,245 $ 14,065
Net realized investment gains (losses) $ 12,291 $ (8,602) $ 20,604 $ 11,857
Other income $ 11 $ 113 $ 15 $ 113
TOTAL REVENUES $ 478,369 $ 430,937 $ 946,178 $ 881,823
Expenses:
Losses and LAE $ 270,737 $ 276,506 $ 549,895 $ 558,688
Policy acquisition costs $ 111,679 $ 98,200 $ 212,051 $ 190,424
Interest expense & amortization of bond fees $ 4,608 $ 4,512 $ 9,127 $ 9,095
TOTAL EXPENSES $ 387,024 $ 379,218 $ 771,073 $ 758,207
Earnings before income taxes and minority interest $ 91,345 $ 51,719 $ 175,105 $ 123,616
Income taxes $ 28,574 $ 14,152 $ 54,062 $ 34,904
Earnings before minority interest $ 62,771 $ 37,567 $ 121,043 $ 88,712
Minority interest in net earnings of subsidiary $ (209) $ (177) $ (443) $ (282)
NET EARNINGS $ 62,562 $ 37,390 $ 120,600 $ 88,430
COMPREHENSIVE INCOME (LOSS) $ 84,352 $ (20,915) $ 117,322 $ 37,526
EARNINGS PER COMMON SHARE:
BASIC $ 1.86 $ 1.14 $ 3.60 $ 2.72
DILUTED $ 1.85 $ 1.14 $ 3.56 $ 2.70
Cash dividends paid per common share $ 0.38 $ 0.33 $ 0.71 $ 0.65
Weighted average shares outstanding:
BASIC 33,593,815 32,684,245 33,528,637 32,484,585
DILUTED 33,895,166 32,906,206 33,857,269 32,692,519
Page 7 of 9
CGI 2Q '05 Earnings Release (page 6 of 7)
THE COMMERCE GROUP, INC. (NYSE - CGI)
ADDITIONAL EARNINGS INFORMATION
Three and Six Months June 30, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
ADDITIONAL EARNINGS INFORMATION:
Direct premiums written to earned premiums reconciliation:
Direct premiums written $ 482,347 $ 467,986 $ 991,012 $ 966,573
Assumed premiums $ 51,226 $ 43,492 $ 89,244 $ 77,570
Ceded premiums $ (70,344) $ (65,719) $ (135,263) $ (120,710)
Net written premiums $ 463,229 $ 445,759 $ 944,993 $ 923,433
Increase in unearned premiums $ (35,437) $ (41,248) $ (93,999) $ (123,354)
Earned premiums $ 427,792 $ 404,511 $ 850,994 $ 800,079
GAAP consolidated operating ratios: (1)
Loss ratio 63.3% 68.4% 64.6% 69.8%
Underwriting ratio 26.3% 23.3% 24.7% 22.9%
Combined ratio 89.6% 91.7% 89.3% 92.7%
GAAP operating ratios for combined insurance subsidiaries only: (2)
Loss ratio 62.3% 67.5% 63.9% 68.7%
Underwriting ratio 25.5% 22.5% 24.1% 22.1%
Combined ratio 87.8% 90.0% 88.0% 90.8%
Breakdown of net realized investment gains (losses):
Fixed maturities $ 7,648 $ (6,387) $ 18,016 $ 3,271
Preferred stocks $ 190 $ 2,693 $ 1,007 $ 7,200
Common stocks $ 548 $ 505 $ 964 $ 4,944
Preferred stock mutual funds:
Due to increase (decrease) in NAV $ 3,276 $ (5,259) $ 2,641 $ (3,146)
Due to sales $ - $ 38 $ - $ 38
Venture capital fund investments $ 2,560 $ (184) $ 1,609 $ 1,515
Other $ 8 $ (8) $ 330 $ (197)
Other than temporary writedowns $ (1,939) $ - $ (3,963) $ (1,768)
Net realized investment gains (losses) before tax $ 12,291 $ (8,602) $ 20,604 $ 11,857
Income tax expense (benefit) at 35% $ 4,302 $ (3,011) $ 7,211 $ 4,150
Net realized investment gains (losses) after tax $ 7,989 $ (5,591) $ 13,393 $ 7,707
Per diluted share net realized gains (losses) after tax $ 0.24 $ (0.17) $ 0.40 $ 0.24
Page 8 of 9
CGI 2Q '05 Earnings Release (page 7 of 7) - Continued
THE COMMERCE GROUP, INC. (NYSE - CGI)
ADDITIONAL EARNINGS INFORMATION
Three and Six Months June 30, 2005 and 2004
(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 $10,332 and $5,766
for the three months ended and $21,334 and $20,769 for the six months ended June 30, 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.
Page 9 of 9