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)
October 27, 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
October 27, 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 October 27, 2005, The Commerce Group, Inc. (the "Company")
issued a press release announcing its results for the quarter ended
September 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.
October 27, 2005
/s/ Randall V. Becker
Randall V. Becker
Treasurer and Chief Accounting Officer
Page 2 of 9
Exhibit 99.1
Press Release
RELEASE: Immediate (October 27, 2005)
CONTACT: Randall V. Becker, Treasurer
Treasurer
(508) 949-4129
The Commerce Group, Inc.
Announces 2005 Third Quarter Results
and Comparison to 2004
WEBSTER, Mass., October 27, 2005 -- The Commerce Group, Inc.
(NYSE:CGI) today reported 2005 third quarter results. Net earnings
were $59.8 million, or $1.77 per diluted share, compared to net
earnings of $54.3 million or $1.64 per diluted share for 2004.
During the third quarter of 2005, the Company had net realized
investment gains of $0.2 million with no reportable per share effect,
compared to net realized investment losses of $2.2 million or $0.04
per diluted share in the third quarter of 2004. A complete breakdown
of this information is included in the attached tables.
Earned premiums were $428.3 million for the third quarter of 2005,
compared to $413.8 million for 2004. A schedule of direct premiums
written to earned premiums is included in the attached tables.
The third quarter GAAP consolidated combined ratio was 88.1%, compared
to 88.6% 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 third quarter of 2005 decreased to 56.1% from 57.5% during the
same period last year. The improvement was the result of several
factors, including: (1) improved current year results and continued
favorable prior years' loss development from Commonwealth Automobile
Reinsurers (CAR); (2) an increase in average earned premium revenue
per automobile; and, (3) a decline in the current year personal and
commercial automobile bodily injury claim frequency, coupled with a
decrease in personal automobile physical damage claim frequency,
offset by a reduced amount of favorable voluntary loss reserve
development compared to the third quarter of last year. The Company's
GAAP consolidated underwriting ratio increased to 32.0%, as compared
to 31.1% for last year's third quarter, primarily as a result of
higher accrued agents' profit sharing and slightly higher 2005 policy
year mandated Massachusetts personal automobile commission rates.
Cumulative September 30, 2005 Results
Net earnings for the first nine months of 2005 were $180.4 million, or
$5.33 per diluted share, compared to net earnings of $142.7 million or
$4.35 per diluted share for 2004.
During the first nine months of 2005, the Company had net realized
investment gains of $20.8 million or $0.40 per diluted share, compared
to net realized investment gains of $9.6 million or $0.19 per diluted
share in the same period of 2004. A complete breakdown of this
information is included in the attached tables.
MORE
Page 3 of 9
CGI 3Q'05 Earnings Release (page 2 of 6)
Earned premiums were $1,279.3 million for the first nine months of
2005, compared to $1,213.8 million for 2004. A schedule of direct
premiums written to earned premiums is included in the attached
tables.
The 2005 nine-month GAAP consolidated combined ratio was 88.8%,
compared to 91.0% 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 the first nine months of 2005 decreased to 61.8% from
65.6% 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) improved results from CAR;
(3) a decrease in the current year personal and commercial automobile
bodily injury claim frequency, partially offset by an increase in
physical damage claim frequency and a reduced amount of favorable
voluntary loss reserve development compared to 2004. The Company's
GAAP consolidated underwriting ratio increased to 27.0% for the first
nine months of 2005, as compared to 25.4% 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. The higher accrued agents'
profit sharing is an outcome of substantially better underwriting
results for the first nine months of 2005 versus the comparable period
in 2004.
A complete presentation of September 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 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 September 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.
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.
MORE
Page 4 of 9
CGI 3Q'05 Earnings Release (page 3 of 6)
Forward Looking Statements (continued)
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 3Q '05 Earnings Release (page 4 of 6)
THE COMMERCE GROUP, INC. (NYSE - CGI)
CONSOLIDATED BALANCE SHEETS
September 30, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
Sept. 30, Sept. 30,
2005 2004
Assets:
Investments
Fixed maturities, at market $ 1,991,574 $ 1,672,827
Preferred stocks, at market $ 446,036 $ 421,373
Common stocks, at market $ 116,776 $ 96,725
Preferred stock mutual fund, at equity $ 71,330 $ 56,051
Mortgage loans and collateral notes receivable $ 17,296 $ 14,390
Cash and cash equivalents $ 27,662 $ 107,224
Other investments, at equity $ 29,090 $ 35,791
Total investments $ 2,699,764 $ 2,404,381
Accrued investment income $ 22,076 $ 19,511
Premiums receivable $ 508,192 $ 486,480
Deferred policy acquisition costs $ 185,195 $ 175,555
Property and equipment, net $ 59,397 $ 51,529
Due from reinsurers $ 145,832 $ 135,687
Residual market receivable $ 202,865 $ 214,069
Deferred income taxes $ 51,431 $ 43,876
Current income taxes $ 6,517 $ -
Receivable for securities sold $ 10 $ 521
Other assets $ 20,058 $ 18,757
Total assets $ 3,901,337 $ 3,550,366
Liabilities:
Unpaid losses and LAE $ 1,000,997 $ 1,012,871
Unearned premiums $ 1,002,710 $ 958,979
Bonds payable $ 298,337 $ 298,135
Current income taxes $ - $ 1,031
Deferred income $ 9,845 $ 10,537
Accrued agents' profit sharing $ 153,561 $ 77,264
Payable for securities purchased $ 12,392 $ 221
Outstanding checks payable $ 42,117 $ 38,800
Advance premiums and commissions payable $ 29,407 $ 27,875
Other liabilities $ 86,719 $ 74,369
Total liabilities $ 2,636,085 $ 2,500,082
Minority interest $ 5,742 $ 4,872
Stockholders' equity:
Preferred stock $ - $ -
Common stock $ 20,458 $ 20,258
Paid-in capital $ 148,130 $ 127,159
Net accumulated other comprehensive income (loss) $ (1,676) $ 11,788
Retained earnings $ 1,312,814 $ 1,108,298
Stockholders' equity before treasury stock $ 1,479,726 $ 1,267,503
Treasury stock $ (220,216) $ (222,091)
Total stockholders' equity $ 1,259,510 $ 1,045,412
Total liabilities, minority interest and stockholders' equity $ 3,901,337 $ 3,550,366
Common shares outstanding 33,653,202 33,159,981
Stockholders' equity per share $ 37.43 $ 31.53
Page 6 of 9
CGI 3Q '05 Earnings Release (page 5 of 6)
THE COMMERCE GROUP, INC. (NYSE - CGI)
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPRESHENSIVE INCOME
Three and Nine Months Ended September 30, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Six Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenues:
Earned premiums $ 428,297 $ 413,751 $ 1,279,291 $ 1,213,830
Net investment income $ 30,040 $ 30,021 $ 90,360 $ 85,730
Premium finance and service fees $ 7,210 $ 7,312 $ 21,455 $ 21,377
Net realized investment gains (losses) $ 196 $ (2,247) $ 20,800 $ 9,610
Other income (loss) $ (11) $ 2 $ 4 $ 115
TOTAL REVENUES $ 465,732 $ 448,839 $ 1,411,910 $ 1,330,662
Expenses:
Losses and LAE $ 240,279 $ 237,918 $ 790,174 $ 796,606
Policy acquisition costs $ 134,715 $ 128,457 $ 346,766 $ 318,881
Interest expense & amortization of bond fees $ 4,584 $ 4,608 $ 13,711 $ 13,703
TOTAL EXPENSES $ 379,578 $ 370,983 $ 1,150,651 $ 1,129,190
Earnings before income taxes and minority interest $ 86,154 $ 77,856 $ 261,259 $ 201,472
Income taxes $ 26,084 $ 23,329 $ 80,146 $ 58,233
Earnings before minority interest $ 60,070 $ 54,527 $ 181,113 $ 143,239
Minority interest in net earnings of subsidiary $ (240) $ (213) $ (683) $ (495)
NET EARNINGS $ 59,830 $ 54,314 $ 180,430 $ 142,744
COMPREHENSIVE INCOME $ 45,029 $ 87,923 $ 162,351 $ 125,449
EARNINGS PER COMMON SHARE:
BASIC $ 1.78 $ 1.65 $ 5.38 $ 4.37
DILUTED $ 1.77 $ 1.64 $ 5.33 $ 4.35
Cash dividends paid per common share $ 0.38 $ 0.33 $ 1.09 $ 0.98
Weighted average shares outstanding:
BASIC 33,631,090 32,984,958 33,563,163 32,652,594
DILUTED 33,875,796 33,196,077 33,843,042 32,808,858
Page 7 of 9
CGI 3Q '05 Earnings Release (page 6 of 6)
THE COMMERCE GROUP, INC. (NYSE - CGI)
ADDITIONAL EARNINGS INFORMATION
Three and Nine Months September 30, 2005 and 2004
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Six Months Ended
September 30, September 30,
2005 2004 2005 2004
ADDITIONAL EARNINGS INFORMATION:
Direct premiums written to earned premiums reconciliation:
Direct premiums written $ 479,076 $ 466,612 $ 1,470,088 $ 1,433,185
Assumed premiums $ 18,435 $ 24,799 $ 107,679 $ 102,369
Ceded premiums $ (76,084) $ (75,239) $ (211,347) $ (195,949)
Net written premiums $ 421,427 $ 416,172 $ 1,366,420 $ 1,339,605
Decrease (increase) in unearned premiums $ 6,870 $ (2,421) $ (87,129) $ (125,775)
Earned premiums $ 428,297 $ 413,751 $ 1,279,291 $ 1,213,830
GAAP consolidated operating ratios: (1)
Loss ratio 56.1% 57.5% 61.8% 65.6%
Underwriting ratio 32.0% 31.1% 27.0% 25.4%
Combined ratio 88.1% 88.6% 88.8% 91.0%
GAAP operating ratios for combined insurance subsidiaries only: (2)
Loss ratio 55.5% 57.3% 61.1% 64.9%
Underwriting ratio 31.4% 30.8% 26.4% 24.8%
Combined ratio 86.9% 88.1% 87.5% 89.7%
Breakdown of net realized investment gains (losses):
Fixed maturities $ 1,882 $ (635) $ 19,899 $ 2,636
Preferred stocks $ 1,176 $ 4,109 $ 2,182 $ 11,309
Common stocks $ (53) $ 227 $ 911 $ 5,171
Preferred stock mutual funds:
Due to increase (decrease) in NAV $ (1,411) $ 3,153 $ 1,230 $ 7
Due to sales $ - $ 47 $ - $ 85
Venture capital fund investments $ 217 $ 3,258 $ 1,826 $ 4,773
Other $ (726) $ (7) $ (396) $ (204)
Other than temporary writedowns $ (889) $ (12,399) $ (4,852) $ (14,167)
Net realized investment gains (losses) before tax $ 196 $ (2,247) $ 20,800 $ 9,610
Income tax expense (benefit) at 35% $ 69 $ (786) $ 7,280 $ 3,364
Net realized investment gains (losses) after tax $ 127 $ (1,461) $ 13,520 $ 6,246
Per diluted share net realized gains (losses) after tax $ 0.00 $ (0.04) $ 0.40 $ 0.19
Page 8 of 9
CGI 3Q '05 Earnings Release (page 6 of 6) Continued
THE COMMERCE GROUP, INC. (NYSE - CGI)
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPRESHENSIVE INCOME
Three and Nine Months Ended September 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 $216 and $1,179 for the three months ended and $21,550 and $21,948
for the nine months ended September 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