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)
January 30, 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 10
The Commerce Group, Inc.
Form 8-K
January 30, 2004
Item 9. REGULATION FD DISCLOSURE
The following information, including the text of the press
release attached as an Exhibit to this Form 8-K, is furnished
pursuant to Item 9, "Regulation FD Disclosure" and Item 12,
"Disclosure of Results of Operations and Financial Condition".
On Jauary 29, 2004, The Commerce Group, Inc. (the "Company")
issued a press release announcing its results for the quarter
ended December 31, 2003. A copy of the press release is attached
as Exhibit 99.1 to this Form 8-K.
In its press release, the Company presents non-GAAP
financial measures, as well as net earnings and net earnings per
diluted share. Statutory ratios are presented in accordance with
principles prescribed by insurance regulatory authorities.
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.
January 30, 2004
/s/ Randall V. Becker
Randall V. Becker
Treasurer and Accounting Officer
Page 2 of 10
Exhibit 99.1
Press Release
RELEASE: Immediate (January 29, 2004)
CONTACT: Randall V. Becker
Treasurer
(508) 949-4129
The Commerce Group, Inc.
Announces 2003 Fourth Quarter Results
and Comparison to 2002
WEBSTER, Mass., January 29, 2004 -- The Commerce Group, Inc.
(NYSE:CGI) today reported 2003 fourth quarter results. Net earnings
were $53.7 million, or $1.65 per diluted share, compared to net
earnings of $1.5 million or $0.04 per diluted share for 2002.
During the fourth quarter of 2003, the Company had net realized
investment gains of $13.5 million or $0.27 per diluted share compared
to losses of $34.0 million or $0.80 per diluted share in the fourth
quarter of 2002. A complete breakdown of this information is included
in the attached tables.
Earned premiums were $384.7 million for the fourth quarter of 2003
compared to $323.8 million for 2002. A schedule of direct written
premiums to earned premiums is included in the attached tables.
The fourth quarter statutory combined ratio for property and casualty
operations was 87.7% compared to 99.5% for 2002. The decrease in the
combined ratio was the result of a decrease in both the loss and
underwriting ratios. The Company's loss ratio for the fourth quarter
of 2003 decreased to 62.4% from 73.1% during the same period last
year. The decrease was the result of more favorable current year
experience in the personal automobile line of business primarily due
to increases in average earned premium revenue per automobile,
combined with more favorable loss reserve development compared to the
fourth quarter of last year.
The Company's statutory underwriting ratio decreased to 25.3%, as
compared to 26.4% for last year's fourth quarter, primarily as a net
result of lower 2003 policy year mandated Massachusetts personal
automobile commission rates offset by higher accrued contingent
commissions.
Cumulative December 31, 2003 Results
Net earnings were $160.9 million, or $4.99 per diluted share, compared
to $46.8 million or $1.42 per diluted share for 2002.
Earned premiums were $1,445.6 million for 2003 compared to $1,210.0
million for 2002. A schedule of direct written premiums to earned
premiums is included in the attached tables.
Page 3 of 10
MORE
CGI 4Q'03 earnings (page 2 of 6)
The Company had realized gains on investments of $76.1 million, or
$1.66 per diluted share, compared to losses of $82.4 million, or $2.07
per diluted share for 2002. A complete breakdown of this information
is included in the attached tables.
The statutory combined ratio for property and casualty operations was
96.3% for 2003 compared to 98.7% for 2002. The decrease in the
combined ratio was primarily the result of a decrease in the loss
ratio combined with a decrease in the underwriting ratio. The
Company's loss ratio for 2003 decreased to 73.4% from 75.1% in 2002.
The decrease was primarily driven by slightly more favorable
experience in the current year personal automobile line of business
due to increases in average earned premium revenue per automobile and
more favorable loss reserve development compared to last year. The
Company's statutory underwriting ratio improved to 22.9%, as compared
to 23.6% for 2002, primarily from lower 2003 policy year mandated
Massachusetts personal automobile commission rates.
A complete presentation of December 31, 2003 and 2002 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 the
Company's website at www.commerceinsurance.com, under the "Links"
section of the "News and Investor Information" area.
At December 31, 2003, the Company had authority to purchase
approximately 574,000 additional shares of common stock under the
current Board of Directors' stock re-purchase authorization. During
the fourth quarter, the Company purchased 167,172 shares of treasury
stock at an average price of $39.47 per share as a result of option
exercises. During the year ended 2003, the Company purchased 403,572
shares of treasury stock at an average price of $36.32 per share.
All quarterly figures are unaudited and all results are reported in
accordance with accounting principles generally accepted in the United
States (GAAP) with the exception of statutory operating ratios.
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 22nd largest
personal automobile insurance group in the country by A.M. Best, based
on 2002 direct written premium information.
Page 4 of 10
MORE
CGI 4Q'03 earnings (page 3 of 6)
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 the Company's recently filed registration statement on Form S-3,
its 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 regulation and legislation,
* adverse judicial decisions,
* adverse changes to the 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 outside of Massachusetts,
* heightened competition,
* concentration of business within Massachusetts,
* 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.
Page 5 of 10
(Tables Follow)
CGI 4Q '03 earnings (page 4 of 6)
THE COMMERCE GROUP, INC. (NYSE:CGI-news)
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
(Thousands of Dollars, Except Per Share Data)
Unaudited
Dec.31 Dec 31
ASSETS 2003 2002
Investments
Fixed maturities, at market $ 1,497,731 $ 683,811
Preferred stocks, at market $ 298,721 $ 305,057
Common stocks, at market $ 105,523 $ 99,818
Preferred stock mutual funds, at equity $ 54,274 $ 270,616
Mortgage loans $ 16,395 $ 26,754
Cash and short-term investments $ 215,541 $ 206,315
Other investments $ 22,914 $ 21,068
Total investments $ 2,211,099 $1,613,439
Accrued investment income $ 19,308 $ 13,959
Premiums receivable $ 361,839 $ 297,610
Deferred policy acquisition costs $ 153,605 $ 138,241
Property and equipment $ 52,997 $ 51,509
Due from reinsurers $ 117,786 $ 98,403
Residual market receivable $ 192,743 $ 164,476
Current income taxes $ - $ 662
Deferred income taxes $ 33,240 $ 30,728
Receivable for securities sold $ 6,972 $ 382
Other assets $ 14,642 $ 9,664
Total assets $ 3,164,231 $ 2,419,073
Liabilities
Losses and LAE $ 957,353 $ 815,626
Unearned premiums $ 810,462 $ 687,148
Bonds payable $ 297,984 $ -
Current income taxes $ 15,091 $ -
Deferred income $ 7,946 $ 8,421
Contingent commissions accrued $ 37,887 $ 32,550
Payable for securities purchased $ 13,610 $ -
Other liabilities $ 107,297 $ 81,170
Total liabilities $ 2,247,630 $ 1,624,915
Minority interest $ 4,390 $ 4,106
Stockholders' equity
Preferred stock - -
Common stock $ 19,315 $ 19,141
Paid-in capital $ 52,090 $ 39,570
Net accumulated other comprehensive income $ 29,083 $ 25,264
Retained earnings $ 997,610 $ 877,308
$ 1,098,098 $ 961,283
Treasury stock $ (185,887) $ (171,231)
Total stockholders' equity $ 912,211 $ 790,052
Total liabilities, minority interest and stockholders' equity $ 3,164,231 $ 2,419,073
Common shares outstanding 32,060,700 32,116,235
Stockholders' equity per share $ 28.45 $ 24.60
Page 6 of 10
CGI 4Q '03 earnings (page 4 of 6)
THE COMMERCE GROUP, INC. (NYSE: CGI - news)
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months and Years Ended December 31, 2003 and 2002
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Years Ended
December 31, December 31,
2003 2002 2003 2002
Revenues:
Earned premiums $ 384,662 $ 323,781 $ 1,445,628 $ 1,210,040
Net investment income $ 23,053 $ 26,811 $ 92,183 $ 98,466
Premium finance and service fees $ 6,701 $ 5,779 $ 26,908 $ 21,498
Net realized investment gains (losses) $ 13,453 $ (33,963) $ 76,103 $ (82,385)
Other income $ - $ - $ - $ 9,500
TOTAL REVENUES $ 427,869 $ 322,408 $ 1,640,822 $ 1,257,119
Expenses:
Losses and LAE $ 246,536 $ 238,698 $ 1,070,147 $ 909,769
Policy acquisition costs $ 100,892 $ 82,252 $ 350,250 $ 295,324
Interest expense & amortization of bond fees $ 1,120 $ - $ 1,120 $ -
TOTAL EXPENSES $ 348,548 $ 320,950 $ 1,421,517 $ 1,205,093
Earnings before income taxes, minority interest
and change in accounting principle $ 79,321 $ 1,458 $ 219,305 $ 52,026
Income taxes $ 25,470 $ 394 $ 58,068 $ 17,063
Earnings before minority interest and change
in accounting principle $ 53,851 $ 1,064 $ 161,237 $ 34,963
(Less) plus the (income) loss in minority interest in subsidiary $ (165) $ 393 $ (294) $ 555
Earnings before change in accounting principle $ 53,686 $ 1,457 $ 160,943 $ 35,518
Change in accounting principle, net of taxes $ - $ - $ - $ 11,237
NET EARNINGS $ 53,686 $ 1,457 $ 160,943 $ 46,755
COMPREHENSIVE INCOME $ 62,438 $ 15,714 $ 164,762 $ 59,625
Page 7 of 10
CGI 4Q '03 earnings (page 4 of 6 continued)
THE COMMERCE GROUP, INC. (NYSE: CGI - news)
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months and Years Ended December 31, 2003 and 2002
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Years Ended
December 31, December 31,
2003 2002 2003 2002
Net earnings per common share before cumulative effect
of change in accounting principle:
BASIC $ 1.67 $ 0.05 $ 5.03 $ 1.09
DILUTED $ 1.65 $ 0.04 $ 4.99 $ 1.08
Net earnings per common share from the cumulative effect
of change in accounting principle:
BASIC $ - $ - $ - $ 0.34
DILUTED $ - $ - $ - $ 0.34
EARNINGS PER COMMON SHARE:
BASIC $ 1.67 $ 0.05 $ 5.03 $ 1.43
DILUTED $ 1.65 $ 0.04 $ 4.99 $ 1.42
Cash dividends paid per common share: $ 0.32 $ 0.31 $ 1.27 $ 1.23
Weighted average shares outstanding:
BASIC 32,063,797 32,318,936 32,000,220 32,773,519
DILUTED 32,470,528 32,469,339 32,254,663 33,028,081
Page 8 of 10
CGI 4Q '03 earnings (page 6 of 6)
THE COMMERCE GROUP, INC. (NYSE: CGI - news)
ADDITIONAL EARNINGS INFORMATION
Three Months and Years Ended December 31, 2003 and 2002
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Years Ended
December 31, December 31,
2003 2002 2003 2002
ADDITIONAL EARNINGS INFORMATION:
Direct written premiums to earned premiums reconciliation:
Direct written premiums $ 371,574 $ 318,444 $ 1,658,969 $ 1,406,856
Assumed premiums $ 24,024 $ 17,231 $ 112,547 $ 96,269
Ceded premiums $ (53,624) $ (48,891) $ (216,017) $ (190,111)
Net written premiums $ 341,974 $ 286,784 $ 1,555,499 $ 1,313,014
(Increase) decrease in unearned premiums $ 42,688 $ 36,997 $ (109,871) $ (102,974)
Earned premiums $ 384,662 $ 323,781 $ 1,445,628 $ 1,210,040
GAAP consolidated operating ratios: (1)
Loss ratio 64.1% 73.7% 74.0% 75.2%
Underwriting ratio 26.2% 25.4% 24.2% 24.4%
Combined ratio 90.3% 99.1% 98.2% 99.6%
Statutory operating ratios for combined insurance subsidiaries only:
Loss ratio 62.4% 73.1% 73.4% 75.1%
Underwriting ratio 25.3% 26.4% 22.9% 23.6%
Combined ratio 87.7% 99.5% 96.3% 98.7%
Breakdown of net realized investment gains (losses)
Fixed maturities $ 4,731 $ (246) $ 22,800 $ (1,606)
Preferred stocks $ 2,452 $ (109) $ 14,284 $ (166)
Common stocks $ 2,578 $ - $ 18,599 $ (306)
Preferred stock mutual funds:
Due to increase (decrease) in NAV $ 4,544 $ (11,755) $ 37,695 $ (45,112)
Due to sales $ (1,261) $ - $ 642 $ 819
Venture capital fund investments $ 542 $ (1,485) $ 32 $ (3,652)
Other $ (133) $ 12 $ (333) $ (248)
Other than temporary writedowns $ - $ (20,380) $ (17,616) $ (32,114)
Page 9 of 10
CGI 4Q '03 earnings (page 6 of 6 Continued)
THE COMMERCE GROUP, INC. (NYSE: CGI - news)
ADDITIONAL EARNINGS INFORMATION
Three Months and Years Ended December 31, 2003 and 2002
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Years Ended
December 31, December 31,
2003 2002 2003 2002
ADDITIONAL EARNINGS INFORMATION - Continued:
Net realized investment gains (losses) before tax $ 13,453 $ (33,963) $ 76,103 $ (82,385)
Income tax (benefit) at 35% $ 4,709 $ (11,888) $ 26,636 $ (28,835)
Net realized investment gains (losses) after tax and before
impact of valuation allowance $ 8,744 $ (22,075) $ 49,467 $ (53,550)
Impact of tax valuation allowance $ - $ (3,936) $ 3,936 $ (14,811)
Net realized investment gains (losses) after tax and after
tax impact of valuation allowance $ 8,744 $ (26,011) $ 53,403 $ (68,361)
Per diluted share net realized gains (losses) after tax and
after tax impact of valuation allowance $ 0.27 $ (0.80) $ 1.66 $ (2.07)
(1) GAAP consolidated operating ratios combine all insurance company results
with corporate expenses and utilize earned premiums to calculate the ratios.
Page 10 of 10