Third Quarter Earnings Drop Slightly at Commerce Group

The Commerce Group, Inc. reported 2006 third quarter net earnings were $56.5 million, or $0.83 per diluted share, compared to net earnings of $59.8 million or $0.88 per diluted share for 2005.

Included in the 2006 third quarter results are net realized investment gains of $7.8 million or $0.07 per diluted share, compared to gains of $0.2 million, with no reportable per share effect in the third quarter of 2005.

Earned premiums were $459.9 million for the third quarter of 2006, compared to $428.3 million for the third quarter of 2005.

The third quarter GAAP consolidated combined ratio was 87.6 percent, compared to 88.1 percent for 2005. The decrease in the combined ratio was the result of a decrease in the underwriting ratio partially offset by an increase in the loss ratio. The company’s GAAP consolidated loss ratio for the third quarter of 2006 increased to 59.2 percent from 56.1 percent during the same period last year. The increase was the result of a small increase in the current year physical damage claim severity, decreased earned premium per earned exposure as a result of the 2006 mandated rate decrease, coupled with more normal Commonwealth Automobile Reinsurers (C.A.R.) results compared to the same period last year, which were unusually low due to greater than normal C.A.R. loss redundancies.

The company’s GAAP consolidated underwriting ratio decreased to 28.4 percent, as compared to 32.0 percent for last year’s third quarter. This decrease was primarily the result of lower accrued agents’ profit sharing, partially offset by higher 2006 policy year mandated Massachusetts personal automobile commissions. A mandated rate decrease for 2006 Massachusetts personal automobile policies enhanced the impact of the higher personal automobile commissions. The decrease in Massachusetts written premium per automobile amounted to approximately 5.4 percent in the third quarter compared to last year.

In the third quarter, net investment income increased 14.6 percent over the same period last year to $34.4 million resulting from an increase in both invested assets and investment yields.

Cumulative September 30, 2006 Results

Net earnings for the first nine months of 2006 were $182.1 million, or $2.68 per diluted share, compared to net earnings of $180.4 million or $2.67 per diluted share for 2005.

Earned premiums were $1,302.9 million for the nine months of 2006, compared to $1,279.3 million for 2005. A schedule of direct written premiums to earned premiums is included in the attached tables.

Source: The Commerce Group, Inc.