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)
April 29, 2003
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 8
The Commerce Group, Inc.
Form 8-K
April 30, 2003
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 April 29, 2003, The Commerce Group, Inc. (the "Company")
issued a press release announcing its results for the quarter
ended March 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 "operating
earnings" and "operating earnings per diluted share", non-GAAP
financial measures, as well as net earnings and net earnings per
diluted share. Operating earnings is the measure utilized by the
Company in managing corporate operating performance. A
reconciliation of net earnings to operating earnings is provided
in the tables that are included in the press release. 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.
April 30, 2003
/s/ Randall V. Becker
Randall V. Becker
Treasurer and Accounting Officer
Page 2 of 8
Exhibit 99.1
Press Release
RELEASE: Immediate (April 29, 2003)
CONTACT: Randall V. Becker
Treasurer
(508) 949-4129
The Commerce Group, Inc.
Announces 2003 First Quarter Results
and Comparison to First Quarter 2002 as Restated
WEBSTER, Mass., April 29, 2003 -- The Commerce Group, Inc. (NYSE:CGI)
today reported 2003 first quarter results. Net earnings were $12.9
million, or $0.40 per diluted share, compared to $34.0 million or
$1.02 per diluted share for 2002 (as restated).
Operating earnings, a non-GAAP financial measure, were $17.5 million,
or $0.54 per diluted share, compared to $26.4 million or $0.79 per
diluted share for 2002 (as restated). Operating earnings consist of
net earnings adjusted to exclude: (1) the after-tax impact of net
realized investment losses; (2) the after-tax impact of variable
accounting stock option treatment; and, (3) for 2002 only, the after-
tax effect of a required change in accounting principle. The Company
believes that the items noted above, which are excluded in the
calculation of operating earnings, are not indicators of corporate
operating performance and, as such, are not measures used by the
Company in managing operations. Operating earnings as defined by the
Company may not be comparable to similarly captioned measurements
utilized by other property and casualty insurance companies. A
reconciliation of net earnings to operating earnings is provided in
the tables that follow.
Earned premiums were $338.0 million for the first quarter of 2003
compared to $280.8 million for 2002. A schedule of direct written
premiums to earned premiums is included in the attached tables.
Net realized investment losses were $5.8 million, or $0.19 per diluted
share, compared to $3.4 million or $0.07 per diluted share for 2002.
A complete breakdown of this information is included in the attached
tables.
MORE
Page 3 of 8
CGI 1Q03 earnings (page 2 of 6)
The statutory combined ratio for property and casualty operations was
101.5% compared to 98.1% for 2002. The increase in the combined ratio
was primarily the result of an increase in the loss ratio, offset by a
decrease in the underwriting ratio. The Company's loss ratio for the
first quarter of 2003 increased to 81.5% from 76.9% during the same
period last year. The increase was the result of increased claim
frequency of approximately 20% in the Massachusetts personal
automobile line and approximately 50% in the Massachusetts homeowner
line, primarily due to the severe winter weather conditions
experienced in the Northeast. Additionally, the Company experienced
higher losses assumed from the Massachusetts residual market system
(commonly known as C.A.R.) primarily as a result of higher C.A.R. loss
ratios due to the severe winter as compared to last year. Overall,
these loss results were somewhat offset by a reduced loss ratio from
business written outside of the Northeast. The Company's statutory
underwriting ratio improved to 20.0%, as compared to 21.2% for last
year's first quarter, primarily from reduced accrued contingent
commissions as a result of the high loss ratio mentioned previously,
coupled with premium growth exceeding growth in underwriting expenses.
As mentioned in previous 2002 SEC filings, in the first quarter of
2002 the Company received other income of $7.0 million, or $0.14 per
diluted share, as a result of an agreement to offer to write the
business from Berkshire Mutual Insurance Company. This amount is
included in operating earnings for 2002. Additionally, in the first
quarter of 2002 the Company recorded income net of taxes of $11.2
million or $0.34 per diluted share, due to the effect of a change in
accounting principle related to SFAS No. 142.
As disclosed in the Company's 2002 Form 10-K, in the fourth quarter of
2002 the Company changed its method of accounting for employee stock
options and began applying variable accounting treatment for employee
stock options issued in 1999 and 2000. Accordingly, the Company
restated its 2002 quarterly results. The impact of the restatement
for the three months ended March 31, 2002 resulted in a decrease to
net earnings of $1.4 million or $0.04 per diluted share.
A complete presentation of March 31, 2003 and 2002 financial statement
information, including a breakdown of the components of the combined
ratio and realized 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 March 31, 2003, the Company had authority to purchase approximately
741,000 additional shares of common stock under the current Board of
Directors' stock repurchase authorization. During the past twelve
months, the Company purchased 1,352,244 shares of treasury stock at an
average price of $37.04 per share.
MORE
Page 4 of 8
CGI 1Q'03 earnings (page 3 of 6)
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 operating ratios, which are
reported on a statutory accounting basis.
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 26th largest
personal automobile insurance group in the country by A.M. Best, based
on the most recently available direct written premium information.
Forward Looking Statements
This press release contains some statements that are not historical
facts and are considered "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve opinions, assumptions and predictions, and
no assurance can be given that the future results will be achieved
since events or results may differ materially as a result of risks
facing the Company. These include, but are not limited to, those risks
and uncertainties in our business, some of which are beyond the
control of the Company, that are described in the Company's Forms 10-K
and 10-Q, Schedules 13D and 13G, and other documents filed with the
SEC, including the possibility of adverse catastrophe experience and
severe weather, adverse trends in claim severity or frequency, adverse
state and federal regulation and legislation, adverse state judicial
decisions, litigation risks, interest rate risk, rate making decisions
for private passenger automobile policies in Massachusetts, potential
rate filings outside of Massachusetts, adverse impacts related to
consolidation activities, heightened competition, as well as the
economic, market or regulatory conditions and risks associated with
entry into new markets and diversification. The Commerce Group, Inc.
is not under any obligation to (and expressly disclaims any such
obligations to) update or alter its forward-looking statements,
whether as a result of new information, future events or otherwise.
(Tables Follow)
Page 5 of 8
CGI 1Q '03 earnings (page 4 of 6)
THE COMMERCE GROUP, INC. (NYSE:CGI-news)
CONSOLIDATED BALANCE SHEETS
March 31, 2003 and 2002
(Thousands of Dollars, Except Per Share Data)
Unaudited
March 31,
ASSETS 2003 2002
(Restated)
Investments
Fixed maturities, at market $ 808,990 $ 658,430
Preferred stocks, at market $ 308,678 $ 243,905
Common stocks, at market $ 95,780 $ 118,894
Preferred stock mutual funds, at equity $ 274,497 $ 315,752
Mortgage loans $ 22,850 $ 36,722
Cash and short-term investments $ 130,949 $ 152,219
Other investments $ 23,230 $ 18,227
Total investments $1,664,974 $1,544,149
Accrued investment income $ 14,203 $ 15,567
Premiums receivable $ 368,989 $ 309,900
Deferred policy acquisition costs $ 152,554 $ 130,162
Property and equipment $ 52,015 $ 41,628
Due from reinsurers $ 102,658 $ 73,023
Residual market receivable $ 169,540 $ 136,914
Deferred income taxes $ 29,010 $ 22,387
Receivable for securities sold $ 5,053 $ 105
Other assets $ 13,499 $ 14,938
Total assets $2,572,495 $2,288,773
Liabilities
Losses and LAE $ 857,162 $ 713,072
Unearned premiums $ 778,129 $ 652,016
Current income taxes $ 1,749 $ 9,856
Deferred income $ 7,269 $ 7,491
Contingent commissions accrued $ 28,035 $ 30,224
Payable for securities purchased $ 63,075 $ 1,840
Other liabilities $ 44,465 $ 38,948
Total liabilities $1,779,884 $1,453,447
Minority interest $ 4,123 $ 4,515
Stockholders' equity
Preferred stock - -
Common stock $ 19,141 $ 19,000
Paid-in capital $ 39,570 $ 29,621
Net accumulated other comprehensive income $ 28,769 $ 16,518
Retained earnings $ 880,297 $ 894,873
$ 967,777 $ 960,012
Treasury stock $ (179,289) $ (129,201)
Total stockholders' equity $ 788,488 $ 830,811
Total liabilities, minority interest and stockholders' equity $2,572,495 $2,288,773
Common shares outstanding 31,879,835 32,950,452
Stockholders' equity per share $ 24.73 $ 25.21
Page 6 of 8
CGI 1Q '03 earnings (page 5 of 6)
THE COMMERCE GROUP, INC. (NYSE:CGI-news)
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 31, 2003 and 2002
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended
March 31,
2003 2002
(Restated)
Revenues:
Earned premiums $ 337,987 $ 280,764
Net investment income $ 22,704 $ 22,904
Premium finance and service fees $ 6,330 $ 4,932
Net realized investment losses $ (5,844) $ (3,447)
Other income $ - $ 7,000
TOTAL REVENUES $ 361,177 $ 312,153
Expenses:
Losses and LAE $ 274,394 $ 216,576
Policy acquisition costs $ 69,502 $ 65,019
TOTAL EXPENSES $ 343,896 $ 281,595
Earnings before income taxes, change in accounting
principle and minority interest $ 17,281 $ 30,558
Income taxes $ 4,405 $ 7,835
Change in accounting principle, net of taxes $ - $ 11,237
Earnings before minority interest $ 12,876 $ 33,960
Minority interest in losses of subsidiary $ 44 $ 10
NET EARNINGS $ 12,920 $ 33,970
COMPREHENSIVE INCOME $ 16,425 $ 38,094
EARNINGS PER COMMON SHARE:
BASIC $ 0.40 $ 1.03
DILUTED $ 0.40 $ 1.02
Net earnings per share excluding the after-tax impact of net
realized investment losses, change in accounting principle
and impact of variable accounting for stock options:
BASIC $ 0.55 $ 0.80
DILUTED $ 0.54 $ 0.79
Weighted average shares outstanding:
BASIC 31,977,554 33,083,119
DILUTED 32,161,730 33,372,501
Page 7 of 8
CGI 1Q '03 earnings (page 6 of 6)
THE COMMERCE GROUP, INC. (NYSE:CGI-news)
ADDITIONAL EARNINGS INFORMATION
Three Months Ended March 31, 2003 and 2002
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended
March 31,
2003 2002
(Restated)
ADDITIONAL EARNINGS INFORMATION:
Direct written premiums to earned premiums reconciliation:
Direct written premiums $ 448,794 $ 383,717
Assumed premiums 27,983 24,155
Ceded premiums (49,742) (40,331)
Net written premiums 427,035 367,541
Increase in unearned premiums (89,048) (86,777)
Earned premiums $ 337,987 $ 280,764
Statutory operating ratios for insurance subsidiaries:
Loss ratio 81.5% 76.9%
Underwriting ratio 20.0% 21.2%
Combined ratio 101.5% 98.1%
Reconciliation of net earnings to operating earnings:
Net earnings $ 12,920 $ 33,970
Plus net realized losses, net of tax 6,179 2,241
Less change in accounting principle, net of tax 0 (11,237)
Plus (less) variable acctg. stock option (income) expense,
net of tax (1,648) 1,446
Operating earnings $ 17,451 $ 26,420
Reconciliation of net earnings to operating earnings per diluted share:
Net earnings per diluted share $ 0.40 $ 1.02
Plus net realized losses, net of tax 0.19 0.07
Less SFAS No. 142 change in accounting principle, net of tax 0.00 (0.34)
Plus (less) variable acctg. stock option (income) expense,
net of tax (0.05) 0.04
Operating earnings per diluted share $ 0.54 $ 0.79
Breakdown of net realized investment gains (losses):
Fixed maturities $ 3,373 $ (195)
Preferred stocks 981 (47)
Common stocks 267 (9)
Preferred stock mutual funds 5,569 (1,248)
Venture capital fund investments (588) (1,931)
Other 10 (17)
Other-than-temporary writedowns (15,456) 0
Net realized investment losses before tax (5,844) (3,447)
Income tax benefit at 35% (2,045) (1,206)
Net realized investment losses after tax and before impact
of valuation allowance (3,799) (2,241)
Impact of valuation allowance (2,380) 0
Net realized investment losses after tax and after impact
of valuation allowance $ (6,179) $ (2,241)
Per diluted share net realized investment losses after tax
and after tax impact of valuation allowance per diluted share $ (0.19) $ (0.07)
Page 8 of 8