The Commerce Group, Inc. Announces 2001 Third Quarter Earnings.Business EditorsWEBSTER Webster, town (1990 pop. 16,196), Worcester co., S Mass., near the Conn. line; settled c.1713, set off from Dudley and Oxford and inc. 1832. The chief manufactures are footwear, fabrics, and textiles. , Mass.,--(BUSINESS WIRE)--Oct. 30, 2001 The Commerce Group, Inc. (NYSE NYSE See: New York Stock Exchange :CGI CGI in full Common Gateway Interface. Specification by which a Web server passes data between itself and an application program. Typically, a Web user will make a request of the Web server, which in turn passes the request to a CGI application program. ) today reported 2001 third quarter earnings. Operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before , which consist of net earnings exclusive of the after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. impact of net realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. and losses, were $23.4 million or $0.69 per share (diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. ) in the third quarter of 2001, compared to $17.5 million or $0.51 per share (diluted) in the third quarter of 2000. Net earnings, which includes the after-tax impact of net realized investment gains and losses, in the third quarter of 2001 were $22.1 million or $0.65 per share (diluted) compared to $36.0 million or $1.05 per share (diluted) in the third quarter of 2000. Direct premiums written by the Company's property and casualty insurance subsidiaries were $290.1 million in the third quarter of 2001 compared to $268.4 million in the third quarter of 2000. Net premiums written in the third quarter of 2001 were $269.2 million compared to $250.6 million in the same period of 2000. Earned premiums Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. were $267.8 million in the third quarter of 2001, compared to $239.7 million in the third quarter of 2000. For the quarter ended September September: see month. 30, 2001, the Company had realized losses Realized Loss A loss recognized when assets are sold for a price lower than the original purchase price. Notes: A portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. on investments of $2.9 million or $0.04 per share as compared to realized gains on investments of $27.2 million or $0.54 per share for the same quarter a year ago. A complete breakdown of the components of realized gains and losses is included in the attached supplemental information table. In the third quarter of 2001, the Company's Massachusetts Massachusetts (măsəch  `sĭts), most populous of the New England states of the NE United States. operations experienced improved underwriting Underwriting1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. results as compared to the same period last year, due to lower personal auto bodily injury losses and lower Massachusetts residual Residual See:Residual value market losses. Third quarter 2001 underwriting results included a $2.5 million charge ($1.6 million after taxes or $0.05 per share) to cover the estimated costs associated with the consolidation of several functions from American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of Commerce Insurance Company to The Commerce Insurance Company. As a result of this, the loss ratio included a charge of $1.7 million (0.6% of the loss ratio) and the underwriting ratio included a charge of $0.8 million (0.3% of the underwriting expense ratio). In the third quarter of 2000, the Company recorded a $9.9 million charge ($6.4 million after taxes or $0.19 per share) related to the insolvency insolvency Condition in which liabilities exceed assets so that creditors cannot be paid. It is a financial condition that often precedes bankruptcy. In the context of equity, insolvency is the inability to pay debts as they become due; insolvency under the balance-sheet of another Massachusetts insurance company. As a result of this, the 2000 loss ratio included a charge of $5.0 million (2.1% of the loss ratio) related to this event. The 2000 underwriting ratio included a $4.9 million charge (2.0% of the underwriting expense ratio) representing the Company's allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as from the Massachusetts Insurers Insolvency Fund. Operations outside of Massachusetts produced approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 15% direct written premium growth compared to the same quarter a year ago, although these insurance subsidiaries continued to experience an overall depressed rate environment resulting in continued underwriting losses during the third quarter of 2001. Cumulative September 30, 2001 Results Operating earnings for the first nine months of 2001 were $70.5 million or $2.09 per share, compared to $58.4 million or $1.71 per share in the same period in 2000. Net earnings for the nine months ended September 30, 2001 were $65.0 million or $1.92 per share (diluted) compared to $76.6 million or $2.24 per share (diluted) for the first nine months of 2000. Direct premiums written by the Company's property and casualty insurance subsidiaries were $897.6 million in the first nine months of 2001, compared to $840.6 million in the first nine months of 2000. Net premiums written in the nine months ended September 30, 2001 were $843.2 million, compared to $790.3 million in the same period in 2000. Earned premiums were $776.1 million in the first nine months of 2001, compared to $699.8 million in the first nine months of 2000. Beginning in the first quarter of 2001, the Company, for presentation purposes in both the 2001 and 2000 results, classified its undistributed Adj. 1. undistributed - (of investments) not distributed among a variety of securities undiversified - not diversified equity in the earnings and losses on investments in closed-end closed-end adj. Issuing a fixed number of shares that can be traded publicly but are not redeemable by the issuer: a closed-end investment company. preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. mutual funds in net realized investment gains and losses. In 2000, the undistributed equity in the earnings and losses of these funds was reported in net accumulated other comprehensive income In 1997 the Financial Accounting Standards Board issued a Statement on Financial Accounting Standards entitled “Comprehensive Income”. This statement required all income statement items to be reported either as a regular item in the income statement and or a special item as (loss). The Company believes this new classification better presents the undistributed equity component of these funds. These investments are valued at original cost plus the cumulative undistributed equity in earnings and losses of the funds and adjusted over time by the premium or discount at the time of purchase to the applicable underlying net asset value of the funds. For the nine months ended September 30, 2001, the Company had realized losses on investments of $9.3 million, or $0.16 per share compared to gains of $24.2 million or $0.53 per share in 2000. A complete breakdown of the components of realized gains and losses is included in the attached supplemental information table. In addition to the undistributed equity in the earnings and losses from preferred stock mutual funds, the September 30, 2001 and 2000 nine month net realized gains (losses) include a charge of $0.13 per share in 2001 as compared to a net realized gain of $0.01 for the same period in 2000 for the Company's equity in the results of certain venture capital funds Venture Capital Funds An investment fund that manages money from investors seeking private equity stakes in small and medium-size enterprises with strong growth potential. Notes: in which the Company has invested. These venture capital funds primarily provide seed capital for start-up companies start-up company A new business. with emerging high technology initiatives in the financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. industry. In the first nine months of 2001, the Company's Massachusetts operations experienced improved underwriting results primarily due to lower bodily injury losses and lower Massachusetts residual market losses as compared to the same period last year. Operations outside of Massachusetts produced approximately 18% direct written premium growth compared to last year, although these insurance subsidiaries experienced an overall depressed rate environment resulting in underwriting losses for the first nine months of 2001. The Company continues to evaluate a number of its other than Massachusetts state rating structures, has filed for increases in several states and will seek additional rate increases where appropriate. Through the third quarter of 2000, the Company recorded $12.9 million of expense ($8.4 million after taxes or $0.24 per share) related to the insolvency of Trust Insurance Company of Massachusetts. The loss ratio through the third quarter of 2000 was adversely impacted by $8.0 million of expense (1.1% of the loss ratio) and the underwriting ratio included a $4.9 million charge (0.6% of the underwriting expense ratio) representing the Company's allocation from the Massachusetts Insurers Insolvency Fund for this insolvency. A complete presentation of September 30, 2001 and 2000 financial statement information is included in the tables attached to this press release. Additional statistical information is available on the Company's website at www.commerceinsurance.com. Treasury stock buyback Stock buyback A corporation's purchase of its own outstanding stock, usually in order to raise the company's earnings per share. stock buyback See buyback. information is included in the attached supplemental information table. At September 30, 2001, the Company had the ability to purchase approximately 534,000 additional shares of common stock under the current Board of Directors' stock re-purchase authorization The right or permission to use a system resource; the process of granting access. See access control. . All quarterly figures are unaudited and all results are reported in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with accounting principals generally accepted in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) with the exception of operating ratios Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: , which are reported on a statutory accounting basis. The Commerce Group, Inc. is headquartered in Webster, Massachusetts Webster is a town in Worcester County, Massachusetts, United States. The population was 16,415 at the 2000 census. For geographic and demographic information on the census-designated place Webster, please see the article Webster (CDP), Massachusetts. . Property and casualty insurance subsidiaries include The Commerce Insurance Company and Citation Citation (foaled 1945) U.S. Thoroughbred racehorse. In four seasons he won 32 of 45 races, finished second in ten, and third in two. He won the 1948 Triple Crown, and became the first horse to win $1 million. He set a world record in 1950 by running a mile in 1:33 3/5. Insurance Company in Massachusetts, Commerce West Insurance Company in California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). , and American Commerce Insurance Company in Ohio. Forward Looking Statements This press release contains some statements that are not historical facts and are considered "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " as defined in the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 that are described in the Company's Forms 10-K and 10-Q, Schedules 13D and 13G, and other documents filed with the SEC, the possibility of adverse catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). experience and severe weather, adverse trends in claim severity or frequency, adverse state and federal regulation and legislation, interest rate risk, rate making decisions for private passenger automobile automobile, self-propelled vehicle used for travel on land. The term is commonly applied to a four-wheeled vehicle designed to carry two to six passengers and a limited amount of cargo, as contrasted with a truck, which is designed primarily for the transportation of 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 reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. conditions and risks associated with entry into new markets and diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. . 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.
THE COMMERCE GROUP, INC. (NYSE:CGI - news)
CONSOLIDATED BALANCE SHEETS
September 30, 2001 and 2000
(Thousands of Dollars, Except Per Share Data)
Unaudited
Sept. 30, Sept. 30,
Assets 2001 2000
Investments
Fixed maturities, at market $599,469 $659,715
Preferred stocks, at market $251,905 $206,881
Common stocks, at market $104,242 $102,335
Preferred stock mutual funds, at equity $298,670 $323,759
Mortgage loans $42,507 $52,645
Cash and short-term investments $177,731 $11,029
Other investments $17,185 $23,527
Total investments $1,491,709 $1,379,891
Accrued investment income $16,499 $17,125
Premiums receivable $285,204 $268,952
Deferred policy acquisition csots $120,758 $112,269
Property and equipment $39,937 $34,469
Due from reinsurers $71,156 $62,083
Residual market receivable
Losses and LAE $81,374 $99,847
Unearned premiums $47,106 $46,330
Current income taxes $-- $4,731
Deferred income taxes $15,470 $26,048
Non-compete agreement $2,567 $2,917
Receivable for securities sold $355 $20,042
Other assets $5,768 $9,267
Total assets $2,177,903 $2,083,971
Liabilities
Losses and LAE $688,180 $718,239
Unearned premiums $593,544 $557,318
Current income taxes $8,781 $--
Deferred income $6,940 $7,999
Contingent commissions accrued $27,256 $27,262
Payable for securities purchased $581 $6,014
Excess of book value of subsidiary
interest over cost $6,398 $9,109
Other liabilities $39,566 $32,462
Total liabilities $1,371,246 $1,358,403
Minority interest $-- $1,078
Stockholders' equity
Preferred stock -- --
Common stock $19,000 $19,000
Paid-in capital $29,621 $29,621
Net accumulated other
comprehensive income (loss) $15,222 $(7,611)
Retained earnings $855,503 $774,859
$919,346 $815,869
Treasury stock $(112,689) $(91,379)
Total stockholders' equity $806,657 $724,490
Total liabilities, minority interest
and stockholders' equity $2,177,903 $2,083,971
Common shares outstanding 33,390,452 34,059,852
Stockholders' equity per share $24.16 $21.27
THE COMMERCE GROUP, INC. (NYSE: CGI - news)
CONSOLIDATED STATEMENTS OF EARNINGS
Three and Nine Months Ended September 30, 2001 and 2000
(Thousands of Dollars, Except Per Share Data)
Unaudited
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2001 2000 2001 2000
Direct premiums written $290,088 $268,415 $897,576 $840,595
Net premiums written $269,184 $250,614 $843,232 $790,273
Revenues:
Earned premiums $267,810 $239,686 $776,106 $699,773
Net investment income $24,274 $24,120 $74,753 $71,008
Premium finance and
service fees $4,644 $3,914 $13,260 $11,463
Amortization of excess
of book value
of subsidiary
interest over cost $848 $847 $2,542 $2,542
Net realized
investment gains
(losses) $(2,934) $27,213 $(9,275) $24,166
TOTAL REVENUES $294,642 $295,780 $857,386 $808,952
Expenses:
Losses and LAE $199,445 $185,143 $582,749 $537,796
Policy acquisition
costs $70,322 $63,118 $196,920 $178,707
TOTAL EXPENSES $269,767 $248,261 $779,669 $716,503
Earnings before
income taxes
and minority
interest $24,875 $47,519 $77,717 $92,449
Income taxes $3,362 $11,570 $13,619 $16,112
Earnings before
minority interest $21,513 $35,949 $64,098 $76,337
Minority interest in
net losses
of subsidiary $626 $25 $863 $247
NET EARNINGS $22,139 $35,974 $64,961 $76,584
COMPREHENSIVE
INCOME $19,823 $44,921 $68,350 $93,630
EARNINGS PER
COMMON SHARE:
BASIC $0.66 $1.05 $1.93 $2.24
DILUTED $0.65 $1.05 $1.92 $2.24
Net earnings per share
excluding the after-tax
impact of net realized
investment gains
(losses):
BASIC $0.70 $0.51 $2.09 $1.71
DILUTED $0.69 $0.51 $2.08 $1.71
Weighted average
shares outstanding:
BASIC 33,650,563 34,118,038 33,718,712 34,181,427
DILUTED 33,918,388 34,118,038 33,871,028 34,181,427
Statutory operating
ratios for insurance
subsidiaries
Loss ratio 75.1% 77.3% 75.2% 77.0%
Underwriting ratio 25.2% 26.6% 24.2% 24.2%
Combined ratio 100.3% 103.9% 99.4% 101.2%
THE COMMERCE GROUP, INC. (NYSE: CGI - news)
SUPPLEMENTAL INFORMATION
(Dollars in thousands, except per share amounts)
Unaudited
Sept. 30, Sept. 30,
2001 2000
OTHER BALANCE SHEET INFORMATION:
Fixed maturities, at cost $585,211 $664,570
Preferred stocks, at cost $259,164 $223,653
Common stocks, at cost $ 87,703 $ 94,580
Preferred stock mutual funds, at cost $287,942 $319,166
Preferred stock mutual funds, at market $286,844 $289,710
TREASURY STOCK INFORMATION:
Common shares purchased in the quarter 362,900 94,100
Average share price for the quarter $ 37.44 $ 25.93
Common shares purchased year to date 362,900 299,700
Average share price for the quarter $ 37.44 $ 26.33
Nine Months Ended
Sept. 30, Sept. 30,
2001 2000
REALIZED GAINS AND (LOSSES) BREAKDOWN:
Closed-end preferred stock mutual funds(a)$ 976 $ 21,414
Venture capital fund investments (6,623) 460
Bonds (1,237) (1,886)
Common and preferred stocks (2,235) 4,457
Other (156) (279)
Net realized investment gains (losses) ($ 9,275) $ 24,166
Three Months Ended
Sept. 30, Sept. 30,
2001 2000
REALIZED GAINS AND (LOSSES) BREAKDOWN:
Closed-end preferred stock mutual funds (a)($1,677) $ 24,790
Venture capital fund investments 1,393 0
Bonds (1,345) (202)
Common and preferred stocks (1,197) 3,701
Other (108) (1,076)
Net realized investment gains (losses) ($2,934) $ 27,213
(a) Includes $1,458 and $1,789 in 2001 and $6,965 and $2,333 in 2000
for the nine and three months ended, respectively, relating to the
amortization of the net discount, at the time of purchase, of these
securities.
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