The Commerce Group, Inc. Announces 2006 First Quarter Results and Comparison to 2005

The Commerce Group, Inc. (NYSE:CGI) today reported 2006 first quarter results. Net earnings were $67.0 million, or $1.97 per diluted share, compared to net earnings of $58.0 million or $1.72 per diluted share for 2005.

Included in the 2006 first quarter results are net realized investment gains of $6.4 million or $0.12 per diluted share, compared to gains of $8.3 million or $0.16 per diluted share in the first quarter of 2005. A complete breakdown of this information is included in the attached tables.

Earned premiums were $428.5 million for the first quarter of 2006, compared to $423.2 million for the first quarter of 2005. A schedule of direct written premiums to earned premiums is included in the attached tables.

The first quarter GAAP consolidated combined ratio was 86.8%, compared to 89.1% for 2005. 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 quarter of 2006 decreased to 62.6% from 66.0% during the same period last year. The improvement was the result of several factors, including: (1) a decrease in the current year personal automobile bodily injury and physical damage claim frequencies, primarily resulting from mild winter weather compared to the first quarter of last year; and, (2) a continued improvement in the results from Commonwealth Automobile Reinsurers (C.A.R.). The Company’s GAAP consolidated underwriting ratio increased to 24.2%, as compared to 23.1% for last year’s first quarter, primarily as a result of higher accrued agents’ profit sharing and higher 2006 policy year mandated Massachusetts personal automobile commissions. The increased accrued agents’ profit sharing relates to better underwriting results for the first quarter of 2006 versus last year’s first quarter. A mandated rate decrease for 2006 Massachusetts personal automobile policies increased the impact of the higher personal automobile commissions on the underwriting ratio.

Investment income increased 15.3% to $33.5 million resulting from an increase in both invested assets and investment yields.

A complete presentation of March 31, 2006 and 2005 financial statement information is included in the financial statements attached to this press release.

Additional supplemental financial information will be available on Friday morning on the Company’s website at www.commerceinsurance.com, at the “About Us” tab under the “Financial Reports” link of the “News and Investors” section.

At March 31, 2006, the Company had authority to purchase 858,300 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 of America (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.

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,” “will,” “could,” “likely,” “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, terrorism and other adverse

catastrophic experiences;

— adverse trends in claim severity or frequency and the

uncertainties in estimating property and casualty losses;

— 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;

— fluctuations in interest rates and the performance of the

financial markets in relation to the composition of our

investment portfolio;

— premium rate making decisions for private passenger automobile

policies in Massachusetts;

— potential rate filings;

— heightened competition;

— our concentration of business within Massachusetts and within

the personal automobile line of business;

— market disruption in Massachusetts, if competitors exited the

market or become insolvent;

— the cost and availability of reinsurance;

— our ability to collect on reinsurance and the solvency of our

reinsurers;

— the effectiveness of our reinsurance strategies;

— telecommunication and information systems problems, including

failures to implement information technology projects timely

and within budget;

— our ability to maintain favorable ratings from rating

agencies, including A.M. Best, S&P, Moody’s and Fitch;

— our ability to attract and retain independent agents;

— our ability to retain our affinity relationships with AAA

clubs, especially in Massachusetts;

— our dependence on a key third party service vendor for our

business in Massachusetts;

— our 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. THE COMMERCE GROUP, INC. (NYSE – CGI) CONSOLIDATED BALANCE SHEET March 31, 2006 and 2005 (Thousands of Dollars, Except Per Share Data) Unaudited March 31, March 31, 2006 2005 ———– ———– Assets: Investments Fixed maturities, at market $ 2,043,452 $ 1,830,932 Preferred stocks, at market $ 418,748 $ 494,515 Common stocks, at market $ 108,134 $ 61,896 Preferred stock mutual funds, at equity $ 102,019 $ 65,826 Mortgage loans and collateral notes receivable $ 17,187 $ 15,285 Cash and cash equivalents $ 80,431 $ 82,378 Short-term investments, at market $ 7,304 $ 12,581 Other investments, at equity $ 29,937 $ 33,954 Total cash and investments $ 2,807,212 $ 2,597,367 Accrued investment income $ 23,906 $ 20,256 Premiums receivable $ 475,269 $ 477,109 Deferred policy acquisition costs $ 182,405 $ 174,647 Property and equipment, net $ 65,511 $ 51,817 Due from reinsurers $ 138,046 $ 134,938 Residual market receivable $ 188,789 $ 204,894 Deferred income taxes $ 63,051 $ 55,595 Receivable for securities sold $ – $ 1,069 Other assets $ 34,241 $ 26,190 Total assets $ 3,978,430 $ 3,743,882 Liabilities: Unpaid losses and LAE $ 973,435 $ 1,004,157 Unearned premiums $ 965,270 $ 962,104 Bonds payable $ 298,437 $ 298,236 Current income taxes $ 18,951 $ 13,836 Deferred income $ 9,524 $ 10,814 Accrued agents’ profit sharing $ 198,650 $ 116,826 Payable for securities purchased $ – $ 35,161 Outstanding checks payable $ 45,080 $ 45,261 Advance premiums and commissions payable $ 29,178 $ 30,239 Other liabilities $ 73,847 $ 69,595 Total liabilities $ 2,612,372 $ 2,586,229 Minority interest $ 6,159 $ 5,240 Stockholders’ equity: Preferred stock – – Common stock $ 20,458 $ 20,426 Paid-in capital $ 152,691 $ 144,896 Net accumulated other comprehensive loss $ (14,073) $ (8,665) Retained earnings $ 1,415,232 $ 1,215,972 Stockholders’ equity before treasury stock $ 1,574,308 $ 1,372,629 Treasury stock $ (214,409) $ (220,216) Total stockholders’ equity $ 1,359,899 $ 1,152,413 Total liabilities, minority interest and stockholders’ equity $ 3,978,430 $ 3,743,882 Common shares outstanding 33,844,699 33,588,842 Stockholders’ equity per share $ 40.18 $ 34.31 THE COMMERCE GROUP, INC. (NYSE – CGI) CONSOLIDATED STATEMENT OF EARNINGS Three Months Ended March 31, 2006 and 2005 (Thousands of Dollars, Except Per Share Data) Unaudited Three Months Ended March 31, ————————- 2006 2005 ———— ———– Revenues: Earned premiums $ 428,458 $ 423,202 Net investment income $ 33,529 $ 29,087 Premium finance and service fees $ 7,140 $ 7,203 Net realized investment gains $ 6,372 $ 8,313 Other income $ 10 $ 4 TOTAL REVENUES $ 475,509 $ 467,809 Expenses: Losses and LAE $ 268,279 $ 279,158 Policy acquisition costs $ 105,796 $ 100,372 Interest expense & amortization of bond fees $ 4,581 $ 4,519 TOTAL EXPENSES $ 378,656 $ 384,049 Earnings before income taxes and minority interest $ 96,853 $ 83,760 Income taxes $ 29,662 $ 25,488 Earnings before minority interest $ 67,191 $ 58,272 Minority interest in net earnings of subsidiary $ (236) $ (234) NET EARNINGS $ 66,955 $ 58,038 COMPREHENSIVE INCOME $ 59,692 $ 32,970 EARNINGS PER COMMON SHARE: BASIC $ 1.98 $ 1.73 DILUTED $ 1.97 $ 1.72 Cash dividends paid per common share $ 0.45 $ 0.33 Weighted average shares outstanding: BASIC 33,789,377 33,462,734 DILUTED 33,961,380 33,823,626 THE COMMERCE GROUP, INC. (NYSE – CGI) ADDITIONAL EARNINGS INFORMATION Three Months March 31, 2006 and 2005 (Thousands of Dollars, Except Per Share Data) Unaudited Three Months Ended March 31, ——————- 2006 2005 ——— ——– ADDITIONAL EARNINGS INFORMATION: Direct written premiums to earned premiums reconciliation: Direct written premiums $489,165 $508,665 Assumed premiums $ 37,341 $ 38,018 Ceded premiums $(55,782) $(64,919) Net written premiums $470,724 $481,764 Increase in unearned premiums $(42,266) $(58,562) Earned premiums $428,458 $423,202 GAAP consolidated operating ratios: (1) Loss ratio 62.6% 66.0% Underwriting ratio 24.2% 23.1% Combined ratio 86.8% 89.1% GAAP operating ratios for combined insurance subsidiaries only: (2) Loss ratio 62.3% 65.5% Underwriting ratio 23.9% 22.7% Combined ratio 86.2% 88.2% Breakdown of net realized investment gains: Fixed maturities $ 5,073 $ 10,368 Preferred stocks $ 1,811 $ 818 Common stocks $ – $ 415 Preferred stock mutual funds: Due to increase (decrease) in Net Asset Value $ 603 $ (635) Venture capital funds $ (16) $ (951) Other $ 4 $ 322 Other than temporary writedowns $ (1,103) $ (2,024) Net realized investment gains before tax $ 6,372 $ 8,313 Income tax at 35% $ 2,230 $ 2,910 Net realized investment gains after tax $ 4,142 $ 5,403 Per diluted share net realized gains after tax $ 0.12 $ 0.16 (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 $7,992 and $11,003 for 2006 and 2005, 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.