S&P Rates Commerce Group and Proposed Senior Notes ‘BBB’

December 3, 2003

Standard & Poor’s Ratings Services announced that it has assigned its ‘BBB’ counterparty credit rating to The Commerce Group, Inc. and its ‘BBB’ senior debt rating to CGI’s proposed senior note offering.

S&P said: “The proceeds of the issuance, coupled with an inter-affiliated pooling arrangement, are to be used to support the capital position of the non-rated insurance subsidiaries, American Commerce Insurance Co. and Commerce West Insurance Co., as they develop CGI’s operating presence outside its core Massachusetts insurance market. In addition, the funds will be used to remove the non-rated insurance entities from CGI’s lead operating subsidiary, The Commerce Insurance, and place them directly under CGI.”

It noted that “CGI is expanding outside Massachusetts through its non-rated insurance subsidiaries in order to “ease concentration and achieve a greater balance of risk.” S&P said it “believes CGI will continue to be challenged over the long term to fully replicate its success in Massachusetts. However, in the next two to three years, the non-rated insurance companies are expected to become more integral to the overall organization.” Their operating performance has been weaker than that of the two rated companies, “and is expected to add a few points to the consolidated organization’s combined ratio.”

S&P said that its ratings on Commerce Insurance Co. and Citation Insurance Co. “reflect their excellent franchise in the Massachusetts private passenger auto market, extremely strong capitalization, and historically strong earnings. Partially offsetting these strengths are the companies’ high concentration in the highly regulated Massachusetts market and limited product breadth.”

It added that Mass. “is expected to remain the group’s core market over the long term,” and in addition it “expects CGI’s debt-to-capital ratio to remain less than 30%. Similarly, interest coverage, excluding realized capital gains, is expected to remain strong at 6x-8x.”

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