N.J.’s National Atlantic, Commerce Group of Mass. in Talks

New Jersey property casualty insurer National Atlantic Holdings Company has confirmed that it is engaged in preliminary discussions regarding potential transactions with The Commerce Group, Inc. of Webster, Mass.

The possibility of dealings with The Commerce Group became known after Commerce filed a Schedule 13D with the Securities and Exchange Commission.

In the 13D filing, Commerce indicated it already owns 8.2 percent or 924,00 shares in NAHC. In that same filing, the Massachusetts-based insurer said it is in the process of evaluating the possibility of entering into a business combination or other strategic transaction such as an acquisition.

NAHC noted that discussions are preliminary in nature and it could provide no assurance that any agreement for any transaction will be reached.

NAHC said it has engaged Citigroup Corporate and Investment Banking to advise it in connection with these discussions.

National Atlantic Holdings Corporation and its subsidiaries provide property and casualty insurance and insurance-related services to individuals, families and businesses in the State of New Jersey. The Commerce Group, Inc. is headquartered in Webster, Massachusetts.

NAHC and its subsidiaries provide property and casualty insurance in New Jersey. The company’s flagship product to personal insurance customers is the High Proformance Policy. This is a package product designed to capture private passenger automobile, homeowners, and personal excess (umbrella) and specialty property liability coverages.

For businesses, the company offers commercial property, commercial general liability, and business auto, as well as claims administrative services to self-insured corporations.

National Atlantic distributes its products exclusively through independent insurance agents, which it calls Partner Agents, who are required to become shareholders in order to represent the company as an agent. NAHC’s 105 partner agents write about $2.9 billion in premiums in New Jersey.

The company offers insurance products through its subsidiaries, Proformance Insurance Company and Mayfair Reinsurance Company, and insurance-related services through Riverview Professional Services and the National Atlantic Insurance Agency.

NAHC reported net income for six months ended June 30 was $7.0 million or $0.61 per share (diluted), compared with net income of $5.9 million or $0.77 per share (diluted) for the six months ended June 30, 2005.

Total revenues for the six months ended June 30, 2006 decreased by $9.3 million, or 9.7%, to $86.2 million from $95.5 million for the six months ended June 30, 2005. The decrease in revenues related primarily to a decrease in net earned premiums for the period.

Direct written premiums for the six months ended June 30 decreased by $33.3 million, or 27.1%, to $89.8 million from $123.1 million in the comparable 2005 period. These decreases were attributed to the attrition of closed agent business that was acquired as part of previous replacement carrier transactions, which was offset by an increase in new business generated by the company’s agents as well as additional premiums generated by its newer replacement carrier transactions with The Hartford and Hanover insurance groups.

Net written premiums for the six months decreased by $31.9 million, or 27.4%, to $84.5 million from $116.4 million in the comparable 2005 period. The decrease in net written premiums for the three and six months ended June 30, 2006 was due to the decrease in direct written premiums for the same periods.

Upon releasing first half results, James V. Gorman, NAHC chairman and chief executive officer, credited the company’s agents for achieving “excellent” results in which new business generated increased 64 percent over the first quarter. Commercial lines business grew by more than 50 percent in the first half. Homeowners and commercial lines now represent 32 percent of the company’s total business portfolio.

The Commerce Group, Inc. is headquartered in Webster, Mass. Its 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. It sells through independent insurance agents.

Through its subsidiaries’ combined insurance activities, Commerce Group is ranked as the 19th largest personal automobile insurance group in the country by A.M. Best Company, based on 2005 direct written premium information. It is the largest writer of private passenger auto insurance in Massachusetts.The company’s and its insurance subsidiaries’ A.M. Best ratings of A+ (Superior) were affirmed during the second quarter.

The Commerce Group, Inc. reported that net earnings for the first six months of 2006 were $125.6 million, or $1.85 per diluted share, compared to net earnings of $120.6 million or $1.78 per diluted share for 2005.

Earned premiums were $842.9 million for the six months of 2006, compared to $851.0 million for 2005. The 2006 six-month GAAP consolidated combined ratio was 87.1%, compared to 89.3% 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.