Edgar Filing: COMMERCE GROUP INC /MA

THE COMMERCE GROUP, INC.
211 MAIN STREET ~ WEBSTER ~ MASSACHUSETTS 01570

April 12, 2001

To Our Stockholders:

I am pleased to invite you to attend the 2001 Annual Meeting of
Stockholders of The Commerce Group, Inc., which will be held at 9:00 a.m.
on Friday, May 18, 2001, in the Company's Underwriting Building, 11 Gore
Road (Route 16), Webster, Massachusetts.

The accompanying Notice of the Annual Meeting of Stockholders and
Proxy Statement set forth the business to come before this year's Annual
Meeting.

If you plan to attend the meeting, please bring a form of personal
identification with you and, if you are acting as proxy for another, please
bring written confirmation from the record owner that you are acting as
proxy.

Whether or not you expect to attend the meeting, please sign and date
the enclosed form of proxy and return it promptly in the accompanying
envelope to ensure that your shares will be represented. If you attend the
meeting, you may withdraw any proxy previously given and vote your shares
in person.

Cordially,

ARTHUR J. REMILLARD, JR.
President, Chief Executive Officer
and Chairman of the Board

Table of Contents

Page

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS......................... -

GENERAL INFORMATION.............................................. 1

VOTE REQUIRED.................................................... 1

COST OF SOLICITATION............................................. 2

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................. 2

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.......... 4

GOVERNANCE OF THE COMPANY........................................ 4

REPORT OF THE AUDIT COMMITTEE.................................... 6

ELECTION OF DIRECTORS............................................ 7

EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS.................... 10

Summary Compensation Table.................................. 10
Option Grants in Last Fiscal Year........................... 11
Aggregated Fiscal Year-End Option/SAR Values................ 12
Long-Term Incentive Plan - Book Value Awards................ 13

COMPENSATION COMMITTEE REPORT.................................... 15

COMMON STOCK PERFORMANCE......................................... 17

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 18

INDEPENDENT AUDITORS............................................. 18

OTHER BUSINESS................................................... 18

STOCKHOLDER PROPOSALS............................................ 18

APPENDIX A - CHARTER OF THE AUDIT COMMITTEE...................... A-1

The Commerce Group, Inc.
211 Main Street
Webster, MA 01570
(508) 943-9000

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 2001

April 12, 2001

To Our Stockholders:

You are cordially invited to attend the 2001 Annual Meeting of
Stockholders of The Commerce Group, Inc. (the "Company") at the Company's
Underwriting Building located at 11 Gore Road (Route 16), Webster,
Massachusetts at 9:00 a.m. on Friday, May 18, 2001. The meeting is called
for the purpose of considering and acting upon:

1. A proposal to fix at 18 the number of directors of the Company and
to elect such directors.

2. The transaction of such other business as may properly come before
the meeting or any adjournment or adjournments thereof.

The close of business on March 23, 2001 was fixed by your Board of
Directors as the record date for the determination of stockholders entitled
to notice of and to vote at the meeting.

We urge you to attend and to participate at the meeting, no matter how
many shares you own. Even if you do not expect to attend the meeting
personally, we urge you to please vote, and then sign, date and return the
enclosed proxy card in the postpaid envelope provided. If you receive more
than one proxy card because your shares are registered in different names
or at different addresses, please sign and return each proxy card so that
all of your shares will be represented at the meeting.

By Order of the Board of Directors

JOHN W. SPILLANE
Clerk

THE COMMERCE GROUP, INC.
211 Main Street
Webster, MA 01570
(508) 943-9000

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 2001

GENERAL INFORMATION

This Proxy Statement is furnished in connection with the solicitation
of Proxies by the Board of Directors of The Commerce Group, Inc. (the
"Company"). The Proxies will be used at the Annual Meeting of the
Stockholders of the Company on Friday, May 18, 2001 at 9:00 o'clock a.m.
at the Company's Underwriting Building located at 11 Gore Road (Route 16)
in Webster, Massachusetts and at any adjournment or adjournments thereof
(the "Annual Meeting"). The Company's Annual Report to Stockholders,
containing the financial statements for the year ended December 31, 2000
and the report of the Company's independent auditors, Ernst & Young LLP
thereon, is being mailed with this Proxy Statement to the Company's
stockholders of record at the close of business on March 23, 2001. The
Company mailed this Proxy Statement and related form of Proxy on or about
April 12, 2001.

VOTE REQUIRED

A Proxy is enclosed. Unless contrary instructions are indicated on
the Proxy, or the Proxy is revoked, all shares represented by Proxy
received will be voted FOR a proposal to fix at 18 the number of directors
of the Company and FOR the election of the nominees for directors named on
pages 7 and 8 and by the Proxy holders in their discretion on any other
business properly to come before the Annual Meeting. If a stockholder
specifies a different choice by means of the Proxy, the shares will be
voted as specified. A stockholder may revoke a Proxy at any time prior to
the time it is voted by filing with the Clerk of the Company, or its
transfer agent, a written notice of revocation or by delivering to the
Company, or its transfer agent, a duly executed Proxy bearing a later
date. Any stockholder who attends the Annual Meeting in person will not
be deemed thereby to revoke the Proxy, unless such stockholder
affirmatively indicates thereat his or her intention to vote the shares in
person.

So long as a quorum is present at the Annual Meeting, the Directors
shall be elected by a plurality of the votes cast at the Annual Meeting by
the holders of shares entitled to vote thereat. With regard to the
election of directors, votes may be cast in favor or withheld; votes that
are withheld will have no effect on the outcome of the election of
directors. Broker non-votes and shares represented by any Proxy as to
which the vote for each director nominee has been withheld will be treated
as shares present or represented at the Annual Meeting for quorum
purposes. (A "broker non-vote" occurs when a registered broker holding a
customer's shares in the name of the broker has not received voting
instructions on a matter from the customer and is barred from exercising
discretionary authority to vote on the matter, which the broker indicates
on the proxy.)

Only the holders of record of shares of Common Stock at the close of
business on March 23, 2001 will be entitled to receive notice of and to
vote at the Annual Meeting. At the close of business on March 23, 2001,
the Company had 33,753,352 shares of Common Stock outstanding and entitled
to be voted. Every stockholder will be entitled to one vote for each
share of Common Stock recorded in his or her name on the books of the
Company as of that date.
1

COST OF SOLICITATION

The cost of soliciting Proxies for the Annual Meeting will be borne by
the Company. Proxies may be solicited by directors, officers or employees
of the Company without additional compensation in person or by telephone or
telegram. The Company will use the services of Corporate Investor
Communications, Inc. to aid in the solicitation of Proxies at a fee of
$4,000 plus expenses. The Company will also request persons, firms and
corporations holding shares in their names, or in the names of their
nominees, which shares are beneficially owned by others, to send this proxy
material to and obtain Proxies from such beneficial owners and will
reimburse such holders for their reasonable expenses in so doing.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 23,
2001 with respect to the beneficial ownership of shares of the Company's
Common Stock by the following individuals: (a) each person who is known to
the Company to own beneficially more than 5% of the outstanding shares of
such stock; (b) the Company's directors and nominees; (c) each of the
executive officers named in the Summary Compensation Table; and, (d) all of
the Company's directors and executive officers as a group. The information
in the tables and in the related notes has been furnished by or on behalf
of the indicated owners.

Name and address Amount of shares Percentage
of beneficial owner beneficially owned(1) of shares (1)

(a) Security ownership of
certain beneficial owners:

The Commerce Group, Inc. 3,089,945 9.2%
Employee Stock Ownership Plan
211 Main Street
Webster, MA 01570

(b) Security ownership of directors and
nominees:

Herman F. Becker 449,230 1.3%
Joseph A. Borski, Jr. 66,752 *
Eric G. Butler 177,424 *
Henry J. Camosse 238,336 *
Gerald Fels 528,699 (2) 1.6%
David R. Grenon 323,252 1.0%
Robert W. Harris 111,697 (3) *
Robert S. Howland 84,474 (4) *
John J. Kunkel 1,049,581 3.1%
Raymond J. Lauring 848,003 2.5%
Roger E. Lavoie 417,230 (5) 1.2%
Normand R. Marois 195,702 *
Suryakant M. Patel 598,532 1.8%
Arthur J. Remillard, Jr. 720,980 (6) 2.1%
Arthur J. Remillard, III 898,964 (7) 2.7%
Regan P. Remillard 525,327 (8) 1.6%
Gurbachan Singh 410,292 1.2%
John W. Spillane 759,019 (9) 2.2%

Name and address Amount of shares Percentage
of beneficial owner beneficially owned(1) of shares (1)

Arthur J. Remillard, Jr. 720,980 (6) 2.1%
Gerald Fels 528,699 (2) 1.6%
Regan P. Remillard 525,327 (8) 1.6%
James A. Ermilio 858 (10) *
Arthur J. Remillard, III 898,964 (7) 2.7%

(d) All executive officers and 8,786,588 (11) 26.0%
directors as a group
(24 persons)

* Less than 1%.

(1) The indicated shares are those as to which the beneficial owner has
sole voting and investment power except as follows. As to the shares
held by the Company's Employee Stock Ownership Plan ("ESOP") and
allocated to participants' accounts, the beneficial owner has no
investment power and shared voting power in that, if he does not
exercise his power to vote his ESOP shares, the ESOP trustees will
vote said shares at the direction of the committee administering the
ESOP (the "ESOP Committee"). All other stock not yet allocated to
participants will be voted by the ESOP Committee. ESOP Participants
who are current employees of the Company or its subsidiaries and who
are 100% vested in their ESOP accounts can annually elect to transfer
out of the ESOP up to 100% of their allocated Company stock in the
form of an eligible rollover distribution into another eligible
retirement plan, such as a qualified individual retirement
arrangement. Approximately 2,248,000 shares owned by the ESOP at
December 31, 2000 were allocated to the ESOP accounts of these
individuals. ESOP Participants who are former employees of the
Company may generally elect to withdraw from the ESOP the shares
allocated to their accounts at any time. Approximately 666,000
shares owned by the ESOP at December 31, 2000 were allocated to the
ESOP accounts of these individuals. The remaining approximately
220,000 shares owned by the ESOP at December 31, 2000 were allocated
to the ESOP accounts of Participants who have not yet reached 100%
vesting in their account balances. Disposition of these unvested
shares is restricted under the ESOP. Of the persons named in the
table, only Joseph A. Borski, Jr. and Gerald Fels are members of the
ESOP Committee. Randall V. Becker, an Executive Officer of the
Company, is also a member of the ESOP Committee. The indicated
shares not held by the ESOP also include shares owned beneficially
by spouses, parents, children and relatives who share the same home,
trusts in which the named individual serves as a trustee and
corporations of which the named individual is an executive officer
or principal shareholder; the named individuals disclaim any
beneficial interest in shares so included. The percentage of shares
is calculated using 33,753,352 shares outstanding at March 23, 2001.

(2) Includes 95,988 shares held by the ESOP.
(3) Includes 56,849 shares held by a trust of which Mr. Harris is the
trustee and 39,228 shares held by a trust of which Mr. Harris' wife
is the trustee.
(4) Includes 48,474 shares held by a trust of which Mr. Howland is a co-
trustee with his son, 20,000 shares held by a trust of which Mr.
Howland's wife is the trustee, and 16,000 shares held by a limited
partnership of which Mr. Howland is a general partner.
(5) Includes 293,538 shares held by a trust of which Mr. Lavoie is the
trustee.
(6) Includes 1,979 shares held by the ESOP.
(7) Includes 134,747 shares held by the ESOP, 112,094 shares held by four
trusts of which Mr. Remillard, III is the trustee and 19,855 shares
held by a trust of which Mr. Remillard, III is a co-trustee. Mr.
Remillard, III disclaims any beneficial interest in such trusts or
such shares.
(8) Includes 7,033 shares held by the ESOP.
(9) Includes 32,440 shares held by trusts for the benefit of Mr.
Spillane's children and 6,212 shares held by a trust of which Mr.
Spillane's son is the trustee. Mr. Spillane disclaims any beneficial
interest in such trusts or such shares.
(10) Includes 858 shares held by the ESOP.
(11) Includes 371,395 shares held by the ESOP.
3

SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities to file
with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of Common Stock and other equity
securities, if any, of the Company. Executive officers, directors and
greater than ten percent beneficial owners are required to furnish the
Company with copies of all Section 16(a) forms they file.

To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no
other reports were required during the fiscal year ended December 31, 2000,
all Section 16(a) filing requirements applicable to its executive officers,
directors and greater than ten percent beneficial owners were complied
with, except that Gerald Fels, an executive officer and director of the
Company, filed one late report.

GOVERNANCE OF THE COMPANY

Proxies are solicited for the 2001 Annual Meeting to give all holders
of Common Stock a chance to vote for the persons who are to be their
representatives in the governance of the Company.

The Company's directors are elected annually by the stockholders and
hold office for a term of one year or until their successors, if any, are
elected and duly qualified.

The Board of Directors (the "Board") held four meetings during 2000,
and the attendance of directors as a group was 90.5%. The Board has a
standing Audit Committee which held six meetings during 2000, a standing
Compensation Committee which held two meetings in 2000 and a standing
Nominating Committee which held one meeting during 2000. All of the
directors attended 75% or more of the aggregate of their respective Board
and Committee Meetings except for Mr. Butler and Mr. Lavoie.

For information regarding the functions performed by the Audit
Committee, its membership and the number of meetings held during the fiscal
year, please refer to the "Report of the Audit Committee", included in this
Proxy Statement.

The Compensation Committee reviews the salary recommendations and
performance evaluations prepared by management for all officers and makes
recommendations to the Board for the salaries of the five highest paid
executive officers. This Committee also makes recommendations to the Board
regarding incentive compensation programs for officers and directors,
administers the Management Incentive Plan and has the authority to grant
awards.

The Nominating Committee reviews the qualifications of prospective
directors and provides recommendations to the Board for the nomination of
directors. The Nominating Committee considers stockholder proposals for
directors which should be sent to the attention of the Assistant to the
President at the Company's principal office.

Directors, including those who are employees of the Company, receive
$1,500 for each meeting of the Board of Directors of the Company attended.
Directors, who are not employees of the Company, are paid $500 for each
committee meeting of the Board of Directors of the Company attended.
Directors, who are not employees of the Company and serve as a director of
Commerce Holdings, Inc. ("CHI"), a subsidiary of the Company, or CHI's
subsidiaries, The Commerce Insurance Company ("Commerce") and Citation
Insurance Company ("Citation"), are paid $500 for each meeting of the Board
of Directors of CHI, Commerce and Citation, that he attends. Directors,
including those who are employees of the Company and serve as a Director of
ACIC Holding Co., Inc. ("AHC"), or its subsidiary, American Commerce
Insurance Company ("ACIC"), are paid $2,000 for each AHC or ACIC meeting
attended and $1,000 for each committee meeting of the Board of Directors
attended. AHC is an 80% owned subsidiary of Commerce. Certain directors
also serve as directors of Bay Finance Company, Inc. and Clark-Prout
Insurance Agency, Inc., wholly-owned subsidiaries of the Company. All
directors of the Company, including those who are employees of the Company,
receive an annual stipend of $22,000. In addition, all directors of CHI,
who are not directors of the Company, receive an annual stipend of $22,000.

Directors also receive an annual Book Value Award ("BVA"), which
entitles the recipient to receive a cash payment for each BVA based upon
the increase in the book value of a share of Common Stock in excess of a
specified minimum target. In 2000, each director received a number of BVAs
approximately equal to 10.6% of the compensation paid to him as a director
of the Company during 1999. Each 2000 BVA entitles the director to receive
a cash payment equal to the book value of a share of Common Stock on
December 31, 2002, less the base price of such BVA. The base price for the
2000 BVAs ($24.37) is the book value of a share of Common Stock on December
31, 1999 ($18.82) increased at the rate of 9% per annum compounded annually
through December 31, 2002. For the purpose of this calculation, the
December 31, 2002 book value of a share of Common Stock is increased for
all cash dividends and the fair market value of all distributions of
property made by the Company which the director would have been entitled to
receive had he owned, from the date of the BVA grant until the expiration
date, that number of shares of Common Stock equal to the number of BVAs
under such award. The book value of a share of the Company's Common Stock
excludes changes in unrealized gains and losses on bonds and preferred
stocks. It is a condition to the receipt of any payment that may be due
under a 2000 BVA to a director that the recipient has been a director of
the Company continuously through April 30, 2002, unless his term shall have
been terminated because of death or for any reason approved by the Board of
Directors of the Company. Payments under the BVAs are accelerated in the
event of the sale of the Company. See "Executive Compensation and Other
Transactions" and "Compensation Committee Report" for a description of BVAs
granted to the Company's executive officers.

During 2000, the Company's Directors approved a Directors' Retirement
Compensation Plan (the "Retirement Plan"). The Retirement Plan becomes
effective for each Company Director (including Directors who are employees
of the Company) upon terminating service from the Company's Board of
Directors provided that such termination was not made under conditions
adverse to the Company's interest. Effective with the annual meeting
wherein the Director is not reappointed to the Board of Directors, and
provided benefits are not paid until such time as the Director has attained
the age of 65, the Company will pay an annual retirement benefit equal to
50% of the average annual total compensation disclosed on Form 1099 of the
Director for the immediately preceding three full years ("three year
average compensation"). The annual retirement benefit of 50% of the three
year average compensation vests at the rate of 4.0% for each year of Board
of Directors service up to a maximum of 100% vesting through termination of
service. Payments continue for a maximum of ten years over the remaining
life of the terminated Director, or his or her then spouse, if the Director
pre-deceases the spouse. No payments are to be made after the death of the
Director and spouse. Expenses related to the Retirement Plan in 2000
amounted to $2,364,000 and a total of $19,000 was paid under the Retirement
Plan.
5

REPORT OF THE AUDIT COMMITTEE

2000

In accordance with rules recently established by the SEC, this report
has been prepared by the Audit Committee for inclusion in this proxy
statement. The Committee meets with the Company's internal and independent
auditors, with and without management present, to discuss the overall scope
and plans for their respective audits, and to review the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting. The Board of
Directors has adopted a written charter for the Audit Committee, which is
attached to this proxy statement as Appendix A. Each member of the Audit
Committee satisfies the definition of an "independent director" as
established by the New York Stock Exchange.

As part of its ongoing activities, the Audit Committee has:

Reviewed and discussed with management the Company's audited
consolidated financial statements for the fiscal year ended
December 31, 2000;

Discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communications
with Audit Committees, as amended; and,

Received the written disclosures and the letter from the independent
auditors required by independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and has discussed with the
independent auditors their independence.

Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited
consolidated financial statements be included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000 and be
filed with the SEC.

Respectively submitted,

Joseph A. Borski, Jr., Chairman
David R. Grenon
Suryakant M. Patel

ELECTION OF DIRECTORS

It is the intention of the persons named as Proxies in the
accompanying form of Proxy (unless otherwise specified by the stockholder
granting the proxy) to vote such Proxies (a) to fix the number of directors
for the ensuing year at 18, and (b) to elect the persons named in the
following table, all of whom are now members of the Board of Directors, to
serve until the next scheduled annual meeting and until their successors
are chosen and qualified. In the event, however, that any of the nominees
for membership on the Board of Directors becomes unavailable (which is not
now anticipated by the Company), the persons named as Proxies have
discretionary authority to vote for a substitute or to reduce the number of
directors to be determined and elected. The Board of Directors of the
Company has no reason to believe that any of the nominees will be unwilling
or unable to serve if elected.

Director
Name Position with the Company Age since

Arthur J. Remillard, Jr. President, Chief Executive 70 1972
Officer, Chairman of
the Board, Director

Gerald Fels (2) Executive Vice President, 58 1976
Chief Financial Officer,
Director

Arthur J. Remillard, III (2) Senior Vice President - 45 1983
Policyholder Benefits,
Assistant Clerk, Director

John W. Spillane (2) Clerk, Director 68 1972

Regan P. Remillard Senior Vice President,
Director 37 1993

Herman F. Becker (2) Director 72 1972

Joseph A. Borski, Jr. (1),(3) Director 67 1972

Eric G. Butler Director 73 1988

Henry J. Camosse Director 70 1972

David R. Grenon (3) Director 61 1972

Robert W. Harris Director 69 1975

Robert S. Howland Director 81 1972

John J. Kunkel Director 89 1972

Raymond J. Lauring Director 75 1972

Roger E. Lavoie Director 75 1972

Normand R. Marois (1) Director 65 1972

Director
Name Position with the Company Age since

Suryakant M. Patel (2),(3) Director 60 1983

Gurbachan Singh Director 62 1991

(1) Member of the Compensation Committee.
(2) Member of the Nominating Committee.
(3) Member of the Audit Committee.

Arthur J. Remillard, Jr. has been the President, Chief Executive
Officer and Chairman of the Board of the Company since 1976 and of The
Commerce Insurance Company ("Commerce") since 1972. Mr. Remillard, Jr. has
been in the insurance business for more than 35 years. Mr. Remillard, Jr.
is also Vice Chairman of the Governing Committee, Chairman of the Actuarial
Committee, a member of the Governing Committee Review Panel, Chairman of
the Budget Committee and a member of the Personnel Committee of the
Commonwealth Automobile Reinsurers ("C.A.R."). Mr. Remillard, Jr. is also
Chairman of the Governing Committee and a member of the Budget Committee,
Executive Committee and Nominating Committee of the Automobile Insurers
Bureau of Massachusetts ("A.I.B.").

Gerald Fels, a Certified Public Accountant, was appointed Executive
Vice President of the Company in November, 1989. From 1981 to November,
1989, Mr. Fels was Senior Vice President of the Company. Mr. Fels was the
Treasurer of the Company from 1976 to 1995 and of Commerce from 1975 to
1995. Mr. Fels has also been Chief Financial Officer of the Company since
1976 and of Commerce since 1975.

Arthur J. Remillard, III was appointed Senior Vice President-
Policyholder Benefits in 1988 and has been Assistant Clerk of the Company
since 1982. From 1981 to 1988, Mr. Remillard, III was Vice President-
Mortgage Operations. In addition, Mr. Remillard, III has also served on
the Board of Governors of the Insurance Fraud Bureau of the A.I.B. since
1991, the C.A.R. Claims Advisory Committee since 1990 and the A.I.B. Claims
Committee since 1991.

John W. Spillane has been counsel to and Clerk of the Company since
its incorporation and a practicing attorney since 1957. He is also a
director of Rovac Corporation, a seller of air conditioning equipment.

Regan P. Remillard was appointed President of ACIC Holding Co., Inc.
in 1998 and Vice Chairman of the Board and Chief Executive Officer of
American Commerce Insurance Company in 1999. Mr. Remillard was appointed
President of Commerce West Insurance Company in 1996. Mr. Remillard was
appointed Senior Vice President of the Company in 1995. Mr. Remillard was
General Counsel of the Company from 1995 to February 2000. From 1994 to
1995, Mr. Remillard was a practicing attorney at Hutchins, Wheeler &
Dittmar, a Massachusetts law firm specializing in corporate law and
litigation. From 1989 to 1993, Mr. Remillard was Government Affairs
Monitor of the Company. Mr. Remillard is a member of the Massachusetts
Bar.

Herman F. Becker has been the owner of Sterling Realty, a real estate
agency, since 1962, as well as owner of ABCO Development Co. In addition,
since 1971, Mr. Becker has been the principal stockholder, President and
Treasurer of Huguenot Development Corp., a real estate development
corporation.

Joseph A. Borski, Jr. has been a self-employed Certified Public
Accountant since 1960.

Eric G. Butler was Vice President-Claims and the General Claims
Manager of Commerce and Citation from 1981 until his retirement in 1992.

Henry J. Camosse was the President of Henry Camosse & Sons Co., Inc.,
a building and masonry supplies company, from 1964 until his retirement in
1992.

David R. Grenon is Chairman Emeritus and Assistant Clerk of The
Protector Group Insurance Agency, Inc., a property and casualty insurance
agency headquartered in Worcester, Massachusetts. Mr. Grenon previously
was the President of several property and casualty insurance agencies
located in Massachusetts, including The Protector Group Insurance Agency,
Inc., of which he was President and Chief Executive Officer from 1981 to
1994. Mr. Grenon also was a director of CFX Corporation and Safety Fund
National Bank, a subsidiary of CFX Corporation. CFX Corporation was
acquired by People's Heritage Financial Group, Inc.

Robert W. Harris is retired. Prior to retirement, Mr. Harris was the
Treasurer of H.C. Bartlett Insurance Agency, Inc. from 1958 until 1987.

Robert S. Howland has been retired since 1985. Prior to retirement,
Mr. Howland was the Clerk of H.C. Bartlett Insurance Agency, Inc.

John J. Kunkel is President and Treasurer of Kunkel Buick & GMC Truck
and Treasurer of Kunkel Bus Company. He is also a licensed real estate
broker and licensed auto damage appraiser.

Raymond J. Lauring has been retired since 1983. Prior to retirement,
Mr. Lauring was the President of Lauring Construction Company.

Roger E. Lavoie is retired. Prior to retirement, Mr. Lavoie was the
President and Treasurer of Lavoie Toyota-Dodge, Inc. since 1980.

Normand R. Marois is retired. Prior to retirement, Mr. Marois was
Chairman of the Board of Marois Bros., Inc., a contracting firm, since
1984. Mr. Marois was appointed a director of PipeDirect.COM in 2000.

Suryakant M. Patel is retired. Prior to retirement, Dr. Patel was a
physician specializing in internal medicine since 1966.

Gurbachan Singh is retired. Prior to retirement, Dr. Singh was a
physician engaged in the practice of general surgery for more than 25
years.

The only family relationships among any of the executive officers or
directors of the Company are that Arthur J. Remillard, III and Regan P.
Remillard are the sons of Arthur J. Remillard, Jr. and that Randall V.
Becker, Treasurer and Chief Accounting Officer of the Company, is the son
of Herman F. Becker.

EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS

The following table contains a summary of the annual, long-term and
other compensation for each of the fiscal years ended December 31, 2000,
1999 and 1998, of those persons who were, at December 31, 2000, the Chief
Executive Officer and the other four most highly compensated executive
officers of the Company.

Summary Compensation Table

Long-term compensation
Awards Payments
Securities
Annual Underlying
Name and Compensation Options/ LTIP All Other
Principal Position Year Salary SARs(#)(1) Payouts(2) Compensation(3)

Arthur J. Remillard, Jr. 2000 $660,000 191,465 $ 396,923 $60,652
President, Chief Executive 1999 600,563 147,463 1,674,632 57,077
Officer and Chairman of 1998 577,464 152,512 3,853,779 58,820
the Board

Gerald Fels 2000 360,000 95,733 201,992 72,806
Executive Vice President and 1999 300,301 147,462 841,661 69,478
Chief Financial Officer 1998 288,757 76,256 1,937,047 53,150

Regan P. Remillard 2000 240,000 56,574 79,022 88,496
Senior Vice President 1999 212,946 83,660 271,401 107,268
1998 204,756 32,446 664,443 50,569

James A. Ermilio 2000 215,004 20,723 - 138,671
Vice President and General 1999 127,525 25,536 - 184,923
Counsel (4) 1998 89,508 6,933 - 50,216

Arthur J. Remillard, III 2000 190,008 34,270 85,120 52,502
Senior Vice President- 1999 161,269 23,755 298,986 50,429
Policyholder Benefits and 1998 155,065 24,569 688,212 50,515
Assistant Clerk

(1) The 2000 and 1999 amounts represent stock options granted. The 1998
amounts represent stock appreciation rights granted.

(2) Represents payments on Book Value Awards tied to increases in the book
value of a share of the Company's Common Stock and payments on Stock
Appreciation Rights tied to increases in the market value of a share
of the Company's Common Stock. Payments made in 2000 on Book Value
Awards were tied to increases in book value which matured in 2000.
Payments made in 2000 on Stock Appreciation Rights were tied to
increases in the average daily high and low market value of the
Company's common stock for the three months ended March 31, 2000. The
2000 amounts include book value award payments of $7,059 each to
Arthur J. Remillard, Jr., Gerald Fels, Regan P. Remillard, and Arthur
J. Remillard, III related to their service as Directors of the
Company.

(3) The 2000 amounts under "All Other Compensation" consist of directors
fees of $28,000 each to Arthur J. Remillard, Jr. and Arthur J.
Remillard, III, $47,000 each to Gerald Fels and Regan P. Remillard
and $22,000 to James A. Ermilio; the cost of group-term life
insurance (based on the Internal Revenue Service Uniform Cost Table)
provided by the Company in excess of $50,000 to Arthur J. Remillard,
Jr. of $8,652, to Gerald Fels of $1,806, to Regan P. Remillard of
$422, to James A. Ermilio of $340, and to Arthur J. Remillard, III of
$502; cash bonus of $8,000 to each of the named executive officers;
contributions of $17,000 made or accrued by the Company to

the ESOP for each of the named executive officers; $17,074 to Regan
P. Remillard representing reimbursement of additional state income
tax expense incurred due to dual tax status in California and
Massachusetts; and, $92,331 to James A. Ermilio representing an
incentive for Mr. Ermilio to join the Company. The amount of the
Company's contribution to the ESOP is determined annually by the
respective subsidiary Board of Directors. Benefits under the ESOP
become partially vested when a participant has completed three years
of service.

(4) Mr. Ermilio served as Vice President and Associate General Counsel
from September 1998 to February 2000 at which time he was appointed
Vice President and General Counsel.

The following table contains information concerning certain stock
options ("Options") granted to the Chief Executive Officer and the other
named executive officers during fiscal 2000:

Option Grants in Last Fiscal Year (1)

Individual Grants
Number of % of Total Potential Realizable Value at
Securities Options Granted Assumed Annual Rates of
Underlying to Employees Stock Price Appreciation
Options in Fiscal Exercise Expiration for Terms of Options
Name Granted(#)(2) Year Price (3) Date 5%(4) 10%(4)

Arthur J. Remillard, Jr. 191,465 29.7% $31.59 April 6, 2008 $1,671,489 $5,152,323

Gerald Fels 95,733 14.9% 31.59 April 6, 2008 835,749 2,576,175

Regan P. Remillard 56,574 8.8% 31.59 April 6, 2008 493,891 1,522,406

James A. Ermilio 20,723 3.2% 31.59 April 6, 2008 180,912 557,656

Arthur J. Remillard, III 34,270 5.3% 31.59 April 6, 2008 299,177 922,206

(1) See "Compensation Committee Report" for additional information
regarding the Company's current incentive compensation program,
consisting of Options and BVA grants under the Company's Management
Incentive Plan approved by the stockholders in 1994 ("Management
Incentive Plan").

(2) During 2000, the Company granted Options under the Management
Incentive Plan. The Options entitle the recipient to purchase Common
Stock at the exercise price, on April 5, 2003, the vesting date or
thereafter. Options vest immediately in the event of the sale of the
Company. It is a condition to any Option exercise that the
participant has been in the continuous employ of the Company through
January 5, 2003, unless such employment shall have terminated due to
the participant's death or for any reason approved by the Company.
Unexercised Options shall terminate after the close of business on
April 6, 2008. If the recipient voluntarily terminates employment
with the Company after the vesting date options will be exercisable
only during the three months immediately following such termination
of employment, after which the Options shall terminate. A separate
Bonus Payment Agreement provides that within thirty days of the date
of exercise of an Option, the Company will pay the sum of all cash
dividends that the Option recipient would have been entitled to had
the recipient owned shares of common stock from April 5, 2000, the
grant date of the Option, to April 5, 2003, the vesting date of the
Option, or such earlier date as determined by the Company's Board of
Directors or as otherwise provided for in the agreement.

(3) The exercise price ($31.59) is the average of the daily high and low
price for a share of Common Stock for the three months ended March 31,
2000 ($27.29) increased at the rate of 5% per annum compounded
annually for three years.
11

(4) The dollar amounts set forth under these columns are the result of
required calculations made at assumed 5% and 10% appreciation rates
above the $27.29 average price noted in (3) less the exercise price
through the expiration date. These amounts are not intended to
indicate actual or projected future price appreciation, if any, of the
Company's Common Stock.

The following table shows information for the Chief Executive Officer
and the other named executive officers concerning the number of SARs
redeemed and the value realized upon redemption during the year ended
December 31, 2000 and the aggregate number and value of Options and
SARs held as of December 31, 2000. Stock options were outstanding at
December 31, 2000 but none were available to be exercised during 2000.
The Company granted stock options for the first time in 1999.

Aggregated SAR Exercises in Last Fiscal Year
and Option/SAR Values at December 31, 2000 (1)

Number of Securities
Underlying Unexercised Value of Unexercised In-
Number of Value of SARs Option/SARs at the-Money Options/SARs at
SARs Redeemed Realized December 31, 2000(#)(3)(4) December 31, 2000(5)(6)
NAME in 2000(#)(2) in 2000 Exercisable Unexercisable Exercisable Unexercisable

Arthur J. Remillard, Jr. 160,835 $ 247,686 0 491,440 $ 0 $ 0

Gerald Fels 80,418 123,844 0 319,451 0 0

Regan P. Remillard 23,882 36,778 0 172,680 0 0

James A. Ermilio 0 0 0 53,192 0 0

Arthur J. Remillard, III 25,905 39,894 0 82,594 0 0

(1) See "Compensation Committee Report" for additional information
regarding the Company's current incentive compensation program,
consisting of Option, SAR and BVA grants under the Company's
Management Incentive Plan.

(2) SAR awards provide solely for cash payments.

(3) The SARs that were unexercisable at December 31, 2000 reflect one SAR
grant awarded in 1998. Each SAR entitles the recipient to receive a
cash payment by April 30 in the third year after the year in which
the SAR is granted. This potential cash payment is equal to the
difference between (a) the average of the daily high and low market
price per share of the Company's Common Stock for the three months
ending March 31 in the year the SAR matures, plus all dividend
distributions received by holders of the Common Stock for the three
year period ending as of that March 31 (collectively, the "Redemption
Price") and (b) the Base Price (as defined below) of such SAR. The
Base Price of an SAR is the average of the daily high and low market
price per share of the Company's Common Stock for the three months
ended as of March 31 in the year granted, increased at the rate of 5%
per annum compounded annually for the three years.

Options granted in 2000 and 1999 were also unexercisable at December
31, 2000. Options entitle the recipient to purchase Common Stock at
the exercise price, on or after April 5, 2003 and April 30, 2002,
respectively, the vesting dates, or such earlier date as determined
by the Company's Board of Directors or as otherwise provided for in
the agreement.

(4) The average of the daily high and low market price per share of the
Company's Common Stock for the three months ended March 31, 1998 was
$34.23. Therefore, the Base Price of the SARs that become
exercisable in 2001 is $39.63, less dividends paid during the period
between April 1, 1998 and March 31, 2001.
12

(5) The estimated value of the unexercisable SARs and options, presented
above, was calculated assuming the Redemption Price would be equal to
the average daily high and low market price per share of the Company's
Common Stock for the three months ended December 31, 2000 of $25.97 as
reported by the New York Stock Exchange plus dividend distributions
received by holders of the Common Stock since the date of grant.
Dividends are currently payable at a rate of $1.16 per annum on a
share of the Company's Common Stock. Set forth in note 6 below is the
actual value of the SARs granted in 1998, which matured on March 31,
2001 and are payable by April 30, 2001.

(6) Based upon the actual Redemption Price of $31.90, there is no value
to the SARs that matured on March 31, 2001.

The following table contains information concerning certain long-term
incentive awards granted in the form of book value awards ("BVAs") under
the Management Incentive Plan to the Chief Executive Officer and the other
named executive officers during fiscal 2000:

Long-Term Incentive Plan - Book Value Awards (1)

Estimated
future payouts
under non-stock
Number of price-based plans
Name rights(#)(2) Maturity date Target(3)

Arthur J. Remillard, Jr. 66,585 April 30, 2003 $365,552

Gerald Fels 36,481 April 30, 2003 200,281

Regan P. Remillard 27,412 April 30, 2003 150,492

James A. Ermilio 13,815 April 30, 2003 75,844

Arthur J. Remillard, III 19,898 April 30, 2003 109,240

(1) See "Compensation Committee Report" for additional information
regarding the Company's current incentive compensation program,
consisting of Option and BVA grants under the Company's Management
Incentive Plan.

(2) During 2000, the Company granted BVAs which entitle the recipient to
receive by April 30, 2003, a cash payment for each BVA equal to the
book value of a share of Common Stock of the Company on December 31,
2002, less the base price of such BVA. The base price for the 2000
BVAs ($24.37) is the book value of a share of Common Stock on
December 31, 1999 ($18.82), increased at the rate of 9% per annum
compounded annually through December 31, 2002. For the purpose of
this calculation, the book value of a share of Common Stock at
December 31, 2002 is increased for all cash dividends and the fair
market value of all distributions of property made by the Company
which the recipient would have been entitled to receive had he owned
shares of Common Stock equal to the number of BVAs held by him from
the date of grant until the expiration date. The book value of a
share of the Company's Common Stock excludes changes in unrealized
gains and losses of bonds and preferred stocks. It is a condition to
the receipt of any payment that may be due under a BVA that the
participant has been in the continuous employ of the Company through
April 30, 2003, unless such employment shall have terminated due to
the participant's death or for any reason approved by the Board of
Directors of the Company. Payments under the BVAs are accelerated in
the event of the sale of the Company.

(3) Future payouts, if any, under the BVAs are tied to increases in the
book value of a share of Common Stock and other factors. Therefore,
it is not possible to determine the future payouts. The amounts set
forth in this column are the amounts that would be paid if the book
value of a share of the Common Stock of the Company plus dividends
increased by $2.96 in each of the years ended 2001 and 2002. This
amount represents an average of net earnings per weighted average
common share for 1998, 1999 and 2000, exclusive of the after-tax
impact of realized gains. The book value of a share of the Company's
Common Stock excludes changes in unrealized gains and losses of bonds
and preferred stocks. Unrealized gains and losses on common stocks,
including preferred stock mutual funds, are included in the
calculation. Although realized gains or losses are included in the
calculation of book value, these items have been excluded due to the
uncertainty of their re-occurrence and, therefore, the impact on the
Company's future book value. There can be no assurance that the
Company's performance will continue with the same or similar trends.

COMPENSATION COMMITTEE REPORT

2000

The Compensation Committee (the "Committee") is responsible for
recommending to the Board of Directors the establishment of policies that
govern both annual compensation and the incentive compensation plan for the
chief executive officer and other officers of the Company.

The Committee meets each year to review the base compensation of the
Company's officers, to grant awards under the Company's incentive
compensation plan and, as appropriate, to recommend changes in that plan or
the pattern of incentive compensation awards.

The Company's compensation program is designed to reward executives
for strategic management and enhancement of stockholder value. In general,
the same compensation policies are applied to the chief executive officer
and to all of the other executive officers of the Company.

The Management Incentive Plan adopted by the stockholders in 1994,
provides incentive compensation based on Book Value Awards ("BVAs"), Stock
Appreciation Rights ("SARs") and Stock Options ("Options"). As can be seen
from the Summary Compensation Table, the Company has made significant
incentive compensation payments because the Company's book value and market
value grew over the last several years. Approximately 35.5% of total
compensation paid to the chief executive officer during 2000 was
performance related. Approximately 26.7% of total executive compensation
paid during 2000 to the other named executive officers who received LTIP
payments, except for the chief executive officer, was performance related
as further explained below.

Since 1994, performance for purposes of the Company's compensation
program has been measured by a combination of (1) the increase in the book
value of the Company's stock, through the use of BVAs, and (2) the increase
in market value of a share of the Company's stock through the use of SARs
and, beginning in 2000, through the use of Options which replaced SARs
(collectively, the "Program"). The BVAs and Options granted for 2000 were
determined by dividing the base compensation of each officer by the
Company's book value of $18.82 at December 31, 1999. The number of BVAs
was then weighted by a factor of two. The number of Options was weighted
by a factor ranging from one to six, based on an officer's relative level
of responsibility and potential to affect the Company's overall performance
under a formula determined by the Compensation Committee.

The Committee reviews and determines the targeted minimum increase in
book value and market value for purposes of the Program. Awards made under
the Program in 2000, under the book value portion of the calculation,
provide that no incentive compensation will be payable unless the book
value of the Company's Common Stock at December 31, 2002, plus the value of
dividends paid on the Common Stock between that date and December 31, 1999,
exceeds $24.37, which represents an approximately 29.5% increase from the
Company's book value per share of $18.82 at December 31, 1999. Increases
or decreases in book value per share related to changes in the value of
bonds and preferred stocks, on an after-tax- basis, are excluded from this
calculation. Changes in the value of common stocks, including preferred
stock mutual funds, on an after-tax basis, are included in this
calculation. For the BVAs granted in 1999 and 1998, the targeted
compounded annual growth rate was also 9.0%, or 29.5% for the three-year
period. The Committee continued to recommend the 9.0% growth rate to the
Board of Directors as being in line with the Massachusetts insurance
marketplace.

Under the market value portion of the Program, incentive compensation
will be realized by the officers under the stock options only if and to the
extent that the market price of the Company's common stock, at the time of
exercise, exceeds the exercise price of $31.59. Options granted in 2000
and 1999 become exercisable on April 5, 2003 and April 30, 2002,
respectively, and terminate after the close of business on April 6, 2008
and May 1, 2007, respectively. Exercise prices of $31.59 and $32.81,
respectively represent an approximately 15.8% increase from $27.29 and
$28.34, respectively, the average of the daily high and low market prices
for the Common Stock for the three-month period ended March 31, 2000 and
1999, respectively. The minimum growth in the market value of Common Stock
required for the 2000 and 1999 Options to attain the initial exercise price
equates to a compounded annual rate of growth of 5.0% for three years from
the $27.29 and $28.34 average daily high and low price for the three months
ended March 31, 2000 and 1999, respectively. SARs granted in 1998 were
also granted at a 5.0% compounded annual rate. For the 2000 and 1999
Options, the Committee continued to recommend the 5.0% growth rate to the
Board as being in line with the Massachusetts insurance marketplace. The
stock options granted in 2000 and 1999 were intended to qualify as
incentive stock options to the maximum extent permissible under the
Internal Revenue Code. No advance payments of incentive compensation are
contemplated in the SAR or BVA portions of the Program.

The Company maintains an Employee Stock Ownership Plan and a 401(k)
Plan. See "Executive Compensation and Other Transactions".

The base salary for each officer other than the chief executive
officer is recommended by the Company's management and reviewed and
approved by the Committee. The 2000 base salaries for the Company's
executive officers, other than the chief executive officer, increased on
the average approximately 25.3% from 1999 base salaries. These increases
were intended to reflect increases in the cost of living, job performance
during 1999, and base salary as compared to similar positions in the
industry, all considered in the context of the officers' total
compensation. The Committee established the chief executive officer's base
salary for 2000, an approximate 9.9% increase, after taking into account
increases in the cost of living and the chief executive officer's job
performance during 1999, considered in the context of the Chief Executive
Officer's total compensation. Company management and the Committee review
industry salary surveys when establishing base salaries for all officers.
As part of the review of industry salary information, the Compensation
Committee believed it appropriate to increase base salaries for 2000 as
noted above.

The Committee will continue during 2001 to carefully consider officer
compensation, and the components thereof, in relation to the Company's
performance compared to that of industry performance levels for comparable
companies and the performance history of the Company itself.

Respectively submitted,

Joseph A. Borski, Jr., Chairman
Normand R. Marois

COMMON STOCK PERFORMANCE

The graph below compares the cumulative total stockholder return on
the shares of Common Stock of the Company for the last five years with the
cumulative total return of the New York Stock Exchange Index and a group of
six peer property and casualty insurance companies. The peer group
consists of Baldwin & Lyons, Inc., W.R. Berkley, Mercury General
Corporation, Progressive Insurance Group, Selective Insurance Group, Inc.
and Twenty First Century Insurance Group.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG THE COMMERCE
GROUP, INC., PROPERTY AND CASUALTY INSURANCE PEER GROUP AND
THE NEW YORK STOCK EXCHANGE INDEX.

The line graph, below, compares the yearly percentage change in the
Company's cumulative total shareholder return on common stock with that of
a group of six peer property and casualty insurance companies and with the
broad equity market index where the Company's Common Stock is traded. The
X-axis lists the "measurement period" of the last five fiscal years
beginning with December 31, 1995 and ending with December 31, 2000. The
Y-axis lists the dollar values starting with $100 and ending with $320
representing cumulative total return. The information in the subsequent
paragraph is the data plotted within the graph.

12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00

The Commerce Group, Inc. $100 $127 $170 $191 $148 $160
Property and Casualty Peer
Group 100 118 206 238 120 180
New York Stock Exchange Index 100 120 158 189 206 211

This line graph assumes an investment of $100 in the Company's Common
Stock, the New York Stock Exchange Index and the group of six peer property
and casualty insurance companies on December 31, 1995 and reinvestment of
all dividends.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The immediate family of Raymond J. Lauring, a director of the Company,
owns more than a 10% equity interest in Lauring Construction Company. Mr.
Lauring has no ownership interest in Lauring Construction Company. During
2000, Lauring Construction Company, provided construction and construction
management services in connection with the construction of a new addition
to an office building. Terms of the contract provided for a fee of
$111,000 for supervision and management of the project. Payments to
Lauring Construction Company including the management fee and for
additional construction work performed on this project in 2000 were
$222,000.

Arthur J. Remillard, Jr. spends considerable time in Boston,
Massachusetts in furtherance of the Company's business interests and,
because of this, the Company provides office and part-time living
accommodations to him at a condominium owned by the Company in Boston and
the use, for business purposes, of an automobile owned by the Company. The
Company believes the non-business connected economic benefit (if any) to
Mr. Remillard, Jr. to be minimal.

INDEPENDENT AUDITORS

Fees paid to the Company's independent auditors, Ernst & Young LLP for
the last fiscal year were $152,000 for the annual audit and $107,000 for
audit related services, including state mandated audits of subsidiaries and
audits of Company sponsored retirement plans. There were no services
performed by Ernst & Young LLP during 2000 that would not be considered
either audit or audit related. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting and will have the opportunity
to make a statement if they desire to do so and will be available to
respond to appropriate questions. As they have in the past several years,
the Directors have not voted an independent auditor for 2001 at this time.
Management anticipates that the Directors will consider the selection of an
independent auditor for the 2001 fiscal year at the first meeting of the
Board of Directors following the Annual Meeting.

OTHER BUSINESS

The Proxy confers discretionary authority with respect to any other
business, which may come before the Annual Meeting. The Board knows of no
other matters to be presented at the Annual Meeting. The persons named in
the Proxy will vote according to their best judgment if any matter not
included in this Proxy Statement does properly come before the Annual
Meeting.

STOCKHOLDER PROPOSALS

Any stockholder proposal intended to be presented at the 2002 Annual
Meeting must be received at the Company's principal office by December 14,
2001 for consideration of inclusion in the Proxy Statement and form of
Proxy related to that Meeting. The proposal must comply in all respects
with the rules and regulations of the Securities and Exchange Commission.

APPENDIX A

Charter of the Audit Committee of the Board of Directors
of The Commerce Group, Inc.

I. Audit Committee Purpose

The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:

* Monitor the integrity of the Company's financial reporting process
and systems of key internal controls including computerized
information system controls and security regarding finance,
accounting, and compliance by the Company with legal and regulatory
requirements.

* Monitor the independence and performance of the Company's independent
auditors and internal auditing department.

* Provide an avenue of communication among the independent auditors,
management, the internal auditing functions, and the Board of
Directors. Other overall responsibilities include:

~ Make regular reports to the Board of Directors.

~ Encourage adherence to, and continuous improvement of, the
Company's policies, procedures, and practices at all
levels.

~ Review areas of potential significant financial risk to
the Company.

~ Obtain a report from the General Counsel for the Company
and the Compliance

~ Officer, at least annually, regarding the Company's
compliance program and pending or threatened litigation
against the Company.

II. Audit Committee Authority

The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to
and may meet with the independent auditors as well as any of the Company's
officers or employees, contractors, vendors, consultants or other parties
the Committee deems necessary, including but not limited to private
meetings with such. The Audit Committee has the authority to retain, at
the Company's expense, special legal, accounting, or other consultants or
experts it deems necessary in the performance of its duties.

III. Audit Committee Composition and Meetings

Audit Committee members shall satisfy the requirements of the New York
Stock Exchange.

Audit Committee members shall be appointed by the Board of Directors
from among its members. If an Audit Committee Chair is not designated or
present, the members of the Committee may designate a chair by majority
vote of the Committee membership. A majority of the members of the Audit
Committee of The Commerce Group, Inc. shall constitute a quorum. Any
action of the Audit Committee must be approved by a majority of the entire
Committee. The Committee may designate any one of its members to act on
its behalf.

The Committee shall meet as circumstances dictate.

IV. Audit Committee Responsibilities and Duties

Review Procedures

1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have the
document published in accordance with the requirements of the
Securities and Exchange Commission (SEC).
A-1

2. In accordance with the SEC and New York Stock Exchange rules and
regulations, review and discuss with management and the independent
auditors the annual audited financial statements prior to the filing
of the Company's Annual Report on Form 10K. Discuss certain matters
required to be communicated to audit committees in accordance with
SAS 61, as amended.

3. Annually prepare a report to shareholders as required by the SEC.
The report should be included in the Company's annual proxy
statement. The SEC requires that the Audit Committee issue a report
to shareholders stating whether the Committee has:

* Reviewed and discussed the audited financial statements with
management;
* Discussed with the independent auditors the matters required to be
discussed by SAS 61, as amended, and
* Received certain disclosures from the auditors regarding their
independence as required by ISB 1 and then include a statement based
on this review if the Audit Committee recommended to the Board to
include the audited financial statements in the annual report filed
with the SEC.

4. In consultation with management, the independent auditors, and the
internal auditors, consider the integrity of the Company's financial
reporting processes and controls. Discuss significant financial risk
exposures and the steps management has taken to monitor, control, and
report such exposures. The Committee may review significant findings
prepared by the independent auditors and the internal auditing
department together with management's responses, including the status
of previous recommendations.

5. Review with financial management and the independent auditors the
quarterly financial results prior to the quarterly filing of Form
10-Q. Discuss any significant changes to the accounting principles
and any items required to be communicated by the independent auditors
in accordance with SAS 61, as amended.

Independent Auditors

6. The independent auditors are ultimately accountable to the Board of
Directors. The Audit Committee shall review the independence and
performance of the auditors and recommend to the Board of Directors
the appointment or discharge of the independent auditors as
appropriate.

7. Review and approve the independent auditor's engagement letter and
audit engagement fees prior to payment. Review significant management
consulting services performed by the independent auditors' firm and be
advised of any other significant study undertaken at the request of
management that is beyond the scope of the audit engagement letter.

8. On at least an annual basis, the Committee shall review and discuss
with the independent auditors all significant relationships they have
with the Company that could impair the auditors' independence.

9. The Committee shall meet with the auditors to review the independent
auditors' audit plan to see that it is sufficiently detailed and
covers any significant areas of concern that the Audit Committee may
have.

10. In accordance with SAS 61, as amended, discuss with the independent
auditors judgments about the quality, not just the acceptability, of
the entity's accounting principles as applied in its financial
reporting.

Internal Audit Department and Corporate Compliance

11. Review the budget, plan, changes in plan, activities, organizational
structure, and qualifications of the internal audit department, as
needed. The internal audit department shall be responsible to senior
management, but have a direct reporting responsibility to the Board of
Directors through the Committee. As necessary, review the
appointment, performance, and replacement of the senior internal audit
executive.

12. Review significant reports prepared by the internal audit department
together with management's response and follow-up to these reports.
A-2

13. On at least an annual basis, review with the Company's General
Counsel any legal matters that could have a significant impact on the
organization's financial condition.

14. On at least an annual basis, receive a report from the Company's
Corporate Compliance Committee on the Company's compliance with
applicable laws and regulations, any significant internal financial
fraud or regulatory noncompliance that occurred at the Company,
including consideration of the internal controls that should be
strengthened to reduce the risk of a similar event in the future.

Other Audit Committee Responsibilities

15. Perform such other functions as assigned by law, the Company's
charter or by-laws, or the Board of Directors.

16. Maintain minutes of meetings and report to the Board as needed.

17. Periodically perform self-assessment of the Audit Committee
performance.

* Review, discuss and assess its own performance as well as the
Committee roles and responsibilities, seeking input from senior
management, the Board, and others if needed.
* Review each member's contribution to the Committee through the use
of a self-assessment form, which is then evaluated by the Chair of
both the Audit Committee and the Board.
* Discuss and address with the internal auditors and the independent
auditors any significant issues relative to overall Board
responsibility that, in their judgment, have been communicated to
management but have not been adequately resolved.

18. Annually review policies and procedures as well as internal audit
results associated with directors' and officers' expense accounts
and perquisites. In accordance with SEC and NYSE rules, annually
review a summary of directors' and officers' related party
transactions and potential conflicts of interest and consider the
results of any review of these areas by the independent auditor.

19. While the Audit Committee has the responsibilities and powers set
forth in this Charter, it is not the duty of the Audit Committee to
plan or conduct audits or to determine that the Company's financial
statements are complete and accurate and are in accordance with
generally accepted accounting principles. These are the
responsibilities of management and the independent auditor. Nor is
it the duty of the Audit Committee to conduct investigations, to
resolve disagreements, if any, between management and the independent
auditor, or to assure compliance with laws and regulations.

A-3

PROXY

THE COMMERCE GROUP, INC.
11 GORE ROAD (Route 16)
WEBSTER, MASSACHUSETTS 01570

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned stockholder of The Commerce Group, Inc. hereby
appoints Gerald Fels, Arthur J. Remillard, III and John W. Spillane (each
with power to act without the other and with power of substitution) as
proxies to represent the undersigned at the Annual Meeting of the Common
Stockholders of The Commerce Group, Inc. to be held at 9:00 a.m. on Friday,
May 18, 2001 and at any adjournment thereof, with all the power the
undersigned would possess if personally present, and to vote all shares of
Common Stock of the Company which the undersigned may be entitled to vote
at said Meeting, hereby revoking any proxy heretofore given.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE
REVERSE SIDE. IF NO SPECIFICATION IS MADE, IT IS THE INTENTION OF THE
PROXIES TO VOTE FOR A PROPOSAL TO FIX AT 18 THE NUMBER OF DIRECTORS OF THE
COMPANY AND FOR ALL NOMINEES FOR DIRECTOR LISTED ON THE REVERSE SIDE.

CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE

SEE REVERSE SIDE SEE REVERSE SIDE

? Please mark
votes as in
this example.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" FIXING THE
NUMBER OF DIRECTORS AT 18 AND "FOR" ALL NOMINEES.

1. FIXING THE NUMBER OF DIRECTORS OF THE COMPANY AT 18 AND ELECTION OF
DIRECTORS

Nominees: (01) Herman F. Becker, (02) Joseph A. Borski, Jr., (03) Eric G.
Butler, (04) Henry J. Camosse, (05) Gerald Fels, (06) David R. Grenon, (07)
Robert W. Harris, (08) Robert S. Howland, (09) John J. Kunkel, (10) Raymond
J. Lauring, (11) Roger E. Lavoie, (12) Normand R. Marois, (13) Suryakant M.
Patel, (14) Arthur J. Remillard, Jr., (15) Arthur J. Remillard, III, (16)
Regan P. Remillard, (17) Gurbachan Singh and (18) John W. Spillane.

FOR FIXING THE WITHHELD FROM FIXING THE
NUMBER OF DIRECTORS 0 NUMBER OF DIRECTORS AT 18 0
AT 18 AND FOR AND WITHHELD FROM ALL
ALL NOMINEES NOMINEES

0
For fixing the number of Directors at 18 and for all nominees except
as noted above

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT 0

MARK HERE IF YOU PLAN TO ATTEND THE MEETING 0

Please sign exactly as your name(s) appear(s) on this
proxy card and return promptly in the envelope
provided. When signing as attorney, executor,
trustee or guardian, please give your full title.

Signature Date: Signature: Date: