Edgar Filing: COMMERCE GROUP INC /MA

SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

(Amendment No.)

Filed by the Registrant [X]
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14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
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The Commerce Group, Inc.
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(Name of Registrant as Specified in Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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

April 11, 2003

To Our Stockholders:

I am pleased to invite you to attend the 2003 Annual Meeting of
Stockholders of The Commerce Group, Inc., which will be held at 9:00 a.m.
on Friday, May 16, 2003, at the Company's new Sutton Road Building, 16
Sutton Road, 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 if you so desire.

Cordially,

/s/ Arthur J. Remillard, Jr.

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

Table of Contents

Page
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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
Aggregated Fiscal Year-End Option Values 11
Long-Term Incentive Plan-Book Value Awards 12

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS 13

COMPENSATION COMMITTEE REPORT 15

COMMON STOCK PERFORMANCE 17

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 18

INDEPENDENT AUDITORS 18

OTHER BUSINESS 18

STOCKHOLDER PROPOSALS 19

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2003

April 11, 2003

To Our Stockholders:

You are cordially invited to attend the 2003 Annual Meeting of
Stockholders of The Commerce Group, Inc. (the "Company") at the Company's
new Sutton Road Building located at 16 Sutton Road, Webster, Massachusetts
at 9:00 a.m. on Friday, May 16, 2003. The meeting is called for the purpose
of considering and acting upon:

1. A proposal to fix at 17 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 21, 2003 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

/s/ John W. Spillane

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 16, 2003

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 16, 2003 at 9:00 o'clock a.m. at
the Company's new Sutton Road Building located at 16 Sutton Road in
Webster, Massachusetts and at any adjournment or adjournments thereof (the
"Annual Meeting"). The Company's Annual Report to Stockholders on Form 10-
K, containing the financial statements for the year ended December 31, 2002
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 21, 2003. The
Company mailed this Proxy Statement and related form of Proxy on or about
April 11, 2003.

VOTE REQUIRED

A Proxy is enclosed. Unless contrary instructions are indicated on
the Proxy, or the Proxy is revoked, all shares represented by each Proxy
received will be voted FOR a proposal to fix at 17 the number of directors
of the Company and FOR the election of the nominees for directors named on
page 7 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. There is no cumulative
voting in the election of directors. 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 21, 2003 will be entitled to receive notice of and to
vote at the Annual Meeting.

At the close of business on March 21, 2003, the Company had
31,879,835 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.

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 Georgeson
Shareholder 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 21,
2003 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)
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(a) Security ownership of certain beneficial owners:

The Commerce Group, Inc. 2,901,814 9.1%
Employee Stock Ownership Plan
211 Main Street
Webster, MA 01570

(b) Security ownership of directors and nominees:

Herman F. Becker 443,980 1.4%
Joseph A. Borski, Jr. 66,752 *
Eric G. Butler 177,424 *
Henry J. Camosse 195,211(2) *
Gerald Fels 761,343(3) 2.4%
David R. Grenon 328,842(4) 1.0%
Robert W. Harris 109,697(5) *
Robert S. Howland 68,474(6) *
John J. Kunkel 1,051,370 3.3%
Raymond J. Lauring 835,774 2.6%
Normand R. Marois 187,427 *
Suryakant M. Patel 577,034 1.8%
Arthur J. Remillard, Jr. 751,339(7) 2.4%
Arthur J. Remillard, III 975,527(8) 3.1%
Regan P. Remillard 685,752(9) 2.2%
Gurbachan Singh 410,102 1.3%
John W. Spillane 757,704(10) 2.4%

Name and Address Amount of Shares Percentage
of Beneficial Owner Beneficially Owned(1) of Shares(1)
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Arthur J. Remillard, Jr. 751,339(7) 2.4%
Gerald Fels 761,343(3) 2.4%
Regan P. Remillard 685,752(9) 2.2%
James A. Ermilio 22,658(11) *
Arthur J. Remillard, III 975,527(8) 3.1%

(d) All executive officers and 8,734,741(12) 27.4%
directors as a group (23 persons)

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* Less than 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. All other stock not yet allocated to participants
will be voted by the committee administering the ESOP (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 2,159,000
shares held by the ESOP at December 31, 2002 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 557,000 shares held by the ESOP at December 31, 2002
were allocated to the ESOP accounts of these individuals. The
remaining approximately 205,000 shares held by the ESOP at December
31, 2002 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 Gerald Fels is a member of the ESOP
Committee. Randall V. Becker and Joseph J. Staffieri, Executive
Officers of the Company, are also members 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 or family member
sharing the same home 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
31,879,835 shares outstanding at March 21, 2003, except for the
executive officers whose percentages are derived by dividing the
shares listed by outstanding shares plus their individual exercisable
option shares.
Includes 128,461 shares held by three trusts of which Mr. Camosse is
the trustee.
Includes 71 shares held by the ESOP and 243,195 shares that may be
acquired under exercisable options.
Includes 11,600 shares held by a trust of which Mr. Grenon's wife is
the trustee.
Includes 55,349 shares held by a trust of which Mr. Harris is the
trustee and 38,728 shares held by a trust of which Mr. Harris' wife
is the trustee.
Includes 48,474 shares held by a trust of which Mr. Howland is a co-
trustee with his son and 20,000 shares held by a trust of which Mr.
Howland's wife is the trustee.

(footnotes continued on following page)

Includes 2,772 shares held by the ESOP and 191,465 shares that may be
acquired under exercisable options.
Includes 147,201 shares held by the ESOP, 108,794 shares held by a
trust of which Mr. Remillard, III is the trustee, 37,204 shares held
by six trusts of which Mr. Remillard, III is a co-trustee and 58,025
shares that may be acquired under exercisable options.
Includes 8,694 shares held by the ESOP, 14,650 shares held by a trust
of which Mr. Remillard is a co-trustee and 140,234 shares that may be
acquired under exercisable options.
Includes 6,212 shares held by two trusts of which Mr. Spillane's son
is the trustee.
Includes 1,935 shares held by the ESOP and 20,723 shares that may be
acquired under exercisable options.
Includes 221,858 shares held by the ESOP and 800,563 shares that may
be acquired under exercisable options.

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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 the Company's Common Stock 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, 2002,
all Section 16(a) filing requirements applicable to its executive officers,
directors and greater than ten percent beneficial owners were complied
with, except that Regan P. Remillard, an executive officer and director of
the Company, filed a late Form 4 in March 2003 disclosing four separate
gifts of Common Stock that were given to him and a trust of which he is a
co-trustee, and Normand R. Marois and Gurbachan Singh, directors of the
Company, each filed one late report in March 2003 disclosing gifts of
common stock that were given by them.

GOVERNANCE OF THE COMPANY

Proxies are solicited for the 2003 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 2002,
and the attendance of directors as a group was 98.5%. The Board has a
standing Audit Committee which held five meetings during 2002, a standing
Compensation Committee which held two meetings in 2002 and a standing
Nominating Committee which held one meeting during 2002. All of the
directors attended 75% or more of the aggregate of their respective Board
and Committee Meetings.

For information regarding the functions performed by the Audit
Committee and its membership, 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 existing Management Incentive Plan and has the authority to
grant awards under that plan.

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
director nominees 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 attended. 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 meeting and $2,200 for each
ACIC meeting attended, respectively, and $1,000 for each committee meeting
of the Board of Directors attended. AHC is a 95% 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 $23,000. In
addition, directors of CHI who are not directors of the Company receive an
annual stipend of $23,000.

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 2002, each director received a number of BVAs
approximately equal to 8.2% of the compensation paid to him as a director
of the Company during 2001. Each 2002 BVA entitles the director to receive
a cash payment equal to the book value of a share of Common Stock on
December 31, 2004, less the base price of such BVA. The base price for the
2002 BVAs ($29.20) is the book value of a share of Common Stock on December
31, 2001 ($24.52) increased at the rate of 6% per annum compounded annually
through December 31, 2004. For the purpose of this calculation, the
December 31, 2004 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 and is adjusted for the impact of treasury stock and capital stock
transactions. It is a condition to the receipt of any payment that may be
due under a 2002 BVA to a director that the recipient has been a director
of the Company continuously through April 30, 2005, 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 and directors..

In 2001, 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 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 2002
amounted to $117,300 and a total of $35,600 was paid under the Retirement
Plan for two retired directors.

REPORT OF THE AUDIT COMMITTEE

2002

In accordance with the rules established by the Securities and
Exchange Commission ("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. 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, 2002;

* 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, 2002 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 17, 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(4)
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Arthur J. Remillard, Jr. President, Chief Executive Officer, 72 1972
Chairman of the Board, Director

Gerald Fels Executive Vice President, Chief 60 1976
Financial Officer, Director

Arthur J. Remillard, III Senior Vice President-Policyholder 47 1983
Benefits, Assistant Clerk, Director

John W. Spillane Clerk, Director 70 1972

Regan P. Remillard Senior Vice President, Director 39 1993

Herman F. Becker Director 74 1972

Joseph A. Borski, Jr. (1),(3) Director 69 1972

Eric G. Butler Director 75 1988

Henry J. Camosse Director 72 1972

David R. Grenon (3) Director 63 1972

Robert W. Harris Director 71 1975

Robert S. Howland Director 83 1972

John J. Kunkel (2) Director 91 1972

Raymond J. Lauring Director 77 1972

Normand R. Marois (1) Director 67 1972

Suryakant M. Patel (2),(3) Director 62 1983

Gurbachan Singh (2) Director 64 1991

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Member of the Compensation Committee.
Member of the Nominating Committee.
Member of the Audit Committee.
Prior to the Company's incorporation in 1976, the named person with a
date prior to 1976 was a director of The Commerce Insurance Company
which commenced business in 1972.

Arthur J. Remillard, Jr. has been the President, Chief Executive
Officer and Chairman of the Board of the Company since 1976. Mr. Remillard,
Jr. has been Chief Executive Officer and Chairman of the Board of The
Commerce Insurance Company ("Commerce") since 1972 and President of
Commerce from 1972 to November 2001. Mr. Remillard, Jr. is also Chairman of
the Governing Committee, Chairman of the Actuarial Committee, Vice Chairman
of the Governing Committee Review Panel, Chairman of the Budget Committee
and Vice Chairman of the Personnel Committee of the Commonwealth Automobile
Reinsurers ("CAR"). 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
("AIB").

Gerald Fels, a Certified Public Accountant, was appointed President
and Chief Operating Officer of Commerce in November 2001, and 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. Mr. Fels is also Vice Chair and a director
of American Nuclear Insurers and an Advisory Committee Member of several
investment funds managed by Conning Capital Partners.

Arthur J. Remillard, III was appointed Senior Vice President-
Policyholder Benefits in 1988 and has been Assistant Clerk of the Company
since 1982. In August 2001, Mr. Remillard, III became responsible for the
Claim Operations of American Commerce Insurance Company. From 1981 to 1988,
Mr. Remillard, III was Vice President-Mortgage Operations. In addition, Mr.
Remillard, III was elected Vice Chairman of the Board of Governors of the
Insurance Fraud Bureau of the AIB in 2002 and he has served on that Board
since 1991. Additionally, he has served on the CAR Claims Advisory
Committee since 1990 and the AIB 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. Mr. Spillane is the
Senior Partner of Spillane & Spillane LLP. He is also a director of Rovac
Corporation, a seller of air conditioning equipment.

Regan P. Remillard was appointed President of American Commerce
Insurance Company in 2001, 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 is 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 is the principal stockholder, President and
Treasurer of Huguenot Development Corp., a real estate development
corporation.

Joseph A. Borski, Jr. is a self-employed Certified Public Accountant
in the public practice of tax planning and preparation and accounting
services for 42 years. Mr. Borski, Jr. has served on the Audit Committee of
the Company for the past eleven years and has been the Chairman of the
Committee for the last seven years. Mr. Borski, Jr. has also been Chairman
of the Compensation Committee of the Company for the past twelve years. Mr.
Borski, Jr. has served on the Board of Directors of the Company since its
inception.

Eric G. Butler was Vice President-Claims and the General Claims
Manager of Commerce and Citation from 1981 until his retirement in 1993.

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 the retired founding President and CEO of the
Protector Group Insurance Agency, Inc. Mr. Grenon was actively engaged in
the property, casualty and life insurance business from 1961 to 2001. Mr.
Grenon also was a director of CFX Corporation and Safety Fund National
Bank, a subsidiary of CFX Corporation. CFX Corporation was acquired by
Banknorth Group, Inc. (formerly People's Heritage Financial Group, Inc.).
Mr. Grenon is also President of E-C Realty Corporation and E-C Realty LLC.

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.

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, 2002,
2001 and 2000, of those persons who were, at December 31, 2002, 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 (#) Payouts(1) Compensation(2)
-----------------------------------------------------------------------------------------------------------

Arthur J. Remillard, Jr. 2002 $755,370 - $200,333 $ 66,152
President, Chief Executive Officer 2001 $719,400 341,969 $255,556 $ 62,652
and Chairman of the Board 2000 $660,000 191,465 $396,923 $ 60,652

Gerald Fels 2002 $415,800 - $104,484 $ 76,106
Executive Vice President and 2001 $396,000 186,528 $133,544 $ 75,807
Chief Financial Officer 2000 $360,000 95,733 $201,992 $ 72,806

Regan P. Remillard 2002 $277,648 - $ 76,606 $ 74,685
Senior Vice President 2001 $264,000 103,627 $ 98,060 $ 86,072
2000 $240,000 56,574 $ 79,022 $ 88,496

James A. Ermilio 2002 $252,000 - $ 41,496 $ 51,920
Senior Vice President and 2001 $240,000 74,267 $ 55,464 $ 48,378
General Counsel 2000 $215,004 20,723 $ - $138,671

Arthur J. Remillard, III 2002 $225,854 - $ 60,102 $ 58,130
Senior Vice President- 2001 $215,100 65,633 $ 77,052 $ 54,616
Policyholder Benefits and 2000 $190,008 34,270 $ 85,120 $ 52,502
Assistant Clerk

--------------------
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 (2000 only) tied to increases in the market
value of a share of the Company's Common Stock. Payments made in 2002
on Book Value Awards were tied to increases in book value which
matured in 2002. The 2002 amounts include book value award payments
of $8,632 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. No payments on Stock Appreciation Rights
occurred in 2002 or 2001.
The 2002 amounts under "All Other Compensation" consist of directors
fees of $29,000 to Arthur J. Remillard, Jr., $29,000 to Arthur J.
Remillard, III, $45,800 each to Gerald Fels and Regan P. Remillard
and $23,000 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

(footnotes continued on following page)

Arthur J. Remillard, Jr. of $8,652, to Gerald Fels of $1,806, to
Regan P. Remillard of $385, to James A. Ermilio of $420, and to
Arthur J. Remillard, III of $630; cash bonus of $8,500 to each of the
named executive officers; and, contributions of $20,000 made or
accrued by the Company to the ESOP for each of the named executive
officers. 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 and fully vested after seven
years of service. Amounts received on exercise of stock options are
not included in this column. Information regarding shares acquired
and value realized on exercise of stock options in 2002 is reflected
in the table that follows.

--------------------

The table requiring information concerning stock options granted is
not presented since the Company discontinued the practice of granting stock
options in 2002.

The following table shows information for the Chief Executive Officer
and the other named executive officers concerning the number of stock
options redeemed and the value realized upon redemption during the year
ended December 31, 2002 and the aggregate number and value of stock options
held as of December 31, 2002. The Company granted stock options for the
first time in 1999, and these options became fully exercisable on April 30,
2002.

Aggregated Option Exercises in Last Fiscal Year
and Option Values at December 31, 2002 (1)

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Number of Options at Options at
Shares Acquired Value December 31, 2002 (#)(2) December 31, 2002 (3)
on Exercise Realized ---------------------------- --------------------------------
Name in 2002(#) in 2002 Exercisable Unexercisable Exercisable Unexercisable (4)
-----------------------------------------------------------------------------------------------------------------------------

Arthur J. Remillard, Jr. 147,463 $1,524,767 0 533,434 $ 0 $4,106,691

Gerald Fels 0 $ 0 147,462 282,261 $1,203,290 $2,157,336

Regan P. Remillard 0 $ 0 83,660 160,201 $ 682,666 $1,230,718

James A. Ermilio 25,536 $ 260,519 0 94,990 $ 0 $ 693,715

Arthur J. Remillard, III 0 $ 0 23,755 99,903 $ 193,841 $ 764,650

--------------------
See "Compensation Committee Report" for additional information
regarding the Company's Amended and Restated Incentive Compensation
Plan, which awards in 2002 consisted solely of BVA grants.
Options granted in 2001 and 2000 were unexercisable at December 31,
2002. These options entitle the recipient to purchase Common Stock at
the exercise price, on or after April 6, 2004 and April 5, 2003
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. Options granted in 1999 became exercisable on or after
April 30, 2002. There were no stock options granted after 2001.
The estimated value of the exercisable and unexercisable options,
presented above, was calculated assuming the market price of the
Company's Common Stock on the exercise date would be equal to the
closing market price per share of the Company's Common Stock at
December 31, 2002 of $37.49 as reported by the New York Stock
Exchange, plus (only for the options granted in 1999 and

(footnotes continued on following page)

2000) dividend distributions received by holders of the Common Stock
since the date of grant. Dividends are currently payable at a rate of
$1.24 per annum on a share of the Company's Common Stock. Set forth
in note 4 below is the value of the options granted in 2000 that
became exercisable on April 5, 2003 based upon the March 21, 2003
closing market price per share of the Company's Common Stock.
The options that became exercisable on April 5, 2003 have an exercise
price of $31.59. Based upon the March 21, 2003 closing market price
per share of the Company's Common Stock of $35.65, the value (and
number) of options that became exercisable on April 5, 2003 for the
named executive officers would be as follows: Arthur J. Remillard,
Jr.-$777,348 (191,465); Gerald Fels-$388,676 (95,733); Regan P.
Remillard-$229,690 (56,574); James A. Ermilio-$84,135 (20,723); and
Arthur J. Remillard, III-$139,136 (34,270). These options can be
exercised through April 4, 2008.

Pursuant to Bonus Payment Agreements, the Company agreed to pay as of
April 5, 2003 to each holder of an option granted on April 5, 2000 an
amount per option share equal to the dividends per share received by
holders of Common Stock between the date of grant and the vesting date
(April 5, 2003). The Company's Compensation Committee voted in 2003 to
accelerate the payment of dividends under the Bonus Payment Agreements,
resulting in the payment in February 2003 of $3.60 for each Option granted
in 2000. The amounts received by the named executive officers were as
follow: Arthur J. Remillard, Jr.-$689,274; Gerald Fels-$344,639; Regan P.
Remillard-$203,666; James A. Ermilio-$74,603; and Arthur J. Remillard, III-
$123,372.

The following table contains information concerning certain long-term
incentive awards granted in the form of book value awards ("BVAs") under
the Amended and Restated Incentive Compensation Plan to the Chief Executive
Officer and the other named executive officers during fiscal 2002:

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

Estimated
Future Payouts
Under Non-Stock
Price-Based Plans
Number of -----------------
Name Rights (#)(2) Maturity Date Target (3)
--------------------------------------------------------------------------------

Arthur J. Remillard, Jr. 295,677 April 30, 2005 $789,458

Gerald Fels 165,253 April 30, 2005 $441,226

Regan P. Remillard 90,362 April 30, 2005 $241,267

James A. Ermilio 70,309 April 30, 2005 $187,725

Arthur J. Remillard, III 63,691 April 30, 2005 $170,055

--------------------
See "Compensation Committee Report" for additional information
regarding the Company's Amended and Restated Incentive Compensation
Plan, consisting of BVA grants.
During 2002, the Company granted BVAs which entitle the recipient to
receive, by April 30, 2005, a cash payment for each BVA equal to the
book value of a share of Common Stock of the Company on December 31,
2004, less the base price of such BVA. The base price for the 2002
BVAs ($29.20) is the book value of a share of Common Stock on
December 31, 2001 ($24.52), increased at the rate

(footnotes continued on following page)

of 6% per annum compounded annually through December 31, 2004. For
the purpose of this calculation, the actual book value of a share of
Common Stock at December 31, 2004 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 December
31, 2004 book value of a share of the Company's Common Stock excludes
changes in unrealized gains and losses of bonds and preferred stocks
and is adjusted for the impact of treasury stock and capital stock
transactions. 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, 2005, 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
including retirement as specified within the terms of agreement.
Payments under the BVAs are accelerated in the event of the sale of
the Company.
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. Futhermore, there
are no minimum or maximum payouts under the BVAs. The amounts set
forth in this column are the amounts that would be paid if the
December 31, 2002 book value of a share of the Common Stock of the
Company: (a) adjusted for treasury stock purchased in 2002, (b)
excluding changes in unrealized gains and losses of bonds and
preferred stocks, (c) plus dividends paid in 2002 and, (d) increased
by $3.10 in each of 2003 and 2004. This $3.10 amount represents an
average of net earnings per weighted average common share for 2000,
2001 and 2002, exclusive of the after-tax impact of realized gains
and losses, change in accounting principle and the impact of variable
accounting for stock options. Although realized gains or losses are
included in the calculation of book value, these items have been
excluded due to the uncertainty of their 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.

--------------------

SECURITIES AUTHORIZED FOR ISSUANCE
UNDER EQUITY COMPENSATION PLANS

The following table contains a summary of the total number of shares
of the Company's stock to be issued upon exercise of outstanding stock
options, the weighted-average exercise price of these outstanding stock
options and the number of shares of the Company's stock remaining available
for future issuance under equity compensation plans at December 31, 2002.
This information is presented for equity compensation plans that have and
have not been approved by stockholders of the Company.

No. of Securities
Remaining
No. of Securities Weighted-Avg. Available for
to be Issued Upon Exercise Price Future Issuance
Exercise of of Outstanding Under Equity
Plan Category Outstanding Options Options Comp. Plans
----------------------------------------------------------------------------------------------------

Equity compensation plans approved
by security holders (1) 2,160,709 $31.35 2,557,664

Equity compensation plans not approved
by security holders (2)(3)(4) 2,597,380 $39.27 N/A
-------------------------------------------------
Total 4,758,089 $35.68 N/A
=================================================

(footnotes on following page)

During 2002, the Company's stockholders approved the Amended and
Restated Incentive Compensation Plan which provides for the award of
incentive stock options, non-qualified stock options, book value
awards, stock appreciation rights, restricted stock and performance
stock units. At the discretion of the Compensation Committee all
directors, officers and other senior management employees of the
Company or any of its subsidiaries are eligible to participate in
this plan.
On January 29, 1999, the Company granted stock options (the "Initial
Options") to insurance agents (the "Agents") of American Commerce
Insurance Company ("American Commerce") to purchase 1,872,380 shares
of Common Stock. The exercise price of the Initial Options is $36.32
per share. The Initial Options expire 10 years after the grant date.
Each Initial Option vests and becomes exercisable five years after
the grant date, based on the average annual volume of other-than-
Massachusetts private passenger automobile and homeowners direct
written premiums ("Qualifying Business") that the Agent places with
American Commerce during the five-year period ending December 31,
2003 (the "Five-Year Average"). The holders of the Initial Options
also have the right to require the Company to purchase the Initial
Options at a purchase price per share equal to the difference between
$40.00 less the exercise price of $36.32, after the Initial Option is
vested, if the Five-Year Average is equal to or greater than a
specified goal.
The Company has agreed to grant additional options (the "Growth
Options") to Agents who increase the volume of Qualifying Business
during the 12-month period ending on June 30 in each year. Pursuant
to these agreements, on July 31 in each year, the Company will grant
one Growth Option covering 25,000 shares of Common Stock for each
$1,000,000 increment of additional Qualifying Business. The exercise
price of the Growth Options will be equal to 125% of the average of
the daily averages of the high and low sale price per share of the
Common Stock for the month of June in that year. The Growth Options
expire 10 years after the grant date. Each Growth Option vests and
becomes exercisable five years after the grant date, if and only if,
the Qualifying Business that the Agent places with American Commerce
during the five-year period ending on the fifth anniversary of the
grant date is not less than the threshold of Qualifying Business that
triggered the grant of that Growth Option. The Company may terminate
its obligation to grant future Growth Options under the agreement by
giving the Agent written notice at least 90 days prior to the
effective date of such termination. Through December 31, 2002, the
Company has granted Growth Options covering 725,000 shares of Common
Stock.
Based upon the growth in Qualifying Business in the 2002 calendar
year, the Company expects to grant Growth Options covering
approximately 1.0 million shares of Common Stock in 2003.

--------------------

COMPENSATION COMMITTEE REPORT

2002

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 Management Incentive 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 Amended and
Restated 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 Amended and Restated Incentive Compensation Plan approved by the
stockholders in 2002, provides incentive compensation based on Book Value
Awards ("BVAs") 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 19.6% of total compensation
paid to the chief executive officer during 2002 was performance related.
Approximately 16.5% of total executive compensation paid during 2002 to the
other named executive officers who received LTIP payments, except for the
chief executive officer, was performance related as further explained
below.

Performance for purposes of the Company's compensation program has
historically 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 1999, through the use of Options which replaced SARs
(collectively, the "Program"). SARs were last granted in 1998 and matured
in 2001. In 2002, the Company discontinued the practice of granting Options
and awarded only BVAs. BVAs are based upon the performance of the Company,
as opposed to Options that are based upon the performance of the Company's
stock and the variations within the stock market. The BVAs granted for 2002
were determined by dividing the base compensation of each officer by the
Company's book value of $24.52 at December 31, 2001. The number of BVAs was
then weighted by a factor ranging from two to ten, 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 for purposes of the Program. Awards made under the Program in
2002 provide that no incentive compensation will be payable unless the book
value of the Company's Common Stock at December 31, 2004, plus the value of
dividends paid on the Common Stock between that date and December 31, 2001,
exceeds $29.20, which represents an approximately 19.1% increase from the
Company's book value per share of $24.52 at December 31, 2001. Increases or
decreases in book value per share related to changes in the market value of
bonds and preferred stocks 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. Adjustments are also
made for the impact of treasury stock and capital stock transactions. For
the BVAs granted in 2001 and 2000, the targeted compounded annual growth
rate was 9.0%, or 29.5% for the three-year period. In 2002, the Committee
recommended a 6.0% growth rate to the Board of Directors as being in

line with the Massachusetts insurance marketplace. No advance payments are
contemplated in the BVA Program at this time.

Under the market value portion of the Program, incentive compensation
will be realizable 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. Options granted in 1999 became
exercisable on April 30, 2002 and terminate after the close of business on
May 1, 2007. Options granted in 2000 and 2001 become exercisable on April
5, 2003 and April 6, 2004, respectively, and terminate after the close of
business on April 6, 2008 and April 7, 2009, respectively. The exercise
price ($30.80) of the options granted in 2001 was the closing market price
for a share of the Company's Common Stock on April 6, 2001 (the grant
date). Exercise prices of the options granted in 1999 ($32.81) and 2000
($31.59) represent an approximately 15.8% increase from $28.34 and $27.29,
respectively, the average of the daily high and low market prices for the
Common Stock for the three-month period ended March 31, 1999 and 2000,
respectively. The minimum growth in the market value of Common Stock
required for the 1999 and 2000 Options to attain the initial exercise price
equates to a compounded annual rate of growth of 5.0% for three years from
the $28.34 and $27.29 average daily high and low price for the three months
ended March 31, 1999 and 2000, respectively. The stock options granted in
1999, 2000 and 2001 were intended to qualify as incentive stock options to
the maximum extent permissible under the Internal Revenue Code.

The Company maintains an Employee Stock Ownership Plan with a 401(k)
component. 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 2002 base salaries for the Company's
executive officers, other than the chief executive officer, increased on
average approximately 5.0% from 2001 base salaries. These increases were
intended to reflect increases in the cost of living, job performance during
2001, 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 2002,
an approximate 5.0% increase, after taking into account increases in the
cost of living and the chief executive officer's job performance during
2001, 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 2002 as noted above.

The Committee will continue during 2003 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, appearing on Page 17, 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, 1997 and ending with December 31, 2002.
The Y-axis lists the dollar values starting with $0 and ending with $200
representing cumulative total return. The information in the subsequent
paragraph is the data plotted within the graph.

12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
--------------------------------------------------------------------------------------------------------

The Commerce Group, Inc. $100 $112 $ 87 $ 94 $135 $138
Property and Casualty Peer Group $100 $116 $ 58 $ 87 $113 $111
New York Stock Exchange Index $100 $119 $130 $133 $122 $ 99

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, 1997 and reinvestment of
all dividends.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Members of the immediate family of Raymond J. Lauring, a director of
the Company, own Lauring Construction Company. Mr. Lauring has no ownership
interest in Lauring Construction Company. During 2002, Lauring Construction
Company provided construction and construction management services in
connection with a contract for the estimated $13 million renovation of a
130,000 square foot building purchased by the Company. Terms of the
contract provide for a fixed fee of $650,000 for supervision and management
of the project over the term of the contract. Total payments on the
supervision and management services portion of the contract in 2002 were
$275,000. Payments to Lauring Construction Company in 2002 for actual
materials used and construction work performed on this project were
$2,308,129 and payments for other work unrelated to the project were
$33,000.

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 for services performed by the Company's independent auditors,
Ernst & Young LLP, for the fiscal year ended December 31, 2002, were
$269,410 and were for the following services:

Audit fees $165,000
All other fees 104,410
--------
Total $269,410
========

"All other fees" represent charges for state mandated audits of the
Company's four insurance subsidiaries and the mortgage banking subsidiary
and audits of Company sponsored retirement plans. There were no services
performed by Ernst & Young LLP during 2002 that would be considered
financial information systems design and implementation fees. The Audit
Committee considered the amount of fees charged by Ernst & Young LLP not
specifically related to the audit of the Company's consolidated financial
statements, and determined that amount is compatible with maintaining their
independence. 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 2003 as of the date of
this Proxy Statement.

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. Proxies solicited by the Board for the 2003 Annual Meeting will
confer discretionary authority to vote on any matter to come before the
Annual Meeting with respect to which the Company did not receive notice by
February 25, 2003.

STOCKHOLDER PROPOSALS

Any stockholder proposal intended to be presented at the 2004 Annual
Meeting must be received at the Company's principal office by December 12,
2003 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. A
stockholder proposal submitted after February 25, 2004 will be considered
untimely.

The Commerce Group, Inc. Annual Stockholders' Meeting

DIRECTIONS TO SUTTON ROAD BUILDING

FROM WITHIN MASSACHUSETTS
The Commerce Insurance Company is easily
accessible from the Massachusetts Turnpike
and Interstate 290 via Interstate 395 which leads
directly to Webster. The Massachusetts
Turnpike joins I-395 at Exit 10. I-290 merges
with I-395 in Auburn. Follow I-395 south to Exit
3 (Cudworth Road). Follow directions "TO
SUTTON ROAD BUILDING."

FROM CONNECTICUT
I-95 joins the Massachusetts Turnpike in
Springfield. Or, take Route 84 to Sturbridge and
connect with the Massachusetts Turnpike
eastbound. Exit the turnpike at Exit 10 in
Auburn, and follow I-395 south to Exit 3 in
Webster (Cudworth Road). Follow directions "TO
SUTTON ROAD BUILDING."

FROM RHODE ISLAND
Follow I-95 north to the Statehouse/Route 146
exit. Then follow Route 146 north to the Route
16 (Douglas/Webster) exit. Turn left at the exit
and follow Route 16 into Webster. Turn right
onto Sutton Road.

TO SUTTON ROAD BUILDING
From I-395 southbound, take Exit 3 (Cudworth Road).
Turn left at the end of the off-ramp onto Cudworth
Road and proceed 1.4 miles. Cudworth Road becomes
Sutton Road as you approach Commerce. The
driveway to the Sutton Road building entrance is on
the left next to the granite Commerce sign. From I-395
northbound, take Exit 3 (Cudworth Road). Turn right at
the end of the off-ramp and follow directions above for
Cudworth Road.

Picture of map

PROXY

THE COMMERCE GROUP, INC.
16 SUTTON ROAD
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 16, 2003 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 17 THE NUMBER OF DIRECTORS OF THE
COMPANY AND FOR ALL NOMINEES FOR DIRECTOR LISTED ON THE REVERSE SIDE.

THE COMMERCE GROUP, INC.
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694

[X] Please mark
votes as in
this example.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" FIXING THE NUMBER
OF DIRECTORS AT 17 AND "FOR" ALL NOMINEES.

1. FIXING THE NUMBER OF DIRECTORS OF THE COMPANY AT 17 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) Normand R. Marois,
(12) Suryakant M. Patel, (13) Arthur J. Remillard, Jr.,
(14) Arthur J. Remillard, III, (15) Regan P. Remillard,
(16) Gurbachan Singh and (17) John W. Spillane.

FOR FIXING THE WITHHELD FROM FIXING THE
NUMBER OF DIRECTORS [ ] [ ] NUMBER OF DIRECTORS AT 17
AT 17 AND FOR AND WITHHELD FROM ALL
ALL NOMINEES NOMINEES

[ ] ____________________________________________________
For fixing the number of Directors at 17 and for all
nominees except as noted above

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]

MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]

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: ________