UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
EXCHANGE ACT 
	OF 1934
	For the fiscal year ended December 31, 1996

OR

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
SECURITIES  EXCHANGE
	ACT OF 1934 [NO FEE REQUIRED]
	For the transition period from					 to 	
				.

	Commission file number 0-16882

The Commerce Group, Inc.
(Exact name of registrant as specified in its charter)

			Massachusetts						
	04-2599931
		(State or other jurisdiction				  (IRS 
Employer Identification No.)
		     of incorporation)

		       211 Main Street							   
01570
		 Webster, Massachusetts						(Zip 
Code)
	(Address of principal executive offices)

Registrant's telephone number, including area code: (508) 943-9000
Securities registered pursuant to Section 12(b) of the Act:

										Name of each 
Exchange
			Title of each Class					  on 
Which Registered  	
				None							 None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.50 Par Value Per Share
(Title of Class)

	Indicate by check mark whether the registrant (1) has filed all 
reports required to be filed by Section 13 or 15(d) of the Securities 
Exchange Act of 1934 during the preceding 12 months (or for such shorter 
period that the registrant was required to file such reports), and (2) 
has been subject to such filing requirements for the past 90 days.
	Yes	[X]	No	[ ]

	Indicate by check mark if disclosure of delinquent filers pursuant 
to Item 405 of Regulation S-K is not contained herein, and will not be 
contained, to the best of registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this 
Form 10-K or any amendment to this Form 10-K.	[ ]

	The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 1, 1997, was approximately 
$605,044,000.

	As of March 1, 1997, the number of shares outstanding of the 
registrant's common stock (exclusive of treasury shares) was 36,042,652.

DOCUMENTS INCORPORATED BY REFERENCE

	Parts I and II of this Form 10-K incorporate by reference 
information from the registrant's annual report to stockholders for the 
fiscal year ended December 31, 1996 (the "1996 Annual Report").  The 
1996 Annual Report, except for portions thereof which have been 
specifically incorporated by reference, shall not be deemed "filed" as 
part of this Form 10-K.

	Portions of the registrant's definitive Proxy Statement for its 
special meeting in lieu of the annual meeting of stockholders which the 
Company intends to file within 120 days after the end of the 
registrant's fiscal year ended December 31, 1996 are incorporated by 
reference into Part III hereof as provided therein.
<PAGE>





TABLE OF CONTENTS
												
		    Page

Glossary of Selected Insurance 
Terms................................................	 3
<TABLE>

Part I
<CAPTION>
<S>         <C>   <C>                                                                      
<C>
Item 1.
	Business..........................................................
 ......	 7
		A.
	General...........................................................
	 9
		B.	Commonwealth Automobile 
Reinsurers................................	11
		C.
	Marketing.........................................................
	13
		D.
	Underwriting......................................................
	15
		E.
	Reinsurance.......................................................
	16
		F.	Settlement of 
Claims..............................................	17
		G.	Loss and Loss Adjustment Expense 
Reserves.........................	18
		H.	Operating 
Ratios..................................................	21
		I.
	Investments.......................................................
	22
		J.
	Regulation........................................................
	24
		K.
	Competition.......................................................
	29
		L.	Other 
Matters.....................................................	30
Item 2.
	Properties........................................................
 ......	30
Item 3.	Legal 
Proceedings.......................................................
	30
Item 4.	Submission of Matters to a Vote of Security 
Holders.....................	31
Item 4A.	Executive Officers of the 
Registrant....................................	31

Part II

Item 5.	Market for Registrant's Common Stock and Related Stockholder 
Matters....	33
Item 6.	Selected Financial 
Data.................................................	33
Item 7.	Management's Discussion and Analysis of Financial Condition 
and
		 Results of 
Operations..................................................	33
Item 8.	Financial Statements and Supplementary 
Data.............................	34
Item 9.	Changes in and Disagreements with Independent Accountants on 
Accounting
		 and Financial 
Disclosure...............................................	34

Part III

Item 10.	Directors and Executive Officers of the 
Registrant......................	34
Item 11.	Executive 
Compensation..................................................	34
Item 12.	Security Ownership of Certain Beneficial Owners and 
Management..........	34
Item 13.	Certain Relationships and Related 
Transactions..........................	34

Part IV

Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 
8-K.........	35
	
	Signatures........................................................
 ......	36
		Index to Financial Statement 
Schedules..................................	38
		Index to 
Exhibits.......................................................	49
</TABLE>






2
<page


GLOSSARY OF SELECTED INSURANCE TERMS

Assumed premium.................... Premiums acquired or allocated to an 
insurer other  than
through its independent agencies.

Best's............................. A.M. Best Company, Inc. is a  rating 
agency reporting on
the financial condition of insurance 
companies. The Best's statistics 
cited in this Form 10-K are based 
upon information voluntarily 
submitted to it by insurers. The 
Company is aware of at least one 
domestic insurer that has not 
submitted data to Best's and 
therefore may not be reflected in 
Best's market share statistics.

Casualty insurance................. Insurance which is  primarily 
concerned with  the losses
of the insured due to injuries to 
other persons and to the property of 
others, and the legal liability 
imposed on the insured resulting 
therefrom.

Catastrophe, catastrophic loss..... A  severe loss,  usually  involving  
many risks  such as
conflagration, earthquake, 
windstorm, explosion and other 
similar events.

Combined ratio..................... A combination of the underwriting 
expense  ratio and the
loss and LAE ratio determined in 
accordance with SAP. The 
underwriting expense ratio measures 
the ratio of underwriting expenses 
to net premiums written, determined 
in accordance with SAP.  The loss 
and LAE ratio measures the ratio of 
incurred losses and LAE to earned 
premiums, determined in accordance 
with SAP.

Commissioner....................... The  Commissioner of  the Division  
of Insurance  of the
Commonwealth of Massachusetts.

Commonwealth Automobile
Reinsurers ("C.A.R.").............. C.A.R. is a Massachusetts mandated 
reinsurance mechanism,
under which all premiums, expenses 
and losses on ceded business are 
shared by all insurers. It is 
similar to a joint underwriting 
association because a number of 
insurers (41 in 1996) act as 
Servicing Carriers for the risks it 
insures.

Direct............................. Refers to premiums, losses, LAE and 
expenses on policies
which a company writes before 
accounting for business ceded and 
assumed through reinsurance.

Direct loss ratio.................. The ratio of direct  incurred losses 
and LAE  to  direct
earned premiums.

Direct premiums written............ Total  premiums  for  insurance  
sold  to  insureds,  as
opposed to, and not including, 
reinsurance premiums.

Domestic insurer................... An insurance company that operates 
in the state which it
is licensed.

Earned premiums.................... The portion of net premiums written 
that is equal to the
expired portion of policies 
recognized for accounting purposes 
as income during a period. Also 
known as premiums earned.







3
<page


Excess of loss reinsurance......... 
Reinsurance which indemnifies  the 
reinsured against all
or a specified portion of losses 
under reinsured policies in excess 
of a specific dollar amount or 
"retention".

Exclusive representative
producer ("ERP")................... A Massachusetts  automobile 
insurance  agency which does
not have a voluntary agency 
automobile insurance relationship 
with an insurer, and which is 
assigned by C.A.R. to an insurer who 
is a Servicing Carrier.

Exposure........................... An insurable unit defined as an 
automobile.

Group Marketing Program............ A "group  marketing  program" is any  
system,  design or
plan whereby motor vehicle or 
homeowner insurance is afforded to 
employees of an employer or to 
members of a trade union, 
association or organization in 
accordance with those provisions of 
M.G.L. c. 175, s. 193R, 
distinguishing such plans from a 
"mass merchandising plan".

Specifically, a group marketing 
program contemplates the issuance of 
such insurance through other than 
standard policies that preclude 
individual underwriting, contains an 
option to continue coverage by a 
standard policy upon termination of 
employment or membership, restricts 
cancellation, requires the 
continuance of certain 
participation, in ways not 
applicable to standard policies, and 
provides for the modification of 
rates based upon the experience of 
the insured group.

Hard Market........................ An insurance market  in which the  
demand for  insurance
exceeds the readily available supply 
and premiums are relatively high.

Incurred but not reported
("IBNR") reserves.................. Reserves for  estimated losses which  
have been incurred
by insureds but not yet reported to 
the insurer.

Incurred losses.................... The total losses sustained by an 
insurance company under
a policy or policies, whether paid 
or unpaid. Incurred losses include a 
provision for IBNR.

Inland marine insurance............ As used by the Company,  insurance 
that provides protec-
tion for specific types of personal 
property, such as jewelry, coins and 
fine arts, over the limits covered 
in a standard homeowners insurance 
policy.

Loss adjustment expenses ("LAE")... The  expense of  settling  claims,  
including  legal and
other fees and the portion of 
general expenses allocated to claim 
settlement costs.

LAE ratio.......................... The  ratio  of  LAE,  net  of 
reinsurance recoveries, to
earned premiums.

Loss ratio......................... The  ratio of  incurred  losses and  
loss adjustment ex-
penses, net of reinsurance 
recoveries, to earned premiums.



4
<page


Loss reserves...................... Liabilities established by insurers 
to reflect the esti-
mated cost of claims payments and 
the related expenses that the 
insurer will ultimately be required 
to pay in respect of insurance it 
has written. Reserves are 
established for losses and for LAE.

Net premiums written............... Direct premiums written for a given 
period less premiums
ceded to reinsurers during such 
period plus premiums assumed during 
such period.

Participation ratio................ A  Massachusetts insurer's  share of 
the  C.A.R. deficit
based upon the insurer's market 
share of automobile risks not 
reinsured through C.A.R., adjusted 
for utilization of C.A.R. credits 
for voluntarily writing less 
desirable business and ceded 
exclusions.

Premium-to-surplus ratio........... The  ratio of net  premiums  written  
to  policyholders'
surplus.

Property insurance................. Insurance  that  indemnifies a 
person  with an insurable
interest in tangible property for 
loss related to damage to or loss of 
use of the subject property.

Pure loss ratio.................... The ratio of net incurred losses, 
excluding LAE, to pre-
miums earned.

Quota share reinsurance............ Reinsurance in  which the reinsured  
shares a proportion
of the original premiums and losses 
under the reinsured policy. Also 
known as pro rata reinsurance.

Rate deviation..................... A  specific state approved departure  
from  an otherwise
applicable state set rate level 
provided to safe drivers.

Rate discount...................... A  specific  state approved discount  
from an  otherwise 
applicable state set rate level 
provided to members of group 
marketing programs. 

Reinsurance........................ The acceptance by one  or more  
insurers,  called rein-
surers, of all or a portion of the 
risk underwritten by another insurer 
who has directly written the 
coverage. However, the legal rights 
of the insured generally are not 
affected by the reinsurance 
transaction and the insurance 
company issuing the insurance policy 
remains liable to the insured for 
payment of policy benefits.

Safe Driver Insurance Plan ("SDIP") A  program  mandated by state law  
that  encourages safe
driving by rewarding drivers who do 
not cause an accident, or incur a 
traffic law violation and by making 
sure that high-risk drivers pay a 
greater share of insurance costs.

Servicing Carrier.................. An   automobile   insurer   writing   
business    in
Massachusetts which can reinsure 
risks through C.A.R. while remaining 
responsible for servicing the 
related policies and which must 
provide a market for ERPs assigned 
to it by C.A.R.

Soft Market........................ An  insurance  market in  which the  
supply of insurance
exceeds the current demand and 
premiums are relatively low.




5
<page




Statutory accounting practices
("SAP")............................ Recording  transactions and  
preparing financial  state-
ments in accordance with the rules 
and procedures prescribed or 
permitted by an insurer's state 
insurance regulatory authority for 
the purposes of financial reporting 
to regulators, which in general 
reflect a liquidating, rather than 
going concern, concept of 
accounting.

Statutory surplus.................. The  excess of  admitted  assets 
over  total liabilities
(including loss reserves), 
determined in accordance with SAP.

Take-all-comers.................... A  phrase used to  characterize the  
Massachusetts auto-
mobile regulatory system under which 
all insurers are required to 
underwrite virtually all risks 
submitted to them.

Underwriting....................... The insurer's process of  reviewing 
applications submit-
ted for insurance coverage, deciding 
whether to accept all or part of the 
coverage requested and determining 
the applicable premiums.

Underwriting expenses.............. The  aggregate of  policy  
acquisition  costs, including
commissions, and the portion of 
administrative, general and other 
expenses attributable to 
underwriting operations.

Underwriting expense ratio......... The ratio of underwriting expenses 
to net premiums writ-
ten determined in accordance with 
SAP.

Unearned premiums.................. The  portion of  a  premium  
representing  the unexpired
amount of the contract term as of a 
certain date.






























6
<page


PART I

ITEM 1. BUSINESS

	The Commerce Group, Inc. (the "Company"), was incorporated in 
1976. The Company is engaged principally in providing personal and 
commercial property and casualty insurance in Massachusetts 
primarily through it's subsidiary, The Commerce Insurance Company 
("Commerce"), which was incorporated in 1971.  The Company's 
principal insurance line is motor vehicle insurance, primarily 
covering personal automobiles.  The Company also offers commercial 
automobile, homeowners, inland marine, fire, general liability and 
commercial multi-peril insurance.  The Company also writes insurance 
in the state of California through Western Pioneer Insurance Company 
("Western Pioneer"), a personal automobile insurer located in 
Pleasanton, California, which was acquired on August 31, 1995.  In 
addition, the Company originates residential and commercial 
mortgages on a limited basis primarily within Massachusetts and 
operates an insurance agency dealing in a full line of insurance 
products, including those of the Company.

	The Company's business strategy is to focus its insurance 
activities primarily on the personal automobile market.  Presently, 
the Company has over 719,000 policies in force, 695,000 of which are 
in force throughout the state of Massachusetts.  The Company, 
through Commerce and Citation Insurance Company ("Citation"), 
wholly-owned subsidiaries of Commerce Holdings, Inc. ("CHI") which 
is a wholly-owned subsidiary of the Company, has been the largest 
writer of personal property and casualty insurance in Massachusetts 
in terms of market share of direct premiums written since 1990.  At 
year end 1996 and 1995, the Company's Massachusetts private 
passenger automobile market share was 20.8% and 16.4%, respectively.  
The Company is also one of the leading writers of commercial 
automobile insurance in the state.  During 1996, 97.8% of the 
Company's $731,823,000 in direct premiums written were derived from 
personal automobile (including Western Pioneer's direct premiums 
written of $27,380,000), commercial automobile and homeowners 
insurance, its three core lines of business.  These lines 
represented $622,849,000, $40,441,000 and $52,377,000, or 85.1%, 
5.5%, and 7.2% respectively, of the Company's direct premiums 
written.

	The Company attributes its success primarily to its strong 
relationships with   professional independent agencies that provide 
quality business for the Company.  Other factors that have been 
important to its success include an in-depth understanding of the 
Massachusetts regulatory and underwriting environments, advanced 
information systems, an extensive underwriting data base and 
beginning in 1995, the ability to compete in a group marketing 
environment.

	Because the Company offers its product lines only through 
independent agencies, its relationships with those agencies are 
critical to its continued success.  The Company believes that it is 
the preferred provider for most of its agencies and that as a result 
of such position it has gained access to policyholders with average 
or above-average underwriting profit characteristics in its personal 
and commercial automobile insurance lines.  The Company carefully 
selects and retains agencies whose premium growth and loss ratio 
experience meet the Company's agency criteria, and devotes 
substantial resources to fostering and maintaining strong 
relationships with its existing agencies.  The Company pays its 
agencies significant compensation in the form of profit sharing 
payments which are based in part on the underwriting profits of the 
agency's business written with the Company.  Based upon agency 
surveys conducted several times a year, the Company believes it is 
attentive to the needs and requirements of its agencies.  The 
Company emphasizes its commitment to the Massachusetts insurance 
market, its responsiveness in servicing claims and its internal 
support for agency operations, including direct billing of insureds, 
on-line inquiry systems for its agents and by providing 
competitively priced automobile insurance.

	The Company's focus on automobile and homeowners insurance 
primarily in Massachusetts has also been a factor in its success.  
The terms, conditions and rates of personal automobile insurance are 
subject to extensive regulation by the Massachusetts Commissioner of 
Insurance ("Commissioner").  Because the Company has primarily 
served the Massachusetts market, it has both an in-depth 
understanding of this market and the ability to respond effectively 
to shifts in the state's regulatory and underwriting environments.  
Currently, the Company is required to accept virtually all 
automobile insurance business submitted to it by its agencies.  The 
Company's ability to underwrite this business profitably, however, 
depends on its understanding of the risks in the business as well as 
its management of reinsurance through C.A.R.

7
<page



	Beginning in the latter part of 1995, the Company began to 
actively pursue group marketing programs.  The primary purpose of group 
marketing programs is to provide participating groups with a convenient 
means of purchasing automobile insurance through associations and 
employee groups.  Billing is primarily through direct billing with 
payroll deduction available.  Emphasis is placed on writing larger 
groups, although accounts with as few as 25 participants are considered.  
Groups are eligible for rate discounts which must be filed annually with 
the Division of Insurance.  In general, the Company looks for groups 
with mature/stable membership, favorable driving records, and below 
average turnover ratios.  Participants who leave the sponsoring group 
during the term of the policy are allowed to maintain the policy until 
expiration.  At expiration, a regular Commerce policy may be issued at 
the insured's option.

	During the latter part of 1995, Commerce signed group marketing 
agreements with the five American Automobile Association Clubs of 
Massachusetts ("AAA Clubs") offering a 10% discount on automobile 
insurance to the clubs' members who reside in Massachusetts.  Membership 
in these clubs is estimated to represent approximately one-third of the 
Massachusetts motoring public, and has been the primary reason for a 
29.8% increase in the number of personal automobile exposures written by 
Commerce.  In addition, in 1996, total direct premiums written 
attributable to the AAA group business was $344,297 or 47% of the 
Company's total direct premiums written.  Of this amount, 9% was written 
through the AAA clubs and 91% was written through the Company's network 
of independent agents.

	Also in 1995, the Company received state regulatory approval to 
eliminate interest based premium finance fees on new and renewal 
personal automobile insurance policies with effective dates on or after 
January 1, 1996.  As a result, premium finance fees as a source of the 
Company's revenues have been reduced by 50.0% in 1996.  As policies 
effective in 1995 favorably impacted finance fee income in 1996, the 
full effect of the elimination will not be felt until 1997 with the 
expectation of further reductions.  The change was initiated in direct 
response to competitive forces that occurred in the Massachusetts 
marketplace.

	In January, 1996, the Company was granted approval, for the 1996 
calendar year, to offer safe driver deviations of 10 percent to 
customers with SDIP classifications of either Step 9 or 10.  These are 
the two best SDIP driver classifications in Massachusetts, representing 
drivers with no at fault accidents or not more than one minor moving 
vehicle violation in the last six years.  For drivers that qualify, the 
Company's automobile discounts and SDIP deviations can be combined for 
up to a 19% reduction from the state mandated rates.  In March 1997, 
approval of SDIP deviations was granted for the 1997 calendar year.

	The Company's other than personal automobile products tend to be 
derived from its other two core product lines and therefore have had 
relatively predictable risk profiles.  The Company offers a preferred 
risk homeowners product through Citation, which has an alternative 
pricing and commission schedule for selected insureds meeting more 
restrictive underwriting guidelines.  Citation also provides a separate 
rating tier for preferred commercial automobile business.  Approximately 
22% of the commercial automobile premium produced by its voluntary 
agents in 1996 was written by Citation.  The Company expects that this 
secondary rating tier will continue to assist the Company in retaining 
its better commercial automobile accounts, while also further increasing 
the percentage of commercial automobile business that can be retained 
voluntarily by the Company in 1997 and beyond.

	The Company's long-term commitment to providing consistent markets 
for Massachusetts independent agencies, coupled with the withdrawal by 
several national companies from the Massachusetts personal automobile 
market in past years, has been a significant factor in enabling the 
Company to increase its market share by adding agencies which meet its 
agency criteria.  The Company believes that Massachusetts agencies are 
more likely to seek to develop and expand relationships with domestic 
insurers, which, like the Company, have a long-term commitment to the 
Massachusetts personal automobile market.

	Although the Company is not actively pursuing acquisitions, in an 
effort to enhance future growth potential, the Company continues to 
monitor acquisition opportunities with regard to smaller automobile 
insurance companies that are in need of capital, have established 
management in place and present significant growth opportunities in 
their market areas.  On August 31, 1995, the Company completed the 
acquisition of Western Pioneer, a personal automobile insurer, located 
in Pleasanton, California.




8
<page



	The Company's long term growth objective is to expand its writings 
outside of Massachusetts.  To achieve this objective, during 1996 the 
Company was granted licenses in the states of Connecticut and Rhode 
Island.  License approval in the state of Vermont was received in 
January 1997.  License applications were filed by the Company and are 
pending in the states of Maine and New Hampshire.  Concurrent with these 
filings, the Company has entered into an agreement with Policy 
Management Services Corporation ("PMSC") and has purchased software 
which will allow for the development of internal operating systems which 
will enable the Company to process policies in these five states and 
Massachusetts.  To facilitate this development to provide the necessary 
systems capable of supporting continued growth and to address the year 
2000 processing issue facing computer system users, the Company has 
established the Team 2000 project.  Team 2000 will provide for a 
complete integration of databases serving our three main functions; 
claims, underwriting and premium accounting.  The Team 2000 systems 
implementation will be multi-phased with the first phase scheduled to be 
in place for contiguous states during the latter part of 1997.  As a 
result, Management is not expecting to start marketing in the states 
contiguous to Massachusetts until that time.  Through the year 2001, the 
Company expects to incur over $40 million in costs with the 
implementation of the PMSC systems.  This amount includes the purchase 
of a main frame computer, license fees, and the costs associated with 
programming, implementation and training.  In 1996, the Company paid 
$10.5 million, of which, $4.9 million was expensed during the year.

	In the past, the Company has devoted substantial time and 
resources to the development of its current information systems, which 
enhanced both its underwriting and its agency support.  Through the use 
of several customized software programs, the Company has the ability to 
analyze its internal historical underwriting data and use such 
information in making, in the Company's belief, more informed 
underwriting decisions.  In particular, the Company believes that the 
amount and extent of detail data accumulated as a result of its share of 
the personal automobile market gives the Company a competitive advantage 
in determining which automobile risks to reinsure through C.A.R.  The 
Company's information systems also enable it to provide extensive 
support to its agencies.  This support includes a direct billing system, 
which covers over 90% of the Company's policyholders, an on-line inquiry 
system, which allows agencies to ascertain the status of pending claims 
and direct bill information, and a system which allows Company agencies 
to quote premiums for the Company's three core product lines directly to 
policyholders.  Because the Company emphasizes its commitment to 
enhancing and expanding the role of its information systems, it also 
recognizes that current systems may not provide the distinct competitive 
advantage when looking beyond Massachusetts into the five remaining New 
England states.  The Team 2000 project will enable the Company to 
produce management and agency information necessary to establish similar 
competitive advantages as it expands.


A. General

Insurance Lines

	Commerce and Citation currently have a combined Best's rating of A 
(Excellent).  Western Pioneer currently has a Best's rating of A- 
(Excellent).  According to Best's, an insurer with an Excellent rating 
has demonstrated, in Best's opinion, excellent overall performance when 
compared to standards developed by Best's.

	Direct premiums written totalled approximately $731,823,000 in 
1996, of which motor vehicle insurance accounted for approximately 
$663,290,000, homeowners insurance accounted for approximately 
$52,377,000 and commercial multi-peril insurance accounted for 
approximately $9,244,000.  During 1995, direct premiums written totalled 
approximately $626,666,000, of which motor vehicle insurance accounted 
for approximately $559,821,000, homeowners insurance accounted for 
approximately $50,256,000 and commercial multi-peril insurance accounted 
for approximately $10,471,000.  Earned premiums are included in total 
revenues of the Company and represent the net earned premiums remaining 
after assumed and ceded reinsurance.  In 1996 and 1995, total revenues 
included insurance premiums earned of approximately $668,716,000 and 
$592,590,000, respectively.  Motor vehicle insurance accounted for 
approximately 94.6% and 92.7%, homeowners insurance accounted for 
approximately 4.0% and 5.3% and commercial multi-peril insurance 
accounted for approximately 1.0% and 1.5% of total earned premiums, in 
1996 and 1995, respectively.





9
<page



	The Company's principal insurance line is personal automobile 
insurance.  The Company offers automobile policyholders the following 
types of coverage: bodily injury liability coverage, including 
underinsured and uninsured motorist coverage, property damage liability 
coverage and physical damage coverage, including fire, theft and other 
hazards specified in the policy.  Policies are usually written for one 
year terms.  The Company's published liability limits are $500,000 per 
person for bodily injury, $1,000,000 per accident and $100,000 for 
property damage. Liability limits of $100,000 per person injured, 
$300,000 per accident and $100,000 for property damage are the limits 
most commonly purchased from the Company.

	Personal automobile insurance is completely regulated by The 
Commonwealth of Massachusetts.  Marketing and underwriting strategies 
for companies operating in this state continue to be dominated by 
automobile premium rates and commission levels which are mandated by the 
Massachusetts Division of Insurance and by current and prospective 
legislation affecting the industry.  Automobile premium rates in 
Massachusetts are among the highest in the nation as a direct result of 
high costs incurred by companies which provide this type of protection.  
Claims, the costs associated with the processing and settling of claims, 
assessments required to subsidize the involuntary market mechanism, 
accident rates, bodily injury claims, and medical care costs remain 
among the highest in the nation.  Additionally, traffic density, as 
defined by vehicle miles divided by highway miles, is among the highest 
in the nation.

	During the three-year period from 1994 to 1996, Massachusetts 
personal automobile insurance premium rates decreased an average of 2.6% 
per year.  The Commissioner approved an average 6.2% decrease in 
personal automobile premiums for 1997, the third decrease in three 
years, as 1996 average rates were cut by 4.5%, and 1995 average rates 
were decreased by 6.1%.  According to the Commissioner's office, the 
current rate environment is the result of continued consumer cooperation 
by driving safely, obeying traffic laws, reporting fraud, wearing 
seatbelts and individuals locking their autos.

	Also, the 1997 decrease was partially driven by corrections to an 
industry error impacting prior year rate decisions.  The industry error 
resulted from a miscaluation of industry expense allowances that had the 
effect of overstating rates for 1991 through 1996.  Rates for 1997 
include an adjustment to recoup this error from the industry equal to 
40% of the error with 40% reducing 1998 rates and 20% reducing 1999 
rates.

	Additionally, 1997 rates were decreased as a result of the 
reconciliation of the SDIP which is designed to be revenue neutral.  In 
most recent past years, the SDIP reconciliation resulted in a deficit 
which was then added into the rates for the subsequent years.  The 1996 
SDIP reconciliation, however, resulted in a surplus.  Fifty percent of 
this surplus is being used to decrease rates in both 1997 and 1998.

	The Company has performed an analysis of the rate decision and has 
estimated the impact of the above two items on its results assuming its 
market share remains the same as it was at the end of 1996.  The earned 
premium impact is estimated to be approximately $15.3 million for 1997, 
$23.0 million for 1998 and $13.5 million for 1999.  The earnings per 
share after-tax impact resulting from the lower earned premiums for 
1997, 1998 and 1999 is estimated to be $0.28, $0.41 and $0.23, 
respectively.  If the Company's future market share increases 
(decreases), a larger (smaller) financial impact would result.

	The Automobile Insurers Bureau of Massachusetts ("AIB") has filed 
an appeal with the Massachusetts Supreme Judicial Court challenging the 
Commissioner's decision to prospectively decrease future rates for the 
miscalculation of the industry expense allowance.  (The SDIP 
reconciliation component is not being challenged.)  The AIB's argument 
is that, according to statute, there is a prohibition against 
retroactive rate making in Massachusetts which effectively bars the 
examination of past year's data once all involved parties have agreed to 
the rate decision.  One insurer has filed a suit with the Massachusetts 
Supreme Judicial Court alleging that the prospective nature of the rate 
reduction will have an unfair adverse impact on it.  This is due to the 
fact that the company filing suit believes it should not be adversely 
impacted solely because its market share is greater now than during 
those years in which the errors occurred.  It is not possible to predict 
the outcome of these legal actions or the potential effects thereof on 
the Company.






10
<page



	In addition, the Massachusetts Association of Insurance Agents 
("MAIA") has also filed a suit with the Massachusetts Supreme Judicial 
Court with respect to the Commissioner's ruling on 1997 commissions.  
The Commissioner ruled that agents' commissions on the 1997 premiums, 
subject to safe driver deviations, will be based on the discounted net 
premium amounts.  The 1996 commissions were based on the gross premium 
amounts.  The Commissioner's ruling will result in agents receiving 
fewer commission dollars on a per policy basis.  The Company is unable 
to predict the possible outcome of this suit at this time.

	The Company also offers homeowners insurance except in designated 
coastal areas.  The Company's standard homeowners policy is an all risk, 
replacement cost insurance policy covering a dwelling and the contents 
contained therein.  The Company's published limits of liability for 
property damage to a dwelling are a minimum coverage of $60,000 and a 
maximum coverage of $600,000, although some policies over this amount 
are written on an exception basis.  For personal liability, the minimum 
coverage is $100,000 and the maximum coverage is $1,000,000.  The 
average property damage coverage amount per policy is approximately 
$135,000, and generally, the average amount of contents coverage is 70% 
of the amount of coverage for the dwelling, with limitations on the 
amount of coverage per item placed on securities, cash, jewelry, furs, 
silverware and firearms.  However, additional coverage for such items 
can be purchased on a scheduled personal property basis.  The Company 
also offers $1,000,000, $2,000,000 and $3,000,000 personal liability 
umbrella coverage for homeowners policies requiring certain specified 
underwriting coverages which are reinsured through American Reinsurance 
Corporation.

	The Company offers a preferred homeowners product through Citation 
which has higher policy limits and a lower premium and agency commission 
structure and is designed primarily for homes with above-average market 
values.  The Company also applies more stringent underwriting criteria 
by, among other things, limiting the product to homes with modern 
electrical systems.

	The Company also offers inland marine, fire, general liability and 
commercial multi-peril insurance.

Mortgage Operations

	Insurance companies are authorized to invest in mortgages and the 
Company formed Bay Finance Company, Inc. ("Bay Finance") to originate 
and service residential and commercial mortgages primarily in 
Massachusetts.  During fiscal 1996, 1995, and 1994 the mortgage 
operations accounted for approximately $4,249,000, or 0.6%, $3,804,000, 
or 0.6% and $3,972,000 or 0.6% of the Company's consolidated total 
revenues, respectively.

	As announced in October, 1995, and in order to focus resources 
more directly on the Company's main line of business, private passenger 
automobile insurance, the operations of Bay Finance were substantially 
reduced.  Effective January 1, 1996, Bay Finance no longer actively 
originates mortgage loans through the use of outside originators and 
extensive regional marketing.  As a result, Bay Finance's staffing 
levels were substantially reduced and the remaining employees focus on 
servicing the Company's existing mortgage portfolio.  Bay Finance has 
retained its lending licenses and continues to make a small number of 
various types of mortgage loans.

Insurance Agency

	Clark-Prout Insurance Agency, Inc. ("Clark-Prout") is a wholly-
owned insurance agency that writes both for the Company and for other 
insurance companies.  During fiscal 1996, 1995 and 1994, Clark-Prout 
revenues amounted to $930,000, or 0.1%, $1,203,000 or 0.2% and 
$1,194,000 or 0.2% of the Company's consolidated total revenues, 
respectively.

B. Commonwealth Automobile Reinsurers

	A significant aspect of the Company's automobile insurance 
business relates to its interaction with C.A.R.  C.A.R. is a state-
mandated reinsurance mechanism, which enables the Company and 
approximately 40 other writers of automobile insurance in Massachusetts 
("Servicing Carriers") to reinsure any undesirable automobile risk.  
Servicing Carriers, which are responsible for over 99.0% of total direct 
premiums written for personal automobile insurance in Massachusetts, are 
required to offer automobile insurance coverage to all eligible 
applicants pursuant to "take-all-comers" regulations, but may reinsure 
undesirable business with C.A.R.  In addition, Servicing Carriers are 
obligated to accept involuntary agencies, known as ERPs, from C.A.R. and 
to provide an automobile insurance market in Massachusetts for those 
agencies.

11
<page



	C.A.R. maintains separate pools for liability and physical damage 
coverage in personal and commercial automobile risks.  All companies 
writing automobile insurance in Massachusetts share in the underwriting 
results of C.A.R. business for their respective product line or lines, 
whether or not they are Servicing Carriers.  Since its inception, C.A.R. 
has annually generated multi-million dollar underwriting losses in both 
the personal and commercial pools.  Accordingly, each automobile insurer 
attempts to develop and implement underwriting strategies that will 
minimize its relative share of the C.A.R. deficit while maintaining 
acceptable loss ratios on risks not reinsured through C.A.R.

	In general, the C.A.R. reinsurance mechanism operates as follows.  
Within established time frames, a Servicing Carrier must identify which 
policies it wishes to retain and which policies it wishes to cede to 
C.A.R.  A Servicing Carrier pays to C.A.R. all of the premiums generated 
by the policies it has ceded and also reimburses C.A.R. for the reduced 
premium resulting from affinity group marketing discounts.  C.A.R. 
reimburses Servicing Carriers for all losses incurred on account of 
ceded policies, although, as with reinsurance generally, reinsurance of 
a policy through C.A.R. does not legally discharge the Servicing Carrier 
from its liability to the policyholder for the full amount of the 
policy.  In addition, Servicing Carriers also receive fees for servicing 
ceded policies based upon the expense structure established by C.A.R.

	An insurer's proportionate share of the C.A.R. deficit is 
allocated on the basis of a formula called a participation ratio, which 
can vary significantly between the personal and commercial pools, and 
between different policy years.  Under current regulations, an insurer's 
share of the C.A.R. deficit is based upon its market share for retained 
automobile risks for the particular pool, adjusted by a utilization 
formula, such that, in general, its participation ratio is 
disproportionately and adversely affected if its relative use of C.A.R. 
reinsurance exceeds that of the Massachusetts industry and favorably 
affected if its relative use of C.A.R. reinsurance is less than that of 
the Massachusetts industry.  At year end 1996 and 1995, the Company's 
Massachusetts private passenger automobile market share was 20.8% and 
16.4%, respectively.  The current formula also contains a provision 
whereby certain high risk business, if reinsured through C.A.R., is 
excluded in determining an insurer's participation ratio.  Finally, for 
the personal automobile C.A.R. pool, an insurer's participation ratio 
may be affected by credits received for not reinsuring through C.A.R. 
automobile risks in selected underpriced classes and territories.  An 
insurer's participation ratio will be favorably affected if its relative 
use of credits exceeds the Massachusetts industry's.

	The Company's objective is to develop and implement underwriting 
strategies to obtain the optimum balance between its C.A.R. 
participation ratio and the loss ratios on automobile risks not 
reinsured through C.A.R.  For each automobile risk, the Company makes a 
judgment as to whether the projected impact on the Company's 
profitability from retaining the risk outweighs the incremental cost of 
reinsuring the risk through C.A.R.  In determining the incremental cost 
of reinsuring a risk through C.A.R., the Company estimates its 
participation ratio for a given period by modeling the anticipated 
Massachusetts industry-wide C.A.R. trends.  Once the Company estimates 
its participation ratio, it is then able to compare the incremental 
effect on the Company's share of the C.A.R. deficit of either reinsuring 
or retaining the particular automobile risks.  Finally, the Company 
utilizes its internal underwriting database and internally-developed 
actuarial reporting and analysis systems to develop for each risk a 
projected underwriting loss ratio.  It then compares the impact of the 
automobile risk on the Company's participation ratio in order to 
estimate whether, after taking all C.A.R. and other factors into 
account, the Company's profitability will be enhanced by reinsuring or 
retaining such risk.  The Company believes that, because of its leading 
share of the Massachusetts automobile insurance market, it can utilize 
statistically credible data for a greater array of underwriting factors 
than its competitors, which in turn gives it a competitive advantage in 
deciding which automobile risks to reinsure through C.A.R.

	The C.A.R. utilization-based participation ratio has been in place 
since 1993, and individual companies in the marketplace make minor 
yearly changes to find the optimum balance between voluntary and ceded 
writings.  Significant changes in the industry-wide private passenger 
cession percentage are not expected for 1997.

	A phase-in of a utilization-based participation formula was 
implemented in the Massachusetts commercial automobile market.  The 
phase-in began in 1992 and ended in 1995.  Although commercial 
automobile insurance is a relatively smaller portion of the Company's 
total insurance writings, the related commercial automobile risk 
selection decisions remain an important element in determining 
profitability.




12
<page



	C.A.R. rule changes occur, as C.A.R. adjusts the operations of the 
personal and commercial reinsurance mechanisms to address the needs of 
the Massachusetts automobile insurance market.  Any material change to 
the C.A.R. rules in the future will affect the Company.  The Company is 
not currently aware of any likely future rule changes that could have a 
material impact on the Company, but there can be no assurance that such 
rule changes will not occur.

C. Marketing

	The Company markets its insurance products through a network of 
672 licensed independent agencies, 539 throughout Massachusetts (of 
which 155 are ERPs) and 133 are in California.  These independent 
agencies may also represent other insurance companies, some of which may 
compete directly with the Company.  The independent insurance agencies 
are under contract with the Company's subsidiaries and must conduct 
their business according to the provisions of their contract.  Contracts 
for Massachusetts agencies may be terminated by the Company upon 180 
days' notice to the agency or at will by the agency.

	The Company seeks to establish long-term relationships with 
agencies that can generate a sizable volume of business with profitable 
underwriting characteristics and for which the Company will be among the 
top two or three preferred writers of its core products.  The Company 
also assesses whether the mix of a prospective agency's business will 
expand the Company's presence in one or more of its core product lines.  
In 1996, each agency representing the Company in Massachusetts produced 
an average of approximately $1,307,000 of Company direct premiums 
written.  Also in Massachusetts during 1996, 171 agencies produced in 
excess of $1.0 million of direct premiums written, an additional 51 
agencies produced over $2.0 million, an additional 22 agencies produced 
over $3.0 million and lastly, an additional 11 agencies produced over 
$4.0 million.  The Company's three largest agencies produced 
approximately $22.9, $13.9 and $11.3 million of Company direct premiums 
written, respectively, or approximately 3.1%, 1.9% and 1.5%, of the 
Company's total direct premiums written in 1996.  Total direct premiums 
written attributable to the AAA group business was $344,297 or 47% of 
the Company's total direct premiums written.  Of this amount, 9% was 
written through the AAA clubs and 91% was written through the Company's 
network of independent agents.

	Once appointed, each agency's performance is carefully monitored.  
An Agency Evaluation Committee, comprised of representatives of the 
Company's Marketing, Underwriting and Premium Accounting departments, 
utilizes a host of pre-established criterion (loss ratio, premium 
volume, etc.) to continuously evaluate agencies.  Generally, the Company 
will counsel an agency on how to improve its underwriting and 
profitability before any agency will be terminated.

	Company agencies receive commissions on policies written for the 
Company and are eligible to receive contingent commissions through a 
profit sharing arrangement.  The Commissioner annually establishes a 
minimum average direct commission for personal automobile insurance, 
which in 1996 was 13.8%.  With respect to policies reinsured through 
C.A.R., the maximum amount of commissions that C.A.R. will reimburse the 
Company is fixed at that prescribed rate.  Consequently, there is an 
incentive for insurers not to permit their direct commission rate to 
vary materially from the prescribed rate.  The Company's contingent 
commissions are tied to the underwriting profit on policies written by 
an agency based upon a rolling three year experience method.  The 
Company generally pays up to 45% of the underwriting profit attributable 
to the agency's business; generally, if the agency's loss ratio for its 
policies exceeds 50% in a year, the agency will not receive any 
contingent commission for that year.  In 1996, total commissions paid by 
the Company to its agencies amounted to 15.6% of direct premiums 
written, of which direct commissions and contingent commissions 
constituted 14.4% and 1.2%, respectively.  Direct commissions paid are 
higher than the personal automobile rates primarily due to higher 
commission rates paid on other lines of business.  In 1996, the 
Company's expense for contingent commissions was $9.0 million versus 
$18.5 million in 1995.  The Company also sponsors incentive award 
programs to encourage and reward agency profitability and growth.  
During 1996, the Company ran such a program resulting in 315 Agents 
earning incentives at a total cost of approximately $4.3 million.  Much 
of the success of this program is attributable to affinity group 
marketing programs.









13
<page


	The Company's information systems enable it to provide extensive 
support to its agencies.  This support includes a direct billing system, 
which covers over 90% of the Company's policyholders, an on-line inquiry 
system which allows agents to ascertain quickly the status of pending 
claims or direct bill information and a system which allows Company 
agents to quote many premiums directly to policyholders.  The Company 
also emphasizes its commitment to enhancing and expanding the role of 
its information systems.  The Company has provided agencies with the 
ability to generate personal automobile policies from their own offices 
and will continue to explore new options in light of the Team 2000 
project.

	The Company believes that because of its compensation arrangements 
and providing a consistent market with emphasis on service, an 
increasing number of the Company's agencies will rely on it as their 
principal supplier of insurance products.  The Company believes that it 
is the preferred provider for most of its agencies.  Although the 
Company believes, based on annual surveys of its agencies, that its 
relationships with its independent agencies are excellent, any 
disruption in these relationships could adversely affect the Company's 
business.

	Beginning in the latter part of 1995, the Company began to 
actively pursue Group Marketing programs.  The primary purpose of group 
marketing programs is to provide participating groups with a convenient 
means of purchasing automobile insurance through associations and 
employee groups.  Billing is primarily through direct billing with 
payroll deduction available.  Emphasis is placed on writing larger 
groups, although accounts with as few as 25 participants are considered.  
Groups of 100 or more participants could be eligible for a rate 
discounts.  In general, the Company looks for groups with mature/stable 
membership, favorable driving records, and below average turnover 
ratios.  The sponsoring entities must be in sound financial condition 
and have stable employment or membership.  Participants who leave the 
sponsoring group during the term of the policy are allowed to maintain 
the policy until expiration.  At expiration, a regular Commerce policy 
may be issued at the insured's option.

	During the latter part of 1995, Commerce signed group marketing 
agreements with the five AAA Clubs offering a 10% discount on automobile 
insurance to the clubs' members who reside in Massachusetts.  Membership 
in these clubs is estimated to represent approximately one-third of the 
Massachusetts motoring public, and has been the primary reason for a 
29.8% increase in the number of personal automobile exposures written by 
Commerce.  In addition, in 1996, total direct premiums written 
attributable to the AAA group business was $344,297 or 47% of the 
Company's total direct premiums written.  Of this amount, 9% was written 
through the AAA clubs and 91% was written through the Company's network 
of independent agents.

	Initially, the Massachusetts statute governing group marketing 
programs required that 35% of the eligible members participate in a 
group marketing program within the first year.  Accordingly, Commerce 
and AAA aggressively pursued AAA members for the AAA Group Marketing 
Program.  At December 31, 1996, Commerce had achieved the objective of 
writing more than 35% of the AAA members within the first year, as over 
300,000 AAA members joined the program.  The particular portion of the 
statute, dealing with achieving the 35% penetration level in one year, 
was amended by the Legislature in early 1997 to allow two years to reach 
the required penetration level.  In 1997, Commerce and AAA intend to 
continue to increase the penetration of the eligible AAA membership.

	Commerce and the AAA Clubs have agreed that Commerce shall be 
their exclusive underwriter of Massachusetts personal automobile group 
programs.  This contract may be terminated by the AAA Clubs upon written 
notice to Commerce, whose termination shall take effect at a minimum of 
three years from notice of termination.

	Also in 1995, the Company received state regulatory approval to 
eliminate interest based premium finance fees on new and renewal 
personal automobile insurance policies with effective dates on or after 
January 1, 1996.  As a result, premium finance fees as a source of the 
Company's revenues have been reduced by 50.0% in 1996.  As policies 
effective in 1995 favorably impacted finance fee income in 1996, the 
full effect of the elimination will not be felt until 1997 with the 
expectation of further reductions.  The change was initiated in direct 
response to competitive forces in the Massachusetts marketplace.

	During 1996, the Company was granted licenses in the states of 
Connecticut and Rhode Island.  License approval in the state of Vermont 
was received in January 1997.  Applications were filed by the Company 
and are pending in the states of Maine and New Hampshire.  Concurrent 
with these filings, the Company has entered into an agreement with PMSC 
and has purchased software which will allow for the development of 
internal operating systems which will enable the Company to process 
policies in these five states and Massachusetts.  These systems are not 
scheduled to be in place for contiguous states until the latter part of 
1997 and, as a result, Management is not expecting to start marketing in 
the states contiguous to Massachusetts until that time.
14
<page



	In January, 1996, Commerce was granted approval, for the 1996 
calendar year, to offer safe driver deviations of 10% to customers with 
SDIP classifications of either Step 9 or 10.  These are the two best 
SDIP driver classifications in Massachusetts, representing drivers with 
no at fault accidents and not more than one minor moving vehicle 
violation in the last six years.  For drivers that qualify, the 
Company's automobile discounts and SDIP deviations can be combined for 
up to a 19% reduction from the state mandated rates.  In March 1997, 
approval of SDIP deviations was granted for the 1997 calendar year.

D. Underwriting

	The Company seeks to achieve an underwriting profit, as measured 
by a statutory combined ratio of less than 100, in each of its three 
core product lines in both hard and soft markets.  The strategy is 
designed to achieve consistent profitability with substantial growth in 
net premiums written during hard markets and more modest growth during 
soft markets.  All of the Company's policies have been written on a 
"claims incurred basis," meaning that the Company covers claims based on 
occurrences that take place during the policy period.

	Agencies are authorized to bind the Company on risks as limited by 
the Company's written underwriting rules and practices, which set forth 
eligibility rules for various policies and coverages, unacceptable 
risks, and maximum and minimum limits of liability.  With respect to 
non-automobile policies, other than umbrella policies, the Company's 
agencies have the ability to bind the Company for a limited period, 
typically 60 days, during which time the Company reviews all risks to 
determine whether it will accept or reject the policy.  During this 
review period, the Company is obligated to pay any claim which would be 
covered under the policy. Violation of the Company's underwriting rules 
and practices is grounds for termination of the agency's contract with 
the Company.

	The Company and each of the approximately 40 other Servicing 
Carriers must write all automobile risks submitted to them.  
Massachusetts personal automobile insurance rates are fixed annually by 
the Commissioner.  All companies writing personal automobile policies 
are required to use such rates, unless they have received prior approval 
from the Commissioner to offer a lower rate.  The actual premium paid by 
a particular policyholder, however, is adjusted, either up or down, 
based upon the SDIP record of the insured operator.  Moving violations 
and accidents for which the insured was at fault within the most recent 
six year period are used to determine each operator's SDIP surcharge or 
credit.  The Massachusetts personal automobile insurance market became 
more competitive in late 1995 and throughout 1996 with the advent of 
affinity group marketing programs and safe driver rate deviations.

	Prices for Massachusetts commercial automobile insurance policies 
that are not reinsured through C.A.R. are set competitively subject to 
the Commissioner's authority to disapprove such prices.  The rate for 
commercial automobile risks reinsured through C.A.R. is mandated by the 
Commissioner, except for private passenger type non-fleet business.  The 
Company's rates for other product lines, including homeowners and 
commercial lines of general liability and property insurance, are based 
in part on loss cost data from the Insurance Services Office ("ISO"), 
which is an industry bureau providing policy forms and rate making data, 
and in part, on the Company's own experience and industry price levels.

	The Company is not obligated by statute to accept every homeowners 
risk submitted to it.  Accordingly, risks meeting the Company's 
underwriting guidelines are accepted, and all other risks are declined 
or not renewed.  The Company has established an independent rate level 
for its homeowners product line, based on its own loss experience and 
recognizing the price levels available in the competitive marketplace.  
The Company uses ISO policy forms and has added special coverage 
features to meet its product needs. Rates and forms are filed with the 
Commissioner.

	Under Massachusetts law, residential property owners are strictly 
liable for damages caused by lead poisoning in children under age six 
residing in the premises.  The Company has reduced its exposure to lead 
poisoning claims by (i) excluding from coverage all interfamilial claims 
for bodily injury or medical expenses brought by minors living in an 
insured's household, (ii) revising its underwriting standards for new 
and renewal business to avoid insuring properties with lead poisoning 
hazards and (iii) excluding from coverage all lead poisoning perils for 
bodily injury to children under age six under homeowners policies on 
one-to-four family residences built prior to 1965 where at least one 
unit is rented.  With regard to the exclusion described in (iii), 
policyholders may buy a reinstatement of the excluded coverage through a 
policy endorsement for an additional premium, but very few such 
endorsements have been written.  As a result of these remedial steps and 
its historical claims experience, the Company does not believe that its 
exposure to lead poisoning claims is material.
15
<page



	The Company believes that its information systems give it a 
competitive advantage in making underwriting decisions, particularly in 
deciding which personal automobile risks should be reinsured through 
C.A.R.  Utilizing data the Company accumulates as a result of its major 
market presence in the Massachusetts personal automobile line, the 
Company believes that its information systems allow it to make informed 
risk assessments and to respond effectively to shifts in the automobile 
insurance markets and regulatory environment.

	The Company's long term growth objective is to expand its writings 
outside of Massachusetts.  To achieve this objective, during 1996 the 
Company was granted licenses in the states of Connecticut and Rhode 
Island.  License approval in the state of Vermont was received in 
January 1997.  Applications were filed by the Company and are pending in 
the states of Maine and New Hampshire.  Concurrent with these filings, 
the Company has entered into an agreement with PMSC and has purchased 
software which will allow for the development of internal operating 
systems which will enable the Company to process policies in these five 
states and Massachusetts.  To facilitate this development to provide the 
necessary systems capable of supporting continued growth and to address 
the year 2000 processing issue facing computer system users, the Company 
has established the Team 2000 project. Team 2000 will provide for a 
complete integration of databases serving our three main functions; 
claims, underwriting and premium accounting.  The Team 2000 systems 
implementation will be multi-phased with the first phase scheduled to be 
in place for contiguous states during the latter part of 1997.  As a 
result, Management is not expecting to start marketing in the states 
contiguous to Massachusetts until that time.  Through the year 2001, the 
Company expects to incur over $40 million in costs with the 
implementation of the PMSC systems.  This amount includes the purchase 
of a main frame computer, license fees, and the costs associated with 
programming, implementation and training.  In 1996, the Company paid 
$10.5 million, of which, $4.9 million was expensed during the year.

E. Reinsurance

	In addition to participating in C.A.R., the Company reinsures with 
other insurance companies on a claims incurred basis, a portion of its 
potential liability under the policies it has written, protecting itself 
against severe loss under individual policies, or catastrophic 
occurrences where a number of claims can produce an extraordinary 
aggregate loss.  Reinsurance does not legally discharge the Company from 
its primary liability to the insured for the full amount of the 
policies, but it does make the reinsurer liable to the Company to the 
extent of the reinsured portion of any loss ultimately suffered.  The 
Company seeks to utilize reinsurers which it considers adequately 
capitalized and financially able to meet their respective obligations 
under reinsurance agreements with the Company.  The Company utilizes a 
variety of reinsurance mechanisms to protect itself against loss as 
described above.

Property and Catastrophe Reinsurance

	From the inception, on September 30, 1993, through the third 
quarter of 1995, the Company's combined property quota share and excess 
loss reinsurance contract was written with five domestic reinsurance 
companies.  Under the quota share portion of the arrangements, the 
reinsurers indemnified the Company for 36% of the loss and LAE, and paid 
a commission allowance based on the ratio of losses incurred to premiums 
earned.  In exchange, the Company paid to the reinsurers 40% of the net 
premium pertaining to the related business.  The maximum per occurrence 
loss reimbursement was $40.0 million and the maximum annual aggregate 
occurrence loss reimbursement was $60.0 million.  Under the excess loss 
reinsurance portion of the arrangements, the Company reinsured each 
risk, retaining $125,000 and reinsuring 100% of the next $875,000.

	Effective September 30, 1995, the Company increased its coverage 
under the combined property quota share and excess loss reinsurance 
contract.  The contract is now written with six domestic reinsurance 
companies.  Under the quota share portion of the arrangements, the 
reinsurers indemnify the Company for 45% of the loss and LAE, and pay a 
commission allowance based on the ratio of losses incurred to premiums 
earned.  In exchange, the Company pays to the reinsurers 49% of the net 
premium pertaining to the related business.  The maximum per occurrence 
loss reimbursement is $50.0 million and the maximum annual aggregate 
occurrence loss reimbursement is $75.0 million.  Under the excess loss 
reinsurance portion of the arrangements, the Company reinsures each 
risk, retaining $125,000 and reinsuring 100% of the next $875,000.  This 
reinsurance contract is continuous, cancelable quarterly with ninety 
days notice.






16
<page



	Effective March 1, 1995, through February 29, 1996, the Company 
had catastrophe reinsurance coverage for that portion of the loss not 
covered under the property quota share arrangement.  Catastrophe 
reinsurance coverage was in force for approximately 88.0% of the amounts 
incurred for all property claims arising from a single event or 
occurrence up to a maximum loss of $100.0 million, after first 
subtracting property quota share losses.  Coverage under the catastrophe 
program was as follows: a net retention of $5.0 million; 50.0% of the 
next $5.0 million; and, 95.0% of the next $90.0 million.  Including the 
Company's retention, total catastrophe coverage was $100.0 million.  
This coverage was placed with a number of reinsurers, both foreign and 
domestic.

	Effective March 1, 1996 through February 28, 1997 the Company's 
catastrophe reinsurance program has been tailored in conjunction with 
the property quota share arrangement to provide catastrophe reinsurance 
protection at varying levels of losses.  The table below provides 
information depicting the approximate combined recoveries of all 
property reinsurance programs (catastrophe and quota share) at various 
loss scenarios if a catastrophe were to strike:
<TABLE>

										 Net Loss
				    Total		Reinsurance		Retained by
				    Loss 		 Recovery  		the Company
<CAPTION>
                        <S>               <C>               <C>
				$ 25,000,000	$ 11,300,000	$13,700,000
				  50,000,000	  35,000,000	 15,000,000
				  75,000,000	  58,800,000	 16,200,000
				 100,000,000	  82,500,000	 17,500,000
				 125,000,000	 105,000,000	 20,000,000
				 150,000,000	 110,000,000	 40,000,000
</TABLE>
	The Company will have no reinsurance recoveries for total loss 
amounts in excess of $150.0 million.  The Company is currently 
renegotiating its primary catastrophe reinsurance program to become 
effective May 1, 1997.  This renegotiation does not affect the property 
quota share arrangement or one other non-primary catastrophe reinsurance 
program.

Casualty Reinsurance

	Through December 31, 1996, casualty reinsurance was on an excess 
of loss basis for any one event or occurrence with a maximum recovery of 
$4.0 million over a net retention of $1.0 million.  Effective January 1, 
1997, casualty reinsurance is on an excess loss basis for any one event 
or occurrence with a maximum recovery of $9.0 million over a net 
retention of $1.0 million.  This coverage is placed with Swiss 
Reinsurance America Corporation, formerly North American Reinsurance 
Corporation (rated A by A.M. Best).

	Effective January 1, 1995, personal and commercial liability 
umbrella policies are reinsured on a 95% quota share basis in regard to 
limits up to $1.0 million and 100% quota share basis for limits in 
excess of $1.0 million but not exceeding $5.0 million for policies with 
underlying automobile coverage of $250,000/$500,000 or more.  Effective 
January 1, 1996, the Company added personal liability umbrella 
reinsurance coverage for policies with underlying automobile coverage of 
$100,000/$300,000, on a 65% quota share basis in regards to limits up to 
$1.0 million and 100% quota share basis for limits in excess of $1.0 
million but not exceeding $3.0 million.  These coverages are placed with 
American Reinsurance Corporation (rated A+ by A.M. Best).

	The Company believes that the terms of its reinsurance contracts 
are consistent with industry practice in that they contain standard 
terms with respect to lines of business covered, limits, retentions, 
arbitration and occurrence.  Based on its review of its reinsurers' 
financial statements and their reputations in the reinsurance 
marketplace, the Company believes that its reinsurers are financially 
sound.  The Company had no amount of reinsurance receivables more than 
90 days past due at December 31, 1996.

F. Settlement of Claims

	Claims under insurance policies written by the Company are 
investigated and settled primarily by claims adjusters employed by the 
Company.  The Company employs a staff of 584 people at its claims 
department, located in Webster, Massachusetts.  In addition to these 
individuals, the Company utilizes the services of approximately 24 
independent appraisal firms and 10 independent property adjusting 
companies who are strategically located throughout the state.  The 
Company also has a special unit which investigates suspected insurance 
fraud and abuse.  If a claim or loss cannot be settled and results in 
litigation, the Company retains outside counsel to represent it.
17
<page



	The Company believes that through its claims staff of experienced 
adjusters, appraisers, managers, and administrative staff, it has 
achieved lower LAE than the industry average and higher customer 
satisfaction than many of its competitors.  All claims office staff 
members work closely with agents and claimants with a goal of settling 
claims fairly, rapidly and cost effectively.

	Certain of the Company's Massachusetts agencies have settlement 
authority for claims for other than automobile property losses which are 
less than $2,500.  The settlement authority of agencies under automobile 
policies is limited to claims for towing.

	The Massachusetts Unfair Claims Settlement Practices Act ("Chapter 
176D") prohibits insurers from engaging in certain claim settlement 
practices, including failing to acknowledge and act reasonably promptly 
upon communications with respect to claims arising under insurance 
policies, refusing to pay claims without conducting a reasonable 
investigation based upon all available information, failing to 
effectuate prompt, fair and equitable settlements of claims in which 
liability has become reasonably clear, and compelling insureds to 
institute litigation to recover amounts due under an insurance policy by 
offering substantially less than the amounts ultimately recovered in 
actions brought by such insureds.  An insurer's violation of any of 
these obligations expressly violates the Massachusetts Consumer 
Protection Act ("Chapter 93A").  Any party, including claimants and 
insureds, whose rights are affected by an insurer's violation of Chapter 
176D, is entitled to bring a claim against the insurer under Chapter 
93A.

	The damages available under Chapter 93A may not necessarily be 
related to the harm caused by the insurer's violation of Chapter 176D.  
Chapter 93A provides in effect that the party bringing the Chapter 93A 
claim will be entitled, at a minimum, to the amount of the judgment on 
all claims arising out of the same underlying occurrence, regardless of 
the limits of the policy issued by insurer.  Moreover, Chapter 93A 
permits the court to double or triple the party's damages if the 
insurer's violation of Chapter 176D was willful or knowing.  If the 
underlying policy risk was ceded to C.A.R., the Company may seek 
reimbursement from C.A.R. for the damages it will be obligated to pay if 
it is found liable under Chapter 93A or amounts paid in settlement of 
such claim.  Such reimbursement is discretionary and C.A.R. may not 
reimburse an insurer if C.A.R. determines that the insurer was negligent 
in the handling of such claim and such negligence was the cause of 
Chapter 93A liability.  Additionally, certain time notification 
restrictions apply to these judgments, which if not met, could preclude 
an insurer from seeking reimbursement from C.A.R.  Accordingly, there 
can be no assurance that the Company will be reimbursed by C.A.R. in any 
particular instance involving a Chapter 93A claim.

	In March 1996, the Company began providing an after hours claim 
reporting service available to third party claimants and insureds of 
certain agencies.  The service ensures complete twenty-four (24) hour 
service including weekends and holidays.

G. Losses and Loss Adjustment Expense Reserves

	Significant periods of time can elapse between the occurrence of 
an insured loss, the reporting of the loss to the insurer and the 
insurer's payment of that loss.  To recognize liabilities for unpaid 
losses, insurers establish reserves as balance sheet liabilities 
representing estimates of amounts needed to pay reported and unreported 
losses and LAE.  The Company's reserving policy is intended to result in 
a small redundancy.  Quarterly, the Company reviews these reserves 
internally.  Regulations of the Division of Insurance require the 
Company to obtain annually a certification from either a qualified 
actuary or an approved loss reserve specialist that its loss and LAE 
reserves are reasonable.

	When a claim is reported to the Company, its claims personnel 
establish a "case reserve" for the estimated amount of the ultimate 
payment.  The amount of the reserve is primarily based upon a case-by-
case evaluation of the type of claim involved, the circumstances 
surrounding each claim and the policy provisions relating to the type of 
loss.  The estimate reflects the informed judgment of such personnel 
based on general insurance reserving practices and on the experience and 
knowledge of the claims person. During the loss adjustment period, these 
estimates are revised as deemed necessary by the Company's claims 
department based on subsequent developments and periodic reviews of the 
cases.

	In accordance with industry practice, the Company also maintains 
reserves for estimated losses incurred but not yet reported ("IBNR").  
IBNR reserves are determined on the basis of historical information and 
the experience of the Company.  Adjustments to IBNR are made 
periodically to take into account changes in the volume of business 
written, claims frequency and severity, the mix of business, claims 
processing and other items that can be expected to affect the Company's 
liability for losses and LAE over time.
18
<page



	When reviewing reserves, the Company analyzes historical data and 
estimates the impact of various factors such as (i) per claim 
information, (ii) the historical loss experience of the Company and 
industry and (iii) legislative enactments, judicial decisions, legal 
developments in the imposition of damages, changes in political 
attitudes and trends in general economic conditions, including the 
effects of inflation.  This process assumes that past experience, 
adjusted for the effects of current developments and anticipated trends, 
is an appropriate basis for predicting future events.  There is no 
precise method, however, for subsequently evaluating the impact of any 
specific factor on the adequacy of reserves, because the eventual 
development of reserves is affected by many factors.

	By using both individual estimates of reported claims and 
generally accepted actuarial reserving techniques, the Company estimates 
the ultimate net liability for losses and LAE.    After taking into 
account all relevant factors, management believes that the provision for 
losses and LAE at December 31, 1996 is adequate to cover the ultimate 
net cost of losses and claims incurred as of that date.  The ultimate 
liability may be greater or lower than reserves.  Establishment of 
appropriate reserves is an inherently uncertain process, and there can 
be no certainty that currently established reserves will prove adequate 
in light of subsequent actual experience.  The Company does not discount 
to present value that portion of its loss reserves expected to be paid 
in future periods.  The Company's loss and LAE reserves also includes 
its share of the aggregate loss and LAE reserves of all Servicing 
Carriers.

	For a reconciliation of beginning and ending reserves for losses 
and LAE, net of reinsurance, see Note E to the Company's 1996 
Consolidated Financial Statements, which is incorporated herein by 
reference from pages 29 through 31 of the Company's 1996 Annual Report.

	Included in the loss reserve methodologies described above, are 
liabilities for unpaid claims and claim adjustment expenses for 
environmental related claims such as oil spills and lead paint.  
Reserves have been established to cover these claims for both known and 
unknown losses.  Because of the Company's limited exposure to these 
types of claims, Management believes they will not have a material 
impact on the consolidated financial position of the Company.  Loss 
reserves on environmental related claims amounted to $8,783,000 and 
$10,708,000 in 1996 and 1995, respectively.

	The following table represents the development of reserves, net of 
reinsurance, for 1986 through 1996.  The top line of the table shows the 
reserves at the balance sheet date for each of the indicated years.  
This represents the estimated amounts of losses and LAE for claims 
arising in all years that were unpaid at the balance sheet date, 
including losses that had been incurred but not yet reported to the 
Company.  The upper portion of the table shows the cumulative amounts 
paid as of successive years with respect to that year's current reserve 
liability expressed as a percentage.  The lower portion of the table 
shows the re-estimated amount as a percentage of the previously recorded 
reserves based on experience as of the end of each succeeding year, 
including cumulative payments made since the end of the respective year.  
The estimate changes as more information becomes known about the 
frequency and severity of claims for individual years.  Favorable loss 
development exists when the original reserve estimate is greater than 
the re-estimated reserves at December 31, 1996.























19
<page



	In evaluating the cumulative information in the table, it should 
be noted that each year's amount includes the effects of all changes in 
amounts for prior periods.  This table does not present accident or 
policy year development data.  Conditions and trends that have affected 
development of the liability in the past may not necessarily occur in 
the future.  Accordingly, it is not appropriate to extrapolate future 
development based on this table.
<TABLE>
              						Year ended December 31,	
							
                   1996       1995      1994      1993      1992      
1991      1990      1989      1988      1987      1986
                                                     ($ in thousands)
<CAPTION>
<S>                <C>       <C>       <C>       <C>       <C>       <C>       
<C>       <C>        <C>       <C>       <C>
Reserves for
 losses and loss
 adjustment
 expenses........  $521,061  $486,673  $448,331  $415,613  $316,261  
$228,657  $177,657  $138,456  $100,882   $70,457   $49,069

Paid (cumulative)
 as a percentage
 of current re-
 serves as of:
  One year later..               42.0      44.5      51.3      49.4      
45.6      45.6      46.4      41.7      40.4      41.8
  Two years later.                         63.7      70.0      74.3      
70.2      67.6      68.7      67.9      60.0      65.1
  Three years
   later..........                                   80.0      83.2      
86.0      83.5      81.1      82.3      80.5      78.7
  Four years
   later..........                                             88.1      
89.9      94.5      89.5      89.2      89.0      94.4
  Five years later                                                       
92.0      95.1      97.3      92.4      92.3      99.6
  Six years later.                                                                 
94.5      97.2      99.5      93.6     102.2
  Seven years
   later..........                                                                           
96.1      99.8     101.4     103.2
  Eight years
   later..........                                                                                     
97.7     101.8     103.4
  Nine years 
   later..........                                                                                               
98.8     103.7
  Ten years later.                                                                                                         
98.9

Reserves re-estimated
 as a percentage of
 initial reserves as of:
  One year later..               82.0      83.4      83.7      87.2      
82.3      84.5      92.7      96.9      99.4      95.3
  Two years later.                         72.7      75.5      78.6      
82.8      74.6      82.8      87.7      98.9      91.7
  Three years 
   later..........                                   69.0      73.0      
77.1      75.1      76.7      80.5      90.1      91.8
  Four years later                                             68.8      
72.2      71.7      78.2      76.3      86.2      85.0
  Five years later                                                       
68.7      68.2      75.6      80.2      83.9      83.5
  Six years later.                                                                 
65.5      74.0      78.0      90.8      83.0
  Seven years
    later.........                                                                           
71.8      77.3      88.5      82.5
  Eight years
    later.........                                                                                     
75.4      87.9      82.3
  Nine years later                                                                                               
85.2      82.0
  Ten years later.                                                                                                         
78.2

Redundancy expressed as a
 percent of yearend
 reserves.........               18.0      27.3      31.0      31.2      
31.3      34.5      28.2      24.6      14.8      21.8
</TABLE>
<page



H. Operating Ratios

Loss and Underwriting Expense Ratios

	Loss and underwriting expense ratios are used to interpret the 
underwriting experience of property and casualty insurance companies.  
Losses and LAE are stated as a percentage of premiums earned because 
losses may occur over the life of a policy.  Underwriting expenses on a 
statutory basis are stated as a percentage of net premiums written 
rather than premiums earned because most underwriting expenses are 
incurred when policies are written and are not spread over the policy 
period.  Underwriting profit margins are reflected by the extent to 
which the combined loss and underwriting expense ratios, the combined 
ratio, is less than 100%.  The combined ratio is considered the best 
simple index of current underwriting performance of an insurer.  The 
Company's loss ratio, underwriting expense ratio and combined ratio, and 
the industry combined ratio, on a statutory basis, are shown in the 
following table.  The Company's ratios include lines of insurance other 
than automobiles as do the industry combined ratios for all writers.  
Data for the property and casualty industry generally may not be 
directly comparable to Company data.  This is due to the fact that the 
Company conducts its business primarily in Massachusetts.
<TABLE>
									Year Ended 
December 31,			
						 1996		 1995		 1994		 
1993		 1992

<CAPTION>
<S>                                 <C>         <C>         <C>         
<C>         <C>
Company Statutory Ratios (unaudited):
  Loss Ratio......................	 70.9%	 62.0%	 64.6%	 
68.0%	 66.2%
  Underwriting Expense Ratio......	 27.1		 29.0		 27.1		 
25.7		 28.1
   Combined Ratio.................	 98.0%	 91.0%	 91.7%	 
93.7%	 94.3%

   Industry combined ratio
   (all writers)(1)...............	103.1%	102.5%	103.0%
	102.9%	107.4%
</TABLE>
					
(1) Source:  Best's Review (January, 1997), as reported by A.M. Best for 
all property and casualty insurance companies and weighted to reflect 
the Company's product mix. The 1996 industry information is estimated by 
A.M. Best.

Premiums to Surplus Ratio

	The following table shows, for the periods indicated, the 
Company's and the industry's statutory ratios of net premiums written to 
policyholders' surplus.  While there is no statutory requirement 
applicable to the Company which establishes a permissible net premiums 
to surplus ratio, guidelines established by the National Association of 
Insurance Commissioners ("NAIC") provide that this ratio should be no 
greater than 300%.
<TABLE>
									Year Ended 
December 31,			
						 1996		 1995		 1994		 
1993		 1992
									(dollars in 
thousands)
<CAPTION>
<S>                                 <C>         <C>         <C>         
<C>         <C>
Net premiums written by the
 Company...........................	$711,570	$603,421	$589,197
	$563,416	$508,847
Policyholders' surplus of the
 Company...........................	 464,739	 440,110	 349,775	 
284,631	 221,434
The Company's ratio................	   153.1%	   137.1%	   168.5%	   
197.9%	   229.8%
Industry ratio(1)..................	   100.0%	   120.0%	   134.7%	   
132.5%	   139.5% 
</TABLE>
__________________________________
(1) Source:  Best's Review (January, 1997), for all property and 
casualty insurance companies.  The 1996 industry information is 
estimated by A.M. Best.



21
<page



I. Investments

	Investment income is an important source of revenue for the 
Company and the return on its investment portfolio has a material effect 
on its net earnings.  The Company's investment objective is to maintain 
high quality diversified fixed maturity investments structured to 
maximize after-tax investment income while minimizing risk.  See 
"Management's Discussion and Analysis of Financial Condition and Results 
of Operations" incorporated herein by reference from pages 4 through 15 
of the Company's 1996 Annual Report.

	The Company's investment portfolio carried at market value as of 
December 31, 1996, was $1,027,136 excluding cash and cash equivalents.  
Of that amount, 69.8% was invested in fixed maturities, 22.8% was 
invested in equity securities, 7.4% was invested in mortgage loans and 
other investments.

	Investments in fixed maturities, which include bonds and 
redeemable preferred stocks, and investments in equity securities, which 
include common stocks, non-redeemable preferred stocks and preferred 
stock mutual funds, are carried at fair market value.  Unrealized 
investment gains and losses on equity securities and fixed maturities, 
to the extent that there is no permanent impairment of value, are 
credited or charged directly to stockholders' equity, net of any tax 
effect.  When investment securities are sold, the realized gain or loss 
is determined based on sales proceeds less book value.

	The Company's bond portfolio is comprised of Government National 
Mortgage Association ("GNMA") mortgage backed bonds (31.5%) and 
municipal bonds (68.5%).  Of the Company's bonds, 100.0% are rated in 
the two highest quality categories provided by the NAIC.

	The Company's investment policy, determined in accordance with 
guidelines established by the Company's Board of Directors, emphasizes 
investment yield while maintaining investment quality.  The Board of 
Directors reviews and ratifies management's investment decisions on a 
quarterly basis.  State insurance laws also impose restrictions on the 
nature and extent of investments by the Company.

	The table below sets forth investments (at cost) and the income 
thereon for the five years ended December 31, 1996.
<TABLE>

									Year Ended 
December 31,			
						  1996       1995       1994          
1993       1992
									(dollars in 
thousands)
	
<CAPTION>
<S>                               <C>          <C>          <C>         
<C>        <C>
Average net investments.......... $1,060,538   $996,169     $889,700    
$749,821   $520,890
Net realized gains (losses) on 
  investments....................     (7,574)       712       45,612       
7,506      1,537
Unrealized gains (losses) on 
  fixed maturities...............     16,191     13,969      (56,366)     
27,477        -
Unrealized gains (losses) on 
  equity securities..............     19,315     11,422       (8,887)     
13,199     22,279
Net investment income............     77,402     71,313       62,901      
53,068     39,223
Net investment income as a
 percentage of total average
 investments.....................       7.30%      7.16%        7.07 %      
7.08%     7.53%
</TABLE>










22
<page



	The following table sets forth an analysis of carrying value by 
the type of investment at December 31, 1992 at cost and 1993 through 
1996 at fair market value:
<TABLE>
									Year Ended 
December 31,		   	
						   1996       1995       1994       
1993       1992
									(dollars in 
thousands)
<CAPTION>
<S>                                <C>         <C>          <C>       
<C>        <C>
Type of Investment
  GNMA mortgage-backed bonds...... $  225,552  $  221,373   $233,287  
$202,403   $102,873
  Tax exempt state and municipal
   bonds..........................    491,150     593,904    511,723   
447,088    402,692
  Redeemable preferred stocks.....        -           -          -         
-        2,261
      Total fixed maturity
       investments................    716,702     815,277    745,010   
649,491    507,826

  Mortgages and collateral loans
   (net of allowance for possible
   loan losses)...................     74,586      75,609     58,590    
63,301     69,948
  Preferred stock mutual funds....     29,087         -          -         
-          -
  Common stocks...................     56,954      40,359      9,656    
65,863     53,345
  Non-redeemable preferred stocks.    147,680     111,220     85,574    
80,058        -  
  Other investments...............      2,127       1,648        716     
1,304      2,351
      Total investments........... $1,027,136  $1,044,113   $899,546  
$860,017   $633,470
</TABLE>

	The table below sets forth as of December 31, 1996 the composition 
of the Company's fixed maturity investments, excluding short-term 
investments, by time to maturity at the dates indicated:
<TABLE>
												
	 Percent
												
	   of
											Amount
	Portfolio
										
	(dollars in thousands)
<CAPTION>
            <S>                                                  <C>             
<C>
		Period from December 31, 1996 to maturity:
		  One year or less.................................  $    
517          0.1%
		  More than one year to five years.................       
102           - 
		  More than five years to ten years................     
1,681          0.2
		  More than ten years..............................   
714,402         99.7
										     
$716,702        100.0%
</TABLE>
	At December 31, 1996, the Company's fixed income portfolio, which 
represented 69.8% of the Company's total invested assets, had an average 
stated maturity of approximately 26.5 years.  The calculation of average 
stated maturity utilizes the dollar weighted average of the actual 
maturity date for a security.  In contrast, the Company's weighted 
average duration can be significantly less.  At December 31, 1996, the 
Company's fixed income portfolio had a weighted average duration of 5.4 
years.  The "duration" of a security is the time-weighted present value 
of the security's expected cash flows and is used to measure a 
security's price sensitivity to changes in interest rates.  The weighted 
average duration is short compared to the average stated maturity 
because of the relatively large percentage of GNMA's in the fixed 
maturity portfolio.  The duration of GNMA's reflects industry prepayment 
assumptions.  With respect to GNMA's, investors are compensated 
primarily for reinvestment risk rather than credit quality risk.  During 
periods of significant interest rate volatility, the underlying 
mortgages may prepay more quickly or more slowly than anticipated.  If 
the repayment of principal occurs earlier than anticipated during 
periods of declining interest rates, investment income may decline due 
to the reinvestment of these funds at the lower current market rates. In 
regards to municipal bonds, the Bloomberg Financial System utilizes 
optional call dates, sinking fund requirements and assumes a non-static 
prepayment pattern in deriving these averages.

23
<page



J. Regulation

General

	The Company's primary business is subject to extensive regulation 
by the Commissioner who is appointed by the Governor of Massachusetts.  
The Commissioner has broad authority to fix and establish maximum policy 
rates and minimum agent commission levels on personal automobile 
insurance.  In addition, the Commissioner grants and revokes licenses to 
write insurance, approves policy forms, sets reserve requirements, 
determines the form and content of statutory financial statements and 
establishes the type and character of portfolio investments.  The 
Commissioner also approves company submissions regarding group insurance 
programs and corresponding discounts along with SDIP deviations.  
Consequently, the policies and regulations set by the Commissioner are 
an important element of writing insurance in Massachusetts.

	During the three-year period from 1994 to 1996, Massachusetts 
personal automobile insurance premium rates decreased an average of 2.6% 
per year.  The Commissioner approved an average 6.2% decrease in 
personal automobile premiums for 1997, the third decrease in three 
years, as 1996 average rates were cut by 4.5%, and 1995 average rates 
were decreased by 6.1%.  According to the Commissioner's office, the 
current rate environment is the result of continued consumer cooperation 
by driving safely, obeying traffic laws, reporting fraud, wearing 
seatbelts and individuals locking their autos.

	Also, the 1997 decrease was partially driven by corrections to an 
industry error impacting prior year rate decisions.  The industry error 
resulted from a miscaluation of industry expense allowances that had the 
effect of overstating rates for 1991 through 1996.  Rates for 1997 
include an adjustment to recoup this error from the industry equal to 
40% of the error with 40% reducing 1998 rates and 20% reducing 1999 
rates.

	Additionally, 1997 rates were decreased as a result of the 
reconciliation of the SDIP which is designed to be revenue neutral.  In 
most recent past years, the SDIP reconciliation resulted in a deficit 
which was then added into the rates for the subsequent years.  The 1996 
SDIP reconciliation, however, resulted in a surplus.  Fifty percent of 
this surplus is being used to decrease rates in both 1997 and 1998.

	The Company has performed an analysis of the rate decision and has 
estimated the impact of the above two items on its results assuming its 
market share remains the same as it was at the end of 1996.  The earned 
premium impact is estimated to be approximately $15.3 million for 1997, 
$23.0 million for 1998 and $13.5 million for 1999.  The earnings per 
share after-tax impact resulting from the lower earned premiums for 
1997, 1998 and 1999 is estimated to be $0.28, $0.41 and $0.23, 
respectively.  If the Company's future market share increases 
(decreases), a larger (smaller) financial impact would result.








24
<page



	The AIB has filed an appeal with the Massachusetts Supreme 
Judicial Court challenging the Commissioner's decision to prospectively 
decrease future rates for the miscalculation of the industry expense 
allowance.  (The SDIP reconciliation component is not being challenged.)  
The AIB's argument is that, according to statute, there is a prohibition 
against retroactive rate making in Massachusetts which effectively bars 
the examination of past year's data once all involved parties have 
agreed to the rate decision.  One insurer has filed a suit with the 
Massachusetts Supreme Judicial Court alleging that the prospective 
nature of the rate reduction will have an unfair adverse impact on it.  
This is due to the fact that the company filing suit believes it should 
not be adversely impacted solely because its market share is greater now 
than during those years in which the errors occurred  It is not possible 
to predict the outcome of these legal actions or the potential effects 
thereof on the Company.

	In addition, the MAIA has also filed a suit with the Massachusetts 
Supreme Judicial Court with respect to the Commissioner's ruling on 1997 
commissions.  The Commissioner ruled that agents' commissions on 1997 
premiums, subject to safe driver discounts, will be based on the 
discounted net premium amounts.  The 1996 commissions were based on the 
gross premium amounts.  The Commissioner's ruling will result in agents 
receiving fewer commission dollars on a per policy basis.  The Company 
is unable to predict the possible outcome of this suit at this time.

	The State Divisions of Insurance are responsible for conducting 
periodic examinations of insurance companies.  Both Commerce and 
Citation were last examined for the five year period ended December 31, 
1993.  Western Pioneer was last examined for the three year period ended 
December 31, 1991.  These examinations produced no material findings.  
Massachusetts Division of Insurance regulations provide that insurance 
companies will be examined every five years or more frequently as deemed 
prudent by the Commissioner.  California Division of Insurance 
regulations provide that insurance companies will be examined every 
three years.

Automobile Insurance Regulation Overview

	Massachusetts has required compulsory automobile insurance 
coverage since 1925.  Under current law, all motorists are required to 
carry certain minimum coverages mandated by the state.  The Commissioner 
fixes and establishes, among other things, the maximum rates insurers 
may charge for the compulsory personal automobile coverages.  With very 
limited exceptions, each insurer writing automobile insurance in 
Massachusetts must accept all risks submitted to it for the compulsory 
coverage, but is permitted to reinsure these risks (including group 
insurance risks) through C.A.R.

	Compulsory Coverage. Compulsory coverage includes no-fault 
coverage, limited bodily injury coverage, property damage coverage and 
coverage against uninsured or hit and run motorists.  The Massachusetts 
no-fault statute provides for personal injury protection ("PIP") 
coverage, which entitles a party to be reimbursed directly by the 
party's own insurer for certain medical expenses, lost wages and other 
defined expenses arising from an automobile accident, up to a specific 
amount, even if another party caused the accident.

	Rates and Commissions. All Massachusetts personal automobile 
insurance rates are fixed and established annually by the Commissioner.  
Group insurance programs and rate deviations must be approved by the 
Commissioner.  For Massachusetts commercial automobile insurance, the 
rates for the voluntary market are competitive, with insurers filing 
rates for review by the Commissioner based on their own experience.  The 
rates for the Massachusetts commercial automobile risks reinsured 
through C.A.R. are fixed and established by the Commissioner except for 
non-fleet, private passenger-type automobiles.








25
<page



	In fixing classifications of risks and establishing rates, the 
Commissioner must consider numerous factors including driver and 
automobile characteristics and the claim rate in the state's designated 
geographical territories.  These factors are based upon data which are 
two or more years old.  The insurer adjusts the premiums it charges to a 
policyholder based upon the SDIP record of the operator.  Moving 
violations and at-fault accidents affect each driver's SDIP record.  In 
addition, the Extra Risk Rating regulations permit insurers to deny or 
charge surcharged rates for physical damage coverage to both high risk 
vehicles and insureds with excessive prior loss or violation activity.

	The Commissioner sets an average minimum direct agency commission 
rate for personal automobile insurance, which in 1996 was 13.8%.  With 
respect to risks reinsured through C.A.R., the maximum amount of 
commissions that C.A.R. will reimburse is fixed at that prescribed rate.

	Mandatory Underwriting. Massachusetts law specifies that all 
individuals holding a valid driver's license are entitled to purchase 
the mandatory automobile insurance regardless of their driving 
experience or accident record.  The Massachusetts Legislature has also 
placed certain restraints on insurers' discretion to refuse to renew 
automobile insurance policies.  Policyholders are entitled to renew 
except in cases of fraud, material misrepresentation, revocation or 
suspension of an operator's license or nonpayment of premiums.  With 
very limited exceptions, Servicing Carriers writing automobile insurance 
in Massachusetts must accept every automobile risk submitted to them.

	Under the Massachusetts system of rate regulation, it is intended 
that some personal automobile insurance risks are underpriced at the 
maximum rate permitted by the Commissioner, and therefore, absent state-
intervention, insurers would not ordinarily choose to write those risks.  
The C.A.R. reinsurance program described below is intended to mitigate 
the burden imposed by the Massachusetts take-all-comers system by 
allowing insurers to transfer the exposure for undesirable risks to an 
industry pool.

Commonwealth Automobile Reinsurers

	General. C.A.R. is a state-mandated reinsurance mechanism, under 
which all premiums, expenses and losses on ceded business are shared by 
all insurers.  It is similar to a joint underwriting association because 
a number of insurers (approximately 41, including the Company) act as 
Servicing Carriers for the risks it insures.

	Agencies. In general, agencies licensed to issue automobile 
insurance policies are entitled to be assigned to at least one Servicing 
Carrier.  There are two categories of agencies: those who have voluntary 
agreements with one or more Servicing Carriers and those who do not.  
The latter are assigned by C.A.R. to a single Servicing Carrier and are 
known as ERPs.

	C.A.R. Operations. All companies writing automobile insurance in 
Massachusetts share in the underwriting results of the C.A.R. business 
for their respective product line or lines, whether or not they are 
Servicing Carriers.  An insurer's share of the C.A.R. deficit is 
allocated on the basis of a formula called a participation ratio, which 
can vary significantly between the personal and commercial pools, and 
between different policy years.  See "Business--Commonwealth Automobile 
Reinsurers" for a detailed discussion of the method of calculating the 
participation ratio.

	An insurer may terminate its participation in C.A.R. as of the 
close of C.A.R.'s fiscal year by surrendering its license to write 
automobile policies in Massachusetts.  Termination does not discharge or 
otherwise affect liability of an insurer incurred prior to termination.  
A withdrawing insurer is assessed a share of C.A.R.'s projected deficits 
for future years based on the insurer's prior years' participation in 
C.A.R.  The assessment paid by the withdrawing insurer is redistributed 
to the remaining insurers based upon their participation ratios.



26
<page



	An insurer can transfer its obligations for its personal insurance 
policies to another insurer who formally agrees to assume these 
obligations.  The transferring insurer is thereby relieved of future 
C.A.R. obligations which otherwise would have arisen as a consequence of 
the business transferred. See "Business--Commonwealth Automobile 
Reinsurers."

Insurance Holding Company Structure

	As an insurance holding company, the Company is subject to 
regulation under the insurance holding company statutes of the states in 
which they are domiciled.  Because the Company's subsidiaries are 
members of an insurance holding company system, they are required to 
register with their respective Divisions of Insurance and to submit 
reports describing the capital structure, general financial condition, 
ownership and management of each insurer and any person or entity 
controlling the insurer, the identity of every member of the insurance 
holding company system and the material outstanding transactions between 
the insurer and its affiliates.

	Each member of the insurance holding company system must keep 
current the information required to be disclosed by reporting all 
material changes or additions within 15 days of the end of the month in 
which it learns of such change or addition.

	Massachusetts law prohibits a party which is not a domestic 
insurer from acquiring "control" of a domestic insurer or of a company 
controlling a domestic insurer without prior approval of the 
Commissioner.  Control is presumed to exist if a party directly or 
indirectly holds, owns or controls more than ten percent of the voting 
stock of another party, but may be rebutted by a showing that control 
does not exist.

	In the event of the insolvency, liquidation or other 
reorganization of any of the Company's insurance subsidiaries, the 
creditors and stockholders of the Company will have no right to proceed 
against the assets of those subsidiaries, or to cause the liquidation or 
bankruptcy of any company under federal or state bankruptcy laws.  State 
laws govern such liquidation or rehabilitation proceedings and the 
Division of Insurance would act as receiver for the particular company.  
Creditors and policyholders of the insurance subsidiaries would be 
entitled to payment in full from such assets before the Company, as a 
stockholder, would be entitled to receive any distribution therefrom.

Payment of Dividends

	Under Massachusetts law, insurers may pay cash dividends only from 
earnings and statutory surplus, and the insurer's remaining surplus must 
be both reasonable in relation to its outstanding liabilities and 
adequate to its financial needs.

	As Massachusetts domestic insurance companies, neither Commerce 
nor Citation may pay an extraordinary dividend or distribution unless 
the insurer gives the Commissioner at least 30 days' prior notice of the 
declaration and the Commissioner does not disapprove of the plan of 
payment prior to the date of such payment.  An extraordinary dividend or 
distribution is one whose fair market value, together with that of other 
dividends or distributions within the preceding twelve-month period 
(excluding pro rata distribution of any class of the insurer's own 
securities) exceeds the greater of (i) ten percent of the insurer's 
statutory surplus as of the preceding December 31, or (ii) the statutory 
net investment income for the twelve-month period ending on the 
preceding December 31.  See "Market for Registrant's Common Stock and 
Related Stockholder Matters."










27
<page



Protection Against Insurer Insolvency

	All of the insurers writing the types of insurance covered by The 
Massachusetts Insurers Insolvency Fund ("M.I.I.F.") are M.I.I.F. 
members. M.I.I.F. is obligated to pay any unpaid claim, up to $300,000, 
against an insolvent insurer if the claim existed prior to the 
declaration of insolvency or arose within 60 days thereafter.  M.I.I.F. 
assesses members the amounts necessary to pay both its obligations and 
the expenses of handling covered claims.  Subject to certain 
limitations, assessments are made in the proportion that each member's 
net written premiums for the preceding calendar year for all property 
and casualty lines of business bore to the corresponding net written 
premiums for all members for the same period.  The statute that 
established M.I.I.F. also provides for the recoupment by insurers of 
amounts paid to M.I.I.F. Historically, the Commissioner has allowed 
insurers to recoup the amounts they paid M.I.I.F. through rate 
increases.

	Consistent with industry practice in Massachusetts, it is the 
Company's policy to record all assessments when they are assessed.  
M.I.I.F. assessed Commerce and Citation an aggregate of $742,000 in 
1996, $338,000 in 1995 and $331,000  in 1994.  The Company anticipates 
that there will be additional assessments.  By statute, no insurer may 
be assessed in any year an amount greater than two percent of that 
insurer's net direct written premiums for the calendar year preceding 
the assessment.  The Company believes that any such additional 
assessments should not have a material adverse effect on the 
consolidated financial position of the Company, although the timing and 
amounts of any such assessments cannot be presently ascertained.

NAIC Guidelines

	Insurance Regulatory Information System Ratios. The NAIC Insurance 
Regulatory Information System ("IRIS") was developed by a committee of 
state insurance regulators and is intended primarily to assist state 
insurance regulators in executing their statutory mandates to oversee 
the financial condition of insurance companies operating in their 
respective states.  IRIS identifies eleven industry ratios and specifies 
"usual values" for each ratio. Departure from the usual values on four 
or more of the ratios can lead to inquiries from individual state 
insurance commissioners as to certain aspects of an insurer's business.  
For the year ended December 31, 1996, the Company's consolidated 
property and casualty operations had no ratios outside the "normal" 
range.

	Risk-Based Capital ("RBC"). In order to enhance the regulation of 
insurer insolvency, the NAIC developed a formula and model law to 
implement RBC requirements for property and casualty insurance companies 
which are designed to assess capital adequacy and to raise the level of 
protection that statutory surplus provides for policyholder obligations.  
The RBC model for property and casualty insurance companies measures 
three major areas of risk facing property and casualty insurers: (i) 
underwriting, which encompasses the risk of adverse loss development and 
inadequate pricing; (ii) declines in asset values arising from credit 
risk; and, (iii) other business risks from investments.  Insurers having 
less statutory surplus than required by the RBC calculation will be 
subject to varying degrees of regulatory action, depending on the level 
of capital inadequacy.














28
<page



	The Company's subsidiaries, Commerce and Citation, have RBC 
amounts at December 31, 1996 of $52 million and $4 million, 
respectively, and they have statutory surplus of approximately $394 
million and $71 million, respectively.  The Statutory surplus of 
Commerce and Citation at December 31, 1996 exceeded the RBC Company 
Action Levels of $103 million and $8 million by approximately $291 
million and $63 million.  The RBC model formula proposes four levels of 
regulatory action.  The extent of regulatory intervention and action 
increases as the level of surplus to RBC falls.  The first level, the 
Company Action Level, requires an insurer to submit a plan of corrective 
actions to the regulator if surplus falls below 200% of the RBC amount.  
The Regulatory Action Level (as defined by the NAIC) requires an insurer 
to submit a plan containing corrective actions and permits the 
Commissioner to perform an examination or other analysis and issue a 
corrective order if surplus falls below 150% of the RBC amount.  The 
Authorized Control Level (as defined by the NAIC) allows the regulator 
to rehabilitate or liquidate an insurer in addition to the 
aforementioned actions if surplus falls below 100% of the RBC amount.  
The fourth action level is the Mandatory Control Level (as defined by 
the NAIC) which requires the regulator to rehabilitate or liquidate the 
insurer if surplus falls below 70% of the RBC amount.

K. Competition

	The property and casualty insurance industry is highly cyclical, 
characterized by periods of increasing premium rates and limited 
underwriting capacity, followed by periods of intensive price 
competition and abundant underwriting capacity.  This industry also is 
highly competitive, with a large number of companies, many of which 
operate in more than one state, offering automobile, homeowners, 
commercial property and other lines of insurance.  Some of the Company's 
competitors have larger volumes of business and greater financial 
resources.  Some sell insurance directly to policyholders rather than 
through independent agents.

	In 1995, several insurers within the Massachusetts Insurance 
Industry began pursuing group marketing programs as a means of shifting 
market share.  Arising from this pursuit, additional programs such as 
safe driver deviations and the elimination of finance fees have 
followed.  Commerce's group automobile discounts and SDIP deviations can 
be combined for up to a 19% reduction from the state mandated rates.  
The Company has actively pursued each of these endeavors in 1996 and 
will continue to do so in 1997.

	Because the Company's insurance products are marketed exclusively 
through independent agencies--most of whom represent more than one 
company--the Company faces competition within each agency.  The Company 
competes for business from independent agencies by paying them 
significant compensation in the form of profit sharing payments which 
are based in part on the underwriting profits of the agency business 
written with the Company, providing a consistent market, promptly 
servicing policyholder claims, providing agency support services and by 
providing competitively priced personal automobile products.  Although 
the Company believes, based upon regular surveys of its agencies, its 
relationships with its independent agencies are excellent, any 
disruption in these relationships could adversely affect the Company's 
business.

	The Company believes the Massachusetts regulatory environment, 
which fixes maximum personal automobile insurance rates, apportions 
losses incurred by C.A.R. and establishes minimum agency commissions, 
has discouraged certain companies with more diverse geographic markets 
and interests from establishing a presence or expanding their market 
share in Massachusetts.










29
<page



L. Other Matters

Human Resources

	As of December 31, 1996, the Company and its subsidiaries employed 
1,380 people.  The Company is not a party to any collective bargaining 
agreements and believes its relationship with employees to be good.

	The Company offers benefits, compensation and employee relations 
programs to assure a productive and positive working environment.  The 
Company monitors job grades and salary scales of peer companies to 
assure that its compensation levels and benefits are competitive both 
within the property and casualty industry and geographically within 
Central Massachusetts.  The Company has been recognized for its 
progressive programs designed to meet the needs of a modern-day 
workforce.  On-site child care has been offered to employees since 1986.  
Commerce was one of the first businesses in the region to offer this 
benefit.  The child care center can currently accommodate over 130 
children of our employees.

	The Company maintains an Employee Stock Ownership Plan 
("E.S.O.P."), for the benefit of all employees and former employees 
still participating in the E.S.O.P.  There were a total of 1,385 
participants at December 31, 1996.

ITEM 2. PROPERTIES

	The Company conducts its operations from approximately 277,000 
square feet of space in several buildings which it owns in Webster, 
Massachusetts, which is located approximately 50 miles west of Boston.  
The Company's principal administrative offices in Webster consist of 
recently rehabilitated and newly constructed buildings.  Its data 
processing and operational departments are housed in modern office 
buildings on a separate nine acre site.  The Company's new acquisition, 
Western Pioneer, currently leases approximately 12,000 square feet of 
office space in Pleasanton, California.  For additional information 
concerning property, see Note D to the Company's 1996 Consolidated 
Financial Statements, which is incorporated herein by reference from 
page 29 of the Company's 1996 Annual Report.

ITEM 3. LEGAL PROCEEDINGS

	As is common with property and casualty insurance companies, the 
Company is a defendant in various legal actions arising from the normal 
course of its business, including claims based on Chapter 176D and 
Chapter 93A.  See "Business - Settlement of Claims".  These proceedings 
are considered to be ordinary and incidental to operations or without 
foundation in fact.  Management is of the opinion that these actions 
will not have a material adverse effect on the consolidated financial 
position of the Company.



















30
<page



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

	There were no matters submitted to a vote of security holders 
during the fourth quarter of 1996.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

	The Company's executive officers are as follows:
<TABLE>
<CAPTION>
      <S>                            <C>        <C>
		Name				Age			Position with 
Company

	Arthur J. Remillard, Jr.	 66		Chief Executive Officer, 
Director

	Gerald Fels				 54		Executive Vice 
President,
								Chief Financial Officer, 
Director

	Arthur J. Remillard, III	 41		Senior Vice President--
Policyholder 								
	Benefits, Assistant Clerk, Director

	Regan P. Remillard		 33		Senior Vice President--
General Counsel,
								Director

	David H. Cochrane			 43		Senior Vice President--
Underwriting 									of 
Commerce and Citation

	Mary M. Fontaine			 40		Senior Vice President--
Human Resources

	Robert E. Longo			 62		Senior Vice President--
Marketing of 								
	Commerce and Citation

	Joyce B. Virostek			 54		Senior Vice President--
Management 									
	Information Systems of Commerce and 					
				Citation
</TABLE>

	Arthur J. Remillard, Jr. has been the Chief Executive Officer of 
the Company since 1972 and has been in the insurance business for more 
than 30 years.  Mr. Remillard, Jr. is also a member of the Governing 
Committee, Chairman of the Actuarial Committee, Vice Chairman of the 
Governing Committee Review Panel, and is a member of the Budget and 
Personnel Committees of C.A.R.

	Gerald Fels, a certified public accountant, was elected Executive 
Vice President of the Company in 1989.  From 1981 to 1989, Mr. Fels had 
been Senior Vice President of the Company.  Mr. Fels was the Treasurer 
of the Company from 1975 to 1994.  Mr. Fels has also been Chief 
Financial Officer since 1975.  Mr. Fels also serves on the C.A.R. Audit 
Committee.

	Arthur J. Remillard, III was elected Senior Vice President--
Policyholder Benefits in 1988. From 1981 to 1988, Mr. Remillard, III had 
been 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 January, 1991, the C.A.R. Claims Advisory 
Committee since June 1990 and the A.I.B. Claims Committee since April 
1991.

	Regan P. Remillard was elected President of Western Pioneer 
Insurance Company in 1996.  Mr. Remillard was elected Senior Vice 
President--General Counsel in 1995.  From 1994-1995, Mr. Remillard was a 
practicing attorney at Hutchins, Wheeler & Dittmar, a Massachusetts law 
firm specializing in corporate law and litigation.  From 1989-1993, Mr. 
Remillard was Government Affairs Monitor of the Company.  Mr. Remillard 
is a member of the Massachusetts Bar.

31
<page



	David H. Cochrane has been the Senior Vice President--Underwriting 
of Commerce and Citation since 1988.  For approximately four years prior 
to that, Mr. Cochrane was the Vice President of Financial Services of 
C.A.R.  Mr. Cochrane has also served on the C.A.R. Market Review 
Committee since 1988.

	Mary M. Fontaine has been the Senior Vice President--Human 
Resources of the Company since 1988.  From 1982 to 1988, Ms. Fontaine 
was Assistant Vice President--Human Resources of Commerce and Citation.

	Robert E. Longo has been the Senior Vice President--Marketing of 
Commerce and Citation since 1988.  From 1985 to 1988, Mr. Longo served 
as Marketing Manager of Commerce and Citation.

	Joyce B. Virostek has been the Senior Vice President--Management 
Information Systems of Commerce and Citation since 1988.  From 1981 to 
1988, Ms. Virostek had been Vice President of Commerce and Citation in 
charge of data processing.

	The executive officers are elected to hold office until their 
successors are elected and qualify.

	The only family relationship among the executive officers is that 
Arthur J. Remillard, III and Regan P. Remillard are the sons of Arthur 
J. Remillard, Jr.







































32
<page



PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER 
MATTERS

	Beginning March 31, 1995, the Company's common stock began trading 
on the New York Stock Exchange, under the symbol "CGI".  Previously, the 
Company's common stock had been traded on Nasdaq under the symbol 
"COMG".

	The high, low and close prices for shares of the Company's common 
stock for 1996 and 1995 were as follows:
<TABLE>
							   1996	     			   
1995	     	
						High     Low      Close		High      
Low     Close
<CAPTION>
      <S>                           <C>     <C>     <C>           <C>      
<C>     <C>
	First Quarter............	$20-3/4 $17-3/4 $19-3/4		$17      
$14-3/4 $16-3/4
	Second Quarter...........	 22-1/2  18-1/2  20-7/8		 17-
7/8   16-1/4  17-7/8
	Third Quarter............	 22-1/4  20-1/2  22    		 19-
7/8   16-3/4  19-5/8
	Fourth Quarter...........	 25-3/4  22      25-1/4		 21-
7/8   19-1/2  20-5/8
</TABLE>
	As of March 1, 1997, there were 1,294 stockholders of record of 
the Company's Common Stock, not including stock held in "Street Name" or 
held in accounts for participants of the Company's Employee Stock 
Ownership Plan ("E.S.O.P.").

	The Board of Directors of the Company voted to declare four 
quarterly dividends to stockholders of record totaling $.81 per share 
and $.23 per share in 1996 and 1995, respectively.  On May 17, 1996, the 
Board voted to increase the quarterly stockholder dividend from $.06 to 
$.25 per share to stockholders of record as of June 7, 1996.  Prior to 
that declaration, the Company had paid quarterly dividends of $.06 per 
share dating back to May 19, 1995 when the Board voted to increase the 
dividend from $.05 to $.06 per share.  The $.05 cash dividend per share 
was first declared by the Board on May 20, 1994.

	The purchase of Treasury Stock under the stock buyback program 
increased by 673,915 shares during 1996 to 1,937,348 shares at December 
31, 1996.  The stock buyback program, authorized by the Board in May 
1995, enables the Company to purchase up to three million shares of the 
Company's common stock.  The program is now approximately two-thirds 
complete.

	The Company's cash flow consists primarily of dividends received 
from CHI, which receives dividends from Commerce and Citation.  The 
payment of any cash dividends to holders of common stock by the Company 
therefore depends on the receipt of dividend payments from CHI.  To the 
extent Commerce and Citation are restricted from paying dividends to 
CHI, CHI will be limited in its ability to pay dividends to the Company.  
The payment of dividends by Commerce and Citation is subject to 
limitations imposed by Massachusetts law, as discussed under the caption 
"Payment of Dividends" in Item 1J of this report.

ITEM 6. SELECTED FINANCIAL DATA

	The five-year financial information under the caption "Selected 
Consolidated Financial Data" on page 40 of the Company's 1996 Annual 
Report is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS OF OPERATIONS

	The information on pages 4 through 15 of the Company's 1996 Annual 
Report is incorporated herein by reference.







33
<page



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

	The Company's Consolidated Financial Statements for the years 
ended December 31, 1996, 1995 and 1994 and the report of its independent 
accountants on pages 17 through 39 of the Company's 1996 Annual Report 
are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON 
 ACCOUNTING AND FINANCIAL DISCLOSURE

	None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

	The information called for by this Item and not provided in Item 
4A will be contained in the Company's Proxy Statement which the Company 
intends to file within 120 days after the end of the Company's fiscal 
year ended December 31, 1996 and such information is incorporated herein 
by reference.

ITEM 11. EXECUTIVE COMPENSATION

	The information called for by this Item will be contained in the 
Company's Proxy Statement which the Company intends to file within 120 
days after the end of the Company's fiscal year ended December 31, 1996 
and such information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

	The information called for by this Item will be contained in the 
Company's Proxy Statement which the Company intends to file within 120 
days after the end of the Company's fiscal year ended December 31, 1996 
and such information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

	The information called for by this Item will be contained in the 
Company's Proxy Statement which the Company intends to file within 120 
days after the end of the Company's fiscal year ended December 31, 1996 
and such information is incorporated herein by reference.

















34
<PAGE>


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
    <S><C>  <C>                                                        
<C>
	A. (1) The following financial statements have been incorporated 
herein by reference 
		 from the pages indicated below of the Company's 1996 Annual 
Report:
												
	      Page

		  Report of Independent 
Accountants................................      17
		  Consolidated Balance Sheets as of December 31, 1996 and 
1995.....      18
		  Consolidated Statements of Earnings for the years ended
		   December 31, 1996, 1995 and 
1994................................      19
		  Consolidated Statements of Stockholders' Equity for the 
years
		   ended December 31, 1996, 1995 and 
1994...........................     20
		  Consolidated Statements of Cash Flows for the years ended
		   December 31, 1996, 1995 and 
1994................................      21
		  Notes to Consolidated Financial 
Statements.......................      22

	   (2) The financial statement schedules are listed in the Index 
to Consolidated
		 Financial Statement Schedules.

	   (3) The exhibits are listed in the Index to Exhibits.

	B.     No Reports on Form 8-K were filed during the quarter ended 
December 31, 1996.
</TABLE>




































35
<page


SIGNATURES

	Pursuant to the requirements of Section 13 or 15(d) of the 
Securities Exchange Act of 1934, the registrant has duly caused this 
report to be signed on its behalf by the undersigned, thereunto duly 
authorized.

Dated: March 26, 1997
								THE COMMERCE GROUP, INC.

								By
									 ARTHUR J. 
REMILLARD, JR.
									 (Arthur J. 
Remillard, Jr.)
							(President, Chief Executive 
Officer and Director)

	Pursuant to the requirements of the Securities Exchange Act of 
1934, this report has been signed by the following persons on behalf of 
the registrant and in the capacities and on the dates indicated.
<TABLE>
		Signature							Title
<CAPTION>
      <S>                                       <C>
	ARTHUR J. REMILLARD, JR.			President, Chief 
Executive Officer and 		(Arthur J. Remillard, Jr.)		
	Director


	GERALD FELS						Executive Vice 
President, Chief Financial
	(Gerald Fels)					Officer and Director


	ARTHUR J. REMILLARD, III			Senior Vice President--
Policyholder 		(Arthur J. Remillard, III)		
	Benefits, Assistant Clerk and Director


	REGAN P. REMILLARD				Senior Vice President, 
General Counsel and
	(Regan P. Remillard) 				Director


	JOHN W. SPILLANE					Clerk and Director
	(John W. Spillane)


	RANDALL V. BECKER					Treasurer and Chief 
Accounting Officer
	(Randall V. Becker)


	HERMAN F. BECKER					Director
	(Herman F. Becker)


	JOSEPH A. BORSKI, JR.				Director
	(Joseph A. Borski, Jr.)


								Director
	(Eric G. Butler)


	HENRY J. CAMOSSE					Director
	(Henry J. Camosse)



36
<page




	DAVID R. GRENON					Director
	(David R. Grenon)


	ROBERT W. HARRIS					Director
	(Robert W. Harris)


	ROBERT S. HOWLAND					Director
	(Robert W. Howland)


	JOHN J. KUNKEL					Director
	(John J. Kunkel)


	RAYMOND J. LAURING				Director
	(Raymond J. Lauring)


	ROGER E. LAVOIS					Director
	(Roger E. Lavoie)


	NORMAND R. MAROIS					Director
	(Normand R. Marois)


	SURYAKANT M. PATEL				Director
	(Suryakant M. Patel)


	ANTRANIG A. SAHAGIAN				Director
	(Antranig A. Sahagian)


	GURBACHAN SINGH					Director
	(Gurbachan Singh)
</TABLE>





















37
<page



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENT SCHEDULES*
<TABLE>
												
	      Page
<CAPTION>
      <S>                                                                             
<C>
      Reports of Independent Accountants on Financial Statement 
Schedules......       39
</TABLE>
Schedules
<TABLE>
<CAPTION>
  <S>       <C>                                                                       
<C>
   II		Condensed Financial Information of the Registrant as of and 
for the
		 years ended December 31, 1996, 1995 and 
1994......................       40

  III		Supplementary Insurance Information for the years ended
		 December 31, 1996, 1995 and 
1994..................................       45

   IV		Reinsurance for the years ended December 31, 1996, 1995 and 
1994...       46

    V		Valuation and Qualifying Accounts for the years ended
		 December 31, 1996, 1995 and 
1994..................................       47

    X		Supplemental Information Concerning Property-Casualty 
Insurance
		 Operations for the years ended December 31, 1996, 1995 and 
1994...       48
</TABLE>


					
* Financial statement schedules other than those listed are omitted 
because they are not required, not applicable or the required 
information has been included elsewhere.

































38
<page



REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES


To the Board of Directors and Stockholders of
The Commerce Group, Inc.

	Our report on the consolidated financial statements of The 
Commerce Group, Inc. and Subsidiaries as of December 31, 1996 and 1995, 
and for each of the three years in the period ended December 31, 1996, 
has been incorporated by reference in this Form 10-K from Page 17 of the 
1996 Annual Report to Stockholders of The Commerce Group, Inc.  In 
connection with our audits of such financial statements, we have also 
audited the related financial statement schedules as of December 31, 
1996 and 1995 and for each of the three years in the period ended 
December 31, 1996, listed in the index on Page 38 of this Form 10-K.

	In our opinion, the financial statement schedules referred to 
above, when considered in relation to the basic financial statements 
taken as a whole, present fairly, in all material respects, the 
information required to be included therein.


COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
January 24, 1997



























39
<page



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE II

CONDENSED FINANCIAL INFORMATION

THE COMMERCE GROUP, INC.
(Parent Company Only)

BALANCE SHEETS
December 31,
(Thousands of Dollars)

<TABLE>

										  1996	  
1995	  1994
ASSETS
<CAPTION>
<S>                                                         <C>         
<C>         <C>
Investments:
  Investment in Commerce Holdings, Inc...................	$551,490
	$513,966	$379,259
  Investment in Bay Finance Company, Inc.................	  33,061	  
30,932	  29,283
  Investment in the Clark-Prout Insurance Agency, Inc....	   1,282	   
1,156	     824
  Other investments......................................	   2,000	   
1,300	     500
      Total investments..................................	 587,833	 
547,354	 409,866

Cash and cash equivalents................................	       2	       
6	     142
Property and equipment, net of accumulated depreciation..	   1,345	   
1,465	   1,450
Receivable from affiliates...............................	   3,767	   
5,746	   5,385
Current income taxes.....................................	   3,468	   
1,459	      20
Other assets.............................................	   2,411	   
1,811	   1,234
      Total assets.......................................	$598,826
	$557,841	$418,097

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Accounts payable and accrued expenses..................	$  9,506
	$  5,096	$  3,804
  Deferred income taxes..................................	   1,831	     
752	     500
  Other liabilities......................................	     450       
2,279	     204
      Total liabilities..................................	  11,787	   
8,127	   4,508

Stockholders' equity:
  Capital stock:
    Common stock.........................................	  19,000	  
19,000	  19,000
  Paid-in capital........................................	  29,621	  
29,621	  29,621
  Retained earnings......................................	 576,618	 
525,452	 364,968
										 625,239	 
574,073	 413,589
  Treasury stock, 1,937,348, 1,263,433 and 0 shares in
  1996, 1995 and 1994, at cost...........................	 (38,200)	 
(24,359)	     -  	


      Total stockholders' equity.........................	 587,039	 
549,714	 413,589

      Total liabilities and stockholders' equity.........	$598,826
	$557,841	$418,097
</TABLE>



The accompanying notes are an integral part of these condensed financial 
statements.



40
<page



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE II
(continued)

CONDENSED FINANCIAL INFORMATION

THE COMMERCE GROUP, INC.
(Parent Company Only)

STATEMENTS OF EARNINGS
Years ended December 31,
(Thousands of Dollars)
<TABLE>
										 1996		 
1995		 1994
<CAPTION>
<S>                                                         <C>        
<C>         <C>
Revenues
  Dividends received from subsidiaries...................	$ 43,470
	$ 34,650   $ 23,625
  Rent income............................................	     357	     
287      1,674
  Investment income......................................	       8	      
11          5
  Realized investment gains..............................	     -  	     
-        2,073
     Total revenues......................................	  43,835	  
34,948     27,377

Expenses
  Depreciation...........................................	     257	     
157        854
  Administrative expenses................................	   5,698	   
3,571      3,115
     Total expenses......................................	   5,955	   
3,728      3,969

Earnings before income tax benefits and equity in
 net earnings of subsidiaries over amounts distributed...	  37,880	  
31,220     23,408
Income tax benefits......................................	  (2,880)	  
(1,211)      (106)

Earnings before equity in net earnings of subsidiaries
 over amounts distributed................................	  40,760	  
32,431     23,514

Equity in net earnings of subsidiaries over amounts
 distributed.............................................	  33,204      
77,770     99,069
     Net earnings........................................	$ 73,964    
$110,201   $122,583
</TABLE>



















The accompanying notes are an integral part of these condensed financial 
statements.

41
<page



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE II
(continued)

CONDENSED FINANCIAL INFORMATION

THE COMMERCE GROUP, INC.
(Parent Company Only)

STATEMENTS OF CASH FLOWS
Years ended December 31,
(Thousands of Dollars)
<TABLE>
										  1996	  
1995	  1994

<CAPTION>
<S>                                                         <C>         
<C>         <C>
Cash flows from operating activities:
  Net earnings............................................. $ 73,964    
$110,201    $122,583
  Adjustments to reconcile net earnings to net cash
   provided by operating activities:
    Dividends received from consolidated subsidiaries......   43,470      
34,650      23,625
    Equity in earnings of consolidated subsidiaries........  (76,674)   
(112,420)   (122,694)
    Depreciation and amortization..........................      257         
157         854 
    Other liabilities and accrued expenses.................    1,281       
1,990      (3,152)
    Balances with affiliates...............................    1,979        
(361)     (9,552)
    Income taxes (benefits)................................     (930)     
(1,187)        395 
    Other--net.............................................      (83)       
(185)     (7,006)
      Net cash provided by operating activities............   43,264      
32,845       5,053

Cash flows from investing activities:
  Proceeds from sale of common stock.......................      -           
-        18,400
  Purchase of property and equipment for company use.......     (186)       
(285)       (841)
  Proceeds from sale of property and equipment.............      132         
298       8,091
      Net cash provided by (used in) investing activities..      (54)         
13      25,650

Cash flows from financing activities:
  Capital contribution to subsidiaries.....................      -           
-       (25,000)
  Dividends paid to stockholders...........................  (29,373)     
(8,635)     (5,700)
  Purchase of treasury stock...............................  (13,841)    
(24,359)        -  	
      Net cash used in financing activities................  (43,214)    
(32,994)    (30,700)

Increase (decrease) in cash and cash equivalents...........       (4)       
(136)          3
Cash and cash equivalents at beginning of year.............        6         
142         139
Cash and cash equivalents at end of year................... $      2    
$      6    $    142
</TABLE>














The accompanying notes are an integral part of these condensed financial 
statements.

42
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE II
(continued)

CONDENSED FINANCIAL INFORMATION

THE COMMERCE GROUP, INC.
(Parent Company Only)

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Thousands of Dollars)

	The accompanying condensed financial statements should be read in 
conjunction with the Consolidated Financial Statements and the 
accompanying notes thereto in the Annual Report.

NOTE A--Dividends

	The amounts of cash dividends paid to The Commerce Group, Inc. 
(Parent only) were as follows:
<TABLE>

										 1996		 
1995		 1994
<CAPTION>
      <S>                                                   <C>         
<C>         <C>
	Consolidated insurance subsidiaries.................	$43,470
	$34,650	$23,625
</TABLE>

	See Note K to the Consolidated Financial Statements in the Annual 
Report for a description of dividend restrictions applicable to the 
Company's subsidiaries.

NOTE B--Federal Income Tax Allocation

	As a member of a consolidated group for tax purposes, the Company 
and its subsidiaries (said parties constituting an "Affiliated Group" as 
defined in and for purposes of the Internal Revenue Code) are jointly 
and severally liable for federal income taxes of the Affiliated Group 
and have entered into an agreement establishing an allocation of tax 
liability and for compensation of the respective members of the 
Affiliated Group for use of their tax losses and credits.

	The method of allocation, as approved by the Board of Directors, 
calls for current taxes to be allocated among all affiliated companies 
based on a written tax-sharing agreement.  Under this agreement, 
allocation is made primarily on a separate return basis with current 
payment for losses and other tax items utilized in the consolidated 
return.  However, to the extent that a payor member of the group has 
future net operating losses which it cannot absorb in the year incurred, 
other members within the group will refund payments to the payor.

NOTE C--Capital Contributions to Subsidiaries

	During 1994, the Company made a capital contribution to Bay 
Finance in the amount of $10,000,000.  As part of this capital 
contribution, $4,100,000 of furniture and equipment, net of accumulated 
depreciation, was transferred by the Company to Bay Finance.

	Also during 1994, the Company made a capital contribution to 
Citation in the amount of $15,000,000.






43
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE II
(continued)

CONDENSED FINANCIAL INFORMATION

THE COMMERCE GROUP, INC.
(Parent Company Only)

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Thousands of Dollars)

NOTE D--Consolidated Financial Statements

	In preparing the consolidated financial statements of the Company 
and its subsidiaries, the following amounts have been eliminated:
<TABLE>

								At December 31,
Balance Sheet				    1996		1995		 1994
<CAPTION>
<S>                                  <C>           <C>          <C>
Investment in subsidiaries.........	 $585,833      $546,054     $409,366
Receivable from affiliates.........	    3,767         5,746        5,385

								At December 31,
Statement of Earnings			    1996		1995		 1994

Dividends from subsidiaries........	 $ 43,470      $ 34,650     $ 23,625
Rent income........................	      357           287        1,674
</TABLE>






























44
<PAGE>




THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE III

SUPPLEMENTARY INSURANCE INFORMATION
Years Ended December 31, 1996, 1995 and 1994
(Thousands of Dollars)

<TABLE>
							      Future
							      Policy		      
Other				 Benefits,   Amortization
						 Deferred    Benefits,		      
Policy				  Claims,    of Deferred
						  Policy    Claims and		    
Claims and		      Net	Losses and     Policy      Other       Net
						Acquisition    Loss     Unearned   
Benefits   Premium  Investment  Settlement   Acquisition  Operating  
Premiums
		Segment				   Costs     Expenses   
Premiums    Payable   Revenue   Income(1)   Expenses       Costs     
Expenses   Written 	
<CAPTION>
<S>                                          <C>          <C>         
<C>         <C>     <C>        <C>          <C>         <C>           
<C>      <C>
1996
  Property and casualty insurance..........  $ 82,968     $649,913    
$367,991    None    $668,716   $ 69,852     $475,231    $181,013      
NONE     $711,570
  Real estate and commercial lending.......       -            -           
-                   -        4,249          -           -                      
-  
  Corporate and other......................       -            -           
-                   -        3,301          -           -                      
-  	
        Total..............................  $ 82,968     $649,913    
$367,991            $668,716   $ 77,402     $475,231    $181,013               
$711,570	

1995
  Property and casualty insurance..........  $ 67,160     $618,791    
$330,454    None	$592,590   $ 64,495     $367,552    $166,741      NONE     
$603,421
  Real estate and commercial lending.......       -            -           
-                   -        3,804          -           -                      
-  
  Corporate and other......................       -            -           
-                   -        3,014          -                                  
-  	
        Total..............................  $ 67,160     $618,791    
$330,454            $592,590   $ 71,313     $367,552    $166,741               
$603,421	

1994
  Property and casualty insurance..........  $ 59,066     $592,373    
$314,719    None    $572,053   $ 55,316     $369,660    $157,415      
NONE     $589,197
  Real estate and commercial lending.......       -            -           
-                   -        3,972          -           -                      
-  
  Corporate and other......................       -            -           
-                   -        3,613          -           -                      
-  	
        Total..............................  $ 59,066     $592,373    
$314,719            $572,053   $ 62,901     $369,660    $157,415               
$589,197	
</TABLE>




(1)  The allocation of net investment income is based upon the specific 
identification of activity within the various segments.















<page



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE IV

REINSURANCE
Years Ended December 31, 1996, 1995 and 1994
(Thousands of Dollars)
<TABLE>
										 Assumed	
		Percentage
								Ceded to	  From	
			of Amount
						 Gross		  Other	  
Other	  Net		 Assumed
	Insurance Premiums Earned		 Amount	Companies
	Companies	 Amount	 to Net   	
<CAPTION>
<S>                                    <C>          <C>          <C>          
<C>            <C>
1996
  Property and casualty insurance.. $693,199    $117,147    $ 92,664    
$668,716      13.9%

1995
  Property and casualty insurance.. $622,455    $120,720    $ 90,855    
$592,590      15.3%

1994
  Property and casualty insurance.. $609,767    $115,863    $ 78,149    
$572,053      13.7%
</TABLE>






































46
<page



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE V

VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
(Thousands of Dollars)
<TABLE>
									   Net   
									 addition
									(reduction)
							 Balance	charged to		
	   Balance
							beginning	costs and		
	   at end
							 of year 	 expenses   
Deductions(1)  of year
<CAPTION>
<S>                                         <C>         <C>         <C>          
<C>
1996
  Allowance for losses on mortgage loans
   and collateral notes receivable........  $3,173	  $ (135)	  $  
(278)	   $2,760	

  Allowance for doubtful premium
   receivables............................  $1,103	  $1,942	  
$(1,545)	   $1,500	

1995
  Allowance for losses on mortgage loans
   and collateral notes receivable........  $3,324	  $ (151)	  $   
-   	   $3,173	

  Allowance for doubtful premium
   receivables............................  $1,120	  $  136	  $  
(153)	   $1,103	

1994
  Allowance for losses on mortgage loans
   and collateral notes receivable........  $3,644	  $ (277)	  $   
(43)	   $3,324	

  Allowance for doubtful premium
   receivables............................  $1,100	  $  638	  $  
(618)	   $1,120	
</TABLE>

						
(1) Deductions represent net write-offs of amounts determined to be 
uncollectible.
















47
<page




THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE X

SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
(Thousands of Dollars)


<TABLE>
								 Claims and Claim		 
Paid
								Adjustment Expenses	 
Claims
		Affiliation					Incurred Related to
	and Claim
		   with					 Current	 Prior
	Adjustment
		Registrant 					  Year  	 Years	 
Expenses 
<CAPTION>
<S>                                             <C>        <C>          
<C>
1996
  Consolidated property-casualty entities...... $562,997   $(87,766)    
$440,843

1995
  Consolidated property-casualty entities...... $442,027   $(74,475)    
$329,210

1994
  Consolidated property-casualty entities...... $435,713   $(66,053)    
$336,942
</TABLE>

























48
<PAGE>




THE COMMERCE GROUP, INC. AND SUBSIDIARIES

INDEX TO EXHIBITS(A)
<TABLE>
Exhibit
Number 						Title

<CAPTION>
 <S>        <C>
  3.1		Articles of Organization, as amended(B)

  3.2		By-Laws(B)

  4		Stock Certificate(B)

 10.1		Loan Agreement, Mortgage and Assignment and Trust Agreement 
dated February 20,
		1981 between Town of Webster, The Commerce Insurance Company 
and Mechanics Bank,
		as Trustee(B)

 10.2		First Supplemental Loan Agreement, Mortgage, Assignment and 
Trust Agreement
		dated as of August 1, 1984 between Town of Webster, The 
Commerce Insurance
		Company and Mechanics Bank as Trustee(B)

 10.3		Second Supplemental Loan Agreement, Mortgage, Assignment and 
Trust Agreement
		dated as of October 1, 1985 between Town of Webster, The 
Commerce Insurance 
		Company and Mechanics Bank as Trustee(B)

 10.4		Loan Agreement dated December 4, 1985 among Bay Finance 
Company, Inc., The 
		Commerce Group, Inc. and The First National Bank of Boston, 
as modified by 
		Modification No. 1 dated December 18, 1986(B)

 10.4A	Loan Agreement dated December 4, 1985 among Bay Finance 
Company, Inc., The 
		Commerce Group, Inc. and The First National Bank of Boston, 
as modified by 
		Modification No. 2 dated March 18, 1988(C)

 10.5		Loan Agreement dated December 18, 1986 between The Commerce 
Group, Inc. and 
		The First National Bank of Boston(B)

 10.6*	Form of Stock-Appreciation Right Agreement(B)

 10.7*	1996 Stock-Appreciation Right and Book Value Award 
Agreement.

 10.8*	1994 Management Incentive Plan(F)

 10.9		Property Combination Reinsurance Agreement(F)

 10.10	Owner-Contractor Agreement dated April 20, 1988 between The 
Commerce Group, 
		Inc. and Lauring Construction Co., Inc.(D)

 10.11	Asset Transfer Agreement between Commerce Insurance and 
Providence Washington 
		Insurance Company dated December 23, 1991.(E)

 10.12	Asset and Liability Transfer Agreement between Commerce 
Insurance and 
		American Hardware Mutual Insurance Company and American 
Merchants Casualty 
		Company dated November 8, 1991.(E)

 10.13	Asset Transfer Agreement between Commerce Insurance and The 
Continental 
		Insurance Company dated October 24, 1991.(E)

49
<page


 10.14	Asset Transfer Agreement between Commerce Insurance and Home 
Insurance 
		Company dated October 3, 1991.(E)

 10.15	Asset and Liability Transfer Agreement between Commerce 
Insurance and New 
		Hampshire Insurance Company dated August 12, 1991.(E)

 10.16	Asset Transfer Agreement between Commerce Insurance, Utica 
Mutual Insurance 
		Company and Graphic Arts Mutual Insurance Company dated June 
24, 1991.(E)

 13.1		Annual Report for the year ended December 31, 1996 to 
Security Holders.

 22.1		Subsidiaries of the Registrant filed herewith.

 24.1		Power of Attorney(B)

 28.1		Information from Reports Furnished to State Insurance 
Regulatory
		Authorities--1996 Consolidated Schedule P of Annual 
Statement provided to state
		regulatory authorities filed herewith.  During 1989, the use 
of Schedule O was 
		discontinued by State Insurance Regulatory Authorities and 
all information which 		was previously contained in this schedule 
has now been combined into Schedule P.
</TABLE>

					
(A) Exhibits other than those listed are omitted because they are not 
required or are not 
    applicable.  Copies of exhibits are available without charge by 
writing to the Assistant
    to the President at 211 Main Street, Webster, MA 01570.

(B) Incorporated herein by reference to the exhibit with the same 
exhibit number, filed as
    an exhibit to the Registrant's Registration Statement on Form S-18 
(No. 33-12533-B).

(C) Incorporated herein by reference to the exhibit with the same 
exhibit number, filed as 
    an exhibit to the Registrant's Registration Statement on Form 8-A.

(D) Incorporated herein by reference to the exhibit with the same 
exhibit number, filed as
    an exhibit to the Registrant's Form 10-K for the year ended December 
31, 1988.

(E) Incorporated herein by reference to the exhibit with the same 
exhibit number, filed as
    an exhibit to the Registrant's Form 10-K for the year ended December 
31, 1993.

(F) Incorporated herein by reference to the exhibit with the same 
exhibit number, filed as
    an exhibit to the Registrant's Form 10-K for the year ended December 
31, 1994.


* Denotes management contract or compensation plan or arrangement.

















50
<page








1996
annual
report
















The
CGI

The Commerce Group, Inc.
211 Main Street, Webster, Massachusetts 01570

<page




INDEX TO 1996 ANNUAL REPORT
<TABLE>
												
	   Page
<CAPTION>
<S>                                                                 <C>
Financial Highlights............................................     1

Letter to Stockholders..........................................     2

Management's Discussion and Analysis of Financial Condition
 and Results of Operations......................................     4

Common Stock Price and Dividend Information.....................    15

Report of Management............................................    16

Report of Independent Accountants...............................    17

Consolidated Balance Sheets at December 31, 1996 and 1995.......    18

Consolidated Statements of Earnings for the Years Ended
 December 31, 1996, 1995 and 1994...............................    19

Consolidated Statements of Stockholders' Equity for the Years
 Ended December 31, 1996, 1995 and 1994.........................    20

Consolidated Statements of Cash Flows for the Years Ended
 December 31, 1996, 1995 and 1994...............................    21

Notes to Consolidated Financial Statements......................    22

Selected Consolidated Financial Data............................    40

Management's Discussion of Supplemental Information on
 Insurance Operations...........................................    41

Directors.......................................................    46

Officers........................................................    48

Stockholder Information.........................................    49
</TABLE>













<page




FINANCIAL HIGHLIGHTS
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>

								    1996		1995	
	    1994


<CAPTION>
<S>                                              <C>           <C>             
<C>
Net premiums written...........................	 $  711,570    $  
603,421      $  589,197

Earned premiums................................	 $  668,716    $  
592,590      $  572,053
Net investment income..........................	     77,402        
71,313          62,901
Premium finance fees...........................	      9,713        
19,420          18,497
Net realized investment gains (losses).........	     (7,574)          
712          45,612
	Total revenues...........................	 $  748,257    $  
684,035      $  699,063

Earnings before income taxes...................	 $   92,013    $  
149,742      $  171,988
Income taxes...................................	     18,049        
39,541          49,405
	Net earnings.............................	 $   73,964    $  
110,201      $  122,583

Net earnings per common share..................	 $     2.04    $     
2.93      $     3.23

Cash dividends paid per share..................  $     0.81    $     
0.23      $     0.15

Weighted average number of common shares
  outstanding..................................	 36,311,887    
37,632,236      38,000,000

Total investments..............................	 $1,027,136    
$1,044,113	 $  899,546
Total assets...................................	  1,676,799     
1,564,175	  1,382,226
Total liabilities..............................	  1,089,760     
1,014,461	    968,637
Total stockholders' equity.....................	    587,039       
549,714	    413,589
Total stockholders' equity per share...........	      16.28         
14.96	      10.88

Certain Statutory Financial Ratios (Unaudited):
  Loss ratio...................................	       70.9%         
62.0%	       64.6%
  Underwriting expense ratio...................	       27.1          
29.0	       27.1
	Combined ratio...........................	       98.0%         
91.0%	       91.7%

  Net premiums written to policyholders'
    surplus....................................	      153.1%        
137.1%	      168.5%
</TABLE>




















1
<page



THE COMMERCE GROUP, INC.


												   
March 26, 1997

To Our Stockholders:

	In 1996, your Company experienced satisfactory financial results 
for the 21st consecutive year.  From the very first day the funding of 
The Commerce Insurance Company was accomplished (April 3, 1972), through 
December 31, 1996, we have achieved underwriting profit of $202.6 
million on total premiums written of $5.3 billion.  This underwriting 
profit represents 3.9% of total premiums written.  These results 
continue to stand out in a year that brought change and innovation to 
our industry.

	In Massachusetts, the personal automobile insurance industry saw 
the 1997 state mandated auto insurance rates drop for the third 
consecutive year this past January. Coupled with affinity group 
marketing programs and safe driver rate deviations, the Massachusetts 
marketplace has become extremely competitive.  In spite of these 
conditions, your Company saw its share of the Massachusetts personal 
automobile market increase to 20.8% in 1996 versus 16.4% at the end of 
1995.

	In California, Western Pioneer Insurance Company has completed its 
first full year as a subsidiary of The Commerce Insurance Company with 
stable results and a bright future.  Plans have been implemented to 
strengthen the agency force and establish an attractive but competitive 
rate structure.

	Looking to the future, your Company was granted licenses in the 
states of Connecticut, Rhode Island and Vermont.  In addition, 
applications were filed and are pending in the states of Maine and New 
Hampshire.  Through new technology and internal operating systems, we 
envision beginning expansion into these states during the latter part of 
1997.

	Through it all, your Company has continued to grow and prosper.  
The Commerce Insurance Company continues to be the largest writer of 
Massachusetts private passenger automobile insurance, as well as the 
second largest writer of Massachusetts homeowners insurance.  Written 
premium, earned premium, investment income, total assets, total 
stockholders' equity and total stockholders' equity per share, as 
illustrated in the bar graph on the facing page, are all at new highs.  
For those of you who are interested in the details, I draw your 
attention to the pages in this report labeled "Management's Discussion 
and Analysis of Financial Condition and Results of Operations".  Behind 
these numbers are an extremely dedicated group of people, both in 
Massachusetts and California:  Our Policyholders (represented by over 
719,000 policies in force); Agents (672); Employees (1,350); Officers 
(31); Directors (19); and of course, our Stockholders (over 3,800, not 
including our Employee Stock Ownership Plan participants who now number 
1,385).

	Property-liability insurance remains a good business to be in--and 
The Commerce Group, Inc. will continue its efforts to be one of the most 
profitable long-term players.  Your Company's management continues to 
believe that owners' interests are its primary constituency.

	Our sincere thanks to those who have helped in this building 
process--especially our Agents, Employees, Officers and Board of 
Directors.  This diverse force of committed, ethical and professional 
people will continue to build on our past successes and look to the 
future with excitement and opportunity.  Their individual creativity, 
energy and professionalism will continue to serve our shareholders well.

	Your comments or questions regarding this report, or The Commerce 
Group, Inc. affairs in general, are solicited as always, at any time.


									  Arthur J. 
Remillard, Jr.
									  President

Caring in everything we do.

2
<page




The bar graph on page 3 illustrates the Company's annual total 
stockholders' equity per share value and annual total stockholders' 
equity per share value including cumulative cash dividends paid per 
share on December 31, over the most recent fifteen year period.  The X 
axis lists the years beginning with 1982 through 1996.  The Y axis lists 
the dollar values starting at $0.00 and increasing in one dollar 
increments to $18.00.  The graph depicts a total stockholders' equity 
per share value in 1982 of $0.38; 1983 of $0.50, 1984 of $0.67, 1985 of 
$0.81, 1986 of $0.95, 1987 of $1.40, 1988 of $1.95, 1989 of $2.53, 1990 
of $3.36, 1991 of $4.80, 1992 of $7.42, 1993 of $10.09, 1994 of $10.88, 
1995 of $14.96, and 1996 of $16.28.  The graph also depicts the total 
stockholders' equity per share value including and cumulative dividends 
paid per share in 1983 of $0.50, 1984 of $0.67, 1985 of $0.81, 1986 of 
$0.95, 1987 of $1.40, 1988 of $1.95, 1989 of $2.53, 1990 of $3.36, 1991 
of $4.80, 1992 of $7.42, 1993 of $10.09, 1994 of $11.03, 1995 of $15.34 
and 1996 of $17.47.










































3
<page


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Thousands of Dollars Except Per Share Data)

General

	The property and casualty industry has been highly cyclical in 
nature.  The financial results of property and casualty insurance 
companies are impacted both quarterly and annually by many forces unique 
to the market.  Market forces include the frequency and severity of 
losses resulting from weather conditions, the state of the economy and 
the general regulatory environment in those states in which an insurer 
operates.  Until 1995, The Commerce Group, Inc. ("the Company") wrote 
insurance solely in the State of Massachusetts.  During 1995, the 
Company began operations in the State of California when it completed 
the acquisition of Western Pioneer Insurance Company ("Western 
Pioneer"), a personal automobile insurer located in Pleasanton, 
California, on August 31, 1995.

	The Company's business strategy remains focused on activities 
primarily related to personal automobile insurance.  The Company has 
been the largest writer of personal property and casualty insurance in 
the state of Massachusetts in terms of market share of direct premiums 
written since 1990.  The Company's share of the Massachusetts personal 
automobile market increased in 1996 to approximately 20.8% from 16.4% in 
1995.

	During 1996, direct premiums written totalled $731,823, a 16.8% 
increase over 1995.  Direct premiums written in Massachusetts, written 
through The Commerce Insurance Company ("Commerce") and Citation 
Insurance Company ("Citation") both wholly-owned subsidiaries of 
Commerce Holdings, Inc. ("CHI"), which is a wholly-owned subsidiary of 
the Company, amounted to $704,439.  Direct premiums written in 
California, written through Western Pioneer, a wholly-owned subsidiary 
of Commerce, amounted to $27,384.  Of the total direct premiums written, 
direct personal automobile premiums written during 1996 totalled 
$622,849, an increase of 21.0% over 1995, and direct homeowners 
insurance premiums written totalled $52,377, an increase of 4.2% over 
1995.  The Company is also the fourth largest writer of commercial 
automobile insurance in Massachusetts based on direct premiums written.  
During 1996, direct commercial automobile premiums written totalled 
$40,441, a 10.5% decrease compared to 1995.

	Personal automobile insurance is subject to extensive regulation 
in Massachusetts and California.  Every owner of a registered automobile 
is required to maintain certain minimum automobile insurance coverages.  
In Massachusetts, with very limited exceptions, automobile insurers 
operating within those states are required by law to issue a policy to 
any applicant seeking to obtain such coverages.  Marketing and 
underwriting strategies for companies operating in Massachusetts are 
limited by maximum automobile premium rates and minimum agency 
commission levels for personal automobile insurance which are mandated 
by the Massachusetts Commissioner of Insurance ("Commissioner").  In 
Massachusetts, accident rates, bodily injury claims, and medical care 
costs continue to be among the highest in the nation.

	During the three-year period from 1994 to 1996, Massachusetts 
personal automobile insurance premium rates decreased an average of 2.6% 
per year.  The Commissioner approved an average 6.2% decrease in 
personal automobile premiums for 1997, the third decrease in three 
years, as 1996 average rates were cut by 4.5%, and 1995 average rates 
were decreased by 6.1%.  According to the Commissioner's office, the 
current rate environment is the result of continued consumer cooperation 
by driving safely, obeying traffic laws, reporting fraud, wearing 
seatbelts and individuals locking their autos.

	Also, the 1997 decrease was partially driven by corrections to an 
industry error impacting prior year rate decisions.  The industry error 
resulted from a miscalculation of industry expense allowances that had 
the effect of overstating rates for 1991 through 1996.  Rates for 1997 
include an adjustment to recoup this error from the industry equal to 
40% of the error with 40% reducing 1998 rates and 20% reducing 1999 
rates.






4
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	Additionally, 1997 rates were decreased as a result of the 
reconciliation of the Safe Driver Insurance Plan ("SDIP") which is 
designed to be revenue neutral.  In most recent past years, the SDIP 
reconciliation resulted in a deficit which was then added into the rates 
for the subsequent years.  The 1996 SDIP reconciliation, however, 
resulted in a surplus.  Fifty percent of this surplus is being used to 
decrease rates in both 1997 and 1998.

	The Company has performed an analysis of the rate decision and has 
estimated the impact of the above two items on its results assuming its 
market share remains the same as it was at the end of 1996.  The earned 
premium impact is estimated to be approximately $15.3 million for 1997, 
$23.0 million for 1998 and $13.5 million for 1999.  The earnings per 
share after-tax impact resulting from lower earned premiums for 1997, 
1998 and 1999 is estimated to be $0.28, $0.41 and $0.23, respectively.  
If the Company's future market share increases (decreases), a larger 
(smaller) financial impact would result.

	The Automobile Insurers Bureau of Massachusetts ("AIB") has filed 
an appeal with the Massachusetts Supreme Judicial Court challenging the 
Commissioner's decision to prospectively decrease future rates for the 
miscalculation of the industry expense allowance.  (The SDIP 
reconciliation component is not being challenged.)  The AIB's argument 
is that, according to statute, there is a prohibition against 
retroactive rate making in Massachusetts which effectively bars the 
examination of past year's data once all involved parties have agreed to 
the rate decision.  One insurer has filed a suit with the Massachusetts 
Supreme Judicial Court alleging that the prospective nature of the rate 
reduction will have an unfair adverse impact on it.  This is due to the 
fact that the company filing suit believes it should not be adversely 
impacted solely because its market share is greater now than during 
those years in which the errors occurred.  It is not possible to predict 
the outcomes of these legal actions or the potential effects thereof on 
the Company.

	In addition, the Massachusetts Association of Insurance Agents 
("MAIA") has also filed a suit with the Massachusetts Supreme Judicial 
Court with respect to the Commissioner's ruling on 1997 commissions.  
The Commissioner ruled that agents' commissions on 1997 premiums, 
subject to safe driver deviations, will be based on the discounted net 
premium amounts. The 1996 commissions were based on the gross premium 
amounts.  The Commissioner's ruling will result in agents receiving 
fewer commission dollars on a per policy basis.  The Company is unable 
to predict the possible outcome of this suit at this time.

	The Company's performance in its personal and commercial 
automobile insurance lines is integrally tied to its participation in 
the Commonwealth Automobile Reinsurers ("C.A.R.").  All companies 
writing automobile insurance in Massachusetts share in the underwriting 
results of C.A.R. business for their respective product line or lines.  
Since its inception, C.A.R. has annually generated multi-million dollar 
underwriting losses in both its personal and commercial automobile 
pools.  A company's proportionate share of the C.A.R. personal or 
commercial deficit (its participation ratio) is based upon its market 
share of the automobile risks for the particular pool, adjusted by a 
utilization formula such that, in general, its participation ratio is 
disproportionately and adversely affected if its relative use of C.A.R. 
exceeds that of the industry, and favorably affected if its relative use 
of C.A.R. is less than that of the industry.  Automobile insurers 
attempt to develop and implement underwriting strategies that will 
minimize their relative share of the C.A.R. deficit while maintaining 
acceptable loss ratios on risks not insured through C.A.R.

	Significant changes in the utilization of the C.A.R. private 
passenger pooling mechanism are not expected for 1997, as the various 
C.A.R. participation formula changes have been fully implemented since 
1993.  The marketplace is expected to make minor yearly adjustments to 
find the optimum balance between voluntary and ceded writings.










5
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	Starting in 1991, and concluding in 1995, reforms were implemented 
into the C.A.R. commercial automobile pooling mechanism.  The primary 
change was the gradual phase-in of a C.A.R. commercial utilization-based 
participation formula, so as to reduce the percentage of commercial 
business being ceded to C.A.R.  The percentage of commercial premiums 
ceded to C.A.R. by the industry has  decreased (from 56% in 1990 to 
approximately 31% in 1996, as estimated by the Company).  This also 
resulted in significant decreases in the percentage of commercial 
automobile business ceded to C.A.R. by the Company, from 68% in 1990 to 
approximately 32% in 1996.  Continued industry-wide gradual decreases in 
the percentage of ceded commercial premiums are expected for 1997, as 
companies look to increase their voluntary retention levels.

	The Company intends to continue to respond to the incentives and 
disincentives provided by C.A.R. rules, by further adjusting the 
percentage of personal and commercial business ceded to C.A.R. in 1997.

	The Company provides a separate rating tier for preferred 
commercial automobile business through Citation.  Approximately 22% of 
the commercial automobile premium produced by its voluntary agents in 
1996 was written by Citation.  The Company expects that this secondary 
rating tier will continue to assist the Company in retaining its better 
commercial automobile accounts, while also further increasing the 
percentage of commercial automobile business that can be retained 
voluntarily by the Company in 1997 and beyond.

	Beginning in the latter part of 1995, the Company began to 
actively pursue group marketing programs.  The primary purpose of group 
marketing programs is to provide participating groups with a convenient 
means of purchasing automobile insurance through associations and 
employee groups.  Billing is primarily through direct billing with 
payroll deduction available.  Emphasis is placed on writing larger 
groups, although accounts with as few as 25 participants are considered.  
Groups are eligible for rate discounts which must be filed annually with 
the Division of Insurance.  In general, the Company looks for groups 
with mature/stable membership, favorable driving records, and below 
average turnover ratios.  Participants who leave the sponsoring group 
during the term of the policy are allowed to maintain the policy until 
expiration.  At expiration, a regular Commerce policy may be issued at 
the insured's option.

	During the latter part of 1995, Commerce signed group marketing 
agreements with the five American Automobile Association Clubs of 
Massachusetts ("AAA clubs") offering a 10% discount on automobile 
insurance to the clubs' members who reside in Massachusetts.  Membership 
in these clubs is estimated to represent approximately one-third of the 
Massachusetts motoring public, and has been the primary reason for a 
29.8% increase in the number of personal automobile exposures written by 
Commerce.  In addition, in 1996, total direct premiums written 
attributable to the AAA group business was $344,297 or 47% of the 
Company's total direct premiums written.  Of this amount, 9% was written 
through the AAA clubs and 91% was written through the Company's network 
of independent agents.

	Initially, the Massachusetts statute, governing group marketing 
programs, required that 35% of the eligible members must participate in 
a group marketing program within the first year.  Accordingly, Commerce 
and AAA aggressively pursued AAA members for the AAA Group Marketing 
Program.  At December 31, 1996, Commerce had achieved the objective of 
writing more than 35% of the AAA members within the first year, as over 
300,000 AAA members joined the program.  The particular portion of the 
statute, dealing with achieving the 35% penetration level in one year, 
was amended by the Legislature in early 1997 to allow two years to reach 
the required penetration level.  In 1997, Commerce and AAA intend to 
continue to increase the penetration of the eligible AAA membership.

	Commerce and the AAA clubs have agreed that Commerce shall be 
their exclusive underwriter of Massachusetts personal automobile group 
programs.  This contract may be terminated by the AAA clubs upon written 
notice to Commerce, whose termination shall take effect at a minimum of 
three years from notice of termination.






6
<page



	During 1996, the Company was granted licenses in the states of 
Connecticut and Rhode Island.  License approval in the state of Vermont 
was received in January 1997.  Applications for licenses were filed by 
the Company and are pending in the states of Maine and New Hampshire.  
Concurrent with these filings, the Company has entered into an agreement 
with Policy Management Services Corporation ("PMSC") and has purchased 
software which will allow for the development of internal operating 
systems which will enable the Company to process policies in these five 
states and Massachusetts.  Additionally, a significant investment in new 
computer hardware is being made to support this effort.  These systems 
are not scheduled to be in place for the contiguous states until the 
latter part of 1997 and, as a result, Management is not expecting to 
start marketing in the states contiguous to Massachusetts until that 
time.

	Underwriting profit margins are reflected by the extent to which 
the combined ratio is less than 100%.  This ratio is considered the best 
simple index of current underwriting performance of an insurer.  During 
the five year period ended December 31, 1996, the property and casualty 
industry's combined ratio, as reported by A.M. Best and weighted to 
reflect the Company's product mix ("weighted industry average"), has 
ranged from a low of 102.5% in 1995 to a high of 107.4% in 1992 
(including the impact of Hurricane Andrew) on a statutory accounting 
principles basis.  During this same period of time, the Company's 
combined ratio has consistently remained below the weighted industry 
average, ranging from as low as 91.0% in 1995 to a high of 98.0% in 
1996.  On an average basis, the Company's combined ratio was 93.9% for 
the five year period ended December 31, 1996 compared to a weighted 
industry average of 103.8%.

	The Company's total revenues were supplemented in fiscal 1996, 
1995 and 1994 by net investment income of $77,402, $71,313 and $62,901, 
respectively.  Additionally, the Company had realized investment losses 
in 1996 of $7,574 and realized investment gains in 1995 and 1994 of $712 
and $45,612, respectively.

Regulatory Matters

	Automobile insurance reform continues to be debated in the 
Massachusetts Legislature.  New regulations and legislation are often 
proposed with the goal of reducing the need for premium increases.  For 
further details, please refer to the general discussion on insurance 
regulation and premium rates beginning on page 4.

	As previously mentioned, in 1995, the Company received approval to 
offer 10 percent group discounts to members of the AAA Clubs as 
previously described.  Membership in these clubs is estimated to 
represent approximately one-third of the Massachusetts motoring public.  
The Company increased its Massachusetts private passenger automobile 
insurance writings by 17.5% in 1996 primarily as a result of this 
program, ending the year with approximately 20.8% of the Massachusetts 
private passenger automobile market as compared to 16.4% in 1995.

	Also in 1995, the Company received state regulatory approval to 
eliminate interest based premium finance fees on new and renewal 
personal automobile insurance policies with effective dates on or after 
January 1, 1996.  As a result, premium finance fees as a source of the 
Company's revenues have been reduced by 50.0% in 1996.  As policies 
effective in 1995 favorably impacted finance fee income in 1996, the 
full effect of the elimination will not be felt until 1997 with the 
expectation of further reductions.  The change was initiated in direct 
response to competitive forces that occurred in the Massachusetts 
marketplace.

	In January, 1996, the Company was granted approval, for the 1996 
calendar year, to offer their customers safe driver deviations of 10 
percent to drivers with SDIP classifications of either Step 9 or 10.  
These are the two best driver SDIP classifications in Massachusetts, 
representing drivers with no at fault accidents and not more than one 
minor moving vehicle violation in the last six years.  For drivers that 
qualify, the Company's automobile discounts and SDIP deviations can be 
combined for up to a 19% reduction from the state mandated rates.  In 
March 1997, approval of SDIP deviations was granted for the 1997 
calendar year.




7
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	In May, 1996, state legislation was passed offering insurers 
incentives to write more inner city and coastal homeowners insurance.  
The legislation, which arose over concerns of availability and 
allegations of redlining, expands coverages and provides various credits 
under the Massachusetts Property Insurance Underwriting Association 
("Massachusetts Fair Plan").  The Company is considering its 
alternatives and expects the legislation to stimulate increased 
availability of homeowners insurance in the areas mentioned previously.

	Although the U.S. federal government does not directly regulate 
the insurance industry, federal initiatives often have an impact on the 
business.  Congress and certain federal agencies are investigating the 
current condition of the insurance industry (encompassing both life and 
health and property and casualty insurance) in the United States in 
order to decide whether some form of federal role in the regulation of 
insurance companies would be appropriate.  Congress is continuing to 
conduct a variety of hearings relating, in general, to the solvency of 
insurers and federal legislation has been proposed from time to time on 
this and other subjects.  The Company is unable to predict whether or in 
what form initiatives will be implemented and what the possible effects 
on the Company would be.

	In December 1996, a United States District Court, acting on a suit 
filed in October 1996, ordered the Massachusetts Division of Insurance 
to disregard the existing stated ban on bank sales of life, health and 
accident insurance.  The decision cited U.S. Supreme Court decisions in 
the Barnett and VALIC cases that essentially preempt the State of 
Massachusetts ban on the licensing of bank-owned insurance agencies.  
Also, in December 1996, a bill was filed in the Massachusetts 
Legislature that would allow banks to become licensed agents of an 
insurance company or brokers of insurance, permitting such things as the 
sale of insurance products in distinctly designated bank branch areas 
separate and apart from retail deposit areas.  The Company is unable to 
predict the possible impacts of these issues at this time.

	Congressional initiatives directed at repeal of the McCarran-
Ferguson Act (which exempts the "business of insurance" from certain 
federal laws, including antitrust laws, to the extent it is subject to 
state regulation) and judicial decisions narrowing the definition of 
"business of insurance" for McCarran-Ferguson Act purposes may limit the 
ability of insurance and reinsurance companies in general to share 
information with respect to rate-setting, underwriting and claims 
management practices.  It is not possible to predict the outcome of any 
such congressional activity or the potential effects thereof on the 
Company.

	Beginning in 1994 and continuing through 1996, there was increased 
debate in the U.S. Congress regarding reforms to the Superfund law, the 
federal mechanism designed to clean-up toxic waste sites, as well as the 
nation's environmental and pollution policy in general.  Management 
believes that, because of the types of business written by the Company, 
the outcome of the Superfund debate will not significantly affect the 
Company.

	In order to enhance the regulation of insurer insolvency, the 
National Association of Insurance Commissioners ("NAIC") developed a 
formula and model law to implement Risk-Based Capital ("RBC") 
requirements for property and casualty insurance companies which are 
designed to assess capital adequacy and to raise the level of protection 
that statutory surplus provides for policyholder obligations.  The RBC 
model for property and casualty insurance companies measures three major 
areas of risk facing property and casualty insurers: (i) underwriting, 
which encompasses the risk of adverse loss development and inadequate 
pricing; (ii) declines in asset values arising from credit risk; and, 
(iii) other business risks from investments.  Insurers having less 
statutory surplus than required by the RBC calculation will be subject 
to varying degrees of regulatory action, depending on the level of 
capital inadequacy.









8
<page



	The Company's subsidiaries, Commerce and Citation, have RBC 
amounts at December 31, 1996 of $52 million and $4 million, 
respectively, and they have statutory surplus of approximately $394 
million and $71 million, respectively.  The Statutory surplus of 
Commerce and Citation at December 31, 1996 exceeded the RBC Company 
Action Levels of $103 million and $8 million by approximately $291 
million and $63 million.  The RBC model formula proposes four levels of 
regulatory action.  The extent of regulatory intervention and action 
increases as the level of surplus to RBC falls.  The first level, the 
Company Action Level, requires an insurer to submit a plan of corrective 
actions to the regulator if surplus falls below 200% of the RBC amount.  
The Regulatory Action Level (as defined by the NAIC) requires an insurer 
to submit a plan containing corrective actions and permits the 
Commissioner to perform an examination or other analysis and issue a 
corrective order if surplus falls below 150% of the RBC amount.  The 
Authorized Control Level (as defined by the NAIC) allows the regulator 
to rehabilitate or liquidate an insurer in addition to the 
aforementioned actions if surplus falls below 100% of the RBC amount.  
The fourth action level is the Mandatory Control Level (as defined by 
the NAIC) which requires the regulator to rehabilitate or liquidate the 
insurer if surplus falls below 70% of the RBC amount.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

	Direct premiums written during 1996 increased $105,157, or 16.8% 
to $731,823 as compared to 1995.  The increase was primarily 
attributable to a $108,212, or 21.0% increase in direct premiums written 
for personal automobile insurance to $622,849.  This increase was the 
result of an $88,527 increase in direct premiums written for 
Massachusetts personal automobile insurance and an increase of $19,685 
which was derived from the Company's California subsidiary, Western 
Pioneer, which was acquired August 31, 1995.  The increase in 
Massachusetts personal automobile direct premiums written resulted 
primarily from an increase of 29.8% in the number of personal automobile 
exposures written, offset by a 9.2% decrease in the average personal 
automobile premiums written per exposure (each vehicle insured).  This 
was primarily the result of the Company's affinity group marketing 
programs, safe driver rate deviations and the effect of the 1996 state 
mandated average rate decrease of 4.5%.  In January 1996, the Company 
was granted approval to offer their customers safe driver deviations of 
10%.  For drivers who qualify, the Company's group discount and safe 
driver deviations can be combined for up to a 19% reduction from state 
mandated rates.  Direct premiums written for commercial automobile 
insurance decreased by $4,763, or 10.5%, due primarily to a decrease of 
approximately 5.6% in the number of policies written, with the remainder 
due to a decrease in the average commercial automobile premium per 
policy.  Direct premiums written for homeowners insurance (excluding the 
Massachusetts Fair Plan) increased by $1,926, or 4.0% due primarily to 
an increase in the number of policies written.

	Net premiums written during 1996 increased $108,149, or 17.9% as 
compared to 1995.  The increase in net premiums written was due to the 
growth in direct premiums written as described above, as well as to the 
effects of reinsurance.  Written premiums assumed from C.A.R. increased 
$1,454, or 1.6% and written premiums ceded to C.A.R. increased $47 as 
compared to 1995, both as a result of changes in the industry's and the 
Company's utilization of C.A.R. reinsurance.  Premiums ceded to 
reinsurers other than C.A.R. decreased $1,602 or 4.9% as compared to 
1995.

	Earned premiums increased $76,126 or 12.8% during 1996 as compared 
to 1995.  The increase in earned premiums was primarily due to changes 
in direct premiums written and net premiums written as described above.  
Earned premiums assumed from C.A.R. increased $1,860 or 2.1% during 1996 
compared to 1995.  Earned premiums attributable to Western Pioneer 
increased $18,794 to $27,628 for 1996 compared to $8,834 for the four 
months ended December 31, 1995.  The Company acquired Western Pioneer on 
August 31, 1995.

	Net investment income increased $6,089, or 8.5%, compared to 1995, 
principally as a result of an increase in average invested assets (at 
cost) of 6.5% when compared to the year ended 1995.  Net investment 
income as a percentage of total average investments was 7.3% in 1996 
compared to 7.2% in 1995.






9
<page



	Premium finance fees decreased $9,707 or 50.0% during 1996.  The 
decrease was primarily attributable to a change from interest based 
finance fees to a "late payment" based system for personal automobile 
policies with effective dates of January 1, 1996 and forward.  The 
change was initiated in direct response to competitive forces that 
occurred in the Massachusetts marketplace.

	The market value of the Company's property and casualty investment 
portfolio totaled $1,027,136, at December 31, 1996 compared to 
$1,044,113 at December 31, 1995.  Management's investment philosophy is 
to emphasize investment yield while maintaining investment quality.  
Fixed maturities comprised 69.8% of the portfolio at December 31, 1996 
compared to 78.1% at December 31, 1995.  Equity investments comprised 
22.8% at December 31, 1996 compared to 14.5% at December 31, 1995.

	The market value of the fixed maturities, which totaled $716,702 
at December 31, 1996, is comprised of 68.5% tax-exempt and 31.5% taxable 
investments as compared to total fixed maturities of $815,277, comprised 
of 72.8% tax-exempt and 27.2% taxable investments at December 31, 1995.  
The market value of equity investments, which totaled $233,721 at 
December 31, 1996, is comprised of 63.2% preferred stocks and 36.8% 
common stocks as compared to total equity investments of $151,579, 
comprised of 73.4% preferred stocks and 26.6% common stocks at December 
31, 1995.  The increase of equity investments and decrease of fixed 
maturities at December 31, 1996 compared to December 31, 1995 is 
primarily attributable to a change in the mix of investments from 
municipal bonds to higher yielding preferred stocks and preferred stock 
mutual funds.

	Gross realized gains and losses on fixed maturity investments 
amounted to $487 and $7,851, respectively, for the year ended December 
31, 1996 compared to gross realized gains and losses on fixed maturity 
investments of $2,389 and $1,912, respectively, for the year ended 
December 31, 1995.  Gross realized gains and losses on equity 
investments amounted to $478 and $371, respectively, for the year ended 
December 31, 1996 compared to gross realized gains and losses on equity 
investments of $984 and $579, respectively, for the year ended December 
31, 1995.  Net realized investment losses totalled $7,574 during 1996 as 
compared to net realized investment gains of $712 for 1995. The realized 
gains in 1996 were primarily the result of sales of municipal bonds and 
common stocks, offset by realized losses on sales of Government National 
Mortgage Association ("GNMA") mortgage backed bonds, municipal bonds and 
preferred stocks.  Also included were realized losses on mortgage 
activity of $317 in 1996 compared to $215 in 1995.

	Gross unrealized gains and losses on fixed maturity investments 
totalled $17,890 and $1,699, respectively, at December 31, 1996 compared 
to gross unrealized gains and losses on fixed maturity investments of 
$18,626 and $4,657, respectively, at December 31, 1995.  The unrealized 
gain on fixed maturities remained fairly consistent with 1995 as a 
result of stable interest rates during 1996. Gross unrealized gains and 
losses on equity investments totaled $22,339 and $3,024, respectively, 
at December 31, 1996 compared to gross unrealized gains and losses on 
equity investments of $13,430 and $2,008, respectively, at December 31, 
1995.  The increase in unrealized gain on equity investments was 
primarily due to the increase in equity investments, as described 
earlier, and the performance of the stock market during 1996 favorably 
impacting the market values of common stocks.

	Losses and loss adjustment expenses ("LAE") incurred as a 
percentage of insurance premiums earned ("loss ratio") was 70.9% in 1996 
compared to 62.0% in 1995.  The ratio of net incurred losses, excluding 
LAE, to premiums earned ("pure loss ratio") on personal automobile 
increased to 63.9% in 1996 compared to 56.6% in 1995.  This increase was 
primarily due to the adverse impact of severe weather conditions 
experienced in the northeast during the first half of 1996, adverse loss 
experience on personal automobile business assumed from C.A.R., and a 
decrease in the personal automobile average earned premium per exposure 
of approximately 7.9%.  This decrease was due to the effects of affinity 
group marketing programs, safe driver rate deviations and the 1996 state 
mandated average rate decrease of 4.5%.  These factors were offset by 
improved loss development during 1996.  The commercial automobile pure 
loss ratio decreased to 46.7% in 1996 compared to 57.4% in 1995.  This 
decrease was primarily due to improved loss experience on commercial 
automobile business assumed from C.A.R and better loss development on 
voluntary business.  For homeowners, the pure loss ratio increased to 
72.4% in 1996 compared to 49.6% in 1995.  This increase was due 
primarily to the severe weather during the first half of 1996, compared 
to the mild weather experienced during 1995.
10
<page



	Policy acquisition costs increased by 8.6% in 1996, compared to 
5.9% in 1995.  This increase was primarily due to the increase in net 
premiums written as described previously, offset by a decrease of $9.5 
million in the agents profit sharing compensation resulting from the 
impact of adverse weather conditions on the Company's loss ratio and the 
impact of affinity group marketing service fee income.  Agents' profit 
sharing compensation is based in part, on the underwriting profits of 
agency business written with the Company.  As a percentage of net 
premiums written, underwriting expenses (on a statutory basis) were 
27.1% for 1996, compared to 29.0% in 1995.  This decrease was primarily 
attributable to the reasons as mentioned above.

	The Company's effective tax rate was 19.6% and 26.4% for the years 
ended December 31, 1996 and 1995, respectively.  In both years the 
effective rate was lower than the statutory rate of 35% primarily due to 
tax-exempt interest income.  The lower 1996 effective tax rate was 
primarily due to tax-exempt interest income comprising a higher 
percentage of net income before taxes, the dividends received deduction 
and lower capital gains in 1996 versus 1995.

	Net earnings decreased $36,237 to $73,964 or 32.9%, during 1996 as 
compared to net earnings of $110,201 in 1995, as a result of the factors 
previously mentioned.


Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

	Direct premiums written during 1995 increased $1,643, or 0.3% to 
$626,666 as compared to 1994.  The increase was primarily attributable 
to a $2,612, or 0.5% increase in direct premiums written for personal 
automobile insurance to $514,637.  This increase resulted from direct 
premiums written of $7,592, for the four months ended December 31, 1995 
from Western Pioneer, offset by a decrease in personal automobile direct 
premiums written by Commerce of $4,980, or 1.0%, compared to 1994.  This 
decrease resulted primarily from a 3.6% decrease in the average personal 
automobile premiums written per exposure (each vehicle insured).  This 
was a direct result of the impact on Commerce's business of the 6.1% 
overall average rate decrease in the Massachusetts insurance industry's 
1995 personal automobile premiums approved by the Commissioner.  This 
was partially offset by a 2.6% increase in the number of personal 
automobile exposures written.  Direct premiums written for commercial 
automobile insurance decreased by $1,251, or 2.7% due primarily to a 
4.9% decrease in the number of policies written, partially offset by a 
2.2% increase in the average commercial automobile premium per policy.  
Direct premiums written for homeowners insurance excluding the 
Massachusetts Fair Plan increased by $1,021, or 2.2% due primarily to a 
4.6% increase in the average premium per homeowners policy, partially 
offset by a 2.4% decrease in the number of policies written.

	Net premiums written during 1995 increased $14,224, or 2.4% as 
compared to 1994.  The increase in net premiums written was due to the 
growth in direct premiums written as described above, as well as to the 
effects of reinsurance.  Written premiums assumed from C.A.R. decreased 
$1,536, or 1.6% and written premiums ceded to C.A.R. decreased $17,769, 
or 17.7% as compared to 1994, as a result of changes in the industry's 
and the Company's utilization of C.A.R. reinsurance.  Premiums ceded to 
reinsurers other than C.A.R. increased $3,652, or 12.6% as compared to 
1994.

	Earned premiums increased $20,537, or 3.6% during 1995 as compared 
to 1994.  Motor vehicle premiums earned increased $17,959, or 3.4% 
compared to 1994 including earned premiums assumed from C.A.R. which 
increased $12,777, or 16.4%.  Earned premiums also increased $2,578, or 
6.3% on all other business.

	Net investment income increased $8,412, or 13.4%, compared to 
1994, principally as a result of an increase in average invested assets 
(at cost) of 12.0% when compared to the year ended 1994.  Net investment 
income as a percentage of total average investments was 7.2% in 1995 
compared to 7.0% in 1994.





11
<page



	Premium finance fees increased $923, or 5.0%, to $19,420 in 1995 
compared to 1994.  The increase was primarily attributable to the net 
effect of the increase in policies on direct bill and changes in the 
direct bill payment program, offset by decreases in direct premiums 
written and premium finance fees refunded due to the personal automobile 
rate decrease.

	Gross realized gains and losses on fixed maturity investments 
amounted to $2,389 and $1,912, respectively, for the year ended December 
31, 1995 compared to gross realized gains and losses on fixed maturity 
investments of $9,696 and $2,310, respectively, for the year ended 
December 31, 1994.  Gross realized gains and losses on equity 
investments amounted to $984 and $579, respectively, for the year ended 
December 31, 1995 compared to gross realized gains and losses on equity 
investments of $36,845 and $73, respectively, for the year ended 
December 31, 1994.  Net realized investment gains totalled $712 during 
1995 as compared to $45,612 for the same period in 1994. The realized 
gains in 1995 were primarily the result of sales of municipal bonds and 
preferred stocks, offset by realized losses on sales of GNMA's and 
common stocks.  Included in the net realized gains for 1994 was $34,287 
realized on the sale of common stock in three New England area bank 
holding companies.  These bank holding companies were acquired by other 
banks in 1994.  Also included were realized losses on mortgage activity 
of $215 in 1995 compared to $1,203 in 1994.

	Gross unrealized gains and losses on fixed maturity investments 
totalled $18,626 and $4,657, respectively, at December 31, 1995 compared 
to gross unrealized gains and losses on fixed maturity investments of 
$1,233 and $57,599, respectively, at December 31, 1994.  The unrealized 
gain on fixed maturities was the result of a decline in interest rates 
during 1995 favorably impacting market values.  Gross unrealized gains 
and losses on equity investments totaled $13,430 and $2,008, 
respectively, at December 31, 1995 compared to gross unrealized gains 
and losses on equity investments of $2,287 and $11,174, respectively, at 
December 31, 1994.  The increase in unrealized gain on equity 
investments was primarily due to the performance of the stock market 
coupled with declining interest rates during 1995 favorably impacting 
the market values of common stocks.

	The loss ratio was 62.0% in 1995 compared to 64.6% in 1994.  The 
personal automobile pure loss ratio increased to 56.6% compared to 54.3% 
in 1994.  This increase was primarily due to adverse loss experience on 
personal automobile business assumed from C.A.R., partially offset by 
improved loss experience in the liability component of the personal 
automobile book of business.  The commercial automobile pure loss ratio 
decreased to 57.4% compared to 58.4% in 1994.  This decrease was 
primarily due to improved loss experience on commercial automobile 
business assumed from C.A.R.  For homeowners, the pure loss ratio 
decreased to 49.6% compared to 91.8% in 1994.  This decrease was due 
primarily to the relatively mild weather during 1995, compared to the 
adverse weather experienced during 1994, especially during the first 
quarter of 1994.

	Policy acquisition costs increased by 5.9% in 1995, compared to 
4.8% in 1994.  This increase was due to an increase in the accrual for 
agents profit sharing compensation as a result of the impact of the mild 
weather during 1995 on the Company's loss ratio.  Agent's profit sharing 
compensation is based in part on the underwriting profits of agency 
business written by the Company.  In addition, the Commissioner approved 
an increase in the 1995 commission rate for personal automobile to 15.3% 
compared to 13.5% in 1994, which also had the effect of increasing 
policy acquisition costs.

	The Company's effective tax rate was 26.4% and 28.7% for the years 
ended December 31, 1995 and 1994, respectively.  In both years the 
effective rate was lower than the statutory rate of 35% primarily due to 
tax-exempt interest income.  The lower 1995 effective tax rate was due 
to the higher amount of tax-exempt interest income coupled with lower 
capital gains in 1995 versus 1994.

	While net earnings decreased $12,382, during 1995 as compared to 
an increase of $47,267 during 1994, net earnings exclusive of the after 
tax impact of net realized investment gains increased $16,803.  These 
changes were the result of the factors previously mentioned.




12
<page



Liquidity and Capital Resources

	The focus of the discussion of liquidity and capital resources is 
on the Consolidated Balance Sheets on page 18 and the Consolidated 
Statements of Cash Flows on page 21.  Stockholders' equity increased by 
$37,325, or 6.8%, in 1996 as compared to 1995.  Growth stemmed from 
$73,964 in net earnings combined with the change in net unrealized 
gains, net of income taxes, on fixed maturities and equity securities of 
$6,575, partially offset by dividends paid to stockholders of $29,373 
and Treasury Stock purchased of $13,841.  Total assets at December 31, 
1996 increased by $112,624, or 7.2%, to $1,676,799 as compared to total 
assets of $1,564,175 at December 31, 1995.  The increase in total assets 
was primarily due to cash provided by operations and the increase in 
cash due to proceeds from the maturities and sales of fixed maturities.  
The majority of this growth was reflected in an increase of $30,910, or 
24.3% in premiums receivable and in an increase in cash and cash 
equivalents of $87,870 or 166.8% as compared to December 31, 1995.  Of 
the cash and cash equivalents total of $140,535, $118,015 is held in a 
U.S. Government Repurchase Agreement at The First National Bank of 
Boston.  The Company intends to invest these proceeds through Salomon 
Brothers Asset Management, Inc. until such time that the Company 
believes longer term investments are appropriate.

	The Company's fixed maturity portfolio is comprised of GNMA's 
(31.5%) and municipal bonds (68.5%).  Of the Company's bonds, 100.0% are 
rated in either of the two highest quality categories provided by the 
NAIC.

	As announced in October, 1995, and in order to focus corporate 
resources more directly on the Company's main line of business, private 
passenger automobile insurance, the operations of the Company's mortgage 
subsidiary, Bay Finance Company, Inc. ("Bay Finance"), were 
substantially reduced.  Effective January 1, 1996, Bay Finance no longer 
actively originates mortgage loans with the use of outside originators 
and extensive regional marketing.  As a result, Bay Finance's staffing 
levels were substantially reduced and the remaining employees focus on 
servicing the Company's existing mortgage portfolio.  Bay Finance has 
retained its lending licenses and will continue to make a small number 
of various types of mortgage loans.

	The Company's liabilities totalled $1,089,760 at December 31, 1996 
as compared to $1,014,461 at December 31, 1995.  The $75,299, or 7.4%, 
increase was comprised primarily of a $31,122, or 5.0%, increase in 
losses and loss adjustment expense reserves, an increase of $37,537, or 
11.4%, in unearned premiums and a increase of $6,640, or 10.2% in all 
other liabilities.  The primary reason for the changes in these 
liabilities during 1996 was the increased level of personal automobile 
insurance business written by the Company attributable to affinity group 
marketing programs.

	The primary sources of the Company's liquidity are funds generated 
from insurance premiums, premium finance fees, net investment income and 
maturing of investments as reflected in the Consolidated Statements of 
Cash Flows on page 21.

	The Company's operating activities provided cash of $115,651 in 
1996 as compared to $135,282 in 1995.  These cash flows were primarily 
impacted by the fact that while net premiums written increased 17.9% in 
1996 as compared to 2.4% in 1995, losses and LAE incurred increased 
29.3% in 1996 as compared to a 0.6% decrease in 1995 and policy 
acquisition costs increased 8.6% in 1996 as compared to 5.9% in 1995.  
The increases were primarily the result of severe weather during the 
first half of 1996 coupled with a decrease in the personal automobile 
premium rate.  The average rate decrease was due to the effects of 
affinity group marketing programs, safe driver rate deviations and the 
1996 state mandated rate decrease of 4.5%.  The cash flows provided by 
investing activities were primarily the result of proceeds from the 
maturities and sales of fixed maturities offset by the purchases of 
fixed maturities and equity securities.  Investing and financing 
activities were funded by the cash provided by operating activities.

	Cash flows used in financing activities totalled $43,214 in 1996 
compared to $32,994 in 1995.  The increase was primarily attributable to 
an increase in dividends paid to stockholders of $20,738 offset by a 
decrease in Treasury Stock purchases of $10,518.


13
<page



	The Company's funds are generally invested in securities with 
maturities intended to provide adequate funds to pay claims without the 
forced sale of investments.  The carrying value (at market) of total 
investments at December 31, 1996 was $1,027,136.  At December 31, 1996, 
the Company held cash and cash equivalents of $140,535.  These funds 
provide sufficient liquidity for the payment of claims and other short-
term cash needs.  The Company relies upon dividends from its 
subsidiaries for its cash requirements.  Every Massachusetts insurance 
company seeking to make any dividend or other distributions to its 
stockholders must file a report with the Commissioner.  An extraordinary 
dividend is any dividend or other property, whose fair value together 
with other dividends or distributions made within the preceding twelve 
months exceeds the greater of ten percent of the insurer's surplus as 
regards to policyholders as of the end of the preceding year, or the net 
income of a non-life insurance company for the preceding year.  No pro-
rata distribution of any class of the insurer's own securities is to be 
included.  No Massachusetts insurance company shall pay an extraordinary 
dividend or other extraordinary distribution until thirty days after the 
Commissioner has received notice of the intended distribution and has 
not objected.  No extraordinary dividends were paid in 1996, 1995 and 
1994.

	Periodically, sales have been made from the Company's fixed 
maturity investment portfolio to actively manage portfolio risks, 
including credit-related concerns, to optimize tax planning and to 
realize gains.  This practice will continue in the future.

	Although the Company is not actively pursing acquisitions, in an 
effort to enhance future growth potential, the Company continues to 
monitor acquisition opportunities with regard to smaller automobile 
insurance companies that are in need of capital, have established 
management in place and present significant growth opportunities in 
their market areas.  On August 31, 1995, the Company completed the 
acquisition of Western Pioneer Insurance Company, a personal automobile 
insurer, located in Pleasanton, California.

	The Company's long term growth objective is to expand its writings 
outside of Massachusetts.  To achieve this objective, during 1996 the 
Company was granted licenses in the states of Connecticut and Rhode 
Island.  License approval in the state of Vermont was received in 
January 1997.  License applications were filed by the Company and are 
pending in the states of Maine and New Hampshire.  Concurrent with these 
filings, the Company has entered into an agreement with PMSC and has 
purchased software which will allow for the development of internal 
operating systems which will enable the Company to process policies in 
these five states and Massachusetts.  To facilitate this development 
and, at the same time, address the year 2000 processing issue facing 
computer system users, the Company has formed Team 2000.  Team 2000 will 
provide for a complete integration of databases serving our three main 
functions; claims, underwriting and premium accounting.  Through the 
year 2001, the Company expects to incur over $40 million in costs with 
the implementation of the PMSC systems.  This amount includes the 
purchase of a main frame computer, license fees and the costs associated 
with programming, implementation and training.  In 1996, the Company 
paid $10.5 million for the equipment and services previously mentioned, 
of which $4.9 million was expensed during the year.  These systems are 
not scheduled to be in place for contiguous states until the latter part 
of 1997 and as a result, Management is not expecting to start marketing 
in the states contiguous to Massachusetts until that time.

	Industry and regulatory guidelines suggest that the ratio of a 
property and casualty insurer's annual net premiums written to statutory 
policyholders' surplus should not exceed 3.00 to 1.00.  The Company's 
statutory premiums to surplus ratio was 1.53 to 1.00 and 1.37 to 1.00 
for the years ended December 31, 1996 and 1995, respectively.


Recent Accounting Developments

	In February, 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 128, "Earnings Per 
Share".  This statement is effective for financial statements issued for 
periods ending after December 15, 1997, (including interim periods) with 
earlier application not permitted.  The statement specifies the 
computation, presentation and disclosure requirements for earnings per 
share.  The Company believes that the adoption of this statement will 
not have a material impact on the Consolidated Financial Statements.


14
<page



Effects of Inflation and Recession

	The Company generally is unable to recover the costs of inflation 
in its personal automobile insurance line since the premiums it charges 
are subject to state regulation.  The premium rates charged by the 
Company for personal automobile insurance are adjusted by the 
Commissioner only at annual intervals.  Such annual adjustments in 
premium rates may lag behind related cost increases.  Economic 
recessions will also have an impact upon the Company, primarily through 
the policyholder's election to decrease non-compulsory coverages 
afforded by the policy and decreased driving, each of which tends to 
decrease claims.

	To the extent inflation and economic recession influence yields on 
investments, the Company is also affected.  As each of these 
environments affect current market rates of return, previously committed 
investments may rise or decline in value depending on the type and 
maturity of investment.

	Inflation and recession must also be considered by the Company in 
the creation and review of loss and LAE reserves since portions of these 
reserves are expected to be paid over extended periods of time.  The 
anticipated effect of economic conditions is implicitly considered when 
estimating liabilities for losses and LAE.  The importance of 
continually adjusting reserves is even more pronounced in periods of 
changing economic circumstances.

COMMON STOCK PRICE AND DIVIDEND INFORMATION

	On March 31, 1995, the Company's common stock began trading on the 
NYSE under the symbol "CGI".  Previously, the Company's common stock was 
traded on Nasdaq under the symbol "COMG".  The high, low and close 
prices for shares of the Company's common stock for 1996 and 1995 were 
as follows:
<TABLE>

					               1996            	         
1995          	
					       High     Low     Close		 High     
Low     Close
<CAPTION>
      <S>                           <C>     <C>      <C>          <C>     
<C>      <C>
	First Quarter...........	$20-3/4 $17-3/4  $19-3/4 	$17     
$14-3/4  $16-3/4
	Second Quarter..........	 22-1/2  18-1/2   20-7/8 	 17-
7/8  16-1/4   17-7/8
	Third Quarter...........	 22-1/4  20-1/2   22     	 19-
7/8  16-3/4   19-5/8
	Fourth Quarter..........	 25-3/4  22       25-1/4 	 21-
7/8  19-1/2   20-5/8
</TABLE>
	As of March 1, 1997, there were 1,294 stockholders of record of 
the Company's Common Stock, not including stock held in "Street Name" or 
held in accounts for participants of the Company's Employee Stock 
Ownership Plan ("E.S.O.P.").

	The Board of Directors of the Company voted to declare four 
quarterly dividends to stockholders of record totaling $.81 per share 
and $.23 per share in 1996 and 1995, respectively.  On May 17, 1996, the 
Board voted to increase the quarterly stockholder dividend from $.06 to 
$.25 per share to stockholders of record as of June 7, 1996.  Prior to 
that declaration, the Company had paid quarterly dividends of $.06 per 
share dating back to May 19, 1995 when the Board voted to increase the 
dividend from $.05 to $.06 per share.  The $.05 cash dividend per share 
was first declared by the Board on May 20, 1994.

	Treasury Stock purchased under the stock buyback program increased 
by 673,915 shares during 1996 to 1,937,348 shares at December 31, 1996.  
The stock buyback program, authorized by the Board in May 1995, enables 
the Company to purchase up to three million shares of the Company's 
common stock.  The program is now approximately two-thirds complete.













15
<page



REPORT OF MANAGEMENT

	The management of the Company is responsible for the consolidated 
financial statements and all other information presented in this Annual 
Report.  The financial statements have been prepared in conformity with 
generally accepted accounting principles determined by management to be 
appropriate in the circumstances and include amounts based on 
management's informed estimates and judgments.  Financial information 
presented elsewhere in this Annual Report is consistent with the 
financial statements.  The appropriateness of data underlying such 
financial information is monitored through internal accounting controls, 
an internal audit department, independent accountants and the Board of 
Directors through its audit committee.

	The Company maintains a system of internal accounting controls 
designed to provide reasonable assurance to management and the Board of 
Directors that assets are safeguarded and that transactions are executed 
in accordance with management's authorization and recorded properly.  
The system of internal accounting controls is supported by the selection 
and training of qualified personnel combined with the appropriate 
division of responsibilities.

	Management recognizes its responsibility for fostering a strong 
ethical climate so that the Company's affairs are conducted according to 
the highest standards of personal and corporate conduct.  Management 
encourages open communication within the Company and requires the 
confidential treatment of proprietary information and compliance with 
all domestic laws, including those relating to financial disclosure.

	The 1996 consolidated financial statements were audited by the 
Company's independent accountants, Coopers & Lybrand L.L.P., in 
accordance with generally accepted auditing standards.  Management has 
made available to Coopers & Lybrand L.L.P., all the Company's financial 
records and related data, as well as the minutes of stockholders' and 
directors' meetings.  Furthermore, management believes that all 
representations made to Coopers & Lybrand L.L.P., during its audit were 
valid and appropriate.

































16
<page



REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of
The Commerce Group, Inc.

	We have audited the accompanying consolidated balance sheets of 
The Commerce Group, Inc. and Subsidiaries as of December 31, 1996 and 
1995, and the related consolidated statements of earnings, stockholders' 
equity and cash flows for each of the three years in the period ended 
December 31, 1996.  These financial statements are the responsibility of 
the Company's management.  Our responsibility is to express an opinion 
on these financial statements based on our audits.

	We conducted our audits in accordance with generally accepted 
auditing standards.  Those standards require that we plan and perform 
the audit to obtain reasonable assurance about whether the financial 
statements are free of material misstatement.  An audit includes 
examining, on a test basis, evidence supporting the amounts and 
disclosures in the financial statements.  An audit also includes 
assessing the accounting principles used and significant estimates made 
by management, as well as evaluating the overall financial statement 
presentation.  We believe our audits provide a reasonable basis for our 
opinion.

	In our opinion, the financial statements referred to above present 
fairly, in all material respects, the consolidated financial position of 
The Commerce Group, Inc. and Subsidiaries as of December 31, 1996 and 
1995, and the consolidated results of their operations and their cash 
flows for each of the three years in the period ended December 31, 1996, 
in conformity with generally accepted accounting principles.



										COOPERS & 
LYBRAND L.L.P.




Boston, Massachusetts
January 24, 1997




























17
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31,
(Thousands of Dollars Except Per Share Data)
<TABLE>

												  
1996	  1995
ASSETS
<CAPTION>
<S>                                                                   
<C>         <C>
Investments (notes A2 and B)
  Fixed maturities, at market (cost: $700,511 in 1996 and $801,308
   in 1995).......................................................... $  
716,702  $  815,277
  Equity securities, at market (cost: $214,406 in 1996 and $140,157
   in 1995)..........................................................    
233,721     151,579
  Mortgage loans on real estate and collateral notes receivable 
   (less allowance for possible loan losses of $2,760 in 1996
   and $3,173 in 1995)...............................................     
74,586      75,609
  Other investments..................................................      
2,127       1,648
      Total investments..............................................  
1,027,136   1,044,113

Cash and cash equivalents (note A3)..................................    
140,535      52,665
Accrued investment income............................................     
12,819      14,686
Premiums receivable (less allowance for doubtful receivables of
  $1,500 in 1996 and $1,103 in 1995).................................    
158,153     127,243
Deferred policy acquisition costs (notes A4 and C)...................     
82,968      67,160
Property and equipment, net of accumulated depreciation
  (notes A5 and D)...................................................     
32,100      30,981
Residual market receivable (note F)..................................    
195,213     200,124
Due from reinsurers (note F).........................................     
19,659      21,897
Deferred income taxes (notes A8 and G)...............................        
-         1,415
Other assets.........................................................      
8,216       3,891
      Total assets................................................... 
$1,676,799  $1,564,175

								
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
  Losses and loss adjustment expenses (notes A6, E and F)............ $  
649,913  $  618,791
  Unearned premiums (note A7)........................................    
367,991     330,454
  Current income taxes (notes A8 and G)..............................        
171       1,180
  Deferred income taxes (notes A8 and G).............................      
4,223         -
  Deferred income (notes A9 and F)...................................      
7,974       8,954
  Contingent commissions accrued.....................................     
25,712      32,550
  Other liabilities and accrued expenses.............................     
33,776      22,532
      Total liabilities..............................................  
1,089,760   1,014,461

Stockholders' Equity (notes B, J, K and L)
  Preferred stock, authorized 5,000,000 shares at $1.00 par value;
   none issued in 1996 and 1995......................................        
-           -  
  Common stock, authorized 100,000,000 shares at $.50 par value;
   issued and outstanding 38,000,000 shares in 1996 and 1995.........     
19,000      19,000
  Paid-in capital....................................................     
29,621      29,621
  Net unrealized gains on fixed maturities and equity securities, 
   net of income taxes of $12,427 in 1996 and $8,887 in 1995.........     
23,079      16,504
  Retained earnings..................................................    
553,539     508,948
                                                                         
625,239     574,073
  Treasury Stock, 1,937,348 shares in 1996 and 1,263,433 shares in
   1995, at cost (note A11)..........................................    
(38,200)    (24,359)
      Total stockholders' equity.....................................    
587,039     549,714

      Total liabilities and stockholders' equity..................... 
$1,676,799  $1,564,175
</TABLE>




The accompanying notes are an integral part of these consolidated 
financial statements.
18
<page


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31,
(Thousands of Dollars Except Per Share Data)
<TABLE>
										 1996		 
1995		 1994
<CAPTION>
<S>                                                      <C>         <C>         
<C>
Revenues
  Earned premiums (notes A7 and F).....................  $  668,716  $  
592,590  $  572,053
  Net investment income (note B).......................      77,402      
71,313      62,901
  Premium finance fees.................................       9,713      
19,420      18,497
  Net realized investment gains (losses) (note B)......      (7,574)        
712      45,612
       Total revenues..................................     748,257     
684,035     699,063

Expenses
  Losses and loss adjustment expenses 
   (notes A6, E and F).................................     475,231     
367,552     369,660
  Policy acquisition costs (notes A4 and C)............     181,013     
166,741     157,415
       Total expenses..................................     656,244     
534,293     527,075

       Earnings before income taxes....................      92,013     
149,742     171,988

Income taxes (notes A8 and G)..........................      18,049      
39,541      49,405

       NET EARNINGS....................................  $   73,964  $  
110,201  $  122,583

       NET EARNINGS PER COMMON SHARE (primary and
        fully diluted) (note A10)......................  $     2.04  $     
2.93  $     3.23

       CASH DIVIDENDS PAID PER SHARE...................  $     0.81  $     
0.23  $     0.15

       WEIGHTED AVERAGE NUMBER OF COMMON
        SHARES OUTSTANDING.............................  36,311,887  
37,632,236  38,000,000
</TABLE>



























The accompanying notes are an integral part of these consolidated 
financial statements.
19
<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31,
(Thousands of Dollars)

<TABLE>
					                       Net
					 Common   Paid-in   Unrealized   Retained   
Treasury
					 Stock    Capital  Gains/Losses  Earnings     
Stock     Total
<CAPTION>
<S>                           <C>       <C>        <C>        <C>        
<C>        <C>
Balance December 31, 1993.... $19,000   $29,621    $44,228    $290,499   
$    -     $383,348

 Net earnings................                                  122,583               
122,583
 Change in unrealized gains
  (losses), net of taxes.....                      (86,642)                          
(86,642)
 Stockholder dividends.......                                   (5,700)               
(5,700)

Balance December 31, 1994....  19,000    29,621    (42,414)    407,382        
-      413,589

 Net earnings................                                  110,201               
110,201
 Change in unrealized gains
  (losses) net of taxes......                       58,918                            
58,918
 Stockholder dividends.......                                   (8,635)               
(8,635)
 Treasury stock purchased....                                             
(24,359)   (24,359)

Balance December 31, 1995....  19,000    29,621     16,504     508,948    
(24,359)   549,714

 Net earnings................                                   73,964                
73,964
 Change in unrealized gains
  net of taxes...............                        6,575                             
6,575
 Stockholder dividends.......                                  (29,373)              
(29,373)
 Treasury stock purchased....                                             
(13,841)   (13,841)

Balance December 31, 1996.... $19,000   $29,621    $23,079    $553,539   
$(38,200)  $587,039
</TABLE>


























The accompanying notes are an integral part of these consolidated 
financial statements.
20
<page


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(Thousands of Dollars)

<TABLE>

										    1996	   
1995	   1994

<CAPTION>
<S>                                                          <C>        
<C>        <C>
Cash flows from operating activities:
  Net earnings.............................................. $  73,964  
$ 110,201  $ 122,583
  Adjustments to reconcile net earnings to net cash
   provided by operating activities:
    Premiums receivable.....................................   (30,910)   
(24,714)    (7,267)
    Deferred policy acquisition costs.......................   (15,808)    
(8,094)    (3,122)
    Residual market receivable..............................     4,911     
14,694      5,494
    Due to/from reinsurers..................................     2,238     
(5,005)    (4,024)
    Losses and loss adjustment expenses.....................    31,122     
26,418     24,576
    Unearned premiums.......................................    37,537     
15,735     31,193
    Current income taxes....................................    (1,009)    
(8,637)     6,256
    Deferred income taxes...................................     2,098      
4,651     (4,878)
    Deferred income.........................................      (980)    
(1,497)     3,100
    Contingent commissions..................................    (6,838)     
8,100      2,724
    Other liabilities and accrued expenses..................    11,244      
5,705       (147)
    Net realized investment (gains) losses..................     7,574       
(712)   (45,612)
    Other-net...............................................       508     
(1,563)     6,716
      Net cash provided by operating activities.............   115,651    
135,282    137,592

Cash flows from investing activities:
  Proceeds from maturity of fixed maturities................   170,646     
28,479     55,671
  Proceeds from sale of fixed maturities....................   122,431     
72,287    123,127
  Purchase of fixed maturities..............................  (200,113)  
(100,689)  (351,260)
  Purchase of equity securities.............................   (85,480)   
(50,418)   (26,155)
  Proceeds from sale of equity securities...................    11,326     
14,784     59,722
  Payments received on mortgage loans and collateral notes
    receivable..............................................     8,311      
9,892      8,524
  Mortgage loans and collateral notes receivable originated.    (7,446)   
(28,667)   (16,562)
  Mortgages sold to investors in the secondary market.......        36      
2,287     10,725
  Proceeds from sale of real estate acquired by
   foreclosures.............................................        92        
318      2,120
  Purchase of property and equipment........................    (4,477)    
(3,664)    (5,786)
  Proceeds from sale of property and equipment..............       107        
283        250
      Net cash provided by (used in) investing activities...    15,433    
(55,108)  (139,624)

Cash flows from financing activities:
  Dividends paid to stockholders............................   (29,373)    
(8,635)    (5,700)
  Purchase of treasury stock................................   (13,841)   
(24,359)       -  	
      Net cash used in financing activities.................   (43,214)   
(32,994)    (5,700)

Increase (decrease) in cash and cash equivalents............    87,870     
47,180     (7,732)
Cash and cash equivalents at beginning of year..............    52,665      
5,485     13,217
Cash and cash equivalents at end of year.................... $ 140,535  
$  52,665  $   5,485
</TABLE>








The accompanying notes are an integral part of these consolidated 
financial statements.

21
<page


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE A-Summary of Significant Accounting Policies

1. Basis of Presentation

	The consolidated financial statements of The Commerce Group, Inc. 
(the "Company") have been prepared in accordance with generally accepted 
accounting principles ("GAAP").

	The consolidated financial statements include The Commerce Group, 
Inc., and its wholly-owned subsidiaries, Bay Finance Company, Inc., 
Clark-Prout Insurance Agency, Inc. and Commerce Holdings, Inc. ("CHI"). 
The Commerce Insurance Company ("Commerce") and Citation Insurance 
Company ("Citation") are wholly-owned subsidiaries of Commerce Holdings, 
Inc.  Western Pioneer Insurance Company ("Western Pioneer") is a wholly-
owned subsidiary of Commerce.  All intercompany transactions and 
balances have been eliminated in consolidation. Certain prior year 
account balances have been reclassified to conform to 1996 presentation.

	The insurance subsidiaries, Commerce, Citation and Western Pioneer 
prepare statutory financial statements in accordance with accounting 
practices prescribed by the National Association of Insurance 
Commissioners ("NAIC"), the Commonwealth of Massachusetts, and the State 
of California.

	The preparation of financial statements in conformity with 
generally accepted accounting principles requires management to make 
estimates and assumptions that affect the reported amounts of assets and 
liabilities and disclosure of contingent assets and liabilities at the 
date of the financial statements and the reported amounts of revenues 
and expenses during the reporting period.  Actual results could differ 
from those estimates.

2. Investments

	All investment transactions have credit exposure to the extent 
that a counterparty may default on an obligation to the Company.  Credit 
risk is a consequence of carrying investment positions. The financial 
instruments that potentially subject the Company to credit risk consist 
primarily of cash and cash equivalents, premium receivables, 
investments, and mortgage loans on real estate.  Concentrations of 
credit risk with respect to premiums receivable result from the fact 
that the Company's policyholders are concentrated primarily in one 
geographic area, as the Company, the largest writer of personal 
automobile insurance in the state of Massachusetts, writes primarily in 
Massachusetts.  To manage credit risk, the Company focuses on higher 
quality fixed-income securities, reviews the credit strength of all 
companies which it invests in, limits its exposure in any one investment 
and monitors the portfolio quality, taking into account credit ratings 
assigned by recognized statistical rating organizations.

	Investments in fixed maturities, which include bonds and 
redeemable preferred stocks, and investments in equity securities, which 
include common and non-redeemable preferred stocks, all classified as 
available for sale, are carried at fair market value.  Unrealized 
investment gains and losses on equity investments and fixed maturities, 
to the extent that there is no permanent impairment of value, are 
credited or charged to a separate component of stockholders' equity 
until realized, net of any tax effect.  When investment securities are 
sold, the realized gain or loss is determined based upon specific 
identification.  Fair market value of fixed maturities and equity 
investments is based on quoted market prices.  For other securities held 
as investments, fair market value equals quoted market price, if 
available.  If a quoted market price is not available, fair market value 
is estimated using quoted market prices for similar securities.  The 
Company has not invested more than 7% of fixed maturities in any one 
state or political subdivision.








22
<page


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE A-Summary of Significant Accounting Policies - (continued)

	The Company originates and holds mortgage loans on real estate 
primarily on properties located in the state of Massachusetts.  The 
Company controls credit risk through credit approvals, credit limits and 
monitoring procedures.  The Company performs in-depth credit evaluations 
on all new customers.  Bad debt expenses have not been material in 
recent years.

	Mortgage loans on real estate and collateral notes receivable are 
stated at the amount of unpaid principal, less an allowance for possible 
loan losses.  The adequacy of the allowance for possible loan losses is 
evaluated on a regular basis by Management. Factors considered in 
evaluating the adequacy of the allowance include previous loss 
experience, current economic conditions and their effect on borrowers 
and the performance of individual loans in relation to contract terms.  
The provision for possible loan losses charged to operating expenses is 
based upon Management's judgment of the amount necessary to maintain the 
allowance at a level adequate to absorb possible losses.  Loan losses 
are charged against the allowance when Management believes the 
collectibility of the principal is unlikely and recoveries are credited 
to the allowance when received.

	Interest on mortgage loans is included in income as earned based 
upon rates applied to principal amounts outstanding.  Accrual of 
interest on mortgage loans is discontinued either when reasonable doubt 
exists as to the full, timely collection of interest or principal, or 
when a loan becomes contractually past due more than ninety days.  When 
a loan is placed on nonaccrual status, all unpaid interest previously 
accrued is reversed against current period earnings.

3.  Cash and Cash Equivalents

	Cash and cash equivalents include cash currently on hand and 
short-term investments with original maturities, when purchased, of 
three months or less.  The carrying amount approximates fair value.  The 
Company holds $118,015 in a U.S. Government Repurchase Agreement at The 
First National Bank of Boston.  When the Company enters into a 
repurchase agreement through its custodian, it receives delivery of the 
underlying collateral.  The amount of collateral, at the time of 
purchase and each subsequent business day, is required to be maintained 
at such a level that market value is equal to 102% of the resale price.  
The Company intends to invest these proceeds through Salomon Brothers 
Asset Management, Inc. until such time that the Company believes longer 
term investments are appropriate.

4.  Deferred Policy Acquisition Costs

	Policy acquisition costs relating to unearned premiums, consisting 
of commissions, premium taxes and other underwriting expenses incurred 
at the policy issuance, are deferred and amortized over the period in 
which the related premiums are earned, the amount being reduced by any 
potential premium deficiency.  If any potential premium deficiency 
exists, it represents future estimated losses, loss adjustment expenses 
and amortization of deferred acquisition costs in excess of the related 
unearned premiums.  There was no premium deficiency in 1996, 1995 and 
1994. In determining whether a premium deficiency exists, the Company 
considers anticipated investment income on unearned premiums.










23
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE A-Summary of Significant Accounting Policies - (continued)

5.  Property and Equipment

	Property and equipment are stated at cost and are depreciated on 
the straight line method over the estimated useful lives of the assets 
using the following rates:
<TABLE>

												 
Percent
			Asset Classification					
	Per Annum
<CAPTION>
               <S>                                                        
<C>
Buildings.......................................	      2.5
Building improvements (prior to 1992)...........	      2.5
Building improvements (1992 and subsequent).....	      5.0
Equipment and office furniture..................	     10.0
EDP equipment and copiers.......................	     20.0
Automobiles.....................................	     33.3
</TABLE>
	Maintenance and repairs are charged to operations; betterments are 
capitalized.  The cost of property sold or otherwise disposed of and the 
accumulated depreciation thereon are eliminated from the related 
property and accumulated depreciation accounts and any resulting gain or 
loss is credited or charged to income.

6.  Losses and Loss Adjustment Expenses

	The liability for unpaid losses and LAE represents the 
accumulation of individual case estimates for reported losses and 
estimates for incurred but not reported ("IBNR") losses and LAE.  
Assumed losses and LAE are recorded as reported by the ceding 
organization with additional adjustments for IBNR.  The liability for 
losses and LAE is intended to cover the ultimate net cost of all losses 
and loss adjustment expenses incurred through the balance sheet date.  
Liability estimates are continually reviewed and updated, and therefore, 
the ultimate liability may be more or less than the current estimate.  
The effects of changes in the estimates are included in the results of 
operations in the period in which the estimates are revised.

7.  Premiums

	Insurance premiums are recognized as income ratably over the terms 
of the policies.  Unearned premiums are determined by prorating policy 
premiums on a daily basis over the terms of the policies.  A significant 
portion of the Company's premiums written is derived through the five 
American Automobile Association Clubs of Massachusetts group marketing 
program.  In 1996, total direct premiums written attributable to the AAA 
group business was $344,297 or 47% of the Company's total direct 
premiums written.  Of this amount, 9% was written through the AAA clubs 
and 91% was written through the Company's network of independent agents.

8.  Income Taxes

	The Company uses an asset and liability approach that requires the 
recognition of deferred tax assets and liabilities for the expected 
future tax consequences of events that have been recognized in the 
Company's financial statements or tax returns.  In estimating future tax 
consequences, the Company generally considers all expected future events 
other than changes in the tax law or rates, unless enacted.  Valuation 
allowances are established when necessary to reduce deferred tax assets 
to the amount expected to be realized.

9.  Deferred Income

	Income consisting of group marketing service fees and expense 
reimbursements which include servicing carrier fees from Commonwealth 
Automobile Reinsurers ("C.A.R."), a state-mandated reinsurance 
mechanism, on policies written for C.A.R., are deferred and amortized 
over the term of the related insurance policies (see note F).



24
<PAGE


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE A-Summary of Significant Accounting Policies - (continued)

10. Net Earnings Per Common Share

	Net earnings per common share is computed by dividing net earnings 
by the weighted average number of common shares outstanding.  The 
weighted average number of common shares outstanding for the years ended 
December 31, 1996, 1995 and 1994 was 36,311,887, 37,632,236 and 
38,000,000, respectively.

11. Treasury Stock

	On May 19, 1995, the Board of Directors of the Company, announced 
the approval of a stock buyback program of up to three million shares.  
Through December 31, 1996, the Company purchased 1,937,348 shares of 
Treasury Stock under this program.

NOTE B-Investments and Investment Income

1. Fixed Maturities

	The amortized cost and estimated fair market values of investments 
in fixed maturities are as follows:
<TABLE>
								        Gross         
Gross       Estimated
						     Amortized    Unrealized    
Unrealized   Fair Market
						        Cost         Gains        
Losses        Value  	
<CAPTION>
<S>                                      <C>           <C>           <C>          
<C>
At December 31, 1996:
  GNMA mortgage-backed bonds...........  $223,590      $  2,589      $   
(627)    $225,552
  Obligations of states and 
   political subdivisions..............   476,921        15,301        
(1,072)     491,150
       Totals..........................  $700,511      $ 17,890      $ 
(1,699)    $716,702

At December 31, 1995:
  GNMA mortgage-backed bonds...........  $220,589      $  2,422      $ 
(1,638)    $221,373
  Obligations of states and 
   political subdivisions..............   580,719        16,204        
(3,019)     593,904
       Totals..........................  $801,308      $ 18,626      $ 
(4,657)    $815,277
</TABLE>

<TABLE>
	Proceeds from sales of investments in fixed maturities, gross 
gains, and gross losses realized on those sales were as follows:
									Proceeds	    
Gross	     Gross
									  From	   
Realized	    Realized
									 Sales  	    
Gains  	     Losses
<CAPTION>
<S>                                                   <C>            <C>          
<C>
For the year ended December 31, 1996:
  GNMA mortgage-backed bonds......................... $    -         $    
-       $    -  
  Obligations of states and political subdivisions...  122,431            
367       (3,685)
       Totals........................................ $122,431       $    
367     $ (3,685)

For the year ended December 31, 1995:
  GNMA mortgage-backed bonds......................... $    -         $    
-       $    -  
  Obligations of states and political subdivisions...   72,287          
2,340         (695)
       Totals........................................ $ 72,287       $  
2,340     $   (695)

For the year ended December 31, 1994:
  GNMA mortgage-backed bonds......................... $    -         $    
-       $    -  
  Obligations of states and political subdivisions...  123,127          
9,509          (58)
       Totals........................................ $123,127       $  
9,509     $    (58)
</TABLE>

25
<PAGE


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE B-Investments and Investment Income - (continued)

	The amortized cost and approximate fair market value of fixed 
maturities at December 31, 1996 and 1995, by contractual maturity, are 
as follows:
<TABLE>

								          1996         	       
1995         	
								        	    Fair	               
Fair
								    Amortized   Market	 
Amortized	   Market
								      Cost      Value 	   
Cost   	   Value 	
<CAPTION><S>                                                <C>        
<C>        <C>        <C>
Obligations of states and political subdivisions:
Due in one year or less..........................  $    508	  $    517	 
$    -  	$    -  
Due after one year through five years............        94	       102	    
1,130	   1,149
Due after five years through ten years...........     1,669      1,681	   
19,956	  20,183
Due after ten years..............................   474,648    488,847	  
559,633	 572,572
								    476,919    491,147	  
580,719	 593,904

GNMA mortgage-backed bonds.......................   223,592    225,555	  
220,589	 221,373
Total fixed maturities...........................  $700,511   $716,702	 
$801,308	$815,277
</TABLE>
	Expected maturities may differ from contractual maturities because 
issuers may have the right to call or prepay obligations.

2. Equity Securities

	The cost and approximate fair market value of equity securities at 
December 31, 1996 and 1995, are as follows:
<TABLE>

									1996			
	1995		
									     Fair		
	     Fair
									     Market		
	     Market
								  Cost     Value 		  
Cost     Value 	
<CAPTION>
<S>                                             <C>       <C>           
<C>       <C>
Non-redeemable preferred stocks.............	$148,481  $147,680
	$111,597  $111,220
Preferred stock mutual funds................	  28,553    29,087           
-         -
Common stocks...............................	  37,372    56,954	  
28,560    40,359
								$214,406  $233,721
	$140,157  $151,579
</TABLE>
3. Mortgage Loans on Real Estate and Collateral Notes Receivable

	At December 31, 1996 and 1995, mortgage loans on real estate and 
collateral notes receivable consisted of the following:
<TABLE>
										
	December 31,	
										  1996	
	1995
<CAPTION>
                  <S>                                       <C>             
<C>
                  Residential (1st Mortgages)............   $58,263         
$59,575
                  Residential (2nd Mortgages)............     1,077             
847
                  Commercial (1st Mortgages).............    15,805          
15,804
                  Commercial (2nd Mortgages).............       196             
217
                                                             75,341          
76,443
                  Collateral notes receivable............     2,005           
2,339
                                                             77,346          
78,782
                  Allowance for possible loan losses.....    (2,760)         
(3,173)
                    Mortgage loans on real estate and
                       collateral notes receivable.......   $74,586         
$75,609
</TABLE>

26
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE B-Investments and Investment Income - (continued)

	Fair value of the Company's mortgage loans on real estate and 
collateral notes receivable is estimated by discounting the future cash 
flows using the current rates at which similar loans would be made to 
borrowers with similar credit and for the same remaining maturities.  
The future cash flows associated with certain non-performing loans are 
estimated based on expected payments from borrowers either through work 
out arrangements or the disposition of collateral.  The fair value of 
mortgage loans on real estate and collateral notes receivable at 
December 31, 1996 and 1995, prior to the allowance for possible loan 
losses, was $78,920 and $81,200, respectively, which was estimated by 
discounting the future cash flows of the mortgages.

	At December 31, 1996 and 1995, mortgage loans which were on 
nonaccrual status were 
$2,095 and $2,727, respectively.  The reduction in interest income 
associated with nonaccrual loans was $152, $287 and $223 for the years 
ended December 31, 1996, 1995 and 1994, respectively.

	The Company originates and services residential and commercial 
mortgages primarily in Massachusetts and generally its exposure is 80% 
or less of the appraised value of any collateralized real property.  The 
ability and willingness of residential and commercial borrowers to honor 
their repayment commitments is generally dependent upon the level of 
overall economic activity and real estate values.

	A summary of the changes in the allowance for possible loan losses 
follows:
<TABLE>

								      	Year Ended 
December 31,		
									  1996	    
1995		1994
<CAPTION>
            <S>                                       <C>           <C>           
<C>
            Balance, beginning of year..............  $ 3,173       $ 
3,324       $ 3,644
              Decrease in provision for possible
                loan losses.........................     (135)         
(151)         (277)
              Loans charged off.....................     (278)          
-             (43)
            Balance, end of year....................  $ 2,760       $ 
3,173       $ 3,324
</TABLE>
	The following table describes mortgage principal balances by 
maturity and discloses over 90 days past due and foreclosure 
information:
<TABLE>

									  1996	    
1995		1994
<CAPTION>
            <S>                                       <C>           <C>           
<C>
            Fixed Rate Mortgages Maturing:
              One year or less......................  $   632       $   
512       $   307
              More than one year to five years......    2,248           
640           412
              More than five years to ten years.....    4,700         
5,500         5,452
              Over ten years........................   42,902        
40,807        24,407
                   Total Fixed Mortgages............  $50,482       
$47,459       $30,578

            Adjustable Rate Mortgages Maturing:
              One year or less......................  $   -         $   
-         $   -  
              More than one year to five years......       43            
79           183
              More than five years to ten years.....      569           
455           385
              Over ten years........................   24,247        
28,450        28,644
                   Total Adjustable Mortgages.......  $24,859       
$28,984       $29,212

            Past due over 90 days...................  $ 2,095       $ 
2,727       $ 2,395

            Mortgages in Foreclosure................  $   938       $   
795       $   700
</TABLE>


27
<PAGE


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE B-Investments and Investment Income - (continued)

4. Net Investment Income

The components of net investment income were as follows:
<TABLE>

										Year ended 
December 31,     	
									  1996	   
1995	   1994
<CAPTION>
      <S>                                           <C>           <C>         
<C>
	Interest and dividends on fixed maturities... $  56,034     $ 
56,467    $ 50,000
	Dividends on equity securities...............    12,765        
8,486       7,426
	Interest on short-term investments...........     4,022        
2,466       1,629
	Interest on mortgage loans...................     6,737        
6,141       6,097
	Other........................................       105          
478         208
	         Total investment income.............    79,663       
74,038      65,360
	Investment expenses..........................     2,261        
2,725       2,459
	         Net investment income............... $  77,402     $ 
71,313    $ 62,901
</TABLE>
5. Net Realized and Unrealized Investment Gains (Losses)

	Net realized investment gains and the net increases (decreases) in 
unrealized investment gains or losses, less applicable income tax 
expense, were as follows:
<TABLE>
										Year ended 
December 31,	   	
									  1996	   
1995	   1994
<CAPTION>
<S>                                                 <C>           <C>         
<C>
Net realized investment gains (losses):
  Fixed maturities................................. $  (7,364)    $    
477    $  7,386
  Equity securities................................       107          
405      38,845
  Other............................................      (317)        
(170)       (619)
      Total........................................ $  (7,574)    $    
712    $ 45,612

Net increase (decrease) in unrealized gains (losses):
  Fixed maturities................................. $   2,222     $ 
70,335    $(83,843)
  Equity securities................................     7,893       
20,308     (49,687)
  Related tax benefit (expense)....................    (3,540)     
(31,725)     46,888
      Total........................................ $   6,575     $ 
58,918    $(86,642)
</TABLE>

	A summary of accumulated unrealized gains and losses on equity 
securities and fixed maturity investments in 1996, 1995 and 1994 
follows:
<TABLE>
										Year ended 
December 31,    	
									  1996	   
1995	   1994
<CAPTION>
            <S>                                     <C>           <C>         
<C>
            Unrealized gains....................... $  40,227     $ 
32,056    $  3,520
            Unrealized losses......................    (4,721)      
(6,665)    (68,773)
            Tax benefit (expense)..................   (12,427)      
(8,887)     22,839
                  Net unrealized gains
                   (losses)........................ $  23,079     $ 
16,504    $(42,414)
</TABLE>
NOTE C-Deferred Policy Acquisition Costs

	Policy acquisition costs incurred and amortized to income are as 
follows:
<TABLE>
										Year ended 
December 31,	  	
									  1996	   
1995	   1994
<CAPTION>
            <S>                                     <C>           <C>         
<C>
            Balance, beginning of year............. $  67,160     $ 
59,066    $ 53,647
            Costs deferred during the year.........   196,821      
174,835     162,834
            Amortization charged to expense........  (181,013)    
(166,741)   (157,415)
            Balance, end of year................... $  82,968     $ 
67,160    $ 59,066
</TABLE>

28
<PAGE


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE D-Property and Equipment

	A summary of property and equipment at December 31, is as follows:
<TABLE>
											 1996	       
1995
<CAPTION>
                  <S>                                           <C>         
<C>
			Buildings.................................    $ 27,506    
$ 27,077
			Equipment and office furniture............      24,993      
21,436
			Building improvements.....................         811         
623
										      53,310      
49,136
				Less accumulated depreciation.......      22,015      
18,953
										      31,295      
30,183
			Land......................................         805         
798
										    $ 32,100    
$ 30,981
</TABLE>
	Depreciation expenses incurred were $3,202, $3,151 and $3,093 for 
the years ended December 31, 1996, 1995 and 1994, respectively.  
Depreciation expense is allocated between losses and loss adjustment 
expenses and policy acquisition costs.

NOTE E-Losses and Loss Adjustment Expenses

	Liabilities for unpaid losses and loss adjustment expenses at 
December 31, consist of:
<TABLE>

											1996	
	1995
<CAPTION>
                  <S>                                           <C>         
<C>
			Unpaid loss and LAE reserves..............    $705,674    
$662,591
			Salvage and subrogation recoverable.......     
(55,761)    (43,800)
										    $649,913    
$618,791
</TABLE>
	Significant periods of time can elapse between the occurrence of 
an insured loss, the reporting of the loss to the insurer and the 
insurer's payment of that loss.  To recognize liabilities for unpaid 
losses, insurers establish reserves as balance sheet liabilities 
representing estimates of amounts needed to pay reported and unreported 
losses and LAE.  Quarterly, the Company reviews these reserves 
internally.  Regulations of the Division of Insurance require the 
Company to obtain annually a certification from either a qualified 
actuary or an approved loss reserve specialist that its loss and LAE 
reserves are reasonable.

	When a claim is reported to the Company, its claims personnel 
establish a "case reserve" for the estimated amount of the ultimate 
payment.  The amount of the reserve is primarily based upon a case-by-
case evaluation of the type of claim involved, the circumstances 
surrounding each claim and the policy provisions relating to the type of 
loss.  The estimate reflects the informed judgment of such personnel 
based on general insurance reserving practices and on the experience and 
knowledge of the claims person.  During the loss adjustment period, 
these estimates are revised as deemed necessary by the Company's claims 
department based on subsequent developments and periodic reviews of the 
cases.

	In accordance with industry practice, the Company also maintains 
reserves for estimated IBNR.  IBNR reserves are determined on the basis 
of historical information and the experience of the Company.  
Adjustments to IBNR are made periodically to take into account changes 
in the volume of business written, claims frequency and severity, the 
mix of business, claims processing and other items that can be expected 
to affect the Company's liability for losses and LAE over time.







29
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE E-Losses and Loss Adjustment Expenses - (continued)

	When reviewing reserves, the Company analyzes historical data and 
estimates the impact of various factors such as (i) per claim 
information, (ii) the historical loss experience of the Company and 
industry and (iii) legislative enactments, judicial decisions, legal 
developments in the imposition of damages, changes in political 
attitudes and trends in general economic conditions, including the 
effects of inflation.  This process assumes that past experience, 
adjusted for the effects of current developments and anticipated trends, 
is an appropriate basis for predicting future events.  There is no 
precise method, however, for subsequently evaluating the impact of any 
specific factor on the adequacy of reserves, because the eventual 
development of reserves is affected by many factors.

	By using both individual estimates of reported claims and 
generally accepted actuarial reserving techniques, the Company estimates 
the ultimate net liability for losses and LAE.  After taking into 
account all relevant factors, management believes that the provision for 
losses and LAE at December 31, 1996 is adequate to cover the ultimate 
net cost of losses and claims incurred as of that date.  The ultimate 
liability, however, may be greater or lower than reserves.  
Establishment of appropriate reserves is an inherently uncertain 
process, and there can be no certainty that currently established 
reserves will prove adequate in light of subsequent actual experience.  
The Company does not discount to present value that portion of its loss 
reserves expected to be paid in future periods.

	Included in the loss reserve methodologies described above, are 
liabilities for unpaid claims and claim adjustment expenses for 
environmental related claims such as oil spills and lead paint.  
Reserves have been established to cover these claims for both known and 
unknown losses.  Because of the Company's limited exposure to these 
types of claims, management believes they will not have a material 
impact on the consolidated financial position of the Company in the 
future.  Loss reserves on environmental related claims amounted to 
$8,783, $10,708 and $11,151 in 1996, 1995 and 1994, respectively.

	The following table sets forth a reconciliation of beginning and 
ending reserves for losses and loss adjustment expenses, net of 
reinsurance deductions from all reinsurers including C.A.R., as shown in 
the Company's consolidated financial statements for the periods 
indicated.
<TABLE>
										Year ended 
December 31,	    	
									  1996	     
1995	      1994
<CAPTION>
<S>                                                   <C>           <C>          
<C>
Reserves for losses and loss adjustment
 expenses, beginning of year......................... $486,673      
$448,331     $415,613

Incurred losses and loss adjustment expenses:
   Provision for insured events of the current year..  562,997       
442,027      435,713
   Decrease in provision for insured events of
    prior years......................................  (87,766)      
(74,475)     (66,053)
     Total incurred losses and loss adjustment
      expenses.......................................  475,231       
367,552      369,660

Payments:
   Losses and loss adjustment expenses attributable
    to insured events of the current year............  273,334       
184,182      188,002
   Losses and loss adjustment expenses attributable
    to insured events of prior years.................  167,509       
145,028      148,940
     Total payments..................................  440,843       
329,210      336,942

   Loss and loss adjustment expense reserves prior to
    effect of ceded reinsurance recoverable..........  521,061       
486,673      448,331
   Ceded reinsurance recoverable.....................  128,852       
132,118      144,042
Reserves for losses and loss adjustment expenses
 at the end of year per financial statements.........	$649,913      
$618,791     $592,373
</TABLE>
30
<PAGE


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE E-Losses and Loss Adjustment Expenses - (continued)

	The increases in payments and incurred losses primarily resulted 
from increased business volume in 1996 coupled with an increase in 
collision frequency.

	The Company's loss and LAE reserves reflect its share of the 
aggregate loss and LAE reserves of all Servicing Carriers.  The Company 
is a defendant in various legal actions arising from the normal course 
of its business.  These proceedings are considered to be ordinary and 
incidental to operations or without foundation in fact.  Management is 
of the opinion that these actions will not have a material adverse 
effect on the consolidated financial statements of the Company.

NOTE F-Reinsurance Activity

	The Company has reinsurance contracts for casualty and catastrophe 
coverages.  These reinsurance arrangements minimize the Company's losses 
arising from large risks and protect the Company against numerous losses 
from a single occurrence or event.  The Company also has a combined 
quota share and excess loss reinsurance contract on its other than 
automobile property business.

Property and Catastrophe Reinsurance

	From the inception, on September 30, 1993, through the third 
quarter of 1995, the Company's combined property quota share and excess 
loss reinsurance contract was written with five domestic reinsurance 
companies.  Under the quota share portion of the arrangements, the 
reinsurers indemnified the Company for 36% of the loss and LAE, and paid 
a commission allowance based on the ratio of losses incurred to premiums 
earned.  In exchange, the Company paid to the reinsurers 40% of the net 
premium pertaining to the related business.  The maximum per occurrence 
loss reimbursement was $40.0 million and the maximum annual aggregate 
occurrence loss reimbursement was $60.0 million.  Under the excess loss 
reinsurance portion of the arrangements, the Company reinsured each 
risk, retaining $125 and reinsuring 100% of the next $875.

	Effective September 30, 1995, the Company increased its coverage 
under the combined property quota share and excess loss reinsurance 
contract.  The contract is now written with six domestic reinsurance 
companies.  Under the quota share portion of the arrangements, the 
reinsurers indemnify the Company for 45% of the loss and LAE, and pay a 
commission allowance based on the ratio of losses incurred to premiums 
earned.  In exchange, the Company pays to the reinsurers 49% of the net 
premium pertaining to the related business.  The maximum per occurrence 
loss reimbursement is $50.0 million and the maximum annual aggregate 
occurrence loss reimbursement is $75.0 million.  Under the excess loss 
reinsurance portion of the arrangements, the Company reinsures each 
risk, retaining $125 and reinsuring 100% of the next $875.  This 
reinsurance contract is continuous, cancelable quarterly with ninety 
days notice.

	Effective March 1, 1995, through February 29, 1996, the Company 
had catastrophe reinsurance coverage for that portion of the loss not 
covered under the property quota share arrangement.  Catastrophe 
reinsurance coverage was in force for approximately 88.0% of the amounts 
incurred for all property claims arising from a single event or 
occurrence up to a maximum loss of $100.0 million, after first 
subtracting property quota share losses.  Coverage under the catastrophe 
program was as follows: a net retention of $5.0 million; 50.0% of the 
next $5.0 million; and, 95.0% of the next $90.0 million.  Including the 
Company's retention, total catastrophe coverage was $100.0 million.  
This coverage was placed with a number of reinsurers, both foreign and 
domestic.





31
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE F-Reinsurance Activity - (continued)

	Effective March 1, 1996 through February 28, 1997, the Company's 
catastrophe reinsurance program has been tailored in conjunction with 
the property quota share arrangement to provide catastrophe reinsurance 
protection at varying levels of losses.  The table below provides 
information depicting the approximate combined recoveries of all 
property reinsurance programs (catastrophe and quota share) at various 
loss scenarios if a catastrophe were to strike:
<TABLE>

										 Net Loss
				  Total		Reinsurance		Retained by
				  Loss 		 Recovery  		the Company
<CAPTION>
                        <S>                 <C>               <C>
				$ 25,000		  $ 11,300		  $13,700
				  50,000		    35,000		   15,000
				  75,000		    58,800		   16,200
				 100,000		    82,500		   17,500
				 125,000		   105,000		   20,000
				 150,000		   110,000		   40,000
</TABLE>
	The Company will have no reinsurance recoveries for total loss 
amounts in excess of $150.0 million.  The Company is currently 
renegotiating its primary catastrophe reinsurance program to become 
effective May 1, 1997.  This renegotiation does not affect the property 
quota share arrangement or one other non-primary catastrophe reinsurance 
program.

Casualty Reinsurance

	Through December 31, 1996, casualty reinsurance was on an excess 
of loss basis for any one event or occurrence with a maximum recovery of 
$4.0 million over a net retention of $1.0 million.  Effective January 1, 
1997, casualty reinsurance is on an excess loss basis for any one event 
or occurrence with a maximum recovery of $9.0 million over a net 
retention of $1.0 million.  This coverage is placed with Swiss 
Reinsurance America Corporation, formerly North American Reinsurance 
Corporation (rated A by A.M. Best).

	Effective January 1, 1995, personal and commercial liability 
umbrella policies are reinsured on a 95% quota share basis in regard to 
limits up to $1.0 million and 100% quota share basis for limits in 
excess of $1.0 million but not exceeding $5.0 million for policies with 
underlying automobile coverage of $250,000/$500,000 or more.  Effective 
January 1, 1996, the Company added personal liability umbrella 
reinsurance coverage for policies with underlying automobile coverage of 
$100,000/$300,000, on a 65% quota share basis in regard to limits up to 
$1.0 million and 100% quota share basis for limits in excess of $1.0 
million but not exceeding $3.0 million.  These coverages are placed with 
American Reinsurance Corporation (rated A+ by A.M. Best).

C.A.R.

	C.A.R., a state-mandated reinsurance mechanism, enables the 
Company and approximately 40 other writers of automobile insurance in 
Massachusetts ("Servicing Carriers") to reinsure any automobile risk 
that the insurer perceives to be underpriced at the premium level 
permitted by the Massachusetts Insurance Commissioner (the 
"Commissioner"). Servicing Carriers, which are responsible for over 
99.0% of total direct premiums written for personal automobile insurance 
in Massachusetts, are required to offer automobile insurance coverage to 
all eligible applicants pursuant to "take-all-comers" regulations, but 
may reinsure undesirable business with C.A.R.

	The Company pays to C.A.R. all of the premiums generated by the 
policies it has ceded and C.A.R. reimburses the Company for all losses 
incurred on account of ceded policies.  In addition, the Company 
receives a fee for servicing ceded policies based on the expense 
structure established by C.A.R.  For the years ended December 31, 1996, 
1995 and 1994, these servicing fees amounted to $17,127, $21,669 and 
$14,282, respectively.


32
<PAGE



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE F-Reinsurance Activity - (continued)

	C.A.R. has annually generated multi-million dollar underwriting 
losses in both the personal and commercial pools since its inception.  
The Company is required to share in the underwriting results of C.A.R. 
business for its respective product lines.  Under current regulations, 
the Company's share of C.A.R. personal or commercial deficit is based 
upon its market share for retained automobile risks for the particular 
pool, adjusted by a "utilization" concept, such that, in general, the 
Company is disproportionately and adversely affected if its relative use 
of C.A.R. reinsurance exceeds that of the industry, and favorably 
affected if its relative use of C.A.R. reinsurance is less than that of 
the industry.  During 1996, 1995 and 1994, the Company's net 
participation in the C.A.R. personal automobile pool approximated 19.0%, 
16.0% and 16.0%, respectively.

	Written premiums, earned premiums, losses incurred and the 
liabilities for unearned premiums, unpaid losses ceded to and assumed 
from C.A.R. and other receivables from C.A.R. were as follows:
<TABLE>

			    				Year ended December 31,		  
			
			    	     1996              	     1995        	             
1994    	
			     Ceded      Assumed	     Ceded      Assumed	     
Ceded       Assumed
<CAPTION>
<S>                  <C>         <C>         <C>         <C>         <C>         
<C>
Income Statement
 Written premiums... $ 82,861    $ 93,703    $ 82,814    $ 92,249    
$100,583    $ 93,785
 Earned premiums....   85,977      92,469      92,664      90,609      
87,585      77,832
 Losses incurred....   84,074      93,278      75,475      87,786      
81,217      63,842


Balance Sheet
 Unearned premiums.. $ 36,042    $ 46,681    $ 39,158    $ 45,446    $ 
49,008    $ 43,806
 Unpaid losses......  123,092     117,237     126,555     110,003     
138,356      95,290
 Other receivables
  from C.A.R........   36,079        N/A       34,411        N/A       
27,454         N/A
Residual Market
 Receivable......... $195,213        N/A     $200,124        N/A     
$214,818         N/A
</TABLE>
	In accordance with SFAS No. 113, "Accounting and Reporting for 
Reinsurance of Short-Duration and Long-Duration Contracts", the company 
presents assets and liabilities gross of reinsurance.  The Residual 
Market Receivable represents the gross amount of reinsurance recoverable 
from C.A.R. including unpaid losses, unearned premiums, paid losses 
recoverable and unpaid ceded and assumed premiums.

	The current C.A.R. utilization-based participation ratio has been 
in place for the  personal automobile market since 1993. During 1996, 
1995 and 1994, the Company's amount of personal automobile risks it 
reinsured through C.A.R. approximated 8.0%, 11.0% and 14.0%, 
respectively.

	Earned premiums and losses and loss adjustment expenses are stated 
in the accompanying consolidated financial statements after deductions 
for ceded reinsurance.  Those deductions for reinsurance other than 
C.A.R. are as follows:
<TABLE>

										Year ended 
December 31,   	
								           1996       
1995       1994
<CAPTION>
<S>                                                      <C>        <C>        
<C>
Earned premiums ceded..................................  $36,261    
$28,056    $28,278
Losses and loss adjustment expenses ceded..............   22,453     
21,454     17,936
</TABLE>
	The Company, as primary insurer, would be required to pay losses 
in their entirety in the event that the reinsurers were unable to 
discharge their obligations under the reinsurance agreements.



33
<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE G-Income Taxes

	The Company and its subsidiaries file a consolidated federal 
income tax return.

	The Federal income tax expense (benefit) consisted of the 
following:
<TABLE>

									      Year ended 
December 31,       	
									     1996        
1995          1994
<CAPTION>
                  <S>                                   <C>          <C>          
<C>
			Current............................   $ 15,951     $ 
34,891     $ 54,181
			Deferred...........................      2,098        
4,650       (4,776)
									  $ 18,049     $ 
39,541     $ 49,405
</TABLE>
	Deferred taxes arise from temporary differences in the bases of 
assets and liabilities for tax and financial statement purposes.  The 
sources of these differences and the related tax effects consisted of 
the following:
<TABLE>

									     Year ended 
December 31,        	
									     1996         
1995         1994
<CAPTION>
  <S>                                                   <C>          <C>          
<C>
  Deferred policy acquisition costs..................   $  6,022     $  
5,087     $ (1,683)
  Unearned premiums..................................     (3,695)      
(1,469)        (488)
  Salvage and subrogation recoverable................        425          
151          356
  Discounting of loss reserves.......................     (2,954)        
(370)        (983)
  Tax depreciation in excess of book depreciation....        192          
205          108
  Book value rights/book value awards/stock
   appreciation rights...............................      1,686          
334          773
  Bad debt expense...................................        131           
92          145
  Deferred items not included above..................        291          
620       (3,004)
        Deferred income tax (benefit)................      2,098        
4,650       (4,776)
  Change in unrealized gains (losses)................      3,540       
31,726      (46,888)
        Change in deferred tax liability(asset)......   $  5,638     $ 
36,376     $(51,664)
</TABLE>
	Realization of a deferred tax asset is dependent on generating 
sufficient taxable income in future years.  Although realization is not 
assured, management believes it is more likely than not that all of the 
deferred tax asset will be realized.  The amount of the deferred tax 
asset considered realizable, however, could be reduced in the near term 
if estimates of future taxable income are reduced.  Deferred tax 
liabilities (assets) were comprised of the following components at 
December 31, 1996 and 1995:
<TABLE>

											  1996         
1995
<CAPTION>
<S>                                                              <C>          
<C>
Deferred policy acquisition costs..............................  $ 
24,535     $ 18,513
Unearned premiums..............................................   
(19,839)     (16,144)
Salvage and subrogation recoverable............................     
2,407        1,982
Discounting of loss reserves...................................   
(23,800)     (20,846)
Tax depreciation in excess of book depreciation................     
2,705        2,513
Book value rights/book value awards/stock appreciation rights..     
3,287        1,601
Bad debt allowances............................................      
(901)      (1,032)
Unrealized gains...............................................    
12,427        8,887 
Deferred items not included above..............................     
3,402        3,111
	Deferred tax liability (asset)...........................  $  
4,223     $ (1,415)
</TABLE>








34
<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE G-Income Taxes - (continued)

	Federal income tax on income is less than the amount computed by 
applying the statutory rate of 35% for the years ended 1996, 1995 and 
1994 for the following reasons:
<TABLE>

								Year ended December 31,	
	  			
					   1996            	   1995        	            
1994   	
<CAPTION>
<S>                      <C>         <C>          <C>           <C>           
<C>        <C>
Tax at statutory rate..  $ 32,205     35.0%       $52,410       35.0%         
$60,196    35.0%
Tax exempt interest....   (10,062)   (10.9)       (11,067)      (7.4)          
(8,836)   (5.2)
Dividends paid to ESOP
  participants.........    (1,169)    (1.3)           -          -                
-       -
Dividends received
  deduction............    (3,167)    (3.4)        (2,038)      (1.4)          
(1,819)   (1.1)
Other..................       242      0.2            236        0.2             
(136)    -  	
Tax at effective rate..  $ 18,049     19.6%       $39,541       26.4%         
$49,405    28.7%
</TABLE>

NOTE H-Related Party Transactions

	The Company has made loans to insurance agencies with which the 
Company transacts business on a regular basis.  At December 31, 1996, 
eleven of these loans which had an aggregate outstanding principal 
balance of $2,384 were collateralized by the assets of the agencies.  At 
December 31, 1995, thirteen of these loans which had an aggregate 
outstanding principal balance of $2,138 were collateralized by the 
assets of the agencies.  Mortgage loans to agents collateralized by real 
estate had an aggregate outstanding balance of $317 and $323 at December 
31, 1996 and 1995, respectively.

	During 1992, the Company insured a mortgage note in the principal 
amount of $28,750 issued by a corporation to a bank.  Two directors of 
the Company, were, with others, guarantors of this note.  The Company's 
liability under this insurance policy, which expired on October 15, 
1995, was $12,000.  For this insurance, the Company received the full 
premium of $1,080 in 1992, which was earned pro-rata through the 
expiration date of the policy.

	One Director of the Company was a principal of several independent 
insurance agencies which are licensed to write various lines of 
insurance on behalf of the Company.  This Director sold these agencies 
during 1994.  The agencies received a standard commission for the 
premiums written in an amount determined by the Company on a competitive 
basis.  Total commissions paid to the agencies during the year ended 
December 31, 1994, were $1,010.  The Company also purchased certain 
insurance coverages through one of the agencies and paid premiums for 
these policies of $217 in 1994.

NOTE I-Employee Stock Ownership Plan

	The Company offers an Employee Stock Ownership Plan for the 
benefit of substantially all employees, including those of the Company's 
subsidiaries.  The E.S.O.P. is noncontributory on the part of 
participants and contributions are made at the discretion of the Board 
of Directors.  The Company is under no obligation to make contributions 
or maintain the Plan for any length of time, and may completely 
discontinue or terminate the Plan at any time without liability.

	Contributions by the Company and subsidiaries to the Plan for the 
years ending December 31, 1996, 1995 and 1994 were $6,216, $5,729 and 
$5,430, respectively.







35
<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars Except Per Share Data)

NOTE J-Stockholders' Equity

Book Value Rights, Book Value Awards and Stock Appreciation Rights 
Program

	The Board of Directors authorized a Book Value Rights Program 
which provided for the payment of awards in cash to key employees based 
upon increases in the book value of the Company at the end of the 
program period, which is December 31st of the third year after the 
rights have been granted.  The Board of Directors authorized advance 
payments of $1,888 in December, 1995 applicable to Book Value Rights 
maturing in 1996 and $1,929 in December, 1994 applicable to Book Value 
Rights maturing in 1995.  Expenses relating to this Book Value Rights 
Program were $234, $3,738 and $4,579 in 1996, 1995 and 1994, 
respectively.

	The Management Incentive Plan approved by the Company's 
stockholders in May, 1994 provides for the award of up to 2,500,000 
shares of common stock or equivalent units (subject to anti-dilution 
adjustments) in the form of incentive stock options, non-qualified stock 
options, book value awards, stock appreciation rights, restricted stock 
and performance stock units.  All directors, officers and other senior 
management employees of the Company or any of its subsidiaries are 
eligible to participate in this Management Incentive Plan.  Book value 
awards issued relating to this Plan totalled 481,671, 623,649 and 
336,236 in 1996, 1995 and 1994, respectively.  Stock appreciation rights 
issued also relating to this Plan totalled 533,910, 689,919 and 613,435 
in 1996, 1995, and 1994, respectively.  Expenses relating to book value 
awards were $2,140, $714 and $0 in 1996, 1995 and 1994.  Expenses 
relating to stock appreciation rights were $6,224, $366 and $0 in 1996, 
1995 and 1994.

NOTE K-Net Capital Requirements

	The insurance companies included in the consolidated financial 
statements are subject to the financial capacity guidelines established 
by their respective state Divisions of Insurance.  Every Massachusetts 
insurance company seeking to make any dividend or other distributions to 
its stockholders must file a report with the Commissioner.  An 
extraordinary dividend is any dividend or other property, whose fair 
value together with other dividends or distributions made within the 
preceding twelve months exceeds the greater of ten percent of the 
insurer's surplus as regards policyholders as of the end of the 
preceding year, or the net income of a non-life insurance company for 
the preceding year.  No pro-rata distribution of any class of the 
insurer's own securities is to be included.  No Massachusetts insurance 
company shall pay an extraordinary dividend or other extraordinary 
distribution until thirty days after the Commissioner has received 
notice of the intended distribution and has not objected.  No 
extraordinary dividends were paid in 1996, 1995 and 1994.

	To the extent Commerce and Citation are restricted from paying 
dividends to CHI, CHI will be limited in its ability to pay dividends to 
the Company.  On this basis, the Company's ability to pay dividends to 
its stockholders is limited.  During 1996  Commerce and Citation paid 
$37,130 and $6,600 in dividends, respectively, to CHI; CHI then paid 
$43,470 to the Company in March 1996.  During 1995, Commerce and 
Citation paid $29,845 and $4,950 in dividends, respectively, to CHI; CHI 
then paid $34,650 to the Company in March 1995.














36
<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)


NOTE K-Net Capital Requirements (continued)

	The Board of Directors of the Company voted to declare four 
quarterly dividends to stockholders of record totaling $.81 per share 
and $.23 per share in 1996 and 1995, respectively.  On May 17, 1996, the 
Board voted to increase the quarterly stockholder dividend from $.06 to 
$.25 per share to stockholders of record as of June 7, 1996.  Prior to 
that declaration, the Company had paid quarterly dividends of $.06 per 
share dating back to May 19, 1995 when the Board voted to increase the 
dividend from $.05 to $.06 per share.  The $.05 cash dividend per share 
was first declared by the Board on May 20, 1994.

	Treasury Stock purchased under the stock buyback program increased 
by 673,915 shares during 1996 to 1,937,348 shares at December 31, 1996.  
The stock buyback program, authorized by the Board in May 1995, enables 
the Company to purchase up to three million shares of the Company's 
common stock.  The program is now approximately two-thirds of the way 
complete.

NOTE L-Statutory Balances

	Following is a GAAP to Statutory reconciliation for both earnings 
and policyholders surplus for the combined operations of Commerce, 
Citation and effective August 31, 1995, Western Pioneer.
<TABLE>
					     	      1996          	   1995                
1994       	
					    Earnings  Equity     Earnings   Equity   
Earnings    Equity
<CAPTION>
<S>                               <C>       <C>        <C>       <C>       
<C>        <C>
GAAP............................  $ 74,432  $550,151   $110,450  
$512,875  $113,892   $378,301
Deferred income taxes...........       929     2,165      4,152    
(2,650)  (10,051)   (38,180)
Deferred acquisition costs......   (15,808)  (82,968)    (8,094)  
(67,160)   (5,419)   (59,066)
Bonds-book versus market........       -     (16,194)       -     
(14,432)      -       56,366
Preferred stock-market versus
 book...........................       -        (331)       -      
(1,607)      -       (1,081)
Deferred income.................      (963)    7,768     (1,496)    
6,766     4,321     11,575
Deferred service fee income.....     1,538     1,538        -         -         
-          -
Deferred reinsurance
 commissions....................     2,082     5,796      2,060     
5,614    (1,257)     2,297
Statutory reserve over statement
 reserves.......................       -      (5,397)       -      
(1,940)      -         (437)
Goodwill in subsidiary..........      (270)    2,515        (97)    
2,806       -          -  
Difference in GAAP to statutory
 net income in subsidiary.......       416       -          (74)      -         
-          -   
Other...........................         4      (304)        (4)     
(162)      -          -  	
					     (12,072)  (85,412)    (3,553)  
(72,765)  (12,406)   (28,526)
Statutory.......................    62,360   464,739    106,897   
440,110   101,486    349,775

Less subsidiary net loss from
 January 1, 1995 through
 August 30, 1995................       -         -          429       -         
-          -  	

Adjusted statutory..............  $ 62,360  $464,739   $107,326  
$440,110  $101,486   $349,775
</TABLE>









37
<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE M-Segment Information

Selected information by industry segment for 1996, 1995 and 1994 is 
summarized as follows:
<TABLE>
										Earnings 
Before	Identifiable
								Revenue	  Income 
Taxes 	   Assets   	
<CAPTION>
<S>                                             <C>             <C>            
<C>
1996
  Property and casualty insurance............   $740,707        $ 91,242       
$1,590,695
  Real estate and commercial lending.........      4,249           4,249           
75,255
  Corporate and other........................      3,301          
(3,478)          10,849
	Consolidated...........................   $748,257        $ 92,013       
$1,676,799

1995
  Property and casualty insurance............   $677,217	    $147,378
	 $1,479,898
  Real estate and commercial lending.........      3,804	       3,804
	     76,642
  Corporate and other........................      3,014 	      
(1,440)	      7,635
	Consolidated...........................   $684,035	    $149,742
	 $1,564,175

1994
  Property and casualty insurance............   $691,478        $167,738       
$1,315,100
  Real estate and commercial lending.........      3,972           3,972           
59,452
  Corporate and other........................      3,613             278            
7,674
	Consolidated...........................   $699,063        $171,988       
$1,382,226
</TABLE>

NOTE N-Supplement to Consolidated Statements of Cash Flows
<TABLE>
Disclosure of cash flow information:
									          Year 
ended December 31,     	
									      1996	      
1995		 1994
<CAPTION>
<S>                                                      <C>          
<C>          <C>
Cash paid during the year for:
  Federal and state income taxes........................ $17,007      
$43,658      $48,140
  State premium and related taxes of insurance
   subsidiaries.........................................  17,859       
15,592       15,517
</TABLE>
	During the years ended December 31, 1996, 1995 and 1994, the 
Company acquired property through foreclosure of mortgages held with 
remaining principle balances at the time of foreclosure of $245, $641 
and $1,930, respectively.

NOTE O-Insolvency Fund Assessments

	As provided in the statutes, insurance companies which write 
business in Massachusetts are assessed for losses attributable to the 
insolvency of other insurance companies by the Massachusetts Insurers 
Insolvency Fund ("M.I.I.F.").  From its inception, on August 2, 1972 
through December 31, 1996, the M.I.I.F. has approved assessments 
totaling $138,489, of which the Company's share was approximately 
$7,823.  It is anticipated that there will be additional assessments 
from time to time relating to various insolvencies.  By statute, no 
insurer may be assessed in any year an amount greater than two percent 
of that insurer's net direct written premiums for the calendar year 
preceding the assessment.  Although the timing and amounts of any such 
assessments are not known, management is of the opinion that such 
assessments will not have a material effect on the consolidated 
financial position of the Company.  The Company's policy is to record 
these assessments as assessed.  According to statute, the assessed 
insurance companies have the right to recoup amounts paid to the 
M.I.I.F., over a reasonable length of time, through premium rates 
approved by the Commissioner.  The Company's policy is to record the 
recovery of the assessed amounts as received.  Assessments by the 
M.I.I.F. for the years ended December 31, 1996, 1995 and 1994 were $742, 
$338 and $331, respectively.


38
<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Thousands of Dollars)

NOTE P-Quarterly Results of Operations (Unaudited)

An unaudited summary of the Company's 1996 and 1995 quarterly 
performance is as follows:

<TABLE>
1996								   FIRST      SECOND       
THIRD     FOURTH
								  QUARTER     QUARTER     
QUARTER    QUARTER
<CAPTION>
<S>                                              <C>         <C>         
<C>        <C>
Total revenues.................................  $173,802    $186,448    
$192,333   $195,674
Net earnings...................................    14,593      16,265      
21,436     21,670
Net earnings per weighted average common
  share (primary and fully diluted)............       .40         .45         
 .59        .60

1995

Total revenues.................................  $164,462    $167,374    
$174,259   $177,940
Net earnings...................................    22,271      29,287      
28,847     29,796
Net earnings per weighted average common
  share (primary and fully diluted)............       .59         .77         
 .77        .80
</TABLE>

NOTE Q-Subsequent Events

	On January 24, 1997, the Massachusetts Commissioner of Insurance 
issued 1997 Private Passenger Automobile rates.  The overall rate 
decrease from 1996 rates was 6.2%.  This decrease was partially driven 
by corrections to an industry error impacting prior year rate decisions.  
The industry error resulted from a miscalculation of industry expense 
allowances that had the effect of overstating rates for 1991 through 
1996.  Rates for 1997 include an adjustment to recoup this error from 
the industry equal to 40% of the error with 40% reducing 1998 rates and 
20% reducing 1999 rates.

	Additionally, 1997 rates were decreased as a result of the 
reconciliation of the Safe Driver Insurance Plan ("SDIP") which is 
designed to be revenue neutral.  In most recent past years, the SDIP 
reconciliation resulted in a deficit which was then added into the rates 
for the subsequent years.  The 1996 SDIP reconciliation, however, 
resulted in a surplus.  Fifty percent of this surplus is being used to 
decrease rates in both 1997 and 1998.

	The Company has performed an analysis of the rate decision and has 
estimated the impact of the above two items on its result assuming its 
market share remains the same as it was at the end of 1996.  The earned 
premium impact is estimated to be approximately $15.3 million for 1997, 
$23.0 million for 1998 and $13.5 million for 1999.  The earnings per 
share after-tax impact resulting from the lower earned premiums for 
1997, 1998 and 1999 is estimated to be $0.28, $0.41 and $0.23, 
respectively.  If the Company's future market share increases 
(decreases), a larger (smaller) financial impact would result.

	The Company was notified in January 1997 that its application for 
license in the State of Vermont was approved.  Applications for licenses 
in the states of Maine and New Hampshire remain pending.













39
<PAGE>



SELECTED CONSOLIDATED FINANCIAL DATA

	The selected consolidated financial data presented below should be 
read in conjunction with the consolidated financial statements of the 
Company and the notes thereto.  This financial data has been extracted 
from financial statements audited by Coopers & Lybrand L.L.P.  All 
dollar amounts set forth in the following tables are in thousands except 
per share data.
<TABLE>
									Year Ended 
December 31,				
						    1996         1995        1994        
1993        1992
<CAPTION>
<S>                                 <C>          <C>         <C>         
<C>         <C>
Statement of Earnings Data:
  Net premiums written...........	$  711,570   $  603,421  $  589,197  
$  563,416  $  508,847
  Increase in unearned premiums..	   (42,854)     (10,831)    (17,144)    
(14,856)    (98,353)
  Earned premiums................	   668,716      592,590     572,053     
548,560     410,494
  Net investment income..........	    77,402       71,313      62,901      
53,068      39,223
  Premium finance fees...........	     9,713       19,420      18,497      
16,666      13,916
  Net realized investment gains
   (losses)......................	    (7,574)         712      45,612       
7,506       1,537
       Total revenues............	   748,257      684,035     699,063     
625,800     465,170

  Losses and loss adjustment 
   expenses......................	   475,231      367,552     369,660     
373,959     271,789
  Policy acquisition costs.......	   181,013      166,741     157,415     
150,195     117,833
       Total expenses............	   656,244      534,293     527,075     
524,154     389,622

Other income
  Withdrawing companies' 
   settlements...................	       -            -           -           
-        43,168	
  Earnings before income taxes...	    92,013      149,742     171,988     
101,646     118,716
  Income taxes...................	    18,049       39,541      49,405      
26,330      34,411
       Net earnings..............	$   73,964   $  110,201  $  122,583  
$   75,316  $   84,305

Per Share Data:
       Net earnings per share....	$     2.04   $     2.93  $     3.23  
$     1.98  $     2.23

       Cash dividends paid per
         share...................   $     0.81   $     0.23  $     0.15  
$      -    $      -  	

Weighted average number of
 shares outstanding..............   36,311,887   37,632,236  38,000,000  
38,000,000  37,852,108
</TABLE>

<TABLE>
									Year Ended 
December 31,				
						    1996	     1995	     1994	     
1993	     1992
<CAPTION>
<S>                                 <C>          <C>         <C>         
<C>         <C>
Balance Sheet Data:
  Total investments..............   $1,027,136   $1,044,113  $  899,546  
$  860,017  $  633,470
  Premiums receivable............      158,153      127,243     102,529      
95,262      68,724
  Total assets...................    1,676,799    1,564,175   1,382,226   
1,298,371   1,097,304
  Unpaid losses and loss 
   adjustment expenses...........      649,913      618,791     592,373     
567,797     495,800
  Unearned premiums..............      367,991      330,454     314,719     
283,526     264,567
  Stockholders' equity...........      587,039      549,714     413,589     
383,348     281,933
  Stockholders' equity per share         16.28        14.96       10.88       
10.09        7.42
</TABLE>








40
<PAGE



MANAGEMENT'S DISCUSSION OF THE SUPPLEMENTAL INFORMATION
ON INSURANCE OPERATIONS
(Thousands of Dollars)

	The following exhibits depict the progress of the insurance 
operations of the Company over the past fifteen years.  For these years 
of operation, net premiums written amounted to $4,066,668.  During this 
period, the average statutory financial ratios were 66.9% for losses and 
loss expenses and 27.2% for underwriting expenses resulting in an 
average combined ratio of 94.1%.  Total net investment income amounted 
to $437,553 or 10.8% of net premiums written.  Net realized gains were 
$65,117.  Stockholders' equity was $8,384 at the beginning of 1982 and 
$550,151, at the end of 1996, resulting in an average annual increase of 
33.1%.  The progress of the insurance operations during the most recent 
five year period, compared to the two previous five year periods, can 
best be illustrated by the following comparison:
<TABLE>
											5 Year 
Period		

									  1992-96	    
1987-91	    1982-86
<CAPTION>
<S>                                                   <C>           <C>          
<C>
Direct premiums written............................	$3,110,296	  
$1,710,049   $346,678

Net premiums written...............................	 2,976,451	     
895,364    194,853

Net investment income..............................	   303,546	     
106,790     27,217

Net realized gains.................................	    50,290	      
13,942        885

Stockholders' equity at end of period..............	   550,151	     
177,225     31,461

Statutory Financial Ratios (Unaudited)
  Losses and loss expenses to premiums earned......	      66.5%	        
66.8%      74.5%

  Underwriting expenses to net premiums written....	      27.4	        
26.6       27.0
	Combined ratio...............................	      93.9%         
93.4%     101.5%

Increase in Stockholders' Equity...................	     210.5%	       
462.5%     275.3%
</TABLE>
						

The insurance operations of the Company include the operating results of 
Commerce, its subsidiary company Western Pioneer and Citation.  Citation 
commenced business in 1981 as a wholly-owned subsidiary of Commerce.  On 
December 31, 1989 the ownership of Citation was transferred to The 
Commerce Group, Inc.  Capital stock, paid-in capital and retained 
earnings of Commerce and Citation as of January 1, 1989 were combined 
due to the effect of the transfer in ownership of Citation to The 
Commerce Group, Inc. on December 31, 1989.  In September 1993, ownership 
of both Commerce and Citation was transferred from The Commerce Group, 
Inc. to CHI, a subsidiary of The Commerce Group, Inc.  Results of 
Western Pioneer are included since its acquisition by Commerce on August 
31, 1995.  The combined balance sheets of these insurance subsidiaries 
appear on pages 42 and 43.  The combined statements of earnings of 
insurance operations appear on pages 44 and 45.













41
<PAGE>


MANAGEMENT'S DISCUSSION OF THE SUPPLEMENTAL INFORMATION
ON INSURANCE OPERATIONS (continued)

THE COMMERCE GROUP, INC. AND SUBSIDIARIES

COMBINED BALANCE SHEETS OF INSURANCE SUBSIDIARIES
December 31,
(Thousands of Dollars)
<TABLE>

                                         1996       1995         1994        
1993        1992



ASSETS
<CAPTION>
<S>                                 <C>         <C>         <C>         
<C>         <C>
Cash and short-term investments.... $  140,102  $   52,308  $    4,560  
$   12,615  $   25,809
Bonds, at market (at amortized cost
 prior to 1993)....................    716,702     815,277     745,010     
649,491     505,565
Preferred stocks, at market (at
 amortized cost prior to 1993).....    147,680     111,220      85,574      
80,059       2,261
Common stocks, at market...........     86,041      40,359       9,656      
47,462      43,545
Mortgage loans on real estate......     45,398      31,404      35,715      
42,042      60,697
Premium balances receivable........    157,673     126,090     101,529      
94,333      67,876
Investment income receivable.......     12,655      14,440      13,285      
10,205       9,710
Residual market receivable.........    195,213     200,124     214,818     
220,312     274,426
Reinsurance receivable.............     19,659      21,897      16,892      
12,868         365
Deferred acquisition costs.........     82,968      67,160      59,066      
53,647      55,442
Current income taxes...............        -           -           -           
-           -
Deferred income taxes..............        -         2,100      38,180         
-           -  
Real estate, furniture and equipment    26,138      24,642      25,246      
22,371      23,183
	 Total assets................ $1,630,229  $1,507,021  $1,349,531  
$1,245,405  $1,068,879

LIABILITIES

Unpaid losses and loss expenses.... $  649,913  $  618,791  $  592,373  
$  567,797  $  495,800
Unearned premiums..................    367,991     330,454     314,719     
283,526     264,567
Notes payable......................        -           -           -           
-           -  
Deferred income....................      7,974       8,954      10,451       
7,351       8,384
Accounts payable, accrued and other
 liabilities.......................     49,309      34,351      43,433      
16,564      20,863
Current income taxes...............      2,726       1,596      10,254       
4,867       9,249
Deferred income taxes..............      2,165         -           -        
13,669       4,400
	 Total liabilities...........  1,080,078     994,146     971,230     
893,774     803,263

STOCKHOLDERS' EQUITY

Capital stock......................      3,600       3,450       3,450       
3,450       3,450
Paid-in capital....................     45,050      23,700      23,700       
8,700       8,700
Retained earnings
  Balance, January 1...............    485,725     351,151     339,481     
253,466     165,075
  Net earnings.....................     74,432     110,450     113,892      
79,837      91,980
  Unrealized gains (losses) on
   investments.....................      6,574      58,919     (77,622)     
21,928       9,811
  Dividends paid...................    (65,230)    (34,795)    (24,600)    
(15,750)    (13,400)
Balance, December 31...............    501,501     485,725     351,151     
339,481     253,466
	 Total stockholders' equity..    550,151     512,875     378,301     
351,631     265,616
	 Total liabilities and
	   stockholders' equity...... $1,630,229  $1,507,021  $1,349,531  
$1,245,405  $1,068,879
</TABLE>





42
<PAGE


MANAGEMENT'S DISCUSSION OF THE SUPPLEMENTAL INFORMATION
ON INSURANCE OPERATIONS (continued)

THE COMMERCE GROUP, INC. AND SUBSIDIARIES

COMBINED BALANCE SHEETS OF INSURANCE SUBSIDIARIES
December 31,
(Thousands of Dollars)
<TABLE>

  1991      1990      1989      1988      1987      1986      1985     
1984     1983      1982



ASSETS
<CAPTION>
<S>      <C>       <C>       <C>       <C>       <C>      <C>       <C>       
<C>      <C>
$ 11,190 $ 38,654  $ 84,308  $ 60,885  $ 21,051  $ 10,048 $ 11,802  $  
7,953  $ 3,864  $ 6,557

 329,935  242,735   153,621   133,867   116,220    88,755   56,985    
34,422   22,352   14,054

     869    1,010     1,324     1,606     2,295     6,755    9,956    
10,837    7,986    4,759
  30,055    4,869     2,900     1,921     1,438       149      134     
1,494    1,540    1,507
  66,122   56,124    52,244    42,882    15,931       -        -       
7,825    5,860    3,555
  55,510   57,733    56,713    33,727    19,329    11,817    8,194     
6,028    5,430    2,810
   6,063    4,235     3,093     2,889     2,370     2,485    1,722     
1,286      887      523
 277,196  290,440   268,951   198,177   132,725    87,178   50,327    
29,187   20,513   13,000
     -        -         -         -         -         -        -         
-        -        -  
  33,981   27,273    22,702    15,699    10,898     7,129    5,417     
3,968    3,057    1,731
     -        -         341       266       -       2,209    1,294       
-        -        260
     883    1,666       -         -         -         -        -         
-        -        -  
  24,163   25,046    23,118     9,684     8,356     7,370    5,648     
3,136    2,799    2,590

$835,967 $749,785  $669,315  $501,603  $330,613  $223,895 $151,479  
$106,136  $74,288  $51,346

LIABILITIES

$439,551 $403,752  $345,020  $270,628  $169,539  $113,513 $ 71,525  $ 
44,425  $32,860  $23,154
 192,785  175,334   174,345   118,079    84,876    55,378   36,024    
23,585   14,190    9,496
     -      1,662     1,837     2,013     2,204     3,772    4,140     
2,858    1,313    1,388
  12,918   20,264    23,689    23,307    11,058     7,503    4,208     
3,173    1,658    1,302

   7,677   21,065    27,513    19,350    14,532     8,532    4,162     
4,479    2,482    2,731
   5,811    3,542       -         -         470       -        -         
418    1,487      -  
     -        -       1,623     1,021     1,853     3,736    3,623     
2,610    2,079    1,582
 658,742  625,619   574,027   434,398   284,532   192,434  123,682    
81,548   56,069   39,653

STOCKHOLDERS' EQUITY

   3,450    3,450     3,450     2,350     2,350     2,350    2,350     
2,350    2,250    2,000
   8,700    8,700     8,700     6,500     6,500     6,500    6,500     
6,500    5,500    4,000

 112,016   83,138    62,877    37,231    22,611    18,947   15,738    
10,469    5,693    4,084
  55,214   32,414    21,966    21,837    15,614     4,362    4,025     
6,033    5,213    1,819

   2,545      (86)      645       321       (54)        7     (158)     
(179)      63      198
  (4,700)  (3,450)   (2,350)   (1,034)     (940)     (705)    (658)     
(585)    (500)    (408)
 165,075  112,016    83,138    58,355    37,231    22,611   18,947    
15,738   10,469    5,693
 177,225  124,166    95,288    67,205    46,081    31,461   27,797    
24,588   18,219   11,693

$835,967 $749,785  $669,315  $501,603  $330,613  $223,895 $151,479  
$106,136  $74,288  $51,346
</TABLE>




43
<PAGE



MANAGEMENT'S DISCUSSION OF THE SUPPLEMENTAL INFORMATION
ON INSURANCE OPERATIONS (continued)

THE COMMERCE GROUP, INC. AND SUBSIDIARIES

COMBINED STATEMENTS OF EARNINGS OF INSURANCE OPERATIONS
Year Ended December 31,
(Thousands of Dollars)
<TABLE>

							   1996      1995      1994      
1993     1992

<CAPTION>
<S>                                       <C>       <C>       <C>       
<C>       <C>
Underwriting
  Direct premiums written..............	$731,823  $626,666  $625,023  
$601,289  $525,495

  Net premiums written.................	$711,570  $603,421  $589,197  
$563,416  $508,847
  Increase in unearned premiums........	  42,854    10,831    17,144    
14,856    98,353
	Earned premiums..................	 668,716   592,590   572,053   
548,560   410,494

Expenses
  Losses and loss expenses.............	 474,173   367,258   369,764   
373,243   271,848
  Underwriting expenses................	 194,873   171,892   162,446   
147,290   138,669
  (Increase) decrease in deferred 
   acquisition costs...................	 (15,809)   (5,723)   (5,420)    
1,796   (21,462)
	Total expenses...................	 653,237   533,427   526,790   
522,329   389,055
Underwriting income (loss).............	  15,479    59,163    45,263    
26,231    21,439
Net investment income..................	  76,867    71,007    63,119    
52,868    39,685
Premium finance fees...................	   9,666    19,246    18,315    
16,486    13,734
Net realized investment gains (losses).	  (7,863)      720    32,025    
13,040    12,368
	Earnings before Federal income 
	taxes and withdrawing companies'
	settlements......................	  94,149   150,136   158,722   
108,625    87,226

Other income
  Withdrawing companies' settlements...	     -         -         -         
-      43,168
Earnings before Federal income taxes...	  94,149   150,136   158,722   
108,625   130,394
Federal income taxes (benefits)........	  19,717    39,686    44,830    
28,788    38,414
Earnings before cumulative effect of
 change in accounting principle........	  74,432   110,450   113,892    
79,837    91,980
Cumulative effect on prior years (to 
 December 31, 1986) of changing to 
 different method of accounting for
 income taxes..........................	     -         -         -         
-         -  	
	NET EARNINGS.....................	$ 74,432  $110,450  $113,892  
$ 79,837  $ 91,980

Statutory Financial Ratios (Unaudited)
  Losses and loss expenses to 
   premiums earned.....................	  70.9%     62.0%     64.6%     
68.0%     66.2%  
  Underwriting expenses to net 
   premiums written....................	  27.1      29.0      27.1      
25.7      28.1  
	Combined ratio...................	  98.0%     91.0%     91.7%     
93.7%     94.3%  
	Underwriting profit (loss).......	   2.0%      9.0%      8.3%      
6.3%      5.7%  
</TABLE>










44
<PAGE



MANAGEMENT'S DISCUSSION OF THE SUPPLEMENTAL INFORMATION
ON INSURANCE OPERATIONS (continued)

THE COMMERCE GROUP, INC. AND SUBSIDIARIES

COMBINED STATEMENTS OF EARNINGS OF INSURANCE OPERATIONS
Year Ended December 31,
(Thousands of Dollars)
<TABLE>

   1991      1990      1989      1988     1987      1986     1985     
1984     1983      1982

<CAPTION>
<S>       <C>       <C>       <C>      <C>       <C>       <C>      <C>      
<C>      <C>
$429,780  $401,077  $366,492  $306,469 $206,231  $131,807  $85,000  
$65,699  $37,318  $26,854

$310,999  $219,936  $140,313  $124,923 $ 99,193  $ 60,808  $49,229  
$33,943  $25,817  $25,056
  30,193    34,692    12,655     9,678   13,428     6,775    6,392    
2,137    2,258    1,902
 280,806   185,244   127,658   115,245   85,765    54,033   42,837   
31,806   23,559   23,154


 173,901   125,219    88,564    80,203   65,299    44,205   33,548   
19,567   15,242   15,923
  85,655    55,551    44,181    33,115   25,882    18,460   15,177   
11,241    6,532    9,000

  (6,708)   (4,571)   (7,003)   (4,801)  (3,769)   (1,712)  (1,448)    
(911)  (1,327)    (811)
 252,848   176,199   125,742   108,517   87,412    60,953   47,277   
29,897   20,447   24,112
  27,958     9,045     1,916     6,728   (1,647)   (6,920)  (4,440)   
1,909    3,112     (958)
  32,661    25,978    21,256    15,999   10,896     7,554    6,835    
5,684    4,108    3,036
  11,165    10,074     8,095     4,592    3,021     1,436      531      
324       39      -
   7,529        74       618     2,298    3,423       185      336     
(108)     314      158


  79,313    45,171    31,885    29,617   15,693     2,255    3,262    
7,809    7,573    2,236


     -         -         -         -        -         -        -        
-        -        -  	
  79,313    45,171    31,885    29,617   15,693     2,255    3,262    
7,809    7,573    2,236
  24,099    12,757     9,919     7,780    2,987    (2,107)    (763)   
1,776    2,360      417

  55,214    32,414    21,966    21,837   12,706     4,362    4,025    
6,033    5,213    1,819



     -         -         -         -      2,908       -        -        
-        -        -  	

$ 55,214  $ 32,414  $ 21,966  $ 21,837 $ 15,614  $  4,362  $ 4,025  $ 
6,033  $ 5,213  $ 1,819



  61.9%     65.7%     68.0%     69.5%     79.4%     83.5%    79.7%    
63.6%    63.8%    69.8%

  30.0      26.7      26.3      22.0      22.5      24.4     28.1     
27.8     23.9     33.5
  91.9%     92.4%     94.3%     91.5%    101.9%    107.9%   107.8%    
91.4%    87.7%   103.3%
   8.1%      7.6%      5.7%      8.5%     (1.9%)    (7.9%)   (7.8%)    
8.6%    12.3%    (3.3%)
</TABLE>










45
<PAGE


THE COMMERCE GROUP, INC.

DIRECTORS
<TABLE>
<CAPTION>
<S>                                       <C>
Herman F. Becker.........................	President and owner, Sterling 
Realty and Huguenot 							Development 
Corporation

Joseph A. Borski, Jr.....................	Self-employed Certified Public 
Accountant

Eric G. Butler...........................	Retired Vice President-General 
Claims Manager of 							Commerce and 
Citation

Henry J. Camosse.........................	Retired President, Henry 
Camosse & Son Co., Inc., 							a 
building and masonry supplies company

Gerald Fels..............................	Executive Vice President and 
Chief Financial 								Officer of 
the Company

David R. Grenon..........................	Assistant Clerk and Chairman 
of the Advisory Board
							of The Protector Group 
Insurance Agency, Inc., a
							property and casualty 
insurance agency.

Robert W. Harris.........................	Retired Treasurer, H.C. 
Bartlett Insurance Agency, 							Inc.

Robert S. Howland........................	Retired Clerk, H.C. Bartlett 
Insurance Agency, 								Inc.

John J. Kunkel...........................	Retired President and 
Treasurer, Kunkel Buick and 
							GMC Truck, retired Treasurer, 
Kunkel Bus Company

Raymond J. Lauring.......................	Retired President, Lauring 
Construction Company

Roger E. Lavoie..........................	Retired President and 
Treasurer, Lavoie Toyota-							
	Dodge, Inc.

Normand R. Marois........................	Retired Chairman of the Board, 
Marois Bros., Inc., 
							a contracting firm

Suryakant M. Patel.......................	Physician specializing in 
internal medicine

Arthur J. Remillard, Jr..................	President, Chief Executive 
Officer, and Chairman
							of the Board of the Company

Arthur J. Remillard, III.................	Senior Vice President and 
Assistant Clerk of 
							the Company, Senior Vice 
President of Commerce
							and Citation in charge of 
Policyholder Benefits

Regan P. Remillard.......................	Senior Vice President - 
General Counsel
							of the Company, President and 
Secretary of 
							Western Pioneer Insurance 
Company

Antranig Sahagian........................	Retired Owner, A. Sahagian 
Service Center

Gurbachan Singh..........................	Physician specializing in 
general surgery

John W. Spillane.........................	Clerk of the Company and 
practicing attorney
</TABLE>








46
<PAGE>



DIRECTORS OF
COMMERCE HOLDINGS, INC.
The Commerce Insurance Company
Western Pioneer Insurance Company
Citation Insurance Company
<TABLE>
<CAPTION>
<S>                                       <C>
Arthur J. Remillard, Jr................	President, Chief Executive 
Officer and Chairman
							of the Board

Gerald Fels............................	Executive Vice President and 
Chief Financial
							Officer

Arthur J. Remillard, III (1)...........	Senior Vice President and 
Clerk

Regan P. Remillard.....................	Senior Vice President - 
General Counsel, President 							and 
Secretary of Western Pioneer Insurance Company


David R. Grenon (1)....................	Assistant Clerk and Chairman 
of the Advisory
							Board of The Protector Group 
Insurance Agency

John M. Nelson (1).....................	Chairman and Chief Executive 
Officer of Wyman-
							Gordan Company

Suryakant M. Patel (1).................	Physician specializing in 
internal medicine

William G. Pike (1)....................	Executive Vice President and 
Chief Financial
							Officer of Granite State 
Bankshares, Inc.


DIRECTORS OF
BAY FINANCE COMPANY, INC.

Arthur J. Remillard, Jr................	President and Chairman of the 
Board

Gerald Fels............................	Executive Vice President and 
Chief Financial 
							Officer

John W. Spillane.......................	Clerk and practicing attorney

Arthur J. Remillard, III...............	Assistant Clerk

Regan P. Remillard.....................	Senior Vice President


DIRECTORS OF
CLARK-PROUT INSURANCE AGENCY, INC.

Arthur J. Remillard, Jr................	President and Chairman of the 
Board

Gerald Fels............................	Executive Vice President and 
Chief Financial
							Officer

John W. Spillane.......................	Clerk

Arthur J. Remillard, III...............	Assistant Clerk

Elizabeth M. Edwards...................	Vice President
</TABLE>

					
(1) Commerce Holdings, Inc., The Commerce Insurance Company and Citation 
Insurance Company
    only.

47
<PAGE>




THE COMMERCE GROUP, INC.

Commerce Holdings, Inc.
The Commerce Insurance Company
Western Pioneer Insurance Company
Citation Insurance Company
Bay Finance Company, Inc.
Clark-Prout Insurance Agency, Inc.

OFFICERS OF
THE COMMERCE GROUP, INC.
<TABLE>
<CAPTION>
<S>                                                               <C>
President, Chief Executive Officer and Chairman of the Board...	Arthur 
J. Remillard, Jr.
Executive Vice President and Chief Financial Officer...........	Gerald 
Fels
Senior Vice President and Assistant Clerk......................	Arthur 
J. Remillard, III
Senior Vice President and General Counsel......................	Regan 
P. Remillard
Senior Vice President..........................................	Mary 
M. Fontaine
Clerk..........................................................	John 
W. Spillane
Treasurer and Chief Accounting Officer.........................
	Randall V. Becker
Assistant Treasurer............................................	Thomas 
A. Gaylord
Assistant Vice President.......................................	Robert 
E. McKenna

* Officers of Subsidiaries

President, Chief Executive Officer and Chairman of the Board...	Arthur 
J. Remillard, Jr.

Executive Vice President and Chief Financial Officer...........	Gerald 
Fels

Senior Vice Presidents.........................................	David 
H. Cochrane
											Mary 
M. Fontaine
											Robert 
E. Longo
											Arthur 
J. Remillard, III
											Joyce 
B. Virostek

Senior Vice President and General Counsel......................	Regan 
P. Remillard

Vice Presidents................................................	Peter 
J. Dignan
										
	Elizabeth M. Edwards
										
	Michael J. Richards
										
	Angelos Spetseris
											Henry 
R. Whittier, Jr.
</TABLE>

<TABLE>
<CAPTION>
<S>                                    <C>                        <C>
Assistant Vice Presidents..............Burton C. Aaronson		Ronald 
J. Lareau
						   Robert M. Blackmer		Karen 
A. Lussier
						   Stephen R. Clark		Donald 
G. MacLean
						   Raymond J. DeSantis		Robert 
E. McKenna
						   Warren S. Ehrlich		Robert 
L. Mooney
						   John V. Kelly		
	Kenneth E. Morrison
</TABLE>

<TABLE>
<CAPTION>
<S>                                                               <C>
Treasurer and Chief Accounting Officer.........................
	Randall V. Becker

Assistant Treasurer............................................	Thomas 
A. Gaylord

Officers of Western Pioneer Insurance

President and Secretary........................................	Regan 
P. Remillard
Chief Financial Officer........................................	Albert 
E. Peters
Assistant Vice President.......................................	Robert 
M. Keppel
Treasurer and Controller.......................................	Joan 
M. Kelly

* Officers often hold positions with several operating subsidiaries.  
The titles listed
  represent their primary office as of March 1, 1997.
</TABLE>
48
<PAGE




Stockholder Information


Special Meeting in Lieu of the Annual Meeting

A special meeting in lieu of the annual meeting of stockholders will be 
held at 9:00 a.m. on Friday, May 30, 1997 at the Company's Underwriting 
Building, 11 Gore Road (Route 16), Webster, MA.

Form 10-K

Stockholders interested in the detailed information contained in the 
Company's annual report on Form 10-K, as filed with the Securities and 
Exchange Commission, may obtain a copy without charge, by writing to the 
Assistant to the President at 211 Main Street, Webster, MA 01570.

Transfer Agent

The Commerce Group, Inc.
c/o The First National Bank of Boston
    Boston EquiServe, L.P.
Investor Relations
Mail Stop: 45-02-09
P.O. Box 644
Boston, MA 02102-0644
(617) 575-3100

Executive Offices

211 Main Street
Webster, MA 01570
(508) 943-9000

Trading of Common Stock

The Company's Common Stock began trading on the NYSE on March 31, 1995 
under the symbol "CGI".  Prior to that, the Company's Common Stock was 
traded on Nasdaq under the symbol "COMG".

Independent Accountants

Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
(617) 478-5000

















49
<PAGE>