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, 1999

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
    Common Stock, $.50 Par Value Per Share      New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

	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, 2000, was approximately
$662,541,375.

	As of March 1, 2000, the number of shares outstanding of the
registrant's common stock (exclusive of treasury shares) was 34,191,052.

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, 1999 (the "1999 Annual Report").  The
1999 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
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, 1999 are incorporated by reference into Part III hereof as provided
therein.



<page



<TABLE>
<CAPTION>
TABLE OF CONTENTS

                                                                                        Page
<S>                                                                                       <C>
Glossary of Selected Insurance Terms................................................      3
Part I

Item 1.     Business................................................................      7
            A.    General...........................................................     12
            B.    Commonwealth Automobile Reinsurers................................     15
            C.    Marketing.........................................................     17
            D.    Underwriting......................................................     19
            E.    Reinsurance.......................................................     21
            F.    Settlement of Claims..............................................     22
            G.    Loss and Loss Adjustment Expense Reserves.........................     23
            H.    Operating Ratios..................................................     26
            I.    Investments.......................................................     27
            J.    Regulation........................................................     29
            K.    Competition.......................................................     34
            L.    Other Matters.....................................................     35
Item 2.     Properties..............................................................     36
Item 3.     Legal Proceedings.......................................................     36
Item 4.     Submission of Matters to a Vote of Security Holders.....................     36
Item 4A.    Executive Officers of the Registrant....................................     36

Part II

Item 5.     Market for Registrant's Common Stock and Related Stockholder Matters....     38
Item 6.     Selected Financial Data.................................................     38
Item 7.     Management's Discussion and Analysis of Financial Condition and
             Results of Operations..................................................     38
Item 7a.    Qualitative and Quantitative Disclosures about Market Risk..............     38
Item 8.     Financial Statements and Supplementary Data.............................     39
Item 9.     Changes in and Disagreements with Independent Auditors on Accounting
             and Financial Disclosure...............................................     39

Part III

Item 10.    Directors and Executive Officers of the Registrant......................     39
Item 11.    Executive Compensation..................................................     39
Item 12.    Security Ownership of Certain Beneficial Owners and Management..........     39
Item 13.    Certain Relationships and Related Transactions..........................     39

Part IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K.........     40
            Signatures..............................................................     41
            Index to Financial Statement Schedules..................................     44
            Index to Exhibits.......................................................     55
</TABLE>






2
<page


GLOSSARY OF SELECTED INSURANCE TERMS


Affinity Group marketing program... An "affinity  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, an affinity 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.

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.
A.M. 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 Massachusetts 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
Statutory Accounting Practices
("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 (46 in 1999) act
as Servicing Carriers for the risks
it insures.


3
<page



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 in 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.

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.

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 expenses relating to 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 and LAE 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. and
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 affinity 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
Massachusetts  state law  that
encourages safe driving by rewarding
drivers who do not cause an
accident, or incur a traffic law
violation and by charging high risk
drivers a greater amount of
premiums.  Under SDIP, drivers incur
surcharge points for traffic
violations and at-fault accidents.
Drivers also earn credit points for
each incident free year.  Drivers
begin at a starting or neutral SDIP
Step 15.  Drivers can earn credits
down to SDIP Step 9, the lowest step
for good drivers, and incur
surcharge points up to SDIP Step 35,
the highest step for bad drivers.
The SDIP is set to be revenue
neutral, wherein credits received by
good drivers are offset with
surcharges paid by bad drivers.




5
<page



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.

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 in providing personal and commercial
property and casualty insurance primarily in Massachusetts through it's
principal subsidiary, The Commerce Insurance Company ("Commerce"), which
was incorporated in 1971.  The Company's predominant 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
Commerce West Insurance Company ("Commerce West"), a personal automobile
insurer located in Pleasanton, California, which was acquired on August
31, 1995.  Additionally, the Company also writes insurance through
American Commerce Insurance Company ("American Commerce"), which it
acquired in January 1999.  Located in Columbus, Ohio, American Commerce,
is a wholly-owned subsidiary of ACIC Holding Co., Inc. with policies in
26 states and licenses in several others.  In November of 1998, Commerce
formed ACIC Holding Co., Inc., in a joint venture with AAA Southern New
England ("AAA SNE") and invested $90,800,000 to fund the January 29,
1999 acquisition of the Automobile Club Insurance Company whose name was
changed to American Commerce upon completion of the acquisition.
Commerce invested $90,000,000 in the form of preferred stock and an
additional $800,000 representing an 80% common stock ownership.  AAA SNE
invested $200,000 representing a 20% common stock ownership.  The terms
of the preferred stock call for Commerce to receive quarterly cash
dividends at the rate of 10% per annum from ACIC Holding, Co., Inc.  In
the event cash dividends cannot be paid, additional preferred stock will
be issued.  Commencing with the January 29, 1999 acquisition date, ACIC
Holding Co., Inc. and American Commerce's results were consolidated into
the Company's financial statements found in the Company's 1999 Annual
Report.  Since 1995, Commerce has maintained an affinity group marketing
relationship with AAA Insurance Agency, Inc., a subsidiary of AAA SNE.
AAA Insurance Agency, Inc. has been a licensed insurance agent of
Commerce since 1985.  In addition to the property and casualty insurance
business, the Company originates residential and commercial mortgages on
a limited basis within Massachusetts and Connecticut 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.  The Company has
over 900,000 polices in force, over 765,000 throughout the Commonwealth
of Massachusetts and over 135,000 in the 27 states served by Commerce
West and American Commerce.  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 1999 and 1998, the Company's
Massachusetts private passenger automobile market share was 21.3% and
21.6%, respectively.  The Company is also one of the leading writers of
commercial automobile insurance in the Commonwealth.  The accompanying
table lists direct premiums written for the years ended December 31,
1999 and 1998 for Massachusetts and other states business:
<PAGE>




Direct Premiums Written, Year Ended December 31, 1999 (Dollars in thousands)
<TABLE>
<CAPTION>
                         Massachusetts  All Other States     Total      % of Total
<S>                         <C>            <C>             <C>           <C>
Personal Automobile......   $731,329       $ 92,297        $823,626       86.9%
Commercial Automobile....     36,616            -            36,616        3.9
Homeowners...............     59,981         14,378          74,359        7.8
Other Lines..............     13,027            521          13,548        1.4
         Total...........   $840,953       $107,196        $948,149      100.0%
</TABLE>
<TABLE>
<CAPTION>
Direct Premiums Written, Year Ended December 31, 1998 (Dollars in thousands)

                         Massachusetts  All Other States     Total      % of Total
<S>                         <C>            <C>             <C>           <C>
Personal Automobile......   $663,920       $ 23,312        $687,232       86.2%
Commercial Automobile....     36,299            -            36,299        4.6
Homeowners...............     59,761            -            59,761        7.5
Other Lines..............     13,483             83          13,566        1.7
         Total...........   $773,463       $ 23,395        $796,858      100.0%
</TABLE>
7
<page


	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 an affinity 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 which is based in part on the underwriting
profits of the agency's business written with the Company.  In addition,
the Company occasionally sponsors incentive award trips to encourage
agent profitability and growth.  (Refer to Part I Item 1C - Marketing
for the details.)  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, direct claim reporting, on-line inquiry systems for its
agents and by providing competitively priced automobile insurance
programs and products.

Massachusetts Business

	The Company's focus on automobile and homeowners insurance
primarily in Massachusetts (over 80% of total direct premiums written)
has also been a factor in its success.  The terms, conditions and
mandated rates of personal automobile insurance are subject to extensive
regulation.  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.

	Beginning in the latter part of 1995, the Company began to
actively pursue affinity group marketing programs.  The primary purpose
of affinity group marketing programs is to provide participating groups
with a convenient means of purchasing private passenger automobile
insurance through associations and employer groups.  Emphasis is placed
on writing larger affinity groups, although accounts with as few as 25
participants are considered.  Affinity groups are eligible for rate
discounts which must be filed annually with the Division of Insurance.
In general, the Company looks for affinity 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.

	Since the latter part of 1995, Commerce has been a leader in
affinity group marketing through agreements with the four American
Automobile Association Clubs of Massachusetts ("AAA clubs") offering
discounts on private passenger automobile insurance to the clubs'
members who reside in Massachusetts.  In 1999, a 6% AAA club discount
was approved for policies effective as of January 1, 1999.  In 2000, the
same 6% percent AAA club discount was approved for policies effective as
of January 1, 2000.  The AAA clubs discount can be combined with safe
driver deviations for up to an 11.6% reduction from the 2000 state
mandated rates.  Membership in these clubs is estimated to represent
approximately one-third of the Massachusetts motoring public, and has
been the primary reason for a 44.5% increase in the number of personal
automobile exposures written by Commerce since year-end 1995.  As
expected, this increase leveled off in 1999 and 1998 as evidenced by the
0.9% increase in personal automobile exposures in 1999, as compared to
increases of 1.9% in 1998 and 8.3% in 1997.  In 1999, total direct
premiums written attributable to the AAA group business were
$495,962,000 or 52.3% of the Company's total direct premiums written
(67.8% of the Company's total Massachusetts personal automobile
premium), an increase of 8.5% over 1998.  Total exposures attributable
to the AAA clubs group business were 547,009 or 67.1% of total
Massachusetts personal automobile exposures in 1999, as compared to
547,100 or 67.6% in 1998.  Of the total Massachusetts automobile
exposures written by the Company, approximately 11% were written through
insurance agencies owned by the AAA clubs.  The remaining 89% were
written through the Company's network of independent agents.
8
<page



	Initially, the Massachusetts statute governing group marketing
programs required that 35% of the eligible members must participate in a
group marketing program within one year.  Accordingly, Commerce, in
coordination with the AAA clubs, aggressively pursued AAA members for
the AAA Affinity 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.  Commerce has continued to maintain AAA member participation in
excess of 35% through December 31, 1999, where it is currently estimated
at 44.1%.  The particular portion of the statute, dealing with achieving
the 35% penetration level in one year, was amended by the Massachusetts
Legislature in early 1997 to allow two years to reach the required
penetration level.  This requirement has subsequently been waived by the
Massachusetts Legislature for 1998 and 1999.  Waiving the penetration
requirements allows insurance companies to continue offering group
discounts without reaching the 35% level.  The waiver of penetration
requirements cannot be predicted for years beyond 1999.

	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.

	Since 1996, the Company has been granted approval to offer its
Massachusetts customers safe driver deviations to drivers with Safe
Driver Insurance Plan ("SDIP") classifications of either Steps 9 or 10.
Safe driver deviations are rate discounts based on the customers driving
record and resulting SDIP classification and must be approved annually
by the Commissioner.  Steps 9 and 10 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.  In January 1999, in response to the average personal
automobile rate decisions over the last several years, the Company filed
for and ultimately received approval to offer SDIP deviations of 8% for
Step 9 and 3% for Step 10 for the 1999 calendar year.  In November 1999,
in response to the average personal automobile rate decisions over the
last several years, the Company filed for and ultimately received
approval to offer SDIP deviations of 6% for Step 9 and 2% for Step 10
for the 2000 calendar year.  For drivers that qualify, the Company's
2000 AAA affinity group automobile discounts and SDIP deviations can be
combined for up to an 11.6% (Step 9) and 7.9% (Step 10) reduction from
the state mandated rates.  This can be compared to the SDIP deviations
of 8% for Step 9 and 3% for Step 10 SDIP classifications for the 1999
calendar year.  For drivers that qualified, the Company's 1999 AAA
affinity group automobile discounts and SDIP deviations could have been
combined for up to a 13.5% (Step 9) and 9.8% (Step 10) reduction from
the state mandated rates.

	The Company received state regulatory approval to implement an
installment fee of $3.00 on each invoice following the down payment, for
all personal lines policies with effective dates of January 1, 1998 and
beyond.  At December 31, 1999, this program completed its second full
year since implementation and, as a result, premium finance and service
fees increased $1,334,000 or 9.9% in 1999.  Previously, in 1998, service
fees had increased $6,366,000 or 90.0% which was the result of the
installment fee program replacing a "late fee" system that had been
utilized in 1997 and 1996.

	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 schedule for selected insureds meeting more restrictive
underwriting guidelines.  Citation also provides a separate rating tier
for preferred commercial automobile business.  Approximately 23.0% of
the voluntary commercial automobile premium produced by its voluntary
agents in 1999 was written by Citation.  Citation also produced 40.3% of
Massachusetts homeowner business.  The Company expects that these
secondary rating tiers will continue to assist the Company in retaining
its better commercial automobile and homeowner accounts.  The Company
also expects to further increase the percentage of commercial automobile
business that can be retained voluntarily by the Company in 2000 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, which occurred during the years 1987 through 1991, has been a
significant factor in enabling the Company to increase and maintain its
market share by contracting with 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.

9
<page




	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 Massachusetts 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 97% 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.  The Company is in
the process of developing claims and direct bill inquiry, along with
providing agents access to correspondence, manuals and reports via the
Internet.


Other States Business

	Direct premiums written in states other than Massachusetts by
Commerce West and the Company's newest acquisition, American Commerce,
increased $83,801,000 or 358.2%.  Commerce West writes 100% of its
insurance business in the state of California.  American Commerce, who
writes business in 26 states, wrote approximately 71% of that business
in seven states.  The states with the highest percentages of premiums
are shown below:
<TABLE>
<CAPTION>
                                                    % of Direct Premiums
      Company                 State                     Written by State
      <S>                     <C>                           <C>
      Commerce West           California.................   100.0%

      American Commerce       Arizona....................    21.5%
                              Oregon.....................     9.9%
                              Ohio.......................     9.8%
                              Rhode Island...............     9.0%
                              Washington.................     8.7%
                              Oklahoma...................     6.3%
                              Kentucky...................     5.6%
                              Other states...............    29.2%
                                      Total..............   100.0%
</TABLE>


Year 2000 Compliance

	The Year 2000 issue existed primarily because most computer
programs were originally coded to recognize only the last two digits in
the date field.  If not addressed and corrected, many systems could have
failed and produced erroneous results.  The impact of this could have
lead to a material adverse impact upon the Company's business including
policy and claims processing.  As a result, considerable effort took
place to assess the impact and determine whether to replace and/or
reprogram the systems in order for the systems to distinguish the
intended year.  The Company subsequently initiated the Century Change
project to address all internal/external systems, software, agents,
third parties and vendors in dealing with year 2000 compliance.

	The Century Change project, enlisted both a redeployment of
internal resources and additional external consultant resources,
involved the development of a formal plan to address the Year 2000
problem and progressed in accordance with that plan.  The Company's
plan, which was designed to avoid any material adverse business
production issues, organized corporate systems into four sub-categories:
Data Exchange, AS400 Systems/Programs, PC Applications and PC Based
Vendor Purchased Application Software. Different sub-plans were
established for each category with the same Year 2000 objective in mind.
As a result of this effort, the majority of the programming changes
dealing with policy issuance, claims processing and maintenance were
completed as of October 1998.  Other internal changes were completed in
accordance with specified delivery dates as outlined in the plan.
System testing for Year 2000 modifications successfully concluded as of
the end of the third quarter of 1999.  No processing problems have been
encountered to date during the year 2000, regarding these computer
programs.



10
<page




	As part of the Century Change project, the Company reviewed the
status of vendors who performed outside processing, those whose software
the Company used for internal processing and those third parties with
whom the Company did significant business.  Accordingly, the Company
recognized that year 2000 non-compliance could materially adversely
affect the financial position, results of operations and cash flows of
the Company.  As a result, the Company contacted all significant related
third parties in an effort to determine year 2000 compliance.  This
program included sending out questionnaires to our major business
partners, including our agents, regarding their year 2000 readiness.
Based on the responses received the Company did not anticipate any
potential impact on it's operations or financial condition.  If there
were instances where the Company ascertained a potential non-compliance,
the Company sought alternative year 2000 compliant third parties.  While
the Company took what it believed to be the appropriate safeguards,
there could be no assurances that the failure of such third parties to
be year 2000 compliant would not have had a material adverse impact on
the Company.  During 2000, no processing problems have been encountered
to-date with the services or products provided by third parties.

	The Company's Executive Committee, as well as all departments in
the Company, reviewed issues dealing with identifying possible year 2000
worst case scenarios and developed contingency plans to respond to the
likelihood of these scenarios.  Contingency plans were developed, where
deemed appropriate, for all material systems and relationships during
1999.  Previously, contingency plans had been developed for the
continuation of policy and claim processing in the event that the
Company's computer systems were not available due to a year 2000 related
failure.  No problems (worst case or otherwise) have been encountered
during year 2000, and it has not been necessary to activate any
contingency plans.

	The project, through December 31, 1999 involved internal staff
costs as well as consulting expenses to prepare the systems for the year
2000.  Total costs through December 31, 1999, for the Century Change
project were approximately $7.4 million ($2.5 million of which related
to 1999).  Total costs applicable to internal staff, external consulting
and network hardware/software were $2.4 million, $4.7 million, and $0.3
million, respectively ($0.8 million, $1.4 million, and $0.3 million,
respectively, related to 1999).


Market Risk:  Interest Rate Sensitivity and Equity Price Risk

	The Company's investment strategy emphasizes investment yield
while maintaining investment quality.  The Company's investment
objective is to maintain high quality diversified investments structured
to maximize after-tax investment income while minimizing risk.  The
Company's funds are generally invested in securities with maturities
intended to provide adequate funds to pay claims and meet other
operating needs without the forced sale of investments.  Periodically,
sales have been made from the Company's fixed maturity 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.

	In conducting investing activities, the Company is subject to, and
assumes, market risk.  Market risk is the risk of an adverse financial
impact from changes in interest rates and market prices.  The level of
risk assumed by the Company is a function of the Company's overall
objectives, liquidity needs and market volatility.

	The Company manages its overall market risk by focusing on higher
quality equity and fixed income investments,  by periodically reviewing
the credit strength of companies in which investments are made, by
limiting exposure in any one investment category and by monitoring the
quality of the investment portfolio by taking into account credit
ratings assigned by recognized rating organizations.












11
<page




	As part of its investing activities, the Company assumes positions
in fixed maturity,  equity, short-term and cash equivalents markets.
The Company is, therefore, exposed to the impacts of interest rate
changes in the market value of investments.  For 1999, the Company's
exposure to interest rate changes and equity price risk has been
estimated using sensitivity analysis. The interest rate impact is
defined as the effect of a hypothetical interest rate change of plus-or-
minus 200 basis points on the market value of fixed maturities and
preferred stocks.  The equity price risk is defined as a hypothetical
change of plus-or-minus 10% in the fair value of common stocks.  Changes
in interest rates would result in unrealized gains or losses in the
market value of the fixed maturity and preferred stock portfolio due to
differences between current market rates and the stated rates for these
investments.  Based on the results of the sensitivity analysis at
December 31, 1999, the Company's estimated market exposure for a 200
basis point increase (decrease) in interest rates was calculated.  A 200
basis point increase results in an $87,972,000 decrease in the market
value of the fixed maturities and preferred stocks.  A 200 basis point
decrease results in a $49,136,000 increase in the market value of the
same securities.  The equity price risk at December 31, 1999,  based
upon a 10% increase in the fair value of common stocks would increase
$30,147,000.  Based upon a 10% decrease, common stocks would decrease
$30,147,000.  This analysis was further exemplified in 1999 as the
Company experienced a decline in the market value of investments, net of
taxes, of $78,162,000, primarily as evidenced by an increase in long-
term interest rates during this period.  Long-term interest rates (30
year Treasury Bond) increased to 6.48% at December 31, 1999 up from
5.08% at December 31, 1998.


A. General

Insurance Lines

	Commerce and Citation, the Company's Massachusetts property and
casualty insurance subsidiaries, currently have a combined Best's rating
of A+ (Superior) upgraded from A (Excellent) in 2000.  Commerce West,
the Company's California property and casualty subsidiary, currently has
a Best's rating of A (Excellent) upgraded from A- (Excellent) in 2000.
The Company's new acquisition American Commerce currently has a Best's
rating of A (Excellent).  According to Best's, an insurer with a
Superior rating has achieved superior overall performance and has shown
the strongest ability to meet their policyholder and other contractual
obligations when compared to the norms of the property and casualty
insurance industry.  An insurer with an Excellent rating has
demonstrated, in Best's opinion, excellent overall performance when
compared to standards developed by Best's.





























12
<page



	The following table compares direct premiums written, net premiums
written and earned premiums for the years ending December 31, 1999 and 1998:
<TABLE>
<CAPTION>

(Dollars in thousands)
                                                          Years Ended December 31,
                                                  1999       1998      Change     % Change
<S>                                             <C>        <C>        <C>          <C>
Direct Premiums Written:
  Personal Automobile in Massachusetts........  $731,329   $663,920   $ 67,409      10.2%
  Personal Automobile in All Other States.....    92,297     23,312     68,985     295.9
  Commercial Automobile.......................    36,616     36,299        317       0.9
  Homeowners in Massachusetts.................    59,981     59,761        220       0.4
  Homeowners in All Other States..............    14,378         -      14,378       N/A
  Other Lines in Massachusetts................    13,027     13,483       (456)     (3.4)
  Other Lines in All Other States.............       521         83        438     527.7
     Total Direct Premiums Written............  $948,149   $796,858   $151,291      19.0%

Net Premiums Written:
  Direct Premiums.............................  $948,149   $796,858   $151,291      19.0%
  Assumed Premiums from C.A.R.................    87,241     74,644     12,597      16.9
  Ceded Premiums to C.A.R.....................   (68,740)   (70,435)     1,695      (2.4)
  Ceded Premiums to Other than C.A.R..........   (54,657)   (56,019)     1,362      (2.4)
     Total Net Premiums Written...............  $911,993   $745,048   $166,945      22.4%

Earned Premiums:
  Personal Automobile in Massachusetts........  $633,746   $587,072   $ 46,674       8.0%
  Personal Automobile in All Other States.....    91,357     24,681     66,676     270.2
  Commercial Automobile.......................    29,219     28,858        361       1.3
  Homeowners in Massachusetts.................    16,830     23,235     (6,405)    (27.6)
  Homeowners in All Other States..............    12,032        -       12,032       N/A
  Other Lines in Massachusetts................     3,190      5,717     (2,527)    (44.2)
  Other Lines in All Other States.............       755        -          755       N/A
  Assumed Premiums from C.A.R.................    84,356     75,718      8,638      11.4
  Assumed Premiums from Other than C.A.R......       345        339          6       1.8
     Total Earned Premiums....................  $871,830   $745,620   $126,210      16.9%

  Earned Premiums in Massachusetts............  $682,985   $644,882   $ 38,103       5.9%
  Earned Premiums-Assumed.....................    84,701     76,057      8,644      11.4
  Earned Premiums in All Other States.........   104,144     24,681     79,463     322.0
     Total Earned Premiums....................  $871,830   $745,620   $126,210      16.9%
</TABLE>

	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, personal injury protection
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 for Massachusetts business written by
Commerce is $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 in
Massachusetts.  For California business written by Commerce West,
liability limits of $15,000 per person injured and $30,000 per accident
are most commonly purchased.  For business written by American Commerce,
liability limits of $100,000 per person injured and $300,000 per
accident are most commonly purchased.

	Personal automobile insurance is subject to extensive regulation.
Marketing and underwriting strategies for companies operating in
Massachusetts 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.


13
<page




	During the three-year period from 1997 to 1999, average mandated
Massachusetts personal automobile insurance premium rates decreased an
average of 3.2% per year.  The Commissioner again approved an average
0.7% increase in personal automobile premiums for 2000, the same average
rate increase as in 1999, following four consecutive years of average
rate decreases as depicted in the following table.  Coinciding with the
2000 rate increase, the Commissioner also approved a 0.6% decrease in
the commissions agents receive for selling private passenger automobile
insurance for 2000.

<TABLE>
<CAPTION>
Average Annual Premium Rate Percentage Change for Massachusetts Private
                                Passenger Automobile Business


                          Year       Industry       Commerce
                          <S>           <C>            <C>
                          2000          0.7%           5.0% Estimated
                          1999          0.7%           9.1%
                          1998         (4.0%)          2.6%
                          1997         (6.2%)         (1.8%)
                          1996         (4.5%)         (9.2%)
                          1995         (6.1%)         (3.6%)
</TABLE>

	Although average mandated personal automobile premium rates
increased only 0.7% in 1999, the Company's average rate increased 9.1%
per exposure.  The 9.1% increase for 1999 was primarily the result of
decreases in the Safe Driver Insurance Plan ("SDIP") deviations for Step
9 and Step 10 drivers, the two best driver SDIP classifications in
Massachusetts.  The increase was also due to the facts that the rate
decision did not anticipate purchases of new automobiles in the year to
which the rate decision applied and, secondly, the Company's mix of
personal automobile business differs from that of the industry.

	The 1997, 1998 and 1999 average rate decisions were partially
driven by corrections for an industry error that had impacted 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.  Mandated rates for 1997, 1998 and 1999 included an
adjustment to recoup $176 million from the industry.  The adjustment
included in the rate decision to recoup the error was phased in at 40%,
40% and 20% in 1997, 1998 and 1999, respectively.  The earned premium
impact of the above item was approximately $15.3 million for 1997, $23.9
million for 1998 and $14.0 million for 1999.  The earnings per share
after-tax impact resulting from lower earned premiums has been estimated
at $0.28 for 1997, $0.43 for 1998, and $0.26 for 1999.

	Also factored into the 1999 rate decision were two sanctions
levied by the Commissioner against the Massachusetts personal automobile
insurance industry.  One fine, amounting to $6 million, was imposed as a
result of the industry's failure to show that it adhered to adequate
cost containment efforts as identified by the Commissioner.  A second
fine of $3 million was the result of what the Commissioner termed
"incomplete compliance" on the part of the Automobile Insurers Bureau of
Massachusetts ("AIB") with a discovery order concerning disclosure of
certain information as identified by the Commissioner.

	The Company also offers homeowners insurance in Massachusetts,
including a very limited amount of policies 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 dwelling coverage amount per policy is approximately $150,000,
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.



14
<page



	The Company offers a preferred homeowners product through Citation
which has higher policy limits and a lower premium 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 in Massachusetts.  Commerce West
predominantly writes private passenger automobile insurance in the state
of California through 337 independent insurance agencies and brokers.
All business is underwritten at the company's headquarters located in
Pleasanton, California.  American Commerce predominantly writes private
passenger automobile and homeowners insurance in 26 states exclusively
through 34 AAA independent insurance agencies. All business is
underwritten at the company's headquarters located in Columbus, Ohio.
Both companies target preferred insurance risks.

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 in Massachusetts and
Connecticut.  During fiscal 1999, 1998 and 1997 the mortgage operations
accounted for approximately $4,355,000, or 0.4%, $5,049,000, or 0.6% and
$4,448,000, or 0.5% of the Company's consolidated total revenues,
respectively.

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 1999, 1998 and 1997, Clark-Prout's
revenues amounted to $803,000, or 0.1%, $785,000, or 0.1% and $840,000,
or 0.1% of the Company's consolidated total revenues, respectively.

Segment Information

	The information in Note N in the Company's 1999 Annual Report is
incorporated herein by reference.


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 45 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.

	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. the difference
between standard rates and the reduced premium resulting from affinity
group marketing discounts on policies ceded to C.A.R.  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.

15
<page




	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.  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.


Company Estimated C.A.R. Private Passenger Participation Ratio versus Market
Share
<TABLE>
<CAPTION>
                                Company Estimated     Company Estimated
               Year              Participation Ratio       Market Share
               <S>                     <C>                    <C>
               1999                    16.5%                   21.3%
               1998                    16.7%                   21.6%
               1997                    18.0%                   21.8%
               1996                    19.0%                   20.8%
               1995                    16.2%                   16.4%
</TABLE>

	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 and certain risk
categories, 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.  In 1999, the Company ceded approximately $59,497,000 or
approximately 8.1% of the Company's Massachusetts personal automobile
direct premiums written, which was approximately the same as in 1998.
The Company's strategy has been to voluntarily retain more of the types
of personal automobile business that are factored as credits favorably
impacting the utilization formula.  As a result of the credits impacting
the utilization formula, the Company estimates its personal automobile
participation ratio in C.A.R. to be approximately 16.5% at December 31,
1999.  This ratio is several percentage points below the Company's
estimated 21.3% share of the Massachusetts personal automobile market.
Significant changes in the Company's and the industry-wide private
passenger cession percentages are not expected for 2000.

	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.  In 1999, Commerce ceded
approximately $6,681,000 or 22.3% of its Massachusetts commercial
automobile direct premiums written, an increase of $486,000 or 6.8% from
1998.


16
<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
licensed independent agencies, 525 throughout Massachusetts (of which
135 are ERPs), 337 in California and an additional 34 as a result of the
January 29, 1999 acquisition of American Commerce.  The non ERP
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.

Massachusetts Business

	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 1999, each agency representing the Company in Massachusetts produced
an average of approximately $1,613,000 of Company direct premiums
written or a 13.4% increase as compared to 1998.  Also in Massachusetts
during 1999, 201 agencies produced in excess of $1.0 million of direct
premiums written, an additional 58 agencies produced over $2.0 million,
an additional 36 agencies produced over $3.0 million and lastly, an
additional 22 agencies produced over $4.0 million.  The Company's three
largest agencies produced approximately $53.7, $15.4 and $10.1 million
of the Company's Massachusetts direct premiums written, respectively, or
approximately 6.4%, 1.8% and 1.2% in 1999.  Total direct premiums
written attributable to the AAA group business were $495,962,000 or
52.3% of the Company's total direct premiums written (67.8% of total
Massachusetts personal automobile premium).  Total exposures
attributable to the AAA clubs group business were 547,009 or 67.1% of
total personal automobile exposures in 1999, as compared to 547,100 or
67.6% in 1998.  Of this amount, 11% was written through insurance
agencies owned by the AAA clubs and 89% was written by 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.






















17
<page



	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 1999 was 11.8%.  The Company's contingent commissions are tied
to the underwriting profit on policies written by an agency based upon a
rolling three year experience methodology.  The Company generally pays
up to 45% of the underwriting profit attributable to the agency's
business.  The profit sharing plan is a three year rolling plan, with
one third of each of the current and the two prior years profit or loss
calculations, summed to a single amount.  This amount, if positive, is
multiplied by the profit sharing commission rate and paid to the agent.
To qualify for profit sharing, a three-year average loss ratio of 50% to
55% or better is generally required.  CAR credits for voluntary business
written in urban area or credits for writing youthful operators on a
voluntary basis increase the loss ratio eligibility for profit sharing
up to 55% from 50%.  Books of business with no available credits must
achieve a lower loss ratio.  In 1999, total commission expensed by the
Company to its agencies amounted to 17.1% of direct premiums written, of
which direct commissions and contingent commissions constituted 14.3%
and 2.8%, respectively, versus total commission expensed of 16.8%, of
which 14.3% was direct and 2.5% was contingent in 1998.  Direct
commissions are higher than the personal automobile rates primarily due
to higher commission rates on SDIP Step 9 and 10 business coupled with
higher commissions on other lines of business.  In 1999, the Company's
expense for contingent commissions was $27.0 million versus $20.0
million in 1998.

	The Company also occasionally sponsors incentive award trips to
encourage and reward agency profitability and growth.  The last such
incentive contest occurred during 1996 and the resulting trip took place
during the first few months of 1997.  This trip resulted in 315 agents
earning incentives at a total cost of approximately $4.3 million.  Much
of the success of these programs was attributable to affinity group
marketing programs.  In 1998, the Company initiated the T2000 Sales
Incentive Contest.  One part of the measurement period concluded on
December 31, 1999 and  the other will conclude on May 31, 2000 with
agents earning incentive trips taking place in April and September of
2000, respectively.  The estimated total cost is approximately $1.5
million of which approximately $571,000 was expensed in 1999 and
$678,000 in 1998.

	The Company's information systems enable it to provide extensive
support to its agencies.  This support includes a direct billing system,
which covers over 97% of the Company's Massachusetts 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 continuously explores new options on an ongoing basis.  The
Company is also developing Internet connectivity for its independent
agents.

	The Company believes that, because of its compensation
arrangements and by 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.

	Since the latter part of 1995, Commerce has been a leader in
affinity group marketing through agreements with the four American
Automobile Association Clubs of Massachusetts ("AAA clubs") offering
discounts on private passenger automobile insurance to the clubs'
members who reside in Massachusetts.  The following table indicates the
AAA clubs discount offered by the Company since 1996.  A 6% discount was
approved for 2000.  The AAA clubs discount can be combined with safe
driver deviations for up to an 11.6% reduction from the state mandated
rates.  Membership in these clubs is estimated to represent
approximately one-third of the Massachusetts motoring public, and has
been the primary reason for a 44.5% increase in the number of personal
automobile exposures written by Commerce since year-end 1995.  As
expected, this increase leveled off in 1999 and 1998 as evidenced by the
0.9% and 1.9% increases in personal automobile exposures as compared to
increases of 8.3% in 1997 and 29.8% in 1996.  In 1999, total direct
premiums written attributable to the AAA group business were
$495,962,000 or 52.3% of the Company's total direct premiums written
(67.8% of the Company's total Massachusetts personal automobile
premium), an increase of 8.5% over 1998.  Participation among members of
the AAA clubs is estimated at 44.1%


18
<page


<TABLE>
<CAPTION>
AAA Affinity Group Discount and SDIP Deviations  2000*   1999    1998   1997    1996
   <S>                                            <C>     <C>    <C>     <C>     <C>
   AAA Affinity Group Discount................    6%      6%      6%     10%     10%
   SDIP Step 9 Deviation......................    6%      8%     15%     10%     10%
   SDIP Step 10 Deviation.....................    2%      3%      4%     10%     10%

   Combined AAA Affinity Group Discount and
     Step 9 Deviation.........................   11.6%   13.5%   20.1%   19.0%   19.0%
   Combined AAA Affinity Group Discount and
     Step 10 Deviation........................    7.9%    9.8%    9.8%   19.0%   19.0%
</TABLE>
   *For policies with effective dates as of January 1, 2000.


	Total exposures attributable to the AAA clubs group business were
547,009 or 67.1% of total Massachusetts personal automobile exposures in
1999, as compared to 547,100 or 67.6% in 1998.  Of the total
Massachusetts automobile exposures written by the Company approximately
11% were written through insurance agencies owned by the AAA clubs.  The
remaining 89% were written through the Company's network of independent
agents.

	In November 1997, the Company received state regulatory approval
to implement an installment fee of $3.00 on each invoice following the
down payment, for all personal lines automobile policies with effective
dates of January 1, 1998 and beyond.  At December 31, 1999, this program
completed its second full year since implementation and, as a result,
premium finance and service fees increased $1,334,000 or 9.9% in 1999.
Previously, premium finance and service fees increased $6,366,000 or
90.0% in 1998 which was the result of the installment fee program
replacing a "late fee" system that had been utilized for 1997 and 1996.

Other States

	Commerce West predominantly writes private passenger automobile
insurance in the state of California through 337 independent insurance
agencies and brokers.  All business in underwritten at the company's
headquarters located in Pleasanton, California.  American Commerce
predominantly writes private passenger automobile and homeowners
insurance in 26 states exclusively through 34 AAA independent insurance
agencies. All business is underwritten at the company's headquarters
located in Columbus, Ohio.  Both companies target preferred insurance
risks.


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 certain 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.









19
<page



Massachusetts Business

	The Company and each of the approximately 45 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 mandated 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 competitive nature of the Massachusetts
personal automobile insurance market which began in 1995 continued
through 1999 and into 2000.

	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, unless the property owner has a Letter of
Compliance or a Letter of Interim Control (i.e. has taken or is taking
specific measures to prevent lead poisoning).  The Company has reduced
its exposure to lead poisoning by (i) excluding from coverage all intra-
familial 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 homeowners and dwelling
fire liability coverage all lead poisoning perils to children under the
age of six on policies for properties built prior to 1978 that contain
rental units and where strict liability for lead poisoning would
otherwise apply.  Effective on March 1, 1998 a similar exclusion was
added to the Business Owners Program.  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.  The Company held reserves in the amount of $2,175,000 and
$3,398,000 for lead paint related claims at December 31, 1999 and 1998,
respectively.

	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.

Other States

	In keeping with the Company's long-term growth objective to expand
outside Massachusetts, the Company, in 1995, acquired Commerce West, a
personal automobile insurer, located in Pleasanton, California.  Most
recently, the Company formed a joint-venture (ACIC Holding Co., Inc.) in
November 1998, and acquired in January 1999, American Commerce, located
in Columbus, Ohio.  American Commerce writes automobile and homeowners
insurance solely through 34 AAA automobile clubs.  Commerce West
predominantly writes private passenger automobile insurance in the state
of California through 337 independent insurance agencies and brokers.
All business is underwritten at the company's headquarters located in
Pleasanton, California.  American Commerce predominantly writes private
passenger automobile and homeowners insurance in 26 states exclusively
through 34 AAA independent insurance agencies. All business is
underwritten at the company's headquarters located in Columbus, Ohio.
Both companies target preferred insurance risks.
20
<page




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 below.

Property, Catastrophe and Quota Share Reinsurance

	From September 30, 1995 through June 30, 1998, the Company had a
combined property quota share and excess loss reinsurance contract which
was written with six reinsurance companies.  Under the quota share
portion of the arrangement, the reinsurers indemnified the Company for
45% 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 49% of the net premium pertaining to the related
business.  The maximum per occurrence loss reimbursement was $50.0
million and the maximum annual aggregate occurrence loss reimbursement
was $75.0 million.  Under the excess loss reinsurance portion of the
arrangement, the Company reinsured each risk, retaining $125,000 and
reinsuring 100% of the next $875,000.

	Various catastrophe only reinsurance programs were utilized from
1996 through May, 1998 in conjunction with the quota share and excess
loss program noted above.

	Effective July 1, 1998, the Company expanded the quota share
portion of the program.  A 75% quota-share reinsurance program was
incepted, covering all non-automobile property and liability business,
except umbrella policies.  The excess loss portion of the program was
reduced on July 1, 1998 and completely eliminated on September 30, 1998.
The expanded program is split between Employers Reinsurance Corporation,
American Re-Insurance Company, Hartford Fire Insurance Company and Swiss
Reinsurance America Corporation.  The maximum per occurrence loss
reimbursement is the higher of 350% of premium ceded under the program
or $175.9 million.  The maximum annual aggregate occurrence loss
reimbursement is the higher of 450% of premium ceded under the program
or $226.1 million.  A sliding scale commission, based on loss ratio, is
utilized under this program.  This program provides the Company with
sufficient protection for catastrophe coverage so as to enable the
Company to forego pure catastrophe reinsurance coverage, which was
previously tailored in conjunction with the former quota share
arrangement.

	Through December 31, 1999, American Commerce utilized a separate
castatrophe reinsurance program.  Effective January 1, 2000, this
program expired and American Commerce joined the quota-share reinsurance
program described above.

	The table below provides information depicting the approximate
recovery under the expanded quota share contract at various loss
scenarios, if a single catastrophe were to strike (in thousands):
<TABLE>
<CAPTION>
                                                             Net Loss
                          Total           Reinsurance       Retained by
                          Loss             Recovery         the Company
                        <S>                 <C>               <C>
                        $ 50,000            $ 37,500          $12,500
                         100,000              75,000           25,000
                         150,000             112,500           37,500
                         200,000             150,000           50,000
                         250,000             187,500           62,500
</TABLE>







21
<page



	Under the previous scenario and based on the business subject to
the quota-share reinsurance contract for 2000, the Company has no
reinsurance recoveries for a single event catastrophe in excess of a
total loss of approximately $297.5 million.  The Company's estimated
total loss on its other than automobile business for 100 and 250 year
storms (including American Commerce) is approximately $117.0 million and
$198.1 million, respectively.  The Company estimates were derived
through the services of Swiss Reinsurance America Corporation who
utilized the CLASIC model provided by Applied Insurance Research.

	Written premiums ceded in 1999, 1998 and 1997 under the above
mentioned programs were $51.5 million, $54.0 million and $27.5 million,
respectively.  Ceding commission income is calculated on a ceded earned
premium basis.

Casualty Reinsurance

	Since January 1, 1997, casualty reinsurance has been on an excess
of 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 (rated A+ by A.M.
Best).

	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. The Company also has 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 Re-Insurance Company (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, 1999.

F. Settlement of Claims

	Claims under insurance policies written by the Company are
investigated and settled primarily by claims adjusters employed by the
Company.  In Massachusetts, the Company employs a staff of 689 people at
its claims department, located in Webster, Massachusetts.  In addition
to these individuals, the Company utilizes the services of approximately
31 independent appraisal firms and 9 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.
American Commerce settles claims at four district claims offices
strategically located throughout the country.  Commerce West settles
claims at their home office employing a staff of 20 in the claims
department.  In addition, Commerce West utilizes the services of
approximately 26 independent appraisal firms strategically located in
California.

	The Company believes that through its claims staff of experienced
adjusters, appraisers, managers, and administrative staff, it has higher
customer satisfaction than many of its competitors.  All claims office
staff members work closely with agents, insureds 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.









22
<page




	The Massachusetts Unfair Claims Settlement Practices Act ("Chapter
176D"), and other similar provisions in states in which the Company does
business, prohibits insurers from engaging in certain claim settlement
practices.  These include 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 a number of state laws including
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 in any
particular instance involving a Chapter 93A C.A.R. reinsured claim.

	Since 1996, the Company has been expanding a twenty-four (24) hour
claim reporting service in Massachusetts to third-party claimants and
insureds of interested agencies.  This service allows customers to
report their first notice of a loss at anytime of the night or day; 365
days a year, including weekends and holidays.  This reporting
methodology allows the Company to improve customer satisfaction by
making the initial claim handling much faster and ultimately reducing
indemnity payments such as rental and storage.  As of December 31, 1999,
there were 346 agents who signed up for this claim reporting
methodology; these agents represent approximately 74% of total claim
volume.  This represents an increase from 230 agents and 55% of the
claim volume as of December 31, 1998.  The Company anticipates growth in
this program as it continues to discuss this service with those agencies
who have not yet been solicited to participate.


G. Loss 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 annually obtain 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, claims personnel
establish a "case reserve" for the estimated amount of the ultimate
payment.  The amount of the reserve is primarily based upon an
evaluation of the type of claim involved, the circumstances surrounding
each claim and the policy provisions relating to the loss.  The estimate
reflects 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.





23
<page




	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.

	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 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, 1999 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 include 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 1999
Consolidated Financial Statements, which is incorporated herein by
reference from pages 48 through 50 of the Company's 1999 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 $4,185,000 and
$5,687,000 in 1999 and 1998, respectively.

	The following table represents the development of reserves, net of
reinsurance, for 1989 through 1999.  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, 1999.















24
<page


<TABLE>
<CAPTION>
	In evaluating the cumulative information in the table, it should be noted that
each year's amount includes the affects 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.
Year ended December 31,
                     1999    1998(1)     1997      1996      1995      1994      1993      1992      1991      1990        1989
                                                     (Dollars in thousands)
<S>                <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>        <C>        <C>
Reserves for
 losses and loss
 adjustment
 expenses........  $559,828  $561,941  $530,077  $533,980  $493,911  $455,460  $422,224  $316,261  $228,657   $177,657   $138,456

Paid (cumulative)
 as a percentage
 of current re-
 serves as of:
  One year later..               46.6      50.1      50.1      48.7      48.0      53.1      51.6      46.6       46.3       46.8
  Two years later.                         72.9      71.9      70.5      68.8      72.4      77.6      71.7       68.7       69.3
  Three years
   later..........                                   84.1      84.4      81.2      82.8      86.8      87.9       84.9       81.9
  Four years
   later..........                                             91.1      90.1      89.1      92.0      91.9       96.0       90.3
  Five years later                                                       93.4      93.9      94.9      94.1       96.6       98.2
  Six years later.                                                                 95.1      97.7      95.6       96.0       98.2
  Seven years
   later..........                                                                           98.1      97.7       97.0       97.0
  Eight years
   later..........                                                                                     97.9       98.4       97.7
  Nine years
   later..........                                                                                                98.6       98.5
  Ten years later.                                                                                                           98.9

Reserves re-estimated
 as a percentage of
 initial reserves as of:
  One year later..               92.9      88.4      84.3      82.2      83.6      83.9      87.2      82.3       84.5       92.7
  Two years later.                         85.6      79.3      74.1      73.2      75.9      78.6      82.8       74.6       82.8
  Three years
   later..........                                   77.4      71.5      68.9      69.4      73.0      77.1       75.1       76.7
  Four years later                                             69.7      67.8      67.3      68.8      72.2       71.7       78.3
  Five years later                                                       66.3      66.4      67.0      68.7       68.2       75.6
  Six years later.                                                                 65.7      66.7      67.8       65.5       74.0
  Seven years
    later.........                                                                           65.9      67.6       64.6       71.8
  Eight years
    later.........                                                                                     67.2       64.6       71.3
  Nine years later                                                                                                64.4       71.2
  Ten years later.                                                                                                           71.1

Redundancy expressed as a
 percent of yearend
 reserves.........               7.1       14.4      22.6      30.3      33.7      34.4      34.1      32.8       35.6       28.9

(1) The 1998 amount includes an adjustment to add $63,112 in loss and LAE reserves for American Commerce at January 29,1999.

</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 and LAE 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 automobile 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>
<CAPTION>
                                                     Years Ended December 31,
                                     1999        1998        1997        1996        1995

<S>                                  <C>         <C>         <C>         <C>         <C>
Company Statutory Ratios (unaudited):
  Loss and LAE Ratio..............   72.0%       71.6%       71.4%       70.9%       62.0%
  Underwriting Expense Ratio......   26.5        26.5        25.1        27.1        29.0
   Combined Ratio.................   98.5%       98.1%       96.5%       98.0%       91.0%

   Industry combined ratio
   (all writers)(1)...............  103.7%      102.2%      100.1%      102.9%      102.8%

</TABLE>
(1) Source:  Best's Review (January, 2000), as reported by A.M. Best for
all property and casualty insurance companies and weighted to reflect
the Company's product mix. The 1999 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>
<CAPTION>
                                                     Years Ended December 31,
                                     1999        1998        1997        1996        1995
                                                      (dollars in thousands)
<S>                                 <C>          <C>        <C>         <C>         <C>
Net premiums written by the
 Company........................... $911,993     $745,048   $741,501    $711,570    $603,421
Policyholders' surplus of the
 Company's insurance subsidiaries..  518,974      563,503    516,598     464,739     440,110
The Company's ratio................    175.7%       132.2%     143.3%      153.1%      137.1%
Industry ratio(1)..................     90.0%        80.0%      90.0%      110.0%      110.0%
</TABLE>
__________________________________
(1) Source:  Best's Review (January, 2000), for all property and
casualty insurance companies.  The 1999 industry information is
estimated by A.M. Best.


26
<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 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 5 through 29 of the
Company's 1999 Annual Report.

	The Company's investment portfolio carried at market value as of
December 31, 1999, was $1,268,979,000.  Of that amount, 51.0% was
invested in fixed maturities, 16.6% was invested in preferred stocks,
23.8% was invested in common stocks, and 6.8% was invested in mortgage
loans and other investments.  Cash and cash equivalents accounted for
the remaining 1.8%.

	Investments in fixed maturities, which include taxable and non-
taxable bonds, preferred stocks, common stocks (which includes preferred
stock mutual funds) are carried at fair market value.  Unrealized
investment gains and losses on stocks 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, through
other comprehensive income.  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") and Federal National Mortgage Association
("FNMA") mortgage backed bonds (12.8%), municipal bonds (80.1%),
corporate bonds (6.6%) and U.S. Treasury bonds (0.5%).  Of the Company's
bonds, 96.8% 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), net accumulated
other comprehensive income (loss) and the income thereon for the five
years ended December 31, 1999.
<TABLE>
<CAPTION>
                                             Years Ended December 31,
                                     1999         1998       1997        1996        1995
                                                  (dollars in thousands)
<S>                               <C>         <C>        <C>         <C>         <C>
Average net investments.......... $1,326,098  $1,242,633 $1,181,181  $1,131,760  $1,033,439
Net realized gains (losses) on
  investments....................      8,130       6,769     22,770      (7,574)        712
Net accumulated other
  comprehensive income (loss):
    on fixed maturities..........    (14,107)     18,785     23,813      16,191      13,969
    on preferred stocks..........    (19,885)     (2,845)       364        (801)        377
    on common stocks.............    (50,473)     22,601     17,718      20,116      11,799
Net investment income............     89,787      86,501     80,794      77,402      71,313
Net investment income as a
  percentage of total average
  investments....................        6.8%        7.0%       6.8%        6.8%        6.9%
Net investment income after-tax
  as a percentage of total
  average investments............        5.7%        5.7%       5.5%        5.6%        5.7%
</TABLE>


27
<page



	The following table sets forth an analysis of the fair market
value (except mortgages and collateral loans which are at cost) by the
type of investment at December 31, 1995 through 1999:
<TABLE>
<CAPTION>
                                                      December 31,
                                     1999        1998        1997        1996      1995
                                                  (dollars in thousands)
<S>                              <C>         <C>         <C>         <C>         <C>
Type of Investment
  GNMA & FNMA mortgage-backed
   bonds........................ $   82,613  $  112,588  $  181,069  $  225,552  $  221,373
  Corporate bonds...............     42,532         -           -           -           -
  U.S. Treasury bonds and notes.      3,315         -           -           -           -
  Tax exempt state and
   municipal bonds..............    518,878     506,679     409,528     491,150     593,904
      Total fixed maturities....    647,338     619,267     590,597     716,702     815,277

  Preferred stocks..............    211,049     197,425     148,499     147,680     111,220

  Investment in closed-end
   preferred stock mutual funds.    224,120     172,455     119,439      29,087        -
  Other equity securities.......     77,347     111,506      58,650      56,954      40,359
      Total common stocks.......    301,467     283,961     178,089      86,041      40,359
      Total equities............    512,516     481,386     326,588     233,721     151,579

  Mortgages and collateral
   loans (net of allowance
   for possible loan losses)....     72,451      73,510      82,839      74,586      75,609
  Cash and cash equivalents.....     22,535      72,243     106,188     140,535      32,665
  Short-term investments........        -         3,669     132,700         -        20,000
  Other investments.............     14,139       7,825       3,783       2,127       1,648
      Total investments......... $1,268,979  $1,257,900  $1,242,695  $1,167,671  $1,096,778
</TABLE>

	The table below sets forth as of December 31, 1999 the composition
of the Company's fixed maturity investments, at market, excluding short-
term investments, by time to maturity at the dates indicated:
<TABLE>
<CAPTION>
                                                                                Percent
                                                                                   of
                                                                                  Fixed
                                                                                Maturity
                                                                  Amount        Portfolio
                                                                  (dollars in thousands)
<S>                                                              <C>             <C>
            Period from December 31, 1999 to maturity:
              One year or less.................................  $  2,793          0.4%
              More than one year to five years.................     4,980          0.8
              More than five years to ten years................    13,446          2.1
              More than ten years..............................   626,119         96.7
                                                                 $647,338        100.0%
</TABLE>







28
<page



	At December 31, 1999, the Company's fixed income portfolio, which
represented 51.0% of the Company's total invested assets, had an
weighed average stated maturity of approximately 23.9 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, 1999 the Company's fixed income portfolio had a weighted
average duration of 5.7 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 and municipal housing bonds in the fixed maturity portfolio.  The
duration reflects industry prepayment assumptions.  The municipal
housing bonds are similar in nature to GNMAs in that they paydown
principal during the life of the bond.  For these types of bonds,
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, which was used to calculate the above maturity data,
utilizes optional call dates, sinking fund requirements and assumes a
non-static prepayment pattern in deriving these averages.


J. Regulation

General

	The Company's primary business is subject to extensive
regulation.  In Massachusetts, the Commissioner is appointed by the
Governor of Massachusetts and 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.  In states outside of Massachusetts, premium rates
generally must be filed with, and approved by the Commissioner of
Insurance in that particular state.  In general, minimum commissions to
agents are not set by the other states commissioners.

	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 and are currently undergoing an examination for the five year
period ended December 31, 1998.  Commerce West was last examined in
1997 by the California Division of Insurance for the five year period
ended December 31, 1996.  American Commerce was examined in 1999 by the
Ohio Division of Insurance for the three year period ending December
31, 1997.  The concluded 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.










29
<page




Automobile Insurance Regulation Overview

	Massachusetts has required compulsory automobile insurance
coverage since 1925.  States outside of Massachusetts generally have
varying levels of minimum compulsory insurance.  Under current law, all
Massachusetts 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 affinity group marketing 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.
Affinity group marketing insurance programs and safe driver 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.  See Section A General for additional
information.

	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 1999 was 12.2%.  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 coverages 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.



30
<page




Commonwealth Automobile Reinsurers

	General. C.A.R. is a Massachusetts 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 (46, 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.

	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 any of its subsidiary insurance companies 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.




31
<page




	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.

	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 may,
within certain limitations, pay such dividends and then file a report
with the Commissioner.  Dividends in excess of these limitations are
called extraordinary dividends.  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 1999, 1998 and 1997.  No dividends were paid by American
Commerce or Commerce West since their respective acquisitions.


Protection Against Insurer Insolvency

Massachusetts

	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.

	M.I.I.F. had no activity during 1999.  M.I.I.F. had previously
refunded assessments to Commerce and Citation in the aggregate amount
of $271,000 in 1998 and $283,000 in 1997.  Although there was no
activity affecting the company in 1999, the Company anticipates that
there will be additional assessments in the future.  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.



32
<page



Other States

	Commerce West, domiciled in California, is covered by the
California Insurance Guarantee Association ("C.I.G.A.").  American
Commerce, domiciled in Ohio, is covered by the Ohio Guarantee
Association ("O.G.A.").  Both C.I.G.A. and O.G.A. operate similarly to
the M.I.F.F. described earlier.

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, 1999, 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.

	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.  The Company's
insurance subsidiaries, Commerce, Citation, Commerce West, and American
Commerce are listed in the accompanying table which provides the key
RBC information:
<TABLE>
<CAPTION>
                                                               Commerce    American
        (Dollars in millions)          Commerce    Citation      West      Commerce

      At December 31, 1999
      <S>                             <C>         <C>         <C>         <C>
      Statutory surplus.............  $   411     $   108     $    23     $    85
      RBC Company action level......      164           3           6          23

      Statutory surplus in excess
        of RBC Company action level.  $   247     $   105     $    17     $    62

      RBC amounts...................  $    82     $     2     $     3     $    12

      % of Surplus to RBC amounts...    501.2%    5,400.0%      766.7%      708.3%
</TABLE>

33
<page




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.

Massachusetts

	In 1995, several insurers, including the Company, within the
Massachusetts Insurance Industry began pursuing group marketing 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.  In November, 1999, in response to the average
personal automobile rate decisions over the last several years, the
Company received approval to offer SDIP deviations of 6% for Step 9 and
2% for Step 10 for the 2000 calendar year.  For drivers that qualify,
the Company's 2000 AAA affinity group automobile discounts and SDIP
deviations can be combined for up to an 11.6% (Step 9) and 7.9% (Step
10) reduction of the state mandated rates.  This can be compared to the
SDIP deviations of 8% for Step 9 and 3% for Step 10 SDIP classifications
for the 1999 calendar year.  For drivers that qualified, the Company's
1999 AAA affinity group automobile discounts and SDIP deviations then
could have been combined for up to a 13.5% (Step 9) and 9.8% (Step 10)
reduction from the state mandated rates.  For additional details refer
to the table found on Page 19.

	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 within independent agencies by offering a more
attractively priced product to the consumer and by paying agents
significant compensation in the form of commissions and profit sharing
which are based in part on the underwriting profits of the agency
business written with the Company.  The Company also provides a
consistent market, the prompt servicing of policyholder claims and
agency support services.  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.

Other States

	Both Commerce West and American Commerce file and receive approval
for premium rates with the respective divisions of insurance in the
states they do business.  Commerce West competes for business by
utilizing 337 independent insurance agencies and brokers that offer
competitively priced products and provide quality service.  Agents and
brokers are offered compensation in the form of commissions and profit
sharing which are based in part on the underwriting profits of the
agency business written with Commerce West.  American Commerce competes
for business by utilizing 34 AAA owned independent agencies that offer
competitively priced products and provide quality service.  The AAA
owned independent agencies are offered compensation in the form of
commission and profit sharing which are based in part on the
underwriting projects of the agency business written with American
Commerce.



34
<PAGE



L. Other Matters

Human Resources

	As of December 31, 1999, the Company and its subsidiaries employed
1,708 people.  Commerce employed 1,463 people; Commerce West employed 53
people; American Commerce, which was acquired in January 1999, employed
192 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 insurance industry and geographically
in the areas its subsidiaries operate.  The Company has been recognized
for its progressive programs designed to meet the needs of a modern-day
workforce.  In addition to alternative work schedules and casual dress,
on-site child care has been offered to Massachusetts employees since
1986.  Commerce was one of the first businesses in the region to offer
this benefit.  A newly constructed child care center can currently
accommodate up to 200 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 1,691
participants at December 31, 1999.

	In September 1998, the Company implemented a 401(k) Plan enabling
eligible employees to contribute up to 15% of eligible compensation on a
pre-tax basis up to the annual maximum limits under federal tax law.
The Company incurs no expenses in the form of matching contributions
however, employees are able to contribute payments made under a cash
bonus program into the 401(k).  The Company pays for administration of
the 401(k) Plan.

	American Commerce maintains a noncontributory defined benefit
pension plan covering substantially all of their employees.  All
participants of the pension plan are eligible to retire with full
retirement benefits upon attainment of age 65 with 5 years of
participation.  In March 2000, American Commerce announced the
termination of this plan.  Effective January 1, 2001, eligible employees
will become participants in the E.S.O.P.  American Commerce maintains a
separate 401(k) Plan for the benefit of substantially all of its
employees.  American Commerce matches 50% of all employee contributions
up to 6% of pay.  Both American Commerce and it's employees share in
administration expenses of the plan.  Effective January 1, 2001, the
American Commerce 401(k) will be merged into the 401(k) noted above.

	American Commerce also maintains a noncontributory post-retirement
benefit plan (the "post-retirement plan") for retirees that includes
medical, dental and life insurance coverages.  All participants of the
post-retirement plan are eligible upon attainment of age 55 with 10
years of service or age 65 with 5 years of service.  Dental coverage
ceases at age 65 and life insurance coverage decreases based upon the
age of the retiree until the attainment of age 70, at which time they
are provided a nominal amount of coverage from age 70 and thereafter.
Participant's spouses are also covered under the post-retirement plan.
The cost of post-retirement medical, dental and life insurance benefits
is accrued over the active service periods of employees to the date they
attain full eligibility for such benefits.  It is the policy of American
Commerce to pay post-retirement benefits as incurred.












35
<PAGE


ITEM 2. PROPERTIES

	The Company conducts its Massachusetts operations from
approximately 300,000 square feet of space in several buildings which it
owns in Webster, Massachusetts, which is located approximately 50 miles
southwest 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.  In 1998, the
Company completed the construction of a 20,000 square foot child care
center located on a separate seven acre site in Webster, Massachusetts.
The child care center enables the Company to care for up to 200 children
of employees.  Commerce West currently leases approximately 12,000
square feet of office space in Pleasanton, California.  The Company's
new acquisition, American Commerce, conducts its operations from
approximately 40,000 square feet of space in a building located on a two
acre site in Columbus, Ohio.  American Commerce also leases property at
its four district claims offices.  The Company considers that its
properties are in good condition, are well maintained, and are generally
suitable to carry on the Company's business.  For additional information
concerning property, see Note D to the Company's 1999 Consolidated
Financial Statements, which is incorporated herein by reference from
page 48 of the Company's 1999 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 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.

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 1999.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
      The Company's executive officers are as follows:

            Name                     Age               Position with Company
      <S>                            <C>        <C>
      Arthur J. Remillard, Jr.       69         Chief Executive Officer, Director

      Gerald Fels                    57         Executive Vice President,
                                                Chief Financial Officer, Director

      Arthur J. Remillard, III       44         Senior Vice President--Policyholder
                                                Benefits, Assistant Clerk, Director

      Regan P. Remillard             36         Senior Vice President,
                                                President of Commerce West, Chief Executive
                                                Officer of American Commerce, Director

      David H. Cochrane              46         Senior Vice President--Underwriting
                                                of Commerce and Citation

      Peter J. Dignan                48         Senior Vice President--Marketing
                                                of Commerce and Citation

      Mary M. Fontaine               43         Senior Vice President--Human Resources

      Joyce B. Virostek              57         Senior Vice President--Management
                                                Information Systems of Commerce and Citation
</TABLE>
36
<page



	Arthur J. Remillard, Jr. has been the President, Chief Executive
Officer and Chairman of the Board of the Company since 1976 and of
Commerce since 1972.  Mr. Remillard, Jr. 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, a member
of the Governing Committee Review Panel, Chairman of the Budget
Committee and a member of the Personnel Committee of C.A.R.  Mr.
Remillard, Jr. is also Chairman of the Governing Committee and a member
of the Budget Committee, Executive Committee and Nominating Committee of
the A.I.B.

	Gerald Fels, a certified public accountant, was appointed
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 1976 to 1995 and Commerce from 1975 to
1995.  Mr. Fels has also been Chief Financial Officer of the Company
since 1976 and Commerce since 1975.  Mr. Fels is a Director of American
Nuclear Insurers and serves on the Advisory Board of Conning Capital
Funds.

	Arthur J. Remillard, III was appointed Senior Vice President--
Policyholder Benefits in 1988 and has been Assistant Clerk of the
Company since 1982. From 1981 to 1988, Mr. Remillard, III 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 appointed Chief Executive Officer of
American Commerce Insurance Company in 1999.  Mr. Remillard has been
President of Commerce West Insurance Company since 1996.  Mr. Remillard
has been a Senior Vice President of the Company since 1995.  From 1995
to February 2000 Mr. Remillard had been General Counsel of the Company.
From 1994 to 1995, Mr. Remillard was a practicing attorney at Hutchins,
Wheeler & Dittmar, a Massachusetts law firm specializing in corporate
law and litigation.  From 1989 to 1993, Mr. Remillard was Government
Affairs Monitor of the Company.  Mr. Remillard is a member of the
Massachusetts Bar.

	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.

	Peter J. Dignan was appointed the Senior Vice President--Marketing
of Commerce and Citation in 1997.  From 1989 to 1997, Mr. Dignan was
Vice President--Financial Operations of Commerce and Citation.  From
1987 to 1989 Mr. Dignan was Assistant Vice President--Financial
Operations of Commerce and Citation.  Mr. Dignan also serves on the
C.A.R. Defaulted Brokers Committee.

	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.

	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 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.









37
<PAGE>


PART II

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

	The Company's common stock trades on the NYSE under the symbol
"CGI".  The high, low and close prices for shares as quoted in the Wall
Street Journal, of the Company's common stock for 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
                                            1999         	                1998
     <S>                        <C>      <C>      <C>            <C>     <C>      <C>
                                 High     Low      Close         High    Low      Close
     First Quarter..........    $35-1/16 $23-7/16 $24-9/16       $37-3/8 $31-3/4  $35-1/4
     Second Quarter.........     25-1/8   21-9/16  24-3/8         39-5/8  34-3/8   38-3/4
     Third Quarter..........     26-7/8   21-1/2   23             39      24-7/8   27-5/8
     Fourth Quarter.........     28-1/8   20-3/4   26-1/8         36-1/2  22-11/16 35-7/16
</TABLE>
	As of March 1, 2000, there were 1,188 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 $1.11 per share
and $1.07 per share in 1999 and 1998, respectively.  On May 21, 1999,
the Board voted to increase the quarterly stockholder dividend from
$0.27 to $0.28 per share to stockholders of record as of June 4, 1999.
Prior to that declaration, the Company had paid quarterly dividends of
$0.27 per share dating back to May 15, 1998 when the Board voted to
increase the dividend from $0.26 to $0.27 per share.

	The Company purchased 1,683,100 shares of Treasury Stock under the
stock buyback program during 1999 increasing the total shares of
Treasury Stock to 3,640,488 at December 31, 1999.  The Company began a
stock buyback program during the second quarter of 1995.  The program
which was approved by the Board of Directors on May 19, 1995, authorized
the Company to purchase up to 3,000,000 shares of the Company's common
stock.  Through March 31, 1999, the Company completed its share
purchases under that program.  In May 1999, the Board of Directors
approved an additional stock buy back program of up to 2 million shares.
At December 31, 1999, the Company has authority to purchase
approximately 1.5 million additional shares.

	A portion of the Company's cash flow consists 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 65 of the Company's 1999 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 5 through 29 of the Company's 1999 Annual
Report is incorporated herein by reference.

ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

	The information on page 28 of the Company's 1999 Annual Report is
incorporated herein by reference.
38
<page




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

	The Company's Consolidated Financial Statements for the years
ended December 31, 1999, 1998 and 1997 and the report of its independent
auditors on pages 32 through 64 of the Company's 1999 Annual Report are
incorporated herein by reference.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS 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, 1999 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, 1999
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, 1999
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, 1999
and such information is incorporated herein by reference.










39
<PAGE>



PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
    A. (1)  The following financial statements have been incorporated herein by reference
              from the pages indicated below of the Company's 1999 Annual Report:

                                                                                    Page
              <S>                                                                    <S>
              Report of Independent Auditors...................................      32
              Consolidated Balance Sheets as of December 31, 1999 and 1998.....      33
              Consolidated Statements of Earnings for the years ended
               December 31, 1999, 1998 and 1997................................      34
              Consolidated Statements of Stockholders' Equity for the years
               ended December 31, 1999, 1998 and 1997..........................      35
              Consolidated Statements of Cash Flows for the years ended
               December 31, 1999, 1998 and 1997................................      36
              Consolidated Statements of Cash Flows - Reconciliation of Net
               Earnings to Net Cash provided by Operating Activities for the
                years ended December 31, 1999, 1998 and 1997...................      37
              Notes to Consolidated Financial Statements.......................      38

         (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,
1999
</TABLE>






























40
<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: February 18, 2000
                                         THE COMMERCE GROUP, INC.


                                         By
                                         ARTHUR J. REMILLARD, JR.
                                         (Arthur J. Remillard, Jr.)
                                         (President, Chief Executive Officer,
                                         Chairman of the Board 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.


            Signature                                      Title



      ARTHUR J. REMILLARD, JR.                  President, Chief Executive
     (Arthur J. Remillard, Jr.)                 Officer, Chairman of the Board
                                                and Director



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



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



      REGAN P. REMILLARD                        Senior Vice President of the
      (Regan P. Remillard)                      Company, President of Commerce
                                                West, Chief Executive Officer
                                                of American Commerce Insurance
                                                Company and Director



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











41
<PAGE>



            Signature                                      Title



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




      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)



       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. LAVOIE                           Director
      (Roger E. Lavoie)





42
<PAGE>



            Signature                                      Title



      NORMAND R. MAROIS                         Director
      (Normand R. Marois)



      SURYAKANT M. PATEL                        Director
      (Suryakant M. Patel)



                                                Director
      (Antranig A. Sahagian)



      GURBACHAN SINGH                           Director
      (Gurbachan Singh)







































43
<PAGE>


<TABLE>
<CAPTION>
THE COMMERCE GROUP, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENT SCHEDULES*
<S>                                                                    <C>
                                                                                    Page


  Ernst & Young LLP Consent of Independent Auditors............................      45


Schedules

   II       Condensed Financial Information of the Registrant as of and for the
             years ended December 31, 1999, 1998 and 1997......................      46

   III      Supplementary Insurance Information for the years ended
             December 31, 1999, 1998 and 1997 .................................      51

   IV       Reinsurance for the years ended December 31, 1999, 1998 and 1997...      52

    V       Valuation and Qualifying Accounts for the years ended
             December 31, 1999, 1998 and 1997..................................      53

    X       Supplemental Information Concerning Property-Casualty Insurance
            Operations for the years ended December 31, 1999, 1998 and 1997....      54




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

</TABLE>

























44
<PAGE>



CONSENT OF INDEPENDENT AUDITORS


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

We consent to the incorporation by reference in this Annual Report
(Form 10-K) of The Commerce Group, Inc. of our report dated
February 18, 2000, included in the 1999 Annual Report to
Stockholders of The Commerce Group, Inc.

Our audits also included the financial statement schedules of The
Commerce Group, Inc. listed in Item 14(a).  These schedules are
the responsibility of the Company's management.  Our
responsibility is to express an opinion based on our audits.  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 set forth therein.

We also consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 333-62367) pertaining to The
Commerce Group, Inc. 401(k) Plan of our report dated February 18,
2000, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement
schedules included in this Annual Report (Form 10-K) of The
Commerce Group, Inc.


/s/ ERNST & YOUNG LLP

Boston, Massachusetts
March 27, 2000




















45
<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>
<CAPTION>
                                                             1999        1998        1997
ASSETS
<S>                                                        <C>         <C>        <C>
Investments:
  Investment in Commerce Holdings, Inc..................   $616,354    $651,447   $610,854
  Investment in Bay Finance Company, Inc................     27,312      25,558     23,750
  Investment in the Clark-Prout Insurance Agency, Inc...        488         313        566
      Total investments.................................    644,154     677,318    635,170

Cash and cash equivalents...............................          7           2          2
Property and equipment, net of accumulated depreciation.      1,374       1,219      1,368
Receivable from affiliates..............................        -        37,077     30,395
Current income taxes....................................      2,007         -        7,682
Deferred income taxes...................................         37       1,706        -
Other assets............................................      3,536       3,626      4,628
      Total assets......................................   $651,115    $720,948   $679,245

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Accounts payable and accrued expenses.................   $    986    $  9,609   $ 23,428
  Payable to affiliates.................................      3,437         -          -
  Deferred income taxes.................................        -           -        4,691
  Current income taxes..................................        -         5,519        -
  Other liabilities.....................................         58          35      1,330
      Total liabilities.................................      4,481      15,163     29,449

Stockholders' equity:
  Capital stock:
    Common stock........................................     19,000      19,000     19,000
  Paid-in capital.......................................     29,621      29,621     29,621
  Net accumulated other comprehensive income (loss),
    net of income taxes (benefits) of ($28,467) in 1999,
    $13,621 in 1998 and $14,663 in 1997.................    (52,867)     25,295     27,232
  Retained earnings.....................................    734,488     670,556    612,630
                                                            730,242     744,472    688,483
  Treasury stock, 3,640,448, 1,957,348 and 1,957,348
  shares in 1999, 1998 and 1997, at cost................    (83,608)    (38,687)   (38,687)


      Total stockholders' equity........................    646,634     705,785    649,796

      Total liabilities and stockholders' equity........   $651,115    $720,948   $679,245

The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
46
<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>
<CAPTION>
                                                            1999        1998       1997
<S>                                                       <C>         <C>        <C>
Revenues
  Dividends received from subsidiaries.................   $ 56,070    $ 51,745   $ 47,105
  Rent income..........................................        513         461        397
     Total revenues....................................     56,583      52,206     47,502

Expenses
  Depreciation.........................................        228         298        242
  Administrative expenses..............................       (897)        492     11,933
     Total expenses....................................       (669)        790     12,175

Earnings before income tax benefits and equity in
 net earnings of subsidiaries over amounts distributed.     57,252      51,416     35,327
Income tax benefits....................................       (338)       (991)    (5,063)

Earnings before equity in net earnings of subsidiaries
 over amounts distributed..............................     57,590      52,407     40,390

Equity in net earnings of subsidiaries over amounts
 distributed...........................................     44,998      44,085     55,825
     Net earnings......................................   $102,588    $ 96,492   $ 96,215




















The accompanying notes are an integral part of these condensed financial statements.
</TABLE>

47
<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>
<CAPTION>
                                                              1999        1998        1997
<S>                                                        <C>          <C>         <C>
Cash flows from operating activities:
  Net earnings............................................ $ 102,588    $ 96,492    $ 96,215
  Adjustments to reconcile net earnings to net cash
   provided by operating activities:
    Dividends received from consolidated subsidiaries.....    56,070      51,745      47,105
    Equity in earnings of consolidated subsidiaries.......  (101,068)    (95,830)   (102,930)
    Depreciation and amortization.........................       228         298         242
    Other liabilities and accrued expenses................    (8,600)    (14,112)     25,226
    Balances with affiliates..............................    40,514      (6,682)    (26,628)
    Income taxes (benefits)...............................    (5,857)      6,804      (1,354)
    Other--net............................................      (150)       (102)        (49)
      Net cash provided by operating activities...........    83,725      38,613      37,827

Cash flows from investing activities:
  Purchase of property and equipment for company use......      (487)       (196)       (344)
  Proceeds from sale of property and equipment............       344         149         128
      Net cash used in investing activities...............      (143)        (47)       (216)

Cash flows from financing activities:
  Dividends paid to stockholders..........................   (38,656)    (38,566)    (37,124)
  Purchase of treasury stock..............................   (44,921)        -          (487)
      Net cash used in financing activities...............   (83,577)    (38,566)    (37,611)

Increase in cash and cash equivalents.....................         5         -           -
Cash and cash equivalents at beginning of year............         2           2           2
Cash and cash equivalents at end of year.................. $       7    $      2    $      2














The accompanying notes are an integral part of these condensed financial statements.
</TABLE>

48
<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>
<CAPTION>
                                                          1999        1998        1997
      <S>                                                <C>         <C>         <C>
      Consolidated insurance subsidiaries..............  $56,070     $51,745     $47,105
</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 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.














49
<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 C--Consolidated Financial Statements

	In preparing the consolidated financial statements of the Company and
its subsidiaries, the following amounts have been eliminated:
<TABLE>
<CAPTION>
                                               At December 31,
Balance Sheet                          1999          1998         1997
<S>                                  <C>           <C>          <C>
Investment in subsidiaries.........  $644,154      $677,318     $635,170
Receivable from affiliates.........       -          37,077       30,395
Payable to affiliates..............     3,437           -            -
</TABLE>
<TABLE>
<CAPTION>
                                            Years Ended December 31,
Statement of Earnings                  1999          1998         1997
<S>                                  <C>           <C>          <C>
Dividends from subsidiaries........  $ 56,070      $ 51,745     $ 47,105
Rent income........................       513           461          397
</TABLE>

NOTE D--Reclassification of Prior Year Balances

	Certain prior year balances have been reclassified to conform to the
1999 presentation.
























50
<PAGE>




THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE III

SUPPLEMENTARY INSURANCE INFORMATION
Years Ended December 31, 1999, 1998 and 1997
(Thousands of Dollars)


<TABLE>
<CAPTION>
                                      Future
                                      Policy             Other                       Benefits,
                                      Benefits,          Policy                      Claims,    Amortization
                         Deferred     Claims             Claims                      Losses     of Deferred
                          Policy        and               and               Net       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
<S>                      <C>         <C>        <C>        <C>    <C>       <C>        <C>        <C>           <C>      <C>
1999
Massachusetts property
 and casualty insurance. $ 90,360    $611,339   $423,173          $767,686  $ 70,774   $547,004   $199,296               $806,491
Other states property
 and casualty insurance.    8,140      63,849     33,922   None    104,144    11,611     78,086     34,364      None      105,502
Real estate and
 commercial lending.....      -           -          -                 -       4,355        -          -                      -
Corporate and other.....      -            -          -                 -       3,047        -          -                      -
      Total............. $ 98,500    $675,188   $457,095          $871,830  $ 89,787   $625,090   $233,660               $911,993

1998
Massachusetts property
 and casualty insurance. $ 87,170    $589,923   $385,067          $720,939  $ 74,820   $516,884   $187,372               $721,663
Other states property
 and casualty insurance.    1,589       7,073       6,357   None      24,681     3,149     14,545      9,062      None       23,385
Real estate and
 commercial lending.....      -            -          -                  -       5,049        -          -                      -
Corporate and other.....      -            -          -                  -       3,483        -          -                      -
      Total............. $ 88,759     $596,996   $391,424           $745,620  $ 86,501   $531,429   $196,434               $745,048

1997
Massachusetts property
 and casualty insurance. $ 83,351     $640,486   $371,946           $702,338  $ 70,029   $508,349   $179,171               $714,035
Other states property
 and casualty insurance.    1,913        8,987      7,653   None      28,159     3,112     17,778      8,320      None       27,466
Real estate and
 commercial lending.....      -            -          -                  -       4,448         -          -                     -
Corporate and other.....      -            -          -                  -       3,383        -          -                      -
      Total............. $ 85,264     $649,473   $379,599           $730,497  $ 80,972   $526,127   $187,491               $741,501


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


</TABLE>







<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE IV

REINSURANCE
Years Ended December 31, 1999, 1998 and 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                   Assumed                Percentage
                                                     Ceded to       From                  of Amount
                                        Gross         Other         Other        Net        Assumed
       Insurance Premiums Earned        Amount       Companies    Companies     Amount     to Net

<S>                                 <C>         <C>         <C>         <C>           <C>
1999
  Property and casualty insurance.. $911,588    $124,459    $ 84,701    $871,830       9.7%

1998
  Property and casualty insurance.. $781,464    $111,901    $ 76,057    $745,620      10.2%

1997
  Property and casualty insurance.. $753,184    $105,824    $ 83,137    $730,497      11.4%
</TABLE>





































52
<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE V

VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
                                                         Net
                                                       addition
                                                      (reduction)
                                           Balance     charged to                Balance
                                          beginning    costs and                 at end
                                           of year      expenses   Deductions(1)  of year
<S>                                         <C>         <C>         <C>          <C>
1999
  Allowance for losses on mortgage loans
   and collateral notes receivable........  $2,301      $ (174)     $   -        $2,127

  Allowance for doubtful premium
   receivables............................  $1,450      $1,249      $(1,247)     $1,452

1998
  Allowance for losses on mortgage loans
   and collateral notes receivable........  $2,812      $ (511)     $   -        $2,301

  Allowance for doubtful premium
   receivables............................  $1,451      $1,297      $(1,298)     $1,450

1997
  Allowance for losses on mortgage loans
   and collateral notes receivable........  $2,760      $   52      $   -        $2,812

  Allowance for doubtful premium
   receivables............................  $1,500      $1,645      $(1,694)     $1,451




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














53
<PAGE




THE COMMERCE GROUP, INC. AND SUBSIDIARIES

SCHEDULE X

SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
(Thousands of Dollars)



<TABLE>
<CAPTION>
                                           Claims and Claim      Paid         American
                                         Adjustment Expenses    Claims        Commerce
            Affiliation                  Incurred Related to   and Claim     losses and
               with                      Current    Prior      Adjustment    LAE reserves
            Registrant                    Year      Years       Expenses      at 1/29/99

<S>                                      <C>        <C>        <C>           <C>
1999
  Consolidated property-casualty
   entities............................. $664,978   $(39,888)  $627,203      $63,112

1998
  Consolidated property-casualty
   entities............................. $592,796   $(61,367)  $562,677      $   -

1997
  Consolidated property-casualty
   entities............................. $609,930   $(83,803)  $530,030      $   -
</TABLE>






















54
<PAGE



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

INDEX TO EXHIBITS(A)


Exhibit
Number                                    Title
<TABLE>
<CAPTION>
  <S>       <C>
  3.1       Articles of Organization, as amended(B)

  3.2       By-Laws(B)

  4         Stock Certificate(B)

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

 10.7*      Stock-Appreciation Right and Book Value Award Agreement as amended. (C)

 10.8*      1994 Management Incentive Plan as amended (D)

 10.18*     Form of Non-Qualified Stock Option Agreement

 10.19*     Form of Incentive Stock Option Agreement

 10.20*     Form of Non-Qualified Stock Option Agreement

 10.21*     Form of Stock Option Agreement

 10.22      Conning Capital Partners VI, L.P., Limited Partnership Agreement

 13.1       Annual Report for the year ended December 31, 1999 to Security Holders.

 22.1       Subsidiaries of the Registrant filed herewith.



(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 Form 10-K for the year ended December 31, 1994.

(D) Incorporated herein by reference to the exhibit with the same exhibit number,
filed as
    an exhibit to the Registrant's Form 10-Q for the period ended September 30, 1997.

* Denotes management contract or compensation plan or arrangement.
</TABLE>









55
<page








1999
annual
report
















The
CGI

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

<page




INDEX TO 1999 ANNUAL REPORT
<TABLE>
<CAPTION>
                                                                   Page
<S>                                                                  <C>
Financial Highlights............................................     1

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

Management's Discussion and Analysis of Financial Condition
 and Results of Operations......................................     5

Common Stock Price and Dividend Information.....................    30

Report of Management............................................    31

Report of Independent Auditors..................................    32

Consolidated Balance Sheets at December 31, 1999 and 1998.......    33

Consolidated Statements of Earnings for the Years Ended
 December 31, 1999, 1998 and 1997...............................    34

Consolidated Statements of Stockholders' Equity for the Years
 Ended December 31, 1999, 1998 and 1997.........................    35

Consolidated Statements of Cash Flows for the Years Ended
 December 31, 1999, 1998 and 1997...............................    36

Consolidated Statements of Cash Flows - Reconciliation of Net
 Earnings to Net Cash Provided by Operating Activities for the
 Years Ended December 31, 1999, 1998 and 1997...................    37

Notes to Consolidated Financial Statements......................    38

Selected Consolidated Financial Data............................    65

Management's Discussion of the Supplemental Information on
 Insurance Operations...........................................    66

Directors.......................................................    71

Officers........................................................    75

Stockholder Information.........................................    77
</TABLE>








<page




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

                                                      1999          1998            1997


<S>                                               <C>            <C>             <C>
Net premiums written............................  $   911,993    $  745,048      $  741,501

Earned premiums.................................  $   871,830    $  745,620      $  730,497
Net investment income...........................       89,787        86,501          80,972
Premium finance and service fees................       14,774        13,440           7,074
Amortization of excess of book value of
  subsidiary interest over cost.................        3,019           -               -
Net realized investment gains...................        8,130         6,769          22,770
	Total revenues............................  $   987,540    $  852,330      $  841,313

Earnings before income taxes and minority
  interest......................................  $   128,790    $  124,467      $  127,695
Income taxes....................................       27,154        27,975          31,480

Net earnings before minority interest...........      101,636        96,492          96,215
Minority interest...............................          952           -               -
	Net earnings..............................  $   102,588    $   96,492      $   96,215

Comprehensive income............................  $    24,426    $   94,555      $  100,368

Basic and diluted net earnings per common share.  $      2.94    $     2.68      $     2.67

Net earnings excluding the after-tax impact of
 net realized investment gains (1)..............  $    97,304    $   92,092      $   81,415

Basic and diluted net earnings per common
 share excluding the after-tax impact of net
 realized investment gains (1)..................  $      2.79    $     2.56      $     2.26

Cash dividends paid per share...................  $      1.11    $     1.07      $     1.03

Weighted average number of common shares
  outstanding...................................   34,940,074    36,042,652      36,044,679

Total investments at market value...............  $ 1,268,979    $1,257,900      $1,242,695
Total assets....................................    1,871,472     1,755,983       1,754,753
Total liabilities...............................    1,223,650     1,050,198       1,104,957
Minority interest...............................        1,188           -               -
Total stockholders' equity......................      646,634       705,785         649,796
Total stockholders' equity per share............        18.82         19.58           18.03

Certain statutory financial ratios (unaudited):
  Loss and LAE ratio............................         72.0%         71.6%           71.4%
  Underwriting expense ratio....................         26.5          26.5            25.1
	Combined ratio............................         98.5%         98.1%           96.5%

  Net premiums written to policyholders'
    surplus.....................................        175.7%        132.2%          143.3%
</TABLE>

(1) The above figures are presented to provide information to the reader due
to the amount of, and fluctuations in, net realized gains and losses.  The
amounts noted, commonly known as Operating Income, are important measures of
corporate performance.

1
<page



THE COMMERCE GROUP, INC.



                                                       March 24, 2000


To Our Stockholders:


	In 1999, your Company experienced satisfactory financial results for
the 24th consecutive year.  From the very first day the funding of The
Commerce Insurance Company was accomplished (April 3, 1972) through December
31, 1999, we have achieved underwriting profit of $252.2 million on total
premiums written of $7.7 billion.  This underwriting profit represents 3.3%
of total premiums written.


	In November 1999, the 2000 personal automobile insurance rates were
announced by the Massachusetts Insurance Commissioner.  Despite the
industry's request for a 7.8% increase, 2000 rates increased only 0.7% which
was identical to the 1999 rate increase announced in January 1999.  The
slight increases announced for 1999 and 2000 follow four consecutive years of
state mandated rate decreases from 1995 through 1998.  Although most
companies, including ours, continued to modify safe driver deviations and
affinity group discount programs in response to the 2000 rates, the
Massachusetts marketplace remains highly competitive.  Through these ongoing
competitive conditions, your Company's share of the Massachusetts personal
automobile market has remained relatively stable, and at year-end, our market
share was 21.3%.


	With the current industry trends and market forces changing the
insurance industry, insurers are seeking competitive advantages to maintain
peak operating performance.  As we enter the new millennium, it is important
for your Company to focus on strategies that enable it to utilize core
competencies to their fullest.  As mentioned last year, your Company
continued to build on one of these core competencies, the AAA group marketing
strategy, as we made a significant acquisition which will strengthen our goal
to grow and expand our business beyond Massachusetts.  Your Company,
including Commerce West Insurance Company and American Commerce Insurance
Company, the newest member of our corporate family whose eleven month results
are included in this report, is well positioned to pursue our goals of
growing and expanding geographically beyond the borders of Massachusetts.


	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.  Additionally, I am
very pleased to report that A.M. Best Co. recently upgraded your Company's
group rating to A+ (Superior).  Written premiums, earned premiums, investment
income, total assets, total stockholders' equity per share including
cumulative cash dividends paid 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: Our Policyholders (represented by over 900,000 policies in force);
Agents(891); Employees (1,668); Officers (43); Directors (19); and of course,
our Stockholders (over 4,000, not including our Employee Stock Ownership Plan
participants who now number 1,691).







2
<page





	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 hard working 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 stockholders 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, Chief Executive Officer
                                          and Chairman of the Board





Caring in everything we do.


3
<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 through each December 31, year-end, over the most recent fifteen
year period.  The X axis lists the years beginning with 1985 through
1999.  The Y axis lists the dollar values starting at $0.00 and
increasing in one dollar increments to $24.00.  The graph depicts a
total stockholders' equity per share value in 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,
1996 of $16.28, 1997 of $18.03, 1998 of $19.58 and 1999 of $18.82.  The
graph also depicts the total stockholders' equity per share value
adjusted for cumulative dividends paid per share in 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, 1996 of $17.47, 1997 of $20.25, 1998 of $22.87 and 1999 of
$23.22.








































4
<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 insurance industry continues to remain
highly competitive and inherently volatile in nature.  Property and
casualty insurance company results have traditionally been impacted by
the typical forces unique to the market such as competition, frequency
and severity of losses, the overall economy and the general regulatory
environment in those states in which the insurer operates.  As the
industry crosses over into a new millennium, additional forces are
impacting the industry in the form of deregulation, on-line commerce,
price competition, empowered customers and technological advancement.
As a whole, the industry continued to experience slightly deteriorating
underwriting results during 1999, and, according to A.M. Best Co.,
"Personal auto margins will further erode as market leaders further
reduce prices and begin to use the Internet as a low-cost delivery
system.".  Although price competition is quite heavy in many areas of
the country, it has improved in 1999, and to date in 2000, among
independent agency companies in Massachusetts.  Beyond Massachusetts,
industry underwriting results are expected to continue to deteriorate in
the near future which further emphasizes the competitive advantages
gained by affinity marketing and operating efficiently.  With these
issues on the forefront, The Commerce Group, Inc. ("Company") continues
to position itself to respond to the prevailing forces and conditions in
the market.  The Company has utilized it's strong agency relationships,
a low-cost structure, affinity group alliances and a recent joint-
venture acquisition all aimed at keeping the Company responsive in
today's competitive environment.

	The Company, incorporated in 1976, is a holding company for
several property and casualty insurers which, through these insurance
subsidiaries, offers predominantly private passenger motor vehicle
insurance along with a broad range of other property and casualty
insurance products.  These products are marketed to affinity groups,
individuals, families and businesses through the Company's strong
relationships with professional independent insurance agencies.  The
Company writes insurance primarily in the State of Massachusetts through
The Commerce Insurance Company ("Commerce") and Citation Insurance
Company ("Citation"), both wholly-owned subsidiaries of Commerce
Holdings, Inc. ("CHI").

	Additionally, the Company writes insurance in the State of
California through Commerce West Insurance Company ("Commerce West"), a
wholly-owned subsidiary of Commerce, located in Pleasanton, California.
The Company also writes insurance through American Commerce Insurance
Company ("American Commerce"), which it acquired in January 1999.
Located in Columbus, Ohio, American Commerce, is a wholly-owned
subsidiary of ACIC Holding Co., Inc., with policies in 26 states and
licenses in several others.

	In November of 1998, Commerce formed ACIC Holding Co., Inc., in a
joint venture with AAA Southern New England ("AAA SNE") and invested
$90,800 to fund the January 29, 1999 acquisition of the Automobile Club
Insurance Company whose name was changed to American Commerce upon
completion of the acquisition. Commerce invested $90,000 in the form of
preferred stock and an additional $800 representing an 80% common stock
ownership.  AAA SNE invested $200 representing a 20% common stock
ownership.  The terms of the preferred stock call for Commerce to
receive quarterly cash dividends at the rate of 10% per annum from ACIC
Holding, Co., Inc.  In the event cash dividends cannot be paid,
additional preferred stock will be issued.  Commencing with the January
29, 1999 acquisition date, ACIC Holding Co., Inc. and American
Commerce's results were consolidated into the Company's financial
statements found herein.  Since 1995, Commerce has maintained an
affinity group marketing relationship with AAA Insurance Agency, Inc., a
subsidiary of AAA SNE.  AAA Insurance Agency, Inc. has been a licensed
insurance agent of Commerce since 1985.







5
<page


	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 remained fairly stable in 1999, as exhibited in the
table below, exceeding our nearest competitor which maintains an 11.4%
market share.
<TABLE>
<CAPTION>
       Growth of Massachusetts Personal Automobile Insured Vehicles
                 versus Commerce Massachusetts Market Share

                                                                Commerce
      Year            Industry          Commerce              Market Share
      <S>               <C>                <C>                    <C>
      1999              2.0%               0.9%                   21.3%
      1998              2.7%               1.9%                   21.6%
      1997              2.1%               8.3%                   21.8%
      1996              3.3%              29.8%                   20.8%
      1995              1.7%               2.6%                   16.4%
</TABLE>
	As mentioned, the Company predominantly writes private passenger
automobile insurance.  The following tables indicate that direct
premiums written for private passenger automobile, commercial automobile
and homeowners represented 86.9%, 3.9% and 7.8%, respectively, of the
Company's total direct premiums written in 1999, as compared to 86.2%,
4.6% and 7.5%, respectively, in 1998.  Total direct premiums written
increased $151,291 or 19.0% in 1999 over 1998.  The 1999 increase was
primarily attributable to two factors:  (1) a $67,409, or 10.2% increase
in Massachusetts private passenger automobile direct premiums written
which was the result of a 9.1% increase in average premiums per
exposure, and; (2) an $83,301 or 358.2% increase in direct premiums
written for all other states, which was directly attributable to
business written by American Commerce for the eleven months since the
acquisition.
<TABLE>
<CAPTION>
Direct Premiums Written, Year Ended December 31, 1999

                         Massachusetts  All Other States     Total      % of Total
<S>                         <C>            <C>             <C>           <C>
Personal Automobile......   $731,329       $ 92,297        $823,626       86.9%
Commercial Automobile....     36,616            -            36,616        3.9
Homeowners...............     59,981         14,378          74,359        7.8
Other Lines..............     13,027            521          13,548        1.4
         Total...........   $840,953       $107,196        $948,149      100.0%
</TABLE>
<TABLE>
<CAPTION>
Direct Premiums Written, Year Ended December 31, 1998

                         Massachusetts  All Other States     Total      % of Total
<S>                         <C>            <C>             <C>           <C>
Personal Automobile......   $663,920       $ 23,312        $687,232       86.2%
Commercial Automobile....     36,299            -            36,299        4.6
Homeowners...............     59,761            -            59,761        7.5
Other Lines..............     13,483             83          13,566        1.7
         Total...........   $773,463       $ 23,395        $796,858      100.0%
</TABLE>
Massachusetts Automobile Business

	In Massachusetts, private passenger automobile insurance is
subject to extensive regulation.  Owners of registered automobiles are
generally required to maintain certain minimum automobile insurance
coverages.  With very limited exceptions, automobile insurers are
required by law to issue a policy to any applicant seeking to obtain
such coverages.  Companies in Massachusetts are also assigned agents,
known as Exclusive Representative Producers ("ERPs") based on market
share, that have been unable to obtain a voluntary contract with an
insurance carrier.  Marketing and underwriting strategies for companies
operating in Massachusetts are limited by maximum 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.
6
<page



	During the three-year period from 1997 to 1999, average mandated
Massachusetts personal automobile insurance premium rates decreased an
average of 3.2% per year.  The Commissioner again approved an average
0.7% increase in personal automobile premiums for 2000, the same average
rate increase as in 1999, following four consecutive years of average
rate decreases as depicted in the following table.  Coinciding with the
2000 rate increase, the Commissioner also approved a decrease in the
commission rate agents receive for selling private passenger automobile
insurance from 12.4% in 1999 to 11.8% in 2000.
<TABLE>
<CAPTION>
           Average Annual Premium Rate Percentage Change for Massachusetts
                   Private Passenger Automobile Business


                          Year       Industry       Commerce
                          <S>          <C>           <C>
                          2000          0.7%           5.0% (Estimated)
                          1999          0.7%           9.1%
                          1998         (4.0%)          2.6%
                          1997         (6.2%)         (1.8%)
                          1996         (4.5%)         (9.2%)
                          1995         (6.1%)         (3.6%)
</TABLE>
	Although average mandated personal automobile premium rates
increased only 0.7% in 1999, the Company's average rate increased 9.1%
per exposure.  The 9.1% increase for 1999 was primarily the result of
decreases in the Safe Driver Insurance Plan ("SDIP") deviations for Step
9 and Step 10 drivers, the two best driver SDIP classifications in
Massachusetts.  The increase was also due to the facts that the rate
decision did not anticipate purchases of new automobiles in the year to
which the rate decision applied and, secondly, the Company's mix of
personal automobile business differs from that of the industry.

	The 1997, 1998 and 1999 average rate decisions were partially
driven by corrections for an industry error that had impacted 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.  Mandated rates for 1997, 1998 and 1999 included an
adjustment to recoup $176 million from the industry.  The adjustment
included in the rate decision to recoup the error was phased in at 40%,
40% and 20% in 1997, 1998 and 1999, respectively.  The earned premium
impact of this, coupled with the impact of a previous year imbalance in
the SDIP, was approximately $15.3 million for 1997, $23.9 million for
1998 and $14.0 million for 1999.  The earnings per share after-tax
impact resulting from lower earned premiums has been estimated at $0.28
for 1997, $0.43 for 1998 and $0.26 for 1999.

	Also factored into the 1999 rate decision were two sanctions
levied by the Commissioner against the Massachusetts personal automobile
insurance industry.  One fine, amounting to $6 million, was imposed as a
result of the industry's failure to show that it adhered to adequate
cost containment efforts as identified by the Commissioner.  A second
fine of $3 million was the result of what the Commissioner termed
"incomplete compliance" on the part of the Automobile Insurers Bureau of
Massachusetts ("AIB") with a discovery order concerning disclosure of
certain information as identified by the Commissioner.

	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.


7
<PAGE




	Significant changes in the utilization of the C.A.R. private
passenger pooling mechanism are not expected for 2000.  Various C.A.R.
participation formula changes have been fully implemented since 1993
with only minor changes since then.  The Company's strategy has been to
voluntarily retain more of the types of private passenger automobile
business that are factored as credits favorably impacting the
utilization formula.  As a result of increased voluntary retention, the
credits impacting the utilization formula have favorably affected the
Company's participation ratio.  As indicated in the accompanying table,
this ratio is several percentage points below the Company's estimated
21.3% share of the Massachusetts personal automobile market.  The
Company continues to expect the marketplace to make minor annual
adjustments to find the optimum balance between voluntary and ceded
writings.
<TABLE>
<CAPTION>

Company Estimated C.A.R. Private Passenger Participation Ratio
                           versus Market Share

                                  Company Estimated     Company Estimated
               Year              Participation Ratio       Market Share
               <S>                     <C>                     <C>
               1999                    16.5%                   21.3%
               1998                    16.7%                   21.6%
               1997                    18.0%                   21.8%
               1996                    19.0%                   20.8%
               1995                    16.2%                   16.4%
</TABLE>

	The percentage of commercial automobile premiums ceded to C.A.R.
by the industry has decreased to a Company estimate of 19% in 1999.  The
percentage of commercial automobile business ceded to C.A.R. by the
Company, is approximately 19%.  C.A.R. depopulation, coupled with C.A.R.
rate increases for ceded commercial business, have led to a reduction in
the size of the annual commercial automobile deficits.  The Company
intends to continue to respond to the incentives and disincentives
provided by C.A.R. rules as deemed necessary and appropriate.

	The Company provides a separate rating tier for preferred
commercial automobile business through Citation.  Approximately 23% of
the commercial automobile premiums produced by its voluntary agents in
1999 were 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 1999 and beyond.

	The Company has actively pursued affinity group marketing programs
since 1995.  The primary purpose of affinity group marketing programs is
to provide participating groups with a convenient means of purchasing
private passenger automobile insurance through associations and employer
groups.  Emphasis is placed on writing larger affinity groups, although
accounts with as few as 25 participants are considered.  Affinity groups
are eligible for rate discounts which must be filed annually with the
Division of Insurance.  In general, the Company looks for affinity
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.













8
<PAGE




	Since the latter part of 1995, Commerce has been a leader in
affinity group marketing through agreements with the four American
Automobile Association Clubs of Massachusetts ("AAA clubs") offering
discounts on private passenger automobile insurance to the clubs'
members who reside in Massachusetts.  A 6% discount was approved for
policies effective January 1, 2000.  The AAA clubs discount can be
combined with safe driver deviations for up to an 11.6% reduction from
the 2000 state mandated rates.  Membership in these clubs is estimated
to represent approximately one-third of the Massachusetts motoring
public, and has been the primary reason for a 44.5% increase in the
number of personal automobile exposures written by Commerce since year-
end 1995.  As expected, this increase leveled off in 1999 and 1998 as
evidenced by the 0.9% and 1.9% increase in personal automobile
exposures, respectively,  as compared to increases of 8.3% in 1997 and
29.8% in 1996.  In 1999, total direct premiums written attributable to
the AAA group business were $495,962 or 52.3% of the Company's total
direct premiums written (67.8% of the Company's total Massachusetts
personal automobile premium), an increase of 8.5% over 1998.  Total
exposures attributable to the AAA clubs group business were 547,009 or
67.1% of total Massachusetts personal automobile exposures in 1999, as
compared to 547,100 or 67.6% in 1998.  Of the total Massachusetts
automobile exposures written by the Company, approximately 11% were
written through insurance agencies owned by the AAA clubs.  The
remaining 89% were written through the Company's network of independent
agents.  For additional details, refer to the table found on page 11
entitled "AAA Affinity Group Discount and SDIP Deviations".

	Initially, the Massachusetts statute governing group marketing
programs required that 35% of the eligible members must participate in a
group marketing program within one year.  Accordingly, Commerce, in
coordination with the AAA clubs, aggressively pursued AAA members for
the AAA Affinity 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.  Commerce has continued to maintain AAA member participation in
excess of 35% through December 31, 1999, where it is currently estimated
at 44.1% participation.  The particular portion of the statute, dealing
with achieving the 35% penetration level (participation) in one year,
was amended by the Massachusetts Legislature in early 1997 to allow two
years to reach the required penetration level.  This requirement has
subsequently been annually waived by the Massachusetts Legislature for
1998 and 1999.  Waiving the penetration requirements allows insurance
companies to continue offering group discounts without reaching the 35%
level.  The waiver of penetration requirements cannot be predicted for
years beyond 1999.

	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.






















9
<PAGE




Other States Business

	Direct premiums written in states other than Massachusetts by
Commerce West and the Company's newest acquisition, American Commerce,
increased $83,801 or 358.2%.  Commerce West writes 100% of its insurance
business in the state of California.  American Commerce, who writes
business in 26 states, wrote approximately 71% of that business in seven
states.  In addition to California, the seven states with the highest
percentages of premiums are shown below:
<TABLE>
<CAPTION>

                                                     % of Direct Premiums
      Company                 State                     Written by State
      <S>                     <C>                           <C>
      Commerce West           California..............      100.0%

      American Commerce       Arizona.................       21.5%
                              Oregon..................        9.9%
                              Ohio....................        9.8%
                              Rhode Island............        9.0%
                              Washington..............        8.7%
                              Oklahoma................        6.3%
                              Kentucky................        5.6%
                              Other states............       29.2%
                                   Total..............      100.0%
</TABLE>
Insurance Ratios

	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, 1999, the property and casualty
insurance 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 100.1% in 1997 to a high of 103.7%
in 1999 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 98.5% in 1999.  On an average basis, the Company's
combined ratio was 96.4% for the five year period ended December 31,
1999 compared to a weighted industry average of 102.3%.

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
    Company Statutory Ratios                1999     1998     1997     1996     1995
       (unaudited)
      <S>                                    <C>      <C>      <C>      <C>      <C>
      Loss and LAE Ratio.................     72.0%    71.6%    71.4%    70.9%    62.0%
      Underwriting Expense Ratio.........     26.5     26.5     25.1     27.1     29.0
      Combined Ratio.....................     98.5%    98.1%    96.5%    98.0%    91.0%

    Industry Combined Ratio
      (all writers)(1)...................    103.7%   102.2%   100.1%   102.9%   102.8%

</TABLE>
(1) Source:  Best's Review (January, 2000), as reported by A.M. Best for
all property and casualty insurance companies and weighted to reflect
the Company's product mix.  The 1999 industry information is estimated
by A.M. Best.

Investment Income and Realized Investment Gains

	The Company's total revenues were supplemented in fiscal 1999,
1998 and 1997 by net investment income of $89,787, $86,501 and $80,972,
respectively.  Additionally, the Company had realized investment gains
of $8,130, $6,769 and $22,770 in 1999, 1998 and 1997, respectively.



10
<PAGE



Regulatory Matters

General

	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 continue to investigate
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 conducts hearings
relating, in general, to the solvency of insurers and has proposed
federal legislation from time to time on this and other subjects.

	In November, 1999, the Gramm-Leach-Bliley Act (Financial Services
Modernization Act - S.900) was signed into law: (1) repealing the Glass-
Steagall Act of 1933, which had prohibited the merger of banks and
securities firms; and, (2) substantially modifying the Bank Holding
Company Act of 1956, had the affect of separating banking and insurance
underwriting business.  The law contains provisions that governs
competition, creates safe-harbor protections for specific state laws and
establishes consumer protections that will govern bank-insurance sales.
Given the recent reform, the Company is unable to predict whether or in
what form initiatives will be implemented and what the possible effects
on the Company might be.

	At the state level, various forms of automobile insurance reform
are continuously 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 5.


Personal Automobile Insurance

	As previously mentioned, since 1995, the Company has been a leader
in affinity group marketing through discounts to members of the AAA
clubs.  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 exposures by 0.9%, ending the year with approximately 21.3% of
the Massachusetts private passenger automobile market.

	Since 1996, the Company has offered its Massachusetts customers
safe driver deviations to drivers with SDIP classifications of either
Steps 9 or 10.  Safe driver deviations are rate discounts based on the
customers driving record and resulting SDIP classification and must be
approved annually by the Commissioner.  Steps 9 and 10 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.  The accompanying table depicts the AAA
Affinity Group Discount, SDIP Deviations and their combined reduction
from Massachusetts average mandated rates:
<TABLE>
<CAPTION>

AAA Affinity Group Discount and  SDIP Deviations    2000*   1999   1998    1997    1996
   <S>                                              <C>     <C>     <C>     <C>     <C>
   AAA Affinity Group Discount...................    6%      6%      6%     10%     10%
   SDIP Step 9 Deviation.........................    6%      8%     15%     10%     10%
   SDIP Step 10 Deviation........................    2%      3%      4%     10%     10%

   Combined AAA Affinity Group Discount and
     Step 9 Deviation............................   11.6%   13.5%   20.1%   19.0%   19.0%
   Combined AAA Affinity Group Discount and
     Step 10 Deviation...........................    7.9%    9.8%    9.8%   19.0%   19.0%

   *For policies with effective dates as of January 1, 2000.
</TABLE>
11
<PAGE



	In November 1999, in response to the average personal automobile
rate decisions over the last several years, the Company filed for and
ultimately received approval to offer SDIP deviations of 6% for Step 9
and 2% for Step 10 for policies incepting in the 2000 calendar year.  At
December 31, 1999, 69.0% of the Company's exposures were eligible for
either Step 9 or Step 10 deviations versus 68.7% at December 31, 1998.

	The Company received state regulatory approval to implement an
installment fee of $3.00 on each invoice, following the down payment,
for all personal lines policies with effective dates of January 1, 1998
and beyond.  At December 31, 1999, this program completed its second
full year since implementation and, as a result, premium finance and
service fees increased $1,334 or 9.9% in 1999.  In 1998, service fees
had increased $6,366 or 90.0%, which was the result of the installment
fee program replacing a "late fee" system that had been utilized for
1997 and 1996.

Risk-Based Capital

	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.

	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.  The Company's insurance subsidiaries,
Commerce, Citation, Commerce West, and American Commerce are listed in
the accompanying table which provides the key RBC information:
<TABLE>
<CAPTION>

                                                              Commerce    American
      (Dollars in millions)           Commerce    Citation      West      Commerce
      <S>                               <C>        <C>          <C>        <C>
      At December 31, 1999

      Statutory surplus.............    $ 411      $   108      $  23      $  85
      RBC Company action level......      164            3          6         23

      Statutory surplus in excess
        of RBC Company action level.    $ 247      $   105      $  17      $  62

      RBC amounts...................    $  82      $     2      $   3      $  12

      % of Surplus to RBC amounts...    501.5%     5,400.0%     766.7%     708.3%
</TABLE>




12
<PAGE




Year Ended December 31, 1999 Compared to Year Ended December 31, 1998


Premiums

	The following table compares direct premiums written, net premiums
written and earned premiums for the years ending December 31, 1999 and
1998:
<TABLE>
<CAPTION>

(Dollars in thousands)
                                                       Years Ended December 31,
                                               1999       1998      Change     % Change
<S>                                             <C>        <C>        <C>         <C>
Direct Premiums Written:
  Personal Automobile in Massachusetts........  $731,329   $663,920   $ 67,409     10.2%
  Personal Automobile in All Other States.....    92,297     23,312     68,985    295.9%
  Commercial Automobile.......................    36,616     36,299        317      0.9%
  Homeowners in Massachusetts.................    59,981     59,761        220      0.4%
  Homeowners in All Other States..............    14,378         -      14,378      N/A
  Other Lines in Massachusetts................    13,027     13,483       (456)    (3.4%)
  Other Lines in All Other States.............       521         83        438    527.7%
     Total Direct Premiums Written............  $948,149   $796,858   $151,291     19.0%

Net Premiums Written:
  Direct Premiums.............................  $948,149   $796,858   $151,291     19.0%
  Assumed Premiums from C.A.R.................    87,241     74,644     12,597     16.9%
  Ceded Premiums to C.A.R.....................   (68,740)   (70,435)     1,695     (2.4%)
  Ceded Premiums to Other than C.A.R..........   (54,657)   (56,019)     1,362     (2.4%)
     Total Net Premiums Written...............  $911,993   $745,048   $166,945     22.4%

Earned Premiums:
  Personal Automobile in Massachusetts........  $633,746   $587,072   $ 46,674      8.0%
  Personal Automobile in All Other States.....    91,357     24,681     66,676    270.2%
  Commercial Automobile.......................    29,219     28,858        361      1.3%
  Homeowners in Massachusetts.................    16,830     23,235     (6,405)   (27.6%)
  Homeowners in All Other States..............    12,032        -       12,032      N/A
  Other Lines in Massachusetts................     3,190      5,717     (2,527)   (44.2%)
  Other Lines in All Other States.............       755        -          755      N/A
  Assumed Premiums from C.A.R.................    84,356     75,718      8,638     11.4%
  Assumed Premiums from Other than C.A.R......       345        339          6      1.8%
     Total Earned Premiums....................  $871,830   $745,620   $126,210     16.9%

  Earned Premiums in Massachusetts............  $682,985   $644,882   $ 38,103      5.9%
  Earned Premiums-Assumed.....................    84,701     76,057      8,644     11.4%
  Earned Premiums in All Other States.........   104,144     24,681     79,463    322.0%
     Total Earned Premiums....................  $871,830   $745,620   $126,210     16.9%
</TABLE>
















13
<PAGE



	The $67,409 or 10.2% increase in Massachusetts personal automobile
direct premiums written resulted primarily from increases of 0.9% and
2.5%, in the number of Massachusetts personal automobile exposures for
liability and physical damage coverage, respectively, coupled with
increases of 2.5% and 20.4% in the average premium rate per exposure for
Massachusetts personal automobile liability and physical damage
exposures, respectively.  The components of these 1999 changes were as
follows:
<TABLE>
<CAPTION>

                                          % of Direct
     Coverage Type                      Premiums Written (1)    Rate Change (2)
     <S>                                     <C>                    <C>
     Liability:
       Bodily Injury.................        37.0%                  (1.9%)
       Personal Injury Protection....         6.8                   11.0
       Property Damage to Others.....        18.6                    9.1

           Total Liability...........        62.4                    2.5

     Physical Damage:
       Collision.....................        25.0                   25.2
       Comprehensive.................        12.6                   11.7

           Total Physical Damage.....        37.6                   20.4

           Total.....................       100.0%                   9.1%
</TABLE>
   (1)  Represents the Company's percentage of total direct private
        passenger automobile premiums written in Massachusetts.
   (2)  Represents change in the 1999 average rate per exposure from
        the 1998 average rate charged by the Company for Massachusetts
        private passenger automobile premiums.


	The above percentage changes were primarily the result of rate
modifications in the individual coverage components in the 1999 state
mandated average rate increase, combined with changes in the Company's
safe driver rate deviations.  The combination of these factors resulted
in a 9.1% increase in the average personal automobile premium per
exposure in 1999.  Despite the 1999 state mandated average rate
increase of only 0.7%, the Company's increase in the average personal
automobile premium per exposure was primarily due to the above noted
changes coupled with the fact that the rate decision does not
anticipate purchases of new automobiles in the year in which the rate
decision applies and the Company's mix of personal automobile business
differs from that of the industry.  In 1999, the Company offered its
customers safe driver deviations of 8.0% to drivers with SDIP
classifications of Step 9 and 3.0% for Step 10 (15.0% for Step 9 and
4.0% for Step 10 in 1998).

	As shown in the table found on page 11, the AAA affinity group
discount for 1999 was established at 6.0% which was unchanged from
1998.  In 1999, for drivers who qualified, the Company's AAA affinity
group discount and safe driver deviations could be combined for up to a
13.5% reduction (20.1% in 1998) from state mandated rates.

	The increases in other states personal automobile direct premiums
written resulted primarily from the joint-venture acquisition of
American Commerce, whose eleven month results were reflected in the
above table.  American Commerce contributed $85,676 in direct premiums
written in 26 states.

	Direct premiums written for commercial automobile insurance
increased by $317 or 0.9%, due primarily to a decrease of approximately
2.6% in the number of policies written, offset by a 3.7% increase in
the average commercial automobile premium per policy.  Direct premiums
written for homeowners insurance (excluding the Massachusetts FAIR
Plan) increased by $220, or 0.4% due primarily to a 0.9% increase in
the number of policies written offset by a 1.2% decrease in the average
premium per policy.



14
<PAGE




	The $166,945 or 22.4% increase in net premiums written was due to
the growth in direct premiums written as described above and by
premiums assumed from C.A.R. The increase in premiums assumed from
C.A.R. was the result of more premiums ceded to C.A.R. by the servicing
carriers in 1999 as compared to 1998.  Premiums ceded to reinsurers
other than C.A.R. decreased $1,362, or 2.4% as compared to 1998 as a
result of changes to non-automobile reinsurance.

	The $126,210 or 16.9% increase in earned premiums during 1999 as
compared to 1998 was primarily due to the joint-venture acquisition of
American Commerce.  Earned premiums for American Commerce were $82,582
for the eleven months of 1999.  The remaining amounts were primarily
attributable to increases to the average rates per exposure for
Massachusetts personal automobile liability and physical damage,
mentioned previously.  This resulted in a $38,103 or 5.9%, increase for
Massachusetts earned premiums.  The remaining increases were
attributable to a $8,638 or 11.4% increase in earned premiums assumed
from C.A.R. and a $6 or 1.8% increase in earned premiums assumed from
ANI and Fair Plan.  The increases were offset by a decrease of $3,119
or 9.0% in earned premiums from Commerce West.


Investment Income

	Net investment income is affected primarily from the composition
of the Company's investment portfolio.  The following table summarizes
the composition of the Company's investment portfolio, at cost, at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>

Investments, at cost                                         December 31,
(Dollars in thousands)                                      % of                  % of
                                                 1999       Inv.       1998       Inv.
   <S>                                        <C>           <C>     <C>           <C>
   GNMA & FNMA mortgage-backed bonds......    $   82,349     6.1%   $  109,624     9.0%
   Corporate bonds........................        45,147     3.3           -        -
   U.S.Treasury bonds and notes...........         3,616     0.3           -        -
   Tax exempt state and municipal bonds...       530,333    39.2       490,858    40.4
       Total fixed maturities.............       661,445    48.9       600,482    49.4

   Preferred stocks.......................       230,934    17.1       200,270    16.4

   Investments in closed-end
     preferred stock mutual funds.........       267,956    19.8       169,394    13.9
   Other equity securities................        83,984     6.2        91,966     7.5
       Total common stocks................       351,940    26.0       261,360    21.4
       Total equities.....................       582,874    43.1       461,630    37.8

   Mortgages and collateral loans (net of
     allowance for possible loan losses)..        72,451     5.4        73,510     6.0
   Cash and cash equivalents..............        22,535     1.7        72,243     5.9
   Short-term investments.................           -        -          3,669     0.3
   Other investments......................        13,130     0.9         7,450     0.6
       Total investments..................    $1,352,435   100.0%   $1,218,984   100.0%
</TABLE>

	The Company's investment strategy is to maximize after-tax
investment income through high quality securities coupled with acquiring
equity investments which may forgo current investment yield in favor of
potential higher yielding capital appreciation in the future.









15
<PAGE




	As depicted in the accompanying table, net investment income
increased $3,286 or 3.8%, compared to 1998, principally as a result of
an increase in average invested assets (at cost).  Net investment income
as a percentage of total average investments was 6.8% in 1999 compared
to 7.0% in 1998.  Net investment income after tax as a percentage of
total average investments was 5.7% in 1999 and 1998.
<TABLE>
<CAPTION>
Investment Return                                    Year Ended December 31,
(Dollars in thousands)                              1999                 1998
   <S>                                           <C>                  <C>
   Average month-end investments (at cost)...    $1,326,098           $1,242,633
   Net investment income.....................        89,787               86,501
   Net investment income after-tax...........        74,970               71,094
   Net investment income as a percentage
     of average net investments (at cost)....           6.8%                 7.0%
   Net investment income after-tax as a
     percentage of average net
     investments (at cost)...................           5.7%                 5.7%
</TABLE>

Premium Finance and Service Fees

	Premium finance and service fees increased $1,334, or 9.9% during
1999.  The increase was significantly less than the 90.0% increase
experienced in 1998.  This reduction resulted from the completion of the
second full year of implementing a $3.00 installment on each invoice.
The Company had previously received state regulatory approval to charge
a $3.00 installment on each invoice following the down payment for all
personal lines policies with effective dates beginning January 1, 1998
and beyond.  Previously, in 1997, the Company had utilized a "late fee"
system.

Amortization of Excess of Book Value of Subsidiary Interest over Cost

	As a result of the acquisition of American Commerce (see
Management's Discussion and Analysis of Financial Condition and Results
of Operations - General and Notes to Consolidated Financial Statements -
NOTES A13 and A18), the amount representing the excess of the fair value
of the net assets acquired over the purchase price at January 29, 1999
was $16,465.  The amount is being amortized into revenues on a straight-
line basis over a five-year period.  The amount amortized into revenues
in 1999 was $3,019.

Investment Gains and Losses

	Gross realized gains and losses on fixed maturity investments
totaled $458 and $6,449, respectively, for the year ended December 31,
1999 compared to gross realized gains and losses on fixed maturity
investments of $99 and $2,903, respectively, for the year ended December
31, 1998.  Gross realized gains and losses on preferred stocks totaled
$207 and $451, respectively, for the year ended December 31, 1999
compared to gross realized gains and losses on preferred stocks of $369
and $1,096, respectively, for the year ended December 31, 1998.  Gross
realized gains and losses on common stocks amounted to $18,187 and
$5,057, respectively, for the year ended December 31, 1999 compared to
gross realized gains on common stocks of $9,313 for the year ended
December 31, 1998.  Gross realized gains on other investments amounted
to $1,235 for the year ended December 31, 1999 compared to gross
realized gains on other investments of $987 for the year ended December
31, 1998.

	Net realized investment gains totalled $8,130 during 1999 as
compared to net realized investment gains of $6,769 for 1998.  A
significant portion of the net realized gains in 1999 were the result of
sales of common stocks, partially offset by net realized losses in the
sales of non-taxable bonds, preferred stocks and in the maturity of
GNMAs.  Also included were realized gains on mortgage activity of $196
in 1999 compared to realized losses of $321 in 1998 and realized
investment gains in other investments, specifically the Conning
Insurance Limited Partnership, of $888 in 1999 compared with $666 in
1998.



16
<PAGE



	Gross unrealized gains and losses on fixed maturity investments
totaled $5,221 and $19,328, respectively, at December 31, 1999 compared
to $21,381 and $2,596, respectively, at December 31, 1998.  The
unrealized gains on fixed maturities decreased significantly despite
increased fixed maturity holdings, as a result of the poor performance
in the bond market due to rising interest rates in 1999.  Gross
unrealized gains and losses on preferred stocks totaled $782 and
$20,667, respectively, at December 31, 1999 compared to $2,706 and
$5,551, respectively, at December 31, 1998.  Gross unrealized gains and
losses on common stocks totaled $1,446 and $51,919, respectively, at
December 31, 1999 compared to $24,721 and $2,120, respectively, at
December 31, 1998.  The unrealized losses on preferred and common stocks
were primarily attributable to rising interest rates in 1999.  Long-term
interest rates (30-year Treasury Bond) increased to 6.48% at December
31, 1999 from 5.08% at December 31, 1998.  The Company also had gross
unrealized gains in other investments, specifically the Conning
Insurance Limited Partnership, of $1,009 in 1999 compared with $375 in
1998.

Loss and Loss Adjustment Expenses

	Losses and loss adjustment expenses ("LAE") incurred increased
$93,661 or 17.6% in 1999, compared to an increase of $5,302 or 1.0% in
1998.  The increase in losses and LAE was primarily attributable to the
acquisition of American Commerce, which accounted for $62,731 of the
increase.  The remaining increase was attributable to higher incurred
losses on Massachusetts business, which was the direct result of the
increased personal automobile direct premiums written discussed earlier,
and losses and LAE assumed from C.A.R. offset by lower computer services
expenses and higher reinsurance recoveries.  Losses and LAE incurred (on
a statutory basis) as a percentage of insurance premiums earned ("loss
ratio") was 72.0% in 1999 as compared to 71.6% in 1998.  The ratio of
net incurred losses, excluding LAE, to premiums earned ("pure loss
ratio") on personal automobile was 65.1% in 1999 compared to 61.4% in
1998.  The increase to the personal automobile pure loss ratio was
primarily due to a continued decrease in redundancies arising from prior
accident years, and increases in the cost of adjusting losses.  The
commercial automobile pure loss ratio increased to 60.3% in 1999
compared to 52.3% in 1998.  This increase was primarily the result of
fewer prior year liability redundancies in the 1999 figure.  For
homeowners, the pure loss ratio was 35.9% in 1999 compared to 31.8% in
1998. Offsetting the overall increase in pure loss ratio, total expenses
related to the Company's management incentive compensation plan and the
American Commerce agency stock option plan included in losses and loss
adjustment expenses were $397 lower in 1999 as compared to 1998.  The
decrease was primarily driven by decreases, during 1999, in the market
price of the Company's common stock and offset by the 1999
implementation of the American Commerce agency stock option plan which
resulted in an additional $954 in expenses during 1999.  These
management incentive and agency stock option expenses are directly
impacted by the market price of the Company's common stock.  The loss
ratio was favorably impacted by 0.4% due to a reduction in expenses
related to the termination of a contract for software development with
an outside vendor during the second quarter of 1999.  The loss ratio was
also favorably impacted by additional reductions in computer services
expenses paid to this vendor as compared to last year.  The loss ratio
(on a statutory basis) for Commerce West was 71.2% for 1999 as compared
to 58.8%  in 1998.  The eleven month loss ratio (on a statutory basis)
for the Company's new acquisition, American Commerce, was 75.8% for
1999.

















17
<page



Policy Acquisition Costs

	Policy acquisition costs expensed increased by $37,226, or 19.0%
in 1999, compared to an increase of $8,943, or 4.8% in 1998.  The
increase in policy acquisition costs was primarily attributable to the
acquisition of American Commerce, which accounted for $26,659 of the
increase.  The remaining increase was attributable to higher contingent
commission accruals and higher underwriting expenses assumed from C.A.R.
offset by lower computer services expenses.  As a percentage of net
premiums written, underwriting expenses for the insurance companies (on
statutory basis) remained constant at 26.5% for both 1999 and 1998.  As
mentioned, a portion of the computer services expense decrease resulted
from the termination, during the second quarter, of a contract for
software development with an outside vendor which favorably impacted the
underwriting expense ratio by 0.3% and through reduced computer services
expenses paid to this vendor as compared to last year.  Total expenses
related to the Company's management incentive compensation plan and the
American Commerce agency stock option plan included in policy
acquisition costs were $219 lower in 1999 as compared to 1998.  The
decrease was primarily driven by decreases, during 1999, in the market
price of the Company's common stock and offset by the 1999
implementation of the American Commerce agency stock option plan which
resulted in an additional $954 in expense during 1999.  The underwriting
expense ratio (on a statutory basis) for Commerce West was 40.9% for
1999 as compared to 38.6% for 1998.  The eleven month underwriting
expense ratio (on a statutory basis) for the Company's new acquisition,
American Commerce, was 31.4% for 1999.


Income Taxes

	The Company's effective tax rate was 21.1% and 22.5% for the years
ended December 31, 1999 and 1998, respectively.  In both years the
effective rate was lower than the statutory rate of 35% primarily due to
tax-exempt interest income and the corporate dividends received
deduction.  The lower effective tax rate for 1999 was the result of the
tax exempt interest and the dividends received deduction comprising a
greater portion of earnings before taxes.


Minority Interest

	As a result of the joint venture with AAA SNE and acquisition of
American Commerce (see Management's Discussion and Analysis of Financial
Condition and Results of Operations - General and Notes to Consolidated
Financial Statements - NOTES A13 and A18), the Company's interest in
ACIC Holding Co., Inc., through Commerce, a wholly-owned subsidiary of
CHI, is represented by ownership of 80% of the outstanding shares of
common stock at December 31, 1999.  AAA SNE maintains a 20% common stock
ownership.  The minority interest of $952 included in these consolidated
financial statements  for 1999 represents 20% of the net loss for ACIC
Holding Co., Inc. which is calculated after the $8,300 preferred stock
dividend paid to Commerce.


Net Earnings

	Net earnings increased $6,096, or 6.3% to $102,588, during 1999 as
compared to $96,492 in 1998 and operating earnings, which exclude the
after-tax impact of net realized investment gains, increased $5,212, or
5.7% to $97,304 during 1999 as compared to $92,092 in 1998, both as a
result of the factors previously mentioned.











18
<PAGE


<TABLE>
<CAPTION>

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Premiums


	The following table compares direct premiums, net premiums written and
earned premiums for the years ending December 31, 1998 and 1997:

(Dollars in thousands)
                                                          Years Ended December 31,
                                                  1998       1997      Change    % Change
<S>                                             <C>        <C>        <C>          <C>
Direct Premiums Written:
  Personal Automobile in Massachusetts........  $663,920   $633,681   $ 30,239       4.6%
  Personal Automobile in All Other States.....    23,312     27,312     (4,082)    (14.9)
  Commercial Automobile.......................    36,299     37,071       (772)     (2.1)
  Homeowners in Massachusetts.................    59,761     56,681      3,080       5.4
  Other Lines in Massachusetts................    13,483     13,730       (247)     (1.8)
  Other Lines in All Other States.............        83         92         (9)     (9.8)
     Total Direct Premiums Written............  $796,858   $768,649   $ 28,209       3.7%

Net Premiums Written:
  Direct Premiums.............................  $796,858   $768,649   $ 28,209       3.7%
  Assumed Premiums from C.A.R.................    74,644     76,531     (1,887)     (2.5)
  Ceded Premiums to C.A.R.....................   (70,435)   (71,816)     1,381      (1.9)
  Ceded Premiums from Other than C.A.R........   (56,019)   (31,863)   (24,156)     75.8
     Total Net Premiums Written...............  $745,048   $741,501   $  3,547       0.5%

Earned Premiums:
  Personal Automobile in Massachusetts........  $587,072   $552,190   $ 34,882       6.3%
  Personal Automobile in All Other States.....    24,681     28,159     (3,478)    (12.4)
  Commercial Automobile.......................    28,858     27,988        870       3.1
  Homeowners in Massachusetts.................    23,235     30,598     (7,363)    (24.1)
  Other Lines in Massachusetts................     5,717      8,425     (2,708)    (32.1)
  Assumed Premiums from C.A.R.................    75,718     82,867     (7,149)     (8.7)
  Assumed Premiums from Other than C.A.R......       339        270         69      25.6
     Total Earned Premiums....................  $745,620   $730,497   $ 15,123       2.1%

  Earned Premiums in Massachusetts............  $644,882   $619,201   $ 25,681       4.1%
  Earned Premiums-Assumed.....................    76,057     83,137     (7,080)     (8.5)
  Earned Premiums in All Other States.........    24,681     28,159     (3,478)    (12.4)
     Total Earned Premiums....................  $745,620   $730,497   $ 15,123       2.1%
</TABLE>

	The $30,239 or 4.6% increase in Massachusetts personal automobile
direct premiums written resulted primarily from increases of 1.9% and
4.5% in the number of Massachusetts personal automobile exposures for
liability and physical damage coverage, respectively, coupled with a
3.2% decrease and a 13.3% increase in average rates for personal
automobile physical liability and physical damage exposures,
respectively.














19
<PAGE



<TABLE>
<CAPTION>
     The components of these 1998 changes were as follows:

                                          % of Direct
     Coverage Type                     Premiums Written (1)    Rate Change (2)
     <S>                                    <C>                     <C>
     Liability:
       Bodily Injury.................        41.2%                  (8.4%)
       Personal Injury Protection....         6.7                    0.0
       Property Damage to Others.....        18.6                    9.1

           Total Liability...........        66.5                   (3.2)

     Physical Damage:
       Collision.....................        21.4                   13.6
       Comprehensive.................        12.1                   12.7

           Total Physical Damage.....        33.5                   13.3

           Total.....................       100.0%                   2.6%
</TABLE>

   (1)  Represents the Company's percentage of total direct private passenger
        automobile premiums written in Massachusetts.
   (2)  Represents change in 1998 average rate per exposure from the 1997
        average rate charged by the Company for Massachusetts private
        passenger automobile premiums.

	The above percentage changes were primarily the result of the
changes in the Company's affinity group marketing programs, safe driver
rate deviations and the effect of the 1998 state mandated average rate
decrease of 4.0%.  The combination of these factors resulted in a 2.6%
increase in the average personal automobile premium (each vehicle
insured).  Despite the 1998 state mandated average rate decrease of
4.0%, the Company's increase in the average personal automobile premium
per exposure was primarily due to the above noted changes coupled with
the fact that the rate decision does not anticipate purchases of new
automobiles in the year in which the rate decision applies and the
Company's mix of personal automobile business differs from that of the
industry.  In 1998, the Company offered its customers safe driver
deviations of 15% to drivers with SDIP classifications of Step 9 and
4.0% for Step 10 (10% for both Steps 9 and 10 in 1997).  The decrease in
California personal automobile direct premiums written resulted
primarily from the increasingly competitive personal automobile market
that has witnessed several new entrants since 1997.

	As shown in the table found on page 11, the AAA affinity group
discount for 1998 was established at 6.0% (10% in 1997).  In 1998, for
drivers who qualified, the Company's AAA affinity group discount and
safe driver deviations could be combined for up to a 20.1% reduction
from state mandated rates.

	Direct premiums written for commercial automobile insurance
decreased by $772 or 2.1%, due primarily to a decrease of approximately
0.2% in the number of policies written, and a 1.9% decrease in the
average commercial automobile premium per policy.  Direct premiums
written for homeowners insurance (excluding the Massachusetts FAIR Plan)
increased by $2,862, or 5.2% due primarily to a 1.6% increase in the
number of policies written and a 3.6% increase in the average premium
per policy.

	The increase in net premiums written was due to the growth in
direct premiums written as described above, offset by increased levels
of coverage provided by non-automobile reinsurance treaties resulting in
an increase of ceded premiums.  Written premiums assumed from C.A.R.
decreased $1,887, or 2.5% and written premiums ceded to C.A.R. decreased
$1,381 or 1.9% as compared to 1997, 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. increased $24,156 or
75.8% as compared to 1997 as a result of changes to non-automobile
reinsurance discussed on page 51.

20
<page



	The increase in earned premiums was primarily attributable to a
$34,882 or 6.3% increase in earned premiums for Massachusetts personal
automobile insurance, an increase of $870, or 3.1% in earned premiums
for commercial automobile insurance offset by a $7,363 decrease in
earned premiums for homeowners insurance, a $3,478 or 12.4% decrease in
earned premiums for California personal automobile insurance and a
$2,708 or 32.1% decrease in earned premiums for all other than
automobile lines.  Earned premiums were impacted by increased levels of
coverage provided by non-automobile reinsurance treaties which commenced
during the 2nd half of 1998.  Earned premiums assumed from C.A.R.
decreased $7,149 or 8.7% during 1998 compared to 1997.  Earned premiums
ceded to C.A.R. decreased $3,594 or 5.0%.


Investment Income

	Net investment income is derived primarily from the composition of
the Company's investment portfolio.  The following table summarizes the
composition of the Company's investment portfolio, at cost, at December
31, 1998 and 1997:
<TABLE>
<CAPTION>

Investments, at cost                                          December 31,
(Dollars in thousands)                                    % of                 % of
                                                 1998       Inv.       1997       Inv.
   <S>                                        <C>          <C>      <C>          <C>
   GNMA & FNMA mortgage-backed bonds......    $  109,624     9.0%   $  175,788    14.6%
   Corporate bonds........................           -       -             -       -
   U.S.Treasury bonds and notes...........           -       -             -       -
   Tax exempt state and municipal bonds...       490,858    40.4       390,996    32.6
       Total fixed maturities.............       600,482    49.4       566,784    47.2

   Preferred stocks.......................       200,270    16.4       148,135    12.3

   Investments in closed-end
     preferred stock mutual funds.........       169,394    13.9       115,943     9.7
   Other equity securities................        91,966     7.5        44,428     3.7
       Total common stocks................       261,360    21.4       160,371    13.4
       Total equities.....................       461,630    37.8       308,506    25.7

   Mortgages and collateral loans (net of
     allowance for possible loan losses)..        73,510     6.0        82,839     6.9
   Cash and cash equivalents..............        72,243     5.9       106,188     8.8
   Short term investments.................         3,669     0.3       132,700    11.1
   Other investments......................         7,450     0.6         3,783     0.3
       Total investments..................    $1,218,984   100.0%   $1,200,800   100.0%
</TABLE>

	Net investment income increased $5,529 or 6.8%, compared to 1997,
principally as a result of an increase in average invested assets (at
cost).  Net investment income as a percentage of total average
investments was 7.0% in 1998 compared to 6.9% in 1997.  Net investment
income after tax as a percentage of total average investments was 5.7%
in 1998 compared to 5.5% in 1997.  The increase was primarily the result
of the after-tax benefits of increased dividends received on common and
preferred stocks.
<TABLE>
<CAPTION>
Investment Return                                         Year Ended December 31,
(Dollars in thousands)                                  1998                  1997
   <S>                                               <C>                   <C>
   Average month-end net investments (at cost)...    $1,242,633            $1,181,181
   Net investment income.........................        86,501                80,972
   Net investment income after-tax of average....        71,094                65,286
   Net investment income as a percentage
     net investments (at cost)...................           7.0%                  6.9%
   Net investment income after-tax as a
     percentage of average net investments
    (at cost)....................................           5.7%                  5.5%
</TABLE>
21
<page




Premium Finance and Service Fees

	Premium finance and service fees increased $6,366 or 90.0% during
1998.  The increase was primarily attributable to the Company receiving
state regulatory approval to charge a $3.00 installment on each invoice
following the down payment for all personal lines policies with
effective dates of January 1, 1998 and beyond.  Previously, in 1996 and
1997, the Company had utilized a "late fee" system.


Investment Gains and Losses

	Gross realized gains and losses on fixed maturity investments
totaled $99 and $2,903, respectively, for the year ended December 31,
1998 compared to gross realized gains and losses on fixed maturity
investments of $4,306 and $2,887, respectively, for the year ended
December 31, 1997.  Gross realized gains and losses on preferred stocks
totaled $369 and $1,096, respectively, for the year ended December 31,
1998 compared to gross realized gains and losses on preferred stocks of
$2,688 and $2,682, respectively, for the year ended December 31, 1997.
Gross realized gains on common stocks amounted to $9,313 for the year
ended December 31, 1998 compared to gross realized gains on common
stocks of $21,440 for the year ended December 31, 1997.

	Net realized investment gains totalled $6,769 during 1998 as
compared to net realized investment gains of $22,770 for 1997.  A
significant portion of the net realized gains in 1998 were the result of
sales of common stocks, partially offset by net realized losses in the
sales of non-taxable bonds, preferred stocks and in the maturity of
GNMAs.  A significant portion of the realized gains in 1997 were
primarily the result of a merger of a major New England financial
corporation and its property and casualty subsidiary.  The merger
election and exchange of stock coupled with subsequent post merger sales
of this corporation's common stock resulted in realized investment gains
of $18,968.  Also included were realized gains on mortgage activity of
$321 in 1998 compared to realized losses of $95 in 1997 and realized
investment gains in the Conning Insurance Limited Partnership of $666 in
1998 compared with none in 1997.

	Gross unrealized gains and losses on fixed maturity investments
totaled $21,381 and $2,596, respectively, at December 31, 1998 compared
to $24,190 and $377, respectively, at December 31, 1997.  The unrealized
gains on fixed maturities decreased despite increased fixed maturity
holdings and declining interest rates in 1998.  Gross unrealized gains
and losses on preferred stocks totaled $2,706 and $5,551, respectively,
at December 31, 1998 compared to $1,599 and $1,235, respectively at
December 31, 1997.  Gross unrealized gains and losses on common stocks
totaled $24,721 and $2,120, respectively, at December 31, 1998 compared
to $17,888 and $170, respectively, at December 31, 1997.  The Company
also recognized gross unrealized gains in the Conning Insurance Limited
Partnership of $375 in 1998 compared with none in 1997.



















22
<page



Losses and Loss Adjustment Expenses

	Losses and loss adjustment expenses ("LAE") incurred (on a
statutory basis) as a percentage of insurance premiums earned ("loss
ratio") was 71.6% in 1998 as compared to 71.4% in 1997.  The ratio of
net incurred losses, excluding LAE, to premiums earned ("pure loss
ratio") on personal automobile was 61.4% in 1998 compared to 61.3% in
1997.  Although the personal automobile pure loss ratio remained stable,
various components impacted the ratio, primarily in the bodily injury
area.  Redundancies from prior year losses realized in the current year,
relating to bodily injury claims, were approximately $18.0 million less
in 1998, as compared to 1997.  Approximately $11.0 million of this
amount was attributable to voluntary personal automobile bodily injury
loss reserves and $7.0 million to fewer redundancies from C.A.R. assumed
reserves.  The decreased redundancies, however, were offset by better
current year experience, also primarily in the personal automobile
bodily injury area.  This improvement was primarily the result of
improved severity of bodily injury claims coupled with slightly improved
claim frequency.  The commercial automobile pure loss ratio increased to
52.3% in 1998 compared to 45.4% in 1997.  For homeowners, the pure loss
ratio was 31.8% in 1998 compared to 48.2% in 1997.  This decrease was
due to favorable weather conditions during 1998 as compared to normal
weather conditions experienced during 1997, coupled with favorable
development in the homeowners liability area.  The LAE component of the
loss ratio was primarily impacted by an increase of approximately $3.2
million in computer service expenses, relating to the Year 2000 and PMSC
projects, offset by a decrease of management incentive plan expenses.
On a consolidated financial statement basis, total expenses related to
the Company's management incentive plan included in losses and loss
adjustment expenses were $10,093 lower in 1998 as compared to 1997.  Of
this decrease, $3,112 benefited the loss ratio for insurance companies
directly with the remainder benefiting corporate expenses.  Corporate
expenses are not included in the calculation of the Company's statutory
loss ratio.  The decrease in the Company's management incentive plan
expenses was primarily driven by the decrease in the market price of the
Company's common stock which directly impacts plan expenses.

Policy Acquisition Costs

	Policy acquisition costs expensed increased by $8,943, or 4.8% in
1998, compared to an increase of $6,478, or 3.6% in 1997.  The increase
in policy acquisition costs was primarily due to higher contingent
commission accruals, and higher computer service expenses relating to
the Year 2000 and PMSC projects, both offset by lower expenses relating
to the Company's management incentive plan.  Specifically, total
expenses related to the Company's management incentive plan included in
policy acquisition costs were $8,764 lower in 1998 as compared to 1997.
Of this decrease, $3,052 benefited the underwriting ratio for insurance
companies directly with the remainder benefiting corporate expenses.
Corporate expenses are not included in the calculation of the statutory
underwriting expense ratio.  The decrease in the Company's management
incentive plan expenses was primarily driven by the decrease in the
market price of the Company's common stock which directly impacts plan
expenses.  As a percentage of net premiums written, underwriting
expenses for the insurance companies (on a statutory basis) were 26.5%
during 1998 as compared to 25.1% for 1997.

Income Taxes

	The Company's effective tax rate was 22.5% and 24.7% for the years
ended December 31, 1998 and 1997, respectively.  The decrease was
primarily attributable to higher dividends on preferred and common stock
coupled with less realized capital gains during 1998 as compared to
1997.  In both years the effective rate was lower than the statutory
rate of 35% primarily due to tax-exempt interest income and the
corporate dividends received deduction comprising a greater portion of
net earnings before taxes.

Net Earnings

	Net earnings increased to $96,492, during 1998 as compared to
$96,215 in 1997 and operating earnings, which exclude the after-tax
impact of net realized investment gains, increased $10,677, or 13.1% to
$92,092 during 1998 as compared to $81,415 in 1997, both as a result of
the factors previously mentioned.


23
<page




Liquidity and Capital Resources
	The focus of the discussion of liquidity and capital resources is
on the Consolidated Balance Sheets on page 33 and the Consolidated
Statements of Cash Flows on pages 36 and 37.  Stockholders' equity
decreased by $59,151, or 8.4%, in 1999 as compared to 1998.  The
decrease resulted from $102,588 in net earnings offset by changes in
other comprehensive loss, net of income tax benefits, on fixed
maturities and preferred and common stocks of $78,162, dividends paid to
stockholders of $38,656 and Treasury Stock purchased of $44,921.  Total
assets at December 31, 1999 increased $115,489, or 6.6% to $1,871,472 as
compared to total assets of $1,755,983 at December 31, 1998, most of
which resulted from the acquisition of American Commerce.  Invested
assets, at market value, increased $11,079 or 0.9% primarily as a result
of the addition of $150,664, of invested assets from American Commerce,
offset by the initial $90,800 investment in the joint venture, treasury
stock purchases impacting cash and short-term investments and the
interest rate impact on investments resulting in a net accumulated other
comprehensive loss during 1999 (see next paragraph).  Premiums
receivable increased $32,282 or 19.8%, $9,727 attributable to American
Commerce.  The increase in premiums receivable from December 31, 1998,
was primarily attributable to the seasonality of the policy effective
dates of the Company's business, higher average premiums per exposure
for Massachusetts auto business and the acquisition of American
Commerce.  Deferred policy acquisition costs increased $9,741 or 11.0%,
$6,563 attributable to American Commerce.  Receivable from reinsurers
increased $11,678 or 31.8%, $5,496 attributable to American Commerce
with the remainder primarily attributable to the sliding-scale
commission on the quota-share reinsurance program.  The deferred income
tax asset increased $43,051, $7,808 attributable to American Commerce
with the remainder primarily the result of the decrease of the market
value of the investment portfolio.  All other remaining assets increased
$7,658 or 3.7%, $6,034 attributable to American Commerce.
<TABLE>
<CAPTION>
The Company's investment portfolio, at market, is shown on the following table
 as of December 31, 1999 and 1998:

                                                             December 31,
Investments, at market                                      % of                  % of
(Dollars in thousands)                           1999       Inv.       1998       Inv.
   <S>                                        <C>          <C>      <C>            <C>
   GNMA & FNMA mortgage-backed bonds......    $   82,613     6.5%   $  112,588     9.0%
   Corporate bonds........................        42,532     3.4           -        -
   U.S.Treasury bonds and notes...........         3,315     0.2           -        -
   Tax exempt state and municipal bonds...       518,878    40.9       506,679    40.3
       Total fixed maturities.............       647,338    51.0       619,267    49.3

   Preferred stocks.......................       211,049    16.6       197,425    15.7

   Investment in closed-end
     preferred stock mutual funds.........       224,120    17.7       172,455    13.7
   Other equity securities................        77,347     6.1       111,506     8.9
       Total common stocks................       301,467    23.8       283,961    22.6
       Total equities.....................       512,516    40.4       481,386    38.3

   Mortgages and collateral loans (net of
     allowance for possible loan losses)..        72,451     5.7        73,510     5.8
   Cash and cash equivalents..............        22,535     1.8        72,243     5.7
   Short-term investments.................           -        -          3,669     0.3
   Other investments......................        14,139     1.1         7,825     0.6
       Total investments..................    $1,268,979   100.0%   $1,257,900   100.0%
</TABLE>

	(For investments, at cost, refer to the table found on page 15.




24
<page



	The Company's fixed maturity portfolio is comprised of GNMAs and
FNMA mortgage backed bonds (12.8%), municipal bonds (80.1%), corporate
bonds (6.6%) and U.S. Treasury bonds (0.5%).  Of the Company's bonds,
96.8% are rated in either of the two highest quality categories provided
by the NAIC.  As of December 31, 1999, the book value of the Company's
fixed maturity portfolio exceeded its market value by $14,107 ($9,170
after taxes, or $0.27 per share).  As of December 31, 1998, the market
value of the Company's fixed maturity portfolio exceeded its book value
by $18,785 ($12,210 after taxes, or $0.34 per share).  At December 31,
1999, the cost of the Company's preferred stocks exceeded market value
by $19,885 ($12,925 after taxes, or $0.38 per share).  At December 31,
1998, the cost of the Company's preferred stocks exceeded market value
by $2,845 ($1,849 after taxes, or $0.05 per share).  At December 31,
1999, the cost of the Company's common stocks exceeded market value by
$50,473 ($32,807 after taxes, or $0.95 per share).  At December 31,
1998, the market value of the Company's common stocks exceeded cost by
$22,601 ($14,691 after taxes, or $0.41 per share).

	Preferred stocks increased $13,624, or 6.9% and common stocks
(primarily composed of closed-end preferred stock mutual funds)
increased $17,506, or 6.2%, during 1999 primarily as a result of the
Company's previously announced change in investment strategy which
included the joint-venture acquisition of American Commerce.  The
Company's strategy is to maximize after-tax investment income through
high quality securities coupled with acquiring equity investments which
may forego current investment yield in favor of potential higher
yielding capital appreciation in the future.  As a result of the
American Commerce acquisition, the Company's cash position has decreased
$53,377, or 70.3% as compared to December 31, 1998.

	The Company's liabilities totalled $1,223,650 at December 31, 1999
as compared to $1,050,198 at December 31, 1998.  The $173,452 or 16.5%
increase resulted partially from the acquisition of American Commerce.
Loss and loss adjustment expense reserves comprised 55.2% of the
Company's liabilities at December 31, 1999 compared with 56.8% at
December 31, 1998.  Unearned premiums comprised 37.4% of the Company's
liabilities at December 31, 1999 compared with 37.3% at December 31,
1998.  All other liabilities comprised 7.4% of the Company's liabilities
at December 31, 1999 compared with 5.9% at December 31, 1998.  Losses
and loss adjustment expenses increased $78,912 or 13.1%, $56,508
attributable to American Commerce.  The increase in liability for loss
and loss adjustment expenses is attributed primarily to the acquisition
of American Commerce, as mentioned, coupled with increased reported
losses and higher assumed losses from C.A.R., as described below for
Massachusetts business, during 1999.  Unearned premiums increased
$65,671 or 16.8%, $27,615 attributable to American Commerce, as a result
of the seasonality of the policy effective dates of the Company's
business coupled with higher average premiums per exposure for
Massachusetts auto business.  Contingent commissions accrued increased
$11,401 or 51.7% due to better experience in the agency profit sharing
program.  Excess of book value of subsidiary interest over cost
(formerly referred to as Negative Goodwill) associated with the January
29, 1999 acquisition of American Commerce was $10,758.  The net effect
of all other liabilities increased $7,430 or 18.7%.

	The primary sources of the Company's liquidity are funds generated
from insurance premiums, net investment income, premium finance and
service fees and the maturing and sale of investments as reflected in
the Consolidated Statements of Cash Flows on pages 36 and 37.  The
discussion of these items can be found under "Year Ended December 31,
1999 Compared to Year Ended December 31, 1998", herein.








25
<page


	The Company's operating activities provided cash of $124,674 in
1999, as compared to $65,324 in 1998.  These cash flows were primarily
impacted by the fact that while premiums collected increased $119,933,
or 15.7% in 1999 as compared to an increase of $34,009, or 4.7% in 1998,
losses and LAE paid increased only $38,226, or 6.7% in 1999, as compared
to an increase of $56,531, or 11.0% in 1998, and policy acquisition
costs paid increased $38,814, or 20.8% in 1999 as compared to a decrease
of $11,142, or 5.6% in 1998.  The increase in premiums was primarily the
result of the American Commerce acquisition, coupled with higher
physical damage exposures written, and an average overall rate increase
in premium per exposure of 9.1%.  Federal income tax payments decreased
$9,643, or 27.4% in 1999 as compared to an increase of $13,368, or 61.2%
in 1998 due to additional payments made in 1998 applicable to prior
years.

	The increase in net losses and LAE paid, which includes the change
in the losses and LAE liability, resulted primarily from the acquisition
of American Commerce.

	The net cash flows used in investing activities were primarily the
result of purchases of fixed maturities, equity securities and the
acquisition of American Commerce offset by proceeds from the sale and
maturity of fixed maturities and equity securities.  Investing
activities were funded by accumulated cash and cash provided by
operating activities during 1999 and 1998.

	Cash flows used in financing activities totaled $83,577 during
1999 compared to $38,566 during 1998.  The 1999 cash flows used in
financing activities consisted of $38,656 in dividends paid to
stockholders and $44,921 used to purchase 1,683,100 shares of Treasury
Stock.  The 1998 cash flows used in financing activities consisted
exclusively of dividends paid to stockholders.

	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, 1999 was $1,268,979.  At December 31, 1999,
the Company held cash and short-term investments of $22,535.  These
funds provide sufficient liquidity for the payment of claims and other
short-term cash needs.  The Company also 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 may, within certain limitations, pay such dividends and
then file a report with the Commissioner.  Dividends in excess of these
limitations are called extraordinary dividends.  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 1999, 1998 and
1997.

	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.

	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 1.76 to 1.00, 1.32 to 1.00, and
1.43 to 1.00 for the years ended December 31, 1999, 1998 and 1997,
respectively.

	In keeping with the Company's long-term growth objective to expand
outside Massachusetts, in 1995 the Company acquired Commerce West, a
personal automobile insurer, located in Pleasanton, California.  Most
recently, the Company formed a joint venture (ACIC Holding Co., Inc.) in
November 1998, and acquired, American Commerce located in Columbus,
Ohio, in January 1999.  American Commerce writes automobile and
homeowners insurance solely through 34 AAA independent insurance
agencies in 26 states.
26
<page



	In early 1999, Commerce, a subsidiary of the Company, invested
$90,800 in the joint venture (ACIC Holding Co., Inc.) to fund the
American Commerce acquisition and to capitalize the joint venture that
is owned together with AAA SNE.  Of this $90,800, Commerce invested
$90,000 in the form of preferred stock and an additional $800
representing its 80% common stock ownership.  The terms of the preferred
stock call for quarterly cash dividends at the rate of 10% per annum.
In the event cash dividends cannot be paid, additional preferred stock
will be issued.  AAA SNE invested $200 representing its 20% common stock
ownership.  Commerce consolidates ACIC Holding Co., Inc. and it's
wholly-owned subsidiary, American Commerce, for financial reporting and
tax purposes.  Since 1995, Commerce has maintained an affinity group
marketing relationship with AAA Insurance Agency, Inc., a subsidiary of
AAA SNE.  AAA Insurance Agency, Inc. has been an agent of Commerce since
1985.


Year 2000 Compliance

	The Year 2000 issue existed primarily because most computer
programs were originally coded to recognize only the last two digits in
the date field.  If not addressed and corrected, many systems could have
failed and produced erroneous results.  The impact of this could have
lead to a material adverse impact upon the Company's business including
policy and claims processing.  As a result, considerable effort took
place to assess the impact and determine whether to replace and/or
reprogram the systems in order for the systems to distinguish the
intended year.  The Company initiated the Century Change project to
address all internal/external systems, software, agents, third parties
and vendors in dealing with year 2000 compliance.

	The Century Change project, enlisted both a redeployment of
internal resources and additional external consultant resources,
involved the development of a formal plan to address the Year 2000
problem and progressed in accordance with that plan.  The Company's
plan, which was designed to avoid any material adverse business
production issues, organized corporate systems into four sub-categories:
Data Exchange, AS400 Systems/Programs, PC Applications and PC Based
Vendor Purchased Application Software. Different sub-plans were
established for each category with the same Year 2000 objective in mind.
As a result of this effort, the majority of the programming changes
dealing with policy issuance, claims processing and maintenance were
completed as of October 1998.  Other internal changes were completed in
accordance with specified delivery dates as outlined in the plan.
System testing for Year 2000 modifications successfully concluded as of
the end of the third quarter of 1999.  No processing problems have been
encountered to date during the year 2000, regarding these computer
programs.

	As part of the Century Change project, the Company reviewed the
status of vendors who performed outside processing, those whose software
the Company used for internal processing and those third parties with
whom the Company did significant business.  Accordingly, the Company
recognized that year 2000 non-compliance could materially adversely
affect the financial position, results of operations and cash flows of
the Company.  As a result, the Company contacted all significant related
third parties in an effort to determine year 2000 compliance.  This
program included sending out questionnaires to our major business
partners, including our agents, regarding their year 2000 readiness.
Based on the responses received the Company did not anticipate any
material impact on its operations or financial condition.  If there were
instances where the Company ascertained a potential non-compliance, the
Company sought alternative year 2000 compliant third parties.  While the
Company took what it believed to be the appropriate safeguards, there
could be no assurances that the failure of such third parties to be year
2000 compliant would not have had a material adverse impact on the
Company.  During 2000, no processing problems have been encountered to-
date with the services or products provided by third parties.

	The Company's Executive Committee, as well as all departments in
the Company, reviewed issues dealing with identifying possible year 2000
worst case scenarios and developed contingency plans to respond to the
likelihood of these scenarios.  Contingency plans were developed, where
deemed appropriate, for all material systems and relationships during
1999.  Previously, contingency plans had been developed for the
continuation of policy and claim processing in the event that the
Company's computer systems were not available due to a year 2000 related
failure.  No problems (worst case or otherwise) have been encountered
during the year 2000, and it has not been necessary to activate any
contingency plans.
27
<page




	The project, through December 31, 1999, involved internal staff
costs as well as consulting expenses to prepare the systems for the year
2000.  Total costs through December 31, 1999, for the Century Change
project were approximately $7.4 million ($2.5 million of which related
to 1999).  Total costs applicable to internal staff, and external
consulting and network hardware/software were approximately $2.4
million, $4.7 million, and $0.3 million, respectively ($0.8 million,
$1.4 million, and $0.3 million, respectively, related to 1999).


Market Risk:  Interest Rate Sensitivity and Equity Price Risk

	The Company's investment strategy emphasizes investment yield
while maintaining investment quality.  The Company's investment
objective is to maintain high quality diversified investments structured
to maximize after-tax investment income while minimizing risk.  The
Company's funds are generally invested in securities with maturities
intended to provide adequate funds to pay claims and meet other
operating needs without the forced sale of investments.  Periodically,
sales have been made from the Company's fixed maturity 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.

	In conducting investing activities, the Company is subject to, and
assumes, market risk.  Market risk is the risk of an adverse financial
impact from changes in interest rates and market prices.  The level of
risk assumed by the Company is a function of the Company's overall
objectives, liquidity needs and market volatility.

	The Company manages its market risk by focusing on higher quality
equity and fixed income investments, by periodically monitoring the
credit strength of companies in which investments are made, by limiting
exposure in any one investment and by monitoring the quality of the
investment portfolio by taking into account credit ratings assigned by
recognized rating organizations.

	As part of its investing activities, the Company assumes positions
in fixed maturity, equity, short-term and cash equivalents markets.  The
Company is, therefore, exposed to the impacts of interest rate changes
in the market value of investments.  For 1999, the Company's exposure to
interest rate changes and equity price risk has been estimated using
sensitivity analysis. The interest rate impact is defined as the effect
of a hypothetical interest rate change of plus-or-minus 200 basis points
on the market value of fixed maturities and preferred stocks.  The
equity price risk is defined as a hypothetical change of plus-or-minus
10% in the fair value of common stocks.  Changes in interest rates would
result in unrealized gains or losses in the market value of the fixed
maturity and preferred stock portfolio due to differences between
current market rates and the stated rates for these investments.  Based
on the results of the sensitivity analysis at December 31, 1999, the
Company's estimated market exposure for a 200 basis point increase
(decrease) in interest rates was calculated.  A 200 basis point increase
results in an $87,972 decrease in the market value of the fixed
maturities and preferred stocks.  A 200 basis point decrease results in
a $49,136 increase in the market value of the same securities.  The
equity price risk impact at December 31, 1999, based upon a 10% increase
in the fair value of common stocks, would be an increase of $30,147.
Based upon a 10% decrease, common stocks would decrease $30,147.  This
analysis was further exemplified during 1999 as the Company experienced
a decline in the market value of investments, net of taxes, of $78,162
primarily as evidenced by an increase in long-term interest rates during
this period.  Long-term interest rates (30-year Treasury Bond) increased
to 6.48% at December 31, 1999 from 5.08% at December 31, 1998.









28
<page




Recent Accounting Developments

	During 1997, the Accounting Standards Executive Committee
("AcSEC") issued Statement of Position 97-3 Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments ("SOP 97-3")
effective for financial statements issued for periods ending after
December 31, 1998.  This statement provides guidance on accounting by
insurance companies on the timing of recognition, the methods of
measurement, and the required disclosures for guaranty fund and other
related assessments.  The adoption of this statement did not have a
material impact on the Consolidated Financial Statements.  Guaranty fund
and insolvency fund assessments have not been material in recent years.

	During 1998, the AcSEC issued Statement of Position 98-1,
Accounting for Costs of Computer Software Developed or Obtained for
Internal Use ("SOP 98-1") effective for financial statements issued for
periods beginning after December 15, 1998.  This statement establishes
guidance on accounting for the costs incurred related to internal use
software.  Prior to adoption, the Company expensed all software costs as
incurred.  The adoption of this statement did not have a material impact
on the Consolidated Financial Statements, since the Company incurred no
software costs during 1999 required to be capitalized under this
statement.

	During 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133") effective
for financial statements issued for fiscal years beginning after June
15, 1999.  Subsequently, during 1999, FASB issued Financial Accounting
Standards No. 137 "Deferral of the Effective Date of FASB Statement 133"
("FAS 137").  The adoption date was delayed to fiscal years beginning
after June 15, 2000.  The Company had no derivative or hedging activity
in 1999, 1998 or 1997.


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.













29
<page





COMMON STOCK PRICE AND DIVIDEND INFORMATION


	The Company's common stock trades on the NYSE under the symbol
"CGI".  The high, low and close prices for shares as quoted in the Wall
Street Journal, of the Company's Common Stock for 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>

                                        1999                             1998
                               High      Low       Close         High     Low      Close
      <S>                    <C>       <C>        <C>          <C>      <C>       <C>
      First Quarter......    $35-1/16  $23-7/16   $24-9/16     $37-3/8  $31-3/4   $35-1/4
      Second Quarter.....     25-1/8    21-9/16    24-3/8       39-5/8   34-3/8    38-3/4
      Third Quarter......     26-7/8    21-1/2     23           39       24-7/8    27-5/8
      Fourth Quarter.....     28-1/8    20-3/4     26-1/8       36-1/2   22-11/16  35-7/16
</TABLE>

	As of March 1, 2000, there were 1,188 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 $1.11 per share
and $1.07 per share in 1999 and 1998, respectively.  On May 21, 1999,
the Board voted to increase the quarterly stockholder dividend from
$0.27 to $0.28 per share to stockholders of record as of June 4, 1999.
Prior to that declaration, the Company had paid quarterly dividends of
$0.27 per share dating back to May 15, 1998 when the Board voted to
increase the dividend from $0.26 to $0.27 per share.

	The Company purchased 1,683,100 shares of Treasury Stock under the
stock buyback program during 1999 increasing the total shares of
Treasury Stock to 3,640,448 at December 31, 1999.  The Company began a
stock buyback program during the second quarter of 1995.  That program,
which was approved by the Board of Directors on May 19, 1995, authorized
the Company to purchase up to 3 million shares of Treasury Stock.
Through March 31, 1999, the Company completed its share purchases under
that program.  In May 1999, the Board of Directors approved an
additional stock buy back program of up to 2 million shares.  At
December 31, 1999, the Company has authority to purchase approximately
1.5 million additional shares.

























30
<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 auditors 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 1999 consolidated financial statements were audited by the
Company's independent auditors, Ernst & Young LLP, in accordance with
generally accepted auditing standards. In addition, Ernst & Young LLP
performs reviews of the unaudited quarterly financial statements.
Management has made available to Ernst & Young LLP 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 Ernst & Young LLP were valid and
appropriate.



























31
<page



REPORT OF INDEPENDENT AUDITORS


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,
1999 and 1998, and the related consolidated statements of
earnings, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999.  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 auditing
standards generally accepted in the United States.  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 that 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 at
December 31, 1999 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.



                                         /s/  ERNST & YOUNG LLP




Boston, Massachusetts
February 18, 2000





















32
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                          1999        1998
ASSETS
<S>                                                                   <C>         <C>
Investments (notes A2, A3, A4 and B)
  Fixed maturities, at market (cost: $661,445 in 1999 and $600,482
   in 1998).......................................................... $  647,338  $  619,267
  Preferred stocks, at market (cost: $230,934 in 1999 and $200,270
   in 1998)..........................................................    211,049     197,425
  Common stocks, at market (cost: $351,940 in 1999 and $261,360 in
   1998).............................................................    301,467     283,961
  Mortgage loans on real estate and collateral notes receivable
   (less allowance for possible loan losses of $2,127 in 1999
   and $2,301 in 1998)...............................................     72,451      73,510
  Cash and cash equivalents..........................................     22,535      72,243
  Short-term investments.............................................        -         3,669
  Other investments (cost: $13,130 in 1999 and $7,450 in 1998).......     14,139       7,825
      Total investments..............................................  1,268,979   1,257,900

Accrued investment income............................................     14,697      13,662
Premiums receivable (less allowance for doubtful receivables of
  $1,452 in 1999 and $1,450 in 1998).................................    195,160     162,878
Deferred policy acquisition costs (notes A5 and C)...................     98,500      88,759
Property and equipment, net of accumulated depreciation
  (notes A6 and D)...................................................     34,802      35,854
Residual market receivable (note F)
  Losses and loss adjustment expenses................................    106,576     111,784
  Unearned premiums..................................................     50,084      41,436
Due from reinsurers (note F).........................................     48,365      36,687
Deferred income taxes (notes A10 and G)..............................     43,051         -
Non-compete agreement net of accumulated amortization (note A7)......      3,179         -
Other assets.........................................................      8,079       7,023
      Total assets................................................... $1,871,472  $1,755,983

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
  Losses and loss adjustment expenses (notes A8, E and F)............ $  675,188  $  596,996
  Unearned premiums (note A9)........................................    457,095     391,424
  Current income taxes (notes A10 and G).............................     10,839       4,061
  Deferred income taxes (notes A10 and G)............................        -         3,769
  Deferred income (notes A11 and F)..................................      7,464       6,948
  Contingent commissions accrued (note A12)..........................     33,468      22,067
  Payable for securities purchased...................................      1,953          62
  Excess of book value of subsidiary interest over cost (note A13)...     10,758         -
  Other liabilities and accrued expenses.............................     26,885      24,871
      Total liabilities..............................................  1,223,650   1,050,198

Minority interest (note A14).........................................      1,188         -

Stockholders' Equity (notes B, K, L and M)
  Preferred stock, authorized 5,000,000 shares at $1.00 par value;
   none issued in 1999 and 1998......................................        -           -
  Common stock, authorized 100,000,000 shares at $.50 par value;
   38,000,000 shares issued in 1999 and 1998.........................     19,000      19,000
  Paid-in capital....................................................     29,621      29,621
  Net accumulated other comprehensive income (loss), net of income
   taxes (benefits) of ($28,467) in 1999 and $13,621 in 1998.........    (52,867)     25,295
  Retained earnings..................................................    734,488     670,556
                                                                         730,242     744,472
  Treasury Stock, 3,640,448 shares in 1999 and 1,957,348 shares in
   1998, at cost (note A15)..........................................    (83,608)    (38,687)
      Total stockholders' equity.....................................    646,634     705,785
      Total liabilities, minority interest and stockholders' equity.. $1,871,472  $1,755,983

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
33
<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>
<CAPTION>
                                                             1999        1998        1997
<S>                                                      <C>         <C>         <C>
Revenues
  Earned premiums (notes A9 and F).....................  $  871,830  $  745,620  $  730,497
  Net investment income (note B).......................      89,787      86,501      80,972
  Premium finance and service fees.....................      14,774      13,440       7,074
  Amortization of excess of book value of subsidiary
    interest over cost (note A13)......................       3,019         -           -
  Net realized investment gains (note B)...............       8,130       6,769      22,770
       Total revenues..................................     987,540     852,330     841,313

Expenses
  Losses and loss adjustment expenses
   (notes A8, E and F).................................     625,090     531,429     526,127
  Policy acquisition costs (notes A5 and C)............     233,660     196,434     187,491
       Total expenses..................................     858,750     727,863     713,618

       Earnings before income taxes and minority
         interest......................................     128,790     124,467     127,695

Income taxes (notes A10 and G).........................      27,154      27,975      31,480

       Net earnings before minority interest...........     101,636      96,492      96,215

Minority interest in net loss of subsidiary (note A14).         952         -           -

       NET EARNINGS....................................  $  102,588  $   96,492  $   96,215

       COMPREHENSIVE INCOME............................  $   24,426  $   94,555  $  100,368

       BASIC AND DILUTED NET EARNINGS PER COMMON SHARE
        (note A16).....................................  $     2.94  $     2.68  $     2.67

       CASH DIVIDENDS PAID PER SHARE...................  $     1.11  $     1.07  $     1.03

       WEIGHTED AVERAGE NUMBER OF COMMON
        SHARES OUTSTANDING.............................  34,940,074  36,042,652  36,044,679


















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

34
</TABLE>
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31,
(Thousands of Dollars)
<TABLE>
<CAPTION>
                                                    Net
                                                 Accumulated
                                                    Other
                               Common  Paid-in  Comprehensive  Retained   Treasury
                               Stock   Capital  Income/(Loss)  Earnings    Stock     Total
<S>                           <C>      <C>        <C>         <C>       <C>       <C>
Balance January 1, 1997...... $19,000  $29,621    $ 23,079    $553,539  $(38,200) $587,039

 Net earnings................                                   96,215              96,215
 Other comprehensive income:
  Unrealized holding gains
   arising during the period
   net of taxes of $7,268...                        13,498                          13,498
  Reclassification adjustment
   net of tax benefits of
   $5,032....................                       (9,345)                         (9,345)
  Other comprehensive loss...                        4,153                           4,153
 Comprehensive income........                                                      100,368
 Stockholder dividends.......                                  (37,124)            (37,124)
 Treasury stock purchased....                                               (487)     (487)
Balance December 31, 1997....  19,000   29,621      27,232     612,630   (38,687)  649,796

 Net earnings................                                   96,492              96,492
 Other comprehensive income
   (loss):
  Unrealized holding gains
   arising during the period,
    net of taxes of $1,455...                        2,702                           2,702
  Reclassification adjustment
   net of tax benefits of
   $2,498....................                       (4,639)                         (4,639)
  Other comprehensive loss...                       (1,937)                         (1,937)
 Comprehensive income........                                                       94,555
 Stockholder dividends.......                                  (38,566)            (38,566)
Balance December 31, 1998....  19,000   29,621      25,295     670,556   (38,687)  705,785

 Net earnings...............                                   102,588             102,588
 Other comprehensive income
   (loss):
  Unrealized holding losses
   arising during the period,
   net of tax benefits of
   $35,103...................                      (65,192)                        (65,192)
  Reclassification adjustment
   net of tax benefits of
   $6,984....................                      (12,970)                        (12,970)
  Other comprehensive loss...                      (78,162)                        (78,162)
 Comprehensive income........                                                       24,426
 Stockholder dividends.......                                  (38,656)            (38,656)
 Treasury Stock purchased....                                            (44,921)  (44,921)

Balance December 31, 1999.... $19,000  $29,621    $(52,867)   $734,488  $(83,608) $646,634



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

35


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                            1999        1998        1997


<S>                                                      <C>         <C>         <C>
Cash flows from operating activities
  Premiums collected.................................... $ 881,472   $ 761,539   $ 727,530
  Net investment income received........................    90,556      85,076      81,376
  Premium finance and service fees received.............    14,774      13,440       7,074
  Losses and loss adjustment expenses paid..............  (610,887)   (572,661)   (516,130)
  Policy acquisition costs paid.........................  (225,683)   (186,869)   (198,011)
  Federal income tax payments...........................   (25,558)    (35,201)    (21,833)
    Net cash provided by operating activities...........   124,674      65,324      80,006

Cash flows from investing activities
  Proceeds from maturity of fixed maturities............    46,565      64,004     108,592
  Proceeds from sale of fixed maturities................   142,562      34,034     124,653
  Proceeds from sale of equity securities...............    76,485      80,420     224,059
  Purchase of fixed maturities..........................  (107,664)   (134,540)    (98,098)
  Purchase of equity securities.........................  (171,097)   (224,896)   (296,714)
  Purchase of other investments.........................    (4,875)     (3,616)     (1,752)
  Purchase of subsidiary, net of cash acquired..........   (77,056)        -           -
  Net (increase) decrease in short-term investments,
   net of payable for securities purchased..............     3,669     117,531    (121,200)
  Payments received on mortgage loans and collateral
   notes receivable.....................................    11,800      26,788      11,386
  Mortgage loans and collateral notes originated........   (10,911)    (16,450)    (19,816)
  Purchase of property and equipment....................    (2,910)     (4,293)     (8,133)
  Other proceeds from investing activities..............     2,627         315         281
    Net cash used in investing activities...............   (90,805)   ( 60,703)    (76,742)

Cash flows from financing activities
  Dividends paid to stockholders........................   (38,656)    (38,566)    (37,124)
  Purchase of treasury stock............................   (44,921)       -           (487)
    Net cash used in financing activities...............   (83,577)    (38,566)    (37,611)

Decrease in cash and cash equivalents...................   (49,708)    (33,945)    (34,347)
Cash and cash equivalents at beginning of year..........    72,243     106,188     140,535
Cash and cash equivalents at end of year................ $  22,535   $  72,243   $ 106,188
















The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
36


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
For the years ended December 31,
(Thousands of Dollars)

<TABLE>
<CAPTION>
                                                              1999        1998        1997


<S>                                                       <C>         <C>         <C>
Cash flows from operating activities
  Net earnings........................................... $ 102,588   $  96,492   $  96,215
  Adjustments to reconcile net earnings to net cash
   provided by operating activities:
    Premiums receivable..................................   (22,399)      6,591     (11,634)
    Deferred policy acquisition costs....................    (3,374)     (3,495)     (2,296)
    Residual market receivable...........................    (3,440)     27,579      14,414
    Due from reinsurers..................................    (4,116)    (18,517)      1,489
    Losses and loss adjustment expenses..................    15,080     (52,477)    (13,359)
    Unearned premiums....................................    38,796      11,825      11,608
    Current income taxes.................................     6,909       1,405       2,485
    Deferred income taxes................................    (5,314)     (8,632)      6,984
    Deferred income......................................       516        (323)       (703)
    Contingent commissions...............................    11,401       8,206     (11,851)
    Other assets, liabilities and accrued expenses.......    (8,795)        533       4,992
    Net realized investment gains........................    (8,130)     (6,769)    (22,770)
    Other - net..........................................     4,952       2,906       4,432

       Net cash provided by operating activities......... $ 124,674   $  65,324   $  80,006






























The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
37


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(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 CHI.  Commerce
West Insurance Company ("Commerce West") is a wholly-owned subsidiary of
Commerce.  American Commerce Insurance Company ("American Commerce") is
a wholly-owned subsidiary of ACIC Holding Co., Inc.  ACIC Holding Co.,
Inc. is owned jointly with AAA Southern New England ("AAA SNE") with
Commerce maintaining an 80% common stock interest and AAA SNE
maintaining a 20% common stock interest (see note A18).  All
intercompany transactions and balances have been eliminated in
consolidation. Certain prior year account balances have been
reclassified to conform to the 1999 presentation.

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

	The preparation of financial statements in conformity with GAAP
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.  To manage
credit risk, the Company focuses on higher quality fixed-income
securities and preferred stocks, reviews the credit strength of all
companies which it invests in, limits its exposure in any one investment
category and monitors the portfolio quality, taking into account credit
ratings assigned by recognized statistical rating organizations.

	Investments in fixed maturities, which include taxable and non-
taxable bonds, and investments in common and preferred stocks, are
carried at fair market value and are classified as available for sale.
Unrealized investment gains and losses on common and preferred stocks
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, known as "net accumulated other comprehensive
income (loss)", 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
common and preferred stocks 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 5% of fixed
maturities in any one state or political subdivision.





38
<page


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)

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

	The Company originates and holds mortgage loans on real estate on
properties located in the Commonwealth of Massachusetts and the State of
Connecticut.  The Company controls credit risk through credit approvals,
credit limits and monitoring procedures.  The Company performs in-depth
credit evaluations on all new mortgage 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 includes cash currently on hand to cover
operating expenses.  The Company held $18,655 and $13,572 in U.S.
Government Repurchase Agreements at various financial institutions in
1999 and 1998, respectively.  The amount of collateral, maintained by
the seller, at the time of purchase and each subsequent business day, is
required to have a market value that is equal to 102% of the resale
price.


4.   Short-Term Investments

	In 1998, the Company held short-term investments consisting of
Commercial Paper, Auction Rate Preferred Stocks and Variable Rate
Municipal Bonds, carried at cost, which approximates market value.


5.   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 1999, 1998 and
1997. In determining whether a premium deficiency exists, the Company
considers anticipated investment income on unearned premiums.




39
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)

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


6.   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>
<CAPTION>
                                                                   Percent
Asset Classification                               Per Annum
<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.


7.   Non-Compete Agreement

	The non-compete agreement of $3,179 represents the portion of the
purchase price associated with the acquisition of American Commerce
allocated to the arrangement whereby principals of AAA National agreed
not to compete with American Commerce for a period of ten years.  The
cost of $3,500 is being amortized on a straight-line basis over the term
of the arrangement.  The amount of accumulated amortization at December
31, 1999 was $321.

8.   Losses and Loss Adjustment Expenses

	The liability for unpaid losses and loss adjustment expenses
("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.

9.   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 Massachusetts premiums written is derived
through the American Automobile Association Clubs of Massachusetts ("AAA
clubs") affinity group marketing program.  Of the Company's total direct
premiums written, the portion attributable to the AAA affinity group
marketing program was $495,962 or 52.3% in 1999, $457,430 or 57.3% in
1998 and $423,243 or 55.1% in 1997.  Of these amounts, 11% were written
through insurance agencies owned by the AAA clubs and 89% were written
through the Company's network of independent agents in 1999, 1998 and
1997, respectively.




40
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)

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

10.   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.  No valuation allowance was
established in 1999 and 1998.

11.  Deferred Income

	Income consisting of 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).

12.  Contingent Commissions

	In addition to state mandated minimum and other commissions on
policies written, the Company pays certain of its agencies compensation
in the form of profit sharing.  This is based, in part, on the
underwriting profits of an individual agent's business written with the
Company.  This arrangement utilizes a three year rolling plan, with one
third of each of the current and the two prior years profit or loss
calculations, summed to a single amount.  This amount, if positive, is
multiplied by the profit sharing commission rate and paid to the agent.

13.  Excess of Book Value of Subsidiary Interest Over Cost

	As a result of the acquisition of American Commerce, the amount
representing the excess of the fair value of the net assets acquired
over the purchase price at the January 29, 1999 acquisition date was
$16,465.  The amount is being amortized into revenue on the straight
line basis over a five year period.  The amount amortized into income in
1999 was $3,019.  The amount shown on the Balance Sheet represents the
Company's 80% share of the net excess of book value of subsidiary
interest over cost less accumulated amortization.

14.  Minority Interest

	The Company's interest in ACIC Holding Co., Inc. through Commerce,
a wholly owned subsidiary of CHI, is represented by 80% ownership of the
outstanding shares of common stock at December 31, 1999.  AAA SNE
maintains a 20% common stock ownership.  The minority interest of $952
for 1999 represents 20% of the net loss of ACIC Holding Co., Inc., after
the preferred stock dividends, which is included in these consolidated
financial statements.

15.  Treasury Stock

	On May 19, 1995, the Board of Directors of the Company announced
the approval of a stock buyback program of up to 3,000,000 shares.
Through March 31, 1999, the Company completed its share purchase under
that program.  Under prior Board of Directors authorizations, the
Company purchased an additional 143,248 shares of Treasury Stock during
the first quarter of 1999, bringing total purchases of Treasury Stock to
3,143,248 as of March 31, 1999.  In May 1999, the Board of Directors
approved an additional stock buy back program of up to 2 million shares.
Since that announcement, the Company has purchased 497,200 shares of
Treasury Stock bringing the total number of shares to 3,640,448 as of
December 31, 1999.

41
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)

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

16.  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, 1999, 1998 and 1997 were 34,940,074, 36,042,652 and
36,044,679, respectively.  Weighted average number of common shares
outstanding is determined by taking the average of the following
calculation for a specified period of time:  The daily amount of (1) the
total issued outstanding common shares minus (2) the total Treasury
Stock purchased.


17.  New Accounting Pronouncements

	During 1997, the Accounting Standards Executive Committee
("AcSEC") issued Statement of Position 97-3 Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments ("SOP 97-3")
effective for financial statements issued for periods ending after
December 31, 1998.  This statement provides guidance on accounting by
insurance companies on the timing of recognition, the methods of
measurement, and the required disclosures for guaranty fund and other
related assessments.  The adoption of this statement did not have a
material impact on the Consolidated Financial Statements.  Guaranty fund
and insolvency fund assessments have not been material in recent years.

	During 1998, the AcSEC issued Statement of Position 98-1,
Accounting for Costs of Computer Software Developed or Obtained for
Internal Use ("SOP 98-1") effective for financial statements issued for
periods beginning after December 15, 1998.  This statement establishes
guidance on accounting for the costs incurred related to internal use
software.  Prior to adoption, the Company expensed all software costs as
incurred.  The adoption of this statement did not have a material impact
on the Consolidated Financial Statements, since the Company incurred no
software costs during 1999 required to be capitalized under this
statement.

	During 1998, the Financial Accounting Standards Board ("FASB")
issued statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133") effective
for financial statements issued for fiscal years beginning after June
15, 1999.  Subsequently, during 1999, FASB issued Financial Accounting
Standards No. 137 "Deferral of the Effective Date of FASB Statement 133"
("FAS 137").  The adoption date was delayed to fiscal years beginning
after June 15, 2000.  The Company had no derivative or hedging activity
in 1999, 1998 or 1997.


18.  Acquisition

	In November of 1998, Commerce formed ACIC Holding Co., Inc., in a
joint venture with AAA SNE and invested $90,800 to fund the January 29,
1999 acquisition of the Automobile Club Insurance Company, whose name
was changed to American Commerce upon completion of the acquisition.
Commerce invested $90,000 in the form of preferred stock and an
additional $800 representing an 80% common stock ownership.  AAA SNE
invested $200 representing a 20% common stock ownership.  The terms of
the preferred stock call for Commerce to receive quarterly cash
dividends at the rate of 10% per annum from ACIC Holding, Co., Inc.  In
the event cash dividends cannot be paid, additional preferred stock will
be issued.  The acquisition was accounted for as a purchase.  Commencing
with the January 29, 1999 acquisition date, ACIC Holding Co., Inc. and
American Commerce's results were consolidated into the Company's
financial statements found herein.  Since 1995, Commerce has maintained
an affinity group marketing relationship with AAA Insurance Agency,
Inc., a subsidiary of AAA SNE.  AAA Insurance Agency, Inc. has been a
licensed insurance agent of Commerce since 1985.


42
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)


NOTE B-Investments and Investment Income

1.   Fixed Maturities

	The amortized cost and estimated fair market value of investments
in fixed maturities are as follows:
<TABLE>
<CAPTION>
                                                       Gross         Gross       Estimated
                                        Amortized    Unrealized    Unrealized   Fair Market
                                           Cost         Gains        Losses        Value
<S>                                     <C>           <C>           <C>          <C>
At December 31, 1999:
  Corporate bonds.....................  $ 45,147      $     87      $ (2,702)    $ 42,532
  U.S. Treasury bonds and notes.......     3,616            19          (320)       3,315
  GNMA & FNMA mortgage-backed bonds...    82,349           753          (489)      82,613
  Obligations of states and
   political subdivisions.............   530,333         4,362       (15,817)     518,878
       Totals.........................  $661,445      $  5,221      $(19,328)    $647,338

At December 31, 1998:
  GNMA mortgage-backed bonds..........  $109,624      $  2,965      $     (1)    $112,588
  Obligations of states and
   political subdivisions.............   490,858        18,416        (2,595)     506,679
       Totals.........................  $600,482      $ 21,381      $ (2,596)    $619,267
</TABLE>

	Proceeds from sales of investments in fixed maturities, gross gains and
gross losses realized on those sales were as follows:
<TABLE>
<CAPTION>
                                                       Proceeds       Gross         Gross
                                                         From        Realized      Realized
                                                        Sales         Gains         Losses
<S>                                                    <C>           <C>          <C>
For the year ended December 31, 1999:
  Corporate bonds....................................  $ 17,516      $    102     $   (941)
  U.S. Treasury bonds and notes......................    27 096             8         (842)
  GNMA mortgage-backed bonds.........................       -             -            -
  Obligations of states and political subdivisions...    97,950           298       (2,606)
       Totals........................................  $142,562      $    408     $ (4,389)

For the year ended December 31, 1998:
  GNMA mortgage-backed bonds.........................  $    -        $    -       $    -
  Obligations of states and political subdivisions...    34,034            25         (435)
       Totals........................................  $ 34,034      $     25     $   (435)

For the year ended December 31, 1997:
  GNMA mortgage-backed bonds.........................  $    -        $    -       $    -
  Obligations of states and political subdivisions...   124,653         3,994         (390)
       Totals........................................  $124,653      $  3,994     $   (390)

</TABLE>








43
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)


NOTE B-Investments and Investment Income - (continued)

	The amortized cost and approximate fair market value of fixed
maturities at December 31, 1999 and 1998, by contractual maturity, are
as follows:
<TABLE>
<CAPTION>
                                                          1999                 1998
                                                                 Fair                 Fair
                                                    Amortized   Market   Amortized   Market
                                                      Cost       Value      Cost      Value
<S>                                                <C>        <C>       <C>        <C>
Obligations of states and political subdivisions:
Due in one year or less..........................  $  2,780   $  2,793   $    -    $    -
Due after one year through five years............     1,738      4,980      2,096     2,177
Due after five years through ten years...........    18,201     13,446      1,748     1,740
Due after ten years..............................   556,377    543,506    487,014   502,762
                                                    579,096    564,725    490,858   506,679

GNMA & FMNA mortgage-backed bonds................    82,349     82,613    109,624   112,588
       Total fixed maturities....................  $661,445   $647,338   $600,482  $619,267
</TABLE>
	Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations.



2. Common Stocks

	The cost and approximate fair market value of common stocks at
December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
                                                         1999                    1998
                                                                Fair                  Fair
                                                               Market                Market
                                                     Cost       Value      Cost       Value
<S>                                                <C>        <C>        <C>       <C>
Investments in closed-end preferred stock
  mutual funds..............................       $267,956   $224,120   $169,394  $ 172,455
Investments in other equities...............         83,984     77,347     91,966    111,506
            Total common stocks.............       $351,940   $301,467   $261,360  $ 283,961
</TABLE>
	The Company holds a greater than 20%, but less than 50%, equity
position in seven closed-end preferred stock mutual funds at December
31, 1999.  These holdings are accounted for and represent investments in
the ordinary course of business.  The Company has determined that the
equity method of accounting should be utilized for holdings when they
exceed a 50% equity position.













44
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)


NOTE B-Investments and Investment Income - (continued)

3. Mortgage Loans on Real Estate and Collateral Notes Receivable

	At December 31, 1999 and 1998, mortgage loans on real estate and
collateral notes receivable consisted of the following:
<TABLE>
<CAPTION>
                                                                  December 31,
                                                              1999            1998
                  <S>                                       <C>             <C>
                  Residential (1st Mortgages)............   $58,506         $59,377
                  Residential (2nd Mortgages)............       227             261
                  Commercial (1st Mortgages).............    13,881          13,762
                  Commercial (2nd Mortgages).............        67             104
                                                             72,681          73,504
                  Collateral notes receivable............     1,897           2,307
                                                             74,578          75,811
                  Allowance for possible loan losses.....    (2,127)         (2,301)
                    Mortgage loans on real estate and
                       collateral notes receivable.......   $72,451         $73,510
</TABLE>

	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, 1999 and 1998, prior to the allowance for possible loan
losses, was $75,221 and $78,382, respectively, which was estimated by
discounting the future cash flows.

	At December 31, 1999 and 1998 mortgage loans which were on
nonaccrual status amounted to $1,259 and $1,638, respectively.  The
reduction in interest income associated with nonaccrual loans was $129,
$205 and $207 for the years ended December 31, 1999, 1998 and 1997,
respectively.

	The Company originates and services residential and commercial
mortgages in Massachusetts and Connecticut.  The Company's exposure is
80% or less of the appraised value of any collateralized real property
at the time of the loan origination.  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.
<TABLE>
<CAPTION>
	A summary of the changes in the allowance for possible loan losses follows:

                                                                    Year ended December 31,
                                                                       1999          1998
            <S>                                                     <C>           <C>
            Balance, beginning of year........................      $  2,301      $  2,812
              Decrease in provision for possible loan losses..          (174)         (511)

            Balance, end of year..............................      $  2,127      $  2,301
</TABLE>





45
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)

NOTE B-Investments and Investment Income - (continued)

	The following table describes mortgage principal balances by
maturity, total mortgages over 90 days past due and total mortgages in
foreclosure:
<TABLE>
<CAPTION>
                                                                       1999          1998
            <S>                                                     <C>           <C>
            Fixed rate mortgages maturing:
              One year or less................................      $     82      $    -
              More than one year to five years................         1,388         1,886
              More than five years to ten years...............         8,286         7,121
              Over ten years..................................        49,629        48,204
                   Total fixed mortgages......................      $ 59,385      $ 57,211

            Adjustable rate mortgages maturing:
              One year or less................................      $    -        $    -
              More than one year to five years................           123            67
              More than five years to ten years...............           275           395
              Over ten years..................................        12,898        15,831
                   Total adjustable mortgages.................      $ 13,296      $ 16,293

            Past due over 90 days.............................      $  1,259      $  1,638

            Mortgages in foreclosure, included in past due
              over 90 days....................................      $    737      $    979
</TABLE>

4. Net Investment Income
<TABLE>
<CAPTION>
      The components of net investment income were as follows:
                                                             Year ended December 31,
                                                         1999          1998          1997
      <S>                                             <C>           <C>           <C>
      Interest on fixed maturities..................  $ 45,957      $ 41,368      $ 46,449
      Dividends on common and preferred stocks......    38,631        32,145        19,799
      Interest on cash and short-term investments...     2,596         8,683        10,544
      Interest on mortgage loans....................     5,908         6,604         6,578
      Other.........................................       116           119           122
               Total investment income..............    93,208        88,919        83,492
      Investment expenses...........................     3,421         2,418         2,520
               Net investment income................  $ 89,787      $ 86,501      $ 80,972
</TABLE>

5. Net Realized and Unrealized Investment Gains (Losses)

      Net realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
                                                             Year ended December 31,
                                                         1999          1998          1997
<S>                                                   <C>           <C>           <C>
Net realized investment gains (losses):
  Fixed maturities..................................  $ (5,991)     $ (2,804)     $  1,419
  Preferred stocks..................................      (244)         (727)            6
  Common stocks.....................................    13,130         9,313        21,440
  Other.............................................     1,235           987           (95)
      Total.........................................  $  8,130      $  6,769      $ 22,770
</TABLE>



46
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)

NOTE B-Investments and Investment Income - (continued)

6. Other Comprehensive Income (Loss)

      Net increases (decreases) in other comprehensive income (loss)
less applicable income tax (expense) benefit were as follows:
<TABLE>
<CAPTION>
                                                             Year ended December 31,
                                                         1999          1998          1997
<S>                                                   <C>           <C>           <C>
Other comprehensive income (loss):
  Fixed maturities..................................  $(32,892)     $ (5,028)     $  7,622
  Preferred stocks..................................   (17,040)       (3,209)        1,165
  Common stocks.....................................   (73,074)        4,883        (2,398)
  Other.............................................       634           375           -
  Impact of minority interest.......................     2,122           -             -
      Total.........................................  (120,250)       (2,979)        6,389

  Tax benefit (expense).............................    42,831         1,042        (2,236)
  Impact of minority interest.......................      (743)          -             -
      Total tax benefit (expense)...................    42,088         1,042        (2,236)
      Total other comprehensive income (loss).......  $(78,162)     $ (1,937)     $  4,153
</TABLE>


	A summary of net accumulated other comprehensive income (loss) on
stocks and fixed maturity investments in 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
                                                            Year ended December 31,
                                                         1999          1998          1997
   <S>                                               <C>            <C>           <C>
   Unrealized gains................................. $   8,458      $ 49,184      $ 43,675
   Unrealized losses................................   (91,914)      (10,268)       (1,780)
   Impact of minority interest......................     2,122           -             -
        Total unrealized gains (losses).............   (81,334)       38,916        41,895

   Tax benefit (expense)............................    29,210       (13,621)      (14,663)
   Impact of minority interest......................      (743)          -             -
        Total benefit (expense).....................    28,467       (13,621)      (14,663)
        Total....................................... $ (52,867)     $ 25,295      $ 27,232
</TABLE>

NOTE C-Deferred Policy Acquisition Costs

      Policy acquisition costs incurred and amortized to income are as
follows:
<TABLE>
<CAPTION>
                                                            Year ended December 31,
                                                        1999          1998         1997
            <S>                                      <C>            <C>          <C>
            Balance, beginning of year.............. $  88,759      $ 85,264     $ 82,968
            Costs deferred during the year..........   243,401       199,929      189,787
            Amortization charged to expense.........  (233,660)     (196,434)    (187,491)
            Balance, end of year.................... $  98,500      $ 88,759     $ 85,264
</TABLE>






47
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)


NOTE D-Property and Equipment

      A summary of property and equipment at December 31, is as follows:
<TABLE>
<CAPTION>
                                                                   1999        1998
                  <S>                                           <C>         <C>
                  Buildings.................................    $ 31,017    $ 30,719
                  Equipment and office furniture............      33,128      33,230
                  Building improvements.....................         791         838
                                                                  64,936      64,787
                        Less accumulated depreciation.......     (32,246)    (29,907)
                                                                  32,690      34,880
                  Land......................................       1,251         939
                  Construction in progress..................         861          35
                                                                $ 34,802    $ 35,854
</TABLE>
	Depreciation expense was $4,243, $4,706 and $4,213 for the years
ended December 31, 1999, 1998 and 1997, respectively.  Depreciation
expense is allocated evenly 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>
<CAPTION>
                                                                  1999        1998
                  <S>                                           <C>         <C>
                  Unpaid loss and LAE reserves..............    $756,593    $666,177
                  Salvage and subrogation recoverable.......     (81,405)    (69,181)
                                                                $675,188    $596,996
</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 annually obtain 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, claims personnel
establish a "case reserve" for the estimated amount of the ultimate
payment.  The amount of the reserve is primarily based upon an
evaluation of the type of claim involved, the circumstances surrounding
the claim and the policy provisions relating to the 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.











48
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)

NOTE E-Losses and Loss Adjustment Expenses (continued)

	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.

	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 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, 1999 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 $4,185 and $5,687 in 1999 and 1998, respectively.
























49
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)

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


	The following table sets forth a reconciliation of beginning and
ending reserves for losses and loss adjustment expense, 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>
<CAPTION>
                                                            Year ended December 31,
                                                        1999          1998         1997
<S>                                                   <C>           <C>          <C>
Loss and loss adjustment expense reserves,
 beginning of year, prior to effect of ceded
 reinsurance recoverable............................. $498,829      $530,077     $533,980

January 29, 1999 American Commerce loss and
   loss adjustment expense reserves..................   63,112           -            -

Incurred losses and loss adjustment expenses:
   Provision for insured events of the current year..  664,978       592,796      609,930
   Decrease in provision for insured events of
    prior years......................................  (39,888)      (61,367)     (83,803)
     Total incurred losses and loss adjustment
      expenses.......................................  625,090       531,429      526,127

Payments:
   Losses and loss adjustment expenses attributable
    to insured events of the current year............  383,707       335,047      322,882
   Losses and loss adjustment expenses attributable
    to insured events of prior years.................  243,496       227,630      207,148
     Total payments..................................  627,203       562,677      530,030

   Loss and loss adjustment expense reserves prior to
    effect of ceded reinsurance recoverable..........  559,828       498,829      530,077
   Ceded reinsurance recoverable.....................  115,360        98,167      119,396
Reserves for losses and loss adjustment expenses
 at the end of year per financial statements......... $675,188      $596,996     $649,473
</TABLE>

	The provision for insured events of the current year is higher for
1999 compared to 1998 primarily due to the acquisition of American
Commerce.  The line labeled decrease in provision for insured events of
prior years is less in 1999 due primarily to fewer redundancies from
prior year losses realized in the current year.  Redundancies relating
to automobile bodily injury claims, were approximately $32.2 million
less in 1999, as compared to 1998.  These were offset primarily by
increased redundancies in other lines of business.  The increase in
payments is primarily due to the American Commerce acquisition.

	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 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.






50
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)



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 quota share
reinsurance contract on its other than automobile business.

Property, Catastrophe and Quota Share Reinsurance

	From September 30, 1995 through June 30, 1998, the Company had a
combined property quota share and excess loss reinsurance contract which
was written with six reinsurance companies.  Under the quota share
portion of the arrangement, the reinsurers indemnified the Company for
45% 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 49% of the net premium pertaining to the related
business.  The maximum per occurrence loss reimbursement was $50.0
million and the maximum annual aggregate occurrence loss reimbursement
was $75.0 million.  Under the excess loss reinsurance portion of the
arrangement, the Company reinsured each risk, retaining $125 and
reinsuring 100% of the next $875.

	Various catastrophe only reinsurance programs were utilized from
1996 through May, 1998 in conjunction with the quota share and excess
loss program noted above.

	Effective July 1, 1998, the Company expanded the quota share
portion of the program.  A 75% quota-share reinsurance program was
incepted, covering all non-automobile property and liability business,
except umbrella policies.  The excess loss portion of the program was
reduced on July 1, 1998 and completely eliminated on September 30, 1998.
The expanded program is split between American Re-Insurance Company,
Employers Reinsurance Corporation, Hartford Fire Insurance Company and
Swiss Reinsurance America Corporation.  The maximum per occurrence loss
reimbursement is the higher of 350% of premium ceded under the program
or $175.9 million.  The maximum annual aggregate occurrence loss
reimbursement is the higher of 450% of premium ceded under the program
or $226.1 million.  A sliding scale commission, based on loss ratio, is
utilized under this program.  This program provides the Company with
sufficient protection for catastrophe coverage so as to enable the
Company to forego pure catastrophe reinsurance coverage, which was
previously tailored in conjunction with the former quota share
arrangement.

	Through December 31, 1999, American Commerce utilized a separate
catastrophe reinsurance program.  Effective January 1, 2000, this
program expired and American Commerce joined the quota-share reinsurance
program described above.

















51
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)

NOTE F-Reinsurance Activity - (continued)


	The table below provides information depicting the approximate
recovery under the expanded quota share contract at various loss
scenarios, if a single catastrophe were to strike:
<TABLE>
<CAPTION>
                                                              Net Loss
                          Total           Reinsurance       Retained by
                          Loss             Recovery         the Company
                        <S>                 <C>              <C>
                        $ 50,000            $ 37,500         $12,500
                         100,000              75,000          25,000
                         150,000             112,500          37,500
                         200,000             150,000          50,000
                         250,000             187,500          62,500
</TABLE>
	Under the above scenario and based on the business subject to the
quota-share reinsurance contract for 2000, the Company has no
reinsurance recoveries for a single event catastrophe in excess of a
total loss of approximately $297.5 million.  The Company's estimated
total loss on its other than automobile business for 100 and 250 year
storms (including American Commerce) is approximately $117.0 million and
$198.1 million, respectively.  The Company estimates were derived
through the services of Swiss Reinsurance America Corporation who
utilized the CLASIC model provided by Applied Insurance Research.

	Written premiums ceded in 1999, 1998 and 1997 under the above
referenced programs were $51.5 million, $54.0 million and $27.5 million,
respectively.  Ceding commission income is calculated on a ceded earned
premium basis.

Casualty Reinsurance

	Since January 1, 1997, casualty reinsurance has been on an excess
of 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 (rated A+ by A.M.
Best).

	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/$500 or more.  The Company also has personal liability umbrella
reinsurance coverage for policies with underlying automobile coverage of
$100/$300, 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 Re-Insurance Company (rated A+ by A.M. Best).

	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>
<CAPTION>
                                                            Year ended December 31,
                                                            1999         1998        1997
  <S>                                                     <C>          <C>        <C>
  Written premiums ceded............................      $54,657      $56,019    $ 31,863
  Earned premiums ceded.............................       55,557       43,518      33,847
  Losses and loss adjustment expenses ceded.........       24,240       16,568      10,754
</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.

52
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999  1998 and 1997
(Thousands of Dollars)


NOTE F-Reinsurance Activity - (continued)

C.A.R.

	C.A.R., a state-mandated reinsurance mechanism, enables the
Company and 45 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, who 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, 1999,
1998 and 1997, these servicing fees amounted to $17,235, $15,574 and
$17,133, respectively.

	Since its inception, C.A.R. has annually generated multi-million
dollar underwriting losses in both the personal and commercial pools.
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 the 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.  The Company's strategy has been to
voluntarily retain more types of private passenger automobile business
that are factored as credits, thereby favorably impacting the
utilization formula.  As a result of increased voluntary retention, the
credits impacting the utilization formula have favorably affected the
Company's participation ratio compared to its market share.  During
1999, 1998 and 1997, the Company's net participation in the C.A.R.
personal automobile pool approximated 17.0%, 16.7% and 18.0%,
respectively, as reported by C.A.R.

	Written premiums, earned premiums, losses incurred and the
liabilities for unearned premiums, unpaid losses ceded to and assumed
from C.A.R. were as follows:
<TABLE>
<CAPTION>
                                          Year ended December 31,
                             1999                    1998                    1997
                     Ceded       Assumed     Ceded       Assumed     Ceded       Assumed
<S>                  <C>         <C>         <C>         <C>         <C>         <C>
Income Statement
 Written premiums... $ 68,740    $ 87,241    $ 70,435    $ 74,644    $ 71,816    $ 76,530
 Earned premiums....   68,902      84,356      68,383      75,718      71,977      82,866
 Losses incurred....   81,853     104,273      64,784      95,937      83,240      89,081

Balance Sheet
 Unearned premiums.. $ 50,084    $ 42,156    $ 41,436    $ 39,271    $ 51,662    $ 40,345
 Unpaid losses......  106,576     100,680     111,784      99,427     129,137     102,819
</TABLE>

	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.

53
<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)


NOTE F-Reinsurance Activity - (continued)


	The current C.A.R. utilization-based participation ratio has been
in place for the  personal automobile market since 1993. During 1999,
1998 and 1997 the Company's amount of personal automobile exposures it
reinsured through C.A.R. approximated 5.6%, 6.4% and 6.6%, respectively,
as compared to industry averages of 9.6%, 10.0% and 10.1%, respectively.


NOTE G-Income Taxes

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

      The federal income tax expense consisted of the following:
<TABLE>
<CAPTION>
                                                            Year ended December 31,
                                                            1999         1998        1997
                  <S>                                    <C>          <C>         <C>
                  Current............................    $ 26,481     $ 36,607    $ 24,496
                  Deferred...........................         673       (8,632)      6,984
                                                         $ 27,154     $ 27,975    $ 31,480
</TABLE>

	Deferred taxes arise from temporary differences in the basis 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>
<CAPTION>
                                                              Year ended December 31,
                                                             1999         1998       1997
  <S>                                                    <C>          <C>         <C>
  Unearned premiums..................................    $ (2,785)    $     39    $   (769)
  Discounting of loss reserves.......................        (928)       2,782       2,421
  Bad debt expense...................................         (99)         (17)        129
  Deferred policy acquisition costs..................       1,251         (782)      1,297
  Salvage and subrogation recoverable................         272         (233)       (406)
  Tax depreciation in excess of book depreciation....         639          109         151
  Book value rights/book value awards/stock
   appreciation rights...............................       2,825      (11,056)      4,912
  Pension liability..................................        (320)         -           -
  Deferred items not included above..................        (182)         526        (751)
        Deferred income tax..........................         673       (8,632)      6,984
  Other comprehensive income (loss)..................     (42,831)      (1,042)      2,236
  Deferred taxes at acquisition of American Commerce.      (4,662)         -           -
        Change in deferred tax liability.............    $(46,820)    $ (9,674)   $  9,220
</TABLE>











54
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)


NOTE G-Income Taxes (continued)


	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 assets 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 or unrealized gains are reduced.
Deferred tax liabilities (assets) were comprised of the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
                                                                     1999        1998
<S>                                                               <C>         <C>
Unearned premiums...............................................  $(25,214)   $(20,569)
Discounting of loss reserves....................................   (21,278)    (18,597)
Net accumulated comprehensive loss..............................   (29,210)        -
Book value awards/stock appreciation rights.....................       (32)     (2,857)
Pension liability of American Commerce..........................    (1,742)        -
Bad debt allowances.............................................      (888)       (789)
      Deferred tax assets.......................................   (78,364)    (42,812)

Deferred policy acquisition costs...............................    28,529      25,050
Salvage and subrogation recoverable.............................     2,144       1,768
Tax depreciation in excess of book depreciation.................     1,738       2,965
Net accumulated comprehensive income............................       -        13,621
Deferred items not included above...............................     2,902       3,177
      Deferred tax liabilities..................................    35,313      46,581

      Net deferred tax (asset) liability........................  $(43,051)   $  3,769
</TABLE>

	Federal income tax on income is less than the amount computed by
applying the statutory rate of 35% for the years ended 1999, 1998 and
1997 for the following reasons:
<TABLE>
<CAPTION>
                                          Year ended December 31,
                               1999                 1998                1997
<S>                      <C>         <C>      <C>        <C>      <C>         <C>
Tax at statutory rate..  $ 45,077    35.0%    $ 43,563   35.0%    $ 44,693    35.0%
Tax exempt interest....    (9,157)   (7.1)      (8,429)  (6.8)      (8,036)   (6.3)
Dividends paid to ESOP
  participants.........      (785)   (0.6)        (762)  (0.6)        (782)   (0.6)
Dividends received
  deduction............    (7,560)   (5.9)      (6,152)  (4.9)      (4,567)   (3.6)
Other..................      (421)   (0.3)        (245)  (0.2)         172     0.2
Tax at effective rate..  $ 27,154    21.1%     $27,975   22.5%     $31,480    24.7%
</TABLE>

NOTE H-Related-Party Transactions

	The Company has made loans to insurance agencies with which
Commerce transacts business on a regular basis.  At December 31, 1999,
six of these loans with an aggregate outstanding principal balance of
$2,297, were collateralized by the assets of the agencies, one of these
loans with an outstanding balance of $341 was collateralized by real
estate as the primary collateral and the assets of the agency as
secondary collateral.  There were no loans to insurance agencies
collateralized solely by real estate.  At December 31, 1998, eight of
these loans with an aggregate outstanding balance of $2,738 were
collateralized by the assets of the agencies and none of these loans
were collateralized by real estate.


55
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)

NOTE H-Related-Party Transactions (continued)

	One Director of the Company is the Chairman Emeritus and Assistant
Clerk of an insurance agency which is one of the Company's independent
insurance agencies.  This Director sold his ownership interest in that
agency in 1994, although he remains associated with it in the above
stated capacity.  This Director also continued to receive payments under
non-competition and loan agreements through 1998.  This Director
receives no direct or indirect compensation based on the commissions
paid to the agency by the Company.  During the years ended December 31,
1998 and 1997, the agency received from the Company commissions of $940
and $834, respectively, in the aggregate, for policies written.  The
Company also purchased certain insurance coverages through the agency
and paid premiums for these policies of $520 and $367 in 1998 and 1997,
respectively.

	The immediate family of one Director of the Company owns more than
a 10% equity interest in a construction company.  This construction
company provided construction and construction management services in
connection with the construction of a new addition to an office building
beginning in 1999.  Terms of the contract provide for a guaranteed
maximum payment to the construction company of $448, including a
management fee of $111.  Payments to the general contractor in
connection with this contract in 1999 were $245.

NOTE I-Employee Stock Ownership Plan and 401(k) Plan

	The Company offers an Employee Stock Ownership Plan ("E.S.O.P.")
and 401(k) Plan for the benefit of substantially all employees,
including those of the Company's subsidiaries, with the exception of
American Commerce as discussed in Note J.  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 E.S.O.P. for any length
of time, and may completely discontinue or terminate the E.S.O.P. at any
time without liability.  Contributions by the Company and subsidiaries
to the E.S.O.P. for the years ending December 31, 1999, 1998 and 1997
were $5,744, $5,412 and $4,841, respectively.  The E.S.O.P. owned
3,447,486 and 3,186,968 shares of the Company's common stock at December
31, 1999 and 1998, respectively.

	The 401(k) Plan, implemented in September, 1998, enables eligible
employees to contribute up to 15% of eligible compensation on a pre-tax
basis up to the annual maximum limits under federal tax law.  The
Company incurs no expenses in the form of matching contributions but
does pay for administration of the Plan.

NOTE J-American Commerce Pension and Post-Retirement Benefits

	American Commerce maintains a noncontributory defined benefit
pension plan (the "pension plan") covering substantially all of their
employees.  All participants of the pension plan are eligible to retire
with full retirement benefits upon attainment of age 65 with 5 years of
participation.  Retirement benefits are payable for the life of the
participant with guaranteed payments for 10 years.  To-date, all
retirees have taken lump-sum payments.

	American Commerce makes contributions to a deposit administration
contract, which provides the pension plan with assets sufficient to fund
pension benefits to pension plan participants.  The deposit
administration contract is carried at contract value, which represents
the cost of contributions plus interest and experience refunds.  The
pension plan is subject to and exceeds the minimum funding requirements
of ERISA.  Subsequent to year-end December 31, 1999, the Directors of
American Commerce voted to terminate the pension plan and will be
transitioning in 2000 to the E.S.O.P.  American Commerce maintains a
separate 401(k) Plan for the benefit of substantially all of its
employees.  American Commerce matches 50% of all employee contributions
up to 6% of pay.  Both American Commerce and it's employees share in
administration expenses of the plan.  Subsequent to December 31, 1999,
the Directors of American Commerce voted to merge the 401(k) plan with
the Company's Plan on January 1, 2001.

56
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)



NOTE J-American Commerce Pension and Post-Retirement Benefits
(continued)


	American Commerce also maintains a noncontributory post-retirement
benefit plan (the "post-retirement plan") for retirees that includes
medical, dental and life insurance coverages.  All participants of the
post-retirement plan are eligible upon attainment of age 55 with 10
years of service or age 65 with 5 years of service.  Dental coverage
ceases at age 65 and life insurance coverage decreases based upon the
age of the retiree until the attainment of age 70, at which time they
are provided a nominal amount of coverage from age 70 and thereafter.
Participant's spouses are also covered under the post-retirement plan.
The cost of post-retirement medical, dental and life insurance benefits
is accrued over the active service periods of employees to the date they
attain full eligibility for such benefits.  It is the policy of American
Commerce to pay for post-retirement benefits as incurred.

	The following table shows, as of December 31, 1999, the American
Commerce plans' funded status reconciled with amounts reported in the
consolidated balance sheet and the assumptions used in determining the
actuarial present value of the benefit obligation:
<TABLE>
<CAPTION>
                                                                            Post-
                                                            Pension      Retirement
                                                             Plan           Plan
<S>                                                         <C>           <C>
Plan assets at fair value..............................     $  3,048      $      0
Accumulated benefit obligation:
  Vested...............................................        3,438           -
  Non-vested...........................................          135           -
  Retirees.............................................          -           1,219
  Active participants, fully eligible..................          -             889
  Active participants, not eligible....................          -           1,844
Accumulated benefit obligation.........................        3,573         3,952
  Additional benefits based on future salary levels....        2,337           -
    Projected benefit obligation.......................        5,910         3,952
Unfunded status of plan................................       (2,862)       (3,952)
Unrecognized prior service costs.......................          324           (23)
Unrecognized net transition obligation.................          161         1,285
Unrecognized net loss..................................        1,569           143
      Accrued benefit cost.............................      $  (808)     $ (2,547)

Assumptions:
  Weighted average discount rate.......................          7.1%          7.0%
  Weighted average rate of compensation increase.......          5.0%          -
</TABLE>














57
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)


NOTE J-American Commerce Pension and Post-Retirement Benefits
(continued)

	Net periodic cost of the American Commerce pension and post-
retirement plans for the period ended December 31, 1999 includes the
following components:
<TABLE>
<CAPTION>
                                                                            Post-
                                                            Pension      Retirement
                                                             Plan           Plan
<S>                                                         <C>           <C>
Service cost-benefits earned...........................     $    497      $    238
Interest cost on projected benefit obligation..........          453           246
Actual return on plan assets...........................         (168)          -
Amortization of unrecognized net transition
  obligation...........................................           41            99
Amortization of unrecognized prior service cost........           83            (3)
Amortization of unrecognized loss......................           74            -
Net asset loss deferred for later recognition..........         (109)           -
  Net periodic cost....................................      $   871      $    580
</TABLE>
	The assumed health care cost trend rate for 1999 was 9.5% and
7.75% for medical and dental, respectively.  These rates grade down
until the final trend rates of 6.0% and 5.0% for medical and dental,
respectively, are reached in 2010.  A one percentage point increase in
the assumed health and dental cost trend rates increases the sum of the
service and interest costs components of the 1999 periodic post-
retirement benefit cost by 13.0% and the accumulated post-retirement
benefit obligation as of December 31, 1999 by 14.0%

NOTE K-Stockholders' Equity

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

	The Management Incentive Plan approved by the Company's
stockholders in May, 1994 provides for the award of incentive stock
options, non-qualified stock options, book value awards, stock
appreciation rights, restricted stock and performance stock units.  Up
to 2,500,000 shares of common stock (subject to increase for anti-
dilution adjustments) may be issued under the Plan, including shares
that may be issued pursuant to awards of restricted stock or upon the
exercise of common stock equivalent awards such as stock options and
stock appreciation rights payable in the form of common stock (not in
the form of cash).  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 totaled 478,248,
482,215 and 453,488 in 1999, 1998 and 1997, respectively.  Expenses
relating to book value awards were $438, $470 and $3,068 in 1999, 1998
and 1997, respectively.  Stock appreciation rights issued also relating
to this Plan totalled 509,872 and 493,992 in 1998 and 1997,
respectively.  Expenses (income) relating to stock appreciation rights
were ($3,159), ($656) and $15,657 in 1999, 1998 and 1997, respectively.
The outstanding book value awards and stock appreciation rights entitle
the holders to cash payments based upon the extent to which, if at all,
the per share book value or market value, as applicable, of the common
stock exceeds certain thresholds set at the time the award was granted.

	During 1999, for the first time under the Plan, the Company
granted stock options ("options") totaling 700,179.  There were no
expenses related to these options in 1999.  The outstanding options
entitle the recipient to purchase the Company's common stock based upon
the extent to which, if at all, the per share market value of the common
stock exceeds certain thresholds set at the time the option was granted.
Unexercised options terminate not later than eight years after the date
of grant (not later than ten years after the date of grant for those
options granted to officers of American Commerce).

58
<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars Except for Per Share Data)


NOTE K-Stockholders' Equity (continued)

	Aggregate liabilities for the combined programs were $986 and
$9,609 at December 31, 1999 and 1998, respectively.

	The following is a summary of the changes in options outstanding
under the Plan:
<TABLE>
<CAPTION>
                                                                      Weighted
                                                                       Average
                                                                      Exercise
                                                     Shares            Price
        <S>                                          <C>              <C>
        Options outstanding, beginning of year....       -                -
         Granted January 29, 1999.................    50,000          $36.32
         Granted April 30, 1999...................   650,179          $32.81
         Exercised................................       -                -
         Terminated...............................       -                -
        Options outstanding, end of year..........   700,179          $32.83
        Options exercisable, end of year..........       -                -
</TABLE>

	The estimated weighted average fair value per share of the options
was $3.78 in 1999.


	Additionally, during 1999, the Company granted options totaling
1,872,380 to certain agents of American Commerce (the "American Commerce
Agents' Plan").  The right of the recipient to exercise these options is
contingent upon the average volume of other-than-Massachusetts private
passenger automobile and homeowners direct written premiums placed and
maintained with American Commerce for the five year period ending
December 31, 2003.  If qualified, the recipient may purchase the
Company's common stock at a price of $36.32, the exercise price, on or
after January 29, 2004, the confirmation date, up to and until January
29, 2009, the expiration date.  Expenses related to these options,
determined in accordance with the fair value accounting provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation", amounted to
$1,909 in 1999.

	The following is a summary of the changes in options outstanding
under the American Commerce Agents' Plan:
<TABLE>
<CAPTION>
                                                                    Weighted
                                                                     Average
                                                                    Exercise
                                                    Shares           Price
        <S>                                        <C>                <C>
        Options outstanding, beginning of year..         -                -
         Granted................................   1,872,380          $36.32
         Exercised..............................         -                -
         Terminated.............................         -                -
        Options outstanding, end of year........   1,872,380          $36.32
        Options exercisable, end of year........         -                -
</TABLE>







59
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars Except for Per Share Data)

NOTE K-Stockholders' Equity (continued)

	The fair value of each option granted in 1999, under the American
Commerce Agents' Plan, was estimated on the date of grant using the
Black-Scholes option-pricing model, with the following weighted average
assumptions:
<TABLE>
<CAPTION>
        <S>                                                            <C>
        Dividend yield....................................             4.43%
        Volatility........................................            28.20%
        Risk-free interest rate...........................             6.25%
        Expected option life in years.....................               7
</TABLE>
	The estimated weighted average fair value per share of the options
under the American Commerce Agents' Plan was $5.28 at December 31, 1999.


NOTE L-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 may, within certain limitations, pay such dividends and
then file a report with the Commissioner.  Dividends in excess of these
limitations are called extraordinary dividends.  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 1999, 1998 and
1997.

	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 1999 Commerce and Citation paid
$47,000 and $9,306 in dividends, respectively to CHI; CHI then paid
$56,070 to the Company in March 1999.  During 1998 Commerce and Citation
paid $43,300 and $8,338 in dividends, respectively, to CHI; CHI then
paid $51,345 to the Company in March 1998.

	The Board of Directors of the Company voted to declare four
quarterly dividends to stockholders of record totaling $1.11 per share
and $1.07 per share in 1999 and 1998, respectively.  On May 21, 1999,
the Board voted to increase the quarterly stockholder dividend from
$0.27 to $0.28 per share to stockholders of record as of June 4, 1999.
Prior to that declaration, the Company had paid quarterly dividends of
$0.27 per share dating back to May 15, 1998 when the Board voted to
increase the dividend from $0.26 to $0.27 per share.












60
<PAGE>



THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)

NOTE M-Statutory Balances

	Following is a GAAP to Statutory reconciliation for both earnings
and policyholders surplus for the combined operations of Commerce,
Citation, Commerce West and American Commerce:
<TABLE>
<CAPTION>

                                           1999                1998                1997
                                   Earnings  Equity     Earnings   Equity   Earnings    Equity
<S>                                <C>       <C>        <C>       <C>       <C>        <C>
GAAP.............................  $ 99,155  $614,416   $ 93,888  $649,751  $101,528   $609,416
Deferred income taxes (benefits).      (944)  (40,634)    (1,971)    5,423     4,039      8,352
Deferred acquisition costs.......    (3,373)  (98,499)    (3,495)  (88,759)   (2,296)   (85,264)
Bonds-book versus market.........       -      11,400        -     (18,786)      -      (23,812)
Preferred stock-market versus
 book............................       -        (528)       -      (1,307)      -         (429)
Deferred income..................       518     7,380       (326)    6,744      (697)     7,071
Deferred service fee income
  (expense)......................      (804)    2,611         91     3,411     1,784      3,139
Deferred reinsurance
 commissions.....................      (201)   10,054      5,728    10,253    (1,267)     4,424
Statutory reserve over statement
 reserves........................       -      (3,053)       -      (4,072)      -       (8,567)
Goodwill in subsidiary...........      (291)    1,645       (291)    1,936      (291)     2,226
Pension and post-retirement
 benefit.........................       -       3,408        -         -         -          -
Adjustment for non-insurance
 company subsidiary...............    8,651    11,727        -         -         -          -
Difference in GAAP to statutory
 net income in subsidiary........       329       -           80       -          57        -
Other............................       -        (953)       -      (1,091)      -           42
     Total adjustments...........     3,885   (95,442)      (184)  (86,248)    1,329    (92,818)
Statutory........................  $103,040  $518,974   $ 93,704  $563,503  $102,857   $516,598
</TABLE>

NOTE N-Segment Information

	The Company has four reportable segments:  (1) property and
casualty insurance - Massachusetts; (2) property and casualty insurance
- other than Massachusetts; (3) real estate and commercial lending; and,
(4) corporate and other.  The Company's property and casualty insurance
operations are written through Commerce, Citation, Commerce West, and
American Commerce and are marketed to affinity groups, individuals,
families and businesses through the Company's relationships with
professional independent insurance agencies.  The Company's real estate
and commercial lending operations are a result of insurance companies
having the authorization to invest in mortgages.  The Company's wholly-
owned subsidiary, Bay Finance Company, Inc., originates and services
residential and commercial mortgages in Massachusetts and Connecticut.
The corporate and other segment represents the remainder of the
Company's activities, including those of the parent company.

	The Company evaluates performance and allocates resources based
primarily on the property and casualty insurance segment which
represents 99.0% of the Company's total revenue for the past three
years.  The accounting policies of the reportable segments are the same
as those described in Note A - Summary of Significant Accounting
Polices.




61
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)


NOTE N-Segment Information (continued)


Selected information by industry segment for 1999, 1998 and 1997 is
summarized as follows:
<TABLE>
<CAPTION>
                                                            Earnings Before   Identifiable
                                                 Revenue      Income Taxes       Assets
<S>                                             <C>             <C>            <C>
1999
  Property and casualty insurance
   Massachusetts.............................   $864,508        $118,636       $1,574,734
   Other than Massachusetts..................    115,630           2,431          223,444
  Real estate and commercial lending.........      4,355           4,355           72,937
  Corporate and other........................      3,047           3,368              357
      Consolidated...........................   $987,540        $128,790       $1,871,472

1998
  Property and casualty insurance
   Massachusetts.............................   $816,201        $113,593       $1,627,633
   Other than Massachusetts..................     27,597           3,666           45,366
  Real estate and commercial lending.........      5,049           5,049           74,070
  Corporate and other........................      3,483           2,159            8,914
      Consolidated...........................   $852,330        $124,467       $1,755,983

1997
  Property and casualty insurance
   Massachusetts.............................   $802,587        $128,006       $1,613,746
   Other than Massachusetts..................     30,895           4,716           45,628
  Real estate and commercial lending.........      4,448           4,448           83,420
  Corporate and other........................      3,383          (9,475)          11,959
      Consolidated...........................   $841,313        $127,695       $1,754,753
</TABLE>

NOTE O-Supplement to Consolidated Statements of Cash Flows

	During the years ended December 31, 1999 and 1998, the Company did
not acquire any property through foreclosure of mortgages.


NOTE P-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, 1999, the M.I.I.F. has approved assessments
totaling $126,822, of which the Company's share was approximately
$7,269.  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.  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 has been to
recognize the recovery of the assessed amounts as received.  M.I.I.F.
had no activity during 1999.  Refunds of assessments from the M.I.I.F.
for the year ended December 31, 1998 were $271 and assessments by the
M.I.I.F. for the year ended December 31, 1997 were $283.


62
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars Except for Per Share Data)


NOTE P-Insolvency Fund Assessments (continued)

	In 1997, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 97-3 Accounting by Insurance and Other
Enterprise for Insurance-Related Assessments ("SOP 97-3") effective for
financial statements issued for periods ending after December 31, 1998.
This statement provides guidance on accounting by insurance companies on
the timing of recognition, the methods of measurement, and the required
disclosures for guaranty fund and other related assessments.  The
adoption of this statement has not had a material impact on the
Consolidated Financial Statements.


NOTE Q-Quarterly Results of Operations (Unaudited)

An unaudited summary of the Company's 1999 and 1998 quarterly
performance is as follows:
<TABLE>
<CAPTION>
1999                                               First      Second       Third     Fourth
                                                  Quarter     Quarter     Quarter    Quarter
<S>                                              <C>         <C>         <C>        <C>
Total revenues.................................  $227,746    $250,762    $251,316   $257,716
Net earnings...................................    14,681      22,792      27,021     38,094
Comprehensive income (loss)....................    (5,030)     14,633       9,680      5,143
Net earnings excluding the after-tax impact
 of net realized investment gains (losses)(1)..    14,954      18,525      25,925     37,609
Net earnings per weighted average common
  share (basic and diluted)....................      0.41        0.65        0.78       1.10
Basic and diluted net earnings per common
 share excluding the after-tax impact of net
 realized investment gains (losses)(1)........       0.42        0.53        0.74       1.10
Cash dividends paid per share..................      0.27        0.28        0.28       0.28
</TABLE>
<TABLE>
<CAPTION>
1998                                               First      Second       Third     Fourth
                                                  Quarter     Quarter     Quarter    Quarter
<S>                                              <C>         <C>         <C>        <C>
Total revenues.................................  $214,380    $217,610    $206,060   $214,280
Net earnings...................................    25,235      19,585      29,861     21,811
Comprehensive income...........................    23,953      16,473      32,417     21,712
Net earnings excluding the after-tax impact
 of net realized investment gains (losses)(1)..    22,764      18,752      29,862     20,714
Net earnings per weighted average common
  share (basic and diluted)....................      0.70        0.54        0.83       0.61
Basic and diluted net earnings per common
 share excluding the after-tax impact of net
 realized investment gains (losses)(1)........       0.63        0.52        0.83       0.58
Cash dividends paid per share..................      0.26        0.27        0.27       0.27
</TABLE>

(1) The above figures are presented to provide information to the reader
due to the amount of, and fluctuations in, net realized gains and
losses.  The amounts noted, commonly known as Operating Income, are
important measures of corporate performance.








63
<PAGE>


THE COMMERCE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Thousands of Dollars)



NOTE R-Subsequent Events

	In 2000, the Company entered into a Limited Partnership Agreement
with Conning Partners V, L.P., a Delaware limited partnership.  This
partnership agreement required a commitment by the Company to invest
$50,000 into the partnership throughout the next five years as
determined by the General Partner.  To date the Company has not yet
invested into the partnership leaving a balance for funds still
committed but not paid into the partnership of $50,000.  The Partnership
was formed to operate as an investment fund principally for the purpose
of making investments primarily in equity, equity-related and other
securities issued in expansion financing, start-ups, buy-outs and
recapitalization transactions relating to companies in the areas of
insurance, financial services, e-commerce, healthcare and related
businesses, including, without limitation, service and technology
enterprises supporting such businesses, in order to realize long-term
capital returns, all as determined and managed by the General Partner
for the benefit of the Partners.

	On February 10, 2000 the Massachusetts Division of Insurance
placed Trust Insurance Company ("Trust") in rehabilitation.  At December
31, 1999, Trust was the ninth largest writer of private passenger
automobile insurance in Massachusetts, with an approximate 5% market
share.  Although expected to have minimal adverse impact, if any, the
Company is unable to determine the overall effect that this event may
have on the consolidated operating and financial position of the
Company.



































64
<PAGE>


SELECTED CONSOLIDATED FINANCIAL DATA

	The data should be read in conjunction with the consolidated
financial statements, related footnotes, and other financial information
included herein.  The financial statements for the three years ended
December 31, 1999 have been audited by Ernst & Young LLP.  The financial
statements for the two years ended December 31, 1996 have been audited
by other independent auditors.  All dollar amounts set forth in the
following tables are in thousands, except per share data:
<TABLE>
<CAPTION>
                                                     Year ended December 31,
                                       1999         1998        1997        1996        1995
<S>                                <C>          <C>         <C>         <C>         <C>
Statement of Earnings Data:
  Net premiums written..........   $  911,993   $  745,048  $  741,501  $  711,570  $  603,421
  (Increase) decrease in
   unearned premiums............      (40,163)         572     (11,004)    (42,854)    (10,831)
  Earned premiums...............      871,830      745,620     730,497     668,716     592,590
  Net investment income.........       89,787       86,501      80,972      77,402      71,313
  Premium finance and service
   fees.........................       14,774       13,440       7,074       9,713      19,420
  Amortization of excess of
   book value of subsidiary
   interest over cost...........        3,019          -           -           -           -
  Net realized investment gains
  (losses)......................        8,130        6,769      22,770      (7,574)        712
       Total revenues...........      987,540      852,330     841,313     748,257     684,035

  Losses and loss adjustment
   expenses.....................      625,090      531,429     526,127     475,231     367,552
  Policy acquisition costs......      233,660      196,434     187,491     181,013     166,741
       Total expenses...........      858,750      727,863     713,618     656,244     534,293

  Earnings before income taxes
   and minority interest........      128,790      124,467     127,695      92,013     149,742

  Income taxes..................       27,154       27,975      31,480      18,049      39,541
  Net earnings before minority
   interest.....................      101,636       96,492      96,215      73,964     110,201
  Minority interest.............          952          -           -           -           -

       Net earnings.............   $  102,588   $   96,492  $   96,215  $   73,964  $  110,201

       Comprehensive income.....   $   24,426   $   94,555  $  100,368  $   80,539  $  169,119

Per Share Data:
       Basic and diluted net
        earnings per share......   $     2.94   $     2.68  $     2.67  $     2.04  $     2.93

       Cash dividends paid per
        share...................   $     1.11   $     1.07  $     1.03  $     0.81  $     0.23

Weighted average number of
 shares outstanding.............   34,940,074   36,042,652  36,044,679  36,311,887  37,632,236
</TABLE>
<TABLE>
<CAPTION>
                                                                 December 31,
                                       1999         1998        1997        1996       1995
<S>                                <C>          <C>         <C>         <C>         <C>
Balance Sheet Data:
  Total investments.............   $1,268,979   $1,257,900  $1,242,695  $1,167,671  $1,096,778
  Premiums receivable...........      195,160      162,878     169,469     157,835     127,047
  Total assets..................    1,871,472    1,755,983   1,754,753   1,676,799   1,564,175
  Unpaid losses and loss
   adjustment expenses..........      675,188      596,996     649,473     662,832     626,029
  Unearned premiums.............      457,095      391,424     379,599     367,991     330,454
  Stockholders' equity..........      646,634      705,785     649,796     587,039     549,714
  Stockholders' equity
   per share ...................        18.82        19.58       18.03       16.28       14.96
</TABLE>
65
<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 $6,380,394.  During this
period, the aggregate statutory financial ratios were 68.8% for losses
and loss expenses and 26.8% for underwriting expenses resulting in an
aggregate combined ratio of 95.6%.  Total net investment income amounted
to $682,827 or 10.7% of net premiums written.  Net realized gains were
$102,475.  Stockholders' equity was $24,588 at the beginning of 1985 and
$614,416, at the end of 1999, resulting in an average annual increase in
excess of 23.9%.  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>
<CAPTION>

                                                                  5-Year Period

                                                        1995-99        1990-94    1985-89
<S>                                                  <C>            <C>          <C>
Direct premiums written..........................    $3,872,145     $2,582,664   $1,095,999

Net premiums written.............................     3,713,533      2,192,395      474,466

Net investment income............................       405,976        214,311       62,540

Net realized gains...............................        30,579         65,036        6,860

Stockholders' equity at end of period............       614,416        378,301       95,288

Statutory Financial Ratios (Unaudited)
  Losses and loss expenses to premiums earned....          70.0%          65.6%        73.9%

  Underwriting expenses to net premiums written..          26.7           27.3         24.3
      Combined ratio.............................          96.7%          92.9%        98.2%

Increase in Stockholders' Equity.................          62.4%         297.0%       287.5%
</TABLE>



The insurance operations of the Company include the operating results of
Commerce and Citation, along with Commerce's subsidiary company's,
Commerce West and American Commerce.  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.
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 Commerce West are included since its
acquisition by Commerce on August 31, 1995.  Results of American
Commerce are included since its acquisition by Commerce on January 29,
1999.  The combined balance sheets of these insurance subsidiaries
appear on pages 67 and 68.  The combined statements of earnings of
insurance operations appear on pages 69 and 70.













66
<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>
<CAPTION>
                                         1999        1998        1997        1996        1995




ASSETS
<S>                                  <C>         <C>         <C>         <C>         <C>
Cash and short-term investments..... $   22,411  $   75,655  $  238,685  $  140,102  $   52,308
Bonds, at market (at amortized cost
 prior to 1993).....................    647,338     619,267     590,597     716,702     815,277
Preferred stocks, at market (at
 amortized cost prior to 1993)......    211,049     197,425     148,499     147,680     111,220
Common stocks, at market............    301,467     283,961     178,089      86,041      40,359
Mortgage loans on real estate.......     42,479      46,573      57,425      45,398      31,404
Other investments...................     14,139       7,825       3,783         127         -
Premium balances receivable.........    195,047     162,704     169,311     157,673     126,090
Investment income receivable........     14,531      13,544      12,103      12,655      14,440
Residual market receivable..........    156,660     153,220     180,799     195,213     200,124
Reinsurance receivable..............     48,365      36,687      18,170      19,659      21,897
Deferred acquisition costs..........     98,500      88,759      85,264      82,968      67,160
Current income taxes................        -         2,773         -           -           -
Deferred income taxes...............     43,081         -           -           -         2,100
Non-compete agreement...............      3,179         -           -           -           -
Real estate, furniture and equipment     27,321      27,885      29,060      26,011      24,642

        Total assets................ $1,825,567  $1,716,278  $1,711,785  $1,630,229  $1,507,021

LIABILITIES

Unpaid losses and loss expenses..... $  674,666  $  592,174  $  637,094  $  657,854  $  618,791
Unearned premiums...................    457,095     391,424     379,599     367,991     330,454
Excess of book value of subsidiary
 interest over cost.................     10,758         -           -           -           -
Notes payable.......................        -           -           -           -           -
Deferred income.....................      7,464       6,948       7,271       7,974       8,954
Accounts payable, accrued and other
 liabilities........................     48,158      70,558      60,332      41,368      34,351
Current income taxes................     11,822         -         9,635       2,726       1,596
Deferred income taxes...............        -         5,423       8,438       2,165         -
        Total liabilities...........  1,209,963   1,066,527   1,102,369   1,080,078     994,146

Minority interest...................      1,188         -           -           -           -

STOCKHOLDERS' EQUITY

Capital stock.......................      3,600       3,620       3,600       3,600       3,450
Paid-in capital.....................     45,050      45,050      45,050      45,050      23,700
Retained earnings
  Balance, January 1................    601,081     560,766     501,501     485,725     351,151
  Net earnings......................     99,155      93,888     101,528      74,432     110,450
  Other comprehensive income (loss).    (78,164)     (1,935)      4,152       6,574      58,919
  Dividends paid....................    (56,306)    (51,638)    (46,415)    (65,230)    (34,795)
Balance, December 31................    565,766     601,081     560,766     501,501     485,725
        Total stockholders' equity..    614,416     649,751     609,416     550,151     512,875
Total liabilities and
          stockholders' equity...... $1,825,567  $1,716,278  $1,711,785  $1,630,229  $1,507,021
</TABLE>





67
<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>
<CAPTION>
    1994        1993       1992     1991     1990     1989    1988      1987     1986     1985




ASSETS
<S>        <C>        <C>        <C>      <C>      <C>      <C>       <C>      <C>      <C>
$    4,560 $   12,615 $   25,809 $ 11,190 $ 38,654 $ 84,308 $ 60,885  $ 21,051 $ 10,048 $ 11,802

   745,010    649,491    505,565  329,935  242,735  153,621  133,867   116,220   88,755   56,985

    85,574     80,059      2,261      869    1,010    1,324    1,606     2,295    6,755    9,956
     9,656     47,462     43,545   30,055    4,869    2,900    1,921     1,438      149      134
    35,715     42,042     60,697   66,122   56,124   52,244   42,882    15,931      -        -
       -          -       67,876   55,510   57,733   56,713   33,727    19,329   11,817    8,194
   101,529     94,333        -        -        -        -        -         -        -        -
    13,285     10,205      9,710    6,063    4,235    3,093    2,889     2,370    2,485    1,722
   214,818    220,312    274,426  277,196  290,440  268,951  198,177   132,725   87,178   50,327
    16,892     12,868        365      -         -        -        -         -       -        -
    59,066     53,647     55,442   33,981   27,273   22,702   15,699    10,898    7,129    5,417
       -          -          -        -        -        341      266       -      2,209    1,294
    38,180        -          -        883    1,666      -        -         -        -        -
       -          -          -        -        -        -        -         -        -        -
    25,246     22,371     23,183   24,163   25,046   23,118    9,684     8,356    7,370    5,648

$1,349,531 $1,245,405 $1,068,879 $835,967 $749,785 $669,315 $501,603  $330,613 $223,895 $151,479

LIABILITIES

$  592,373 $  567,797 $  495,800 $439,551 $403,752 $345,020 $270,628  $169,539 $113,513 $ 71,525
   314,719    283,526    264,567  192,785  175,334  174,345  118,079    84,876   55,378   36,024

       -          -          -        -        -        -        -         -        -        -
       -          -          -        -      1,662    1,837    2,013     2,204    3,772    4,140
    10,451      7,351      8,384   12,918   20,264   23,689   23,307    11,058    7,503    4,208

    43,433     16,564     20,863    7,677   21,065   27,513   19,350    14,532    8,532    4,162
    10,254      4,867      9,249    5,811    3,542      -        -         470      -         -
       -       13,669      4,400      -        -      1,623    1,021     1,853    3,736    3,623
   971,230    893,774    803,263  658,742  625,619  574,027  434,398   284,532  192,434  123,682

       -          -          -        -        -        -        -         -        -        -

STOCKHOLDERS' EQUITY

     3,450      3,450      3,450    3,450    3,450    3,450    2,350     2,350    2,350    2,350
    23,700      8,700      8,700    8,700    8,700    8,700    6,500     6,500    6,500    6,500

   339,481    253,466    165,075  112,016   83,138   62,877   37,231    22,611   18,947   15,738
   113,892     79,837     91,980   55,214   32,414   21,966   21,837    15,614    4,362    4,025
   (77,622)    21,928      9,811    2,545      (86)     645      321       (54)       7     (158)
   (24,600)   (15,750)   (13,400)  (4,700)  (3,450)  (2,350)  (1,034)     (940)    (705)    (658)
   351,151    339,481    253,466  165,075  112,016   83,138   58,355    37,231   22,611   18,947
   378,301    351,631    265,616  177,225  124,166   95,288   67,205    46,081   31,461   27,797

$1,349,531 $1,245,405 $1,068,879 $835,967 $749,785 $669,315 $501,603  $330,613 $223,895 $151,479
</TABLE>





68
<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>
<CAPTION>
                                                1999      1998      1997      1996      1995
<S>                                           <C>       <C>       <C>       <C>       <C>
Underwriting
  Direct premiums written...................  $948,149  $796,858  $768,649  $731,823  $626,666

  Net premiums written......................  $911,993  $745,048  $741,501  $711,570  $603,421
  Increase (decrease) in unearned
   premiums.................................    40,163      (572)   11,004    42,854    10,831
      Earned premiums.......................   871,830   745,620   730,497   668,716   592,590

Expenses
  Losses and loss expenses..................   628,087   533,523   521,775   474,173   367,258
  Underwriting expenses.....................   238,458   200,525   185,146   194,873   171,892
  (Increase) decrease in deferred
   acquisition costs........................    (3,374)   (3,495)   (2,296)  (15,809)   (5,723)
      Total expenses........................   863,171   730,553   704,625   653,237   533,427
Underwriting income (loss)..................     8,659    15,067    25,872    15,479    59,163
Net investment income.......................    90,042    86,664    81,396    76,867    71,007
Premium finance fees........................    14,768    13,426     7,056     9,666    19,246
Amortization of excess of book value
 of subsidiary interest over cost...........     3,019       -         -         -         -
Net realized investment gains (losses)......     8,168     6,645    22,909    (7,863)      720
      Earnings before Federal income taxes
      withdrawing companies' settlements
      and minority interest.................   124,656   121,802   137,233    94,149   150,136

Other income
  Withdrawing companies' settlements........       -         -         -         -         -
Earnings before Federal income taxes
 and minority interest......................   124,656   121,802   137,233    94,149   150,136
Federal income taxes (benefits).............    26,453    27,914    35,705    19,717    39,686
Earnings before cumulative effect of
 change in accounting principle and
 minority interest..........................    98,203    93,888   101,528    74,432   110,450
Cumulative effect on prior years (to
 December 31, 1986) of changing to
 different method of accounting for
 income taxes...............................       -         -         -         -         -
Minority interest...........................       952       -         -         -         -
      NET EARNINGS..........................  $ 99,155  $ 93,888  $101,528  $ 74,432  $110,450

Statutory Financial Ratios (Unaudited)
  Losses and loss expenses to
   premiums earned..........................    72.0%     71.6%     71.4%     70.9%     62.0%
  Underwriting expenses to net
   premiums written.........................    26.5      26.5      25.1      27.1      29.0
      Combined ratio........................    98.5%     98.1%     96.5%     98.0%     91.0%
      Underwriting profit (loss)............     1.5%      1.9%      3.5%      2.0%      9.0%
</TABLE>











69
<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>
<CAPTION>
   1994      1993        1992      1991      1990      1989      1988      1987     1986      1985

<S>       <C>        <C>        <C>       <C>       <C>       <C>       <C>       <C>       <C>
$625,023  $601,289   $ 525,495  $429,780  $401,077  $366,492  $306,469  $206,231  $131,807  $85,000

$589,197  $563,416   $ 508,847  $310,999  $219,936  $140,313  $124,923  $ 99,193  $ 60,808  $49,229

  17,144    14,856      98,353    30,193    34,692    12,655     9,678    13,428     6,775    6,392
 572,053   548,560     410,494   280,806   185,244   127,658   115,245    85,765    54,033   42,837


 369,764   373,243     271,848   173,901   125,219    88,564    80,203    65,299    44,205   33,548
 162,446   147,290     138,669    85,655    55,551    44,181    33,115    25,882    18,460   15,177

  (5,420)    1,796     (21,462)   (6,708)   (4,571)   (7,003)   (4,801)   (3,769)   (1,712)  (1,448)
 526,790   522,329     389,055   252,848   176,199   125,742   108,517    87,412    60,953   47,277
  45,263    26,231      21,439    27,958     9,045     1,916     6,728    (1,647)   (6,920)  (4,440)
  63,119    52,868      39,685    32,661    25,978    21,256    15,999    10,896     7,554    6,835
  18,315    16,486      13,734    11,165    10,074     8,095     4,592     3,021     1,436      531

     -         -           -         -         -         -         -         -         -        -
  32,025    13,040      12,368     7,529        74       618     2,298     3,423       185      336


 158,722   108,625      87,226    79,313    45,171    31,885    29,617    15,693     2,255    3,262


     -         -        43,168       -         -         -         -         -         -        -

 158,722   108,625     130,394    79,313    45,171    31,885    29,617    15,693     2,255    3,262
  44,830    28,788      38,414    24,099    12,757     9,919     7,780     2,987    (2,107)    (763)


 113,892    79,837      91,980    55,214    32,414    21,966    21,837    12,706     4,362    4,025



     -         -           -         -         -         -         -       2,908       -        -
     -         -           -         -         -         -         -         -         -        -
$113,892  $ 79,837   $  91,980  $ 55,214  $ 32,414  $ 21,966  $ 21,837  $ 15,614  $  4,362  $ 4,025



  64.6%    68.0%       66.2%     61.9%      65.7%     68.0%     69.5%     79.4%     83.5%    79.7%

  27.1     25.7        28.1      30.0       26.7      26.3      22.0      22.5      24.4     28.1
  91.7%    93.7%       94.3%     91.9%      92.4%     94.3%     91.5%    101.9%    107.9%   107.8%
   8.3%     6.3%        5.7%      8.1%       7.6%      5.7%      8.5%     (1.9%)    (7.9%)   (7.8%)
</TABLE>












70
<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 and General Claims Manager
                                          of Commerce and Citation

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

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

David R. Grenon.......................... Chairman Emeritus and Assistant Clerk of The
                                          Protector Group Insurance Agency, Inc.

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........................... President and Treasurer, Kunkel Buick and GMC
                                          Truck, 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....................... Retired physician who specialized 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 of the Company; President
                                          and Secretary of Commerce West Insurance Company;
                                          President of ACIC Holding Co., Inc.; Vice Chairman
                                          of the Board and Chief Executive Officer of
                                          American Commerce Insurance Company

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

Gurbachan Singh.......................... Retired physician who specialized in general
                                          surgery

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

71
<PAGE>





                               DIRECTORS OF
                               COMMERCE HOLDINGS, INC.
                               The Commerce Insurance Company
Commerce West 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; Treasurer,
Commerce Holdings, Inc.

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

Regan P. Remillard................     Senior Vice President; President and
Secretary of
Commerce West Insurance Company

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

John M. Nelson (1)................     Chairman of TJX Companies

Suryakant M. Patel (1)............     Retired physician who specialized in
                                       internal medicine

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

H. Thomas Rowles (1)..............     Chairman of the Board of ACIC Holding
Co., Inc.; Chairman of
the Board of American Commerce
Insurance Company; President,
Chief Executive Officer and Director of
AAA Southern New
England


Mark A. Shaw (1)..................     Treasurer of ACIC Holding Co., Inc.;
Executive Vice
President and Chief Operating Officer
of AAA Southern New
England
</TABLE>


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


















72
<page





                               DIRECTORS OF
                               ACIC HOLDING CO., INC.(2)
                                  American Commerce Insurance Company


<TABLE>
<CAPTION>
<S>                                    <C>
H. Thomas Rowles..................     Chairman of the Board of ACIC Holding Co., Inc.;
Chairman of the Board of American Commerce
Insurance Company; President, Chief Executive
Officer and Director of AAA Southern New England

Regan P. Remillard................     President of ACIC Holding Co., Inc.; Vice Chairman
of the Board and Chief Executive Officer of
American Commerce Insurance Company; Senior Vice
President of The Commerce Group, Inc.; President
and Secretary of Commerce West Insurance Company

Mark A. Shaw......................     Treasurer of ACIC Holding Co., Inc.; Executive Vice
President and Chief Operating Officer of AAA
Southern New England

Gerald Fels.......................     Executive Vice President and Chief Financial Officer
of The Commerce Group, Inc.

Patrick W. Doherty (3)............     President and Chief Executive Officer of AAA
Oklahoma

Terry R. Farias (3)...............     President and Chief Executive Officer of AAA Hoosier
Motor Club

Roger L. Graybeal (3).............     President and Secretary of AAA Oregon/Idaho

Richard S. Hamilton (3)...........     President of AAA West Pennsylvania/West
                                       Virginia/South Central Ohio

Gerald P. Hogan (3)...............     President and Chief Operating Officer of American
Commerce Insurance Company

Charles B. Liekweg (3)............     President and Chief Executive Officer of AAA
                                       Washington

D. James McDowell (3).............     President and Chief Executive Officer of AAA Arizona

Peter C. Ohlheiser (3)............     President of Ohio Motorists Association
</TABLE>


 (2) Incorporated in November, 1998.  80% owned by The Commerce
      Insurance Company and 20% owned by AAA Southern New England.
 (3) American Commerce Insurance Company only, which was acquired in
     January 1999.













73
<PAGE>




                               DIRECTORS OF
                               BAY FINANCE COMPANY, INC.
<TABLE>
<CAPTION>
<S>                                       <C>
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...............   Senior Vice President and Assistant Clerk

Regan P. Remillard.....................   Senior Vice President
</TABLE>





                                       DIRECTORS OF
                               CLARK-PROUT INSURANCE AGENCY, INC.
<TABLE>
<CAPTION>

<S>                                       <C>
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...............   Senior Vice President and Assistant Clerk

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


























74
<PAGE>


                                  THE COMMERCE GROUP, INC.
                                    Commerce Holdings, Inc.
                                      The Commerce Insurance Company
                                        Commerce West Insurance Company
                                        ACIC Holding Co., Inc. (1)
                                          American Commerce Insurance
                                             Company (2)
                                      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.........................................     Regan P. Remillard
Senior Vice President.........................................     Mary M. Fontaine
Vice President and General Counsel............................     James A. Ermilio
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 MASSACHUSETTS SUBSIDIARIES (3)

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
                                                                   Peter J. Dignan
                                                                   Mary M. Fontaine
                                                                   Arthur J. Remillard, III
                                                                   Regan P. Remillard
                                                                   Joyce B. Virostek


Vice Presidents...............................................     Elizabeth M. Edwards
                                                                   Karen A. Lussier
                                                                   Michael J. Richards
                                                                   Angelos Spetseris
                                                                   Henry R. Whittier, Jr.

Vice President and General Counsel............................     James A. Ermilio

Assistant Vice Presidents...................  David P. Antocci     Susan A. Horan
                                              Robert M. Blackmer   John V. Kelly
                                              Stephen R. Clark     Ronald J. Lareau
                                              Raymond J. DeSantis  Donald G. MacLean
                                              Warren S. Ehrlich    Robert E. McKenna
                                              Richard W. Goodus    Robert L. Mooney
                                              James E. Gow         Emile E. Riendeau

Treasurer and Chief Accounting Officer........................     Randall V. Becker

Assistant Treasurer...........................................     Thomas A. Gaylord
</TABLE>

(1) Incorporated in November, 1998. 80% owned by The Commerce Insurance
Company and 20% owned by AAA Southern New England.
(2) Acquired by ACIC Holding Co., Inc. in January, 1999.
(3) Massachusetts subsidiaries include The Commerce Insurance Company,
Citation Insurance Company, Bay Finance Company, Inc. and Clark-Prout
Insurance Agency.  Officers often hold positions with several operating
subsidiaries.  The titles listed represent their primary office as of
March 1, 2000.
75
<page






<TABLE>
<CAPTION>
Officers of ACIC Holding Co., Inc.
<S>                                                                <C>
Chairman of the Board........................................      H. Thomas Rowles
President....................................................      Regan P. Remillard
Treasurer....................................................      Mark A. Shaw
Secretary....................................................      James A. Ermilio
</TABLE>


<TABLE>
<CAPTION>
Officers of American Commerce Insurance Company

<S>                                                                <C>
Chairman of the Board........................................      H. Thomas Rowles
Vice Chairman of the Board and Chief Executive Officer.......      Regan P. Remillard
President and Chief Operating Officer........................      Gerald P. Hogan
Senior Vice President........................................      Carol R. Blaine
Treasurer....................................................      Richard B. O'Hara
Secretary and Chief Legal Officer............................      James A. Ermilio
Assistant Vice President.....................................      Gregory S. Clark
Assistant Vice President and General Counsel.................      Julie Deley-Shimer
</TABLE>

<TABLE>
<CAPTION>
Officers of Commerce West Insurance Company

<S>                                                                <C>
Chairman of the Board........................................      Arthur J. Remillard, Jr.
President and Secretary......................................      Regan P. Remillard
Treasurer and Chief Financial Officer........................      Michael V. Vrban
Chief Reporting Officer......................................      Albert E. Peters
Investment Officer...........................................      Gerald Fels
Vice Presidents..............................................      Michael J. Berryessa
                                                                   Albert R. Harris
                                                                   Tushar M. Kothare
</TABLE>





















76
<page



Stockholder Information


Annual Meeting

The Annual meeting of stockholders will be held at 9:00
a.m. on Friday, May 19, 2000 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 BANKBOSTON, NA
    EquiServe, L.P.
P.O. Box 8040
Boston, MA 02266-8040
(781) 575-3100 or (800) 733-5001
http://www.equiserve.com


Executive Offices

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

Company Websites

http://www.commerceinsurance.com
http://www.bayfinance.com


Trading of Common Stock

The Company's Common Stock trades on the NYSE under the
symbol "CGI".

Independent Auditors

Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
(617) 266-2000
http://www.ey.com













77
<PAGE>


NON-QUALIFIED STOCK OPTION AGREEMENT



THIS NON-QUALIFIED STOCK OPTION AGREEMENT is entered into as of
April 30, 1999 by and between The Commerce Group, Inc., a
Massachusetts corporation with its principal place of business in
Webster, Massachusetts (the "Company"), and `Name' (the "Grantee").

Witnesseth:

WHEREAS, the Board of Directors of the Company has adopted the
1994 Management Incentive Plan on May 20, 1994 (as amended to date,
the "Plan"), which authorizes the Compensation Committee of the Board
of Directors (the "Committee") to grant various Awards, including
Options, to officers of the Company and its subsidiaries;

WHEREAS, the stockholders of the Company have approved the Plan;
and

WHEREAS, the Committee has approved the grant of this Option to
the Grantee, subject to the terms and conditions set forth in this
Agreement;

NOW, THEREFORE, the parties hereto agree as follows:

Section 1.  The Plan

This Agreement is subject in every respect to the terms of the
Plan.  Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Plan.

Section 2.  Grant of Option

The Company hereby grants to the Grantee, as of the date hereof,
an option (the "Option") to purchase up to `Shares' shares of Stock
(the "Option Shares") at a price per share (the "Exercise Price") on
the Vesting Date (as hereinafter defined) equal to the Initial
Exercise Price (as defined in Section 3 of this Agreement) less any
adjustments as set forth in this Agreement.  Both the Exercise Price
and the number of shares granted herein shall be subject to adjustment
only as provided in the Plan.  The Company intends that the Option
shall not qualify as an "incentive stock option" under Section 422 of
the Internal Revenue Code of 1986, as amended, or any successor
provision thereto.

<page



Section 3.  Initial Exercise Price

The initial exercise price shall be thirty two dollars and
eighty one cents ($32.81) (the "Initial Exercise Price").

Section 4.  Adjustments to Initial Exercise Price

On the Vesting Date (as hereinafter defined), the Exercise Price
shall be calculated by subtracting from the Initial Exercise Price the
sum of any of the following (a) the amount of all cash dividends which
the Officer would have been entitled to receive had the Officer owned
a share of Common Stock and held such share throughout the period
beginning April 30, 1999 and ending April 30, 2002, and (b) the fair
market value of all distributions of property made by the Company to
holders of Common Stock (other than shares of Common Stock issuable by
way of a stock split, stock dividend, combination of shares,
recapitalization or the like) which the Officer would have been
entitled to receive had the Officer owned a share of Common Stock and
held such share throughout the period beginning April 30, 1999 and
ending on the April 30, 2002.

Section 5.  Term of Option

Subject to such further limitations as are provided herein, the
Option shall become effective upon the date of this Agreement and
shall become exercisable on April 30, 2002 (the "Vesting Date"),
unless such Vesting Date is accelerated in accordance with the terms
hereof.   The period beginning on the date hereof and ending on the
Expiration Date (as hereinafter defined) is referred to herein as the
"Option Term."

Section 6.  Termination of the Option

The Option and all rights hereunder with respect thereto, to the
extent such rights shall not have been exercised and to the extent the
Option has not earlier terminated pursuant to this Agreement, shall
terminate and become null and void after the close of business on May
1, 2007 (the "Expiration Date").

Section 7.   Conditions to Exercise

(a)    It shall be a condition to any exercise of the Option
granted hereunder that throughout the period beginning on the date
hereof and ending on the date occurring three (3) months prior to the
date of exercise of the Option, the Grantee shall have been in the
continuous employ of the Company or any of its subsidiaries as an
officer.  The Grantee shall be deemed to have been in the continuous
employ of the Company or any of its subsidiaries as an officer in the
event of death or an approved leave of absence and/or disability or
for any other purpose approved by the Company in accordance with the
terms of the Plan.
<PAGE>



(b)    If the Grantee ceases to be employed by the Company by
reason of the Grantee's death during the Option Term, the Option shall
either (i) terminate if the Option was not exercisable at the date of
the Grantee's death, or (ii) be exercisable, to the extent the Option
was exercisable at the date of the Grantee's death, either by the
Grantee's executor or administrator or, if not so exercised, by the
legatees or distributees of the Grantee's estate, only during the
three (3) months immediately following the Grantee's death, after
which time the Option shall terminate, except as may be approved by
the Company in accordance with the terms of the Plan.

(c)    If the Grantee ceases to be employed by the Company by
reason of the Grantee's disability or for any other purpose approved
by the Board of Directors of the Company during the Option Term, the
Option shall either (i) terminate if the Option was not exercisable at
the date the Grantee's employment ceased, or (ii) be exercisable, to
the extent the Option was exercisable at the date the Grantee's
employment ceased, by the Grantee or by the Grantee's duly appointed
guardian, only during the three (3) months immediately following the
cessation of the Grantee's employment, after which time the Option
shall terminate, except as may be approved by the Company in
accordance with the terms of the Plan.

(d)    In the event of a "change in control" (as hereinafter
defined) of the Company, the Vesting Date of the Option shall be
accelerated and the Option shall become immediately exercisable by the
Grantee, except as may be determined by the Company in accordance with
the terms of the Plan.  For purposes of this Agreement, a "change in
control" of the Company shall occur in the event that the Company
shall sell all or substantially all of its assets or consolidate or
merge with or into any other entity (other than a merger or
consolidation that results in the persons who hold a majority of the
outstanding shares of Common Stock immediately prior to such merger or
consolidation holding, immediately after such merger or consolidation,
a majority of the outstanding shares of common stock of the entity
resulting from such merger or consolidation) or in the event the
holders of a majority of the outstanding shares of Common Stock shall
sell, in a single or related series of transactions, a majority of the
outstanding shares of Common Stock to a person or entity, or related
persons or entities.

(e)    If Grantee voluntarily terminates his employment with the
Company after the Vesting Date the Option will be exercisable only
during the three (3) months immediately following such termination of
employment, after which time the Option shall terminate, except as may
be approved by the Company in accordance with the terms of the Plan.

(f)    Notwithstanding any other provisions set forth herein or
in the Plan, in no event shall the Option be exercised after the
expiration of the Option Term.

Section 8.   Exercise of Option

(a)    The Grantee may exercise the Option with respect to all or any
part of the number of Option Shares then exercisable hereunder by
giving written notice of election to the Company, attention:
Treasurer.  Such notice shall specify the number of Option Shares as
to which the Option is to be exercised and the date of exercise
thereof, which date shall be at least five (5) calendar days after the
giving of such notice unless an earlier time shall have been agreed
upon by the Company.


<page



(b)    At the time the Option is exercised, the Grantee shall
make full payment for the Option Shares purchased, in cash, certified
check or bank cashier's check, or, in whole or in part through the
surrender and delivery of shares of Common Stock at their "fair market
value" (as hereinafter defined) as of the date of delivery.  The
Grantor also shall pay to the Company or make provision satisfactory
to the Company for the payment of any taxes required by law to be
withheld by the Company at the time of the exercise of the Option or
the sale of the Option Shares acquired upon such exercise.  For
purposes of this Section 8(b), "fair market value" of the Common Stock
shall be determined based on the daily average of high and low sale
prices of the Common Stock for the five trading days preceding the
date of exercise as reported by the securities exchange or automated
quotation system on which the Common Stock is listed on the date of
exercise.

(c)    In the event exercise of the Option shall require the
Company to issue a fractional share of Common Stock of the Company,
such fraction shall be disregarded and the purchase price payable in
connection with such exercise shall be appropriately reduced.  Any
such fractional share shall be carried forward and added to any shares
covered by future exercise(s) of the Option or if the Option has been
exercised in full, by payment of the fair market value in lieu of such
fractional share.

(d)    Notwithstanding anything to the contrary contained
herein, the Option shall not be exercisable unless either (i) a
registration statement under the Securities Act of 1933, as amended,
with respect to the Option Shares shall have become, and continues to
be, effective, or (ii) the Grantee (a) shall have represented,
warranted and agreed, in form and substance satisfactory to the
Company, at the time of exercising the Option, that the Grantee is
acquiring the Option Shares for the Grantee's own account, for
investment and not with a view to or in connection with any
distribution, (b) shall have agreed to restrictions on transfer in
form and substance satisfactory to the Company, and (c) shall have
agreed to an endorsement which makes appropriate reference to such
representations, warranties, agreements and restrictions on the
certificate(s) representing the Option Shares.  The Company agrees to
use reasonable efforts to cause the Option Shares to be registered
under the Securities Act of 1933.

Section 9.   No Rights of a Shareholder

Neither the Grantee nor any personal representative shall be, or
shall have any of the rights and privileges of, a shareholder of the
Company with respect to any Option Shares, in whole or in part, prior
to the date of exercise of the Option, including, without limitation,
any rights with respect to dividends or other distributions, except as
provided to the contrary herein.


Section 10.  Non-transferability of Option

During the Grantee's lifetime, the Option shall be exercisable only by
the Grantee, and the Option shall not in any event be transferable
except in case of the death of the Grantee or by will or the laws of
descent and distribution, as set forth in Section 6(e) of the Plan.

<page



Section 11.  Adjustment for Stock Dividends, Stock Splits, Etc.

To preserve the benefits or potential benefits provided under
this Agreement, the terms of this Agreement, including but not limited
to the number of Option Shares and the Exercise Price, shall be
appropriately adjusted in the event of any stock dividend, stock
split, combination of shares, recapitalization (including Treasury
Stock transactions) or the like effective as to shares of the Common
Stock after the date hereof and prior to the Expiration Date.

Section 12.  No Right to Continued Employment

The Grantee shall have no right to continued employment by the
Company or any of its subsidiaries by virtue of this Agreement, the
granting of the Option or its exercise, and nothing contained herein
shall be construed to limit the Company's right at any time to
terminate the Grantee's employment, in accordance with the Company's
By-laws, with or without cause, subject only to those obligations the
Company may have for unpaid salary and/or expenses, in accordance with
provisions of law.

Section 13.  Amendment of Option

The Option may be amended or modified at any time by the Company
as provided in the Plan.

Section 14.  Notice

(a)    Any notices required or permitted hereunder shall be
addressed to the Company at 211 Main Street, Webster, MA  01570,
attention: Treasurer, and to the Grantee at the most current address
of the Grantee appearing in the records of the Company, as the case
may be.  Such notice must be in writing and will be deemed to have
been effectively given on the date of actual receipt by the recipient
party (arrival at the proper address or facsimile number being deemed
to constitute receipt by the recipient party).  All such notices and
other communications shall be either (i) delivered personally, (ii)
transmitted by facsimile transmission (if to the Company at facsimile
number (508) 949-4411), (iii) mailed by registered or certified mail,
postage prepaid, or (iv) delivered by a recognized commercial carrier.
The party giving notice shall have the burden of proving delivery.

(b)    the Company or the Grantee may, by notice to the other
parties given in the manner provided in Section 14(a), change the
Company's or the Grantee's address for future notice.

Section 15.  Governing Law

The validity, construction, interpretation and effect of this
instrument shall be governed by and determined in accordance with the
law of the Commonwealth of Massachusetts, without regard to conflicts
of law principles.
<page



IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed by its respective officers thereunder duly authorized
and the Grantee has hereunto set the Grantee's hand all as of the
thirtieth day of April, 1999.


                                 THE COMMERCE GROUP, INC.


                                 By:
                                 Arthur J. Remillard, Jr.
                                 President and Chief Executive Officer


                                 ACCEPTED:


                                 By:
                                 `Name', the Grantee


<page



INCENTIVE STOCK OPTION AGREEMENT


THIS INCENTIVE STOCK OPTION AGREEMENT is entered into as of
April 30, 1999 by and between The Commerce Group, Inc., a
Massachusetts corporation with its principal place of business in
Webster, Massachusetts (the "Company"), and `Name' (the "Grantee").

Witnesseth:

WHEREAS, the Board of Directors of the Company has adopted the
1994 Management Incentive Plan on May 20, 1994 (as amended to date,
the "Plan"), which authorizes the Compensation Committee of the Board
of Directors (the "Committee") to grant various Awards, including
Options, to officers of the Company and its subsidiaries;

WHEREAS, the stockholders of the Company have approved the
Plan; and

WHEREAS, the Committee has approved the grant of this Option to
the Grantee, subject to the terms and conditions set forth in this
Agreement;

NOW, THEREFORE, the parties hereto agree as follows:

Section 1.   The Plan

This Agreement is subject in every respect to the terms of the
Plan.  Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Plan.

Section 2.   Grant of Option

The Company hereby grants to the Grantee, as of the date
hereof, an option (the "Option") to purchase up `Shares' of Stock
(the "Option Shares") at a price per share (the "Exercise Price") on
the Vesting Date (as hereinafter defined) equal to the Initial
Exercise Price (as defined in Section 3 of this Agreement) less any
adjustments as set forth in this Agreement.  Both the Exercise Price
and the number of shares granted herein shall be subject to
adjustment only as provided in the Plan.  The Company intends that
the Option be treated for all purposes as an "incentive stock
option," in compliance with Section 422 of the Internal Revenue Code
of 1986, as amended, or any successor provision thereto.  If there is
a final judicial or administrative determination that this Option
does not qualify as an incentive stock option as a consequence of any
action or omission within the Company's control, the Company will use
all commercially reasonable efforts to correct the deficiency to the
extent possible.

Section 3.   Initial Exercise Price

The initial exercise price shall be thirty two dollars and
eighty one cents ($32.81) (the "Initial Exercise Price").
<page



Section 4.   Adjustments to Initial Exercise Price

On the Vesting Date (as hereinafter defined), the Exercise
Price shall be calculated by subtracting from the Initial Exercise
Price the sum of any of the following (a) the amount of all cash
dividends which the Officer would have been entitled to receive had
the Officer owned a share of Common Stock and held such share
throughout the period beginning April 30, 1999 and ending April 30,
2002, and (b) the fair market value of all distributions of property
made by the Company to holders of Common Stock (other than shares of
Common Stock issuable by way of a stock split, stock dividend,
combination of shares, recapitalization or the like) which the
Officer would have been entitled to receive had the Officer owned a
share of Common Stock and held such share throughout the period
beginning April 30, 1999 and ending on the April 30, 2002.

Section 5.   Term of Option

Subject to such further limitations as are provided herein, the
Option shall become effective upon the date of this Agreement and
shall become exercisable on April 30, 2002 (the "Vesting Date"),
unless such Vesting Date is accelerated in accordance with the terms
hereof.   The period beginning on the date hereof and ending on the
Expiration Date (as hereinafter defined) is referred to herein as the
"Option Term."

Section 6.   Termination of the Option

The Option and all rights hereunder with respect thereto, to
the extent such rights shall not have been exercised and to the
extent the Option has not earlier terminated pursuant to this
Agreement, shall terminate and become null and void after the close
of business on May 1, 2007 (the "Expiration Date").

Section 7.   Conditions to Exercise

(a)   It shall be a condition to any exercise of the Option
granted hereunder that throughout the period beginning on the date
hereof and ending on the date occurring three (3) months prior to the
date of exercise of the Option, the Grantee shall have been in the
continuous employ of the Company or any of its subsidiaries as an
officer.  The Grantee shall be deemed to have been in the continuous
employ of the Company or any of its subsidiaries as an officer in the
event of death or an approved leave of absence and/or disability or
for any other purpose approved by the Company in accordance with the
terms of the Plan.

(b)   If the Grantee ceases to be employed by the Company by
reason of the Grantee's death during the Option Term, the Option
shall either (i) terminate if the Option was not exercisable at the
date of the Grantee's death, or (ii) be exercisable, to the extent
the Option was exercisable at the date of the Grantee's death, either
by the Grantee's executor or administrator or, if not so exercised,
by the legatees or distributees of the Grantee's estate, only during
the three (3) months immediately following the Grantee's death, after
which time the Option shall terminate, except as may be approved by
the Company in accordance with the terms of the Plan.
<page



(c)   If the Grantee ceases to be employed by the Company by
reason of the Grantee's disability or for any other purpose approved
by the Board of Directors of the Company during the Option Term, the
Option shall either (i) terminate if the Option was not exercisable
at the date the Grantee's employment ceased, or (ii) be exercisable,
to the extent the Option was exercisable at the date the Grantee's
employment ceased, by the Grantee or by the Grantee's duly appointed
guardian, only during the three (3) months immediately following the
cessation of the Grantee's employment, after which time the Option
shall terminate, except as may be approved by the Company in
accordance with the terms of the Plan.

(d)   In the event of a "change in control" (as hereinafter
defined) of the Company, the Vesting Date of the Option shall be
accelerated and the Option shall become immediately exercisable by
the Grantee, except as may be determined by the Company in accordance
with the terms of the Plan.  For purposes of this Agreement, a
"change in control" of the Company shall occur in the event that the
Company shall sell all or substantially all of its assets or
consolidate or merge with or into any other entity (other than a
merger or consolidation that results in the persons who hold a
majority of the outstanding shares of Common Stock immediately prior
to such merger or consolidation holding, immediately after such
merger or consolidation, a majority of the outstanding shares of
common stock of the entity resulting from such merger or
consolidation) or in the event the holders of a majority of the
outstanding shares of Common Stock shall sell, in a single or related
series of transactions, a majority of the outstanding shares of
Common Stock to a person or entity, or related persons or entities.

(e)   If Grantee voluntarily terminates his employment with the
Company after the Vesting Date the Option will be exercisable only
during the three (3) months immediately following such termination of
employment, after which time the Option shall terminate, except as
may be approved by the Company in accordance with the terms of the
Plan.

(f)   Notwithstanding any other provisions set forth herein or
in the Plan, in no event shall the Option be exercised after the
expiration of the Option Term.

Section 8.   Exercise of Option

(a)   The Grantee may exercise the Option with respect to all or any
part of the number of Option Shares then exercisable hereunder by
giving written notice of election to the Company, attention:
Treasurer.  Such notice shall specify the number of Option Shares as
to which the Option is to be exercised and the date of exercise
thereof, which date shall be at least five (5) calendar days after
the giving of such notice unless an earlier time shall have been
agreed upon by the Company.


<page



(b)   At the time the Option is exercised, the Grantee shall
make full payment for the Option Shares purchased, in cash, certified
check or bank cashier's check, or, in whole or in part through the
surrender and delivery of shares of Common Stock at their "fair
market value" (as hereinafter defined) as of the date of delivery.
The Grantor also shall pay to the Company or make provision
satisfactory to the Company for the payment of any taxes required by
law to be withheld by the Company at the time of the exercise of the
Option or the sale of the Option Shares acquired upon such exercise.
For purposes of this Section 8(b), "fair market value" of the Common
Stock shall be determined based on the daily average of high and low
sale prices of the Common Stock for the five trading days preceding
the date of exercise as reported by the securities exchange or
automated quotation system on which the Common Stock is listed on the
date of exercise.

(c)   In the event exercise of the Option shall require the
Company to issue a fractional share of Common Stock of the Company,
such fraction shall be disregarded and the purchase price payable in
connection with such exercise shall be appropriately reduced.  Any
such fractional share shall be carried forward and added to any
shares covered by future exercise(s) of the Option or if the Option
has been exercised in full, by payment of the fair market value in
lieu of such fractional share.

(d)   Notwithstanding anything to the contrary contained
herein, the Option shall not be exercisable unless either (i) a
registration statement under the Securities Act of 1933, as amended,
with respect to the Option Shares shall have become, and continues to
be, effective, or (ii) the Grantee (a) shall have represented,
warranted and agreed, in form and substance satisfactory to the
Company, at the time of exercising the Option, that the Grantee is
acquiring the Option Shares for the Grantee's own account, for
investment and not with a view to or in connection with any
distribution, (b) shall have agreed to restrictions on transfer in
form and substance satisfactory to the Company, and (c) shall have
agreed to an endorsement which makes appropriate reference to such
representations, warranties, agreements and restrictions on the
certificate(s) representing the Option Shares.  The Company agrees to
use reasonable efforts to cause the Option Shares to be registered
under the Securities Act of 1933.

(e)   The Grantee agrees to notify the Company in writing
promptly after the Grantee makes a Disqualifying Disposition (as
defined in this paragraph) of any Option Share received pursuant to
the exercise of this Option. The term "Disqualifying Disposition"
means any disposition (including any sale) of an Option Share before
the later of (a) two years after the Grantee was granted this Option,
or (b) one year after Grantee acquired the Share by exercising this
Option.

Section 9.   No Rights of a Shareholder

Neither the Grantee nor any personal representative shall be,
or shall have any of the rights and privileges of, a shareholder of
the Company with respect to any Option Shares, in whole or in part,
prior to the date of exercise of the Option, including, without
limitation, any rights with respect to dividends or other
distributions, except as provided to the contrary herein.
<page



Section 10.  Non-transferability of Option

During the Grantee's lifetime, the Option shall be exercisable
only by the Grantee, and the Option shall not in any event be
transferable except in case of the death of the Grantee or by will or
the laws of descent and distribution, as set forth in Section 6(e) of
the Plan.



Section 11.  Adjustment for Stock Dividends, Stock Splits, Etc.

To preserve the benefits or potential benefits provided under
this Agreement, the terms of this Agreement, including but not
limited to the number of Option Shares and the Exercise Price, shall
be appropriately adjusted in the event of any stock dividend, stock
split, combination of shares, recapitalization (including Treasury
Stock transactions) or the like effective as to shares of the Common
Stock after the date hereof and prior to the Expiration Date.

Section 12.  No Right to Continued Employment

The Grantee shall have no right to continued employment by the
Company or any of its subsidiaries by virtue of this Agreement, the
granting of the Option or its exercise, and nothing contained herein
shall be construed to limit the Company's right at any time to
terminate the Grantee's employment, in accordance with the Company's
By-laws, with or without cause, subject only to those obligations the
Company may have for unpaid salary and/or expenses, in accordance
with provisions of law.

Section 13.  Amendment of Option

The Option may be amended or modified at any time by the
Company as provided in the Plan.

Section 14.  Notice

(a)   Any notices required or permitted hereunder shall be
addressed to the Company at 211 Main Street, Webster, MA  01570,
attention: Treasurer, and to the Grantee at the most current address
of the Grantee appearing in the records of the Company, as the case
may be.  Such notice must be in writing and will be deemed to have
been effectively given on the date of actual receipt by the recipient
party (arrival at the proper address or facsimile number being deemed
to constitute receipt by the recipient party).  All such notices and
other communications shall be either (i) delivered personally, (ii)
transmitted by facsimile transmission (if to the Company at facsimile
number (508) 949-4411), (iii) mailed by registered or certified mail,
postage prepaid, or (iv) delivered by a recognized commercial
carrier.  The party giving notice shall have the burden of proving
delivery.

(b)   the Company or the Grantee may, by notice to the other
parties given in the manner provided in Section 14(a), change the
Company's or the Grantee's address for future notice.
<page



Section 15.  Governing Law

The validity, construction, interpretation and effect of this
instrument shall be governed by and determined in accordance with the
law of the Commonwealth of Massachusetts, without regard to conflicts
of law principles.

IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed by its respective officers thereunder duly authorized
and the Grantee has hereunto set the Grantee's hand all as of the
thirtieth day of April, 1999.


                                THE COMMERCE GROUP, INC.


                                By:
                                      Arthur J. Remillard, Jr.
                                      President and Chief Executive
                                      Officer


                                ACCEPTED:


                                By:
                                     `Name', the Grantee


<page


NON-QUALIFIED STOCK OPTION AGREEMENT

THIS NON-QUALIFIED STOCK OPTION AGREEMENT is entered into as
of May 21, 1999 by and between The Commerce Group, Inc., a
Massachusetts corporation ("CGI"), and `Name' (the "Grantee"), an
employee of American Commerce Insurance Company, an Ohio
corporation and subsidiary of CGI ("ACIC").  (CGI and any present
or future subsidiary corporation as defined in Section 424 of the
Internal Revenue Code of 1986, as amended, from time to time,
including ACIC, are hereinafter collectively referred to as the
"Company", unless the context otherwise requires.)

For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
act and agree as follows:

Section 1.   The Plan

This Agreement is subject in every respect to the terms of
CGI's 1994 Management Incentive Plan, as amended to date (the
"Plan"), a copy of which is attached hereto as Exhibit A and is
incorporated herein in its entirety by this reference.  Capitalized
terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Plan.

Section 2.   Grant of Option

CGI hereby grants to the Grantee, as of the date hereof, an
option (the "Option")  to purchase up `Shares' shares of Common
Stock  (the "Option Shares") at a price per share of thirty-six
dollars and thirty-two cents ($36.32), both the price and the
number of shares being subject to adjustment only as provided in
the Plan.  CGI intends that the Option shall not qualify as an
"incentive stock option," under Section 422 of the Internal Revenue
Code of 1986, as amended, or any successor provision thereto.

Section 3.   Term of Option

Subject to such further limitations as are provided herein,
the Option shall become effective upon the date of this Agreement
and shall become exercisable on January 29, 2002 (the "Vesting
Date"), unless such Vesting Date is accelerated in accordance with
the terms hereof.   The period beginning on the date hereof and
ending on the Expiration Date (as hereinafter defined) is referred
to herein as the "Option Term."
<page


Section 4.   Termination of the Option

The Option and all rights hereunder with respect thereto, to
the extent such rights shall not have been exercised and to the
extent the Option has not earlier terminated pursuant to this
Agreement, shall terminate and become null and void after the close
of business on January 29, 2009 (the "Expiration Date").

Section 5.   Cessation of Grantee's Employment

(a)   If the Grantee ceases to be employed by the Company by
reason of the Grantee's death during the Option Term, the Option
shall either (i) terminate if the Option was not exercisable at the
date of the Grantee's death, or (ii) be exercisable, to the extent
the Option was exercisable at the date of the Grantee's death,
either by the Grantee's executor or administrator or, if not so
exercised, by the legatees or distributees of the Grantee's estate,
only during the three (3) months immediately following the
Grantee's death, after which time the Option shall terminate.

(b)   If the Grantee ceases to be employed by the Company by
reason of the Grantee's "disability" (as hereinafter defined)
during the Option Term, the Option shall either (i) terminate if
the Option was not exercisable at the date the Grantee's employment
ceased, or (ii) be exercisable, to the extent the Option was
exercisable at the date the Grantee's employment ceased, by the
Grantee or by the Grantee's duly appointed guardian, only during
the three (3) months immediately following the cessation of the
Grantee's employment, after which time the Option shall terminate.
For purposes of this Section 5(b), "disability" means the Grantee's
inability to perform on a full-time basis, with or without
reasonable accommodation, the duties required of the Grantee for a
period of six consecutive months, or an aggregate of nine months
during any twelve month period, because of physical or mental
illness or other physical or mental incapacity, followed by the
Company giving the Grantee 30 days' written notice of its intention
to terminate the Grantee's employment by reason thereof, and the
Grantee's failure because of physical or mental illness or other
physical or mental incapacity to resume the full-time performance
of the Grantee's duties within such period of 30 days and
thereafter to perform the same for a period of two consecutive
months.  If any question shall arise as to whether during any
period the Grantee is, as a result of any illness, injury, accident
or condition of either a physical or psychological nature, unable
to perform substantially the duties of the Grantee's position
hereunder, the Grantee may, and at the request of the Company
shall, submit to a medical examination by a physician selected by
the Company to whom the Grantee or the Grantee's duly appointed
guardian, if any, has no reasonable objection, to determine whether
the Grantee is so unable to perform, and such determination shall
for the purposes of this Agreement be conclusive of the issue.  If
such question shall arise and the Grantee shall fail to submit to
such medical examination, the Company's determination of the issue
shall be binding on the Grantee.
<page



(c)   If the Grantee's employment by the Company is
terminated for "cause" (as hereinafter defined) during the Option
Term, the Option shall either (i) terminate to the extent that it
is not exercisable by the Grantee on the date the Grantee's
employment with the Company ceased, or (ii) continue to be
exercisable, to the extent that it was exercisable on the date the
Grantee's employment with the Company ceased, during the ten (10)
days immediately following such cessation (subject to the delivery
by the Grantee at the time of exercise of a release, as more fully
described below), after which time the Option shall terminate.  For
purposes of this Section 5(c), "cause" shall mean only the
following: (i) intentional misconduct by the Grantee in the course
of employment that has a material adverse effect on the Company;
(ii) the commission or perpetration by the Grantee of any fraud
against the Company or against any other party in connection with
the Grantee's employment by the Company; (iii) the conviction of
the Grantee or the entry by the Grantee of a plea of nolo contendre
with respect to, any felony or any offense involving moral
turpitude; or (iv) the failure to perform, or the breach or
violation by the Grantee of, any of the Grantee's material
obligations in connection with the Grantee's employment which
continues for 15 days after written notice has been given to the
Grantee by the Company specifying the failure to perform or the
breach or violation.  Notwithstanding the foregoing, the Company
shall be entitled to disallow any exercise of the Option attempted
by the Grantee pursuant to this Section 5(c) unless the Grantee's
notice of exercise is accompanied by paperwork in form and
substance acceptable to the Company that releases, waives and
discharges any and all claims (other than "Preserved Claims"(as
hereinafter defined)) against the Company and its respective
affiliates and past, present and future directors, officers,
agents, employees, stockholders, successors and assigns.  For
purposes of this Agreement, "Preserved Claims" shall mean claims
with respect to (i) accrued and earned but unpaid salary and
vacation, and (ii) benefit plans of ACIC other than this Agreement.

(d)   In the event of a "change in control" of either ACIC or
CGI (as hereinafter defined),  or in the event that the Grantee's
employment is terminated without "cause" (as defined in Section
5(c) above), or in the event that the Grantee terminates Grantee's
employment with ACIC for "Good Reason" (as hereinafter defined),
the Vesting Date of the Option shall be accelerated and the Option
shall become immediately exercisable by the Grantee only during the
three (3) months immediately following such change in control or
termination of employment without cause or for Good Reason.   For
purposes of this Agreement, a "change in control" of CGI shall mean
any change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14(A) of Regulation
14(A) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").  In furtherance and not in limitation
of the foregoing, a change in control shall be deemed to have
occurred if (i) any "person" (as such term is defined in Sections
13(d) and 14(d)(2) of the Exchange Act) becomes the beneficial
owner, directly or indirectly, of securities of CGI representing
30% or more of the combined voting power of CGI's then outstanding
securities; (ii) CGI mergers or consolidates with another
corporation (or other entity) and CGI or an entity controlled by
CGI immediately prior to such merger or consolidation is not the
surviving entity; or (iii) a sale or other disposition of all or
substantially all of the assets of CGI takes place and an entity
controlled by CGI  is not
<page


the transferee of such assets.  For purposes of this Agreement, a
"change of control" of ACIC shall mean a change in the ownership of
ACIC such that ACIC ceases to be a majority owned subsidiary of
CGI.  For purposes of this Agreement, "Good Reason" shall have the
meaning ascribed to it in section 8.2(c) of that certain Employment
Agreement entered into between ACIC and Grantee as of the 28th day
of May, 1999, a copy of which is attached hereto as Exhibit B.

(e)   If Grantee voluntarily terminates his employment with
the Company after the Vesting Date (other than under conditions
covered by Sections 5 (b) or (d) above), the Option will be
exercisable only during the three (3) months immediately following
such termination of employment, after which time the Option shall
terminate.

(f)   Notwithstanding any other provisions set forth herein
or in the Plan, in no event shall the Option be exercised after the
expiration of the Option Term.

Section 6.   Exercise of Option

(a)   The Grantee may exercise the Option with respect to all or
any part of the number of Option Shares then exercisable hereunder
by giving written notice of election to CGI, attention: Treasurer.
Such notice shall specify the number of Option Shares as to which
the Option is to be exercised and the date of exercise thereof,
which date shall be at least five (5) days after the giving of such
notice unless an earlier time shall have been agreed upon by CGI.

(b)   At the time the Option is exercised, the Grantee shall
make full payment for the Option Shares purchased, in cash,
certified check or bank cashier's check, or, in whole or in part
through the surrender and delivery of shares of Common Stock at
their "fair market value" (as hereinafter defined) as of the date
of delivery.  The Grantor also shall pay to CGI or make provision
satisfactory to CGI for the payment of any taxes required by law to
be withheld by CGI at the time of the exercise of the Option or the
sale of the Option Shares acquired upon such exercise.  For
purposes of this Section 6(b), "fair market value" of the Common
Stock shall be determined based on the daily average of high and
low sale prices of the Common Stock for the five trading days
preceding the date of exercise as reported by the securities
exchange or automated quotation system on which the Common Stock is
listed on the date of exercise.

(c)   In the event exercise of the Option shall require CGI
to issue a fractional share of Common Stock of CGI, such fraction
shall be disregarded and the purchase price payable in connection
with such exercise shall be appropriately reduced.  Any such
fractional share shall be carried forward and added to any shares
covered by future exercise(s) of the Option or if the Option has
been exercised in full, by payment of the fair market value in lieu
of such fractional share.
<page



(d)   Notwithstanding anything to the contrary contained
herein, the Option shall not be exercisable unless either (i) a
registration statement under the Securities Act of 1933, as
amended, with respect to the Option Shares shall have become, and
continues to be, effective, or (ii) the Grantee (a) shall have
represented, warranted and agreed, in form and substance
satisfactory to CGI, at the time of exercising the Option, that the
Grantee is acquiring the Option Shares for the Grantee's own
account, for investment and not with a view to or in connection
with any distribution, (b) shall have agreed to restrictions on
transfer in form and substance satisfactory to CGI, and (c) shall
have agreed to an endorsement which makes appropriate reference to
such representations, warranties, agreements and restrictions on
the certificate(s) representing the Option Shares.  CGI agrees to
use reasonable efforts to cause the Option Shares to be registered
under the Securities Act of 1933.

Section 7.   No Rights of a Shareholder

Neither the Grantee nor any personal representative shall be,
or shall have any of the rights and privileges of, a shareholder of
CGI with respect to any Option Shares, in whole or in part, prior
to the date of exercise of the Option, including without
limitation, any rights with respect to dividends or other
distributions.

Section 8.   Non-transferability of Option

During the Grantee's lifetime, the Option shall be
exercisable only by the Grantee, and the Option shall not in any
event be transferable except in case of the death of the Grantee or
by will or the laws of descent and distribution, as set forth in
Section 6(e) of the Plan


Section 9.   Employment Not Affected

Neither the granting of the Option nor its exercise shall be
construed as granting to the Grantee any right with respect to the
Grantee's continued employment by the Company.  Except as may
otherwise be limited by a written agreement between the Company and
the Grantee, the right of the Company to terminate at will the
Grantee's employment at any time (whether by dismissal, discharge,
retirement or otherwise) is specifically reserved by the Company.

Section 10.   Amendment of Option

The Option may be amended or modified at any time by CGI;
provided, however, that the Grantee's consent to any such amendment
or modification shall be required unless the Board of Directors or
Compensation Committee of CGI determines that the amendment or
modification, taking into account any related action, would not
materially and adversely affect the Grantee.
<page



Section 11.   Notice

(a)   Any notices required or permitted hereunder shall be
addressed to CGI at 211 Main Street, Webster, MA  01570, attention:
Treasurer (with a copy to Regan P. Remillard at the same address),
and to the Grantee at the most current address of the Grantee
appearing in the records of the Company, as the case may be.  Such
notice must be in writing and will be deemed to have been
effectively given on the date of actual receipt by the recipient
party (arrival at the proper address or facsimile number being
deemed to constitute receipt by the recipient party).  All such
notices and other communications shall be either (i) delivered
personally, (ii) transmitted by facsimile transmission (if to CGI
at facsimile number (508) 949-4411), (iii) mailed by registered or
certified mail, postage prepaid, or (iv) delivered by a recognized
commercial carrier.  The party giving notice shall have the burden
of proving receipt.

(b)   CGI or the Grantee may, by notice to the other parties
given in the manner provided in Section 11(a), change CGI's or the
Grantee's address for future notice.

Section 12.   Governing Law

The validity, construction, interpretation and effect of this
instrument shall be governed by and determined in accordance with
the law of the Commonwealth of Massachusetts, without regard to
conflicts of law principles.


IN WITNESS WHEREOF, CGI has caused this Agreement to be duly
executed by its respective officers thereunder duly authorized and
the Grantee has hereunto set the Grantee's hand all as of the 21st
day of May, 1999.


                                THE COMMERCE GROUP, INC.


                                By:
                                      Arthur J. Remillard, Jr.
                                      President and Chief Executive
                                      Officer


                                ACCEPTED:


                                                      , the Grantee
<page


STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT is entered into as of {date of grant}
by and between The Commerce Group, Inc., a Massachusetts corporation
("CGI"), and `Name' (the "Grantee"), an employee of American Commerce
Insurance Company, an Ohio corporation and subsidiary of CGI ("ACIC").
(CGI and any present or future subsidiary corporation as defined in
Section 424 of the Internal Revenue Code of 1986, as amended, from time
to time, including ACIC, are hereinafter collectively referred to as the
"Company", unless the context otherwise requires.)

For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto act and agree as
follows:

Section 1.   The Plan

This Agreement is subject in every respect to the terms of CGI's
1994 Management Incentive Plan, as amended to date (the "Plan"), a copy
of which is attached hereto as Exhibit A and is incorporated herein in
its entirety by this reference.  Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Plan.

Section 2.   Grant of Option

CGI hereby grants to the Grantee, as of the date hereof, an option
(the "Option") to purchase up to `Name' shares of Common Stock  (the
"Option Shares") at a price per share of $36.32, both the price and the
number of shares being subject to adjustment only as provided in the
Plan.  CGI intends that the Option be treated for all purposes as an
"incentive stock option," in compliance with Section 422 of the Internal
Revenue Code of 1986, as amended, or any successor provision thereto.

Section 3.   Term of Option

Subject to such further limitations as are provided herein, the
Option shall become effective upon the date of this Agreement and shall
become exercisable on January 29, 2002 (the "Vesting Date"), unless such
Vesting Date is accelerated in accordance with the terms hereof.   The
period beginning on the date hereof and ending on the Expiration Date
(as hereinafter defined) is referred to herein as the "Option Term."

Section 4.   Termination of the Option

The Option and all rights hereunder with respect thereto, to the
extent such rights shall not have been exercised and to the extent the
Option has not earlier terminated pursuant to this Agreement, shall
terminate and become null and void after the close of business on
January 29, 2009 (the "Expiration Date").
<PAGE>


Section 5.   Cessation of Grantee's Employment

(a)   If the Grantee ceases to be employed by the Company by
reason of the Grantee's death during the Option Term, the Option shall
either (i) terminate if the Option was not exercisable at the date of
the Grantee's death, or (ii) be exercisable, to the extent the Option
was exercisable at the date of the Grantee's death, either by the
Grantee's executor or administrator or, if not so exercised, by the
legatees or distributees of the Grantee's estate, only during the twelve
(12) months immediately following the Grantee's death, after which time
the Option shall terminate.

(b)   If the Grantee ceases to be employed by the Company by
reason of the Grantee's "disability" (as hereinafter defined) during the
Option Term, the Option shall either (i) terminate if the Option was not
exercisable at the date the Grantee's employment ceased, or (ii) be
exercisable, to the extent the Option was exercisable at the date the
Grantee's employment ceased, by the Grantee or by the Grantee's duly
appointed guardian, only during the twelve (12) months immediately
following the cessation of the Grantee's employment, after which time
the Option shall terminate.  For purposes of this Section 5(b),
"disability" means the Grantee's inability to perform on a full-time
basis, with or without reasonable accommodation, the duties required of
the Grantee for a period of six consecutive months, or an aggregate of
nine months during any twelve month period, because of physical or
mental illness or other physical or mental incapacity, followed by the
Company giving the Grantee 30 days' written notice of its intention to
terminate the Grantee's employment by reason thereof, and the Grantee's
failure because of physical or mental illness or other physical or
mental incapacity to resume the full-time performance of the Grantee's
duties within such period of 30 days and thereafter to perform the same
for a period of two consecutive months.  If any question shall arise as
to whether during any period the Grantee is, as a result of any illness,
injury, accident or condition of either a physical or psychological
nature, unable to perform substantially the duties of the Grantee's
position hereunder, the Grantee may, and at the request of the Company
shall, submit to a medical examination by a physician selected by the
Company to whom the Grantee or the Grantee's duly appointed guardian, if
any, has no reasonable objection, to determine whether the Grantee is so
unable to perform, and such determination shall for the purposes of this
Agreement be conclusive of the issue.  If such question shall arise and
the Grantee shall fail to submit to such medical examination, the
Company's determination of the issue shall be binding on the Grantee.
<PAGE>



(c)   If the Grantee's employment by the Company is terminated for
"cause" (as hereinafter defined) during the Option Term, the Option
shall either (i) terminate to the extent that it is not exercisable by
the Grantee on the date the Grantee's employment with the Company
ceased, or (ii) continue to be exercisable, to the extent that it was
exercisable on the date the Grantee's employment with the Company
ceased, during the ten (10) days immediately following such cessation
(subject to the delivery by the Grantee at the time of exercise of a
release, as more fully described below), after which time the Option
shall terminate.  For purposes of this Section 5(c), "cause" shall mean
only the following: (i) intentional misconduct by the Grantee in the
course of employment that has a material adverse effect on the Company;
(ii) the commission or perpetration by the Grantee of any fraud against
the Company or against any other party in connection with the Grantee's
employment by the Company; (iii) the conviction of the Grantee or the
entry by the Grantee of a plea of nolo contendre with respect to, any
felony or any offense involving moral turpitude; or (iv) the failure to
perform, or the breach or violation by the Grantee of, any of the
Grantee's material obligations in connection with the Grantee's
employment which continues for 15 days after written notice has been
given to the Grantee by the Company specifying the failure to perform or
the breach or violation.  Notwithstanding the foregoing, the Company
shall be entitled to disallow any exercise of the Option attempted by
the Grantee pursuant to this Section 5(c) unless the Grantee's notice of
exercise is accompanied by paperwork in form and substance acceptable to
the Company that releases, waives and discharges any and all claims
against the Company and its respective affiliates and past, present and
future directors, officers, agents, employees, stockholders, successors
and assigns.

(d)   In the event of a "change in control" of either ACIC or CGI (as
hereinafter defined),  or in the event that the Grantee's employment is
terminated without "cause" (as defined in Section 5(b) above), or in the
event that the Grantee terminates Grantee's employment with ACIC for
"Good Reason" (as hereinafter defined), the Vesting Date of the Option
shall be accelerated and the Option shall become immediately exercisable
by the Grantee only during the twelve (12) months immediately following
such change in control or termination of employment without cause or for
Good Reason.   For purposes of this Agreement, a "change in control" of
CGI shall mean any change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14(A) of Regulation
14(A) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").  In furtherance and not in limitation of the
foregoing, a change in control shall be deemed to have occurred if (i)
any "person" (as such term is defined in Sections 13(d) and 14(d)(2) of
the Exchange Act) becomes the beneficial owner, directly or indirectly,
of securities of CGI representing 30% or more of the combined voting
power of CGI's then outstanding securities; (ii) CGI mergers or
consolidates with another corporation (or other entity) and CGI or an
entity controlled by CGI immediately prior to such merger or
<PAGE>



consolidation is not the surviving entity; or (iii) a sale or other
disposition of all or substantially all of the assets of CGI takes place
and an entity controlled by CGI  is not the transferee of such assets.
For purposes of this Agreement, a "change of control" of ACIC shall mean
a change in the ownership of ACIC such that ACIC ceases to be a majority
owned subsidiary of CGI.  For purposes of this Agreement, "Good Reason"
shall have the meaning ascribed to it in Section 8.2(c) of that certain
Employment Agreement entered into between ACIC and Grantee as of the
        day of May, 1999, a copy of which is attached hereto as Exhibit
B.

(e)   Notwithstanding any other provisions set forth herein or in
the Plan, in no event shall the Option be exercised after the expiration
of the Option Term.

Section 6.   Exercise of Option

(a)   The Grantee may exercise the Option with respect to all or
any part of the number of Option Shares then exercisable hereunder by
giving written notice of election to CGI, attention: Treasurer.  Such
notice shall specify the number of Option Shares as to which the Option
is to be exercised and the date of exercise thereof, which date shall be
at least five (5) days after the giving of such notice unless an earlier
time shall have been agreed upon by CGI.


(b)   At the time the Option is exercised, the Grantee shall make
full payment for the Option Shares purchased, in cash, certified check
or bank cashier's check, or, in whole or in part through the surrender
and delivery of shares of Common Stock at their "fair market value" (as
hereinafter defined) as of the date of delivery.  The Grantor also shall
pay to CGI or make provision satisfactory to CGI for the payment of any
taxes required by law to be withheld by CGI at the time of the exercise
of the Option or the sale of the Option Shares acquired upon such
exercise.  For purposes of this Section 6(b), "fair market value" of the
Common Stock shall be determined based on the daily average of high and
low sale prices of the Common Stock for the five trading days preceding
the date of exercise as reported by the securities exchange or automated
quotation system on which the Common Stock is listed on the date of
exercise.

(c)   In the event exercise of the Option shall require CGI to
issue a fractional share of Common Stock of CGI, such fraction shall be
disregarded and the purchase price payable in connection with such
exercise shall be appropriately reduced.  Any such fractional share
shall be carried forward and added to any shares covered by future
exercise(s) of the Option or if the Option has been exercised in full,
by payment of the fair market value in lieu of such fractional share.
<PAGE>



(d)   Notwithstanding anything to the contrary contained herein,
the Option shall not be exercisable unless either (i) a registration
statement under the Securities Act of 1933, as amended, with respect to
the Option Shares shall have become, and continues to be, effective, or
(ii) the Grantee (a) shall have represented, warranted and agreed, in
form and substance satisfactory to CGI, at the time of exercising the
Option, that the Grantee is acquiring the Option Shares for the
Grantee's own account, for investment and not with a view to or in
connection with any distribution, (b) shall have agreed to restrictions
on transfer in form and substance satisfactory to CGI, and (c) shall
have agreed to an endorsement which makes appropriate reference to such
representations, warranties, agreements and restrictions on the
certificate(s) representing the Option Shares.

Section 7.   No Rights of a Shareholder

Neither the Grantee nor any personal representative shall be, or
shall have any of the rights and privileges of, a shareholder of CGI
with respect to any Option Shares, in whole or in part, prior to the
date of exercise of the Option.

Section 8.   Non-transferability of Option

During the Grantee's lifetime, the Option shall be exercisable
only by the Grantee, and the Option shall not in any event be
transferable except in case of the death of the Grantee or by will or
the laws of descent and distribution, as set forth in Section 6(e) of
the Plan.


Section 9.   Employment Not Affected

Neither the granting of the Option nor its exercise shall be
construed as granting to the Grantee any right with respect to the
Grantee's continued employment by the Company.  Except as may otherwise
be limited by a written agreement between the Company and the Grantee,
the right of the Company to terminate at will the Grantee's employment
at any time (whether by dismissal, discharge, retirement or otherwise)
is specifically reserved by the Company.

Section 10.   Amendment of Option

The Option may be amended or modified at any time by CGI;
provided, however, that the Grantee's consent to any such amendment or
modification shall be required unless the Board of Directors or
Compensation Committee of CGI determines that the amendment or
modification, taking into account any related action, would not
materially and adversely affect the Grantee.

Section 11.   Notice

(a)   Any notices required or permitted hereunder shall be
addressed to CGI at                 , attention:           , and to the
Grantee at the most current address of the Grantee appearing in the
records of the Company, as the case may be.
<PAGE>



(b)   CGI or the Grantee may, by notice to the other parties given
in the manner provided in Section 11(a), change CGI's or the Grantee's
address for future notice.

Section 12.  Governing Law

The validity, construction, interpretation and effect of this
instrument shall be governed by and determined in accordance with the
law of the Commonwealth of Massachusetts, without regard to conflicts of
law principles.


IN WITNESS WHEREOF, CGI has caused this Agreement to be duly
executed by its respective officers thereunder duly authorized and the
Grantee has hereunto set the Grantee's hand all as of the      day of
         , 1999.


                        THE COMMERCE GROUP, INC.


                        By:
                           Its



                       ACCEPTED:



                                              , the Grantee
<PAGE>











CONNING CAPITAL PARTNERS VI, L.P.





LIMITED PARTNERSHIP AGREEMENT











Dated
as of
February 18, 2000













<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S>                                                                      <C>
1.   ORGANIZATION
1.1.   Formation of Limited Partnership                                  1
1.2.   Name1
1.3.   Purpose and Powers                                                1
1.4.   Principal Place of Business                                       1
1.5.   Fiscal Year                                                       2
2.     CAPITAL COMMITMENTS AND CONTRIBUTIONS                             2
2.1.   Identity; Commitment                                              2
2.2.   Capital Contributions                                             2
2.3.   Additional Limited Partners and Additional Capital Contributions  4
3.     PARTNERS' CAPITAL ACCOUNTS; ALLOCATIONS                           5
3.1.   Capital Accounts                                                  5
3.2.   Allocations                                                       6
3.3.   Extraordinary Allocations                                         6
3.4.   Allocations for Income Tax Purposes                               8
3.5.   Interim Accounting Periods                                        8
3.6    Defaulting Limited Partner                                        9
4.     DISTRIBUTIONS                                                    13
4.1.   Limitations on Distributions                                     13
4.2.   Timing of Distributions                                          13
4.3.   Distributions                                                    14
4.4.   Final Distribution                                               14
4.5.   Tax Distributions                                                14
4.6.   Distributions of Cash or Securities                              15
4.7.   Determination of Carrying Value                                  16
4.8.   Withholding Taxes                                                17
4.9.   General Partner's Obligation to Return Excess Distributions      18
5.     MANAGEMENT                                                       20
5.1.   Investment Guidelines                                            20
5.2.   Powers & Duties of General Partner                               23
5.3.   Advisory Committee                                               25
5.4.   Other Business Relationships                                     26
5.5.   Custodian                                                        28
5.6.   Key Person Trigger Event                                         28
6.     MATTERS AMONG PARTNERS                                           29
6.1.   Liability of General Partner                                     29
6.2.   Liability of Limited Partners                                    30
6.3.   No Obligation to Restore Negative Capital Account                30
6.4.   Actions of Partners; Bank Limited Partners Voting Percentage     30
6.5    Bank Regulatory Matters                                          30
6.6    Exclusions from Investments                                      32
6.6    Exclusions from Investments                                      32
7.     INDEMNIFICATION                                                  34
7.1.   General                                                          34
7.2.   Expenses                                                         35
7.3.   No Waiver, etc.                                                  35
7.4.   Insurance                                                        35
8.     EXPENSES; MANAGEMENT FEE                                         35
8.1.   Administrative Expenses                                          35
8.2.   Other Expenses                                                   35
8.3.   Management Fee                                                   36
9.     BOOKS AND RECORDS; REPORTS TO PARTNERS                           37
9.1.   Books and Records                                                37
9.2.   Tax Information                                                  38
9.3.   Reports to Partners                                              38
9.4.   Meetings                                                         39
9.5.   Compliance with Laws                                             39
10.    TRANSFERS                                                        40
10.1.  Transfer by General Partner                                      40
10.2.  Removal of General Partner                                       40
10.3.  Transfer by Limited Partners                                     40
10.4.  Certain Restrictions on Transfers                                41
10.5   Further Restrictions                                             42
<page



10.6   Actions                                                          43
11.    DURATION AND TERMINATION OF THE PARTNERSHIP                      43
11.1.  Duration                                                         43
11.2.  Winding Up                                                       44
11.3.  Final Distribution                                               44
12.    DEFINITIONS                                                      46
13.    MISCELLANEOUS                                                    56
13.1.  Waiver of Partition                                              56
13.2.  Power of Attorney                                                56
13.3.  Modifications                                                    57
13.4.  Severability                                                     58
13.5.  Notices                                                          58
13.6.  Governing Law                                                    58
13.7.  Successors and Assigns                                           58
13.8.  Counterparts                                                     58
13.9.  Headings                                                         59
13.10. Further Actions                                                  59
13.11. Delivery of Certificate                                          59
</TABLE>

SCHEDULES

Schedule I -- Partners' Identification and Capital Commitments

Schedule II -- Business Addresses of the Partners

<page



CONNING CAPITAL PARTNERS VI, L.P.


This LIMITED PARTNERSHIP AGREEMENT of CONNING CAPITAL PARTNERS VI, L.P.,
a Delaware limited partnership (the "Partnership"), is made as of this
18th day of February, 2000 by and among each and all of the undersigned
persons.

      1.       ORGANIZATION

      1.1.     Formation of Limited Partnership.  Conning Investment
Partners VI, L.L.C., a Delaware limited liability company acting as the
general partner of the Partnership (the "General Partner") together with
the undersigned persons designated as Limited Partners (collectively,
the "Partners", which term shall include any party hereafter admitted to
the Partnership and shall exclude any party that ceases to be a Partner)
hereby agree to form the Partnership, pursuant to and in accordance with
the provisions of the Revised Uniform Limited Partnership Act, as
adopted by the State of Delaware, as amended and in effect (the "LP
Act").  Certain capitalized terms used in this Agreement are defined
separately in Section 12.

      1.2.     Name.  The name of the Partnership is "Conning Capital
Partners VI, L.P.".  The General Partner, without the prior consent of
the Limited Partners, may change the name of the Partnership from time
to time.  The General Partner shall provide the Limited Partners with
notice of any new name of the Partnership and the effective date of such
change.

      1.3.     Purpose and Powers.  The Partnership is being formed to
operate as an investment fund principally for the purpose of making
investments primarily in equity, equity-related and other securities
issued in expansion financings, start-ups, buy-outs and recapitalization
transactions relating to companies in the areas of insurance, financial
services, e-commerce, healthcare and related businesses, including,
without limitation, service and technology enterprises supporting such
businesses, in order to realize long-term capital returns, all as
determined and managed by the General Partner for the benefit of the
Partners.  The Partnership will make investments in accordance with the
Investment Guidelines set forth in Section 5.1, and will engage in such
other activities as are permitted hereby or are incidental or ancillary
thereto, all as the General Partner shall reasonably deem necessary or
advisable, upon the terms and conditions set forth in this Agreement.
The Partnership reserves the authority, and may engage in any lawful act
or activity and shall have and exercise any of the powers available to a
limited partnership under the LP Act, to the extent not contrary to the
terms and intent of this Agreement.

      1.4.     Principal Place of Business.  The Partnership shall have
and maintain its principal place of business at CityPlace II, 185 Asylum
Street, Hartford, Connecticut 06103-4105.  The Partnership may have such
other place or additional places of business as the General Partner may
determine from time to time and as indicated by written notice to the
Limited Partners; provided that in no event shall the Partnership's
principal place or any other place of business be outside of the United
States.

      1.5.     Fiscal Year.  The fiscal year of the Partnership (the
"Fiscal Year") shall be the period ending on the 31st day of December in
each year or, in the case of the last Fiscal Year of the Partnership,
the last day on which the Partnership conducts any activities and as
designated  by the General Partner for purposes of the dissolution and
final liquidation of the Partnership.  The Partnership shall have the
same Fiscal Year for income tax purposes and for financial accounting
purposes.
<page



      2.       CAPITAL COMMITMENTS AND CONTRIBUTIONS.

      2.1.     Identity; Commitment.  The name, address and other
identity information describing each Partner are set forth on Schedule I
and Schedule II hereto.  Each Partner has agreed and is obligated to
perform with respect to the full amount of its Capital Commitment set
forth opposite each such Partner's name on Schedule I, subject to and in
accordance with the terms and conditions of this Agreement.  The Capital
Commitment of the General Partner in respect of the General Partner
Interest shall be equal to at least 1% of all Capital Commitments of the
Partnership.  Any additional Capital Commitment of the General Partner
beyond such amount may be treated separately as an Interest by a Limited
Partner, in the sole discretion of the General Partner.  The General
Partner, acting on its own, is authorized to amend and revise the
information on Schedule I from time to time to reflect the admission of
additional Partners together with any additional or increased Capital
Commitments, the withdrawal of any Partner, the transfer of any part or
all of an interest of any Partner, or such other change in the
information describing any Partner, all as may be determined by the
General Partner and consistent with the purpose and terms of this
Agreement.

      2.2.     Capital Contributions.  Each Partner, upon its execution
and delivery of this Agreement, shall be obligated to make Capital
Contributions to the Partnership in immediately available funds in such
amount as shall be called from time to time by the General Partner
hereunder, subject to Section 6.6(b), determined on a pro rata basis
relative to the Capital Commitments of all Partners, up to a total
aggregate amount equal to its Capital Commitment as shown on Schedule I
hereto.  The General Partner may determine individual Partner Capital
Contribution call amounts on a pro rata basis relative to the
outstanding or unused Capital Commitments of the Partners to account for
Excused Partner Capital Contributions with respect to Excused
Investments under Section 6.6.

               (a)     Call Procedures, Timing and Contributions.  Each
Partner shall make its initial Capital Contribution, in an amount to be
determined by the General Partner, upon at least five (5) business days'
prior written notice from the General Partner.  Thereafter, each Limited
Partner will make additional Capital Contributions to the Partnership,
each in an amount to be determined by the General Partner and as called
from time to time by the General Partner, upon prior written notice from
the General Partner of not less than ten (10) business days.  Each call
notice shall set forth the name of the Partnership and the following
basic information:  (i) the scheduled date of the Capital Contribution
and the total amount of Capital Contributions to be made by all Partners
on such date; (ii) the required Capital Contribution to be made by the
Limited Partner to which the notice is directed; (iii) the Partnership
account to which such capital contribution shall be paid, including
wiring and routing information; and (iv) such information relating to
the proposed use to be made of the funds obtained by the Partnership as
the General Partner in its discretion determines to include in that call
notice, including a general description of the proposed Portfolio
Investment that contains the business and industry of the related
Portfolio Entity.  The General Partner will coordinate the timing of,
and amounts requested pursuant to, the notice of additional Capital
Contributions on an "as needed" basis relative to the Partnership's
anticipated funding requirements.  The General Partner shall provide
prompt written notice to each Limited Partner of the occurrence of the
Partnership's first investment.  In the event that the General Partner
reasonably determines that the amount of any Capital Contributions
called under this Section 2.2 is not likely to be used to make a
Portfolio Investment, pay expenses of the Partnership or satisfy
obligations or liabilities of the Partnership within a reasonable period
of time (not to exceed ninety (90) days) after the Partnership's receipt

<page


of such Capital Contribution amounts, then within such ninety-day period
the General Partner shall return to the Partners their respective pro
rata portions of such amount of the Capital Contributions as are not
likely to be so used, applied or reserved.  The full amount of such
returned Capital Contributions amount shall remain subject to further
call by the General Partner for Capital Contributions in accordance with
the other terms of this Section 2.2.

               (b)      Investment Period.  The General Partner shall be
authorized to call and each Partner is obligated to make additional
Capital Contributions up to an aggregate amount equal to its Capital
Commitment throughout the period ending on the later to occur of:  (i)
the fifth (5th) anniversary of the date of the Partnership's final
closing (the "Investment Period").  After the Investment Period the
General Partner is authorized to call and each Partner is obligated to
make additional Capital Contributions, up to an aggregate amount equal
to its Capital Commitment remaining to be called, for the purposes of:
(i) paying or satisfying Partnership expenses, obligations or
liabilities which may be outstanding and due or are reasonably
anticipated to become due within ninety (90) days of the General
Partner's call for Capital Contributions; (ii) making additional
incremental or follow-on investments in companies in which the
Partnership has established an investment; and (iii) funding the
conversion or exercise price of any warrant, option, purchase right or
other security, or making any installment payment or settlement to
acquire any security by contract or other arrangement, to the extent any
of the foregoing is outstanding and was issued in connection with or as
a result of an investment made or committed to be made during the
Investment Period.

               (c)   General Partner Contributions.  Concurrently with
each Capital Contribution to the Partnership by a Limited Partner
pursuant to this Section 2.2, Section 2.3 or Section 3.6, the General
Partner will make a Capital Contribution to the Partnership, in respect
of its minimum General Partner Interest, in an amount in cash which will
cause the General Partner's Capital Contribution to be at least equal to
1% of the aggregate Capital Contributions of all Partners.

               (d)   Reinvestment.  The Partners acknowledge that the
General Partner may retain certain distributable amounts under Section
4.2 for reinvestment in accordance with the Investment Guidelines under
Section 5.1.  No Partner shall be obligated to contribute additional
amounts in excess of such Partner's Capital Commitment as a result of
such reinvestment.

2.3.     Additional Limited Partners and Additional Capital
Contributions.  After the expiration of two hundred seventy (270) days
from the date of this Agreement, no additional Limited Partners (other
than Substitute Limited Partners admitted pursuant to Section 10.3)
shall be admitted to the Partnership.  Until the expiration of such
period, the General Partner may admit one or more persons as additional
Limited Partners ("Additional Limited Partners") to the Partnership or
permit any existing Limited Partner to increase its Capital Commitment.

(a)   Conditions of Acceptance.  The admission of
Additional Limited Partners and acceptance of additional Capital
Commitments from existing Limited Partners shall not be permitted if,
upon the determination of the General Partner, such admission or
acceptance would:  (i) result in the Partnership becoming subject to
additional regulation which the General Partner determines would have a
material effect upon the ability of the Partnership to pursue its stated
purposes; (ii) jeopardize the Partnership's tax status as an entity
taxable as a partnership; or (iii) require the Partnership to be
registered as an investment company under the Investment Company Act of
1940.
<PAGE>


(b   Capital Adjustments among Partners.  Any existing
Limited Partner which increases its Capital Commitment shall be
considered to have been admitted to the Partnership as an Additional
Limited Partner to the extent of such additional Capital Commitment upon
the contribution of the initial portion of such additional Capital
Commitment to the capital of the Partnership.  Each Additional Limited
Partner shall make an initial Capital Contribution to the Partnership in
a percentage of its Capital Commitment which is the same percentage of
the Capital Commitments of the other Limited Partners previously paid in
as Capital Contributions, as determined on the date of its admission to
the Partnership.  Each existing Limited Partner which increases its
Capital Commitment pursuant to this Section 2.3 shall make a Capital
Contribution to the Partnership in such an amount as is required in
order that the total Capital Contributions made by such Limited Partner
shall be in the same percentage relationship to its total Capital
Commitment (including such additional Capital Commitment) as the Capital
Contributions of all other Partners bear to their respective Capital
Commitments, determined on the date of such Capital Contribution by the
increasing Partner.  The balance of such Capital Commitments of
Additional Limited Partners and of additional Capital Commitments from
existing Limited Partners shall be due and paid at the times provided
for the payment of additional Capital Contributions in Section 2.2.

(c)   Additional Payments upon Admission.  In addition,
each Additional Limited Partner and each existing Limited Partner which
increases its Capital Commitment pursuant to this Section 2.3 shall make
additional payments to the Partnership ("Late Payment Fees") comprised
of the following amounts:  (i) interest on the amount of such Partner's
Late Management Fee payable to the General Partner pursuant to Section
8.3(b); (ii) interest on the amount of such Partner's Late Expenses
(other than Late Management Fee) allocated pursuant to Section 3.3(c);
and (iii) interest on any amounts of Capital Contributions used to fund
Portfolio Investments made by the Partnership prior to such Limited
Partner's admission into the Partnership or increase in its Capital
Commitment pursuant to this Section 2.3 which such Limited Partner would
have been obligated to contribute to the Partnership ("Late Portfolio
Investment Capital Contributions") if it had been admitted to the
Partnership at the time of its formation with a Capital Commitment equal
to that set forth in Schedule I after such schedule has been amended to
reflect such Limited Partner's admission or the increase in its Capital
Commitment.  In the case of interest amounts referred to in clause (i)
above, interest shall be calculated at the prime rate from the date of
the formation of the Partnership to the date of such Limited Partner's
admission into the Partnership or increase in its Capital Commitment
pursuant to this Section 2.3, as the case may be.  In the case of
interest amounts referred to in clauses (ii) and (iii) above, interest
shall be calculated at the prime rate plus 2.0% from the date of the
allocation of the Expense to the other Partners which resulted in such
Late Expense being allocated to the Limited Partner or the contribution
date of the Capital Contributions to the Partnership which resulted in
such Late Portfolio Investment Capital Contribution to the Partnership
by the Limited Partner, as the case may be, to the date of such Limited
Partner's admission into the Partnership or increase in its Capital
Commitment, as the case may be.

(d)   General Partner Adjustments.  Upon the admission of
any Additional Limited Partner or the making of an additional Capital
Commitment by any existing Limited Partner, the General Partner shall
increase its Capital Commitment to an amount equal to at least 1% of the
aggregate Capital Commitments of all Partners.
<PAGE>



(e)   Update and Amendment of Records.  The General
Partner, acting without any Limited Partners, is authorized to cause
Schedule I hereto to be amended to reflect the occurrence of any and all
of the foregoing events referred to in this Section 2.3.  The General
Partner shall provide written notice to each Limited Partner of any
amendment to Schedule I pursuant to this Section 2.3 or any other
provision of this Agreement within ninety (90) days of such amendment to
Schedule I.

3.       PARTNERS' CAPITAL ACCOUNTS; ALLOCATIONS.

3.1.     Capital Accounts.  There shall be established for each
Partner on the books of the Partnership a Capital Account.    Each
Partner's Capital Account shall be credited with the amount of such
Partner's Capital Contributions and shall be:  (i) increased by the
amount of any Net Income allocated thereto; and (ii) decreased by the
amount of any Net Losses, items defined in Section 705(a)(2)(B) of the
Code allocated thereto and by the amount of any Distributions made to
such Partner.  Such items shall be credited or charged, as the case may
be, to the Capital Accounts of the Partners at the end of each Fiscal
Period of the Partnership.  The General Partner shall maintain the
Capital Accounts of the Partners in accordance with Treas. Reg. Section
1.704-1(b)(2)(iv) (as amended and revised), shall have the authority to
make and shall make such adjustments to the Capital Accounts as are
necessary to comply with such regulations.  Any revaluation of the
Partnership's assets pursuant to the previous sentence shall be made in
accordance with the principles of Section 4.7 hereof.  Other than as
specifically provided in this Agreement, no Partner shall be entitled to
any other interest or compensation by reason of its Capital
Contribution.

3.2.     Allocations.

(a)   Net Income.  As of the end of each fiscal quarter
of the Partnership, after giving effect to any allocations made pursuant
to Section 3.3 hereof, the Net Income (if any) of the Partnership for
such fiscal quarter shall be allocated to the Partners as follows:

(i)   First, to all Partners, in proportion to the
respective amounts of Net Losses (if any) previously allocated to each
such Partner pursuant to 3.2(b)(iii) and not offset by prior allocations
of Net Income made pursuant to this 3.2(a)(i), an amount of Net Income
equal to the aggregate amount of such Net Losses;

(ii)  Second, to all Partners, in proportion to
their respective 7% Preferential Return Allocations, an amount of Net
Income equal to the aggregate amount of all such 7% Preferential Return
Allocations; and

(iii) Third, to all Partners in the amounts and
proportions necessary to ensure, as promptly as possible and to the
extent feasible, that the Cumulative Net Income of the Partnership for
all periods since its inception shall have been allocated 80% to all
Partners in proportion to their respective Capital Contributions and 20%
to the General Partner.

(b)    Net Losses.  Net Losses, if any, for any Fiscal
Period of the Partnership shall be allocated to the Partners as follows:

(i)   First, to all Partners, in proportion to the
respective amounts of Net Income (if any) previously allocated to each
such Partner pursuant to 3.2(a)(iii) and not offset by prior allocations
of Net Losses made pursuant to this 3.2(b)(i), an amount of Net Losses
equal to the aggregate amount of such Net Income (if any);
<PAGE>



(ii)  Second, to all Partners, in proportion to the
respective aggregate amounts of Net Income (if any) previously allocated
to each such Partner pursuant to 3.2(a)(ii) and not offset by prior
allocations of Net Losses made pursuant to this 3.2(b)(ii), an amount of
Net Losses equal to the aggregate amount of such Net Income (if any);
and

(iii) Third, to all Partners in proportion to their
respective Capital Contributions.

3.3.     Extraordinary Allocations.

(a)   Negative Capital Account.  Notwithstanding anything to the
contrary in this Agreement, no Net Losses shall be allocated to a
Limited Partner to the extent any such allocation, after taking into
account all Distributions made or to be made to such Limited Partner
with respect to a Fiscal Year, would cause a negative balance in such
Limited Partner's Capital Account for such Fiscal Year.  Any such Net
Losses instead shall be allocated to and among those Partners with
positive Capital Account balances until such Capital Account balances
are reduced to zero, and any remaining Net Losses shall be allocated to
the General Partner; and thereafter an equivalent amount of Net Income
subsequently allocated shall be allocated to the Partners to reverse
such reallocation of Net Losses as promptly as possible, subject,
however, to the constraints of this Section 3.3(a).

(b)   Qualified Income Offset.  If a Partner unexpectedly
receives an adjustment, allocation or distribution described in Treas.
Reg. Sections 1.704-1 (b) (2) (ii) (d) (4), (5) or (6), such Partner
shall be allocated items of income and gain (consisting of a pro rata
portion of each item of Partnership income, including gross income, and
gain for the Fiscal Period in which such event occurs (and, to the
extent necessary, each subsequent Fiscal Period) in an amount and manner
sufficient to eliminate (to the extent required by Treas. Reg. Section
1.704(b)(2)(ii)(d)) any resulting excess negative balance in such
Partner's Capital Account as quickly as possible.  In any such event,
appropriate adjustments shall be made to subsequent allocations pursuant
to Section 3.2 to counteract the effect of extraordinary allocations
pursuant to the first sentence of this Section 3.3(b) subject, however,
to the constraints of Section 3.3(a).

(c)   Special Situations.  If any person or entity is admitted to the
Partnership (or the Capital Commitment of any existing Partner is
increased) in accordance with the provisions of this Agreement after the
formation of the Partnership, the General Partner shall adjust the
allocations otherwise provided for in this Article 3 of Net Income and
Net Loss (and items of Partnership income, gain, loss and expense), for
the Fiscal Year in which such event occurs and for subsequent fiscal
years if necessary, so that, after such adjustments have been made, each
Partner (including any Partners admitted after the formation of the
Partnership and all Partners whose Capital Commitments have been
increased after such time) shall have been allocated specially an amount
of Expenses equal to the aggregate amount of Expenses such Partner would
have been allocated if it had been admitted to the Partnership at the
time of its formation with a Capital Commitment equal to that set forth
in Schedule I after such schedule has been amended to reflect such
Partner's admission or the increase in its Capital Commitment ("Late
Expenses"); provided, however, that:  (i) no item of income, gain or
deductible loss realized (or deemed to have been realized on a
distribution in kind) before the admission of any new Partner shall be
allocated to such Partner; (ii) allocations to any existing Partner of
items of income, gain or deductible loss realized
<PAGE>


(or deemed to have been realized on a distribution in
kind) prior to the increase in the Capital Commitment of such Partner
shall be limited to those permitted by Section 706 of the Code; and
(iii) no special allocations shall be made pursuant to this Section
3.3(c) as a result of any reductions in the Capital Account of a
Defaulting Limited Partner occurring pursuant to Section 3.6(d) or the
adjustments provided for under that section with respect to such
reductions.  In addition, the amount of such Partner's Late Payment Fees
relating to interest on Late Expenses (other than Late Management Fees)
(under clause (ii) of Section 2.3(c)) and Late Portfolio Investment
Capital Contributions (under clause (iii) of Section 2.3(c)) shall be
allocated 80% to all other Partners (including the General Partner) in
proportion to their respective Capital Contributions and 20% to the
General Partner.

(d)   Guidelines.  In making allocations of Net Income or
Net Losses pursuant to Sections 3.2(a) and 3.2(b), the General Partner,
after consulting with the Partnership's tax advisors, is authorized to
separate these aggregate amounts into their components and allocate the
components separately in order to further the intent of such Sections.
For example, if with respect to a particular fiscal period the
Partnership realizes a gross loss of $100 on a sale of Portfolio
Securities and a gross gain of $200 on a sale of other securities
resulting in Net Income of $100 ($200 gross gain minus $100 gross loss =
$100 Net Income), the General Partner may allocate the $100 gross loss
as $100 in Net Losses in the manner required by Section 3.2(b), and then
allocate the $200 gross gain as $200 in Net Income in the manner
required by Section 3.2(a), if advised by the Partnership's tax advisors
that such special allocations will cause the Capital Accounts of the
Partners to reflect more closely the Partners' relative economic
interests in the Partnership.

(e)   General Partner Minimum.  Subject only to Section
3.3(b) hereof, the General Partner shall be allocated, in respect of its
minimum General Partner Interest, at least 1% of each material item of
Partnership income, gain, loss, deduction or credit at all times during
the existence of the Partnership.  To the extent that any extraordinary
allocations to the General Partner are required pursuant to this Section
3.3(e), appropriate adjustments shall be made to subsequent allocations
pursuant to Section 3.2 (subject to Section 3.3(b) hereof and to the
preceding sentence) to counteract the effects of such extraordinary
allocations.

3.4.     Allocations for Income Tax Purposes.  Items of
Partnership income, gain, loss, deduction or credit for each Fiscal Year
of the Partnership shall be allocated among the Partners for Federal
income tax purposes in accordance with the allocation of such income,
gain, loss or deduction (or, in the case of a credit, the allocation of
any item to which the credit relates) pursuant to Section 3.2.  All
matters concerning allocations for Federal, state and local income tax
purposes, including accounting procedures, not expressly provided for by
the terms of this Agreement shall be equitably determined in good faith
by the General Partner upon advice of the Partnership's tax advisors.
As set forth in Section 5.2(g) hereof, the General Partner shall be the
"tax matters partner", as that term is used in the Code, of the
Partnership.

3.5.     Interim Accounting Periods.  If:

(i)   a Limited Partner becomes a Defaulting
Limited Partner within the meaning of Section 3.6,

(ii)  a non-defaulting Partner elects to make an
additional Capital Commitment pursuant to paragraph (c) of Section 3.6,

<PAGE>



(iii) a Distribution is made pursuant to Sections
4.2, 4.3, 4.4 or 4.5 hereof,

(iv)  any revaluation of the assets of the
Partnership is made pursuant to Section 3.1 hereof, or

(v)   the General Partner is required, or determines in its discretion
to make an interim allocation of Net Income or Net Losses, then, and in
each such event, the Fiscal Year in which such event occurs shall be
divided into interim accounting periods (each an "Interim Accounting
Period") for purposes of allocations pursuant to Section 3.2.  The first
Interim Accounting Period in any such Fiscal Year shall commence on the
first day of such Fiscal Year and shall terminate on the date
immediately prior to the date of the first event giving rise to an
Interim Accounting Period in such Fiscal Year.  Each subsequent Interim
Accounting Period shall commence on the date of the event giving rise to
such Interim Accounting Period in such Fiscal Year and shall terminate
on the earlier of the last day of such Fiscal Year or the date
immediately prior to the date of the event giving rise to the next
Interim Accounting Period in such Fiscal Year.

3.6.     Defaulting Limited Partner.  The Partners severally
hereby agree and acknowledge their mutual obligation to make Capital
Contributions to the Partnership in an aggregate amount equal to their
total Capital Commitments.  Accordingly, the Partners agree to the
default and penalty provisions of this Section 3.6 for their mutual
assurance and to promote the purposes of the Partnership.  The Partners
agree that the damages to the Partnership from any default by a Partner
in respect of its Capital Commitment cannot be determined or estimated
with reasonable accuracy, and, accordingly, agree that the penalty
provisions of this Section 3.6 provide reasonable liquidated damages on
default.

(a)   Default.  In the event that any Limited Partner
fails to make payment in full of any Capital Contribution to the
Partnership in a timely manner as called for and due, the General
Partner will send written notice to such Limited Partner of such
failure, and if such Limited Partner does not make full payment of its
Capital Contribution within five (5) days after such Limited Partner has
been given written notice thereof from the General Partner, then, at the
close of business on such fifth (5th) day, such Limited Partner shall be
in default (a "Defaulting Limited Partner") and shall be subject to the
penalty provisions of this Section 3.6; except that any Partner that is
an Excused Partner under Section 6.6 will not be regarded as a
Defaulting Partner in respect of the Capital Contribution subject to the
Excluded Investment provisions of Section 6.6.

(b)   Loss of Voting.  Whenever the vote, consent or
decision of a Partner or of the Partners is required or permitted
pursuant to this Agreement or under the LP Act, no Defaulting Limited
Partner shall be entitled to participate in such vote or consent, or to
make such decision, and such vote, consent or decision shall be
tabulated or made as if no Defaulting Limited Partner were a Partner.

<PAGE>



(c)   Penalty.  A Defaulting Limited Partner shall not be
entitled to make any further Capital Contributions to the Partnership.
Upon any such default, there shall be deducted from the Capital Account
of such Defaulting Limited Partner as liquidated damages for such
default (which each Partner hereby agrees is reasonable) an amount equal
to 30% of the portion of such Defaulting Limited Partner's Capital
Commitment which remains unpaid, and the Capital Commitment of the
Defaulting Limited Partner shall thereafter be the amount of the Capital
Contribution of such Partner as of the date of default, less the amount
deducted pursuant to this sentence.  The amount deducted from the
Capital Account of the Defaulting Limited Partner shall be allocated
among the Capital Accounts of the non-defaulting Partners as of the date
of such default, in proportion to the respective Capital Contributions
of the non-defaulting Partners as of such date, and the amount so
allocated to the Capital Account of each such Partner shall be deemed to
be a Capital Contribution by, and an increase in the Capital Commitment
of, such Partner as of such date.  The General Partner shall cause
Schedule I hereto to be amended to reflect the Capital Commitments of
the Partners as adjusted pursuant to this Section 3.6(c), including the
deemed Capital Contributions of the non-defaulting Partners under this
Section 3.6(c).  Notwithstanding the foregoing: (i) the amount by which
a Defaulting Limited Partner's Capital Account is reduced shall in no
case exceed the positive balance in such Defaulting Partner's Capital
Account immediately before the reduction; (ii) if the Capital Account of
the Defaulting Limited Partner otherwise would be reduced below zero by
a reduction occurring pursuant to the first sentence of this Section
3.6(c), such account shall be reduced to zero and any excess of the full
reduction required by the first sentence of this Section 3.6(c) over the
positive balance in such Defaulting Limited Partner's Capital Account
immediately before such reduction shall be carried over and applied to
reduce the balance in such account at such subsequent time or times (if
ever) as such account has a positive balance; (iii) any resulting
increases in the Capital Accounts of non-defaulting Partners shall occur
only at such time or times as the corresponding reductions in the
Defaulting Limited Partner's Capital Account occurs; and (iv) all
adjustments required by the first and second sentences of this Section
3.6(c) to the Capital Commitments and Capital Contributions of the
Partners shall occur at the time of the initial reduction in the Capital
Account of the Defaulting Limited Partner, notwithstanding that
subsequent adjustments to the Partners' Capital Accounts may occur as a
result of such default.

(d)   Treatment of Management Fee.  As of the first day of each fiscal
quarter of the Partnership commencing after any such default, there
shall be deducted from the Capital Account of each Defaulting Limited
Partner (but in no event from the Capital Accounts of the non-defaulting
Limited Partners) an amount equal to the Management Fee that would have
been due in accordance with Section 8.3 on the unpaid portion of the
original Capital Commitment of such Defaulting Limited Partner and the
amount so deducted shall be paid to the General Partner in lieu of the
Management Fee which would otherwise be due on such unpaid Capital
Commitment.  The General Partner, in its discretion may defer payment of
such amount.  Any amounts so deferred shall accrue interest at the rate
of twelve percent (12%) per annum and shall be charged solely to the
Capital Account of the Defaulting Partner.  No Distribution shall be
made to a Defaulting Limited Partner until all amounts due the General
Partner under this paragraph (e) shall have been paid in full unless
payment thereof shall have been deferred by the General Partner, in its
discretion.  No special allocation of expenses to the Defaulting Partner
shall be made, and no interest on deferred management fee amounts shall
accrue, to the extent that these allocations (or accruals and related
allocations) would cause the Defaulting Partner's Capital Account to be
reduced below zero.
<PAGE>



(e)   Option Repurchase Remedy.  Further, the General
Partner, in its sole discretion, may elect to exercise the provisions of
this Section 3.6(e) in respect of any Defaulting Partner, such that the
non-defaulting Limited Partners (the "Optionees") and the General
Partner together shall have the right and the option, but not the
obligation, to acquire the remaining Partnership Interest, as adjusted
to reflect any penalty amounts under Section 3.6(c) above, of the
Defaulting Limited Partner (for this purpose, the "Optionor"), as
follows:

(i)   The General Partner shall give written notice
to the Optionor stating that the General Partner elects to pursue the
option repurchase remedy in this Section 3.6(e); and the General Partner
shall notify the Optionees of the default, within twenty (20) days of
the date of default by the Defaulting Limited Partner.  Such notice
shall advise each Optionee of the portion and the price of the
Optionor's Interest available to it.  The portion available to each
Optionee shall be that portion of the Optionor's Interest that bears the
same ratio to the Optionor's entire Interest as each Optionee's Capital
Contributions bears to the aggregate Capital Contributions of all
Optionees (before the default).  The aggregate price for the Optionor's
Interest shall be the lesser of (A) the amount of the Optionor's Capital
Account calculated as of the due date of the additional contribution and
adjusted to reflect (1) the allocation of the appropriate proportion of
the Partnership's unrealized gains and losses as of the due date of such
defaulted contribution and (2) the deduction of the penalty amount
pursuant to Section 3.6(c), or (B) the aggregate amount of the
Optionor's Capital Contributions actually made less any Distributions
(valued at their Carrying Value on the date of Distribution) on or prior
to such due date, as adjusted to reflect any penalty amounts under
Section 3.6(c) above.  The price for each Optionee shall be prorated
according to the portion of the Optionor's Interest purchased by each
such Optionee.  The option granted hereunder shall be exercisable at any
time within twenty (20) days of the date of the notice from the General
Partner to the Optionees by delivery to the Optionor in care of the
General Partner of a notice of exercise of option together with a non-
recourse promissory note for the purchase price and a security agreement
in accordance with subsection (v) below, which notice and documents the
General Partner shall forward to the Optionor.

(ii)  Should any Optionee not exercise its option
within said twenty (20) day period, the General Partner immediately
shall notify the other Optionees who have elected to exercise their
option, which Optionees shall have the right and option ratably among
them to acquire the portion of the Optionor's Interest not so acquired
(the "Remaining Portion") within ten (10) days of the date of the notice
specified in this subsection (ii) on the same terms as provided in
subsection (i).

(iii) The amount of the Remaining Portion not
acquired by the Optionees pursuant to subsection (ii) may be acquired by
the General Partner within ten (10) days of the expiration of the ten
(10) day period specified in subsection (ii) on the same terms as set
forth in, subsection (i); provided, however, that the General Partner
shall not be obligated to make the additional contributions otherwise
due from the Optionor with respect to the Remaining Portion so acquired.
<PAGE>



(iv)  The amount of the Remaining Portion not
acquired by the Optionees and the General Partner pursuant to
subsections (ii) or (iii) may, if the General Partner deems it in the
best interest of the Partnership, be acquired by the Partnership or sold
by the General Partner to any other investor of quality, net worth and
standing comparable to the other Limited Partners, on terms not more
favorable to such parties than those applicable to the Optionees'
option, and upon the consent of the General Partner, any such third
party purchaser may become a Limited Partner to the extent of the
interest purchased hereunder.

(v)   The price due from each of the General
Partner and the Optionees shall be payable by a non-interest bearing,
non-recourse promissory note (in such form as the General Partner shall
designate) due upon final liquidation of the Partnership.  Each such
note shall be secured by the portion of the Optionor's Partnership
interest so purchased by its maker pursuant to a security agreement in a
form designated by the General Partner and shall be enforceable by the
Optionor only against such security.

(vi)  Upon exercise of any option hereunder, each
Optionee (and, if applicable, any third party purchaser shall be
obligated (A) to contribute to the Partnership that portion of the
additional capital then due from the Optionor equal to the percentage of
the Optionor's Interest purchased by such person and (B) except as
otherwise provided in subsection (iii), to pay the same percentage of
any further contributions otherwise due from such Optionor on the date
such contributions are otherwise due.  Each person who purchases a
portion of the Optionor's Partnership Interest shall be deemed to have
acquired such portion as of the due date of the additional Capital
Contribution with respect to which the Optionor defaulted, and any
distributions made after the due date on account of the Optionor's
Interest shall be distributed among such purchasers (and, unless the
entire Interest was purchased, the Optionor) in accordance with their
ultimate respective interests in the Optionor's Interest.  Distributions
otherwise allocable to the Optionor under the preceding sentence shall
first be used to offset any defaulted Capital Contribution of the
Optionor still due to the Partnership.

(vii) Upon completion of any transaction hereunder,
the General Partner shall cause Schedule I to be amended to reflect all
necessary changes resulting therefrom including, without limitation,
admission of a purchaser as a Limited Partner, and adjustment of Capital
Account balances, Capital Commitment amounts and Capital Contributions
as of the date of the Optionor's default to reflect the acquisition from
Optionor of the appropriate pro rata portion of each such item
(including, if applicable, the reduction of aggregate Capital
Commitments and resulting adjustment of Capital Contributions in
connection with any acquisition of any Remaining Portion by the General
Partner pursuant to subsection (iii)). The purchase and transfer of the
Partnership Interest of the Optionor shall occur automatically upon
exercise by any Optionee or the General Partner of its option hereunder,
without any action by Optionor.
<PAGE>



(f)   Reservation of Rights and Remedies.  No right,
power or remedy conferred upon the General Partner in this Section 3.6
shall be exclusive, and each such right, power or remedy shall be
cumulative and in addition to every other right, power or remedy,
whether conferred in this Section 3.6 or now or hereafter available at
law or in equity or by statute or otherwise for the benefit or on behalf
of the Partnership relative to any Defaulting Limited Partner.  The
General Partner is authorized to exercise its discretion as to the
appropriate remedy and course of action to be taken, and to enforce any
and all such remedy or course of action by and on behalf of the
Partnership.  No course of dealing between the General Partner and any
Defaulting Limited Partner and no delay in exercising any right, power
or remedy conferred in this Section 3.6 or now or hereafter existing at
law or in equity or by statute or otherwise shall operate as a waiver or
otherwise prejudice any such right, power or remedy.

4.       DISTRIBUTIONS.

4.1.     Limitations on Distributions.  No distribution will be
made to any Partner if and to the extent that such distribution would
not be permitted under Sections 17-607(a) of the LP Act or if, in the
determination of the General Partner, after giving effect to such
distribution the assets of the Partnership would be insufficient to
satisfy the liabilities or obligations of the Partnership to persons
other than the Partners.  Except for the Distributions as otherwise
expressly provided for in Sections 4.2 through 4.6, no Partner shall
have the right to withdraw any amount from its Capital Account or
otherwise to demand and receive any distributions from the Partnership.

4.2.     Timing of Distributions.  The General Partner generally
will endeavor to cause the Partnership to make Distributions to each
Partner in the respective amounts of Net Income distributable to such
Partner during such year by April 30 of the year following the year of
the date of any allocation of Net Income pursuant to paragraph (a) of
Section 3.2; provided, however, that (i) the General Partner will use
its reasonable efforts to distribute cash proceeds from the disposition
of any Portfolio Investment within forty-five (45) days after the
Partnership's receipt thereof, and (ii) until the third (3rd)
anniversary of the date of this Agreement, the General Partner, in its
discretion, in accordance with the Investment Guidelines may determine
not to make any such Distributions in respect of Net Income and may
elect to retain and reinvest some or all of such distributable amounts
in accordance with the Investment Guidelines in Section 5.1(a)(iv)
below.

4.3.     Distributions.  The General Partner, at any time in its
discretion, may cause the Partnership to make Distributions to the
Partners from their Capital Accounts, subject to Section 4.2.  Each
Distribution pursuant to Section 4.2 and this Section 4.3 shall be
apportioned among the Partners as follows:

(i)   First, to all Partners in proportion to their
respective Priority Return Amounts until each Partner (other than any
Defaulting Limited Partner) has received aggregate Distributions equal
to such Partner's Priority Return Amount;

(ii)  Second, to all Partners in proportion to their
respective 7% Distribution Preferences until each Partner (other than
any Defaulting Limited Partner) has received aggregate Distributions
equal to such Partner's 7% Distribution Preference;
<PAGE>



(iii) Third, 100% to the General Partner until the
General Partner has received Distributions made pursuant to this
4.3(iii) equal in the aggregate to 20% of all distributions made
pursuant to 4.3(ii) and this 4.3(iii) since the inception of the
Partnership; and

(iv)  Thereafter, 80% to all Partners in proportion to
their respective Capital Contributions and 20% to the General Partner.

4.4..    The Final Distribution shall be made in accordance with
the provisions of Section 11.3.

4.5.     Tax Distributions.

(a)   General.  The General Partner shall use reasonable
efforts to cause the Partnership to distribute in cash to each Partner,
either during such Fiscal Year or within ninety (90) days after the
close of such Fiscal Year, an amount equal to the aggregate Federal and
state income tax liability such Partner would have incurred as a result
of the Net Income for such Fiscal Year allocated to such Partner and
reflected in the Partnership Return filed or to be filed for such Fiscal
Year, calculated as follows:  as if (i) such Partner was a natural
person resident in the state with the highest applicable state income
tax rate; (ii) such Partner was taxable at the maximum rates provided
under applicable Federal and state income tax laws; and (iii) as if
allocations from the Partnership were the sole source of income and loss
for such Partner for such year.  Such tax distribution amount will be
reduced by the amount of all Distributions made to such Partner since
the commencement of such Fiscal Year (other than Distributions required
under this Section 4.5 in respect of the preceding Fiscal Year) in order
that the amount of any such tax distributions will not have the effect
of increasing the overall amount of distributions to the Partners under
Section 4.3 with respect to any Fiscal Year.

(b)   Special General Partner Tax Distributions.  The
Partnership may make Distributions to the General Partner during any
Fiscal Year to enable the members of the General Partner to satisfy
their liability to make estimated tax payments with respect to such
Fiscal Year or the preceding Fiscal Year based on calculations of the
General Partner's hypothetical estimated tax liability made pursuant to
paragraph (a) of this Section 4.5 as of such dates as the General
Partner in its sole discretion may determine; provided, however, that:
(i) if the aggregate amount of Distributions under this Section 4.5 made
to the General Partner with respect to any Fiscal Year exceeds the
amount distributable to the General Partner with respect to such Fiscal
Year, calculated as of the end of such Fiscal Year pursuant to paragraph
(a), the Partnership shall treat such excess amount as an advance
against the General Partner's distributive share of Partnership income
and the General Partner shall return such excess to the Partnership
without interest within ten (10) days following determination by the
Partnership that such excess distributions have been made; and (ii) the
Capital Account of the General Partner shall not be reduced by any
amounts treated as advances made to the General Partner pursuant to this
paragraph (b) during any Fiscal Year, but shall be reduced as of the end
of such Fiscal Year by an amount equal to the aggregate of all such
amounts treated as advances, reduced by any part of such advances
returned to the Partnership by the General Partner pursuant to the
preceding clause (i) of this paragraph (b).

4.6.     Distributions of Cash or Securities.  Distributions may
be made in cash or Securities or other assets of the Partnership, at the
discretion of the General Partner, subject to the other provisions of
this Section 4.6.  The General Partner will use its reasonable efforts
to make all distributions to Partners in the form of cash or Marketable
Securities until such time as the Partnership commences liquidation.
<PAGE>



(a)   Guidelines.  The General Partner shall give the
Partners at least five (5) business days' prior written notice of any
proposed Distribution in kind of Securities or other assets.  In the
case of a Distribution which in whole or in part consists of Securities
or other assets:  (i) the amount of such Distribution shall be the sum
of the amount of any cash distributed plus the Carrying Value of the
Securities and other assets distributed, as of the close of business on
the valuation date, as determined by the General Partner in accordance
with the provisions of Section 4.7; and (ii) such Securities or other
assets shall be deemed to have been sold for such value at the close of
business on such valuation date and the amount of any gain or loss which
would have been realized upon a sale for such value shall be deemed to
have been realized and recognized at such time for the purpose of
determining Net Income or Net Losses for the Fiscal Period immediately
preceding such valuation date.  The General Partner shall distribute
such Securities or other assets as soon as practical after such
valuation date.  Each Distribution of Securities shall be made to the
Partners in proportion to the amount each is receiving in the
Distribution pursuant to Section 4.3.

(b)   Restrictions.  The General Partner may cause the
certificates evidencing any Securities to be distributed to be imprinted
with legends as to such restrictions on transfer as may be reasonably
necessary or appropriate, including legends as to applicable Federal or
state securities law or other legal or contractual restrictions, and may
require each Limited Partner to agree in writing:  (i) that such
Securities will not be transferred except in compliance with such
restrictions and (ii) to such other matters as the General Partner may
deem necessary or appropriate.

(c)   Limitations on In Kind Distributions.  Prior to the
termination of the Investment Period or, if earlier, the date of the
Final Distribution, or otherwise unless consented to by a Majority in
Interest of the Limited Partners, the General Partner will not
distribute Non-Marketable Securities unless: (i) the issuer of such
Securities is a reporting company under the Securities Exchange Act of
1934, as amended, and such issuer has, or has agreed to make, adequate
current public information with respect to the issuer to comply with
Rule 144 of the Securities and Exchange Commission; (ii) in the case of
an issuer which has publicly traded equity Securities, not more than 50%
of the Limited Partners are entitled to cause such Securities to be
registered on demand and sold pursuant to an effective registration
statement filed by such issuer pursuant to the Securities Act of 1933,
as amended; (iii) the holders of such Securities are the beneficiaries
of rights pursuant to valid contracts, charter or otherwise entitling
them to "put" such Securities for purchase or redemption by such issuer
or other financially capable third party at market equivalent pricing;
(iv) such Securities represent a debt claim or other self liquidating
contract right; or (v) such Securities are otherwise readily salable to
an identifiable purchaser or class of purchasers, in the reasonable
judgment of the General Partner, at the Carrying Value by the holders
thereof or convertible or exchangeable for a Marketable Security.
<PAGE>



(d)   Bank Partner Provisions.  If, at any time, any Bank
Regulated Partner notifies the General Partner that: (i) its holdings of
any Security from a distribution in kind by the Partnership, combined
with the ownership of securities of the same Portfolio Entity by such
Bank Regulated Partner and its Affiliates, results in aggregate
ownership by such Bank Regulated Partner and its Affiliates of an amount
of securities of such Portfolio Entity in excess of that permitted by
the Bank Holding Company Act of 1956; and (ii) despite their best
efforts, such Bank Regulated Partner and its Affiliates are unable to
sell such securities of such Portfolio Entity owned by them other than
through the Partnership, then the General Partner shall take such steps
as it deems reasonable, which steps are equitable to all Limited
Partners, so as to avoid such excessive ownership attributable to the
Bank Regulated Partner.

(e)   Modification for Regulatory Matters.
Notwithstanding any other provision of this Agreement, in the event of a
distribution in kind of any Securities or other asset that would cause a
Limited Partner to own or control an equity interest in a Portfolio
Company that exceeds the amount that such Limited Partner may lawfully
own or control, then, upon written notice to the General Partner by such
Limited Partner prior to the date of such distribution, (i) the Partners
not so affected shall receive their shares of such Securities or other
asset in kind; (ii) the Capital Accounts of the Partners shall be
adjusted in the same manner as if the entire distribution of such
Securities or other asset had been made in kind; and (iii) to the extent
practicable, the General Partner shall be authorized to sell the
affected Limited Partner's share of such Securities or other asset on
behalf of such Limited Partner and distribute the proceeds of such sale,
net of all expenses attributable to such sale, to such Limited Partner
in cash.

4.7.        Determination of Carrying Value.

(a)   Guidelines.  The Carrying Value of Marketable
Securities shall be determined in accordance with the following
guidelines which shall be interpreted and applied in the good faith
determination of the General Partner:  (i) for purposes other than
valuation in connection with a Distribution, their last sales price on
the last trading day on which such Securities were traded immediately
preceding the date of determination on the largest national securities
exchange (measured by dollar volume of transactions in all Securities
traded thereon) on which such Securities shall have traded, or, if
available, such sales price on the consolidated tape; (ii) for purposes
of a valuation in connection with a Distribution, the average of their
last sales price on the five (5) most recent trading days on which such
Securities were traded immediately preceding the date of determination
on the largest national securities exchange (measured by dollar volume
of transactions on all Securities traded thereon) on which such
Securities shall have been traded, or if available, such sales price on
the consolidated tape; or (iii) if neither determination referred to in
clauses (i) or (ii) can be made, for purposes other than valuation in
connection with a Distribution, the last closing "bid" price on the last
trading day on which such Securities were traded immediately preceding
the date of determination, or for purposes of a valuation in connection
with a Distribution, the average of the last closing "bid" price on the
five (5) most recent trading days on which such securities were traded
immediately preceding the date of determination; provided, however, that
if such Marketable Securities are subject to a restriction on transfer,
the General Partner, in good faith and with the consent of the Advisory
Committee, shall discount such sales or "bid" prices 4% to 20% depending
on the nature of such restriction.
<PAGE>



(b)   General Partner Authority.  Except in connection
with a Distribution or any revaluation of the Partnership's assets,
which shall be governed by paragraph (c) of this Section 4.7, the
General Partner shall establish the Carrying Value of Non-Marketable
Securities at cost; provided, however, that the General Partner may
revalue such Non-Marketable Securities in accordance with said paragraph
(c) if a good faith basis for such redetermination exists.

(c)   Advisory Committee Review.  The Advisory Committee
shall have the authority (but not the obligation) to review the
methodology used for any valuation of Non-Marketable Securities made for
the purpose of making any Distribution or any revaluation of the
Partnership's assets.  Any valuation issues of Non-Marketable Securities
which are not addressed by or in accordance with such reviewed
methodology shall be made by the General Partner with the consent of the
Advisory Committee.  If either:  (i) the Advisory Committee shall object
to any such methodology or other valuation or (ii) any such methodology
or other valuation reviewed by the Advisory Committee shall be objected
to in writing by a Majority in Interest of the Limited Partners, then
the General Partner will obtain an appraisal of the value of such Non-
Marketable Securities by an independent investment banking, accounting
or financial consulting firm selected by the General Partner and
approved by the Advisory Committee in its reasonable discretion.  Any
such appraisal shall be an expense of the Partnership under Section 8.2
and shall be binding on all Partners.

4.8.    Withholding Taxes.

(a)   General.  The Partnership at all times shall be
entitled to make payments required to discharge any obligation of the
Partnership to withhold or make payments to any governmental authority
with respect to any United States Federal, state or local tax liability
or any other tax liability of any Limited Partner liable for such taxes
arising out of such Limited Partner's interest in the Partnership.  Any
amount withheld for the payment of any such tax liability from a
Distribution to a Limited Partner shall be deemed to be a Distribution
to that Limited Partner made as of the time the withheld amount would
have actually been distributed and shall reduce the amounts actually
distributed.  Any amounts paid by the Partnership for any such tax
liability, but not withheld from a Distribution, shall be deemed to be
an interest-free advance made by the Partnership to such Limited Partner
and shall not be deemed to be a Distribution to such Limited Partner
under this Agreement.  Amounts treated as advances to any Limited
Partner under this Section 4.8 shall be repaid by such Limited Partner
to the Partnership within thirty (30) business days after the
Partnership delivers a written request to such Limited Partner for such
payment, which notice will be delivered promptly by the General Partner;
provided, however, that if any such repayment is not made, the
Partnership may (without prejudice to any other rights of the
Partnership) collect such unpaid amounts from any Distribution that
otherwise would be made to such Limited Partner.  Notwithstanding any
other provisions of this Agreement, in the event the Partnership fails
to withhold any taxes in respect of any Limited Partner when required to
do so (including as a result of any change in law or interpretation
thereof or otherwise), any liability incurred by the Partnership
(including interest but excluding any penalties) as a result of such
failure shall be borne solely by such Limited Partner (and charged to
such Partner's Capital Account) or, in the event that:  (i) the
Partnership shall no longer exist or such Limited Partner's Capital
Account shall not be adequate for such purpose and (ii) any such
liability shall have been paid by the General Partner, then such Limited
Partner shall, promptly upon notice thereof, reimburse the General
Partner for any such payment.
<PAGE>



(b)   Operational Rules.  The General Partner, after
consulting with the Partnership's accountants or other advisers, shall
determine the amount (if any) of any tax liability attributable to any
Partner taking into account any differences in the Partners' status,
nationality or other characteristics.  Any such determination regarding
the amount of tax liability attributable to particular Partners shall be
based on the manner in which the jurisdiction imposing the related tax
would attribute that tax liability and, in making any such
determination, the General Partner shall be entitled to treat any
Partner as ineligible for an exemption from or reduction in rate of such
foreign tax under a tax treaty or otherwise except to the extent that
such Partner provides the General Partner with such written evidence
(including but not limited to forms or certificates executed by its
managers and/or beneficial owners) as the General Partner or the
relevant tax authorities may require to establish such Partner's (or
some or all of its beneficial owners') entitlement to such exemption or
reduction.  The intent of this Section 4.8(b) is to ensure, to the
maximum extent feasible, that the burden of any taxes withheld at the
source or paid by the Partnership is borne by those Partners to which
such tax obligations are attributable, and this Section 4.8(b) shall be
interpreted and applied accordingly.

4.9.     General Partner's Obligation to Return Excess
               Distributions.

(a)   Amount; Timing of Determination.  If, as of the
determination date of the Partnership's Final Distribution, (i) the
General Partner has received Distributions in an aggregate amount in
excess of 20% of the Partnership's Cumulative Net Income or (ii) the
General Partner has received any Distributions and there is a shortfall
between the aggregate Distributions made to the Limited Partners from
the inception of the Partnership through such time and the full amount
distributable to Limited Partners as of such time pursuant to clauses
(i) and (ii) of Section 4.3, then the General Partner shall be regarded
as having received "Excess Distributions" equal to the greater of the
excess amount referred to in clause (i) above and the shortfall referred
to in clause (ii) above, but not more than the aggregate amount of
Distributions actually received by the General Partner from the
inception of the Partnership through and including such date.  The
General Partner may elect not to receive any part or all of any
distribution to which the General Partner otherwise may be entitled
under the provisions of Section 4.3 and instead may distribute such
amounts to and among the Partners in accordance with the provisions of
clauses (i) and (ii) of Section 4.3, and thereafter may receive in full
distributable amounts to which it is then entitled under Section 4.3,
from time to time and upon the reasonable determination of the General
Partner, as may be deemed to be appropriate by the General Partner in
light of its obligations under this Section 4.9.

(b)   Repayment on Liquidation.  Within 100 days after
the determination date of the Partnership's Final Distribution: (i) the
Partnership shall make a final determination of the amount of Excess
Distributions received by the General Partner and not previously
returned to the Partnership; and (ii) the General Partner shall return
all such remaining Excess Distributions to the Partnership, subject to
the conditions and limitations set forth in the other provisions of this
Section 4.9.
(c)   Form of Repayment; Other Rules.  All returns made
to the Partnership pursuant to this Section 4.9 shall be in the form of
cash or of Securities previously distributed to the General Partner by
the Partnership during the fiscal period for which such determination of
Excess Distributions is being made, valued in accordance with Section
4.7 at the time of their return.
<PAGE>



(i)   No amount returned to the Partnership by the
General Partner pursuant to this Section 4.9 shall increase the General
Partner's Capital Contribution or reduce the General Partner's
Subscription or remaining Capital Commitment.

(ii)  In no event shall the General Partner be
required to return to the Partnership any amount greater than the
excess, if any, of the total amount of distributions made by the
Partnership to the General Partner as of the determination date, reduced
by the sum of:

(A)   the aggregate amount of distributions
that the General Partner would have received from the Partnership if it
had made all of its Contributions to the Partnership in exchange for an
interest as a limited partner therein and had never owned any interest
in the Partnership as a general partner,

(B)   the aggregate amount of tax
Distributions previously received by the General Partner pursuant to
Section 4.5 (net of any amounts properly taken into account in the
preceding clause (A)), and

(C)   the aggregate amount (if any)
previously returned to the Partnership by the General Partner pursuant
to this Section 4.9.

(d)   Obligation.  The General Partner hereby
acknowledges and agrees that, in the event that the General Partner does
not perform its obligation under this Section 4.9, each of its members
shall be severally (not jointly) liable for the General Partner's
obligations to return Excess Distributions pursuant to this Section 4.9,
solely to the extent of their respective pro rata shares of
Distributions actually received by them from the General Partner.  The
General Partner agrees to maintain and enforce such provisions in its
Limited Liability Company Agreement for the benefit of the Limited
Partners.

(e)   Limitations.  Except as provided by the Delaware
Act or other applicable law or 4.8 (dealing with Tax Withholding), and
(with respect to the General Partner) this Section 4.9 and Section 11.3,
and (with respect to the Limited Partners) Section 11.3, neither the
General Partner nor any Limited Partner shall be obligated at any time
to repay to the Partnership all or any part of any distributions made to
such Partner by the Partnership, or to make any Contribution or payment
to the Partnership with respect to any deficit in such Partner's Capital
Account.  Nothing in this Section 4.9(e) shall affect the obligation of
any Partner to contribute capital to the Partnership pursuant to the
additional Capital Contributions provided for herein or to make any
other payments to the Partnership otherwise required by this Agreement.

5.    MANAGEMENT.

5.1.  The General Partner will invest the assets of the
Partnership principally in companies engaged in various segments of the
insurance, financial services, e-commerce and healthcare industries,
including without limitation, service and technology businesses
supporting such industries.  Investments may be made in Securities of
all types, including Marketable and Non-Marketable Securities.  Any of
the foregoing investments is hereinafter sometimes referred to as a
"Portfolio Investment" and the issuer of such Portfolio Investment in
Securities is hereinafter referred to as a "Portfolio Entity."
<PAGE>



(a)   Roster of Items.  The General Partner shall manage
the investment activities of the Partnership in accordance with the
provisions of this Section 5.1 (the "Investment Guidelines"), which
shall be implemented subject to the good faith interpretation of the
General Partner.  The Investment Guidelines can be waived upon the
consent of the Advisory Committee.

(i)   At no time shall the aggregate Portfolio
Investment in any Portfolio Entity exceed twenty percent (20%) of the
aggregate Capital Commitments of all Partners.

(ii)  At such times as the funds of the Partnership
are not used to make Portfolio Investments or to pay expenses or other
obligations and commitments of the Partnership, the General Partner
shall invest such funds in Short-Term Investments.

(iii) The General Partner, on behalf of the
Partnership, may enter into arrangements to borrow funds such that the
total outstanding indebtedness of the Partnership at any time will not
exceed $15 million.  The Partnership will not use borrowed funds to make
Portfolio Investments except that the Partnership may incur indebtedness
to acquire Securities in a Portfolio Investment if such indebtedness
arises solely with respect to and in the amount of pending Capital
Contributions called by the General Partner and in any event is
reasonably likely to be paid in full and retired within 90 days of
incurrence by the Partnership.

(iv)  The General Partner, in its discretion, may
determine to reinvest net proceeds from the sale or other disposition of
Portfolio Investments, at any time during the period ending on the third
(3rd) anniversary of the final closing date, in other Portfolio
Investments under the Investment Guidelines; provided, however, that the
amount available for reinvestment at any time shall not exceed an amount
equal to the Cost of Disposed Investments.

(v)   The Partnership will not initiate any tender
offer or proxy contest transaction for the purpose of changing
management of a company in a "hostile" transaction formally opposed by
the board of directors (or other appropriate management of such entity),
except that the Partnership may acquire Securities of any issuer in the
ordinary course of investment activity and may initiate, propose and
participate in any plan for reorganization or change in management of a
Portfolio Entity once a Portfolio Investment is made.

(vi)  The Partnership will not invest in any other
pooled investment vehicle or managed investment fund, including any
"fund of funds" or other vehicle as to which any person or entity is
entitled to any separate fee, "carried interest" or other compensation
from the Partnership.

(vii) The Partnership will not be engaged in the
short-term trading of Marketable Securities.  Further, the Partnership
will not make open-market purchases of a class of publicly traded
Securities except in anticipation of or in direct connection with a
Portfolio Investment or as a follow-on investment in a Portfolio Entity.
The Partnership may make Portfolio Investments in Securities which are
convertible or exchangeable into Securities of a class of Securities
which are publicly traded and listed, if such transaction is negotiated
directly with the issuer in a private placement transaction and as to
which the Partnership acquires a meaningful position with respect to
such Portfolio Entity.  For this purpose a "meaningful position" means
either (x) a holding of at least 5% of the issuer's outstanding capital
stock or (y) the right to elect or nominate a director.
<PAGE>



(viii) The Partnership will not engage in market
arbitrage transactions but may enter into put, call, options, derivative
securities and other contractual arrangements on a selected basis solely
for the purposes of hedging the Partnership's Portfolio Investments.

(ix)  The Partnership at any time will not have
Portfolio Investments (valued at cost) exceeding 30% of the aggregate
Capital Commitments in Portfolio Entities with main offices, domiciled
or otherwise conducting their main lines of business in jurisdictions
outside the United States (including its territories and protectorates),
the United Kingdom, Canada or Bermuda.

(x)   The Partnership will not make any Portfolio
Investment in any Portfolio Entity whose principal business consists of
(A) tobacco or tobacco products, (B) alcohol products, (C) the
production of firearms or (D) gambling operations.

(b)   FCC Restrictions.  The Partnership will
not make any Portfolio Investment in a Portfolio Entity which is a Media
or Common Carrier Company (as defined herein) if and to the extent that
any Limited Partner would be attributed with an ownership interest as a
result of such Portfolio Investment in such Media or Common Carrier
Company under the rules and written policies of the FCC ("Attribution
Rules").  For purposes of this Agreement, "Media or Common Carrier
Company" means any company that, directly or indirectly, has an interest
which is deemed attributable under the Attribution Rules in a broadcast
radio or television station, a cable televisions system, a "daily
newspaper" (as such term is defined in 47 C.F.R.  73.3555 of the FCC's
rules), a multipoint multichannel distribution system, a local
multipoint distribution system, an open video system, a commercial
mobile radio service or any other communications facility the operations
of which are subject to regulation by the FCC under any of (i) the
Communications Act of 1934, as amended; (ii) the Attribution Rules; and
(iii) the rules and written polices of the FCC limiting or restricting
ownership in such Media or Common Carrier Companies.

(c)   Confidentiality.  Except as otherwise
expressly provided herein, including without limitation, Sections 9.2
through 9.4, the General Partner shall not be required to disclose
information known by the General Partner as to Portfolio Entities or
proposed Portfolio Investments and the General Partner may, in its
discretion, keep such information confidential, to the extent required
or deemed necessary or advisable in the good faith judgment of the
General Partner, consistent with the provisions of Section 17-305 of the
LP Act.

5.2.     Powers & Duties of General Partner.

(a)   Authority.  The management, operation and policy of
the Partnership shall be vested exclusively in the General Partner,
which shall be authorized and empowered on behalf and in the name of the
Partnership by itself to carry out any and all of the objects and
purposes of the Partnership and to perform all acts and enter into and
perform all contracts and other undertakings that it may, in its
discretion, deem necessary or advisable or incidental thereto.  The
General Partner shall have all the rights and powers and be subject to
all the restrictions and liabilities of a general partner in a
partnership without limited partners.

(b)   Specific Actions.  Without limiting the general
powers and duties set forth in paragraph (a) of this Section 5.2, the
General Partner is hereby authorized and empowered on behalf and in the
name of the Partnership to:
<PAGE>



(i)   direct the formulation of investment policies
and strategies for the Partnership, and invest Partnership funds, in
accordance with the Investment Guidelines;

(ii)  acquire, hold, sell, transfer, exchange and
dispose of Securities, and exercise all rights, powers, privileges and
other incidents of ownership or possession with respect to Securities,
including, without limitation, the voting of Securities, the approval of
a restructuring of an investment in Securities, participation in
arrangements with creditors, the institution and settlement or
compromise of suits and administrative proceedings and other like or
similar matters;

(iii) purchase Securities for investment and make
such representations to the seller of such Securities, and to other
persons, as the General Partner may deem proper in such circumstances,
including the representation that such Securities are purchased by the
Partnership for investment and not with a view to their sale or other
disposition;

(iv)  obtain on behalf of the Partnership options
to purchase blocks of shares in private transactions under the Program,
and trade in puts, calls, futures, other derivative securities, or
invest in listed options, or write options to the extent that such
vehicles are used for the purpose of hedging portfolio Securities
(including Securities held by the Partnership as consideration for, or
upon exchange, conversion or otherwise in respect of Portfolio
Investment Securities), as the General Partner deems as appropriate;
provided, however, that the Partnership has a sufficient number of such
type of Securities underlying the hedge in its portfolio and expected
cash flows from the portfolio to cover such hedge; and provided,
further, however, that no such hedge shall extend for a term greater
than six months;

(v)   open, maintain and close bank accounts and
draw checks or other orders for the payment of money and open, maintain
and close brokerage, mutual fund and similar accounts;

(vi)  hire consultants, attorneys, accountants,
actuaries and such other agents and employees for itself and for the
Partnership as may be reasonably necessary or advisable, and authorize
any such agent or employee to act for and on behalf of the Partnership;

(vii) retain any of its Affiliates to provide
services to the General Partner on terms that are no less favorable than
terms for such services offered to or engaged in with a third party,
except as otherwise approved by the Advisory Committee;

(viii) make any and all elections and other
decisions with respect to tax and accounting matters;

(ix)  act on its own behalf and in its own name, as
the General Partner may determine to be reasonably necessary and
appropriate to enforce or secure the powers or rights of the
Partnership; and

(x)   make and perform such other agreements and
undertakings as may be necessary or advisable for the carrying out of
any of the foregoing powers, objects or purposes.

(c)   Notwithstanding the foregoing provisions of this
Section 5.2, the General Partner, acting on behalf of the Partnership,
may not:
<PAGE>



(i)   buy or sell commodities;

(ii)  buy or sell real estate; or

(iii) buy or sell currencies other than currencies
of the countries of domicile of Portfolio Entities.

(d)   UBTI Matters.  The General Partner agrees to use
its reasonable efforts to avoid the realization of income of the
Partnership in the form of "unrelated business taxable income"
attributable to a Limited Partner that is exempt from taxation under
Section 501(a) of the Code, and shall use its reasonable efforts to
conduct the affairs of the Partnership so as to minimize the risk of
incurring such income.

(e)   ERISA/VCOC Matters.  The General Partner shall use
its reasonable efforts to ensure that the assets of the Partnership
shall not be "plan assets" subject to  the Employee Retirement Income
Security Act of 1974 and the regulations thereunder ("ERISA"), and
accordingly the General Partner shall use its reasonable efforts to
operate and manage the affairs of the Partnership so as to qualify the
Partnership as a "venture capital operating company" exempt from
regulation as plan assets under ERISA. The General Partner and the
Partnership will not have any obligations or requirements under these
provisions, however, if the participation of "benefit plan" investors in
the Partnership is not "significant" within the meaning of the Plan
Asset Regulations of ERISA, or if such requirements of the Plan Asset
Regulations no longer apply to the Partnership.

(f)   Tax Partnership Status.  The General Partner agrees
that it:  (i) will not cause or permit the Partnership to elect to be
excluded from the provisions of Subchapter K of the Code or to be
treated as a corporation for federal income tax purposes; (ii) will
cause the Partnership to make any election reasonably determined to be
necessary or appropriate in order to ensure the treatment of the
Partnership as a partnership for federal income tax purposes; (iii) will
cause the Partnership to file any required tax returns in a manner
consistent with its treatment as a partnership for federal income tax
purposes; and (iv) has not taken, and will not take, any action that
would be inconsistent with the treatment of the Partnership as a
partnership for such purposes.

(g)   Tax Matters Partner.  The General Partner shall be
the tax matters partner, as defined in Section 6231 of the Code, of the
Partnership (the "Tax Matters Partner").  The General Partner shall
receive no additional compensation from the Partnership for its services
in that capacity, but all reasonable expenses incurred by the Tax
Matters Partner (including professional fees for such accountants,
attorneys and agents as the General Partner in its discretion determines
are necessary to or useful in the performance of its duties in that
capacity) shall be borne by the Partnership.  The General Partner shall
be entitled to exculpation and indemnification with respect to any
action it takes or fails to take as Tax Matters Partner with respect to
any administrative or judicial proceeding involving "partnership items"
(as defined in Section 6231 of the Code) of the Partnership to the
extent provided under Article 7.

5.3.     Advisory Committee.
<PAGE>



(a)   Designation and Composition.  An advisory committee
(the "Advisory Committee"), composed of representatives of certain
Limited Partners and other persons selected by the General Partner, will
meet periodically, but no less often than once each year, with the
General Partner and may advise the General Partner regarding the
valuation of the Partnership's assets, interested party transactions and
other similar actions.  The Advisory Committee shall have the authority
(but shall not be required) to advise and consult with the General
Partner regarding the valuation of the Partnership's assets, interested
party transactions and other similar actions.  The General Partner and
its members will not be regarded as a member of the Advisory Committee.
At all times a majority of the members of the Advisory Committee shall
be representatives of Limited Partners.  Initially, the members of the
Advisory Committee will consist of individual representatives or
designees of the Limited Partners, as indicated on Schedule I hereto.

Any individual member may be removed by the action of the
General Partner together with a majority of the members then serving
(other than the member who is the subject of such removal).  In the
event of any vacancy, whether by removal, resignation or otherwise, the
Limited Partner whose representative is the subject of such vacancy will
be entitled to designate an alternative representative to serve as the
member, with such individual to be subject to the approval of the
General Partner (which shall not be withheld unreasonably or delayed
unduly).

(b)   Actions.  Votes, approvals, consents, assents and
other actions of the Advisory Committee shall be effective upon the
action of at least a majority in number of the members of the Advisory
Committee.  The Advisory Committee may adopt rules, procedures and
policies for the conduct of its meetings consistent with the other terms
of this Agreement.

(c)   Authority; Confidentiality.  The General Partner
will retain exclusive authority and responsibility for the selection of
investments and the operation of the business of the Partnership, and no
member of the Advisory Committee or other Limited Partner shall take
part in the control of the Partnership business or have any authority or
power to act for or bind the Partnership or have any liability therefor.
Except as otherwise expressly provided herein, including without
limitation Sections 9.2 through 9.4, the General Partner shall not be
required to disclose to the members of the Advisory Committee any
information known by the General Partner as to Portfolio Entities,
proposed Portfolio Investments or other aspects of the Partnership's
business where the General Partner reasonably and in good faith believes
that there is a contractual basis or other basis for which it is
necessary to keep such information confidential, or otherwise as
consistent with the provisions of Section 17-305 of the LP Act.

5.4.     Other Business Relationships.
<PAGE>



(a)   General Partner and Principals.  The General
Partner, and its members (including the Principals), employees and
Affiliates are engaged and may in the future engage, individually or
with others, in other business or investment activities or business
ventures, including those which may be similar to or in competition with
the investments or business of the Partnership.  The Principals also may
provide management assistance, financial consulting, investment and
asset management services, reporting and accounting, and investment
banking (including merchant banking or other activities in which the
Principals may act as a principal) and similar services to clients,
which may include Portfolio Entities or potential Portfolio Entities.
No fees for such services need be shared with the Partnership.  In the
event of any potential conflict of interest due to any other investment
or business relationship, the General Partner will act in the manner
which it reasonably and in good faith believes to be in or not opposed
to the best interests of the Partnership.  Obligations of fair dealing,
non-disclosure of inside information and the like also may limit the
Principals in acting on behalf of the Partnership.

(b)   Other Investment Funds.  Subject to the other
provisions of this Agreement, the Principals may at any time organize,
sponsor, invest in or otherwise enter into contracts with other limited
partnerships or other entities with the same or similar investment
objectives as the Partnership and in which any Principal has the same or
similar kinds of responsibilities as in this Agreement; provided,
however, that unless approved in advance by at least Two-Thirds in
Interest of the Limited Partners, the Principals shall not form or serve
as general partner or investment manager of another private U.S.
investment fund that has as its investment purpose and agenda the making
of private equity investments in companies substantially similar to the
companies in which the Partnership invests until the earlier of (i) the
fourth anniversary of the date of this Agreement or (ii) such time as an
amount equal to at least 75% of the Capital Commitments of all Partners
(A) has been invested in Portfolio Investments or reserved for potential
Portfolio Investments which are identified and likely to close within
ninety (90) days or (B) reserved for follow-on investments (in an amount
consistent with the Partnership's historical reserves for follow-on
investments) and/or (C) paid or reserved for payment of Partnership
expenses and obligations, including any such investments, expenses or
obligations reasonably expected by the General Partner to be funded or
become due within ninety (90) days (such set of conditions being
referred to as "fully invested").

(c)   Principal Transactions.  Upon the approval of the
Advisory Committee:  (i) the Principals may make an investment in any
Portfolio Entity in which the Partnership has invested, and the
Partnership may make an investment in any entity in which a Principal
has invested; and (ii) any Principal may also invest in any Portfolio
Entity in which the Partnership is investing, at the same time as the
Partnership invests therein and on terms not more favorable to any such
Principal than those applicable to the Partnership's investment in the
Portfolio Entity, unless such Principal's investment would result in a
reduction of the amount of the investment which the Partnership would
otherwise make.
<PAGE>



(d)   Related Fund Transactions.  Notwithstanding
anything to the contrary herein, (i) the Partnership may make an
investment in any Portfolio Entity in which any Related Fund has
invested, and any Related Fund may make an investment in any entity in
which the Principal has invested; and (ii) any Related Fund may also
invest in any Portfolio Entity in which the Partnership is investing at
the same time as the Partnership invests therein.  For purposes of this
Section 5.4, the term "Related Fund" shall mean any limited partnership
or investment fund currently managed, or to be managed in the future,
directly or indirectly, by any of the Principals, Conning & Company or
an Affiliate of Conning & Company.

(e)   Related Party Transactions.  The Partnership may not engage in a
purchase or sale transaction of a Non-Marketable Security with a limited
partnership or an investment fund which is managed or controlled by a
Related Party.  With regard to a Related Party which is not a limited
partnership or an investment fund, the Partnership may not engage in a
purchase or sale transaction of a Non-Marketable Security with a Related
Party: (i) unless the Non-Marketable Security is of the same class as,
or has the same rights to earnings and distributions as, a Marketable
Security of the same issuer and the price for the Non-Marketable
Security is determined by the price of the Marketable Security, after
adjustments for illiquidity; or (ii) if otherwise, without the prior
written consent of a Majority in Interest of the Limited Partners.  The
Partnership may not purchase securities in a Public Offering through
which a Related Party is selling its holdings, unless the Securities
purchased by the Partnership constitute 20% or less of the total Public
Offering.  For purposes of this Section 5.4 only, the term "Related
Party" shall mean the General Partner and its Affiliates, and each of
their respective stockholders, employees, officers, directors, and
agents or, in the case of any General Partner member who is an
individual, any of such person's family members, and the term "Public
Offering" shall mean an offering of securities under the Securities Act
of 1933, as amended.

(f)   General Partner Disclosure.  The General Partner
shall devote such resources as it deems in good faith to be reasonably
necessary to manage the affairs of the Partnership.  Without the prior
written consent of the Advisory Committee, and notwithstanding any other
provision of this Section 5.4, the General Partner, the Principals and
each Related Party shall not engage in any transaction with the
Partnership except on terms that are no less favorable than the terms of
any such transaction offered to or engaged in with a third party.  The
General Partner will disclose the nature and terms of any such Related
Party transactions to the Advisory Committee.  For purposes of this
Section 5.4, a Limited Partner shall not be deemed to be a Principal, a
Related Party or an Affiliate solely by virtue of its status as a
Limited Partner in the Partnership.

5.5.      Custodian.  All cash and Securities of the Partnership
shall be held by a custodian appointed by the General Partner, which
shall be a bank or trust company with combined capital, surplus and
undivided profits of not less than $100 million at the time of
appointment (the "Custodian").  Any Custodian may be replaced at the
discretion of the General Partner, by another Custodian meeting the
requirements of this Section 5.5, and the General Partner shall promptly
notify the Limited Partners of such replacement.

5.6     Key Person Trigger Event.
<PAGE>



(a)   Event Occurrence.  The failure of (i) any four of
the Principals or (ii) John B Clinton and any two other Principals to be
active in the affairs of the Partnership in the capacity of investment
managers of the General Partner during the Investment Period shall
constitute a "Key Person Trigger Event".  For purposes of this
provision, "failure to be active in the affairs of the Partnership" with
respect to any Principal shall mean the failure of such Principal to
devote all or a substantial portion of such Principal's business time
and efforts as a manager of the General Partner.  The General Partner
shall provide written notice to all Partners promptly after the
occurrence of any Key Person Trigger Event.

(b)   Suspension Period.  Immediately upon the occurrence
of such Key Person Trigger Event, the General Partner:  (i) shall cause
the Partnership to cease making any new Portfolio Investments other than
a proposed Portfolio Investment to which the Partnership made a
commitment evidenced in writing setting forth the significant terms in
definitive form prior to the date of such Key Person Trigger Event or
any follow-on investment that the General Partner determines is
advisable to make in order to preserve the Partnership's rights and
economic benefits of an existing Portfolio Investment; (ii) shall cause
the Partnership not to commit to any new proposed Portfolio Investment
unless such commitment explicitly is made dependent upon the separate
approval of a Majority in Interest of the Limited Partners; (iii) shall
not make (and no Partner shall be obligated to pay) any Capital
Contributions in respect of any new or proposed Portfolio Investments;
(iv) shall use its reasonable best efforts to manage the ownership,
conversion, disposition and distribution of the Partnership's assets so
as to preserve the value of the Partnership's assets; and (v) shall be
authorized to make (and each Partner shall be obligated to pay) Capital
Contributions solely to the extent necessary to support the investment
activities permitted in the preceding clause (i) and to satisfy current
outstanding Other Expenses and liabilities or obligations of the
Partnership to third parties (collectively the "Suspension Period
Restrictions").

(c)   Restart Consent.  Within sixty (60) days of the
occurrence of the Key Person Trigger Event, the General Partner will
deliver written notice to the other Partners or call a meeting of the
Partners in order to disclose the steps that the General Partner has
taken and/or intends to take in order to continue with management of the
investment activities of the Partnership, which may include the
replacement of one or more Principals or an alternative plan of
management.  The Suspension Period Restrictions shall terminate
immediately only upon the consent of a Majority in Interest of the
Limited Partners, to such effect, at which time the General Partner
shall resume and continue to manage the full investment activities of
the Partnership, including without limitation, the making of new
Portfolio Investments and Capital Contributions for any and all
Partnership purposes.

(d)   No Restart Consent.  If the Limited Partners do not
so consent to the termination of the Suspension Period Restrictions
within sixty (60) days of the date of the aforementioned General
Partner's notice or meeting, then the General Partner may either (i)
continue to manage the activities of the Partnership as set forth in
this Agreement subject to the Suspension Period Restrictions or (ii)
elect to terminate the Partnership and manage the activities of the
Partnership as set forth in Article 11.

6.       MATTERS AMONG PARTNERS.

6.1. Liability of General Partner.
<PAGE>



(a)   Basic Standard of Care.  The General Partner, each
of its employees, affiliates, officers, directors and agents from time
to time and the Principals shall not be liable to the Partnership or any
Partner for any action or omission taken or suffered by any Principal
which does not constitute a breach of any fiduciary duty owed by such
Principal and is taken or suffered in good faith and in the belief that
such action or omission was in or was not opposed to the best interests
of the Partnership; provided, however, that such action or omission was
not a material violation of this Agreement and did not constitute gross
negligence, willful misconduct, fraud or a material violation of law and
that such acts or omissions do not constitute a knowing failure to
comply with the LP Act such that the liability of any of the Limited
Partners for the liabilities of the Partnership may exceed their Capital
Contributions.  None of the General Partner or the Principals shall be
liable to the Partnership or any Partner for any act or omission of any
other party other than a Principal, nor shall any Principal (in the
absence of gross negligence, willful misconduct, fraud, a material
violation of this Agreement or a material violation of law by such
Principal) be liable to the Partnership or any Partner for any act or
omission of any employee or agent of the Partnership where reasonable
care was exercised in their appointment, supervision and retention.
Except as otherwise provided in this paragraph (a), neither the General
Partner nor any Principal shall be liable to the Partnership or any
Partner for any mistake of fact or judgment in conducting the affairs of
the Partnership or otherwise acting in respect of and within the scope
of this Agreement.

(b)   Not Liable for Return.  Except as otherwise
expressly provided in paragraph (a) of this Section 6.1, neither the
General Partner nor any Principal shall be liable for the return of all
or any portion of any Limited Partner's Capital Contributions.

6.2.     Liability of Limited Partners.  Except as may be
otherwise provided by law, the liability of each Limited Partner is
limited to its Capital Commitment, and nothing in this Agreement shall
remove, diminish or affect such limitation.  If a Partner has received
the return of any part of its Capital Contributions, the Partner may
continue to be liable to the Partnership for the amount of the returned
Capital Contribution, but only to the extent necessary to discharge the
Partnership's liabilities to creditors who extended credit to the
Partnership during the period the Capital Contribution was held by the
Partnership, and as otherwise provided under the LP Act or Section 11.3.

6.3.     No Obligation to Restore Negative Capital Account.
Except as otherwise provided for by law or by Section 11.3, no Partner
shall have any obligation at any time to contribute any funds to restore
any negative balance in its Capital Account.

6.4.     Actions of Partners; Bank Regulated Partner Voting Percentage.
The Partners hereby agree and acknowledge that any vote, consent,
approval or other action to be taken by or on behalf of the Limited
Partners hereunder shall be valid and effective for all purposes
hereunder upon the taking of such action at a meeting or as evidenced in
writing by or on behalf of Limited Partners representing at least the
requisite percentage in Interest of all Limited Partners eligible and
entitled to act with regard to such matters, based upon their relative
Limited Partner Percentages at the time such action is to be taken;
provided, however, that for such purposes any Bank Regulated Partner
shall be deemed at all times to have a Limited Partner Percentage equal
to the lesser of (i) 4.9% or (ii) its actual Limited Partner Percentage.
Further, with respect to any action by the Partners:  (x) any Limited
Partner who is the subject of such action or against whom such action is
<PAGE>


to be enforced separate or apart from other Limited Partners on behalf
of the Partnership as a whole, shall be excluded from taking any such
action; (y) any Affiliate of the General Partner, to the extent it holds
a Limited Partner Interest, shall be excluded from such action; and (z)
no Bank Regulated Partner shall take part in action regarding the
admission, removal or approval of replacement of the General Partner
under Section 10.2 and as otherwise referred to in this Agreement.

6.5     Bank Regulatory Matters.

(a)   No "Control" Presumption.  No Bank Regulated
Partner shall be required to make any Capital Contribution to the
Partnership to the extent that such contribution would result in such
Bank Regulated Partner contributing more than 24.99% of all capital
contributed to the Partnership, if such Bank Regulated Partner shall
obtain an opinion of counsel (which counsel and opinion shall be
reasonably acceptable in form and substance to the General Partner) to
the effect that such contribution would cause such Bank Regulated
Partner to violate Regulation Y or otherwise causes a Bank Regulatory
Problem.

(b)   Adjustment.  Anything contained in this Agreement
to the contrary notwithstanding, any Bank Regulated Partner may elect to
withdraw partially from the Partnership but only to the extent necessary
to provide that the Interest of such Bank Regulated Partner in the
Partnership shall not exceed 24.99%, if such Bank Regulated Partner
shall obtain an opinion of counsel (which counsel and opinion shall be
reasonably acceptable in form and substance to the General Partner) to
the effect that, as a result of Regulation Y, such partial withdrawal of
the Interest such Bank Regulated Partner from the Partnership to the
extent described above is required to enable such Limited Partner to
comply with Regulation Y or otherwise to avoid a Bank Regulatory Problem
is necessary.

(c)   Partial Withdrawal Remedy.  Any such Bank Regulated
Partner partial withdrawal of Interest shall be effective at the end of
the fiscal quarter in which such election occurs.  Upon the partial
withdrawal of any Bank Regulated Partner, either the remaining Partners
or the Partnership, within sixty  (60) days after the effective date of
such Bank Regulated Partner withdrawal, shall purchase from the Bank
Regulated Partner that amount of such Bank Regulated Partner's Interest
corresponding to such Limited Partner's partial withdrawal at the price
determined below.  The purchase price to be paid for such Bank Regulated
Partner's withdrawal Interest shall be the fair market value thereof as
reflected in its Capital Account, determined as if all assets of the
Partnership had been sold for their Carrying Values, all Partnership
liabilities satisfied (to the extent feasible) and the resulting income,
gains and losses to the Partners' Capital Accounts in accordance with
Section 3.1 of this Agreement.

(d)   Payments.  All payments made to a withdrawing Bank
Regulated Partner pursuant to this Section 6.5 may be made (i) in cash
or (ii) in the form of other consideration mutually acceptable to such
Bank Regulated Partner and the General Partner.  If and to the extent
that any of the consideration consists of Securities, the General
Partner and the Bank Regulated Partner shall apply the provisions of
Sections 4.6(d) and (e) to determine the acceptability of such
Securities as in-kind consideration.
<PAGE>



(e)   Election Out.  Upon issuance of the regulations
implementing the "merchant banking activities" provisions of amended
Section 4(k)(4)(H) of the Bank Holding Company Act, any Bank Regulated
Partner may irrevocably elect, by providing written notice to the
General Partner, not to be governed by this Section 6.5 because such
Limited Partner or an Affiliate has elected to be treated as a
"financial holding company" under the Financial Services Act of 1999
(the Gramm-Leach-Bliley Act of 1999).

(f)   Modification; Definitions.  This Section shall not
be amended without the consent of each of the Bank Regulated Partners.
For purposes of this Section 6.5 the following defined terms apply:

"Bank Holding Company Act" means the Bank Holding Company Act of 1956,
as amended (12 U.S.C. 1843(c)(8)), including the Financial Services Act
of 1999.

"Bank Regulated Partner" means each Limited Partner that is (or is an
Affiliate of a bank holding company that is) subject to the provisions
of Regulation Y.

"Regulation Y" shall mean Regulation Y of the Board of Governors of the
Federal Reserve System (C.F.R. Part 225) or any successor to such
Regulation.

"Bank Regulatory Problem" means (i) any set of facts or circumstances
wherein it has been asserted by any governmental regulatory agency (or
any Bank Regulatory Partner believes that there is a significant risk of
such assertion) that such Bank Regulated Partner is not entitled to own,
hold, or exercise any material right with respect to all or any portion
of the interest in the Partnership which such Partner holds or (ii) when
a Bank Regulated Partner and its affiliates would own, control or have
power (including voting rights) over a greater quantity of securities of
any kind than are permitted under any requirement of any governmental
rule or regulation directly applicable to the investment activities of
such Bank Regulated Partner in its capacity as a Limited Partner.

6.6      Exclusions from Investments.

(a)   Request for Exclusion.  If participation by a Bank
Regulated Partner in a Portfolio Investment would result in a Bank
Regulatory Problem, and such Bank Regulated Partner provides the General
Partner with a written opinion of counsel to that effect, such Bank
Regulated Partner may request to be excused from making payment of its
capital contributions in respect of such Portfolio Investment (an
"Excused Partner") and shall be excluded from participating in
Partnership profits, losses and distributions attributable to such
investment (the "Excluded Investment").  Any such request shall be
submitted to the General Partner in writing, accompanied by the opinion
of counsel, within five (5) business days after the receipt by the Bank
Regulated Partner of the Capital Contribution call notice with respect
to such proposed Portfolio Investment.

(b)   Effect of Exclusion.  If a Bank Regulated Partner
is an Excused Partner with respect to any Portfolio Investment, then,
notwithstanding any other provision of this Agreement, the following
provisions shall be applied:

(i)   The Capital Commitment of the Excused Partner
shall not be reduced by such Excused Partner's share of any Capital
Contributions called for by the Partnership to make such Excluded
Investment;
<PAGE>



(ii)  Such Excused Partner shall receive no
allocations of items of income, gain, loss, deduction or expense
attributable to that Excluded Investment and no Distributions
attributable to that Excluded Investment (i.e., it shall be entitled to
no economic returns from, and to the maximum extent feasible shall
suffer no economic detriment attributable to, the Partnership's
participation in that Excluded Investment);

(iii) For purposes of determining the General
Partner's "carried interest" attributable to Portfolio Investments made
(in part) with such Excused Partner's paid-in Capital Contributions, and
the General Partner's obligation to return Excess Distributions to such
Excused Partner:  (A) such Excused Partner and the General Partner shall
be treated as partners in a separate "sub-partnership" with aggregate
Capital Commitment and Capital Contributions equal to the Excused
Partner's revised Capital Commitment and Capital Contributions plus a
proportionate share of the General Partner's actual Capital Commitment
and Capital Contributions, and (B) all calculations of the General
Partner's carried interest shall be made separately, in accordance with
the relevant provisions of the Agreement, with respect to this sub-
partnership;

(iv)  The amount of Expenses attributable to this sub-
partnership shall be equal to the Expenses attributable to the Portfolio
Investments held by that sub-partnership, determined as follows:  (A)
all Expenses incurred solely as a result of making, holding or disposing
of a particular Portfolio Investment (e.g., indemnification expenses for
claims arising out of that Portfolio Investment) shall be deemed to be
attributable to that Portfolio Investment; (B) all other Expenses
(excluding Expenses attributable to the Management Fee) shall be
apportioned among (and shall be deemed to be attributable to) all
Portfolio Investments in proportion to the Capital Contributions used to
acquire such Portfolio Investments; and (C) the General Partner shall
determine the amount of Capital Contributions used to acquire each
Portfolio Investment, and shall recalculate periodically the amount of
Expenses attributable to each Portfolio Investment as additional
Expenses accrue, in each case in a reasonable and consistent manner;

(v)   The Management Fee payable by the Partnership
shall not be reduced as a result of any reduction in Capital Commitments
occurring pursuant to this Section 6.6, and each Limited Partner
(including each Excused Partner) shall bear the economic impact of its
proportionate share (based on its relative Capital Commitment and
without regard to any reduction occurring pursuant to this Section 6.6)
of the aggregate amount of the Management Fee expense allocated to all
Limited Partners under this Agreement.  The General Partner is
authorized to allocate Expenses attributable to payments or accruals of
the Management Fee to the sub-partnership referred to in Section
6.6(b)(iii) and (iv) and, within such sub-partnership, between the
General Partner and any Excused Partners, in such manner as the General
Partner reasonably determines is necessary or advisable to implement the
Partners' economic agreement as set forth in the preceding sentence;

(vi)  No Bank Regulated Partner which has become an
Excused Partner pursuant to Section 6.6 shall be required to make any
additional Capital Contributions to the Partnership with respect to such
Portfolio Investment, but the General Partner shall adjust Partnership
allocations to and within such sub-partnership to ensure, to the extent
feasible, that such Excused Partner bears the economic burden of any
Management Fee expense attributable to such Excused Partner's Capital
Commitment (determined without regard to any reduction thereof);
<PAGE>



(vii)  To the maximum extent feasible, except as
explicitly provided in Sections 6.6(b)(i) through (vi), the amounts of
Net Income or Net Losses allocable to, and the Distributions made to,
the Partners other than the Excused Partner shall not be affected by the
special arrangements between the General Partner and the Excused Partner
contemplated by this Section 6.6; and

(viii) With respect to Capital Contribution calls
after an Excused Investment, the General Partner may determine
individual Partner Capital Contribution amounts on a pro rata basis
relative to the outstanding or unused Capital Commitments of all
Partners.

7.     INDEMNIFICATION.

7.1.     General.  The General Partner, each Principal, each
member of the Advisory Committee, and each of their respective partners,
members, managers, employees, affiliates, officers, directors and agents
from time to time (each an "Indemnitee") shall be and hereby are:  (i)
indemnified and held harmless by the Partnership and (ii) released by
the Partners, from and against any and all claims, demands, liabilities,
costs, expenses, damages, losses, suits, proceedings and actions,
whether civil or criminal, actual or threatened (collectively,
"Liabilities"), whether judicial, administrative, investigative or
otherwise, of any nature whatsoever, known or unknown, liquidated or
unliquidated which Liability or Liabilities arise out of the conduct of
the business or affairs of the Partnership by the respective Indemnitee
or otherwise relate to this Agreement, including, without limitation,
any Liability of any nature whatsoever resulting from an Indemnitee
serving as a member of the Board of Directors of any Portfolio Entity;
provided, however, that the satisfaction of any indemnification and
holding harmless shall be from and limited to assets of the Partnership
and no Limited Partner shall have any personal liability on account
thereof; and provided, further, that an Indemnitee shall not be entitled
to indemnification and release hereunder only if it shall have been
determined by a court of competent jurisdiction that:  (x) such
Indemnitee did not act in good faith and in the reasonable belief that
the Indemnitee's action was in accordance with such Person's obligations
to the Partnership or such Indemnitee acted with reckless disregard for
the duties of his or its office or with willful malfeasance; (y) such
Liability arose from a material violation of this Agreement or the gross
negligence, willful misconduct, or fraud by such Indemnitee, or from
actions of such Indemnitee outside the scope of and unauthorized by this
Agreement, or from any violation of Federal or state securities laws or
(z) with respect to any criminal action or proceeding, such Indemnitee
did have cause to believe beyond any reasonable doubt that the
Indemnitee's conduct was criminal.

7.2.   Expenses.  Reasonable expenses, including reasonable legal
expenses, incurred by an Indemnitee in defense or settlement of any
claim that may be subject to a right of indemnification hereunder shall
be advanced by the Partnership prior to the final disposition thereof
upon receipt of the Indemnitee's undertaking to repay such amount to the
Partnership if it shall be ultimately determined that the Indemnitee was
not entitled to be indemnified hereunder.  The right of any Indemnitee
to the indemnification provided herein shall be cumulative of, and in
addition to, any and all rights to which such Indemnitee may otherwise
be entitled by contract or as a matter of law or equity, and shall
extend to such Indemnitee's successors, assigns and legal
representatives.  All judgments against the Partnership or any
Principal, in respect of which any of them is entitled to
indemnification, must first be satisfied from Partnership assets before
any such party is responsible therefor.
<PAGE>



7.3.     No Waiver, etc..  Nothing contained herein shall
constitute a waiver by any Partner of any right which it may have
against any party under Federal or state securities laws.

7.4.     Insurance.  The General Partner may cause the Partnership
to purchase and secure insurance, to the extent available at reasonable
cost (as determined by the General Partner), covering the Liabilities
described in this Article 7.

8.     EXPENSES; MANAGEMENT FEE.

8.1.     Administrative Expenses.  Subject to the provisions of
Section 8.2, the General Partner will bear and be charged with all
ordinary, necessary and recurring costs and expenses of administering
the Partnership (other than the Management Fee), and providing such
services to the Partnership as are required to be provided by it
pursuant to this Agreement, including office expenses, travel expenses
(other than as provided for in Section 8.2(iv)), salaries and employee
benefits, and other overhead expenses of the Partnership and all out-of-
pocket costs of evaluating and developing potential Portfolio
Investments or Short-Term Investments (other than fees and expenses of
third-party consultants and other advisors) and of making, holding or
selling Portfolio Investments and Short-Term Investments (collectively,
"Administrative Expenses").  The General Partner, at its expense, may
contract with Conning & Company or its subsidiaries for the furnishing
of all of such services.

8.2.    Other Expenses.  All reasonable costs and expenses of the
Partnership and (to the extent fairly allocable to the Partnership) of
the General Partner (other than Administrative Expenses) are "Other
Expenses" and will be borne by and charged to the Partnership.  Other
Expenses will include, without limitation: (i) out-of-pocket expenses
incurred by the Partnership or the General Partner in connection with
the organization of the Partnership and the offering of the interests
therein (but excluding any placement fees and expenses) ("Organizational
Expenses") and fees and expenses of placement agents and syndication
expenses in connection with the offering and formation of the
Partnership ("Syndication Expenses") up to an aggregate of $750,000 with
such expenses in excess of $750,000 to be offset against the Management
Fee payable to the General Partner by the Partnership pursuant to
Section 8.3(a); (ii) fees and expenses of consultants, appraisers,
custodians, counsel, independent public accountants, actuaries and other
agents; (iii) finders, placement, brokerage and other similar fees
incurred making Portfolio Investments; (iv) out-of-pocket costs of
meetings with (including travel), and reports to, the Limited Partners;
(v) all expenses of the Advisory Committee; (vi) costs and expenses
incurred for the preparation and distribution of financial reports, tax
reports and other information for the benefit of the Limited Partners or
as specifically requested by a Limited Partner; (vii) any taxes, fees or
other governmental charges levied against the Partnership or its income
or assets or in connection with its business or operations; (viii) costs
of any agency or administrative actions or hearings, any governmental
action or third-party litigation or other matters that are the subject
of indemnification pursuant to Article 7 hereof; (ix) costs of winding-
up and liquidating the Partnership; (x) fees and expenses incurred in
connection with potential Portfolio Investments that are not consummated
by the Partnership; and (xi) all other costs and expenses of the
Partnership or the General Partner in connection with this Agreement
other than Administrative Expenses.
<PAGE>



8.3.     Management Fee.

(a)   Amount.  The Partnership shall pay to the General
Partner an annual management fee (the "Management Fee") computed as
follows:  (i) during the term of the Investment Period, 2.0% of
aggregate Capital Commitments of the Partnership and (ii) during the
period following the end of the Investment Period until the date of the
Final Distribution, 2.0% of aggregate amount of Capital Commitments of
the Partnership invested in Portfolio Investments of the Partnership
which are unrealized as of the beginning of such period for which the
Management Fee is due and payable pursuant to Section 8.3(b) below.  The
Management Fee shall be payable for the period commencing on the date of
formation of the Partnership and terminating on the date of the Final
Distribution.  The amount of the Management Fee shall be reduced by the
amount of Syndication Expenses and Organization Expenses in excess of
$750,000.  Any amount of such excess Syndication Expenses and
Organization Expenses to be offset against the Management Fee shall
reduce the annual Management Fee due and payable to the General Partner
pursuant to Section 8.3(b) below on a pro rata basis applied over the
five years following the determination date of such amount.

(b)   Payment.  The Management Fee, calculated as
provided in this Section 8.3, shall be payable quarterly in advance, for
the period commencing with the date of this Agreement until the Final
Distribution.  The initial payment shall be due as part of the Initial
Capital Call and thereafter will be made on each, January 1, April 1,
July 1 and October 1 thereafter.  Quarterly installments for any period
less than a full quarter shall be prorated on the basis of the actual
number of days elapsed.  Upon the admission of any Additional Limited
Partner or the making of any additional Capital Commitment to the
Partnership by any Limited Partner pursuant to Section 2.3, the
Management Fee (the "Late Management Fee") attributable to the Capital
Commitment of such Additional Limited Partner (or to the additional
Capital Commitment of such existing Limited Partner) for the period
commencing on the date of the inception of the Partnership and
terminating on the last day in the fiscal quarter in which such Partner
is admitted (or makes such additional Capital Commitment) and the amount
of such Partner's Late Payment Fees relating to interest on the Late
Management Fee pursuant to Section 2.3(c)(i) shall be payable on the
date of admission (or the date of making such additional Capital
Commitment).

(c)   Adjustments.  The following adjustments shall be
made to the Management Fee:
(i)   Director's fees, consulting fees, commitment
fees, monitoring fees, break-up fees and success fees (excluding any
options, warrants or other equity securities awarded or otherwise issued
to directors of a Portfolio Entity) paid during such year to the General
Partner, to any member of the General Partner by Portfolio Entities for
services rendered by such persons ("Portfolio Entity Remuneration")
shall be used first to offset any transaction expenses advanced by such
service provider and not reimbursed by the Partnership.  Any remaining
Portfolio Entity Remuneration shall be used to reduce the Management Fee
(but not below zero) by 50% of such remaining amount, in accordance with
the terms of Sections 8.3(c)(ii) and (iii) below.

(ii)  The amount of any Portfolio Entity
Remuneration to be so applied shall be applied first against the
quarterly payment next following the date of the determination of such
net remuneration and then against each successive quarterly payment
until such net remuneration has been fully utilized, provided that no
amount shall be carried over as a credit from any fiscal year to the
next.
<PAGE>



(iii) For purposes of 8.3(c)(ii), a fee reduction
shall be deemed to have occurred when Portfolio Entity Remuneration is
actually received by the remunerated Person and the amount of the net
remuneration (and related reduction) has been determined in good faith
by the General Partner.  In the case of any fees paid in consideration
other than cash (excluding any options, warrants or other equity
securities awarded or otherwise issued to directors of a Portfolio
Entity), such fees shall be deemed to have been received by the
remunerated Person when such consideration has been disposed of for cash
and shall be deemed to be in an amount equal to the proceeds of such
disposition net of acquisition and other transaction expenses (including
taxes, if any).

9.       BOOKS AND RECORDS; REPORTS TO PARTNERS.

9.1.     Books and Records.

(a)   General.  The General Partner shall keep or cause
to be kept complete and accurate records and books of account in which
shall be entered all such transactions and other matters relative to the
Partnership's business as are usually entered into records and books of
account maintained by persons engaged in businesses of like character or
which are required by the Act.  Such books and records shall, to the
extent consistent with all other provisions of this Agreement, be
maintained for all purposes in accordance with generally accepted
accounting principles consistently applied.

(b)   Maintenance; Inspection.  The books and records of
the Partnership shall be maintained at the offices of the General
Partner, and all such books and records shall be available for
inspection and copying at the reasonable request, and at the expense, of
any Partner during ordinary business hours.  All Partners shall also
have the right, at their expense and during ordinary business hours, to
meet with the Partnership's accountants.

9.2.     Tax Information. The General Partner shall use its
reasonable efforts to send to each person who was a Partner at any time
during a Fiscal Year such Partnership tax information as shall be
necessary for the preparation by such person of its Federal tax returns
(including information returns) within seventy-five (75) days (but in no
event later than ninety (90) days after the end of each Fiscal Year);
and, to this end, upon specific request by a Partner, the General
Partner shall provide each such Partner with a copy of the Partnership's
estimated and unaudited financial statements for each Fiscal Year within
forty-five (45) days after the close of such Fiscal Year. Upon the
request of any Limited Partner, the General Partner will undertake to
furnish to such person such additional information as may be necessary
to enable such person to file other required returns or reports with
governmental agencies.

9.3.     Reports to Partners.

(a)   Annual Period.  Within ninety (90) days after the
end of each Fiscal Year of the Partnership, the General Partner shall
send to each Limited Partner the following audited financial statements,
prepared in accordance with generally accepted accounting principles
(the "Annual Financial Statements") :

(i)   a balance sheet of the Partnership as of the
end of such year;

(ii)  a statement of income of the Partnership for
such year;
<PAGE>



(iii) a statement of cash flows of the Partnership
for such year;

(iv)  a statement of changes in Partner's Capital
Account for such year;

(v)   schedules detailing each Portfolio Investment
of the Partnership as of the end of such year and setting forth both the
cost and the General Partner's good faith estimate of the Carrying Value
of each Portfolio Investment as of the end of such year presented
substantially in the format that such information has been presented to
investors in the Prior Funds; and

(vi)  notes to the audited financial statements.

The General Partner shall cause an audit of the Annual Financial
Statements to be made by the Partnership's independent public
accountants, which audit shall be conducted in accordance with generally
accepted auditing standards.  The General Partner will select a
nationally recognized independent public accounting firm on behalf of
the Partnership.  Upon reasonable request of a Limited Partner, the
General Partner will use its reasonable efforts to provide such other
additional information relating directly to the requesting Limited
Partner's interest in the Partnership, subject to Section 17-305 of the
LP Act.

(b)   Quarterly Period.  Within forty-five (45) days
after the end of the first, second, third and fourth fiscal quarters of
the Partnership, the General Partner shall send to each Limited Partner:
(i) a report summarizing the status of the Partnership and each
Portfolio Investment of the Partnership as of the end of such period and
setting forth the General Partner's good faith estimate of the Carrying
Value of each Portfolio Investment as of the end of such period
presented substantially in the format that such information has been
presented to investors in the Prior Funds; (ii) a balance sheet,
statement of income and cash flows and statement of changes in Capital
Account balances for the Partnership with respect to such period
(prepared on a pro forma basis, unaudited); and (iii) notice of the
commencement of any event during such period entitling the Limited
Partners to vote to terminate the Partnership or to vote to remove the
General Partner.

(c)   Notices.  The General Partner shall send to each
Limited Partner notice of the bringing of any action or proceeding
against the General Partner by one or more Limited Partners within
twenty (20) days of the commencement thereof.

9.4.     Meetings.  The General Partner shall hold an annual
meeting of the Partners on such date as the General Partners may
determine and give at least thirty (30) days' prior written notice to
the Limited Partner, at which the General Partner shall report on the
Portfolio Investments of the Partnership.
<PAGE>



9.5.     Compliance with Laws.  The General Partner shall conduct
its affairs and shall conduct the affairs of the Partnership in such a
manner that no Limited Partner will have any personal liability with
respect to any obligation of the Partnership except as expressly assumed
by any Limited Partner or as otherwise provided by law and generally so
as to comply with all material laws as applicable to it (including
without limitation the Foreign Corrupt Practices Act).  The General
Partner shall use its best efforts to cause all registrations or notices
required under the LP Act to be submitted or made in accordance with the
provisions of the LP Act and shall indemnify and keep indemnified each
of the Limited Partners from and against any and all costs, expenses,
claims, damages and liabilities to which they may become subject which
result from the failure by the General Partner to comply with the
requirements of the LP Act; provided, however, that the General Partner
shall not be under any obligation to indemnify and keep indemnified each
of the Limited Partners where such costs, expenses, claim damages or
liabilities arise or result from a breach by a Limited Partner of  its
representations and warranties contained in the Subscription Agreement
between the General Partner and the Limited Partners.

10.    TRANSFERS.

10.1.   Transfer by General Partner.  The General Partner shall
not assign or otherwise transfer (collectively, "Transfer") its
interest, and shall not voluntarily withdraw as General Partner of the
Partnership, except with the consent of Two-Thirds in Interest of the
Limited Partners; provided, however, that the General Partner may
Transfer its interest to any successor of the General Partner or
Affiliate of Conning Corporation without the consent of the Limited
Partners.

10.2.     Removal of General Partner.

(a)   Actions and Conditions.  The General Partner may be
removed by the action, evidenced by a written notice delivered in
accordance with the requirements of Section 13.5, and executed by a
Majority in Interest of the Limited Partners if, but only if:  (i) the
General Partner shall be in material violation of this Agreement and
such violation shall have continued for a period of thirty (30) days
after receipt by the General Partner of written notice thereof in
accordance with the requirements of Section 13.5, executed by a Majority
in Interest of the Limited Partners; or (ii) the General Partner shall
have been determined by a court of competent jurisdiction to be guilty
of gross negligence, fraud or willful misconduct in the conduct of the
business or affairs of the Partnership or of any felony (it being
understood that the General Partner shall promptly send written notice
of any such determination to the Limited Partners).  The General Partner
may be removed for any reason by the action of Eighty Percent (80%) in
Interest of the Limited Partners, evidenced by a written notice
delivered in accordance with the requirements of Section 13.5 and
executed by Eighty Percent (80%) in Interest of the Limited Partners.
Except as provided in Section 10.2(b), the General Partner shall cease
to be the general partner of the Partnership upon its removal or upon
the occurrence of any other Event of Withdrawal and the provisions of
Section 5.4 hereof shall terminate at such time.

(b)   Effect.  Upon the removal of the General Partner or
upon the occurrence of any other Event of Withdrawal, the Partnership
shall be dissolved and wound up in accordance with the provisions of
Sections 11.2 and 11.3, unless within ninety (90) days thereafter Eighty
Percent (80%) in Interest of the Limited Partners agree in writing to
continue the business of the Partnership and to the appointment of one
or more general partners to replace the General Partner.
<PAGE>



10.3.   Transfer by Limited Partners.  Subject at all times to
Sections 10.4 and 10.5 and unless approved in advance by the General
Partner under this Section 10.3, a Limited Partner may not Transfer all
or any part of its Interest in the Partnership to another person (an
"Assignee").  Notwithstanding the foregoing, upon reasonable prior
written notice to the General Partner, a Limited Partner may Transfer
all or any part of its Interest in the Partnership to an Assignee
without such consent of the General Partner (but still subject to
Sections 10.4 and 10.5):  (i) to any entity that controls, is controlled
by or is under common control with such Limited Partner; (ii) to any
successor in interest upon the sale of all or substantially all of the
assets of the Limited Partner or in connection with a merger,
consolidation or dissolution of any corporate Limited Partner; (iii) as
may be required by any law or regulation; (iv) by testamentary
disposition or intestate succession; or (v) to a trust, profit sharing
plan or other entity controlled by, or for the benefit of, such Limited
Partner or one or more family members.  Further, any change in any
trustee or fiduciary of a Limited Partner shall not be considered to be
a Transfer; provided, however, that (i) any replacement trustee or
fiduciary of an ERISA Partner is also a fiduciary under ERISA and (ii)
written notice of such change is given to the General Partner within a
reasonable period of time after the effective date thereof.  For
purposes of this Section 10.3, "control" shall mean beneficial ownership
of at least sixty percent (60%) of the outstanding interests of the
subject entity.  No Assignee shall have the right to become a Limited
Partner (a "Substitute Limited Partner") upon the Transfer of a Limited
Partner's Interest in the Partnership, unless all of the following
conditions are satisfied:

(i)   a duly executed and acknowledged written
instrument of assignment shall have been filed with the Partnership;

(ii)  the Limited Partner and the Assignee shall
have executed and acknowledged such other instruments and taken such
other actions as the General Partner shall deem reasonably necessary or
desirable to effect such substitution, including, without limitation,
the execution by the Assignee of a counterpart of or an appropriate
supplement to this Agreement pursuant to which such Assignee agrees to
be bound by the terms and provisions hereof;

(iii) the conditions set forth in Section 10.4 have
been satisfied, and, if requested by the General Partner, the Limited
Partner or the Assignee shall have obtained an opinion of counsel
reasonably satisfactory to the General Partner (which may include in-
house counsel for such Limited Partner) as to the legal matters set
forth therein;

(iv)  the Limited Partner or the Assignee shall
have paid to the Partnership such amount of money as is sufficient to
cover all expenses incurred by or on behalf of the Partnership in
connection with such substitution; and

(v)   unless the Assignee is an Affiliate of the
Limited Partner, the General Partner shall have consented in writing to
such substitution, which consent will not be withheld unreasonably.

10.4.     Certain Restrictions on Transfers.  Notwithstanding any
other provision of this Agreement, no Partner may Transfer in any manner
whatsoever all or any part of its Interest in the Partnership, and no
attempted or purported Transfer of such Interest shall be effective,
unless: (i) such Transfer would not result in a violation of applicable
law including any Federal or state securities laws or any term or
condition of this Agreement; (ii) such Transfer would not result in a
<PAGE>



requirement that the Partnership register as an investment company under
the Investment Company Act of 1940, as amended; (iii) if such Transfer
is to an employee benefit plan within the meaning of ERISA, the General
Partner shall have consented thereto; (iv) such Transfer is to an entity
which the General Partner deems to be a Qualified Investor; and (v) such
Transfer would not result in the Partnership being characterized as a
publicly-traded partnership for Federal income tax purposes under
Section 7704 of the Code.  To this end, the General Partner shall be
permitted to require and rely on representations made by the transferor
Partner and the transferee Partner in connection with any proposed
Transfer of all or any portion of any Interest to the extent that the
General Partner determines that such representations are necessary or
appropriate to satisfy the provisions of this Section 10.4.

10.5     Further Restrictions.  Any Transfer or withdrawal under
this Article 10  shall be subject to the restrictions in this Section
10.5.  The following provisions are included in this Agreement to
prevent the Partnership from being classified as a "publicly traded
partnership", as defined in Section 7704 of the Code, that is taxable at
the entity level:

(i)   The General Partner shall not cause or permit (x)
any offering of Partnership interests to be registered under the
Securities Act, or (y) interests in the Partnership to become "traded on
an established securities market," and shall withhold its consent to any
Transfer that, to the General Partner's knowledge after reasonable
inquiry, would otherwise be accomplished by a trade on a "secondary
market or the substantial equivalent thereof", in each case within the
meaning of Sections 7704 or 469(k) of the Code and/or any Treasury
Regulations;

(ii)  No Transfer of any Partnership interest or portion
thereof shall be permitted or recognized (within the meaning of Treasury
Regulation Section 1.7704-1(d)) by the Partnership or the General
Partner if and to the extent that such Transfer, if made, would (x) fail
to qualify as a "transfer not involving trading" pursuant to Treasury
Regulation Section 1.7704-1(e), and (y) cause the Partnership to fail to
qualify for the safe harbor for "private placements" set forth in
Section 1.7704-1(h), and (z) cause the Partnership to fail to qualify
for the "lack of actual trading" safe harbor set forth in Treasury
Regulation Section 1.7704-1(j), unless the General Partner together with
the Partnership's tax advisors determines that such Transfer would not
otherwise cause the Partnership to be treated as a publicly traded
Partnership under Section 7704(b) of the Code; and

(iii) The transferor and transferee shall provide
the General Partner, in connection with any proposed Transfer, written
representations to the effect that (x) the proposed Transfer will not be
effected on or through (1) a United States national, regional or local
securities exchange, (2) a foreign securities exchange or (3) an
interdealer quotation system that regularly disseminates firm buy or
sell quotations by identified brokers or dealers (including, without
limitation, the Nasdaq Automated Quotation System) and (y) such Person
is not, and its proposed Transfer or acquisition (as the case may be)
will not be made by, through or on behalf of, (1) a Person, such as a
broker or a dealer, making a market in interests in the Partnership, or
(2) a Person who makes available to the public bid or offer quotes with
respect to interests in the Partnership; and shall provide such
additional written representations as the General Partner reasonably may
request to enable it to comply with this clause (iii), and the General
Partner and counsel to the Partnership shall be permitted to rely upon
such representations and on written representations from other Partners
made prior to or contemporaneously with such proposed Transfer.
<PAGE>



10.6.    Actions.  In the event that a Limited Partner completes
an approved Transfer of an Interest, the General Partner is authorized
to cause Schedule I to be amended to reflect as appropriate the
occurrence of any of the transactions referred to in this Article 10.

11.     DURATION AND TERMINATION OF THE PARTNERSHIP.

11.1.   Duration.  The existence of the Partnership commenced on
the date of the filing of the Certificate of Limited Partnership
pursuant to the LP Act and its term shall continue until the first to
occur of any of the following events (an "Event of Termination"):

(i)   the tenth (10th) anniversary of the date of this
Agreement; provided, however, that the General Partner may extend the
term of the Partnership for up to two (2) additional one year terms to
provide for the orderly termination and liquidation of the Partnership's
Portfolio Investments;

(ii)  the decision by the General Partner to terminate
the Partnership, together with the consent of Two-Thirds in Interest of
the Limited Partners;

(iii) the failure by the Limited Partners to continue the
business of the Partnership, in accordance with the provisions of
paragraph (b) of Section 10.2, following an Event of Withdrawal;

(iv)  the vote to terminate the Partnership by a Majority
in Interest of the Limited Partners, in the event the Internal Revenue
Service makes a determination, which is final except for the right of
judicial review, or a court of competent jurisdiction makes a
determination, that the Partnership is or is taxable as an association
taxable as a corporation for Federal income tax purposes;

(v)   the election of the General Partner to terminate
the Partnership after the failure of the Limited Partners to terminate
the Suspension Period Restrictions in accordance with the provisions of
Section 5.6; or

(vi)  the vote to terminate the Partnership by Eighty
Percent in Interest of the Limited Partners.

Upon the occurrence of an Event of Termination, the General Partner
shall promptly provide notice thereof to each Limited Partner.

11.2.     Winding Up.  Upon the occurrence of an Event of
Termination, the Partnership shall be wound up, liquidated and dissolved
as promptly as reasonably practicable.  The General Partner or, if there
is no General Partner, a liquidator appointed by a Majority in Interest
of the Limited Partners, shall proceed with the Dissolution Sale.  In
the Dissolution Sale, the General Partner or such liquidator shall use
its best efforts to reduce the Securities of the Partnership to cash,
subject to obtaining Carrying Value for such Securities and any tax or
legal considerations.  In the event that the General Partner or such
liquidator is unable to reduce the Non-Marketable Securities of the
Partnership to cash, the General Partner or liquidator, in its sole
discretion, may enter into arrangements or form a vehicle to manage such
Non-Marketable Securities until they can be reduced to cash.  Any such
Limited Partner shall give notice of its desire to have the General
<PAGE>



Partner or liquidator form such a vehicle within ten (10) days
after notice from the General Partner or liquidator which states that
the General Partner or liquidator is unable to reduce the Securities of
the Partnership to cash, consistent with obtaining Carrying Value, and
which sets forth the proposed terms of such vehicle and may designate a
trustee other than the General Partner.  The General Partner or
liquidator shall be entitled to reasonable compensation for managing
such vehicle and shall not be obligated to manage such vehicle for more
than three (3) years.

11.3.     Final Distribution.

(a)   Carrying Value of Assets.  The Net Income or Net
Losses of the Partnership from the Dissolution Sale shall be allocated
to the Partners' Capital Accounts in accordance with Article 3.  All
securities remaining in the Partnership upon completion of the
Dissolution Sale shall be deemed to have been sold at their Carrying
Value and the amount of any gain or loss which would have been realized
upon a sale for such value shall be deemed to have been realized and
recognized for the purposes of computing the final allocations to the
Capital Accounts in accordance with Article 3.

(b)   General Partner Account.  If after final
allocations to the Capital Accounts of the Partners, the Capital Account
of the General Partner is negative, the General Partner shall contribute
to the Partnership sufficient cash or Securities previously distributed
to the General Partner (valued as of the date of return under Section
4.7) so that the balance of the Capital Account of the General Partner
is increased to zero.  Notwithstanding the preceding sentence, in no
event shall the General Partner be required to return to the Partnership
an amount that is in excess of the amount described in Section 4.9
hereof.  If any Securities are so returned, they shall be valued at
their Carrying Value at the time they are returned by the General
Partner.

(c)   Limited Partners' Accounts.  The General Partner
may require a Limited Partner (including any former Limited Partner) to
return distributions made to such Limited Partner or former Limited
Partner for the purpose of meeting such Limited Partner's pro rata share
of the Partnership's indemnity obligations under Section 7 or any other
liability of or claim against the Partnership for which the Partnership
has insufficient funds to pay (after calling any unpaid Capital
Commitments) in an amount up to, but in no event in excess of, the
aggregate amount of Distributions actually received by such Limited
Partner from the Partnership; provided, however, that for such purposes
no Partner shall be required to return an aggregate amount of
Distributions in excess of fifty percent (50%) of such Partner's Capital
Commitment.  Notwithstanding the terms of this Agreement, if it is
determined under the LP Act or other applicable law that any Limited
Partner has received a Distribution which it is required to return to or
for the account of the Partnership or Partnership creditors, then such
Partner shall be obligated to return such Distribution in the full
amount required under the LP Act or other applicable law. The obligation
of any Limited Partner to return all or any part of a Distribution made
to such Limited Partner shall be the obligation of such Limited Partner
only and not of any other Partner.  Any amount returned by a Limited
Partner pursuant to this Section 11.3(c) shall be treated as a
contribution of capital to the Partnership.  The General Partner shall
be required to return (at the same time as the Limited Partners) its pro
rata portion (as provided below) of any amounts required to be returned
by Limited Partners under this Section 11.3(c).  A Partner's share of
the giveback obligation under this Section 11.3(c) will be based on the
amount of distributions received by such Partner arising out of the
<PAGE>


Portfolio Investment giving rise to the Partnership's
indemnity obligations under Section 7 or other liability or claim;
provided, however, that if such indemnity obligations or other liability
or claim are not related to a particular Portfolio Investment, then
amounts required to be returned under this Section 11.3(c) will be
funded out of distributions generally to those Partners or former
Partners who were Partners at or after the time of the event giving rise
to such indemnity obligations or other liability or claim.
Notwithstanding the foregoing, no Limited Partner shall be required to
return a distribution after the first anniversary of the Final
Distribution; provided, however, that if at the end of such period,
there are any proceedings under Section 7 then pending or any other
liability (whether contingent or otherwise) or claim then outstanding,
the General Partner shall so notify the Limited Partners at such time
(which notice shall include a brief description of each such proceeding
(and of the liabilities asserted in such proceeding) or of such
liabilities and claims) and the obligation of the Limited Partners to
return any distribution for the purpose of meeting their giveback
obligations under the Section 11.3 shall survive with respect to each
such proceeding, liability or claim set forth in such notice (or any
related proceeding, liability or claim based upon the same or similar
claim) until the date that such proceeding, liability or claim is
ultimately resolved and satisfied.

(d)   Priority of Distributions.  The cash and any other
property remaining in the Partnership upon completion of the Dissolution
Sale shall be applied or distributed as a final distribution (a "Final
Distribution") in one or more installments in the following order of
priority:

(i)   to creditors of the Partnership, including
Partners who are creditors, in the order of priority as provided by law;
and

(ii)  to the Partners, in proportion to the amounts
in their Capital Accounts.

12.     DEFINITIONS.  As used herein, the following terms have the
following meanings:

7% Distribution Preference means, with respect to any Partner and
at any time, an amount which if distributed to such Partner at such time
would cause the aggregate amount of distributions made to such Partner
and such Partner's predecessors in interest by the Partnership
(determined, with respect to distributions in kind, pursuant to Section
4.6) to equal but not exceed an amount equal to such Partner's (and any
such predecessor's) Aggregate 7% Preferential Return as of such time.

7% Preferential Return means, with respect to any Partner and as
of the end of any fiscal quarter, an amount (not less than zero) equal
to such Partner's Return Base as of the last day of the preceding fiscal
quarter multiplied by 0.017059% (the equivalent, with quarterly
compounding, of 7% compounded annually).  A Partner's 7% Preferential
Return for any fiscal period consisting of less than a full fiscal
quarter shall be determined through proration on a daily basis by (1)
multiplying 0.017059% times a fraction, the numerator of which is the
actual number of days in such fiscal period and the denominator of which
is the actual number of days in the fiscal quarter that includes such
fiscal period; and (2) multiplying the result by such Partner's Return
Base as of the end of the preceding fiscal quarter.
<PAGE>



7% Preferential Return Allocation means, with respect to any
Partner and as of the end of any fiscal period:  (a) such Partner's
Aggregate 7% Preferential Return determined as of the end of such fiscal
period; reduced, but not below zero, by (b) the excess (if any) of (1)
the aggregate amount of Net Income previously allocated to such Partner
and such Partner's predecessors in interest (if any) over (2) the
aggregate amount of Net Loss previously allocated to such Partner and
such predecessors, in each case since the inception of the Partnership.

Additional Limited Partner:  An additional Limited Partner
admitted to the Partnership pursuant to Section 2.2.

Administrative Expenses:  As defined in Section 8.1.

Advisory Committee:  As defined in Section 5.3.

Affiliate:  As to any person, any other person directly or
indirectly controlling, controlled by, or under common control with,
such person.

Aggregate 7% Preferential Return means, with respect to any
Partner and fiscal period, the sum of such Partner's 7% Preferential
Returns for each calendar quarter (and partial quarter) from the
inception of the Partnership through the end of such fiscal period.

Agreement:  This Limited Partnership Agreement, as amended from
time to time.

Annual Financial Statements:  As defined in Section 9.3(b).

Assignee:  As defined in Section 10.3.

Bank Regulated Partner:  A Limited Partner which is a bank holding
company as defined in Section 2 (c) of the Bank Holding Company Act of
1956, or an Affiliate thereof.

Capital Account:  The capital account of each Partner on the books
of the Partnership, as described in Section 3.1.

Capital Commitment:  As to any Limited Partner, the amount of
capital committed to be contributed to the Partnership by such Limited
Partner as shown on Schedule I hereto, as revised from time to time in
accordance with this Agreement.

Capital Contribution:  As to any Partner at any time, the capital
contributed to the Partnership by such Partner at or before such time,
including any additional Capital Contribution of such Partner under
Section 3.6(c) and any amount allocated to the Capital Account of such
Partner under Section 3.6(d), less any deduction pursuant to such
Section.

Carrying Value:  The value of Securities as determined in
accordance with the procedures set forth in Section 4.7.

Certificate of Limited Partnership:  The Certificate of Limited
Partnership of the Partnership, as amended from time to time.

Code:  The Internal Revenue Code of 1986, as amended from time to
time; and Treas. Reg. means the Treasury Regulation and related rules
promulgated under the Code.
<PAGE>



Cost:  With respect to Partnership assets and unless the context
otherwise requires, the Partnership's adjusted tax basis in such assets
for federal income tax purposes, provided, however, that, if the
Partnership has made an election under Section 754 of the Code, such tax
basis shall be determined after giving effect to adjustments made under
Section 734 of the Code but (except as provided in Treasury Regulations
Section 1.734-2(b)(1)) without regard to adjustments made under Section
743 of the Code.

Cumulative Net Income:  As of the time of any determination, the
excess (if any) of the cumulative Net Income of the Partnership from its
inception through and including such time over the cumulative Net Losses
of the Partnership over that period.

Custodian:  As defined in Section 5.5.

Defaulting Limited Partner:  As defined in Section 3.6(a).

Disposed Investments:  As of any time of determination, all
Portfolio Investments that have been sold, distributed to the Partners,
written off as worthless securities, or otherwise disposed of, in whole
or in part, to the extent so distributed or disposed of at or prior to
the date of determination; provided, however, that any exchange of any
securities of a Portfolio Entity for other securities or property (other
than cash or cash equivalents) shall not constitute a disposition of the
original securities. For this purpose, the following events shall be
treated as partial dispositions of securities:
(a)   Each principal payment (or portion thereof) on any
security that constitutes a debt instrument for federal income tax
purposes shall be treated as a disposition of a portion of such security
that is equivalent on a percentage basis to the portion of the original
principal amount of such debt instrument represented by such principal
payment;

(b)   In the event that the Partnership agrees to
capitalize any interest that is accrued but remains unpaid on any
security that constitutes a debt instrument for federal income tax
purposes and to add such interest to principal, the amount so
capitalized shall be treated, solely for purposes of determining whether
payments subsequently made to the Partnership with respect to such
security will constitute Distributions, as a follow-on investment in the
debt securities of the issuer, and any determination regarding the
extent to which subsequent payments made to the Partnership with respect
to the original or any such follow-on investment in debt securities is
properly treated as a payment of principal shall be made in accordance
with federal income tax principles;

(c)   Each payment (or portion thereof) made to the Partnership in
redemption of any security constituting stock for federal income tax
purposes that is treated for such purposes as a distribution in part or
full payment in exchange for such stock (rather than, for example, a
dividend paid on such security) shall be treated as a disposition of the
portion of such security treated for such purposes as having been
exchanged;

(d)   Any partial repurchase by the issuer and any lapse or other
termination of part of any security constituting an option or warrant
for federal income tax purposes shall be treated as a disposition of a
portion of such security that is equivalent on a percentage basis to the
portion of the Partnership's investment in such security (as reflected
in the Partnership's financial records maintained in accordance with
federal income tax principles) represented by the portion of such
security that was repurchased, lapsed or terminated; and
<PAGE>



(e)   With respect to any Portfolio Investment that is subject to
a Net Write-Down, such Portfolio Investment shall be treated as a
Disposed Investment to the extent of such Net Write-Down while such Net
Write-Down is in effect.

In the event that the General Partner determines, pursuant to 4.2, to
cause a portion of the proceeds attributable to the disposition of any
Portfolio Investment to be retained by the Partnership and invested in
other Portfolio Investments, then, for purposes of determining the
Partners' Priority Return Amounts, the following portion of the original
Portfolio Investment shall not be treated as Disposed Investments: the
entire amount of such original Portfolio Investment multiplied by a
fraction, the numerator of which is the amount of such proceeds
reinvested in new Portfolio Investments and the denominator of which is
the total amount of proceeds attributable to the disposition of such
original Portfolio Investment.

Dissolution Sale:  All sales and liquidations by or on behalf of
the Partnership of all or substantially all of its assets in connection
with or in contemplation of the winding up of the Partnership.

Distribution:  Any distribution made by the Partnership to any one
or more Partners.

ERISA Partner:  Any Limited Partner which is (a) an "employee
benefit plan" within the meaning of Section 3(3) of ERISA and subject to
Part 4 of Title I of ERISA, (b) a "plan," as defined in Section
4975(e)(1) of the Code, to which the provisions of section 4975 of the
Code are applicable, or (c) any other Person, any of the assets of which
constitute "plan assets," within the meaning of the Plan Assets
Regulation, of a plan described in (a) or (b) above.

Event of Termination:  As defined in Section 11.1.

Event of Withdrawal:  Any of the following events with respect to
the General Partner:

(a)   the General Partner withdraws from the Partnership
as provided in Section 17-602 of the LP Act;

(b)   the General Partner ceases to be a member of the
Partnership as provided in Section 10.1;

(c)   the General Partner is removed as a General Partner
in accordance with Section 10.2;

(d)   the General Partner:  (i) makes an assignment for
the benefit of creditors; (ii) files a voluntary petition in bankruptcy;
(iii) is adjudicated a bankrupt or insolvent; (iv) files a petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation; (v) files an answer or other pleading
admitting or failing to contest the material allegations of a petition
filed against it in any proceeding of this nature; or (vi) seeks,
consents to, or acquiesces in the appointment of a trustee, receiver, or
liquidator of the General Partner or of all or any substantial part of
its properties;
<PAGE>



(e)   if within one hundred twenty (120) days after the
commencement of any proceeding against the General Partner seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation, the
proceeding has not been dismissed, or if within ninety (90) days after
the appointment without its consent or acquiescence of a trustee,
receiver or liquidator of the General Partner or of all or any
substantial part of its properties, the appointment is not vacated or
stayed, or if within ninety (90) days after the expiration of any such
stay, the appointment is not vacated; or

(f)   the dissolution and commencement of winding up of
the General Partner
Excluded Investment:  As defined in Section 6.6(a).

Excused Partner:  As defined in Section 6.6(a).

Expenses:  For any Fiscal Period, expenses or losses of the
Partnership incurred during such Fiscal Period, as determined pursuant
to accrual method Federal income tax accounting principles, including,
without limitation, all amounts borne by and charged to the Partnership
pursuant to Sections 8.2 and 8.3.

Final Distribution:  As defined in Section 11.3(c).

Fiscal Period:  Any Fiscal Year or Interim Accounting Period.

Fiscal Year:  As defined in Section 1.5.

General Partner:  Conning Investment Partners VI, L.L.C., a
limited liability company organized and existing under the laws of the
state of Delaware.

Income:  For any Fiscal Period, all income and gains of the
Partnership recognized for Federal income tax purposes, plus all income
earned by the Partnership which is exempt from Federal income tax.

Indemnitee:  As defined in Section 7.1.

Interest:  An interest as a Partner in the Partnership.

Interim Accounting Period:  As defined in Section 3.5.

Investment Guidelines:  As defined in Section 5.1.

Investment Period:  As defined in Section 2.2(b).

Key Person Trigger Event:  As defined in Section 5.6.

Late Expense:  As defined in Section 3.3(c).

Late Management Fee:  As defined in Section 8.3(b).

Late Payment Fees:  As defined in Section 2.3(c).

Late Portfolio Investment Capital Contribution:  As defined in
Section 2.3(c).

Liabilities:  As defined in Section 7.1.
<PAGE>



Limited Partner Percentage:  As to any Limited Partner for any
Fiscal Period, the fraction, expressed as a percentage, having as its
numerator the balance of the Capital Contributions of such Limited
Partner immediately prior to the end of such Fiscal Period and having as
its denominator the aggregate amount of the balances of all of the
Capital Contributions of all of the Limited Partners immediately prior
to the end of such Fiscal Period.

Limited Partners:  At any time, the limited partners of the
Partnership.

LP Act:  The Uniform Limited Partnership Act, as adopted by the
State of Delaware and as amended from time to time.

Majority [or Two-Thirds or Eighty Percent or X%] in Interest of
the Limited Partners:  At any time, Limited Partners whose Limited
Partner Percentages aggregate more than the requisite designated
percentage (i.e., Majority, Two-Thirds, Eighty Percent, as the case may
be) of the Limited Partner Percentages of all the Limited Partners in
the Partnership.

Management Fee:  As defined in Section 8.3.

Marketable Securities:  Securities that are traded on a national
securities exchange or reported through the automated quotation system
of a registered securities association and which at the same time are
not subject to restrictions on transfer of the sort referred to in
Section 4.6(b).

Net Asset Value:  As of any date, the amount by which the value of
the Partnership's assets, determined in accordance with Section 4.7,
exceeds the amount of its liabilities.

Net Income:  For any Fiscal Period, the excess, if any, of the
Income of the Partnership over Expenses for such Fiscal Period.

Net Losses:  For any Fiscal Period, the excess, if any, of the
Expenses of the Partnership over the Income of the Partnership for such
Fiscal Period.

Net Write-Down:  As of any time, the sum of the amounts by which
any Portfolio Investment that is not a Disposed Investment in its
entirety has been written down on the Partnership's books in accordance
with the rules set forth below to less than its Cost, but only to the
extent that such write-down has not previously been offset by a
corresponding write-up.

(a)	In the case of any Portfolio Investment for
which market quotations are readily available, then, solely for purposes
of determining the apportionment of distributions among the Partners:

(i)   the General Partner shall adjust the value of
such investment as shown in the Partnership's financial records to its
Carrying Value (determined in accordance with Section 4.7) at the end of
the fiscal period in question, and

(ii)  if the Carrying Value of any such Portfolio
Investment that previously has been subject to a downward adjustment
subsequently increases, the General Partner shall adjust the value of
such investment as shown in the Partnership's financial records to its
Carrying Value at the end of the period in question.

(b)   In the case of any Portfolio Investment for which
market quotations are not readily available:
<PAGE>



(i)   if the General Partner shall determine in the
good faith exercise of its discretion that there has been a significant
decline as of the end of any fiscal period in the Carrying Value of such
Portfolio Investment, then, solely for purposes of determining the
apportionment of distributions among the Partners, the General Partner
shall write down the value of such investment in the Partnership's
financial records by the amount of such decline not previously taken
into account in making such a downward adjustment; and

(ii)  if the General Partner shall determine in the
good faith exercise of its discretion (after consultation with the
Partnership's independent accountants) that as of the end of any fiscal
period there has been a significant reversal or mitigation of
circumstances previously giving rise to a write-down in the value of
such Portfolio Investment, then, solely for purposes of determining the
apportionment of distributions among the Partners, the General Partner
shall write up the value of such investment by any amount (as determined
in its sole discretion) not previously taken into account in making such
an upward adjustment; and

(iii) In the case of any such Portfolio Investment
that is a debt obligation,

(A)  the determination by the General Partner of
the decline in such Carrying Value shall take into account only changes
in the creditworthiness of the issuer of the obligation and not any
changes which may have taken place in general interest rate levels, and
(B)   any such determination of creditworthiness
may be made by reference to the rating of the issuer's outstanding debt
by Standard & Poors Corporation, Moody's Investor Service, Inc. or any
other nationally-recognized rating organization in the United States,
the issuer's NAIC rating, and such other information as the General
Partner may deem relevant.

(c)   In no event shall any Portfolio Investment
shall be written up for these purposes to an amount exceeding the Cost
of that security.

Non-Marketable Securities:  Any securities other than Marketable
Securities.

Optionees:  As defined in Section 3.6(e).

Optionor:  As defined in Section 3.6(e).

Organizational Expenses:  As defined in Section 8.2.

Other Expenses:  As defined in Section 8.2.

Partners:  As defined in Section 1.1.

Partnership:  Conning Capital Partners VI, L.P., the Delaware
limited partnership, referred to in the first paragraph of this
Agreement.

Partnership Return:  The return of partnership income which the
Partnership is required to file with respect to any taxable year
pursuant to Section 6031 of the Code.

Portfolio Entity:  As defined in Section 5.1.

Portfolio Investment:  As defined in Section 5.1.

Prime Rate:  the variable rate of interest, per annum, most
recently published in the Wall Street Journal as its "prime rate."
<PAGE>



Principals:  John B. Clinton, Gregory L. Batton, Stephan L.
Christiansen, Scot Galliher, Preston B. Kavanagh, Steven F. Piaker and
Gerard Vecchio.

Priority Return Amount:  With respect to any Partner and at any
time, an amount which, if distributed to such Partner at such time,
would cause the aggregate amount of distributions made by the
Partnership to such Partner and such Partner's predecessors in interest
from the inception of the Partnership through such time (other than
those distributions necessary to satisfy the requirements of Section
4.3(ii)) to equal but not exceed that portion of such Partner's Capital
Contribution that, at or prior to the time of determination, is
reflected in the Partnership's books as having been used by the
Partnership:

(a)   To acquire any Portfolio Investments that, as of
such time, are Disposed Investments (including, for avoidance of doubt,
any investments that are subject to a Net Write-Down, to the extent
provided for in clause (e) in the definition of "Disposed Investments"),
or

(b)   To pay any expenses properly borne by the
Partnership under this Agreement (including but not limited to the
Management Fee, Organizational Expenses and Syndication Expenses not in
excess of $750,000 in the aggregate, and indemnification expenses, if
any), but only:

(i)   To the extent of such Partner's
proportionate share (based on its relative Capital Contribution) of the
amount of such expenses attributable to investments that, at such time,
are Disposed Investments; and

(ii)  To the extent that the Partnership has not,
subsequent to the payment of such expenses but prior to the time of
determination, used proceeds to acquire additional Portfolio
Investments, at least equal in cost to the expenses so paid (in which
event the Partners' Capital Contributions that were actually used to pay
such expenses shall be deemed, for purposes of determining their
Priority Return Amounts, to have been used to acquire such additional
Portfolio Investments).

For purposes of this definition, (A) any expenses borne by the
Partnership shall be deemed to have been paid with Partnership funds
other than the Partners' Capital Contributions to the extent that the
Partnership has such other funds available to pay such expenses; (B) the
aggregate amount of the Partnership's expenses from inception through
any date of determination that have been paid with the Partners' Capital
Contributions shall be apportioned among all Portfolio Investments (and
the amounts so apportioned shall be deemed to be attributable to such
Portfolio Investment) that were acquired by the Partnership since
inception with the Partners' Capital Contributions in proportion to the
relative Cost of such investments except that, to the extent that a
particular Portfolio Investment has become a Disposed Investment, no
further Partnership expenses shall be deemed to be attributable to that
investment; (C) for purposes of the preceding clause (B), the General
Partner may use any reasonable method (including but not limited to a
quarterly or monthly convention) to determine the amount of expenses
incurred from the Partnership's inception through such date of
determination; and (D) in no event shall the Limited Partners' aggregate
Priority Return Amounts exceed, at any time, their aggregate Capital
Contributions at such time reduced (but not below zero) by the aggregate
amount of Distributions previously distributed to them, other than those
distributed pursuant to Section 4.3(ii) as 7% Distribution Preference
amounts.
<PAGE>



Prior Funds:  Conning Insurance Capital Limited Partnership,
Conning Insurance Capital International Partners, Conning Insurance
Capital Limited Partnership II, Conning Insurance Capital International
Partners II, Conning Insurance Capital Limited Partnership III and
Conning Insurance Capital International Partners III, L.P., Conning
Connecticut Insurance Fund, L.P., and Conning Capital Partners V, L.P.

Qualified Investor:  An institutional or other sophisticated
investor to which, in the opinion of the General Partner, an interest in
the Partnership may be offered in a private placement without any
violation of the Federal securities laws or any other applicable laws or
regulations.

Related Party:  As defined in Section 5.4(e).

Remaining Portion:  As defined in Section 3.6(e)(ii).

Return Base:  shall mean, with respect to any Partner and as of
any determination date, an amount, not less than zero, equal to:

(a)   such Partner's Return Base as of the end of the
calendar quarter preceding such determination date (the "Prior
Quarter");

(b)   increased by
(i)   all Capital Contributions made by such
Partner to fund Portfolio Investments (or pay related expenses subject
to capitalization as part of the Cost of such investments for federal
income tax purposes) to the extent that such contributions are both (A)
received by the Partnership from such Partner at any time during or
prior to the fiscal period commencing at the end of the Prior Quarter
and ending at such determination date and (B) actually used by the
Partnership during such fiscal period to make such Portfolio
Investments, or pay such expenses (provided that, for this purpose, any
such contributions received by the Partnership during any fiscal period
and held by the Partnership for 60 days after receipt without being so
used shall be deemed to have been so used as of the first day following
the expiration of such 60-day period);

(ii)  all Capital Contributions made by such
Partner for any purpose other than to fund Portfolio Investments (or pay
related expenses subject to capitalization as part of the Cost of such
investments for federal income tax purposes) to the extent that such
contributions are received by the Partnership from such Partner during
the fiscal period commencing at the end of the Prior Quarter and ending
at such determination date; and

(iii) such Partner's full 7% Preferential Return
for the fiscal period commencing at the end of the Prior Quarter and
ending at such determination date; and

(c)   reduced by an amount equal to the sum of all
distributions made to such Partner by the Partnership during the fiscal
period commencing at the end of the Prior Quarter and ending at such
determination date.
<PAGE>



For purposes of the preceding sentence:  (1) in determining such
Partner's Return Base as of the Partnership's first determination date,
the day on which such Partner made its initial capital contribution
pursuant to this Agreement shall be deemed to constitute the end of the
Prior Quarter; (2) except as provided in the preceding clause (1), any
capital contribution actually received by the Partnership from such
Partner during any calendar quarter or within five business days
thereafter shall be deemed to have been received on the last day of such
quarter; (3) any distribution actually made to such Partner by the
Partnership during any calendar quarter or within five  (5) business
days thereafter shall be deemed to have been made on the last day of
such quarter; (4) all contributions made to the Partnership by such
Partner's predecessors in interest (if any), all distributions made by
the Partnership to any such predecessors, and all 7% Preferential
Returns of any such predecessors shall be taken into account as if such
contributions had been made by, such distributions had been made to, and
such 7% Preferential Returns had been for the benefit of, such Partner;
(5) in the event the General Partner retains distributable amounts for
reinvestment in accordance with Sections 4.2 and 5.1(a)(iv), only the
cost basis of Securities constituting the Disposed Investment shall be
included in the Return Base; and (6) distributions received by the
General Partner shall be taken into account to reduce the General
Partner's Return Base pursuant to clause (c) of this definition only to
the extent of that portion of such distributions that the General
Partner would have received if it had made its Capital Contributions to
the Partnership in exchange for an interest as a Limited Partner and
held no interest as a general partner of the Partnership (and another
person had served as the General Partner hereunder).

For avoidance of doubt, in the event that any Partner receives
distributions that exceed the sum of such Partner's Aggregate 7%
Preferential Return and Return Base, and subsequently makes
contributions to the Partnership that otherwise would increase such
Partner's Return Base, the resulting increase in such Partner's Return
Base shall be limited to the excess, if any, of the amount so
contributed over the sum of all such excess distributions.

Deemed capital contributions attributable to default penalties imposed
by Section 3.6(d) shall be treated for purposes of this definition as
provided in that Section.

Securities:  Shares of capital stock, limited partnership
interests, warrants, options, bonds, notes, rights, debentures and other
securities and equity interests of whatever kind of any person,
partnership, corporation or government, whether readily marketable or
not.

Securities Act:  The Securities Act of 1933, as amended.

Short-Term Investments:  Any investment by the Partnership in U.S.
government securities, certificates of deposit, commercial paper, and
any other banking or money market instruments or in pooled investment
accounts which in turn invest in such securities, which will have a
rating of "BBB" or higher by Moody's Investors Services, Inc. or "Baa"
or higher by Standard & Poors Corporation.

Subscription Agreement:  As defined in Section 9.5.

Substitute Limited Partner:  As defined in Section 10.3.

Suspension Period Restrictions:  As defined in Section 5.6.

Syndication Expenses:  As defined in Section 8.2.

Tax Matters Partner:  As defined in Section 5.2(g).
<PAGE>



Transfer:  As defined in Section 10.1.

13.      MISCELLANEOUS.

13.1.    Waiver of Partition.  Each Partner hereby irrevocably
waives any and all rights that it may have to maintain an action for
partition of any of the Partnership's property.

13.2.    Power of Attorney.

(a)  General.  Each Limited Partner hereby makes,
constitutes and appoints the General Partner, with full power of
substitution and resubstitution, its true and lawful attorney for it and
in its name, place and stead for its use and benefit, to sign, execute,
certify, acknowledge, file and record all instruments amending,
restating or canceling the Certificate of Limited Partnership, as the
same may hereafter be amended or restated, that may be appropriate, and
to sign, execute, certify, acknowledge, file and record such other
agreements, instruments or documents as may be necessary or advisable:
(i) to reflect the exercise by the General Partner of any and all of the
powers granted to it under this Agreement; (ii) to reflect the admission
to the Partnership of any Limited Partner or an increase in the Capital
Contributions of any Limited Partner or withdrawal of any Limited
Partner in the manner prescribed in this Agreement; and (iii) which may
be required of the Partnership or of the Partners by the laws of
Delaware or any other jurisdiction.  Each Limited Partner hereby gives
such attorney-in-fact full power and authority to do and perform each
and every act required by the foregoing sentence as fully as such
Limited Partner might or could do if personally present, and hereby
ratifies and confirms all that such attorney-in-fact shall lawfully do
or cause to be done by virtue thereof.

(b)   Scope.  The power of attorney granted pursuant to
paragraph (a) of this Section 13.2:  (i) is a special power of attorney
coupled with an interest and, except as provided in clause (iii) of this
paragraph (b) of Section 13.2, is irrevocable; (ii) may be exercised by
such attorney-in-fact by listing all of the Limited Partners executing
any agreement, certificate, instrument or document with the single
signature of such attorney-in-fact acting as attorney-in-fact for all of
them; and (iii) with respect to any Limited Partner, shall terminate
upon the effectiveness of the admission of a Substitute Limited Partner
pursuant to Section 10.3 except that the power of attorney for such
Limited Partner shall survive such substitution for the sole purpose of
enabling such attorney-in-fact to execute, acknowledge and file any such
agreement, certificate, instrument or document as is necessary to effect
such substitution.

13.3.    Modifications.

(a)   General.  This Agreement may be modified or amended
only with the written consent of the General Partner and Two-Thirds in
Interest of the Limited Partners; provided, however, that no amendment
shall be made to this Agreement which would:

(i)   add to, detract from or otherwise modify the
purposes of this Partnership without the consent of all the Partners;

(ii)  increase the Capital Commitment of any
Partner (other than pursuant to Section 2.1 or 3.6); convert a Limited
Partner's Interest into a General Partner's Interest; modify the limited
liability of a Limited Partner; or increase the liabilities or
responsibilities of, or diminish the rights or protections of, any
Partner under this Agreement; in each case, without the consent of each
such affected Partner;
<PAGE>



(iii) alter the Interest of any Partner in income,
gains and losses or amend or modify any portion of Section 2.2 or
Article 3 or 4 without the consent of each Partner adversely affected by
such amendment or modification; provided, however, that the admission of
Additional Limited Partners in accordance with the terms of this
Agreement shall not constitute such an alteration, amendment or
modification;

(iv)  amend or modify any portion of Article 10
hereof in a manner that would further restrict the transferability of a
Limited Partner's Interest without the consent of all of the Limited
Partners;

(v)  amend any provision hereof which requires the
consent, action or approval of a specified percentage in Interest of the
Limited Partners without the consent of such specified percentage in
Interest of the Limited Partners; or

(vi)  amend this Section 13.3 without the consent
of all the Partners.

(b)   Special Notice.  If the General Partner dismisses
or replaces the Partnership's independent public accountants, it shall
notify the Limited Partners of such action and, if so requested by a
Majority in Interest of the Limited Partners, it shall rescind or amend
such action as requested.

13.4.     Severability.  If any provision of this Agreement, or
the application of such provision to any person or circumstance, shall
be held invalid, the remainder of this Agreement or the application of
such provision to other persons or circumstances shall not be affected
thereby.  No default hereunder by a Limited Partner shall excuse a
default by any other Limited Partner.

13.5.     Notices.  All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have
been duly given if delivered or mailed, first class registered mail or
certified mail, postage prepaid, if to the Partners and air mail if such
Partner is outside of the United States, at the addresses set forth on
Schedule II attached hereto, and if to the Partnership, at the address
referred to in Section 1.4, or to such other address as the Partnership
or any Partner shall have last designated by notice to the Partners or
the Partnership and the other Partners, as the case may be.  Notices
mailed in accordance with the foregoing shall be deemed to have been
given and made seven (7) days following the date so mailed.  All
Distributions made hereunder to any Limited Partner shall be made in
accordance with such reasonable written instructions as may be furnished
by such Limited Partner to the General Partner from time to time.

13.6.    Governing Law.  This Agreement shall be governed by the
laws of the State of Delaware.

13.7.   Successors and Assigns. Except as otherwise specifically
provided, this Agreement shall be binding upon and inure to the benefit
of the Partners and their legal representatives, successors and assigns.

13.8.    Counterparts.   This Agreement may be executed in one or
more counterparts, all of which shall constitute one and the same
instrument.

13.9.     Headings.  The Section headings in this Agreement are
for convenience of reference only, and shall not be deemed to alter or
affect the meaning or interpretation of any provision hereof.

13.10.     Further Actions.
<PAGE>



(a)   Non-U.S. Partner Tax Matters.  Each Limited Partner
which is a non-U.S. Person under the Code agrees that it will provide
the information and forms requested by the General Partner, including
U.S. Tax Form Schedule W-8 (foreign status certificate) and Form 1001
(reduced withholding rate certificate), as may be applicable, and shall
cooperate with the General Partner upon its request in order to maintain
appropriate records and provide for withholding amounts, if any,
relating to its Interest in the Partnership, and, further, in the event
that such Limited Partner fails to provide such information regarding
U.S. tax withholding, the General Partner, the Partnership and the other
Partners shall have no obligation or liability to the non-U.S. Limited
Partner with respect to any U.S. tax matters or obligations which may be
assessed against the non-U.S. Limited Partner.

(b)   Further Assurances.  Each Partner shall execute
and deliver such other certificates, agreements and documents, and take
such other actions, as may reasonably be requested by the General
Partner in connection with the formation of the Partnership and the
achievement of its purposes, including, without limitation, (i) any
documents that the General Partner deems necessary or appropriate to
form, qualify, or continue the Partnership as a limited partnership in
all jurisdictions in which the Partnership conducts or plans to conduct
business, and (ii) all such agreements, certificates, tax statements and
other documents as may be required to be filed in respect of the
Partnership.

13.11.    Delivery of Certificate..  The General Partner shall
provide a copy of the Certificate of Limited Partnership to each Limited
Partner that makes a request therefor, but shall not otherwise be
required to provide such copies.



[Remainder of Page Left Blank Intentionally.]

[Signature Pages Follow Immediately.]








GAJONES1764/6.888658-1
<PAGE>



CONNING CAPITAL PARTNERS VI, L.P.


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.


                                 GENERAL PARTNER:

                                 CONNING INVESTMENT PARTNERS VI, L.L.C.



                                 By:
                                      John B. Clinton
                                      Principal Manager Member



GAJONES1764/6.888658-1
<PAGE>



CONNING CAPITAL PARTNERS VI, L.P.

Counterpart Limited Partner Signature Page

IN WITNESS WHEREOF, the undersigned has executed this Agreement for
the purchase of a limited partnership interest (the "Interest") in Conning
Capital Partners VI, L.P. (the "Partnership").  This page constitutes the
signature page for each of (i) the Subscription Agreement for the purchase
of the Interest in the amount set forth below, and (ii) the Limited
Partnership Agreement of the Partnership.  Upon acceptance by the General
Partner, the undersigned shall be admitted as a Limited Partner of the
Partnership and hereby authorizes this signature page to be attached to a
counterpart of the such Subscription Agreement and such Limited
Partnership Agreement, each as executed by the General Partner.


Date: February 17, 2000               The Commerce Insurance Company
                                      (Print or Type Name of Investor)

Capital Commitment/Subscription
                                      Sign Here:

Amount of Interest Purchased:         By:    Gerald Fels
$ 50,000,000.00                       Title (if applic.)  Executive Vice
                                            President & Chief Financial
                                            Officer

Full name and address of Investor:    Preferred address for receiving
 The Commerce Insurance Company       communications (Do not complete if
 Attn:  Gerald Fels (M4-01)           already listed in prior column):
 211 Main Street
 Webster, MA   01570

Telephone No.: (508) 949-4113        Social Security or Federal Tax
Telecopy No.:  (508) 949-4411        Identification No.:
Email Address: GDels@AOL.com           04-2495247


Type of Entity:                              Wire Instructions:
   Tax exempt under Section 501(c) of        Bank:
   Tax Code                                  Bank ABA No.:
   Bank Limited Partner                      Address:
 X Insurance Company
   ERISA Plan                                Account Name:
   Governmental Plan                         Account Number:
<PAGE>









234