(Amendment No.)

Filed by the Registrant

[X]

Filed by a party other than the Registrant

[   ]

Check the appropriate box:

[   ]

Preliminary Proxy Statement

[   ]

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

[X]

Definitive Proxy Statement

[   ]

Definitive Additional Materials

[   ]

Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

THE COMMERCE GROUP, INC.
(Name of Registrant as Specified in Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

[X]

No fee required

[   ]

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)

_____________________________

(2)

_____________________________

(3)

_____________________________

(4)

Proposed maximum aggregate value of transaction:_____________________________

(5)

_____________________________

[   ]

Fee paid previously with preliminary materials.

[   ]

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)

_____________________________

(2)

_____________________________

(3)

_____________________________

(4)

_____________________________

The Commerce Group, Inc.
211 MAIN STREET
WEBSTER, MASSACHUSETTS 01570
(508) 943-9000

April 16, 2004

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

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

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 2004

April 16, 2004

      You are cordially invited to attend the 2004 Annual Meeting of Stockholders of The Commerce Group, Inc. (the "Company") at the Company's Policy Services Building located at 16 Sutton Road, Webster, Massachusetts at 9:00 a.m. on Friday, May 21, 2004. The meeting is called for the purpose of considering and acting upon:

1.

A proposal to fix at 17 the number of directors of the Company and to elect such directors.

2.

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

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

JOHN W. SPILLANE
Clerk

Table of Contents

Page

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

--

GENERAL INFORMATION

1

VOTE REQUIRED

1

COST OF SOLICITATION

2

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

2

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

4

GOVERNANCE OF THE COMPANY

4

REPORT OF THE AUDIT COMMITTEE

10

ELECTION OF DIRECTORS

11

EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS

14

      Summary Compensation Table

14

      Aggregated Fiscal Year-End Option Values

15

      Long-Term Incentive Plan--Book Value Awards

16

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

17

COMPENSATION COMMITTEE REPORT

18

COMMON STOCK PERFORMANCE

20

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

21

INDEPENDENT PUBLIC ACCOUNTANTS

21

OTHER BUSINESS

22

STOCKHOLDER PROPOSALS

22

APPENDIX A: CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF
 DIRECTORS OF THE COMMERCE GROUP, INC.

23

APPENDIX B: COMPENSATION COMMITTEE CHARTER

27

APPENDIX C: NOMINATING AND CORPORATE GOVERNANCE
 COMMITTEE CHARTER

29

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

GENERAL INFORMATION

      This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Directors of The Commerce Group, Inc. (the "Company"). The proxies will be used at the Annual Meeting of the Stockholders of the Company on Friday, May 21, 2004, at 9:00 a.m. at the Company's Policy Services Building located at 16 Sutton Road, Webster, Massachusetts and at any adjournment or adjournments thereof (the "Annual Meeting"). The Company's Annual Report to Stockholders and Form 10-K, containing the Company's financial statements for the year ended December 31, 2003, and the report of the Company's independent auditors, PricewaterhouseCoopers LLP, thereon is being mailed with this Proxy Statement to the Company's stockholders of record at the close of business on March 26, 2004. The Company mailed this Proxy Statement and the enclosed form of proxy on or about April 16, 2004.

VOTE REQUIRED

      At the close of business on March 26, 2004, there were 32,427,075 shares of Common Stock outstanding and entitled to be voted. Every stockholder will be entitled to one vote for each share of Common Stock recorded in his or her name on the books of the Company as of that date.

COST OF SOLICITATION

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

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth certain information as of March 26, 2004, with respect to the beneficial ownership of shares of the Company's Common Stock by the following individuals: (a) each person who is known to the Company to own beneficially more than 5% of the outstanding shares of such stock; (b) the Company's directors and nominees; (c) each of the executive officers named in the Summary Compensation Table; and (d) all of the Company's directors and executive officers as a group. The information in the table and in the related notes has been furnished by or on behalf of the indicated owners.

Name and Address of Beneficial Owner

Amount of Shares
Beneficially Owned (1)

Percentage
of Shares (1)

(a)

Security ownership of certain beneficial owners:

The Commerce Group, Inc.

2,970,148

  9.2%

Employee Stock Ownership Plan

211 Main Street

Webster, MA 01570

(b)

Security ownership of directors and nominees:

Randall V. Becker

175,200

(2)

*

Joseph A. Borski, Jr.

66,752

*

Eric G. Butler

177,424

*

Henry J. Camosse

188,196

(3)

*

Gerald Fels

742,487

(4)

2.3%

David R. Grenon

328,842

(5)

1.0%

Robert W. Harris

108,697

(6)

*

Robert S. Howland

68,474

(7)

*

John J. Kunkel

1,037,370

3.2%

Raymond J. Lauring

823,690

2.5%

Normand R. Marois

187,427

*

Suryakant M. Patel

574,634

1.8%

Arthur J. Remillard, Jr.

907,195

(8)

2.8%

Arthur J. Remillard, III

1,006,061

(9)

3.1%

Regan P. Remillard

682,691

(10)

2.1%

Gurbachan Singh

406,452

1.3%

John W. Spillane

757,704

(11)

2.3%

Name and Address of Beneficial Owner

Amount of Shares
Beneficially Owned (1)

Percentage
of Shares (1)

(c)

Security ownership of named executive officers:

Arthur J. Remillard, Jr.

907,195

(8)

  2.8%

Gerald Fels

742,487

(4)

  2.3%

Regan P. Remillard

682,691

(10)

  2.1%

James A. Ermilio

80,612

(12)

*

Arthur J. Remillard, III

1,006,061

(9)

  3.1%

(d)

All executive officers and directors as a group (22 persons)

8,515,748

(13)

25.5%

____________________

*

Percentage of shares is less than 1%.

(1)

The indicated shares are those as to which the beneficial owner has sole voting and investment power except as follows. Shares held by the Company's Employee Stock Ownership Plan (the "ESOP") and allocated to participant accounts are voted as directed by the account holders. Shares for which no voting instructions are received from the account holders and all other shares not allocated to participants are voted in the same proportion as shares for which voting instructions are received. ESOP participants who are current employees of the Company or its subsidiaries and who are 100% vested in their ESOP accounts can annually elect to transfer out of the ESOP up to 100% of their allocated Company stock in the form of an eligible rollover distribution into another eligible retirement plan, such as a qualified individual retirement arrangement. Shares totaling 2,174,715 held by the ESOP at March 26, 2004 were allocated to the ESOP accounts of these individuals. ESOP participants who are former employees of the Company may generally elect to withdraw from the ESOP the shares allocated to their accounts at any time. Shares totaling 539,749 held by the ESOP at March 26, 2004 were allocated to the ESOP accounts of these individuals. The remaining 255,684 shares held by the ESOP at March 26, 2004 were allocated to the ESOP accounts of participants who have not yet reached 100% vesting in their account balances. Disposition of these unvested shares is restricted under the ESOP.

The indicated shares not held by the ESOP include shares owned beneficially by spouses, parents, children and relatives who share the same home, trusts in which the named individual or a family member sharing the same home serves as a trustee and corporations of which the named individual is an executive officer or principal shareholder; the named individuals disclaim any beneficial interest in shares so included. The percentage of shares is calculated using 32,427,075 shares outstanding at March 26, 2004, except for the executive officers whose percentages are derived by dividing the shares listed by 32,427,075 plus each individual's exercisable option shares.

(2)

Includes 11,880 shares held by the ESOP, 18,262 shares held by two trusts of which Mr. Becker is the trustee, and 41,453 shares that may be acquired under options granted in 2001, which became exercisable on April 6, 2004.

(3)

Includes 157,846 shares held by two trusts of which Mr. Camosse is the trustee.

(4)

Includes 1,070 shares held by the ESOP and 186,528 shares that may be acquired under options granted in 2001, which became exercisable on April 6, 2004.

(5)

Includes 11,600 shares held by a trust of which Mr. Grenon's wife is the trustee.

(6)

Includes 54,849 shares held by a trust of which Mr. Harris is the trustee and 38,228 shares held by a trust of which Mr. Harris' wife is the trustee.

(footnotes continued on following page)

(7)

Includes 48,474 shares held by a trust of which Mr. Howland is a co-trustee with his son and 20,000 shares held by a trust of which Mr. Howland's wife is the trustee.

(8)

Includes 3,814 shares held by the ESOP and 341,969 shares that may be acquired under options granted in 2001, which became exercisable on April 6, 2004.

(9)

Includes 150,527 shares held by the ESOP, 111,458 shares held by a trust of which Mr. Remillard, III is the trustee, 44,044 shares held by six trusts of which Mr. Remillard, III is a co-trustee, and 65,633 shares that may be acquired under options granted in 2001 which became exercisable on April 6, 2004.

(10)

Includes 9,875 shares held by the ESOP, 14,650 shares held by a trust of which Mr. Remillard is a co-trustee, and 103,627 shares that may be acquired under options granted in 2001, which became exercisable on April 6, 2004.

(11)

Includes 6,212 shares held by two trusts of which Mr. Spillane's son is the trustee.

(12)

Includes 2,965 shares held by the ESOP, 3,380 shares that may be acquired under exercisable options granted in 2000, and 74,267 shares that may be acquired under options granted in 2001, which became exercisable on April 6, 2004.

(13)

Includes 233,694 shares held by the ESOP, 11,204 shares that may be acquired under exercisable options granted in 1999 and 2000, and 947,930 shares that may be acquired under options granted in 2001, which became exercisable on April 6, 2004.

____________________

SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended December 31, 2003, all Section 16(a) filing requirements applicable to its executive officers, directors and greater than ten percent beneficial owners were complied with, except that Arthur J. Remillard, III, an executive officer and director of the Company, filed a late Form 4 in October 2003 disclosing two separate gifts of Common Stock that were given to him and a trust of which he is a co-trustee.

GOVERNANCE OF THE COMPANY

      The Company's directors are elected annually by the stockholders and hold office until the next annual meeting of stockholders and thereafter until their successors, if any, are elected and duly qualified.

      The Company's Board has 17 directors and the following committees: Audit, Compensation, and Nominating and Corporate Governance. Membership in the committees and the function of each committee are described below. The Audit, Compensation, and Nominating and Corporate Governance committees operate under written charters adopted by the Board. All of these charters are available on the Company's website at http://www.commerceinsurance.com/index_cinfo.html under the Corporate Governance tab. A copy of any of these charters will be provided to any stockholder of the Company upon request.

      The following table summarizes current Board committee membership and the number of committee meetings held during 2003:

Audit
Committee

Compensation
Committee

Nominating
and
Corporate
Governance
Committee (b)

Independent Directors (a):

Joseph A. Borski, Jr.

Chair

Chair

Eric G. Butler

Henry J. Camosse

David R. Grenon

Member

Robert W. Harris

Robert S. Howland

John J. Kunkel

Member

Normand R. Marois

Member

Suryakant M. Patel

Member

Chair

Gurbachan Singh

Member

Member

Non-independent Directors (a):

Randall V. Becker (c)

Gerald Fels (c)

Raymond J. Lauring

Arthur J. Remillard, Jr. (c)

Arthur J. Remillard, III (c)

Regan P. Remillard (c)

John W. Spillane (c)

Number of meetings in 2003

7

2

1

____________________

(a)

The Board has evaluated and determined independence in accordance with the Company's Corporate Governance Guidelines, the rules of the NYSE, and all other applicable laws, rules, and regulations. Generally, a director does not qualify as an independent director if the director (or in some cases, members of the director's immediate family) has, or in the past three years has had, certain relationships or affiliations with the Company, its external or internal auditors, or other companies that do business with the Company. The Board has affirmatively determined that a majority of the Company's directors are independent directors under the NYSE corporate governance listing standards. Furthermore, all of the members of the Audit, Compensation, and Nominating and Governance committees are independent, as independence for such committee members is defined in the Company's Corporate Governance Guidelines, the NYSE corporate governance listing standards, and all other applicable laws, rules, and regulations.

(footnotes continued on following page)

(b)

The Nominating Committee became the Nominating and Corporate Governance Committee in November 2003.

(c)

Directors are also officers of the Company.

____________________

      All non-management directors of the Company are required to meet in executive session in accordance with the Company's Corporate Governance Guidelines. David R. Grenon was elected by the non-management directors to preside over the executive sessions. One such executive session was held in February 2004.

      The Audit Committee's primary duties and responsibilities are to:

*

monitor the integrity of the Company's financial statements, financial reporting process and systems of key internal controls;

*

monitor the performance of the Company's independent auditors and internal auditing department;

*

review the independent auditor's qualifications and independence;

*

obtain a report from the General Counsel for the Company and the Compliance Officer, at least annually, regarding pending or threatened litigation against the Company and the Company's compliance program; and

*

provide an avenue of communication among the independent auditors, management, the internal auditing functions, and the Board of Directors.

      The Board of Directors has determined that Joseph A. Borski, Jr. meets the requirements adopted by the Securities and Exchange Commission (the "SEC") for qualification as an "audit committee financial expert."

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

      The Nominating and Corporate Governance Committee evaluates all prospective nominees against the standards and qualifications set out in the Company's Corporate Governance Guidelines, including:

*

integrity;

*

judgment;

*

commitment to the Company and its stockholders;

*

understanding of the business, the industry, and the role of a director on a public company board;

*

willingness and ability to participate and contribute in meetings and in preparation for meetings;

*

experience relevant to the business of the Company;

*

enhancing the diversity of the Board;

*

independence within the meaning of the Company's Corporate Governance Guidelines; and

*

a reputation befitting a director of a large publicly held company.

      Security holders may have the ability to contact the Company's Board of Directors as a group, by a letter or other written statement, which is clearly addressed to the Company's Board of Directors, states the type and amount of the Company's securities held by the security holder, and is sent to any of the addressees listed below. Employees or other interested parties may contact the non-management directors as a group, by a letter or other written statement addressed specifically to the Company's non-management directors and sent to any of the following:

Arthur J. Remillard, Jr.
Chairman of the Board
The Commerce Group, Inc.
211 Main Street
Webster, MA 01570

Joseph A. Borski, Jr.
Chairman of the Audit Committee
The Commerce Group, Inc.
P.O. Box 643
Webster, MA 01570

James A. Ermilio
Senior Vice President and
 General Counsel
The Commerce Group, Inc.
211 Main Street
Webster, MA 01570

      Directors, including those who are employees of the Company, receive $1,600 for each meeting of the Board of Directors of the Company attended. Directors who are not employees of the Company are paid $500 for each committee meeting of the Board of Directors of the Company attended. Directors who are not employees of the Company and serve as a director of Commerce Holdings, Inc. ("CHI"), a subsidiary of the Company, or CHI's subsidiaries, The Commerce Insurance Company ("Commerce") and Citation Insurance Company ("Citation"), are paid $600 for each meeting of the Board of Directors of CHI and $500 for each meeting of the Board of Directors of Commerce and Citation attended. Directors, including those who are employees of the Company, who serve as a director of ACIC Holding Co., Inc. ("AHC"), or its subsidiary, American Commerce Insurance Company ("ACIC"), are paid $2,000 for each AHC meeting and $2,200 for each ACIC meeting attended, respectively, and $1,000 for each committee meeting of the Board of Directors attended. AHC is a 95% owned subsidiary of CHI. Certain directors also serve as directors of Bay Finance Company, Inc. and Clark-Prout Insurance Agency, Inc., wholly-owned subsidiaries of the Company. All directors of the Company, including those who are employees of the Company, receive an annual stipend of $24,000. Directors of CHI who are not directors of the Company receive an annual stipend of $24,000. Members of the Audit Committee receive an annual stipend of $5,000 and the Chair of that committee receives an annual stipend of $24,000. In addition, the chair of the Compensation Committee receives an annual stipend of $3,000.

      In 2001, the Company's directors approved a Directors' Retirement Compensation Plan (the "Retirement Plan"). The Retirement Plan becomes effective for each Company director (including directors who are employees of the Company) upon terminating service from the Company's Board of Directors provided that such termination was not made under conditions adverse to the Company's interest. Effective with the annual meeting wherein the director is not reappointed to the Board of Directors, and provided benefits are not paid until such time as the director has attained the age of 65, the Company will pay an annual retirement benefit equal to 50% of the average annual total compensation of the director for the immediately preceding three full years ("three year average compensation"). The annual retirement benefit of 50% of the three year average compensation vests at the rate of 4.0% for each year of Board of Directors service up to a maximum of 100% vesting through termination of service. Payments continue for a maximum of ten years over the remaining life of the former director, or his or her then spouse, if the director pre-deceases the spouse. No payments are to be made after the death of the director and spouse. Expenses related to the Retirement Plan in 2003 amounted to $286,435 and a total of $35,598 was paid under the Retirement Plan for two former directors.

2003

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

*

Reviewed and discussed with management the Company's audited consolidated financial statements for the fiscal year ended December 31, 2003;

*

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

*

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

      Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003, for filing with the SEC.

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

ELECTION OF DIRECTORS

      The Company's directors are elected annually by the stockholders and hold office until the next annual meeting of stockholders and thereafter until their successors, if any, are elected and duly qualified. Unless contrary instructions are indicated on the proxy, or the proxy is revoked, all shares represented by each proxy received will be voted to elect the persons named in the following table, all of whom are now members of the Board of Directors. In the event, however, that any of the nominees for membership on the Board of Directors becomes unable to serve or for good cause will not serve (which is not now anticipated by the Company), the persons named as proxies have discretionary authority to vote for a substitute or to reduce the number of directors to be determined and elected. The Board of Directors of the Company has no reason to believe that any of the nominees will be unwilling or unable to serve if elected.

Name

Position with the Company

Age

Director
since (1)

Arthur J. Remillard, Jr.

President, Chief Executive Officer,
Chairman of the Board, Director

73

1972

Gerald Fels

Executive Vice President, Chief
Financial Officer, Director

61

1976

Arthur J. Remillard, III

Senior Vice President--Policyholder
Benefits, Assistant Clerk, Director

48

1983

John W. Spillane

Clerk, Director

71

1972

Regan P. Remillard

Senior Vice President, Director

40

1993

Randall V. Becker

Treasurer, Chief Accounting Officer, Director

43

2003

Joseph A. Borski, Jr.

Director

70

1972

Eric G. Butler

Director

76

1988

Henry J. Camosse

Director

73

1972

David R. Grenon

Director

64

1972

Robert W. Harris

Director

72

1975

Robert S. Howland

Director

84

1972

John J. Kunkel

Director

92

1972

Raymond J. Lauring

Director

78

1972

Normand R. Marois

Director

68

1972

Suryakant M. Patel

Director

63

1983

Gurbachan Singh

Director

65

1991

____________________

(1)

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

      Randall V. Becker, a Certified Public Accountant, has been Treasurer and Chief Accounting Officer of the Company since 1994. From 1990 to 1994, Mr. Becker was Assistant Treasurer and Comptroller of the Company. From 1986 to 1990, Mr. Becker was the Director of Internal Audit for the Company.

      The only family relationships among any of the executive officers or directors of the Company are that Arthur J. Remillard, III and Regan P. Remillard are the sons of Arthur J. Remillard, Jr.

EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS

      The following table contains a summary of the annual, long-term and other compensation for each of the fiscal years ended December 31, 2003, 2002 and 2001, of the Chief Executive Officer and the other four most highly compensated executive officers of the Company who were serving as executive officers at December 31, 2003.

Summary Compensation Table

Long-Term Compensation

Annual Compensation

Awards

Payments

Name and
Principal Position

Year

Salary

Bonus

Other
Annual
Compensation (1)

Securities
Underlying
Options (#)

LTIP
Payouts (2)

All Other
Compensation (3)

Arthur J. Remillard, Jr.

2003

$793,200

$10,000

--

--

$291,642

$749,826

    President, Chief Executive

2002

$755,370

$  8,500

--

--

$200,333

$  57,652

    Officer and Chairman

2001

$719,400

$  9,000

--

341,969

$255,556

$  53,652

    of the Board

Gerald Fels

2003

$436,800

$10,000

--

--

$159,787

$416,111

    Executive Vice President

2002

$415,800

$  8,500

--

--

$104,484

$  67,606

    and Chief Financial Officer

2001

$396,000

$  9,000

--

186,528

$133,544

$  66,807

Regan P. Remillard

2003

$292,200

$10,000

$13,246

--

$120,064

$272,401

    Senior Vice President

2002

$277,648

$  8,500

--

--

$  76,606

$  66,185

2001

$264,000

$  9,000

$11,944

103,627

$  98,060

$  65,128

James A. Ermilio

2003

$265,200

$10,000

--

--

$  60,510

$119,023

    Senior Vice President and

2002

$252,000

$  8,500

--

--

$  41,496

$  43,420

    General Counsel

2001

$240,000

$  9,000

--

74,267

$  55,464

$  39,378

Arthur J. Remillard, III

2003

$238,800

$10,000

--

--

$  87,153

$175,902

    Senior Vice President--

2002

$225,854

$  8,500

--

--

$  60,102

$  49,630

    Policyholder Benefits and

2001

$215,100

$  9,000

--

65,633

$  77,052

$  45,616

    Assistant Clerk

____________________

(1)

Represents reimbursement of additional state income tax expense incurred due to dual tax status in California and Massachusetts.

(2)

Represents payments on Book Value Awards tied to increases in the book value of a share of the Company's Common Stock. Payments made in 2003 on Book Value Awards were tied to increases in book value which matured in 2003. The 2003 amounts include book value award payments of $12,102 each to Arthur J. Remillard, Jr. and Arthur J. Remillard, III, $20,017 to Gerald Fels and $20,945 to Regan P. Remillard related to their service as directors of the Company.

(3)

Pursuant to Bonus Payment Agreements, the Company had agreed to pay, within 30 days of the date of exercise, to each holder of an option granted on April 5, 2000, an amount per option share equal to the dividends per share received by holders of Common Stock between the date of grant and the vesting date (April 5, 2003). The Company's Compensation Committee voted in 2003 to accelerate the payment of dividends under the Bonus Payment Agreements, resulting in the payment in February 2003 of $3.60 for each option share granted in 2000. The amounts received by the named executive officers were as follows: Arthur J. Remillard, Jr.--$689,274; Gerald Fels--$344,639; Regan P. Remillard--$203,666; James A. Ermilio--$74,603; and Arthur J. Remillard, III--$123,372.

(footnotes continued on following page)

The other 2003 amounts under "All Other Compensation" consist of directors fees of $31,900 each to Arthur J. Remillard, Jr. and Arthur J. Remillard, III, $48,700 each to Gerald Fels and Regan P. Remillard and $24,000 to James A. Ermilio; the cost of group-term life insurance (based on the Internal Revenue Service Uniform Cost Table) provided by the Company in excess of $50,000 to Arthur J. Remillard, Jr. of $8,652, to Gerald Fels of $2,772, to Regan P. Remillard of $35, to James A. Ermilio of $420, and to Arthur J. Remillard, III of $630; and contributions of $20,000 made or accrued by the Company to the ESOP for each of the named executive officers. The amount of the Company's contribution to the ESOP is determined annually by the respective subsidiary Board of Directors. Benefits under the ESOP become partially vested when a participant has completed three years of service and fully vested after seven years of service. Amounts received on exercise of stock options are not included in this column. Information regarding shares acquired and value realized on exercise of stock options in 2003 is reflected in the table that follows.

____________________

      The following table shows information for the Chief Executive Officer and the other named executive officers concerning the number of stock options exercised and the value realized upon exercise during the year ended December 31, 2003 and the aggregate number and value of stock options held as of December 31, 2003. The Company granted stock options for the first time as a public company in 1999, and these options became fully exercisable on April 30, 2002. The Company also granted stock options in 2000, and these options became fully exercisable on April 5, 2003. The Company granted stock options for the last time in 2001, and these options became exercisable on April 6, 2004.

Aggregated Option Exercises in Last Fiscal Year and Option Values at December 31, 2003 (1)

Name

Number of
Shares Acquired
on Exercise
in 2003 (#)

Value
Realized
in 2003

Number of Securities
Underlying Unexercised
Options at
December 31, 2003 (#)

Value of Unexercised
In-the-Money
Options at
December 31, 2003 (2)

Exercisable

Unexercisable

Exercisable

Unexercisable

Arthur J. Remillard, Jr.

191,465

$1,629,367

           0

341,969

$              0

$2,975,130

Gerald Fels

    7,824

$     40,401

235,371

186,528

$2,185,005

$1,622,794

Regan P. Remillard

           0

$              0

140,234

103,627

$1,298,322

$   901,555

James A. Ermilio

           0

$              0

  20,723

  74,267

$   163,919

$   646,123

Arthur J. Remillard, III

           0

$              0

  58,025

  65,633

$   512,664

$   571,007

____________________

(1)

See "Compensation Committee Report" for additional information regarding the Company's Incentive Compensation Plan, under which awards in 2003 and 2002 consisted solely of BVA grants.

(2)

The value of the exercisable and unexercisable options, presented above, was calculated using the closing market price per share of the Company's Common Stock at December 31, 2003 of $39.50 as reported by the New York Stock Exchange, plus, for the options granted in 1999, dividends per share received by holders of the Common Stock from the date of grant through the vesting date.

      The following table contains information concerning certain long-term incentive plan awards granted in the form of book value awards ("BVAs") under the Company's Incentive Compensation Plan to the Chief Executive Officer and the other named executive officers during fiscal 2003.

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

Name

Number of
Rights (2)

Maturity Date

Estimated
Future Payouts
Under Non-Stock
Price-Based Plans

Target (3)

Arthur J. Remillard, Jr.

309,419

Dec. 31, 2005

$1,980,281

Gerald Fels

172,748

Dec. 31, 2005

$1,105,588

Regan P. Remillard

  94,198

Dec. 31, 2005

$   602,868

James A. Ermilio

  73,577

Dec. 31, 2005

$   470,893

Arthur J. Remillard, III

  66,626

Dec. 31, 2005

$   426,406

____________________

(1)

See "Compensation Committee Report" for additional information regarding BVA grants under the Company's Incentive Compensation Plan.

(2)

During 2003, the Company granted BVAs which entitle the recipient to receive, by April 30, 2006, a cash payment for each BVA equal to the book value of a share of Common Stock of the Company on December 31, 2005, less the base price of such BVA. The base price for the 2003 BVAs ($29.30) is the book value of a share of Common Stock on December 31, 2002 ($24.60), increased at the rate of 6% per annum compounded annually through December 31, 2005. For the purpose of this calculation, the December 31, 2005 book value of a share of Common Stock is increased for all cash dividends and the fair market value of all distributions of property made by the Company which the recipient would have been entitled to receive had he owned shares of Common Stock equal to the number of BVAs held by him from the date of grant until the maturity date. The book value of a share of the Company's Common Stock excludes changes in unrealized gains and losses of bonds and preferred stocks and is adjusted for the impact of treasury stock and capital stock transactions. It is a condition to the receipt of any payment that may be due under a BVA that the participant has been in the continuous employ of the Company through the settlement date, unless such employment shall have terminated due to the participant's death or for any reason approved by the Board of Directors of the Company including retirement as specified within the terms of agreement. Payments under the BVAs are accelerated in the event of the sale of the Company.

(3)

Future payouts, if any, under the BVAs are tied to increases in the book value of a share of Common Stock and other factors. Therefore, it is not possible to determine the future payouts. Furthermore, there are no threshold or maximum payouts under the BVAs. The amounts set forth in this column are the amounts that would be paid based on the December 31, 2003, book value per share of the Common Stock of the Company: (a) adjusted for treasury stock purchased in 2003; (b) excluding changes in unrealized gains and losses of bonds and preferred stocks, (c) plus dividends paid in 2003; and (d) increased by $3.14 in each of 2004 and 2005. This $3.14 amount represents an average of net earnings per weighted average common share for 2001, 2002 and 2003, exclusive of

(footnotes continued on following page)

the after-tax impact of realized gains and losses, change in accounting principle and the impact of variable accounting for stock options. Although realized gains or losses are included in the calculation of book value, these items have been excluded due to the uncertainty of their occurrence and, therefore, the impact on the Company's future book value. There can be no assurance that the Company's performance will continue with the same or similar trends.

____________________

SECURITIES AUTHORIZED FOR ISSUANCE
UNDER EQUITY COMPENSATION PLANS

      A summary of the total number of shares of the Company's stock to be issued upon exercise of outstanding stock options, the weighted-average exercise price of these outstanding stock options and the number of shares of the Company's stock remaining available for future issuance under equity compensation plans at December 31, 2003, follows. This information is presented for equity compensation plans that have and have not been approved by stockholders of the Company.

Plan Category

Securities
to be Issued Upon
Exercise of
Outstanding Options

Weighted-Avg.
Exercise Price
of Outstanding
Options

Securities
Remaining
Available for
Future Issuance
Under Equity
Comp. Plans

Equity compensation plans approved by
security holders (1)

1,812,672

$31.27

2,557,664

Equity compensation plans not approved
by security holders (2)

3,797,380

$41.28

N/A

      Total

5,610,052

$38.04

N/A

____________________

(1)

During 2002, the Company's stockholders approved the Incentive Compensation Plan, which provides for the award of incentive stock options, non-qualified stock options, book value awards, stock appreciation rights, restricted stock and performance stock units. At the discretion of the Compensation Committee all directors, officers and other senior management employees of the Company or any of its subsidiaries are eligible to participate in this plan.

(2)

On January 29, 1999, the Company granted stock options (the "Initial Options") to insurance agents (the "Agents") of American Commerce to purchase 1,872,380 shares of Common Stock. The exercise price of the Initial Options is $36.32 per share. The Initial Options expire 10 years after the grant date. Each Initial Option vested and became exercisable on January 29, 2004, based on the average annual volume of other-than-Massachusetts private passenger automobile and homeowners direct written premiums ("Qualifying Business") that the Agent placed with American Commerce during the five-year period ended December 31, 2003 (the "Five-Year Average"). The holders of the Initial Options also have the right to require the Company to purchase the Initial Options at a purchase price per share equal to the difference between $40.00 less the exercise price of $36.32, after the Initial Option is vested, if the Five Year Average is equal to or greater than a specified goal.

The Company has agreed to grant additional options (the "Growth Options") to Agents who increase the volume of Qualifying Business during the 12-month period ending on June 30 in each year. Pursuant to these agreements, on July 31 in each year, the Company will grant one Growth Option covering 25,000 shares of Common Stock for each $1,000,000 increment of additional Qualifying Business. The exercise price of the Growth Options will be equal to 125% of the average of the

(footnotes continued on following page)

daily averages of the high and low sale price per share of the Common Stock for the month of June in that year. The Growth Options expire 10 years after the grant date. Each Growth Option vests and becomes exercisable five years after the grant date if, and only if, the Qualifying Business that the Agent places with American Commerce during the five-year period ending on the fifth anniversary of the grant date is not less than the threshold of Qualifying Business that triggered the grant of that Growth Option. The Company may terminate its obligation to grant future Growth Options under the agreement by giving the Agent written notice at least 90 days prior to the effective date of such termination. Through December 31, 2003, the Company has granted Growth Options covering 1,925,000 shares of common stock.

Options cannot be exercised using cash. Options can only be exercised using a net share purchase, such that the dollar value that the option is in the money is divided by the fair market value of the stock at the date of exercise to arrive at the number of shares received by the option holder.

____________________

2003

      The Committee reviews and determines the targeted minimum increase in book value for purposes of the Program. Awards made under the Program in 2003 provide that no incentive compensation will be payable unless the book value of the Company's Common Stock at December 31, 2005, plus the value of dividends paid on the Common Stock between that date and December 31, 2002, exceeds $29.30,

      The Committee will continue during 2004 to carefully consider officer compensation, and the components thereof, in relation to the Company's performance compared to that of industry performance levels for comparable companies and the performance history of the Company itself.

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

COMMON STOCK PERFORMANCE

      The graph below compares the cumulative total stockholder return on the shares of Common Stock of the Company for the last five years with the cumulative total return of the New York Stock Exchange Market Index and a group of six peer property and casualty insurance companies. The peer group consists of Baldwin & Lyons, Inc., W.R. Berkley, Mercury General Corporation, Progressive Insurance Group, Selective Insurance Group, Inc. and 21st Century Insurance Group.

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

12/31/98

12/31/99

12/31/00

12/31/01

12/31/02

12/31/03

The Commerce Group, Inc.

$100

$  77

$  84

$120

$122

$134

Property and Casualty Peer Group

$100

$  52

$  74

$  97

$  93

$143

New York Stock Exchange Market Index

$100

$110

$112

$102

$  83

$108

      This line graph assumes an investment of $100 in the Company's Common Stock, the New York Stock Exchange Market Index and the group of six peer property and casualty insurance companies on December 31, 1998 and reinvestment of all dividends.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

INDEPENDENT PUBLIC ACCOUNTANTS

      Pursuant to a vote adopted on May 16, 2003, the Board of Directors of the Company authorized the Audit Committee of the Board of Directors (the "Audit Committee") to appoint, compensate, retain or terminate, and oversee the work of the Company's independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company.

(a)

At its meeting on June 16, 2003, the Audit Committee approved the engagement of the accounting firm PricewaterhouseCoopers LLP as independent accountants for the Company for the fiscal year ending December 31, 2003, subject to the execution of a satisfactory engagement letter between the Company and PricewaterhouseCoopers LLP.

The Audit Committee terminated the responsibilities of Ernst & Young LLP effective June 17, 2003.

(b)

The reports of Ernst & Young LLP on the financial statements for the fiscal years ended December 31, 2002 and 2001 contained no adverse opinion or disclaimer of opinion and were not qualified as to uncertainty, audit scope or accounting principles.

(c)

During the two fiscal years ended December 31, 2002, and through the subsequent period ending June 17, 2003, there was no disagreement with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not resolved to Ernst & Young LLP's satisfaction, would have caused them to make reference to the subject matter of the disagreement in its report.

(d)

The Company provided Ernst & Young LLP with a copy of the foregoing disclosure and requested that Ernst & Young LLP furnish it with a letter addressed to the SEC stating whether it agreed with the above statements. A copy of the letter from Ernst & Young

LLP to the SEC dated June 23, 2003 was filed as Exhibit 16.1 to the Form 10-K accompanying this Proxy Statement.

(e)

Neither the Company nor anyone engaged on its behalf consulted with PricewaterhouseCoopers LLP during the two fiscal years ended December 31, 2002 and 2001 or during the Company's last fiscal year, before PricewaterhouseCoopers LLP was engaged by the Company, with regard to either: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements or (ii) any other matters or reportable events as set forth in items 304(a)(2)(i) and (ii) of Regulation S-K.

      Fees for services performed by the Company's current independent auditor, PricewaterhouseCoopers LLP ("PwC"), for the fiscal year ended December 31, 2003, and fees for 2002 services provided by the Company's former independent auditor, Ernst & Young LLP ("E&Y") follow.

2003
PwC

2002
E&Y

Audit fees

$380,000

$296,000

(1)

Audit-related fees

    13,500

    17,000

Tax fees

    20,220

      6,410

All other fees

--

--

Total

$413,720

$319,410

____________________

(1)

The 2002 audit fees include $50,000, not included in the prior year Proxy Statement, for services performed in relation to the year ended December 31, 2002 audit, but billed after prior year proxy materials were released.

      The increase in 2003 audit fees was primarily related to $70,000 paid to PwC for services performed related to the Company's $300 million offering of debt securities registered on Form S-3 with the SEC during 2003. Audit related fees represent charges for the audit of the Company's employee benefit plan. Tax fees represent miscellaneous advice in connection with various tax filings. The Audit Committee considered the amount of fees charged by PwC not specifically related to the audit of the Company's consolidated financial statements, and determined that amount is compatible with maintaining their independence. Representatives of PwC are expected to be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. The Audit Committee has not voted an independent auditor for 2004 as of the date of this Proxy Statement.

OTHER BUSINESS

      The Board knows of no other matters to be presented at the Annual Meeting. The persons named in the form of proxy will vote according to their best judgment if any matter not included in this Proxy Statement does properly come before the Annual Meeting. Proxies solicited by the Board for the Annual Meeting will confer discretionary authority to vote on any matter to come before the Annual Meeting with respect to which the Company did not receive notice by February 26, 2004.

STOCKHOLDER PROPOSALS

      Any stockholder proposal intended to be presented at the 2005 Annual Meeting must be received at the Company's principal executive office by December 17, 2004 for consideration of inclusion in the Proxy Statement and form of Proxy related to that Meeting. The proposal must comply in all respects with the rules and regulations of the Securities and Exchange Commission. A stockholder proposal submitted after March 2, 2005 will be considered untimely.

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

I.

Audit Committee Purpose

The Audit Committee is appointed by the Board of Directors of The Commerce Group, Inc. ("the Company") to assist the Board in fulfilling its oversight responsibilities. The Audit Committee's primary duties and responsibilities are to:

*

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

*

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

*

Review the independent auditor's qualifications and independence.

*

Obtain a report from the General Counsel for the Company and the Compliance Officer, at least annually, regarding the Company's compliance program and pending or threatened litigation against the Company.

*

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

*

Make regular reports to the Board of Directors.

*

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

*

Review and discuss with management policies with respect to risk assessment and risk management.

II.

Audit Committee Authority

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

III.

Audit Committee Composition and Meetings

The Committee shall meet as circumstances dictate.

IV.

Audit Committee Responsibilities and Duties

Review Procedures

1.

Review and reassess the adequacy of this Charter at least annually. Submit the charter to the Board of Directors for approval and have the document published in accordance with the requirements of the NYSE and the SEC.

2.

In accordance with the SEC and NYSE requirements, review and discuss the Company's annual audited financial statements prior to the filing of the Company's Annual Report on Form 10-K and the quarterly financial statements prior to the filing of the Company's Quarterly Report on Form 10-Q, with management and the independent auditors including the Company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Discuss certain matters required to be communicated to audit committees in accordance with SAS 61, as amended.

3.

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

*

Reviewed and discussed the audited financial statements with management;

*

Discussed with the independent auditors the matters required to be discussed by SAS 61, as amended, and

*

Received certain disclosures from the auditors regarding their independence as required by ISB 1 and then include a statement based on this review if the Audit Committee recommended to the Board to include the audited financial statements in the annual report filed with the SEC.

4.

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

5.

Discuss with management the Company's earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies.

Independent Auditors

6.

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company, and each such registered public accounting firm must report directly to the Audit Committee. The engagement of the registered public accounting firm to perform any permissible services, as defined by the SEC, must be approved in advance by the Audit Committee.

7.

At least annually, the Audit Committee shall obtain and review a report by the independent auditor describing: the firm's internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (to assess the auditor's independence) all relationships between the independent auditor and the Company.

8.

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

9.

Review with the independent auditor any audit problems or difficulties and management's response.

10.

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

11.

Set clear hiring policies for employees or former employees of the independent auditors.

Internal Audit Department and Corporate Compliance

12.

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

13.

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

14.

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

15.

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

Other Audit Committee Responsibilities

16.

Meet separately, periodically, with management, with internal auditors and with independent auditors.

17.

Establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls and auditing matters, including procedures for confidential anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.

18.

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

19.

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

20.

Annually conduct a performance evaluation self-assessment of the Audit Committee.

*

Review, discuss and assess its own performance as well as the Committee roles and responsibilities, seeking input from senior management, the Board, and others if needed.

*

Review each member's contribution to the Committee through the use of a self-assessment form, which is then evaluated by the Chair of both the Audit Committee and the Board.

*

Discuss and address with the internal auditors and the independent auditors any significant issues relative to overall Board responsibility that, in their judgment, have been communicated to management but have not been adequately resolved.

21.

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

22.

While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. These are the responsibilities of management and the independent auditor.

The Commerce Group, Inc.
Compensation Committee Charter

      The primary purpose of the Compensation Committee (the "Committee") of the Board of Directors (the "Board") of The Commerce Group, Inc. is to discharge the Board's responsibilities relating to compensation of the directors and officers of The Commerce Group, Inc. and its wholly-owned subsidiaries (the "Company"). In doing so, the Committee shall:

1.

evaluate and determine the compensation of the directors, the Chief Executive Officer ("CEO"), and such other positions within the Company as identified by the Committee in accordance with applicable laws or regulations;

2.

review, approve, and report to the Board regarding compensation paid to the officers of the Company who are not included in the preceding paragraph;

3.

oversee compensation and benefit plans, policies and programs of the Company; and,

4.

administer the incentive compensation plans of the Company.

      The Committee shall be composed of at least two members of the Board, each of whom is, in the business judgment of the Board, "independent" under the rules of the New York Stock Exchange, Inc. and determined in accordance with the Company's Corporate Governance Guidelines.

      The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to retain counsel and other experts or consultants. Further, the Committee shall have the sole authority to select, retain and terminate any compensation consultant to be used to assist the Committee in the evaluation of the CEO and senior executive compensation, and shall have sole authority to approve the consultant's fees and other retention terms.

Committee Responsibilities

1.

To annually review and approve corporate goals and objectives relevant to CEO and other executive officer compensation, evaluate their performance in light of those goals and objectives, and establish their compensation levels based on this evaluation. In determining the long-term incentive component of CEO and other executive officer compensation, the Committee will consider the Company's performance, the value of similar incentive awards to CEOs and other executive officers at comparable companies, and the awards given to the CEO and other executive officers in past years. The Committee also shall take into account the need to attract and retain high-performing executives. The Company's CEO should not attend any portion of a meeting where the CEO's performance or compensation is discussed, unless specifically invited by the Committee.

2.

To review and approve, for the CEO and the executive officers of the Company, (a) the annual base salary level, (b) the annual incentive opportunity level, (c) the long-term incentive level, (d) employment agreements, severance arrangements, and change-in-control agreements/provisions, in each case as, when, and if appropriate, and (e) any special or supplemental benefits, arrangements or agreements, including perquisites. To the extent necessary for compliance with applicable laws or regulations, the Committee shall submit the foregoing to the board of directors of a subsidiary of the Company for approval by such board.

3.

To prepare an annual report on executive compensation for inclusion in the Company's Proxy Statement or Annual Report on Form 10-K in accordance with applicable rules and regulations.

4.

To evaluate its own performance annually.

5.

To perform any other responsibilities delegated to the Committee by the Board from time to time.

6.

To review and reassess the adequacy of this Charter periodically and recommend any proposed changes to the Board for approval.

The Commerce Group, Inc.
Nominating and Corporate Governance Committee Charter

      The primary purpose of the Nominating and Corporate Governance Committee (the "Committee") of the Board of Directors (the "Board") of The Commerce Group, Inc. (the "Company") is to assist the Board in identifying and recommending individuals to the Board for nomination as members of the Board and its committees, and in developing and recommending to the Board corporate governance principles applicable to the Company.

Committee Responsibilities

1.

To identify candidates believed to be qualified to become Board members, to receive nominations for Board membership from stockholders, to review and evaluate the qualifications of all such candidates based on the criteria set by the Board and described herein, and to recommend to the Board the nominees to stand for election as Directors of the Company at the annual meeting of stockholders. The following are the Board's fundamental criteria for selecting and evaluating Directors, with such criteria to be re-evaluated periodically:

*

Integrity

*

Judgment

*

Commitment to the Company and its stockholders

*

Understanding of the business, the industry, and the role of a director on a public company board

*

Willingness and ability to participate and contribute in meetings and in preparation for meetings

*

Experience relevant to the business of the Company;

*

Enhancing the diversity of the Board;

*

Independence within the meaning of the Company's Corporate Governance Guidelines; and

*

A reputation befitting a director of a large publicly held company.

The Board and the Committee need not quantify or assign relative weights to the criteria considered in selecting or evaluating any nominee to stand for election as a Director of the Company, or to be appointed to fill a vacancy on the Board.

2.

To recommend to the Board the structure, composition and functions of the committees of the Board and to identify, in consultation with the Chairman and Chief Executive Officer of the Company, Board members qualified to become members of the committees of the Board (including this Committee). In nominating a Director for committee membership, this Committee shall take into consideration, among other things, the Director's experience and background, their relevance to the goals and responsibilities of the committee and the Director's preference.

3.

To develop and recommend to the Board corporate governance principles applicable to the Company, to review those principles periodically, and to recommend any proposed changes to the Board for approval.

4.

To review any waiver and interpretation of the code of ethics applicable to Directors; and potential conflicts of interest or other issues arising as a result of other positions held or proposed to be held by, or any change in circumstances of, a Director.

5.

To oversee the annual evaluation of the Board, which shall include consideration of the following criteria, among others:

*

Preparation and participation

*

Attendance

*

Character and Integrity

*

Actual or perceived conflicts of interest

6.

To oversee an annual evaluation of management.

7.

To review and reassess the adequacy of this Charter periodically and recommend any proposed changes to the Board for approval.

8.

To evaluate its own performance annually.

9.

To perform any other responsibilities delegated to the Committee by the Board from time to time.

This Proxy is Solicited on Behalf of the Board of Directors

      THE SHARES REPRESENTED BY THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE OF THIS PROXY CARD. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR FIXING AT 17 THE NUMBER OF DIRECTORS OF THE COMPANY AND FOR all noMINEES FOR DIRECTOR LISTED ON THE REVERSE SIDE OF THIS PROXY CARD.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

SEE REVERSE SIDE

SEE REVERSE SIDE

[X]

Please mark
votes as in
this example.

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

1.

FIXING THE NUMBER OF DIRECTORS OF THE COMPANY AT 17 AND ELECTION OF DIRECTORS

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

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

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

[  ]  ____________________________________________________________________________

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

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT

[  ]

MARK HERE IF YOU PLAN TO ATTEND THE MEETING

[  ]

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

Signature: _________________ Date: __________ Signature: __________________ Date: __________