SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For quarterly period ended June 30, 1994
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 33-6534
Motors Mechanical Reinsurance Company, Limited
(Exact name of registrant as specified in its charter)
Barbados NA
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Bishops Court Hill, St. Michael, Barbados NA
(Address of principle executive offices) (Zip Code)
(809) 436-4895
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class As of June 30, 1994
Common Stock, no par-value 2,000
Participating Stock, no par-value 20,100
This quarterly report, filed pursuant to Rule 13a-13 of the General Rules
and Regulations under the Securities Exchange Act of 1934, consists of the
following information as specified in Form 10-Q:
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
1. Balance Sheets, June 30, 1994 and December 31, 1993.
2. Statements of Income and Retained Earnings for the three month
periods ended June 30, 1994 and June 30, 1993 and the six month
periods ended June 30, 1994 and June 30, 1993.
3. Statements of Cash Flows for the six month periods ended June
30, 1994 and June 30, 1993.
In the opinion of Management, the accompanying financial statements
reflect all adjustments, consisting of normal recurring accruals, which are
necessary for a fair presentation of the results for the interim periods
presented.
Item 2. Management's Discussion And Analysis of Financial Condition And
Results of Operations
Part II. Other Information
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Security-Holders
Item 6. Exhibits and Reports on Form 8-K
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
(Expressed in U.S. Dollars)
June 30, 1994 December 31,
(unaudited) 1993
_____________ ____________
ASSETS
Investments $32,712,525 $29,882,488
Cash and cash equivalents 6,105,993 6,788,771
Accrued investment income 1,095,445 861,190
Due from ceding company 4,296,013 2,331,978
Deferred acquisition costs 12,907,568 10,495,206
Prepaid expenses 1,250 0
___________ ___________
Total Assets $57,118,794 $50,359,633
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums 49,687,936 40,413,058
Loss reserves 2,354,084 1,910,030
Accrued liabilities 135,321 107,181
___________ ___________
Total liabilities 52,177,341 42,430,269
___________ ___________
STOCKHOLDERS' EQUITY
Share Capital
Common Stock - no par value;
Authorized - 2,000 shares;
issued and outstanding -
2,000 shares 200,000 200,000
Participating Stock - no par
value; Authorized - 100,000
shares; issued and outstand-
ing - 20,100 shares as of
June 30, 1994 and
18,900 shares as of
December 31, 1993 1,507,500 1,417,500
___________ ___________
1,707,500 1,617,500
Retained Earnings 4,425,974 6,211,978
Unrealized appreciation
(depreciation) on
investments (1,192,021) 99,886
___________ ___________
Total Stockholders' Equity 4,941,453 7,929,364
___________ ___________
Total Liabilities and
Stockholders' Equity $57,118,794 $50,359,633
___________ ___________
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE
MONTH PERIODS ENDED JUNE 30, 1994 AND JUNE 30, 1993 AND THE
SIX MONTH PERIODS ENDED JUNE 30, 1994 AND JUNE 30, 1993
(UNAUDITED)
(Expressed in U.S. Dollars)
Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
1994 1993 1994 1993
__________ __________ __________ ___________
INCOME
Reinsurance premiums
assumed $10,152,109 $6,104,178 $18,968,440 $11,494,063
Increase in unearned
premiums 5,030,453 2,443,204 9,274,878 4,260,261
__________ __________ __________ __________
Premiums earned 5,121,656 3,660,974 9,693,562 7,233,802
__________ __________ __________ __________
Investment income
Interest earned 676,507 443,817 1,247,199 905,346
Realized gains/
(losses) on
investments (741,750) 160,334 (1,045,139) 538,778
__________ __________ ___________ _________
Investment income/
(loss) (65,243) 604,151 202,060 1,444,124
__________ __________ __________ __________
TOTAL INCOME 5,056,413 4,265,125 9,895,622 8,677,926
__________ __________ __________ __________
EXPENSES
Acquisition costs 1,331,276 951,296 2,519,485 1,879,562
Losses paid 3,297,976 2,428,156 6,299,826 5,055,172
Increase in
loss reserves 256,845 61,608 444,054 45,747
Administrative
expenses 145,334 172,242 284,457 312,497
__________ __________ __________ __________
TOTAL EXPENSES 5,031,431 3,613,302 9,547,822 7,292,978
__________ __________ __________ __________
NET INCOME 24,982 651,823 347,800 1,384,948
RETAINED EARNINGS,
beginning of period 6,534,796 6,261,900 6,211,978 5,528,775
LESS: DIVIDENDS (2,156,304) (2,021,504) (2,156,304) (2,021,504)
ADD: TRANSFERS FROM
PARTICIPATING STOCK 22,500 0 22,500 0
___________ __________ __________ __________
RETAINED EARNINGS,
end of period $4,425,974 $4,892,219 $4,425,974 $4,892,219
__________ __________ __________ __________
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1994 AND JUNE 30, 1993 (UNAUDITED)
(Expressed in U.S. Dollars)
Six month periods ended
June 30,
1994 1993
___________ ___________
Cash flows from operating activities:
Reinsurance premiums assumed $15,878,476 $11,606,298
Losses and underwriting
expenses paid (10,024,288) (7,888,425)
Administrative expenses paid (339,020) (272,253)
Investment income received 1,012,943 1,572,272
___________ ___________
Net cash provided by
operating activities 6,528,111 5,017,892
___________ ___________
Cash flows from investing activities:
Purchases of marketable securities (46,461,178) (29,258,460)
Sales of marketable securities 41,294,093 30,705,817
___________ ___________
Net cash invested (5,167,085) 1,447,357
___________ ___________
Cash flows from financing activities:
Proceeds from issuance of
Participating stock 112,500 202,500
Dividends paid (2,156,304) (2,021,504)
___________ ___________
Net cash used in financing
activities (2,043,804) (1,819,004)
___________ ___________
Increase (decrease)
in cash and cash equivalents (682,778) 4,646,245
Cash and cash equivalents, beginning
of period 6,788,771 1,710,738
___________ ___________
Cash and cash equivalents, end
of period $ 6,105,993 $ 6,356,983
___________ ___________
Reconciliation of net income to net cash
provided by operating activities:
Net income 347,800 1,384,948
Change in:
Accrued investment income 810,886 127,002
Due from ceding company (1,964,035) 267,557
Deferred acquisition costs (2,412,362) (1,109,012)
Prepaid expenses (1,250) (1,250)
Unearned premiums 9,274,878 4,260,261
Loss reserves 444,054 45,746
Accrued liabilities 28,140 42,640
___________ ___________
Net cash provided by
operating activities $ 6,528,111 $ 5,017,892
___________ ___________
Item 2. Management's Discussion And Analysis of Financial Condition And
Results of Operations
Liquidity. It is anticipated that the Company will continue to be able to
generate sufficient funds from operations to meet current liquidity needs.
Premiums generated by the Company's reinsurance business combined with
investment earnings plus proceeds from the sale of Shares will continue to be
the principal sources of funds for investment by the Company. Such funds will
be available to meet the Company's liquidity requirements. No capital
expenditures are expected during the next few years.
The significant amounts of unearned premium on the balance sheet at each
balance sheet date are attributable to the long-term nature of the contracts
sold. The risk of loss to the Company under the contract arises primarily
after the underlying manufacturer's warranty expires -- usually after 36 months
or 36,000 miles, whichever occurs first. Since very little premium is
recognized as earned until the expiration of the underlying warranty, most of
the premium written in any period is recorded as unearned.
Cash, cash equivalents and investments valued at market have increased from
$36,671,259 at the beginning of the year to $38,818,518 at June 30, 1994.
On April 8, 1994, the Board of Directors authorized the payment of dividends to
eligible holders of Participating Shares aggregating $2,156,304.
Capital Resources. As of June 30, 1994, the share capital of the Company was
$1,707,500 (compared with $1,617,500 as of December 31, 1993) comprised of paid
in capital with respect to the Common Stock of $200,000 and paid in capital
with respect to Participating Shares of $1,507,500 (compared with $1,417,500 as
of December 31, 1993). In addition, the Company had surplus from retained
earnings in the amount of $4,425,974 compared with $6,211,978 as of December
31, 1993.
Barbados law requires that the Company's net assets (excluding unrealized gains
and losses) equal at least the aggregate of $1,000,000 and 10% of the amount by
which the earned premium exceeded $5,000,000 in the previous fiscal year. At
June 30, 1994, the Company's minimum required net assets computed in accordance
with Barbados law was approximately $2,042,961, compared to total capital and
retained earnings of $6,133,474.
Results of Operations. In the six month period ended June 30, 1994, the
Company reported premiums earned of $9,693,562, an increase of $2,459,760 over
the six month period ended June 30, 1993. Net underwriting income in the first
six months of 1994 was $145,740, which represents an increase of $204,916
compared to an underwriting loss of $59,176 in the six month period ended June
30, 1993. The loss ratio for the six month period ended June 30, 1994 was
69.6%, compared to 70.5% for the six month period ended June 30, 1993.
In the three month period ended June 30, 1994, premiums earned increased
$1,460,682 to $5,121,656, compared to $3,660,974 in the three month period
ended June 30, 1993. Expenses (including losses) increased $1,418,129, from
$3,613,302 in the second quarter of 1993 to $5,031,431 in the second quarter of
1994. As a result, net underwriting income increased from $47,672 in the
second quarter of 1993 to $90,225 in the second quarter of 1994. The loss
ratio in the second quarter of 1994 was 69.4%, compared to 68.0% in the second
quarter of 1993.
Administrative expenses include amounts paid to the Company's Manager for
professional services. During the six months ended June 30, 1994 the amount
paid to the Manager was $101,840 compared to $115,321 for the six months ended
June 30, 1993.
The increase in net underwriting income was offset by a decline in investment
income of $669,394, from $604,151 in the second quarter of 1993 to a loss of
$65,243 in the comparable period of 1994, due to realized losses on the sale of
invested assets. Although interest earnings in the second quarter increased by
50% over the second quarter of 1993, changes in interest rates in the six month
period ended June 30, 1994 adversely affected the market values of the
Company's investment portfolio at that date and its investment income in the
period then ended as compared with the six month period ended June 30, 1993.
Realized losses on the sale of investment securities in the six month period
ended June 30, 1994 were $1,045,139 compared to realized gains of $538,778 in
the six month period ended June 30, 1993. Unrealized losses on investment
securities held at June 30, 1994 were $1,192,021 compared to unrealized gains
at December 31, 1993 of $99,886. The realized losses resulted in large part
from a repositioning of the Company's investment portfolio away from longer
term issues toward medium term investments. Unrealized losses at June 30, 1994
include amounts attributable to decreases in value of securities purchased at a
premium. The Company's investment guidelines do not permit the use of
financial instrument derivatives in managing interest rate risk.
FASB Statement No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" is effective for years beginning after December 15, 1993 and
requires the Company to classify its securities holdings into categories
(trading, available for sale, and held to maturity). The Company adopted
Statement No. 115 effective January 1, 1994 and classified its securities
portfolio as available for sale. Adoption of the Statement did not have a
material effect on the Company's financial position and results of operations.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Pursuant to amendment of the Restated Articles of Incorporation effected by
vote of the shareholders, the Common Stock of the Company is now nonredeemable
in all circumstances. (See Item 4.)
Item 4. Submission of Matters to a Vote of Security-Holders
On April 8, 1994, the holder of the Common Stock re-elected five of the six
directors of the Company: Robert T. O'Connell, Joseph J. Pero, Vincent K.
Quinn, Louis S. Carrio, Jr., and Peter R.P. Evelyn. The holders of
Participating Shares unanimously elected the sixth director, Donald C. Mealey.
In addition, the holder of the Common Shares elected two alternate directors:
Richard N. Carlson was elected as the alternate director for Mr. Quinn, and
Robert E. Capstack was elected as alternate director for Mr. Carrio.
The shareholders also voted unanimously to amend the Restated Articles of
Incorporation of the Company. Upon redemption by the Board of a series of
Participating Shares, the Board now has the authority to make redemption
effective at any time prior to year end, and to allocate any net deficit
attributable to that series to the subsidiary capital account for the Common
Stock (to the extent of earned surplus) before allocating any remaining deficit
to the accounts for the Participating Shares. Also, in order to ensure
compliance with Barbados law, which requires that Common Stock be nonredeemable
in all circumstances, the shareholders voted to remove from the Articles
provisions which allowed for the redemption of Common Stock and which gave the
common shareholder the right to force liquidation of the Company in the event
its request for redemption was not granted.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements 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.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED (Registrant)
By: s/Ronald W. Jones
Ronald W. Jones
Vice President
Signing on behalf of
the Registrant, and
Principal Financial Officer
Dated: August 15, 1994
