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 September 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 September 30, 1994
Common Stock, no par-value 2,000
Participating Stock, no par-value 21,400
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 1. FINANCIAL INFORMATION
Item 1. Financial Statements
1. Balance Sheets, September 30, 1994 and December 31, 1993.
2. Statements of Income and Retained Earnings for the three month
periods ended September 30, 1994 and September 30, 1993, and the
nine month periods ended September 30, 1994 and September 30,
1993.
3. Statements of Cash Flows for the nine month periods ended
September 30, 1994 and September 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. Certain amounts in the 1993 financial statements have been
reclassified to conform with the 1994 presentation.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
(Expressed in U.S. Dollars)
September 30,
1994 December 31,
(unaudited) 1993
ASSETS
Investments $36,943,605 $29,882,488
Cash and cash equivalents 5,775,694 6,788,771
Accrued investment income 1,509,588 861,190
Due from ceding company 3,403,181 2,331,978
Deferred acquisition costs 13,951,296 10,495,206
Prepaid expenses 625 0
___________ ___________
Total Assets $61,583,989 $50,359,633
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premium 53,699,611 40,413,058
Loss reserves 2,549,583 1,910,030
Accrued liabilities 110,002 107,181
___________ ___________
Total liabilities 56,359,196 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 - 21,400 shares as of
September 30, 1994 and
18,900 shares as of
December 31, 1993 1,605,000 1,417,500
___________ ___________
1,805,000 1,617,500
Retained Earnings 5,142,701 6,211,978
Unrealized (loss)/gain on
investments (1,722,908) 99,886
___________ ___________
Total Stockholders' Equity 5,224,793 7,929,364
___________ ___________
Total Liabilities and
Stockholders' Equity $61,583,989 $50,359,633
___________ ___________
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE
MONTH PERIODS ENDED SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1993
AND THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1994 AND
SEPTEMBER 30, 1993
(UNAUDITED)
(Expressed in U.S. Dollars)
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
1994 1993 1994 1993
INCOME
Reinsurance premiums
assumed $9,550,359 $9,222,855 $28,518,799 $20,716,918
Increase in unearned
premiums 4,011,675 5,214,237 13,286,553 9,474,498
__________ __________ __________ __________
Premiums earned 5,538,684 4,008,618 15,232,246 11,242,420
__________ __________ __________ __________
Investment income
Interest earned 691,237 444,096 1,938,436 1,349,442
Realized (losses)/
gains on
investments (67,025) 276,514 (1,112,164) 815,292
__________ __________ __________ __________
Investment income -
net 624,212 720,610 826,272 2,164,734
__________ __________ __________ __________
TOTAL INCOME 6,162,896 4,729,228 16,058,518 13,407,154
__________ __________ __________ __________
EXPENSES
Acquisition costs 1,439,392 1,041,708 3,958,877 2,921,270
Losses paid 3,723,890 2,676,349 10,023,716 7,731,521
Increase in loss
reserves 195,499 152,535 639,553 198,282
Administrative
expenses:
Related parties 37,625 38,118 138,779 153,439
Other 49,763 59,040 233,066 256,216
__________ __________ __________ __________
TOTAL EXPENSES 5,446,169 3,967,750 14,993,991 11,260,728
__________ __________ __________ __________
NET INCOME 716,727 761,478 1,064,527 2,146,426
RETAINED EARNINGS,
beginning of period 4,425,974 4,892,219 6,211,978 5,528,775
LESS: DIVIDENDS PAID 0 0 (2,156,304) (2,021,504)
ADD: TRANSFERS FROM
PARTICIPATING STOCK 0 0 22,500 0
_________ _________ __________ __________
RETAINED EARNINGS,
end of period 5,142,701 5,653,697 5,142,701 5,653,697
___________ __________ __________ __________
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1993 (UNAUDITED)
(Expressed in U.S. Dollars)
Nine month periods ended
September 30,
1994 1993
Cash flows from operating activities:
Reinsurance premiums assumed $26,030,586 $17,710,476
Losses and underwriting
expenses paid (15,961,841) (11,903,552)
Administrative expenses paid (429,480) (418,815)
Investment income received 1,290,037 1,713,009
___________ ___________
Net cash provided by
operating activities 10,929,302 7,101,118
___________ ___________
Cash flows from investing activities:
Purchases of marketable securities (52,638,048) (37,205,006)
Sales of marketable securities 42,641,973 39,549,053
Maturities of marketable securities 0 0
___________ ___________
Net cash provided by (used in)
investing activities (9,996,075) 2,344,047
___________ ___________
Cash flows from financing activities:
Proceeds from issuance of
Participating stock 210,000 292,500
Dividends paid (2,156,304) (2,021,504)
___________ ___________
Net cash used in financing
activities (1,946,304) (1,729,004)
___________ ___________
Increase (decrease) in cash and
cash equivalents (1,013,077) 7,716,161
Cash and cash equivalents, beginning
of period 6,788,771 1,710,738
___________ ___________
Cash and cash equivalents, end
of period $ 5,775,694 $ 9,426,899
___________ ___________
Reconciliation of net income to net cash
provided by operating activities:
Net income 1,064,527 2,146,426
Realized losses (gains)
on investments 1,112,164 (815,292)
Change in:
Accrued investment income (648,398) 362,268
Due from ceding company (1,071,203) (1,792,014)
Deferred acquisition costs (3,456,090) (2,465,188)
Prepaid expenses (625) (625)
Unearned premium 13,286,553 9,474,498
Loss reserves 639,553 198,282
Accrued liabilities 2,821 (7,237)
___________ ___________
Net cash provided by
operating activities $10,929,302 $ 7,101,118
___________ ___________
Item 2. Management's Discussion And Analysis of Financial Condition and
Results of Operations
Liquidity. It is anticipated that the Company will continue 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 unearned premiums on the balance sheet at each balance sheet date are
attributable to the long-term nature of the motor vehicle mechanical breakdown
insurance contracts that the Company reinsures. The risk of loss to the
Company under new vehicle contracts 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, the new vehicle premiums
assumed in any period are recorded as unearned.
Cash, cash equivalents and investments valued at market have increased from
$36,671,259 at the beginning of the year to $42,719,299 at September 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 September 30, 1994, the share capital of the Company
was $1,805,000 (compared to $1,617,500 as of December 31, 1993) comprised of
paid in capital with respect to Common Stock of $200,000 and paid in capital
with respect to Participating Shares of $1,605,000 (compared with $1,417,500
as of December 31, 1993). In addition, the Company had surplus from retained
earnings in the amount of $5,142,701, 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 September 30, 1994, the Company's minimum required net assets
computed in accordance with Barbados law was $2,023,225, compared to total
capital and retained earnings of $6,947,701.
Results of Operations. In the nine month period ended September 30, 1994,
the Company reported premiums earned of $15,232,246, an increase of $3,989,826
over the nine month period ended September 30, 1993. Net underwriting income
in the first nine months of 1994 was $238,255, which represents an increase of
$256,563 compared to an underwriting loss of $18,308 in the nine month period
ended September 30, 1993. The loss ratio for the nine month period ended
September 30, 1994 was 70.0%, compared to 70.5% for the nine month period ended
September 30, 1993.
In the three month period ended September 30, 1994, premiums earned increased
$1,530,066 to $5,538,684, compared to $4,008,618 in the three month period
ended September 30, 1993. Expenses including losses) increased $1,478,419,
from $3,967,750 in the third quarter of 1993 to $5,446,169 in the third quarter
of 1994. As a result, net underwriting income increased from $40,868 in the
third quarter of 1993 to $92,515 in the third quarter of 1994. The loss ratio
in the third quarter of 1994 was 70.8%, compared to 70.6% in the third quarter
of 1993.
The increase in net underwriting income was offset by a decline in investment
income of $96,398 from $720,610 in the third quarter of 1993 to $624,212 in the
comparable period of 1994, due to realized losses on the sale of invested
assets. Although interest earnings in the third quarter increased by 56% over
the third quarter of 1993, changes in interest rates in the nine month period
ended September 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 nine month period ended September 30, 1993.
Realized losses on the sale of investment securities in the nine month period
ended September 30, 1994 were $1,112,164 compared to realized gains of
$815,292 in the nine month period ended September 30, 1993 and resulted in
large part from a repositioning of the Company's investment portfolio away
from longer term issues toward medium term investments.
Unrealized losses on investment securities held at September 30, 1994 were
$1,722,908, compared to unrealized gains at December 31, 1993 of $99,886.
Unrealized losses at September 30, 1994 include amounts attributable to
decreases in value of securities purchased as 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 Investment 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 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 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, Finance
Signing on behalf of
the Registrant, and
Principal Financial Officer
Dated: November 7, 1994
