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, 1998
------------------
[ ] 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 N/A
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Bishops Court Hill, St. Michael, Barbados N/A
- - --------------------------------------------------------------------------------
(Address of principle executive offices) (Zip Code)
(246) 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, 1998
----- ------------------------
Common Stock, no par-value 2,000
Participating Stock, no par-value 31,100
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 1. FINANCIAL INFORMATION
Item 1. Financial Statements
1. Balance Sheets, September 30, 1998 and December 31, 1997.
2. Statements of Income and Retained Earnings for the three month
periods ended September 30, 1998 and 1997 and the nine month
periods ended September 30, 1998 and 1997.
3. Statements of Cash Flows for the nine month periods ended
September 30, 1998 and 1997.
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.
<TABLE>
<CAPTION>
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
(Expressed in U.S. Dollars)
September 30, 1998 December 31,
(unaudited) 1997
------------------ ------------
<S> <C> <C>
ASSETS
Investments $ 88,287,656 $ 88,585,513
Cash and cash equivalents 19,136,437 5,645,482
Accrued investment income 1,168,863 3,178,446
Due from Motors Insurance Corporation 1,535,532 841,927
Deferred acquisition costs 28,019,552 24,813,918
Prepaid expense 3,769 0
Total Assets $138,151,809 $123,065,286
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums $107,780,771 $ 95,454,588
Loss reserves 5,159,932 5,421,160
Accrued liabilities 77,768 123,569
------------ ------------
Total liabilities 113,018,471 100,999,317
------------ ------------
STOCKHOLDERS' EQUITY
Share Capital
Common Stock-no par value;
Authorized - 2,000 shares;
issued and outstanding -
2,000 200,000 200,000
Participating Stock-no par value;
Authorized - 100,000 shares;
issued and outstanding -
31,100 shares as of September 30,
1998 and 28,200 shares as of
December 31, 1997 2,332,500 2,115,000
------------ ------------
2,532,500 2,315,000
Retained Earnings 20,493,809 18,615,768
Unrealized appreciation
on investments 2,107,029 1,135,201
------------ ------------
Total Stockholders' Equity 25,133,338 22,065,969
------------ ------------
Total Liabilities and Stockholders'
Equity $138,151,809 $123,065,286
============ ============
</TABLE>
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE
MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 AND THE
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME
Reinsurance premiums
assumed $18,680,819 $16,624,973 $54,738,752 $44,516,682
Increase in unearned
premiums 3,890,487 4,980,043 12,326,183 11,285,385
----------- ----------- ----------- -----------
Premiums earned 14,790,332 11,644,930 42,412,569 33,231,297
----------- ----------- ----------- -----------
Investment income
Interest earned 1,714,696 1,322,355 4,520,786 3,797,281
Realized gains on
investments 2,269,101 802,776 3,374,836 191,518
----------- ----------- ----------- -----------
Investment income 3,983,797 2,125,131 7,895,622 3,988,799
----------- ----------- ----------- -----------
TOTAL INCOME 18,774,129 13,770,061 50,308,191 37,220,096
----------- ----------- ----------- -----------
EXPENSES
Acquisition costs 3,845,398 3,027,845 10,908,226 8,639,707
Losses paid 12,337,811 8,213,214 32,154,572 21,510,756
Increase/(decrease)
in loss reserves 305,166 233,745 (261,228) 922,406
Administrative
expenses
- Related Parties 57,764 53,356 167,996 164,934
- Other 67,425 63,981 265,469 226,825
----------- ----------- ----------- -----------
TOTAL EXPENSES 16,613,564 11,592,141 43,235,035 31,464,628
----------- ----------- ----------- -----------
NET INCOME 2,160,565 2,177,920 7,073,156 5,755,468
RETAINED EARNINGS,
beginning of period 18,356,403 14,293,871 18,615,768 14,913,053
LESS: DIVIDENDS 0 0 (5,171,956) (4,196,730)
LESS: REDEMPTION OF
PARTICIPATING STOCK (23,159) 0 (23,159) 0
----------- ----------- ----------- -----------
RETAINED EARNINGS,
end of period $20,493,809 $16,471,791 $20,493,809 $16,471,791
=========== =========== =========== ===========
</TABLE>
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (UNAUDITED)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Nine Month Periods
Ended September 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Reinsurance premiums collected $48,612,563 $40,389,171
Losses and acquisition expenses paid (40,809,121) (29,899,413)
Administrative expenses paid (514,762) (497,066)
Investment income received 6,535,369 3,184,690
------------- -------------
Net cash provided by operating activities 13,824,049 13,177,382
------------- -------------
Cash flows from investing activities:
Purchases of investments (253,594,219) (229,247,631)
Sales and maturities of investments 258,238,740 213,050,231
------------- -------------
Net cash provided by (used in) investing
activities 4,644,521 (16,197,400)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of Participating
Stock 232,500 187,500
Redemption of participating stock (38,159) 0
Dividends paid (5,171,956) (4,196,730)
------------- -------------
Net cash used in financing activities (4,977,615) (4,009,230)
------------- -------------
Increase/(decrease)in cash and cash
equivalents 13,490,955 (7,029,248)
Cash and cash equivalents, beginning
of period 5,645,482 12,926,272
Cash and cash equivalents, end
of period $19,136,437 $5,897,024
============= =============
Reconciliation of net income to net cash
provided by operating activities:
Net income 7,073,156 5,755,468
Realized gains on investments (3,374,836) (191,518)
Change in:
Accrued investment income 2,009,583 (616,591)
Due from Motors Insurance Corporation (693,605) (1,008,092)
Deferred acquisition costs (3,205,634) (2,936,124)
Prepaid expenses (3,769) (34,085)
Unearned premiums 12,326,183 11,285,385
Loss reserves (261,228) 922,406
Accrued liabilities (45,801) 533
------------- -------------
Net cash provided by operating activities $13,824,049 $13,177,382
============= =============
</TABLE>
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 in the foreseeable future.
Capital Resources. During the quarter ended September 30, 1998, 6 new series of
Shares were added and 2 series were redeemed bringing the total number of series
issued and outstanding to 311 as of the end of the quarter. As of September 30,
1998, the share capital of the Company was $2,532,500 (compared with $2,315,000
as of December 31, 1997) comprised of paid in capital with respect to the Common
Stock of $200,000 and paid in capital with respect to Participating Shares of
$2,332,500 (compared with $2,115,000 as of December 31, 1997). In addition, the
Company had surplus from retained earnings in the amount of $20,493,809 as of
September 30, 1998 compared with $18,615,768 as of December 31, 1997.
Results of Operations. During the quarter ended September 30, 1998, the Company
had net income of $2,160,565, compared with net income of $2,177,920 for the
quarter ended September 30, 1997. For the nine month period ended September 30,
1998, the Company had net income of $7,073,156, compared with net income of
$5,755,468 for the comparable period in 1997.
Premiums earned increased to $14,790,332 during the quarter ended September 30,
1998 compared to $11,644,930 for the same period in 1997. Expenses incurred
during the quarter ended September 30, 1998 were $16,613,564 compared to
$11,592,141 for the comparable quarter of 1997. The Company experienced a net
underwriting loss for the quarter ended September 30, 1998 of $1,823,232
compared to an underwriting gain of $52,790 for the comparable period in 1997.
The ratio of losses incurred to premiums earned for the quarter ended September
30, 1998 was 85.5% compared to 72.5% for the comparable period in 1997 primarily
as a result of increases in losses paid.
For the nine month period ended September 30, 1998, the Company had earned
premiums of $42,412,569 compared to $33,231,297 for the comparable period of
1997. Expenses incurred during the nine month period ended September 30, 1998
were $43,235,035 compared to $31,464,628 for the comparable period in 1997. Net
underwriting loss for the Company was $822,466 for the nine month period ended
September 30, 1998 compared to a net underwriting gain of $1,766,669 for the
comparable period in 1997. The loss ratio for the nine month period ended
September 30, 1998 was 76.0%, compared to 67.5% for the nine month period ended
September 30, 1997.
Losses during each quarter arise from contracts issued by the ceding company
during the preceding six year period. The increase in the loss ratio of the
Company during 1998 reflect changes in the pricing of contracts during the
preceding six year period. The loss ratio is also influenced by loss experience
which in turn is heavily influenced by the type of repairs and price of repaired
parts. During the second and third quarters of 1998, many areas of the United
States experienced unusually hot weather. These weather patterns resulted in a
higher number of covered repairs for mechanical components such as air
conditioners and water pumps which contributed to higher loss costs. Losses in
the third quarter also reflect, in part, implementation of previously announced
increases in suggested list prices of parts to dealers.
Investment income for the quarter ended September 30, 1998 was $3,983,797
compared to $2,125,131 for the comparable period of 1997. Investment income for
the nine month period ended September 30, 1998 was $7,895,622 compared to
$3,988,799 for the comparable period of 1997. During the quarter ended September
30, 1998, the Company realised gains on the sale of investment securities of
$2,269,101, compared to realised gains of $802,776 during the comparable period
of 1997.
The significant increase in realised gains during the quarter ended September
30, 1998 is primarily due to the uncertainty in the US stock market which
precipitated a move by investors to the more stable US$ bond markets. The Asian
crisis which commenced in the fourth quarter 1997 and which has affected global
stock markets throughout the first nine months of 1998 has generally led to a
move in capital from these markets to the more secure bond markets. The
Company's bond portfolio was well positioned to take advantage of opportunities
to realise gains on sales of investment during this period.
As of September 30, 1998, the Company had net unrealised appreciation of
$2,107,029 on its investments compared to $1,135,201 as of December 31, 1997.
For the quarter ended September 30, 1998, the Company had interest income of
$1,714,696 compared to $1,322,355 for the comparable period of 1997. For the
nine month period ended September 30, 1998, the Company had interest income of
$4,520,786 compared to $3,797,281 for the comparable period of 1997. These
increases were largely attributable to an increase in funds available for
investment.
Year 2000
Many computerized systems and microprocessors that are used by the Company's
Manager have the potential for operational problems if they lack the ability to
handle the transition to the Year 2000. The effects of the Year 2000 issue are
also complicated by the Company's dependence on its common shareholder, from
whom the Company assumes all of its business, as well as other service providers
such as investment advisors and custodians. The Year 2000 issue has the
potential to cause disruption to the business of the Company and its customers.
In early 1998, the Company initiated communications with its Manager and other
service and technology providers in order to assess and reduce the risk that the
Company's operations could be adversely affected by the failure of these third
parties to adequately address the Year 2000 issue. Motors Insurance Corporation,
the Company's key retroceding company and common shareholder, has completed its
Year 2000 assessment phase and is targeting the end of 1998 for remediation of
its critical systems.
The Company does not separately own or license any computers or computer
software applications, instead it has outsourced these functions through an
Insurance Management Agreement. To date, the Company has not incurred, expensed
or capitalized amounts related to the Year 2000 remediation. The Company does
not expect to incur incremental expenses or to forego or delay information
technology projects due to Year 2000.
In view of the foregoing, the Company does not currently anticipate that it will
experience a significant disruption of its business as a result of the Year 2000
issue. However, there is still uncertainty about the broader scope of the Year
2000 issue as it may affect the Company and third parties that are critical to
the Company's operations. In the event that the Company or its service providers
are unable to complete remedial actions or are unable to implement adequate
contingency plans in the event that problems are encountered, there could be a
material adverse effect on the Company's business, results of operations or
financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) 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, Finance
Signing on behalf of
the Registrant, and
Principal Financial Officer
Dated: October 20, 1998
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements contained in the Company's quarterly report on
Form 10-Q for the quarter ended September 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 88,287,656
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 88,287,656
<CASH> 19,136,437
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 28,019,552
<TOTAL-ASSETS> 138,151,809
<POLICY-LOSSES> 5,159,932
<UNEARNED-PREMIUMS> 107,780,771
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 200,000
<OTHER-SE> 24,933,338
<TOTAL-LIABILITY-AND-EQUITY> 138,151,809
42,412,569
<INVESTMENT-INCOME> 4,520,786
<INVESTMENT-GAINS> 3,374,836
<OTHER-INCOME> 0
<BENEFITS> 31,893,344
<UNDERWRITING-AMORTIZATION> 10,908,226
<UNDERWRITING-OTHER> 433,465
<INCOME-PRETAX> 7,073,156
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,073,156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,073,156
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Information as to earnings per share is not provided inasmuch as the results
for each series of stock will vary with the underwriting experience
attributable to each Subsidiary Capital Account established with respect to
that series.
</FN>
</TABLE>
