PAGE 1
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 March 31, 1999
------------------------
- --- Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 33-6534
-----------------
Motors Mechanical Reinsurance Company, Limited
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Barbados N/A
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(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 March 31, 1999
----- --------------------
Common Stock, no par-value 2,000
Participating Stock, no par-value 31,200
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PAGE 2
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, March 31, 1999 and December 31, 1998.
2. Statements of Operations and Retained Earnings for the three
month periods ended March 31, 1999 and 1998.
3. Statements of Cash Flows for the three month periods ended March
31, 1999 and 1998.
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.
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MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
(Expressed in U.S. Dollars)
March 31, 1999 December 31,
(unaudited) 1998
-------------- ------------
ASSETS
Investments $100,924,615 $ 89,474,377
Cash and cash equivalents 2,938,396 19,504,563
Accrued investment income 1,757,884 1,788,490
Due from/(to) Motors Insurance Corporation 1,183,011 (115,667)
Deferred acquisition costs 29,272,294 28,660,753
Prepaid expenses 36,875 -
------------ ------------
Total Assets $136,113,075 $139,312,516
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums $112,594,698 $110,243,074
Loss reserves 5,427,910 5,393,818
Accrued liabilities 179,314 150,056
------------ ------------
Total liabilities 118,201,922 115,786,948
------------ ------------
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 -
31,200 shares as of March 31,
1999 and 31,500 shares as of
December 31, 1998 2,340,000 2,362,500
------------ ------------
2,540,000 2,562,500
Retained Earnings 16,182,420 20,629,009
Accumulated other comprehensive
income (811,267) 334,059
------------ ------------
Total Stockholders' Equity 17,911,153 23,525,568
------------ ------------
Total Liabilities and Stockholders'
Equity $136,113,075 $139,312,516
============ ============
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MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE
MONTH PERIODS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
(Expressed in U.S. Dollars)
Three Month Periods
Ended March 31,
1999 1998
----------- -----------
INCOME
Reinsurance premiums assumed $17,861,028 $17,579,710
Increase in unearned premiums 2,351,624 4,286,545
----------- -----------
Premiums earned 15,509,404 13,293,165
----------- -----------
Investment income
Interest earned 1,379,290 1,360,633
Realized gains (losses)
on investments (1,155,006) 1,279,397
----------- -----------
Investment income 224,284 2,640,030
----------- -----------
TOTAL INCOME 15,733,688 15,933,195
----------- -----------
EXPENSES
Acquisition costs 4,032,443 3,456,533
Losses paid 11,884,161 9,384,199
Increase/(Decrease) in loss reserves 34,092 (769,872)
Administrative expenses
- Related Parties 61,251 52,644
- Other 104,512 81,170
----------- -----------
TOTAL EXPENSES 16,116,459 12,204,674
----------- -----------
NET (LOSS)/INCOME (382,771) 3,728,521
RETAINED EARNINGS,
beginning of period 20,629,009 18,615,768
LESS: DIVIDENDS (4,066,464) (5,171,956)
REDEMPTION OF PARTICIPATING STOCK 2,646 0
----------- -----------
RETAINED EARNINGS, $16,182,420 $17,172,333
end of period =========== ===========
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MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1999 AND MARCH 31, 1998
UNAUDITED
(Expressed in U.S. Dollars)
Three Month Periods
Ended March 31,
1999 1998
----------- -----------
Cash flows from operating activities:
Reinsurance premiums collected $ 0 $12,554,630
Losses and acquisition expenses paid 0 (11,735,610)
Administrative expenses paid (141,175) (142,302)
Investment income received 1,411,896 2,857,010
----------- -----------
Net cash provided by operating activities 1,270,721 3,533,728
----------- -----------
Cash flows from investing activities:
Purchases of investments (114,998,010) (97,764,585)
Sales and maturities of investments 101,247,440 100,389,098
----------- -----------
Net cash (invested)/provided (13,750,570) 2,624,513
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of Participating
Stock 7,500 67,500
Redemption of Participating Stock (27,354) 0
Dividends paid (4,066,464) (5,171,956)
----------- -----------
Net cash (used in) provided by
financing activities (4,086,318) (5,104,456)
----------- -----------
(Decrease)/Increase in cash and cash
equivalents (16,566,167) 1,053,785
Cash and cash equivalents, beginning
of period 19,504,563 5,645,482
----------- -----------
Cash and cash equivalents, end
of period $ 2,938,396 $ 6,699,267
=========== ===========
Reconciliation of net income/(loss) to net cash
provided by operating activities:
Net income/loss (382,771) 3,728,521
Realized losses/(gains) on investments 1,155,006 (1,279,397)
Change in:
Accrued investment income 30,606 1,494,377
Due from Motors Insurance Corporation (1,298,678) (2,817,778)
Deferred acquisition costs (611,541) (1,114,670)
Prepaid expenses (36,875) (3,189)
Unearned premiums 2,351,624 4,286,545
Loss reserves 34,092 (769,872)
Accrued liabilities 29,258 9,191
----------- -----------
Net cash provided by operating activities $ 1,270,721 $ 3,533,728
=========== ===========
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<PAGE>
PAGE 6
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.
On February 26, 1999, the Board of Directors authorized the payment of dividends
to eligible holders of Participating Shares aggregating $4,066,464.
The payment of the 1998 fourth quarter reinsurance cession due to the ceding
company during the first quarter 1999 was deferred for settlement during the
second quarter 1999 resulting in zero cash flow activity for items of cash flow
included herein.
Capital Resources. During the quarter ended March 31, 1999, one new series of
Shares was added and four series were redeemed bringing the total number of
series issued and outstanding to 312 as of the end of the quarter. As of March
31, 1999, the share capital of the Company was $2,540,000 (compared with
$2,562,500 as of December 31, 1998) comprised of paid in capital with respect to
the Common Stock of $200,000 and paid in capital with respect to Participating
Shares of $2,340,000 (compared with $2,362,500 as of December 31, 1998). In
addition, the Company had surplus from retained earnings in the amount of
$16,182,420 as of March 31, 1999 compared with $20,629,009 as of December 31,
1998. The net decrease in retained earnings is primarily attributable to the
dividend paid on February 26, 1999.
Results of Operations. During the quarter ended March 31, 1999, the Company had
a net loss of $382,771, compared with net income of $3,728,521 for the quarter
ended March 31, 1998. As discussed below, the decrease in net income for the
quarter ended March 31, 1999 compared to the comparable period of 1998 is the
result of realised losses on the sale of investment securities and unfavourable
loss reserve development as advised by the ceding company.
Premiums earned increased to $15,509,404 during the quarter ended March 31, 1999
compared to $13,293,165 for the same period in 1998. Expenses incurred during
the quarter ended March 31, 1999 were $16,116,459 compared to $12,204,674 for
the comparable quarter of 1998. Net underwriting loss for the quarter ended
March 31, 1999 was $607,055 compared to income of $1,088,491 for the comparable
period in 1998. The ratio of losses incurred to premiums earned for the quarter
under review was 76.9% compared to 64.8% for the comparable period in 1998.
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<PAGE>
PAGE 7
The ceding company experienced increased losses during the last half of 1998,
primarily due to adverse climatic conditions during the latter half of 1998
which affected the performance of certain motor vehicle parts under service
contracts combined with economic changes in the pricing of repairs during the
same period. The ceding company continues to monitor and implement measures to
control loss ratios. The loss costs reported for the quarter under review of
76.9% represents a decrease from the last quarter of 1998 ratio of 88.5%.
Investment income for the quarter ended March 31, 1999 was $224,284 compared to
$2,640,030 for the comparable period of 1998. During the quarter under review,
the Company realised losses on the sale of investment securities of $1,155,006
compared to gains of $1,279,397, during the comparable period of 1998. As of
March 31, 1999, the Company had net unrealized depreciation of $811,267 on its
investments compared to unrealized appreciation of $334,059 as of December 31,
1998. The losses on the sale of investment assets during the quarter under
review and the change in the amount of the unrealized position on the portfolio
as of March 31, 1999 compared to December 31, 1998 are in large part
attributable to a sell off of U.S. dollar denominated bonds in anticipation of
higher interest rates due to continued strength in U.S. economic growth. The
gains on sales of investments during the comparable quarter of the prior year
were due to declines in long term U.S. interest rates.
For the quarter ended March 31, 1999 the Company had interest income of
$1,379,290 compared to $1,360,633 for the comparable period of 1998. These
increases were largely attributable to increases in the amount of assets under
management.
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 in the remediation phase with respect to 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 or 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.
The foregoing Management Discussion and Analysis contains various forward
looking statements within the meaning of applicable federal securities laws and
are based upon the Company's current expectations and assumptions concerning
future events, which are subject to a number of risks and uncertainties that
could cause actual results to differ materially from those anticipated.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
At the annual meeting of shareholders of the Company held on April 22, 1999,
(the "Annual Meeting") the holder of the Common Stock re-elected three
directors, William B. Noll, John J. Dunn, Jr., and Peter R.P. Evelyn and elected
two new directors, Thomas D. Callahan and Robert E. Capstack to replace Louis S.
Carrio Jr. and Bernard J. Buselmeier. The holders of Participating Shares
unanimously elected the sixth director, Diane Sauer. The holder of the Common
Stock also elected John Gressa and Robert Nelson as alternate directors for
Messrs. Callahan and Capstack respectively.
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PAGE 8
At the Annual Meeting, the shareholders of the Company unanimously approved
amendments to the Company's Restated Articles of Incorporation to clarify the
definition of the term 'MIC Agency Account' and related definitions of persons
and/or entities to whom shares of participating stock may be issued.
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:
-8-
<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 three months ended March 31, 1999 and is qualified in its
entirety by references to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 100,924,615
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 100,924,615
<CASH> 2,938,396
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 29,272,294
<TOTAL-ASSETS> 136,113,075
<POLICY-LOSSES> 5,427,910
<UNEARNED-PREMIUMS> 112,594,698
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 200,000
<OTHER-SE> 17,711,153
<TOTAL-LIABILITY-AND-EQUITY> 136,113,075
15,509,404
<INVESTMENT-INCOME> 1,379,290
<INVESTMENT-GAINS> (1,155,006)
<OTHER-INCOME> 0
<BENEFITS> 11,918,253
<UNDERWRITING-AMORTIZATION> 4,032,443
<UNDERWRITING-OTHER> 165,763
<INCOME-PRETAX> (382,771)
<INCOME-TAX> 0
<INCOME-CONTINUING> (382,771)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (382,771)
<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>