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, 1999
-----------------------
______ 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 principal 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 June 30, 1999
Common Stock, no par-value 2,000
Participating Stock, no par-value 31,100
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:
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
1. Balance Sheets, June 30, 1999 and December 31, 1998.
2. Statements of Income and Retained Earnings for the three month
periods ended June 30, 1999 and 1998 and the six month periods
ended June 30, 1999 and 1998.
3. Statements of Cash Flows for the six month periods ended June 30,
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.
<PAGE>
PAGE 3
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
June 30, 1999 December 31,
(unaudited) 1998
------------- ------------
<S> <C> <C>
ASSETS
Investments $ 99,529,366 $ 89,474,377
Cash and cash equivalents 2,928,350 19,504,563
Accrued investment income 1,968,185 1,788,490
Due from (to) Motors Insurance
Corporation 906,429 (115,667)
Deferred acquisition costs 30,021,668 28,660,753
Prepaid expenses 24,250 0
----------- -----------
Total Assets $135,378,248 $139,312,516
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums $115,568,826 $110,243,074
Loss reserves 5,671,646 5,393,818
Accrued liabilities 168,246 150,056
------------ ------------
Total liabilities 121,408,718 115,786,948
------------ ------------
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 -
31,100 shares as of June 30,
1999 and 31,500 shares as of
December 31, 1998 2,332,500 2,362,500
------------ ------------
2,532,500 2,562,500
Retained Earnings 14,146,110 20,629,009
Accumulated other comprehensive
(loss) income (2,709,080) 334,059
------------- ------------
Total Stockholders' Equity 13,969,530 23,525,568
------------ ------------
Total Liabilities and Stockholders'
Equity $135,378,248 $139,312,516
============ ============
</TABLE>
<PAGE>
PAGE 4
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE
MONTH PERIODS ENDED JUNE 30, 1999 AND JUNE 30, 1998 AND THE
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(UNAUDITED)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME
Reinsurance premiums $19,179,918 $18,478,223 $37,040,946 $36,057,933
assumed
Increase in unearned
premiums 2,974,128 4,149,151 5,325,752 8,435,696
----------- ----------- ----------- -----------
Premiums earned 16,205,790 14,329,072 31,715,194 27,622,237
----------- ----------- ----------- -----------
Investment income
Interest earned 1,401,694 1,445,457 2,780,984 2,806,090
Realized (losses) gains
on investments (1,550,151) (173,662) (2,705,157) 1,105,735
------------ ----------- ----------- -----------
Investment (loss) income (148,457) 1,271,795 75,827 3,911,825
---------- ----------- ----------- -----------
TOTAL INCOME 16,057,333 15,600,867 31,791,021 31,534,062
----------- ----------- ----------- -----------
EXPENSES
Acquisition costs 4,237,534 3,606,295 8,269,977 7,062,828
Losses paid 13,370,567 10,432,562 25,254,728 19,816,761
Increase (decrease) in loss reserves 243,736 203,478 277,828 (566,394)
Administrative expenses
- Related Parties 65,816 57,588 127,067 110,232
- Other 99,828 116,874 204,340 198,044
----------- ----------- ---------- -----------
TOTAL EXPENSES 18,017,481 14,416,797 34,133,940 26,621,471
----------- ----------- ---------- -----------
NET (LOSS) INCOME (1,960,148) 1,184,070 (2,342,919) 4,912,591
RETAINED EARNINGS,
beginning of period 16,182,420 17,172,333 20,629,009 18,615,768
LESS: DIVIDENDS 0 0 (4,066,464) (5,171,956)
LESS: REDEMPTION OF
PARTICIPATING STOCK (76,162) 0 (73,516) 0
----------- ----------- ----------- -----------
RETAINED EARNINGS,
end of period $14,146,110 $18,356,403 $14,146,110 $18,356,403
=========== =========== =========== ===========
</TABLE>
<PAGE>
PAGE 5
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND JUNE 30, 1998 (UNAUDITED)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Six Month Periods
Ended June 30,
1999 1998
------ ------
<S> <C> <C>
Cash flows from operating activities:
Reinsurance premiums collected $35,756,436 $30,134,340
Losses and acquisition expenses paid (34,606,352) (25,691,013)
Administrative expenses paid (356,321) (351,091)
Investment income received 2,603,289 4,269,445
------------ ------------
Net cash provided by operating activities 3,397,052 8,361,681
------------ ------------
Cash flows from investing activities:
Purchases of investments (223,017,168) (154,108,002)
Sales of investments 207,221,883 152,924,666
------------ ------------
Net cash invested (15,795,285) (1,183,336)
------------- -------------
Cash flows from financing activities
Proceeds from issuance of Participating Stock 30,000 187,500
Redemption of participating stock (141,516) 0
Dividends paid (4,066,464) (5,171,956)
------------- -------------
Net cash used in financing activities (4,177,980) (4,984,456)
------------- -------------
(Decrease) increase in cash and cash equivalents (16,576,213) 2,193,889
Cash and cash equivalents, beginning of period 19,504,563 5,645,482
------------ ------------
Cash and cash equivalents, end of period $ 2,928,350 $ 7,839,371
============ ============
Reconciliation of net income to net cash provided
by operating activities:
Net (loss) income (2,342,919) 4,912,591
Realized losses (gains) on investments 2,705,157 (1,105,735)
Change in:
Accrued investment income (179,695) 1,461,355
Due from Motors Insurance Corporation (1,022,096) (2,583,827)
Deferred acquisition costs (1,360,915) (2,193,921)
Prepaid expenses (24,250) (35,686)
Unearned premiums 5,325,752 8,435,696
Loss reserves 277,828 (566,394)
Accrued liabilities 18,190 37,602
------------ -------------
Net cash provided by operating activities $ 3,397,052 $ 8,361,681
============ =============
</TABLE>
<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.
Capital Resources. During the quarter ended June 30, 1999, 1 new series of
Shares was added and 2 series of Shares were redeemed bringing the total number
of series issued and outstanding to 311 as of the end of the quarter. As of June
30, 1999, the share capital of the Company was $2,532,500 (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 $2,332,500 (compared with $2,362,500 as of December 31, 1998). In
addition, the Company had surplus from retained earnings in the amount of
$14,116,110 as of June 30, 1999 compared with $20,629,009 as of December 31,
1998. The reduction in retained earnings has arisen primarily as a result of a
dividend payment of $4,066,464 and the net loss for the period as discussed more
fully below.
Results of Operations. During the quarter ended June 30, 1999, the Company had a
net loss of $1,960,148, compared with net income of $1,184,070 for the quarter
ended June 30, 1998. For the six month period ended June 30, 1999, the company
had a net loss of $2,342,919, compared with net income of $4,912,591 for the
comparable period in 1998. As discussed below, the decreases in net income for
the quarter and six month period ended June 30, 1999 compared to the comparable
periods of 1998 are primarily attributable to less favourable underwriting
performance and a decline in returns on the Company's investment portfolio.
Premiums earned increased to $16,205,790 during the quarter ended June 30, 1999
compared to $14,329,072 for the same period in 1998. Expenses incurred during
the quarter ended June 30, 1999 were $18,017,481 compared to $14,416,797 for the
comparable quarter of 1998. The Company experienced a net underwriting loss for
the quarter ended June 30, 1999 of $1,811,691 compared to an underwriting loss
of $87,725 for the comparable period in 1998. The ratio of losses incurred to
premiums earned for the quarter ended June 30, 1999 was 84% compared to 74.2%
for the comparable period in 1998 primarily as a result of increases in losses
paid.
<PAGE>
PAGE 7
For the six month period ended June 30, 1999, the Company had earned premiums of
$31,715,194 compared to $27,622,237 for the comparable period of 1998. Expenses
incurred during the six month period ended June 30, 1998 were $34,133,940
compared to $26,621,471 for the comparable period in 1998. Net underwriting loss
for the Company was $2,418,746 for the six month period ended June 30, 1999
compared to $1,000,766 for the comparable period in 1998. The loss ratio for the
six month period ended June 30, 1999 was 80.5%, compared to 69.7% for the six
month period ended June 30, 1998.
The Company is currently evaluating ways for improving its underwriting
performance and has had discussions with MIC regarding such matters. MIC is
contacting unprofitable accounts with a view to implementing procedures to
discontinue ceding new business into MMRC with respect to such accounts.
Additionally, MIC began placing claims adjusters at some unprofitable accounts
in the first quarter of 1999 and will continue this practice where necessary.
Furthermore, claims approval empowerment levels are being significantly reduced
or eliminated.
Investment loss for the quarter ended June 30, 1999 was $148,457 compared to
income of $1,271,795 for the comparable period of 1998. Investment income for
the six month period ended June 30 1999 was $75,827 compared to $3,911,825 for
the comparable period of 1998. During the quarter ended June 30, 1999, the
Company realised losses on the sale of investment securities of $1,550,151,
compared to realised losses of $173,662 during the comparable period of 1998.
The Company realized losses on the sale of investment securities during the
quarter and the six month period ended June 30, 1999 as a result of sales of
fixed income securities, the value of which had decreased as a result of
increases in interest rates.
The unrealised depreciation on investments increased from $811,267 at March 31,
1999 to $2,709,080 at June 30, 1999. The change in the unrealised position
during the quarter ended June 30, 1999 was brought about by a decline in the
market value of the portfolio due to increased interest rates.
During the quarter ended June 30, 1999 the unrealised depreciation on
investments increased from $811,267 at March 31, 1999 to $2,709,080 at June 30,
1999. The change in the unrealised position during the quarter ended June 30,
1999 was brought about by a decline in the market value of the portfolio due to
increased interest rates.
For the quarter ended June 30, 1999, the Company had interest income of
$1,401,694 compared to $1,445,457 for the comparable period of 1998. For the six
month period ended June 30, 1999, the Company had interest income of $2,780,984
compared to $2,806,090 for the comparable period of 1998. These decreases were
largely attributable to lower coupon rates on the Company's portfolio of fixed
income securities partially offset by an increase in funds available for
investment.
Effective June 24, 1999 the Company liquidated certain of its fixed income
securities in order to invest $10 million in a U.S. dollar denominated equity
fund. As at June 30, 1999 the market value of the Company's investment in the
fund was $10,182,971.
<PAGE>
PAGE 8
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 system.
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 capitalised 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 for 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 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.
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.
<PAGE>
PAGE 9
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: August 17, 1999
<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 SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCES TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 99,529,366
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 99,529,366
<CASH> 2,928,350
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 30,021,668
<TOTAL-ASSETS> 135,378,248
<POLICY-LOSSES> 5,671,646
<UNEARNED-PREMIUMS> 115,568,826
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 200,000
<OTHER-SE> 13,769,530
<TOTAL-LIABILITY-AND-EQUITY> 135,378,248
31,715,194
<INVESTMENT-INCOME> 2,780,984
<INVESTMENT-GAINS> (2,705,157)
<OTHER-INCOME> 0
<BENEFITS> 25,532,556
<UNDERWRITING-AMORTIZATION> 8,269,977
<UNDERWRITING-OTHER> 331,407
<INCOME-PRETAX> (2,342,919)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,342,919)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,342,919)
<EPS-BASIC> 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>
