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, 2000
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 March 31, 2000
---------- --------------------
Common Stock, no par-value 2,000
Participating Stock, no par-value 26,500
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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, 2000 and December 31, 1999.
2. Statements of Operations and Retained Earnings for the three
month periods ended March 31, 2000 and 1999.
3. Statements of Cash Flows for the three month periods ended
March 31, 2000 and 1999.
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)
<TABLE>
<CAPTION>
March 31, 2000 December 31,
(unaudited) 1999
---------------- ----------------
<S> <C> <C>
ASSETS
Investments $ 75,610,406 $ 79,184,187
Cash and cash equivalents 13,544,143 26,602,226
Accrued investment income 1,309,271 2,253,779
Deferred acquisition costs 24,574,879 24,418,570
Prepaid expenses 46,236 46,000
------------ ------------
Total Assets $115,084,935 $132,504,762
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums $ 94,518,766 $ 93,941,365
Loss reserves 4,715,923 4,725,239
Accrued liabilities 134,554 276,116
Due to Motors Insurance Corporation 360,962 18,338,925
------------ ------------
Total liabilities 99,730,205 117,281,645
------------ ------------
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 - 26,500 shares as of
March 31, 2000 and 26,600 shares
as of December 31, 1999 1,987,500 1,995,000
------------ ------------
2,187,500 2,195,000
Retained Earnings 12,543,156 13,190,576
Accumulated other comprehensive
income\(loss) 624,074 (162,459)
------------ ------------
Total Stockholders' Equity 15,354,730 15,223,117
------------ ------------
Total Liabilities and Stockholders' $115,084,935 $132,504,762
Equity ============ ============
</TABLE>
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MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE
MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
(Expressed in U.S. Dollars)
Three Month Periods
Ended March 31,
2000 1999
------------ ------------
INCOME
Reinsurance premiums assumed $14,051,229 $17,861,028
Increase in unearned premiums 577,401 2,351,624
----------- -----------
Premiums earned 13,473,828 15,509,404
----------- -----------
Investment income
Interest earned 1,319,822 1,379,290
Realized losses
on investments (989,908) (1,155,006)
----------- -----------
Investment income 329,914 224,284
----------- -----------
TOTAL INCOME 13,803,742 15,733,688
----------- -----------
EXPENSES
Acquisition costs 3,506,888 4,032,443
Losses paid 10,781,962 11,884,161
(Decrease)\Increase in loss reserves (9,316) 34,092
Administrative expenses
- Related Parties 54,187 61,251
- Other 116,129 104,512
----------- -----------
TOTAL EXPENSES 14,449,840 16,116,459
----------- -----------
NET (LOSS) (646,108) (382,771)
RETAINED EARNINGS,
beginning of period 13,190,576 20,629,009
LESS: DIVIDENDS 0 (4,066,464)
REDEMPTION OF PARTICIPATING STOCK (1,312) 2,646
----------- -----------
RETAINED EARNINGS,
end of period $12,543,156 $16,182,420
=========== ===========
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MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 2000 AND MARCH 31, 1999
UNAUDITED
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Three Month Periods
Ended March 31,
2000 1999
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Reinsurance premiums collected $ 23,374,340 $ 0
Reinsurance premiums returned (24,934,234) 0
Losses and acquisition expenses paid (23,685,786) 0
Acquisition expenses reversed and returned premium 6,482,901 0
Administrative expenses paid (187,206) (141,175)
Investment income received 2,170,308 1,411,896
------------- ------------
Net cash (used in)/provided by operating activities (16,419,677) 1,270,721
------------- ------------
Cash flows from investing activities:
Purchases of investments (421,155,283) (114,998,010)
Sales and maturities of investments 424,525,689 101,247,440
------------- ------------
Net cash (invested)/provided 3,370,406 (13,750,570)
------------- ------------
Cash flows from financing activities:
Proceeds from issuance of Participating Stock 0 7,500
Redemption of Participating Stock (8,812) (27,354)
Dividends paid 0 (4,066,464)
------------- ------------
Net cash used in financing activities (8,812) (4,086,318)
------------- ------------
Decrease in cash and cash equivalents (13,058,083) (16,566,167)
Cash and cash equivalents, beginning of period 26,602,226 19,504,563
------------- ------------
Cash and cash equivalents, end of period $ 13,544,143 $ 2,938,396
============ ===========
Reconciliation of net loss to net
cash provided by operating activities:
Net loss (646,108) (382,771)
Realized losses on Investments 989,908 1,155,006
Change in:
Accrued investment income 944,508 30,606
Due from Motors Insurance Corporation (17,977,963) (1,298,678)
Deferred acquisition costs (156,309) (611,541)
Prepaid expenses (236) (36,875)
Unearned premiums 577,401 2,351,624
Loss reserves (9,316) 34,092
Accrued liabilities (141,562) 29,258
------------- ------------
Net cash (used in)/provided by operating activities $(16,419,677) $ 1,270,721
============= ============
</TABLE>
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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.
The payment of the 1999 fourth quarter reinsurance cession due to the ceding
company during the first quarter of 2000 was deferred for settlement during the
second quarter of 2000 resulting in zero cash flow activity for items of cash
flow included herein.
On May 10, 2000 the Board of Directors authorized the payment of dividends to
eligible holders of Participating Shares aggregating $673,134.
Capital Resources. During the quarter ended March 31, 2000, no new series of
Shares were added and one series was redeemed bringing the total number of
series issued and outstanding to 265 as of the end of the quarter. As of March
31, 2000, the share capital of the Company was $2,187,500 (compared with
$2,195,000 as of December 31, 1999) comprised of paid in capital with respect to
the Common Stock of $200,000 and paid in capital with respect to Participating
Shares of $1,987,500 (compared with $1,995,000 as of December 31, 1999). In
addition, the Company had surplus from retained earnings in the amount of
$12,543,156 as of March 31, 2000 compared with $13,190,576 as of December 31,
1999. The net decrease in retained earnings is primarily attributable to
underwriting losses incurred combined with low investment returns during the
first quarter as more fully described below.
Results of Operations. During the quarter ended March 31, 2000, the Company had
a net loss of $646,108, compared with net loss of $382,711 for the quarter ended
March 31, 1999. As discussed below, the increase in net loss for the quarter
ended March 31, 2000 compared to the comparable period of 1999 is the result of
realised losses on the sale of investment securities and continued underwriting
losses.
Premiums earned decreased to $13,473,828 during the quarter ended March 31, 2000
compared to $15,509,404 for the same period in 1999. Expenses incurred during
the quarter ended March 31, 2000 were $14,449,840 compared to $16,116,459 for
the comparable quarter of 1999. The decreases in premiums earned and expenses
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incurred was in large part attributable to the Redemption and the Recapture
discussed below. Net underwriting loss for the quarter ended March 31, 2000 was
$976,022 compared to $607,055 for the comparable period in 1999. The ratio of
losses incurred to premiums earned for the quarter under review was 80% compared
to 76.9% for the comparable period in 1999.
During 1999, as a result of adverse underwriting results, the Company's board of
directors voted to redeem 37 series of Shares that had consistently experienced
adverse underwriting results and that the board determined were unlikely to
experience favourable underwriting results in the future (the "Redemption"). In
addition to the Redemption, Motors Insurance Corporation ("MIC"), the ceding
company, agreed to commute the unearned premium and all unpaid losses as of the
end of the second quarter of 1999 that were attributable to 37 series of Shares
that the board voted to redeem (the "Recapture"). During the quarter ended March
31, 2000, the Company made a cash payment in the amount of $19,660,649 to MIC in
full settlement of its obligation under this agreement.
Notwithstanding the Redemption and the Recapture, there can be no assurances
that the Company will not continue to experience significant adverse
underwriting results. In addition, there can be no assurances that MIC would
recapture additional business from the Company if the Company experiences
significant adverse underwriting results in the future.
Investment income for the quarter ended March 31, 2000 was $329,914 compared to
$224,284 for the comparable period of 1999. During the quarter under review, the
Company realised losses on the sale of investment securities of $989,908
compared to losses of $1,115,006, during the comparable period of 1999. As of
March 31, 2000, the Company had net unrealized appreciation of $624,074 on its
investments compared to unrealized depreciation of $162,459 as of December 31,
1999. 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, 2000 compared to December 31, 1999 are in large part
attributable to a continued decline in value of bonds as a result of higher
interest rates offset to some extent by unrealised gain on the Company's
investment in an international equity fund.
For the quarter ended March 31, 2000 the Company had interest income of
$1,319,822 compared to $1,379,290 for the comparable period of 1999. During the
period under review there was very little change in either the assets under
management or the coupon rates on invested assets by comparison to the same
period in the prior year.
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Year 2000. The Company does not separately own or license any computers or
computer software applications. Accordingly, the Company had minimal exposure
with respect to the transition to Year 2000 on its computerized systems and
microprocessors. During 1999 the Company completed communications and
assessments with the Manager and other service and technology providers,
including those on which the Company is dependent, to ensure adequacy with the
transition to Year 2000. Also during 1999, MIC successfully completed its
assessment and remediation project to address the Year 2000.
To date, the Company has not experienced any material adverse effect on its
business, results of operations or financial condition as a result of the Year
2000 Issue. Furthermore, because the Company does not own or license any
computers or computer software applications, it did not incur any expenses with
respect to remediation of Year 2000.
The Company will continue to monitor its operations, and the operations of third
parties that are critical to its operations, for potential Year 2000-related
problems. However, the Company does not anticipate that it will discover any
future Year 2000 issues that will have a material effect on its business,
results of operations, or financial condition.
Forward Looking Statements. The foregoing Management Discussion and Analysis
contains various forward looking statement 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 form those
anticipated.
PART II. OTHER INFORMATION
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.
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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: May 10, 2000
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<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, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCES TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 75,610,406
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 75,610,406
<CASH> 13,544,143
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 24,574,879
<TOTAL-ASSETS> 115,084,935
<POLICY-LOSSES> 4,715,923
<UNEARNED-PREMIUMS> 94,518,766
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 200,000
<OTHER-SE> 15,154,730
<TOTAL-LIABILITY-AND-EQUITY> 115,084,935
13,473,828
<INVESTMENT-INCOME> 1,319,822
<INVESTMENT-GAINS> (989,908)
<OTHER-INCOME> 0
<BENEFITS> 10,781,962
<UNDERWRITING-AMORTIZATION> 3,506,888
<UNDERWRITING-OTHER> 170,316
<INCOME-PRETAX> (646,108)
<INCOME-TAX> 0
<INCOME-CONTINUING> (646,108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (646,108)
<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>
