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 September 30, 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 September 30, 2000
----- ------------------------
Common Stock, no par-value 2,000
Participating Stock, no par-value 26,000
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:
-1-
<PAGE>
PAGE 2
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
1. Balance Sheets, September 30, 2000 and December 31, 1999.
2. Statements of Income and Retained Earnings for the three month
periods ended September 30, 2000 and 1999 and the nine month
periods ended September 30, 2000 and 1999.
3. Statements of Cash Flows for the nine month periods ended September
30, 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.
-2-
<PAGE>
PAGE 3
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
----------------------------------------------
BALANCE SHEETS
--------------
(Expressed in U.S. Dollars)
September 30, December 31,
2000 1999
------------- -------------
(unaudited)
ASSETS
Investments $ 86,531,260 $ 79,184,187
Cash and cash equivalents 5,968,550 26,602,226
Accrued investment income 668,943 2,253,779
Deferred acquisition costs 24,555,350 24,418,570
Prepaid expenses 0 46,000
------------ ------------
Total Assets $117,724,103 $132,504,762
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums 94,443,654 $ 93,941,365
Loss reserves 4,813,718 4,725,239
Accrued liabilities 182,820 276,116
Due to Motors Insurance Corporation 1,302,327 18,338,925
------------ ------------
Total liabilities 100,742,519 117,281,645
------------ ------------
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 -
26,000 shares as of September 30
2000 and 26,600 shares as of
December 31, 1999 1,950,000 1,995,000
------------ ------------
2,150,000 2,195,000
Retained Earnings 13,183,613 13,190,576
Accumulated other comprehensive
income (loss) 1,647,971 (162,459)
------------ ------------
Total Stockholders' Equity 16,981,584 15,223,117
------------ ------------
Total Liabilities and Stockholders'
Equity $117,724,103 $132,504,762
============ ============
-3-
<PAGE>
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
----------------------------------------------
STATEMENTS OF INCOME AND RETAINED EARNINGS
------------------------------------------
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999 AND
-------------------------------------------------------------------------------
THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
----------------------------------------------------------------------
(UNAUDITED)
-----------
(Expressed in U.S. Dollars)
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
2000 1999 2000 1999
----------- ----------- ----------- ------------
INCOME
Reinsurance premiums
assumed $13,118,404 $15,630,049 $41,250,106 $52,670,995
Reinsurance premiums
returned 0 24,934,234 0 24,934,234
Increase (decrease) in
unearned premiums (640,685) (22,559,363) 502,289 (17,233,611)
---------- ---------- ---------- ----------
Premiums earned 13,759,089 13,255,178 40,747,817 44,970,372
---------- ---------- ---------- ----------
Investment income
Interest earned 961,803 1,540,605 3,580,162 4,321,589
Realized gains(losses )
on investments 275,544 (839,940) (891,474) (3,545,097)
---------- ---------- ---------- ----------
Investment income 1,237,347 700,665 2,688,688 776,492
---------- ---------- ---------- ----------
TOTAL INCOME 14,996,436 13,955,843 43,436,505 45,746,864
---------- ---------- ---------- ----------
EXPENSES
Acquisition costs 3,577,674 3,421,349 10,599,141 11,691,326
Losses paid 10,705,771 11,147,400 31,469,324 36,402,128
Increase in
loss reserves 84,812 180,933 88,479 458,761
Administrative
expenses
- Related Parties 54,502 63,025 192,494 190,092
- Other 72,469 88,213 317,084 292,553
---------- ---------- ---------- ----------
TOTAL EXPENSES 14,495,228 14,900,920 42,666,522 49,034,860
---------- ---------- ---------- ----------
NET INCOME(LOSS) 501,208 (945,077) 769,983 (3,287,996)
RETAINED EARNINGS,
beginning of period 12,659,905 14,146,110 13,190,576 20,629,009
LESS: DIVIDENDS 0 0 (673,134) (4,066,464)
LESS: REDEMPTION OF
PARTICIPATING STOCK 22,500 (29,077) (103,812) (102,593)
---------- ----------- ----------- ----------
RETAINED EARNINGS,
end of period $13,183,613 $13,171,956 $13,183,613 $13,171,956
=========== =========== =========== ===========
-4-
<PAGE>
PAGE 5
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
-----------------------------------------------
STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED
---------------------------------------------------------
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
-----------------------------------------
(UNAUDITED)
-----------
(Expressed in U.S. Dollars)
Nine Month Periods
Ended September 30,
2000 1999
Cash flows from operating activities:
Reinsurance premiums collected $37,454,813 $54,936,354
Reinsurance premiums returned (24,934,234) 0
Losses and acquisition expenses paid (30,513,854) (52,963,826)
Administrative expenses paid (528,735) (539,482)
Investment income received 5,138,397 4,119,197
----------- -----------
Net cash (used in) provided by
operating activities (13,383,613) 5,552,243
----------- ---------
Cash flows from investing activities:
Purchases of investments (141,824,644) (294,876,253)
Sales of investments 135,396,527 282,479,321
----------- -----------
Net cash invested (6,428,117) (12,396,932)
----------- ---------
Cash flows from financing activities:
Proceeds from issuance of Participating
Stock 0 15,000
Redemption of participating stock (148,812) (177,593)
Dividends paid (673,134) (4,066,464)
----------- ---------
Net cash used in financing activities (821,946) (4,229,057)
----------- ---------
(Decrease) in cash and cash
equivalents (20,633,676) (11,073,746)
Cash and cash equivalents, beginning
of period 26,602,226 19,504,563
----------- ---------
Cash and cash equivalents, end
of period $ 5,968,550 $ 8,430,817
=========== ===========
Reconciliation of net income to net cash
provided by operating activities:
Net income (loss) 769,983 (3,287,996)
Realized losses (gains) on investments 891,474 3,545,097
Change in:
Accrued investment income 1,584,836 (249,292)
Due from Motors Insurance Corporation (17,036,598) 18,999,243
Deferred acquisition costs (136,780) 4,479,429
Prepaid expenses 46,000 (23,625)
Unearned premiums 502,289 (17,233,611)
Loss reserves 88,479 (750,555)
Accrued liabilities (93,296) 73,553
----------- ---------
Net cash provided by operating activities $(13,383,613) $ 5,552,243
============ ===========
-5-
<PAGE>
PAGE 6
Item 2. Management's Discussion And Analysis of Financial Condition
And Results of Operations
Liquidity. 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, 2000, no new series of
Shares were added and three series of Shares were redeemed bringing the total
number of series issued and outstanding to 260 as of the end of the quarter. As
of September 30, 2000, the share capital of the Company was $2,150,000 (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 $1,950,000 (compared with $1,995,000 as of December 31,
1999). In addition the Company had surplus from retained earnings in the amount
of $13,183,613 as of September 30, 2000 compared with $13,190,576 as of December
31, 1999.
Results of Operations. During the quarter ended September 30, 2000, the Company
had net income of $501,208, compared with a net loss of $945,077 for the quarter
ended September 30, 1999. For the nine month period ended September 30, 2000,
the Company had net income of $769,983, compared with a net loss of $3,287,996
for the comparable period in 1999. Income increased for the quarter and nine
month period ended September 30, 2000 compared to the comparable periods for the
prior year as a result of improved underwriting results and increased investment
income, each as discussed below.
Premiums earned increased to $13,759,089 during the quarter ended September 30,
2000 compared to $13,255,178 for the same period in 1999. Expenses incurred
during the quarter ended September 30, 2000 were $14,495,228 compared to
$14,900,920 for the comparable quarter of 1999. The Company experienced a net
underwriting loss for the quarter ended September 30, 2000 of $736,139 compared
to a net underwriting loss of $1,645,742 for the comparable period in 1999. The
ratio of losses incurred to premiums earned for each of the two quarters ended
September 30, 2000 and 1999 was 78.43% and 85.46% respectively.
For the nine month period ended September 30, 2000, the Company had earned
premiums of $40,747,817 compared to $44,970,372 for the comparable period of
1999. Expenses incurred during the nine month period ended September 30, 2000
were $42,666,522 compared to $49,034,860 for the comparable period in 1999. The
net underwriting loss for the Company was $1,918,705 for the nine month period
ended September 30, 2000 compared to $4,064,488 for the comparable period in
1999. The loss ratio for the nine month period ended September 30, 2000 was
77.45%, compared to 81.97% for the nine month period ended September 30, 1999.
-6-
<PAGE>
PAGE 7
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 nine months ended
September 30, 2000, the Company made a cash payment 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 September 30, 2000 was $1,237,347
compared to income of $700,665 for the comparable period of 1999. Investment
income for the nine month period ended September 30, 2000 was $2,688,688
compared to $776,492 for the comparable period of 1999. During the quarter ended
September 30, 2000, the Company realised gains on the sale of investment
securities of $275,544, compared to realised losses of $839,940 during the
comparable period of 1999. The Company realized losses on the sale of investment
securities during the nine month period ended September 30, 2000 as a result of
sales of fixed income securities, the value of which had decreased as a result
of increases in interest rates.
During the nine month period ended September 30, 2000, the Company appointed a
new investment manager and adopted new investment guidelines for its fixed
income portfolio.
The unrealised position on investments reflected unrealised losses of $162,459
at December 31, 1999 and unrealised gains of $1,647,971 at September 30, 2000.
The change in the unrealised position during this period was brought about by an
improvement in the market value of the fixed income portfolio which was
partially offset by a decline in the market value of the Company's investment
in an international equity fund.
For the quarter ended September 30, 2000, the Company had interest income of
$961,803 compared to $1,540,605 for the comparable period of 1999. For the nine
month period ended September 30, 2000, the Company had interest income of
$3,580,162 compared to $4,321,589 for the comparable period of 1999. These
reductions in interest income are in part attributable to the reduction in the
amount of investment assets as a result of the payment made to MIC in connection
with the Redemption.
As of September 30, 2000 the Company's investment portfolio comprised
approximately $75.2 million in fixed income securities, cash and cash
-7-
<PAGE>
PAGE 8
equivalents and approximately $11.3 million in international
equities.
Forward Looking Statements
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.
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.
-8-
<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: November 1, 2000
-9-
<PAGE>
