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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
For quarterly period ended June 30, 2000
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Transition report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
For the transition period from to
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Commission File Number 33-6534
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Motors Mechanical Reinsurance Company, Limited
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(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
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(Address of principle executive offices) (Zip Code)
(246) 436-4895
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(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
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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, 2000
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Common Stock, no par-value 2,000
Participating Stock, no par-value 26,300
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, June 30, 2000 and December 31, 1999.
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2. Statements of Income and Retained Earnings for the
three month periods ended June 30, 2000 and 1999 and
the six month periods ended June 30, 2000 and 1999.
3. Statements of Cash Flows for the six month periods
ended June 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.
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MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
(Expressed in U.S. Dollars)
June 30, 2000 December 31,
(unaudited) 1999
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ASSETS
Investments $ 83,848,656 $ 79,184,187
Cash and cash equivalents 6,299,566 26,602,226
Accrued investment income 1,026,825 2,253,779
Due from (to) Motors Insurance
Corporation 110,904 (18,338,925)
Deferred acquisition costs 24,721,929 24,418,570
Prepaid expenses 44,539 46,000
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Total Assets $116,052,419 $114,165,837
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums $ 95,084,339 $ 93,941,365
Loss reserves 4,728,906 4,725,239
Accrued liabilities 345,249 276,116
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Total liabilities 100,158,494 98,942,720
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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 - 26,300
shares as of June 30, 2000 and
26,600 shares as of December 31, 1999 1,972,500 1,995,000
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2,172,500 2,195,000
Retained Earnings 12,659,905 13,190,576
Accumulated other comprehensive
income (loss) 1,061,520 (162,459)
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Total Stockholders' Equity 15,893,925 15,223,117
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Total Liabilities and Stockholders'
Equity $116,052,419 $114,165,837
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MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE
MONTH PERIODS ENDED JUNE 30, 2000 AND JUNE 30, 1999 AND THE
SIX MONTH PERIODS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
(Expressed in U.S. Dollars)
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Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
2000 1999 2000 1999
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INCOME
Reinsurance premiums
assumed $14,080,473 $19,179,918 $28,131,702 $37,040,946
Increase in unearned
premiums 565,573 2,974,128 1,142,974 5,325,752
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Premiums earned 13,514,900 16,205,790 26,988,728 31,715,194
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Investment income
Interest earned 1,298,537 1,401,694 2,618,359 2,780,984
Realized losses on
investments ( 177,110) (1,550,151) (1,167,018) (2,705,157)
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Investment income (loss) 1,121,427 (148,457) 1,451,341 75,827
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TOTAL INCOME 14,636,327 16,057,333 28,440,069 31,791,021
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EXPENSES
Acquisition costs 3,514,579 4,237,534 7,021,467 8,269,977
Losses paid 9,981,591 13,370,567 20,763,553 25,254,728
Increase in loss
reserves 12,983 243,736 3,667 277,828
Administrative
expenses
- Related Parties 83,805 65,816 137,992 127,067
- Other 128,486 99,828 244,615 204,340
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TOTAL EXPENSES 13,721,444 18,017,481 28,171,294 34,133,940
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NET INCOME (LOSS) 914,883 (1,960,148) 268,775 (2,342,919)
RETAINED EARNINGS,
beginning of period 12,543,156 16,182,420 13,190,576 20,629,009
LESS: DIVIDENDS (673,134) 0 (673,134) (4,066,464)
LESS: REDEMPTION OF
PARTICIPATING STOCK (125,000) (76,162) (126,312) (73,516)
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RETAINED EARNINGS, $12,659,905 $14,146,110 $12,659,905 $14,146,110
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end of period
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MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 2000 AND JUNE 30, 1999 (UNAUDITED)
(Expressed in U.S. Dollars)
Six Month Periods
Ended June 30,
2000 1999
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Cash flows from operating activities:
Reinsurance premiums collected $ 23,374,340 $ 35,756,436
Reinsurance Premiums returned (24,934,234) 0
Losses and acquisition expenses (16,842,885) (34,606,352)
paid Administrative expenses paid (233,582) (356,321)
Investment income received 3,763,155 2,603,289
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Net cash (used in) provided by
operating activities (14,873,206) 3,397,052
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Cash flows from investing activities:
Purchases of investments (109,326,134) (223,017,168)
Sales and maturities of investments 104,718,626 207,221,883
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Net cash invested (4,607,508) (15,795,285)
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Cash flows from financing activities:
Proceeds from issuance of Participating
Stock 0 30,000
Redemption of Participating Stock (148,812) (141,516)
Dividends paid (673,134) (4,066,464)
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Net cash used in financing activities (821,946) (4,177,980)
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Decrease in cash and cash equivalents (20,302,660) (16,576,213)
Cash and cash equivalents, beginning
of period 26,602,226 19,504,563
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Cash and cash equivalents, end
of period $ 6,299,566 $ 2,928,350
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Reconciliation of net income to net cash
provided by operating activities:
Net income (loss) 268,775 (2,342,919)
Realized losses on investments 1,167,018 2,705,157
Change in:
Accrued investment income 1,226,954 (179,695)
Due from Motors Insurance Corporation (18,449,829) (1,022,096)
Deferred acquisition costs (303,359) (1,360,915)
Prepaid expenses 1,461 (24,250)
Unearned premiums 1,142,974 5,325,752
Loss reserves 3,667 277,828
Accrued liabilities 69,133 18,190
Net cash (used in) provided by operating
activities $ (14,873,206) $ 3,397,052
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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.
On May 10, 2000 the Board of Directors authorised the payment of dividends to
eligible holders of Participating Shares aggregating $673,134.
Capital Resources. During the quarter ended June 30, 2000, no new series of
Shares were added and 2 series of Shares were redeemed bringing the total number
of series issued and outstanding to 263 as of the end of the quarter. As of June
30, 2000, the share capital of the Company was $2,172,500 (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 $1,972,500 (compared with $1,995,000 as of December 31, 1999). In
addition, the Company had surplus from retained earnings in the amount of
$12,659,905 as of June 30, 2000 compared with $13,190,576 as of December 31,
1999. The reduction in retained earnings has arisen primarily as a result of the
dividend payment of $673,134 and net redemptions of participating stock of
$126,312.
Results of Operations. During the quarter ended June 30, 2000, the Company had
net income of $914,883, compared with a net loss of $1,960,148 for the quarter
ended June 30, 1999. For the six month period ended June 30, 2000, the Company
had net income of $268,775, compared with a net loss of $2,342,919 for the
comparable period in 1999. As discussed below, the increases in net income for
the quarter and six month period ended June 30, 2000 compared to the comparable
periods of 1999 are primarily attributable to more favourable underwriting
performance and an increase in returns on the Company's investment portfolio.
Premiums earned decreased to $13,514,900 during the quarter ended June 30, 2000
compared to $16,205,790 for the same period in 1999. Expenses incurred during
the quarter ended June 30, 2000 were $13,721,444 compared to $18,017,481 for the
comparable quarter of 1999. The Company experienced a net underwriting loss for
the quarter ended June 30, 2000 of $206,544 compared to an underwriting loss of
$1,811,691 for the comparable period in 1999. The ratio of losses incurred to
premiums earned for the quarter ended June 30, 2000 was 74% compared to 84% for
the comparable period in 1999.
For the six month period ended June 30, 2000, the Company had earned premiums of
$26,988,728 compared to $31,715,194 for the comparable period of 1999. Expenses
incurred during the six month period ended June 30, 2000 were $28,171,294
compared to $34,133,940 for the
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comparable period in 1999. The net underwriting loss for the Company was
$1,182,566 for the six month period ended June 30, 2000 compared to $2,418,746
for the comparable period in 1999. The loss ratio for the six month period ended
June 30, 2000 was 77%, compared to 80.5% for the six month period ended June 30,
1999.
The decrease in earned premium and expenses for the quarter and six month period
ended June 30, 2000 were in large part attributable to the Redemption and
Recapture discussed below. The reduction in loss ratios for the quarter and six
month period ended June 30, 2000 were atributable to the Redemption and
Recapture as well as improved underwriting results for existing series.
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 June 30, 2000 was $1,121,427 compared to
losses of $148,457 for the comparable period of 1999. Investment income for the
six month period ended June 30, 2000 was $1,451,341 compared to $75,827 for the
comparable period of 1999. During the quarter ended June 30, 2000, the Company
realised losses on the sale of investment securities of $177,110, compared to
realised losses of $1,550,151 during the comparable period of 1999. The Company
realized losses on the sale of investment securities during the quarter and the
six month period ended June 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 six month period ended June 30, 2000, the Company
appointed a new investment manager and adopted new investment guidelines.
The unrealised appreciation on investments was $1,061,520 at June 30, 2000
compared to unrealised depreciation on investments of $162,459 at December 31,
1999. This increase is mainly due to increases in the market value of the
Company's investment in an international equity fund and the reduction in its
unrealised loss position in its fixed income portfolio.
For the quarter ended June 30, 2000, the Company had interest income of
$1,298,537 compared to $1,401,694 for the comparable period of 1999. For the six
month period ended June 30, 2000, the Company had interest income of $2,618,359
compared to $2,780,984 for the comparable period of 1999. These decreases were
largely attributable to the reduction in the Company's portfolio of fixed income
securities resulting from a
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significant return of premium to MIC during the first quarter of 2000 pursuant
to the Recapture.
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 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 form
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 May 10,
2000 (the "Annual Meeting") the holder of the Common Stock re-elected
five directors, William B. Noll, John J. Dunn Jr., Thomas D. Callahan,
Robert E. Capstack and Peter R.P. Evelyn. The holders of Participating
Shares unanimously elected the sixth director, Haywood B. Hyman Jr..
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 (i) permit
transfers of shares by a shareholder without requiring the shareholder to first
receive a bona fide written offer, (ii) exclude unrealised gains or losses on
investments from the calculation of a share redemption price, and (iii) replace
the requirement that minimum annual dividends be paid within 120 days of the
beginning of the year with the requirement that such dividends be paid in the
year declared.
In addition, the Shareholders of the Company unanimously approved a change to
the Company's By Law removing the requirement for the majority of meetings of
the Directors and any Committees of the Directors to be held within Barbados.
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
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Ronald W. Jones
Vice President, Finance
Signing on behalf of
the Registrant, and
Principal Financial Officer
Dated: August 11, 2000
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