-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DCJipw5tUvc5Se9dPm8BtYyORv3iFlh9TU35BvClHNFC6yxvkigdn2xeIUcemQ8q ofEiBwX60VF4dj5EKUVc8Q== 0000898080-99-000162.txt : 19990518 0000898080-99-000162.hdr.sgml : 19990518 ACCESSION NUMBER: 0000898080-99-000162 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTORS MECHANICAL REINSURANCE CO LTD CENTRAL INDEX KEY: 0000790381 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-06534 FILM NUMBER: 99628902 BUSINESS ADDRESS: STREET 1: TRIDENT HOUSE CITY: BRIDGETOWN BARBADOS STATE: C8 ZIP: 00000 BUSINESS PHONE: 8094364895 MAIL ADDRESS: STREET 1: SUTHERLAND ASBILL & STREET 2: 1275 PENNSYLVANIA AVE N W CITY: WASHINGTON STATE: DC ZIP: 20004-2404 10-Q 1 QUARTERLY REPORT 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 ---------- ---------- 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, 1999 ----- -------------------- Common Stock, no par-value 2,000 Participating Stock, no par-value 31,200 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. -2- PAGE 3 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 ============ ============ -3- PAGE 4 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 =========== =========== -4- PAGE 5 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 =========== =========== -5- 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. -6- 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. -7- 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- EX-27 2 FINANCIAL DATA SCHEDULE
7 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. 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 100,924,615 0 0 0 0 0 100,924,615 2,938,396 0 29,272,294 136,113,075 5,427,910 112,594,698 0 0 0 0 0 200,000 17,711,153 136,113,075 15,509,404 1,379,290 (1,155,006) 0 11,918,253 4,032,443 165,763 (382,771) 0 (382,771) 0 0 0 (382,771) 0 0 0 0 0 0 0 0 0 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.
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