-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, hCPu/KOkWR6X7pEqJNjygfG0d+EtgzDURn5KMXCdSI4nqZWYAhZ7/kzvSy4nM6Qk VfYDa7jsvx0sMWK9H428vA== 0000898080-94-000022.txt : 19940404 0000898080-94-000022.hdr.sgml : 19940404 ACCESSION NUMBER: 0000898080-94-000022 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940330 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTORS MECHANICAL REINSURANCE CO LTD CENTRAL INDEX KEY: 0000790381 STANDARD INDUSTRIAL CLASSIFICATION: 6331 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 033-06534 FILM NUMBER: 94519284 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-K 1 10-K Registration No. 33-6534 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Or Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended December 31, 1993 MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED (Exact name of registrant as specified in its charter) Barbados Not Applicable (State or other jurisdiction (I.R.S. employer identification of incorporation or organization) number) Financial Services Centre Bishops Court Hill Not Applicable St. Michael, Barbados, W.I. (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (809) 436-4895 Securities registered pursuant to Section 12(b) of the Act: Name of each Title of each class Exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: None 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 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Aggregate market value of the voting stock held by non-affiliates of the registrant as of March 1, 1994, was $1,477,500*. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class As of March 1, 1994 Common Stock, no-par value 2,000 Participating Stock, no-par value 19,700 * Based on current offering price of $75 per share. PART I Item 1. BUSINESS INTRODUCTION Motors Mechanical Reinsurance Company, Limited (the "Company") was incorporated in Barbados on June 12, 1986. It became registered in Barbados as an insurer on June 30, 1986 and commenced insurance operations on December 11, 1987. The business of the Company is the assumption of motor vehicle mechanical breakdown insurance risks arising under insurance policies reinsured by Motors Insurance Corporation ("MIC") to the extent such policies are attributable to an MIC agency account in respect of which a series of shares is issued and outstanding (the "Policies"). These policies are issued either to General Motors Corporation or affiliates ("GM") or to automobile dealers, reinsured by MIC, and retroceded to the Company. Shares of the Company's Participating Stock (the "Shares") are sold to persons designated by owners of motor vehicle sales franchises with respect to which MIC maintains an MIC Agency Account. A separate series is created for Shares relating to each MIC Agency Account, and a separate "Subsidiary Capital Account" is maintained for each such series. The profitability of the Company reflects both underwriting and investment experience, which is allocated among the Subsidiary Capital Accounts. THE RETROCESSION The Retroceding Company. MIC, the retroceding company under the Retrocession Agreement described below, is a stock insurance company organized under the laws of New York. All of MIC's outstanding stock is owned by General Motors Acceptance Corporation which, in turn, is a wholly owned subsidiary of GM. MIC, directly and through its subsidiaries, offers property and casualty coverages in all 50 states and the District of Columbia, as well as in Canada and Europe. MIC consistently has been awarded A.M. Best Company's insurance financial rating of A + (Superior), one of the highest possible ratings. MIC maintains MIC Agency Accounts in respect of Franchises to which the risks to be retroceded can be attributed. (A single MIC Agency Account may be estab- lished either for a single Franchise or in respect of a group of Franchises treated as a single business unit by MIC and its subsidiaries.) Currently, there are more than 6,800 MIC Agency Accounts in respect of Franchises through which mechanical insurance business is produced. The Retrocession Agreement -- Principal Agreement. The Company has entered into a "quota share" retrocession agreement (the "Agreement") which became effective as of December 11, 1987. Pursuant to the Agreement, MIC retrocedes to the Company, and the Company is obligated to assume, MIC's risks in respect of policies issued by any MIC subsidiary and reinsured by MIC that cover automobile mechanical breakdown risks, to the extent that risks under such policies are attributable to an MIC Agency Account in respect of which a series of Shares is issued and outstanding. MIC retrocedes 100% of the risk and the Company assumes 75% of the original gross premium, reduced by agents' commissions, if any. The remaining 25% of the gross premium is retained by MIC as a ceding commission. The Company assumes 75% of the risk with respect to these policies and MIC pays 56.25% of the gross premium at the time the policies are written. The remaining 25% of the risk is ceded to the Company and MIC pays 18.75% of the gross premium as the premiums are earned. Settlements between the Company and MIC are made quarterly. The Agreement may be terminated at any time by mutual consent of the parties, or by either party upon 30 days written notice. Upon termination of the Agreement, MIC and the Company will remain bound by their respective obligations under the Agreement with respect to risks retroceded prior to the close of business on the date of termination. However, risks not yet retroceded to the Company under the Agreement shall remain risks of MIC. The Retrocession Agreement -- Supplemental Agreement. MIC from time to time enters into agreements with Franchise owners for which an MIC Agency Account is established, pursuant to which MIC, acting for itself and on behalf of certain of its subsidiaries, agrees to cede or retrocede to another insurance company mutually satisfactory to MIC and the respective Franchise owners the unexpired liability on service contracts, insured under the Policies, sold after the date specified in each such agreement. This liability can be ceded or retroceded to dealer-owned companies organized specifically with respect to a particular Franchise or, if a series of Shares is issued which relates to the Franchise, pursuant to an agreement between MIC and the Company (the "Supplemental Retrocession Agreement"). For this purpose, unexpired liability means MIC's liability in respect of the remaining period of coverage under the Policy as of the effective date of the cession. Under the Supplemental Retrocession Agreement, unexpired liability in respect of the Policies is assumed on the same basis as risks retroceded to the Company under the principal Retrocession Agreement. Types of Risks Subject to Retrocession. Coverages assumed under the Agreement are limited to service contracts or insurance policies insured or reinsured by MIC that provide indemnification against specific automobile mechanical breakdowns not covered by a manufacturer's new vehicle warranty. Such service contracts or insurance policies often provide additional coverages, such as towing and rental allowances. Loss Reserves. Reserves are balance sheet liabilities representing estimates of amounts needed in the future to pay claims with respect to insured events which have occurred as of the balance sheet dates. For purposes of establishing loss reserves, the Company relies upon the advice of MIC. Loss reserves are based on judgments of the effects of technological change, manufacturer's warranties, and MIC's historical experience with automotive mechanical breakdown risks. Consequently, the determination of loss reserves is a process inherently subject to a number of highly variable factors. Any adjustments to reserves are reflected in the operating results for the periods in which they become known. The Company's incurred loss ratios (losses incurred as a percentage of net premium earned) on all mechanical business for the fiscal years ended December 31, 1993, 1992 and 1991, were 70.7%, 62.8% and 68.2%, respectively. The following table sets forth an analysis of changes in the loss reserves for the fiscal years ended December 31, 1993, 1992 and 1991: Period Ended 12/31/91 12/31/92 12/31/93 Beginning balance in reserves for losses....... $1,075,123 $1,396,542 $1,622,855 Add-provision for losses incurred related to: Current claim year...... $7,301,654 $8,461,984 $11,046,932 Prior claim years....... $ (282,726) $ (297,535) $ (134,249) Total................ $7,018,928 $8,164,449 $10,912,683 Deduct-paid losses attributable to: Current claim year.................... $5,948,952 $7,025,671 $9,363,720 Prior claim years................... $ 748,557 $ 912,465 $1,261,788 Total................... $6,697,509 $7,938,136 $10,625,508 Ending balance in reserves for losses................ $1,396,542 $1,622,855 $1,910,030 The following table analyzes the development of loss and loss adjustment expense from February 1, 1989 through December 31, 1993. 1/31/90 12/31/90 12/31/91 12/31/92 12/31/93 Liability for unpaid claims and claims adjustment expense $ 766,912 $1,075,123 $1,396,542 $1,622,855 $1,910,030 Paid (cumulative) in subsequent year(s) $ 666,866 $ 748,557 $ 912,465 $1,261,788 Estimated unpaid liability as of December 31* 2,393 43,840 186,542 226,818 Cumulative Deficiency (Redundancy) $ (97,653) $(282,726) $ (297,535) $ (134,249) */ Because mechanical breakdown claims are generally paid within 90 days of when they are incurred, liability for unpaid claims incurred in prior years is negligible. Accordingly, liability for unpaid claims incurred in all prior years has been combined at each year end. The table shows initial estimated reserves at December 31, 1993, 1992, 1991 and 1990, and January 31, 1990 and amounts paid on claims unsettled at each prior period end. Claims are typically processed for payment at the time the claim is reported. Therefore, the recorded claim liability at each year end represents the estimated incurred but not reported claims and claims in the process of payment. The cumulative deficiency or redundancy represents the total change in reserve estimates covering prior years. It should be noted that the policies reinsured by the Company are written for multiple years (up to six years) and losses do not occur equally over the period for which the policy is written but tend to be clustered in the later years. Therefore, loss experience for prior years may not be indicative of that for future years. INVESTMENT INCOME A major source of income to an insurance company is income earned on the investment of amounts not currently required to meet claims or expenses. The principal funds available for investment by the Company come from accumulated capital, and the cumulative excess of premiums collected over losses and operating expenses paid. The Company's funds are invested in a manner consistent with investment guidelines that have been established by the Board. Under the present guidelines, the Company is permitted to invest only in U.S. dollar-denominated securities issued outside of the United States by non-United States private or governmental issuers, and U.S. dollar- denominated bank certificates of deposit issued by foreign banks and foreign branches of U.S. banks. Such securities and certificates must be rated at least AA2 by Moody's or AA by Standard & Poor's (S&P) or the equivalent, or guaranteed by such an issuer. Investments in such securities, particularly those of nongovernmental issuers, may involve considerations not ordinarily associated with investments in domestic issuers. These considerations include, but are not limited to, the possibility of expropriation, the unavailability of financial information or difficulty in interpreting such information when it is prepared under foreign accounting or regulatory standards, the possible negative impact of political, social or diplomatic developments, and the possible imposition of withholding taxes by foreign taxing authorities. Rothschild Asset Management Limited ("Rothschild") manages the investment and reinvestment of the Company's funds in accordance with the investment policies and guidelines established by the Board. Rothschild, which is one of the leading institutions engaged in the management of offshore fixed-income portfolios, and which has been providing this service since 1974, is an affiliate of NM Rothschild and Sons Limited, a prominent merchant bank in London which has been in the investment management business worldwide for more than 100 years. Rothschild charges a management fee of 0.3% per annum on the first $20,000,000 of assets under management based on the market value of the company's investment portfolio at the end of each calendar quarter, and 0.15% per annum on the excess thereof. ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS The Company has established a Subsidiary Capital Account with respect to the Common Stock as a class, and establishes such an account with respect to each series of Shares at the time a series is issued. Subsidiary Capital Accounts are maintained solely for the purpose of the allocations described below, and do not serve any other legal or accounting function. None of the Company's assets are segregated or earmarked with respect to those accounts. The consideration received by the Company upon the issuance of a particular series of Shares and the Common Stock as a class are allocated to the Subsidiary Capital Account for that series or class. Items of income and expense, and losses, attributable to insurance underwriting activities are determined and allocated to the Subsidiary Capital Accounts as of the end of each quarter. Investment experience, and other items of income and expense, gains and losses and distributions with respect to the Capital Stock, are determined and allocated to the Subsidiary Capital Accounts as of the end of each quarter. All such accounting determinations are made using United States generally accepted accounting principles, unless otherwise required by the Articles. For purposes of the following discussion, items shall be "related" to the Subsidiary Capital Account for the series identified with the MIC Agency Account to which such items can be attributed. (1) Allocations with respect to underwriting activities are made as follows: (a) With respect to premiums ceded by MIC to the Company, 100% to the related Subsidiary Capital Account; provided, however, that an amount equal to 1-1/3% of those premiums, net of related ceding commissions, are subtracted from such Subsidiary Capital Account and allocated to the Subsidiary Capital Account for the Common Stock. (b) With respect to any agents' or brokers' commissions, commissions recaptured, unearned premiums, reinsurance premiums ceded, and any United States excise tax, 100% to the related Subsidiary Capital Account. (c) With respect to losses incurred, and any amount of losses recovered through salvage, subrogation, reimbursement or otherwise: (i) ninety percent (90%) to the related Subsidiary Capital Account; and (ii) the remainder among all Subsidiary Capital Accounts of the Shares pro rata in accordance with the relative earned premiums attributable to those accounts for the quarter in which the losses are incurred. (d) With respect to return premiums, 98-2/3% to the related Subsidiary Capital Account and 1-1/3% to the Subsidiary Capital Account for the Common Stock. (2) Any expenses or liabilities attributable to day-to-day Company operations, excluding any United States Federal income taxes, are allocated among all Subsidiary Capital Accounts for the Shares pro rata in accordance with the relative earned premiums allocated to those accounts for the quarter in which the expense or liability is incurred. (3) Any United States Federal income tax liability (and any interest thereon or any penalties related thereto) is allocated among the Subsidiary Capital Accounts based upon the relative contribution of each of those accounts to the taxable income of the Company upon which the tax (or any interest or penalties) is imposed. (4) Any expenses or liabilities attributable to the sale and issuance of Shares, including but not limited to the costs of compliance with regulations and requirements of the Securities and Exchange Commission and state securities laws (but not including ongoing periodic reporting costs), are allocated to the Subsidiary Capital Account for the Common Stock; however, MIC may undertake to pay such expenses. (5) Any expenses or liabilities of the Company not allocable in the manner described in paragraphs 2 through 4 above are allocated among the Subsidiary Capital Accounts on the basis of the relative balances of those accounts as of the end of the quarter preceding the date on which the expense or liability is incurred. (6) (a) Investment income, net of any direct investment expense, is allocated among the Subsidiary Capital Accounts pro rata based upon the relative Investment Asset Balance (as defined in subparagraph (b) below) of each of those accounts as of the last day of the quarter preceding the quarter for which the investment income is being allocated. For these purposes, net investment income includes realized (but not unrealized) gains and losses. (b) The Investment Asset Balance of each Subsidiary Capital Account is equal to the capital and surplus of each account, increased by: (i) the unearned portions of the written premiums that have been collected by the Company attributable to those accounts as of the last day of the quarter preceding the quarter for which the income is being allocated, net of any applicable commissions and taxes; (ii) the outstanding loss reserves attributable to each of those accounts as of the last day of the quarter preceding the quarter for which the income is being allocated; and (iii) any other outstanding liability that has been charged to the account as of the last day of the quarter preceding the quarter for which the income is being allocated. (7) (a) If, after the credits and charges described in paragraphs 1-6 above are made to the Subsidiary Capital Accounts there exists a deficit in one or more of the accounts, then each such deficit is allocated to and charged against: (i) first, the Subsidiary Capital Account for the Common Stock to the extent of Restricted Earned Surplus (the phrase "Restricted Earned Surplus" refers to the portion of the earned surplus, if any, in the Subsidiary Capital Account for the Common Stock equal to that 1-1/3% of the premiums ceded to the Company during the immediately preceding five-year period which was subtracted from the Subsidiary Capital Accounts for the Shares pursuant to paragraph 1(a) above, net of losses allocated to that account during such period pursuant to the allocation procedure described in this paragraph 7 and net of return premiums allocated to that Account during such period pursuant to the allocation procedure described in paragraph (1)(d) above); (ii) then, the Subsidiary Capital Accounts for the Shares, pro rata, based upon the relative earned premiums allocated to each such account for the quarter for which the allocation is being made, provided, however, that only accounts which have positive balances are taken into account for purposes of this allocation; (iii) then, the remaining Subsidiary Capital Accounts for the Shares with positive balances as of the last day of the quarter for which the allocation is being made, pro rata, based upon such balances; and (iv) then, to the extent necessary, the Subsidiary Capital Account for the Common Stock. (b) If, as a result of an allocation of a deficit as described in subparagraph (ii) or (iii) of paragraph (a) above, a deficit is created in one or more of the Subsidiary Capital Accounts, then the resulting deficit(s) are further allocated in the manner provided in that subparagraph before applying a subsequent subparagraph. (c) Notwithstanding the foregoing, if any Subsidiary Capital Account for a series of Shares had a deficit that was allocated to and charged against the Restricted Earned Surplus, then at the end of any succeeding quarter for which that account otherwise would show an account balance greater than zero, the balance is reallocated to the Restricted Earned Surplus until all reductions of that surplus attributable to that Subsidiary Capital Account have been restored. Thus, a loss in a Subsidiary Capital Account which exceeds the balance in that account is absorbed by other Subsidiary Capital Accounts, in general, as follows: The amount of such excess losses is charged first to the Restricted Earned Surplus portion of the Subsidiary Capital Account of the Common Stock. Any remaining losses, should the Restricted Earned Surplus be exhausted, is allocated among the Subsidiary Capital Accounts of other participating series. Any then unabsorbed losses are charged to the Subsidiary Capital Account of the Common Stock. Funds drawn from the Restricted Earned Surplus in the manner described above must be restored from the Subsidiary Capital Account that drew the funds if at any time it returns to a positive balance. Funds drawn from the Subsidiary Capital Accounts of other series are not, however, restored. (8) (a) Dividends, payments upon redemption or liquidation (described below), and any other distributions with respect to the Capital Stock are allocated to the Subsidiary Capital Account for the class or series with respect to which the dividend, payment or distribution was made. (b) Where all Shares of a series are repurchased by the Company pursuant to its right of first refusal or redeemed in accordance with the Company's procedures for redemption, the Subsidiary Capital Account for that series is terminated. Thereafter, all underwriting income and expenses, and losses that would have been allocated to the terminated account, are allocated among the Subsidiary Capital Accounts of the existing series of Shares pro rata based upon relative earned premiums attributable to each of those accounts for the calendar quarter in which the item was earned or incurred. The allocations of income and expense, gains and losses, and distributions described above are subject to approval by the Board, and when finally so approved are considered final and conclusive and will be binding on all holders of Shares for all purposes including without limitation any redemption of Shares pursuant to the Company's procedures for redemption. Using the procedures described above, the Company has allocated items of gain and loss to the Subsidiary Capital Account for each series. Initially each Account had a balance of $7,500 representing the amount paid for the Shares of that series. During the fiscal year ended December 31, 1993, $507,643 of net underwriting gains were allocated among the 189 series of Shares outstanding as of December 31, 1993 and $2,700,242 of net investment income and $503,178 of administrative expenses were allocated among the 189 series of Shares outstanding as of December 31, 1993 and the Common Stock. As of December 31, 1993, 163 such series had balances greater than $7,500 (ranging from $7,537 to $187,718) and 26 series had balances less than $7,500 (ranging from $6,904 to zero). (It should be noted that the amounts in the Subsidiary Capital Accounts can fluctuate substantially and therefore may not be indicative of future results.) At December 31, 1993, an aggregate of $901,758 had been advanced from the Restricted Earned Surplus (which forms a portion of the Account established for the Common Stock owned by MIC) to 15 Subsidiary Capital Accounts and remained outstanding at that date. Aggregate deficits reallocated among the Subsidiary Capital Accounts of the Shares through December 31, 1993 were $369,711. The Subsidiary Capital Account for the Common Stock had, at the time it was established, a balance of approximately $200,000, representing the capital paid in by MIC for the 2,000 shares of the Common Stock issued to it. That Subsidiary Capital Account is not affected directly by underwriting gains and losses attributable to the various Subsidiary Capital Accounts related to series of Shares, but is affected by those gains and losses indirectly to the extent that one of the Subsidiary Capital Accounts for a series of Shares incurs a deficit, in which case resort to the Subsidiary Capital Account for the Common Stock will result, in the manner described above. The Company is currently in compliance with the net asset value requirements of Barbados insurance law. However, in the event that the Company is unable to comply with such requirements in the future, it has the right to reduce the business related to a Subsidiary Capital Account by retrocession or any other means to the extent necessary to permit the Subsidiary Capital Account to meet its pro rata share of the Company's required capital and surplus. EMPLOYES The Company does not have any full-time employes. Rather, the Company relies on Alexander Insurance Managers (Barbados) Ltd. (the "Manager"), to handle its day-to-day operations. (See "Business of the Company -- Insurance Management Agreement," below.) In addition, corporate secretarial services for the Company are provided by Corporate Services Limited of St. Michael, Barbados. The Board and the committees thereof, however, remain responsible for the establishment and implementation of policy decisions. COMPETITION The insurance business is extremely competitive. MIC management believes that at present, MIC and its subsidiaries are, as a group, one of the largest mechanical breakdown insurers of new GM vehicles in the United States. There are other major companies offering similar coverage. Because the insurance business of the Company is limited to the assumption of certain mechanical breakdown insurance business ceded by MIC, the profitability of the Company depends to a large degree on the success experienced by MIC and its affiliates in competing with those other insurers. Many commercial insurance groups are seeking to capture additional mechanical insurance business by offering to assist automobile dealers in the formation of their own dealer-owned reinsurance companies. MIC itself has assisted in the establishment of such companies for a number of qualified GM dealers. However, MIC believes that participation in the Company represents a more practical alternative for dealers who do not have the available capital, insurance management expertise or time for the personal involvement necessary for their own reinsurance company. INSURANCE MANAGEMENT AGREEMENT The Company has entered into an Insurance Management Agreement (the "Management Agreement") with the Manager, pursuant to which the Manager collects and dis- burses funds on behalf of the Company, provides bookkeeping, clerical, tele- phone, telex, and other services for the Company, and advises and consults with the Company in regard to all aspects of the Company's retrocession activities. Pursuant to the Management Agreement, the Manager has undertaken to maintain an office in Barbados to perform its duties. Further, during the term of the Management Agreement and generally for a period of one year thereafter, the Manager has agreed not to provide management or accounting services for any other company which, by the nature of its operations, is offering, insuring or reinsuring mechanical breakdown and/or extended warranty or related coverages on a multi-state basis in the United States or Canada with respect to motor vehicles sold by franchised GM dealerships. Under the terms of the Management Agreement, the Company pays the Manager a fee based on hourly rates for services performed. For the fiscal year ended December 31, 1993, the Company paid fees to the Manager in the amount of $180,135. The Manager is responsible for the payment of the salaries of its officers and employes and all office and staff overhead and other costs attributable to its services on the Company's behalf. However, out-of-pocket expenses, such as telephone, telex, postage, travel, and other items are borne by the Company on an expense reimbursement basis. The Manager was incorporated in Barbados in 1984, and is an affiliate of Alexander and Alexander, an international insurance brokerage and insurance consulting firm. The Manager performs services similar to those performed for the Company for several other entities. The Manager has nine employes. In addition, the Manager may draw upon the resources of its affiliates as needed to provide the services contemplated under the Management Agreement. No employe of the Manager devotes all of his or her time to the business of the Company. However, the Manager is obligated to devote all employe time neces- sary to ensure the performance of the Manager's duties under the Management Agreement. The Manager is subject to the control and direction of the Board. The Manager has served in that capacity since 1986. The current Management Agreement became effective on March 19, 1992 and may be terminated by either party as of the end of the then current fiscal year by the giving of written notice to the other party by September 1 of that year. BARBADOS REGULATION AND TAXES The Company's business is conducted outside of the United States and is subject to regulation under the Barbados Exempt Insurance Act, 1983, as amended (the "Exempt Insurance Act"). The principal requirements of the Exempt Insurance Act require the Company to maintain its principal office in Barbados, appoint various professional advisors, and to meet certain capitalization and annual reporting requirements with respect to its operating activities and solvency requirements. Under the Exempt Insurance Act, no income tax, capital gains tax or other direct tax or impost is levied in Barbados on the results of the Company's operations, or transfers of securities or assets of the Company to any person who is not a resident of Barbados. The Company has received a guarantee from the Minister of Finance of Barbados that such benefits and exemptions will be available for a period ending January 31, 2001. Item 2. PROPERTIES The Company neither owns nor maintains any office space or facilities. Rather, the business office for the Company is provided by the Manager and is located at Financial Services Centre, Bishops Court Hill, St. Michael, Barbados. The Company believes that these facilities are adequate for its current and anticipated future needs. In addition, the Manager supplies all equipment for the Company, and maintains all insurance records for the Company. Item 3. LEGAL PROCEEDINGS The Company is not involved in any legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended December 31, 1993. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) There is no public market for the Shares or the other capital stock of the Company, and none is expected to develop. Transfer of the Shares is restricted by the terms of a Stock Purchase Agreement. (b) All of the common stock of the Company is held by MIC. As of March 1, 1994 there were 335 holders of Shares of record, representing 197 series of Shares. (c) Under the Articles of Incorporation, the holders of Shares are entitled to receive minimum dividends equal to their pro-rata share of 20% of net income attributable to the associated Subsidiary Capital Account provided (i) the Company meets the Barbados regulatory requirements without regard to any letter of credit or guarantee, and (ii) the related Subsidiary Capital Account would also meet those requirements after giving effect to the dividend. In 1990 and 1991, the Company declared minimum dividends as described above in the aggregate amounts of $114,376 and $150,317, respectively. In April of 1992, the Company declared a dividend in the aggregate amount of $1,021,705, which exceeded the required minimum dividend. In April of 1993, the Company declared a dividend in the aggregate amount of $2,021,504, which also exceeded the required minimum dividend. Item 6. SELECTED FINANCIAL DATA The following selected financial data for the fiscal years ended December 31, 1993, 1992, 1991, the eleven month period ended December 31, 1990 and the fiscal year ended January 31, 1990 have been derived from financial statements audited by Deloitte & Touche, independent chartered accountants, whose report with respect to their audits of the financial statements as of December 31, 1993 and 1992 and for each of the three years in the period ended December 31, 1993 is included elsewhere herein. December 31** January 31 1993 1992 1991 1990 1990 Premiums Assumed $27,779,063 $19,386,455 $16,784,405 $12,957,759 $10,032,140 Premiums Earned 15,429,611 13,005,184 10,292,788 8,177,525 5,183,768 Net Investment Income 2,700,242 2,522,712 1,792,947 843,021 727,844 Total Income 18,129,853 15,527,896 12,085,735 9,020,546 5,911,612 Less Losses and Expenses 15,425,146 12,020,682 10,165,350 8,280,612 5,297,836 Net Income* 2,704,707 3,507,214 1,920,385 739,934 613,776 Dividends Per Common Share 0 0 0 0 0 Total Assets 50,359,633 36,847,490 28,124,056 18,759,382 12,507,645 Total Policy Reserves and Other Liabilities 42,430,269 29,777,783 23,148,003 16,347,245 11,238,143 Stockholders' Equity 7,929,364 7,069,707 4,976,053 2,412,137 1,269,502 Dividends Paid on Participating Shares 2,021,504 1,021,705 150,317 114,376 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. See Note 2(f) to the financial statements. **/ In May of 1990, the Company changed its fiscal year end from January 31 to December 31. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity. The Company expects to generate sufficient funds from operations to cover current liquidity needs. Premiums generated by the Company's reinsurance business, combined with proceeds from the sale of Shares, will continue to be the principal sources of funds for investment by the Company. Such funds, and investment earnings thereon, will be available to meet the Company's liquidity requirements. No capital expenditures are expected during the next few years. Capital Resources. Capitalization of the Company, as of December 31, 1993, is comprised of paid-in capital with respect to the Common Stock of $200,000, paid-in capital with respect to the Shares of $1,417,500 (compared with $1,072,500 and $817,500 as of December 31, 1992 and 1991, respectively), and earnings retained for use in the business. Barbados law requires that the Company's net assets equal at least the aggregate of $1,000,000 and 10% of the amount by which the earned premium exceeded $5,000,000 in the previous fiscal year. If the Company's net asset ratio is less than mandated by Barbados law, the Company has the right to reduce the business related to a Subsidiary Capital Account by retrocession or any other means to the extent necessary to permit the Subsidiary Capital Account to meet its pro rata share of the Company's required capital and surplus. At January 1, 1994, the Company's required minimum net assets computed in accordance with Barbados law was approximately $2,042,961, compared to total capital and retained earnings of $7,929,364. Results of Operations. The Company became operational during the fiscal year ended January 31, 1988. The Company's first year of full operation was the fiscal year ended January 31, 1989. In May of 1990, the Company changed its fiscal year end from January 31 to December 31. A full 12 months of underwriting activity are reflected in the financial statements for all periods presented. The results of operations for the 11-month period ended December 31, 1990, however, include only 11 months' investment income and administrative expense. Accordingly, results for the 11-month period ended December 31, 1990 are not fully comparable with results for full fiscal years. ____________________ For the 11-month period ended December 31, 1989, the Company had $5,183,768 of earned premium, $673,785 of investment income and incurred $5,278,717 of losses and expenses. The net income of the Company for the period was $578,836. During the fiscal year ended December 31, 1993, the Company had net income of $2,704,707 compared to $3,507,214 and $1,920,385 for the fiscal years ended December 31, 1992 and 1991, respectively. The reduction in net income during 1993 compared to the previous year is the result primarily of an increase in losses incurred as discussed below. The Company had earned premiums of $15,429,611 compared to $13,005,184 and $10,292,788 for the fiscal years ended December 31, 1992 and 1991, respectively. Increased premium income has been generated by the addition of 46 new series during the year ended December 31, 1993, and the continuing flow of reinsurance premiums from series issued in prior fiscal years. There were 189 series of Shares outstanding at December 31, 1993 compared to 143 and 109 series of Shares outstanding at December 31, 1992 and 1991, respectively. Investment income during the period totaled $2,700,242 compared to $2,522,712 and $1,792,947 for the fiscal years ended December 31, 1992 and 1991, respectively. These gains are attributable to an increase in assets under management which were partially offset by lower interest rates. The Company incurred losses and expenses during the fiscal year ended December 31, 1993 of $15,425,146 compared with $12,020,682 and $10,165,350 for the fiscal years ended December 31, 1992 and 1991, respectively. This was comprised of provisions for losses incurred during the period of $10,912,683, ceding commissions and excise taxes of $4,009,285 and operating expenses of $503,178. Losses incurred in 1992 and 1991 were $8,164,449 and $7,018,928, respectively. The ratio of losses incurred to premiums earned for the fiscal year ended December 31, 1993 was 70.7% compared to 62.8% and 68.2% for the fiscal years ended December 31, 1992 and 1991, respectively. Management believes the Company's increased loss experience in 1993 reflects the effects of changes in underlying manufacturer's warranties. The favorable ratio experienced in 1992 was attributable to a combination of factors including the expiration during that year of certain unlimited mileage mechanical plans that are retroceded to the Company. The Company incurred operating expenses during the fiscal year ended December 31, 1993 of $503,178 compared to $478,475 for the fiscal year ended December 31, 1992 and $307,301 in 1991. In 1993 and 1992, the Company paid share issuance costs and allocated such costs to the Subsidiary Capital Account for the Common Stock. In previous years, these expenses had been paid by MIC pursuant to an agreement by which MIC agreed to pay the costs of issuing shares until such costs could be allocated to the Subsidiary Capital Account for the Common Stock. Share issuance costs for the fiscal year ended December 31, 1993, which were paid by the Company and charged to the Subsidiary Capital Account for the Common Stock, were $74,461 compared to $80,298 for the fiscal year ended December 31, 1992. Pursuant to the Retrocession Agreement, the Company must furnish to MIC collateral in the form of an irrevocable letter of credit of at least 12 months duration equal in amount to the unearned premium in respect of risks retroceded and unpaid loss reserves (including reserves for losses incurred but not reported) otherwise required to be maintained by MIC in respect of the Policies. As of December 31, 1993, the Company had furnished such a letter of credit in the amount of $32,250,000. FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities" is effective for years beginning after December 15, 1993 and will require the Company to classify its securities holdings into three categories (trading, available for sale, and held to maturity). The Company intends to adopt Statement No. 115 in 1994 and believes that the Statement will not have a material effect on the Company's financial position and results of operations. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page 1. Independent Auditors' Report................... __ 2. Balance Sheets, December 31 1993 and 1992................................ __ 3. Statements of Income and Retained Earnings for the years ended December 31, 1993, 1992 and 1991............. __ 4. Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991............. __ 5. Notes to Financial Statements.................. __ INDEPENDENT AUDITORS' REPORT To the Stockholders of Motors Mechanical Reinsurance Company, Limited Financial Services Centre Bishops Court Hill St. Michael, Barbados We have audited the accompanying balance sheet of Motors Mechanical Reinsurance Company, Limited as of December 31, 1993 and 1992 and the related statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Motors Mechanical Reinsurance Company, Limited as of December 31, 1993 and 1992 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in accordance with the accounting principles generally accepted in the United States of America. s/DELOITTE & TOUCHE CHARTERED ACCOUNTANTS Bridgetown, Barbados March 11, 1994 MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED BALANCE SHEETS DECEMBER 31, 1993 AND 1992 (Expressed in U.S. Dollars) December 31 December 31 Notes 1993 1992 ASSETS Investments (c),3,6 $29,882,488 $24,382,923 Cash and cash equivalents 2(c),6 6,788,771 1,710,738 Accrued investment income 861,190 1,115,367 Due from ceding company 2,331,978 2,356,608 Deferred acquisition costs 2(b) 10,495,206 7,281,854 Total Assets $50,359,633 $36,847,490 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Unearned premiums 2(b) 40,413,058 28,063,606 Loss reserves 2(d) 1,910,030 1,622,855 Accrued liabilities 107,181 91,322 Total Liabilities 42,430,269 29,777,783 COMMITMENTS AND CONTINGENCIES 6 STOCKHOLDERS' EQUITY Share capital Common stock - no par value; Authorized - 2,000 shares; issued and outstanding - 2,000 shares 200,000 200,000 Participating - no par value; Authorized - 100,000 shares; issued and outstanding - 18,900 shares at December 31, 1993 and 14,300 shares at December 31, 1992 4 1,417,500 1,072,500 1,617,500 1,272,500 Retained earnings 7 6,211,978 5,528,775 Unrealized appreciation on investments 3 99,886 268,432 Total Stockholders' Equity 7,929,364 7,069,707 Total Liabilities and Stockholders' Equity $50,359,633 $36,847,490 The accompanying notes form an integral part of these financial statements. MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (Expressed in U.S. Dollars) December 31 December 31 December 31 Notes 1993 1992 1991 INCOME Reinsurance premiums assumed 2(b),5 $27,779,063 $19,386,455 $16,784,405 Increase in unearned premiums (12,349,452) (6,381,271) (6,491,617) Premiums earned 15,429,611 13,005,184 10,292,788 Investment income: Interest earned 1,827,955 1,658,430 1,300,603 Realized gains on investments 872,287 864,282 492,344 Investment income - net 2,700,242 2,522,712 1,792,947 TOTAL INCOME 18,129,853 15,527,896 12,085,735 EXPENSES Acquisition costs 2(b) 4,009,285 3,377,758 2,839,121 Losses paid 10,625,508 7,938,136 6,697,509 Increase in loss reserves 287,175 226,313 321,419 Administrative expenses 503,178 478,475 307,301 TOTAL EXPENSES 15,425,146 12,020,682 10,165,350 NET INCOME 2,704,707 3,507,214 1,920,385 RETAINED EARNINGS, beginning of period 5,528,775 3,043,266 1,273,198 DIVIDENDS (2,021,504) (1,021,705) (150,317) RETAINED EARNINGS, end of period $ 6,211,978 $ 5,528,775 $ 3,043,266 The accompanying notes form an integral part of these financial statements. MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991 (Expressed in U.S. dollars) December 31 December 31 December 31 1993 1992 1991 Cash flows from operating activities: Reinsurance premiums collected $26,933,330 $17,624,088 $14,709,039 Losses and underwriting expenses paid (16,977,784) (11,898,682) (10,575,830) Administrative expenses paid (490,616) (429,735) (288,593) Investment income received 2,957,718 2,302,829 1,542,361 Net cash provided by operating activities 12,422,648 7,598,500 5,386,977 Cash flows from investing activities: Purchases of investment securities (49,834,608) (60,877,408) (32,306,550) Sales of investment securities 44,166,497 52,166,918 30,252,467 Net cash invested (5,668,111) (8,710,490) (2,054,083) Cash flows from financing activities: Proceeds from issuance of Participating Stock 345,000 255,000 120,000 Dividends paid (2,021,504) (1,021,705) (150,317) Net cash used in financing activities (1,676,504) (766,705) (30,317) Increase (decrease) in cash and cash equivalents 5,078,033 (1,878,695) 3,302,577 Cash and cash equivalents, beginning of period 1,710,738 3,589,433 286,856 Cash and cash equivalents, end of period $ 6,788,771 $ 1,710,738 $ 3,589,433 Reconciliation of net income to net cash provided by operating activities: Net income $ 2,704,707 $ 3,507,214 $ 1,920,385 Change in: Accrued investment income 254,177 (222,446) (277,412) Due from ceding company 24,630 (653,270) (1,529,537) Deferred acquisition costs (3,213,352) (1,662,778) (1,527,217) Unearned premiums 12,349,452 6,381,271 6,491,617 Loss reserves 287,175 226,313 321,419 Accrued liabilities 15,859 22,196 (12,278) Net cash provided by operating activities $12,422,648 $ 7,598,500 $ 5,386,977 The accompanying notes form an integral part of these financial statements. MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED NOTES TO THE FINANCIAL STATEMENTS (Expressed in U.S. Dollars) Note 1. OPERATIONS The Company is incorporated under the laws of Barbados and is a licensed insurer under the Exempt Insurance Act, 1983. All of the common stock of the Company is owned by Motors Insurance Corporation ("MIC"). MIC is an indirect wholly-owned subsidiary of General Motors Corporation. The principal activity of the Company is the assumption of certain automobile mechanical breakdown risks arising under insurance policies reinsured by MIC and attributable to an MIC Agency Account in respect of which shares of Participating Stock are issued and outstanding. All premiums received were derived from MIC. Note 2. PRINCIPAL ACCOUNTING POLICIES (a) Basis of Presentation The financial statements are stated in United States dollars and are prepared generally in conformity with accounting principles generally accepted within the United States of America. Reinsurance premiums assumed by the Company represent policies ceded by MIC during the twelve months ended December 31 of each fiscal year. (b) Premium Income and Acquisition Costs Reinsurance premiums are based on the Company assuming (after ceding commission) 75% of the original policy premium written by the direct insurer. Of these reinsurance premiums, 75% is retroceded to the Company when written and 25% when earned. Premiums are taken into income on the basis of quarterly cessions and are related to anticipated loss exposures. Acquisition costs, consisting of ceding commissions and excise taxes, are taken into income on the basis of premiums earned. MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED NOTES TO THE FINANCIAL STATEMENTS (Expressed in U.S. Dollars) Note 2. PRINCIPAL ACCOUNTING POLICIES (Cont'd) (c) Investments Investments are comprised of interest-bearing marketable securities which are carried at fair value, based on quoted market prices and dealer quotes obtained from an external pricing service. Investments with original maturities of less than 90 days are classified as cash equivalents. Unrealized appreciation (depreciation) is included in stockholders' equity. Realized gains and losses on the sale of investments are included as investment income. During 1991, the basis of determining the cost of securities sold was changed from the specific identification method to the average cost method. The effect of the change was not material. (d) Loss Reserves The Company provides for unsettled, reported losses based on estimates of the final settlement, with an experience factor added to provide for losses incurred but not reported. The final settlement may be greater or less than the amounts provided. Any such differences, when they become known, are recognized in current operations. (e) Taxation The Company has received an undertaking from the Barbados Government exempting it from all local income, profits and capital gains taxes for a period ending January 31, 2001. Stockholders who are United States residents are taxed on their share of the Company's income on a deemed distribution basis. (f) Earnings Per Share No amount has been reported as earnings per share as the earnings applicable to the Participating Stockholders vary with the underwriting results of each series. Retained earnings applicable to the Common Stockholder include allocated investment income and operating expenses and amounts restricted for advances to Participating Stockholders (see Note 7). MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED NOTES TO THE FINANCIAL STATEMENTS (Expressed in U.S. Dollars) Note 3. INVESTMENTS The cost and estimated fair value of investments in debt securities are as follows: Gross Gross Estimated Unrealized Unrealized Fair Cost Appreciation Depreciation Value December 31, 1993: Debt securities issued by foreign governments and their agencies $16,327,184 $72,332 $(135,761) $16,263,755 Debt securities issued by supra-nationals 7,182,454 103,034 (25,925) 7,259,563 Corporate securities 6,272,964 109,193 (22,987) 6,359,170 Total $29,782,602 $284,559 $(184,673) $29,882,488 December 31, 1992: Debt securities issued by foreign governments and their agencies $ 14,080,561 $204,554 $(43,057) $14,242,058 Debt securities issued by supra-nationals 9,826,630 107,771 (5,087) 9,929,314 Corporate securities 207,300 4,251 - 211,551 Total $24,114,491 $316,576 $(48,144) $24,382,923 MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED NOTES TO THE FINANCIAL STATEMENTS (Expressed in U.S. Dollars) Note 3. INVESTMENTS (Cont'd) The cost and estimated fair value of debt securities at December 31, 1993, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Estimated Fair Cost Value Due after one year through five years $15,463,270 $15,575,893 Due after five years through ten years 14,319,332 14,306,595 $29,782,602 $29,882,488 Proceeds from sales of investments in debt securities during the years ended December 31, 1993 and 1992 were $44,166,497 and $52,166,918 respectively. In 1993, gross gains of $964,613 and gross losses of $92,326 were realized. In 1992, gross gains of $1,008,932 and gross losses of $144,650 were realized. In 1991, gross gains of $538,996 and gross losses of $46,652 were realized. The following summarizes net unrealized appreciation (depreciation) on investments: Balance, December 31, 1990 $ 241,439 Net appreciation 673,848 Balance, December 31, 1991 $ 915,287 Net depreciation (646,855) Balance, December 31, 1992 $ 268,432 Net depreciation (168,546) Balance, December 31, 1993 $ 99,886 The investment portfolio is comprised of diverse U.S. dollar- denominated debt securities which do not result in any concentration in credit risks. FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities" is effective for years beginning after December 15, 1993 and will require the Company to classify its securities holdings into three categories (trading, available for sale, and held to maturity). The Company intends to adopt Statement No. 115 in 1994 and believes that the Statement will not have a material effect on the Company's financial position and results of operations. MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED NOTES TO THE FINANCIAL STATEMENTS (Expressed in U.S. Dollars) Note 4. STOCKHOLDERS' EQUITY All of the Company's Common Stock is held by MIC. A prospectus dated June 4, 1993 is offering 26,500 shares of Participating Stock to persons certified by owners of certain motor vehicle franchises. The offering consists of 265 series of 100 shares each at a price of $75 per share. During 1993, 46 additional series of 100 shares of Participating Stock were issued as compared with 34 and 16 series for the years ended December 31, 1992 and 1991, respectively. In the years ended December 31, 1993 and 1992, costs in the amount of $74,461 and $80,298, respectively, were incurred in the sale of Participating Stock and were charged to the account of the Common Stockholder. In 1991, $74,589 of costs incurred in the sale of Participating Stock were paid by MIC. The holders of Common Stock as a class are entitled to elect five directors, at least one of whom must be a resident of Barbados. They generally have no right to vote with respect to liquidation of the Company, but can effect a liquidation in certain circumstances. As a class, these holders generally have the sole right to vote on matters not specifically reserved to Participating Stock. Any redemption of Common Stock must be approved by a majority of the holders of Participating Stock issued and outstanding and by the Board. The holders of Participating Stock as a class are entitled to elect one director. Generally, liquidation of the Company requires approval by at least 75% of the outstanding shares of this class. Any redemption of a series of shares requires a vote of the Board provided that the director representing holders of the Participating Stock votes in favor of the redemption. Any changes in the Company's Articles or By-Laws require the approval of a majority of the holders of Participating Stock present and voting together with a majority of the holders of Common Stock. From time to time, funds are held in escrow on account of Participat- ing Stock applications. Such amounts are not included in cash and cash equivalents in the accompanying financial statements. At December 31, 1993 and 1992, there were no amounts held in escrow. MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED NOTES TO THE FINANCIAL STATEMENTS (Expressed in U.S. Dollars) Note 5. REINSURANCE PREMIUMS Under the provisions of the retrocession agreement, the Company will receive additional cessions of 13,471,019 ($9,354,534 at December 31, 1992) relating to premiums written by the ceding insurer but unearned at the respective period ends. The amounts will be received as the premiums are earned, net of related acquisition costs. Note 6. LETTERS OF CREDIT As of December 31, 1993, the Company has provided an irrevocable letter of credit to MIC, in the sum of $32,250,000 which is secured by cash equivalents and investments to secure the amounts recoverable from the Company related to the business ceded. Note 7. RETAINED EARNINGS Items of income or loss and expenses attributable to insurance underwriting activities are determined as of the end of each calendar quarter and are allocated to the Participating Stockholders' capital accounts. An amount equal to 1-1/3 percent of assumed premiums (net of related ceding commissions) is allocated to the capital account of the Common Stockholder. Such allocations accumulate as restricted retained earnings and may be used to advance capital to any Participating Stockholders who incur a deficit in their capital accounts; any such advances are repayable out of future profitable operations of the respective Participating Stockholder. Dividends may be declared and paid at the discretion of the Company's Board of Directors, except that dividends may not be paid out of unrealized investment gains. Barbados law requires that the Company maintain a minimum capitalization based generally on the amount of premiums earned in the preceding fiscal year. On January 1, 1994 the Company's required minimum capital computed in accordance with Barbados law was approximately $2,042,961. MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED NOTES TO THE FINANCIAL STATEMENTS (Expressed in U.S. Dollars) Note 7. RETAINED EARNINGS (Cont'd) Amounts of retained earnings applicable to the Common and Participating Stockholders are comprised of the following: Common Participating Total Balance, December 31, 1990 $ 14,944 $1,258,254 $1,273,198 Net income for the year 23,911 1,896,474 1,920,385 Net transfers 38,702 (38,702) - Dividends paid - (150,317) (150,317) Balance, December 31, 1991 77,557 2,965,709 3,043,266 Net income (loss) for the year (42,631) 3,549,845 3,507,214 Net transfers 173,954 (173,954) - Dividends paid - (1,021,705) (1,021,705) Balance, December 31, 1992 208,880 5,319,895 5,528,775 Net income (loss) for the year (41,909) 2,746,616 2,704,707 Net transfers (175,245) 175,245 - Dividends paid - (2,021,504) (2,021,504) Balance (Deficit), December 31, 1993 $ (8,274) $6,220,252 $6,211,978 PART III Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Five of the current directors of the Company were elected by MIC through its ownership of the Common Stock. One director was elected by the holders of the Shares at the Annual Shareholders' Meeting held on April 29, 1993. The directors and officers of the Company are as follows: POSITION WITH THE COMPANY (AND OTHER EMPLOYMENT DURING NAME AGE PAST FIVE YEARS) Robert T. O'Connell ....... 55 Chairman and Chief Executive Officer and Director (Chairman of the Board, General Motors Acceptance Corporation ("GMAC"), and Motors Insurance Corporation ("MIC"); Senior Vice-President, General Motors. Mr. O'Connell became a Director and was appointed Chairman and Chief Executive Officer in April of 1992. Joseph J. Pero ............ 54 President and Director (President and Director, MIC). Mr. Pero has been a director since 1986. He served as Vice-President from 1986 until 1987 when he was appointed President. Vincent K. Quinn .......... 62 Executive Vice-President and Director (Executive Vice-President and Director, MIC). Mr. Quinn has been a Director since 1986 and was appointed Executive Vice-President in April of 1992. Louis S. Carrio, Jr........ 50 Vice-President and Director (Vice-President, MIC). Mr. Carrio became a Director and was appointed Vice-President in 1991. Peter R. P. Evelyn ........ 52 Director (Attorney, Evelyn, Gittens & Farmer, a Barbados law firm). Mr. Evelyn has been a Director since 1986. Mark Miller................ 43 Director (President, Mark Miller Pontiac, Inc.). Mr. Miller has been a Director since 1993. Ronald W. Jones ........... 41 Vice-President, Finance (Managing Director, Alexander Insurance Managers (Barbados) Ltd.). Mr. Jones has served as Vice-President, Finance since 1987. Robert S. Kirby ........... 53 Secretary (Senior Partner, Price Waterhouse, Eastern Caribbean). Mr. Kirby has served as Secretary since 1986. The directors and officers named above serve in those capacities until the annual meeting of shareholders next following their election. Item 11. EXECUTIVE COMPENSATION No director or officer of the Company is compensated directly for his services as such. However, each director and officer of the Company is reimbursed for expenses incurred for attendance at Board, committee, and shareholder meetings. In addition, Mr. Jones is an officer of the Manager, which receives management fees and compensation for data processing services. Mr. Evelyn is a member of the law firm of Evelyn, Gittens & Farmer, which serves as the Company's Barbados counsel; and Mr. Kirby is affiliated with Corporate Services Limited, Bridgetown, Barbados, which receives compensation for corporate secretarial services provided to the Company. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT MIC owns all of the issued and outstanding shares of the Common Stock of the Company, which consists of 2,000 shares. Mark Miller, a director, owns 100 shares of Participating Stock. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See Item 1, THE RETROCESSION, INSURANCE MANAGEMENT AGREEMENT and Item 11, EXECUTIVE COMPENSATION Part IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Index to Document List (1) Financial Statements The following are included in Item 8: (i) Independent Auditors' Report. (ii) Balance Sheets, December 31, 1993 and 1992. (iii) Statements of Income and Retained Earnings for the years ended December 31, 1993, 1992 and 1991. (iv) Statements of Cash Flows for the years ended December 31, 1993, 1992, and 1991. (v) Notes to Financial Statements. (2) Financial Statement Schedules. Schedules are omitted because of the absence of the conditions under which they are required or because the information required is presented in the financial statements or related notes. (3) Exhibits. The following exhibits are included in response to Item 14(c): 3(a) Restated Articles of Incorporation dated January 29, 1987, as amended, filed by reference to Exhibit 3(a) to Post Effective Amendment No. 7 to Registration Statement on Form S-1, File No. 33-6534, dated April 29, 1993. 3(b) By-laws of the Company dated June 6, 1986 filed by reference to Exhibit 3(b) of the Registration Statement on Form S-1, File No. 33-6534, dated June 18, 1986. 4 Specimen Participating Stock Certificate filed by reference to Exhibit 4 of Amendment No. 1 to Registration Statement on Form S-1, File No. 33-6534, dated February 12, 1987. 10(a) Form of Principal Retrocession Agreement between Motors Insurance Corporation and Registrant filed by reference to Exhibit 10(a) of the Registration Statement on Form S-1, File No. 33-6534, dated June 18, 1986. 10(b) Form of Supplemental Retrocession Agreement between Motors Insurance Corporation and Registrant filed by reference to Exhibit 10(b) of the Registration Statement on Form S-1, File No. 33-6534 dated June 18, 1986. 10(c) Specimen Stock Purchase Agreement filed by reference to Exhibit 10(c) to Amendment No. 2 to Registration Statement on Form S-1, File No. 33-6534, dated May 22, 1987. 10(d) Amended and Restated Stock Purchase Agreement between Registrant and Motors Insurance Corporation filed by reference to Exhibit 10(d) to Amendment No. 1 to Registration Statement on Form S-1, File No. 33-6534, dated February 12, 1987. 10(e) Insurance Management Agreement between Registrant and Insurance Managers (Barbados) Ltd. filed by reference to Exhibit 10(e) to Registration Statement on Form S-1, File No. 33-6534, dated June 18, 1986. 10(f) Insurance Management Agreement between Alexander Insurance Managers (Barbados) and MIC Life Reinsurance Company, Ltd., dated March 12, 1992. 20(a) Proxy solicitation materials sent to shareholders in connection with annual meeting held on April 29, 1993. 20(b) Proxy solicitation materials sent to shareholders in connection with annual meeting to be held on April 8, 1994. 28(a) Certification Form filed by reference to Exhibit 28(a) to Amendment No. 2 to Registration Statement on Form S-1, File No. 33-6534, dated June 18, 1986. 28(b) Guarantee issued by the Minister of Finance of Barbados filed by reference to Exhibit 28(b) to Amendment No. 1 to Registration Statement on Form S-1, File No. 33-6534, dated June 18, 1986. 28(c) Certificate of Barbados Residency filed by reference to Exhibit 28(c) to Amendment No. 1 to Registration Statement on Form S-1, File No. 33-6534, dated June 18, 1986. (b) Reports on Form 8-K. No reports on Form 8-K for the quarter ended December 31, 1993 have been filed. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 Date: March ---, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated. Signature Title Date s/Robert T. O'Connell Chairman and Chief March 30, 1994 Robert T. O'Connell Executive Officer and Director s/Joseph J. Pero President and March 30, 1994 Joseph J. Pero Director s/Vincent K. Quinn Executive Vice- March 30, 1994 Vincent K. Quinn President and Director s/Louis S. Carrio, Jr. Vice-President and March 30, 1994 Louis S. Carrio, Jr. Director s/Peter R. P. Evelyn Director March 30, 1994 Peter R. P. Evelyn Director Mark Miller s/Ronald W. Jones Vice-President, March 30, 1994 Ronald W. Jones Finance, Principal Financial and Accounting Officer SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANT WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT Proxy solicitation materials were sent to shareholders in connection with the annual meeting held on April 29, 1993, and in connection with the 1994 annual meeting, to be held on April 8, 1994. EX-10 2 MATERIAL CONTRACTS MANAGEMENT AGREEMENT BETWEEN ALEXANDER INSURANCE MANAGERS (BARBADOS) LTD. AND MIC LIFE REINSURANCE COMPANY, LTD. MANAGEMENT AGREEMENT BETWEEN ALEXANDER INSURANCE MANAGERS (BARBADOS) LTD. AND MIC LIFE REINSURANCE COMPANY, LTD. THIS AGREEMENT (hereinafter referred to as the "Agreement") by and between ALEXANDER INSURANCE MANAGERS (BARBADOS) LTD (hereinafter referred to as "AIM"), a Barbados corporation having its principal office in St. Michael, Barbados and MIC LIFE REINSURANCE COMPANY, LIMITED (hereinafter referred to as the "Company"), a Barbados corporation having its principal office in St. Michael, Barbados. WITNESSETH WHEREAS, AIM is a corporation engaged in providing certain management and administrative services to insurance and reinsurance companies; and WHEREAS, the Company plans to secure a license to engage in exempt insurance business as defined under the laws of Barbados and desires to employ AIM to perform certain management and administrative services on its behalf; NOW, THEREFORE, in consideration of their respective promises and covenants hereinafter contained, AIM and the Company agree as follows: 1. Obligations of AIM. Subject to such written instructions and restrictions as the Company may issue, AIM shall provide the following services in connection with the Company's business. Such services shall include, but are not limited to: (a) Issuance and endorsement of reinsurance contracts for which approval of the Company has been secured; (b) Opening and maintenance of such books of account as will provide a complete and current record which will present fairly at all times the financial position and results of operations of the Company and its shareholder accounts, as provided under the Company's Articles of Incorporation as amended from time to time, in accordance with U.S. generally accepted accounting principles applicable to the Company's business; (c) Not later than the thirtieth (30th) day of the month following the close of the calendar quarter, submission to the Company of a balance sheet and statement of profit and loss for the preceding quarter, prepared in accordance with U.S. generally accepted accounting principles applied on a basis consistent with that of preceding periods and which present fairly the financial information they purport to reflect; (d) Preparation of statistical, accounting and other quarterly, or more frequent reports as may be required, and provided under the Company's Articles of Incorporation as amended from time to time, for the Company's shareholders in accordance with reporting deadlines to be mutually agreed upon by both parties; (e) Preparation of all statutory and other reports as may be required by the Barbados insurance and/or other regulatory authorities, including filings with the Securities and Exchange Commission of the United States of America; (f) Management and investment of Company funds under AIM's control, pending transfer of available funds to such Investment Manager as the Board shall from time to time appoint; (g) Advising the Company quarterly as to investment results on funds under the control of AIM; (h) Receipt and deposit of reinsurance premiums paid, and payment of claims, under the Reinsurance Agreement; (i) Provision of bookkeeping, clerical, telephone, telex and other services for the Company, and advice and consult with the Company with regard to all aspects of the Company's activities; (j) Maintenance of an office in Barbados, sufficiently staffed and equipped, to perform its duties hereunder; and (k) Performance of all other activities necessary to the Company's business. It is agreed that AIM will not provide legal or tax counsel, investment advice, secretarial services or independent auditing services under this Agreement. It is agreed that AIM shall have no power to enter into any contract on behalf of the Company unless specifically authorized by the Company to do so. 2. Obligations of the Company. The Company hereby: (a) Authorizes AIM to perform for and on its behalf all the duties described herein and the execution of any of the aforesaid documents or contracts entered into pursuant to the specific terms of this Agreement, and if called upon to do so, will ratify and confirm the performance of such duties; (b) Shall pay monthly, or at such other interval as may be agreed to by the parties, to AIM as compensation in full for all services as described in Section 1 of this Agreement, a management fee to be computed at the rate of U.S.$95 per hour for professional employees, based on a statement of time and expense charges, related to AIM's management functions for the period from the signing of this Agreement until December 31, 1992. AIM shall give the Company a monthly statement of its time and expense charges within thirty (30) days of the end of the month. Each year, commencing in 1992, the parties shall begin good faith negotiation of the next year's hourly rate by September 1. If the parties are unable to agree on this amount by December 1 of that year, it shall be established by arbitration as provided in Section 12; (c) Shall, within a reasonable period of time, comply with any request for instructions or information made by AIM in order that AIM may efficiently perform its duties under this Agreement; and (d) Shall monthly, or at such other interval as may be agreed to by the parties, reimburse AIM against receipts, for its reasonable and necessary out-of-pocket expense incurred on behalf of, and with the prior approval of, the Company. 3. Access to Records. The Company, or its duly authorized representative(s), may at any reasonable time inspect the records maintained on its behalf by AIM. 4. Termination. This Agreement may be terminated by mutual consent of the parties or for cause upon thirty (30) days advance written notice. This Agreement may be terminated unilaterally by either party as of the end of the current fiscal year by giving written notice to the other party by September 1 of such year. (a) Termination of this Agreement shall not relieve either party of liability for performance of any obligations imposed upon said party with respect to business entered into pursuant to this Agreement, which have not been performed at the time of termination, provided that AIM shall be reimbursed in full for services rendered and expenses incurred subsequent to the effective date of termination under such terms and conditions as may be agreed upon by both parties to ensure the proper and timely completion of their obligations under this contract. (b) Termination of this Agreement shall be automatic and without notice upon the insolvency, receivership, bankruptcy, or liquidation of either the Company of AIM. 5. Non-Competition. During the period that this Agreement is in effect, and for a period of one (1) year after the termination of this Agreement (unless the termination is by mutual consent, by the Company without cause, or by AIM for cause), AIM agrees not to provide management or accounting services for any other company, other than a Canadian credit life and credit disability reinsurer, to be formed by MIC Life Insurance Corporation, which, by the nature of its operations, is offering, insuring or reinsuring credit life, credit disability or related coverages on a multi-state basis in the United States of America or Canada, with respect to the sale of motor vehicles by franchised General Motors dealerships. 6. Ownership of Books, Records, Etc. The Company retains ownership of all books, records, reports, statistics, and other materials produced by AIM in rendering services under his Agreement to the Company. In addition, the Company and AIM agree to enter into prompt negotiations in good faith for the uninterrupted use by the Company of all software applicable to the Company's operations, in the event of termination of this Agreement. 7. Assignment. This Agreement may not be assigned in whole or in part, whether by operation of law or otherwise, by either party without the consent of the other party. 8. Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of Barbados as applied to contracts executed and performed wholly within such Island. 9. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 10. Insurance. AIM shall at all times during the term of this Agreement maintain: (a) An errors and omissions insurance policy issued by an insurer reasonably acceptable to the Company in an amount not less than U.S.$5,000,000.00; and (b) A fidelity bond, issued by a company reasonably acceptable to the Company, providing coverage for all officers and other employees of AIM and its affiliates (including "money and securities" coverage) in an amount not less than U.S.$1,000,000.00. Such amount of required insurance coverage is to be negotiated concurrently with compensation under Section 2(b) of this Agreement. 11. Indemnification. AIM agrees to hold harmless and indemnify the Company for losses arising out of negligence or reckless conduct of its employees and affiliates' employees in performing services on behalf of the Company under this Agreement. 12. Miscellaneous. (a) It is the intention of the Company and AIM that the customs and practices of the insurance industry shall be given full effect in the operation and interpretation of this Agreement. The parties agree to act in all things with the highest good faith. If the Company and AIM cannot mutually resolve any dispute that arises out of or relates to this Agreement, whether such dispute arises before or after termination of this Agreement, the disputes shall be decided through arbitration. (b) This Agreement and the performance of the parties hereunder shall be interpreted, construed and enforced in accordance with the laws of Barbados. The arbitrators shall consider this Agreement as an honorable engagement rather than as a mere legal obligation and they shall reach their decision from the standpoint of equity and the customs and practices of the insurance interpretation of the applicable substantive and procedural law. (c) In initiating arbitration, either the Company or AIM shall notify the other in writing of its desire to arbitrate, stating the nature of its dispute and the remedy sought. The party to which the notice is sent shall respond to the notification in writing within ten (10) working days of its receipt. At that time, the party also shall assert any dispute it may have that arises out of or relates to this Agreement. (d) The arbitration hearing shall be before a panel of three (3) arbitrators, each of whom must be a present or former officer of a credit life, disability insurance company, other than the Company or AIM or either's affiliates. The Company and AIM shall each appoint one arbitrator by written notification to the other within twenty-five (25) days of the date of the mailing of the notification initiating the arbitration. These two (2) arbitrators shall then select the third arbitrator within fourteen (14) days after their selection. Should either the Company or AIM fail to appoint an arbitrator, or should the two (2) arbitrators be unable to agree upon the choice of a third arbitrator, such appointment shall be left to the President for the time being, of the Barbados Bar Association. Once selected, the arbitrators are to decide all substantive and procedural issues involved by a majority of votes. (e) The arbitration hearing shall be held on the date fixed by the arbitrators in the city of St. Michael, Barbados, unless some other location is mutually agreed on by the parties. In no event shall this date be later than six (6) months after the appointment of the third arbitrator. The arbitrators shall establish pre-arbitration procedures as warranted by the facts and issues of the particular case. Within twenty (20) days after the end of the arbitration hearing, the arbitrators shall issue a written award, from which there shall be no appeal and which any court having jurisdiction of the subject matter and the parties may reduce to judgment. (f) In their award, the arbitrators shall apportion the costs of arbitration including, but not limited to, their own fees and expenses, as they deem appropriate. IN WITNESS WHEREOF, the parties hereunto set their hand to duplicate originals hereof this 19th day of March, 1992. ATTEST: ALEXANDER INSURANCE MANAGERS (BARBADOS) LTD. (signature illegible) By s/Ronald W. Jones RONALD W. JONES Print Name ATTEST: MIC LIFE REINSURANCE COMPANY, LIMITED (signature illegible) By s/Louis C. Carrio, Jr, LOUIS S. CARRIO, JR. Print Name EX-20 3 OTHER DOCUMENTS OR STATEMENTS TO SECURITY HOLDERS MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED Annual Meeting April 29, 1993 PROXY STATEMENT April 2nd, 1993 This proxy statement is furnished by management of Motors Mechanical Reinsurance Company, Limited (the "Company") in connection with the solicitation of proxies for use at the annual meeting of the company on April 29, 1993 at 12:00 noon at the Miramar Conference Centre, Royal Pavilion Hotel, St. James, Barbados. Please complete and return the attached proxy whether or not you plan to attend the meeting. A proxy may be revoked at any time prior to the meeting in writing or by attendance of the shareholder at the meeting. Shareholders of record as of the date of this proxy statement are entitled to notice and to vote at the meeting. As of such date, there were 15,000 participating shares outstanding, held by 250 persons representing 150 series. All the common stock is held by Motors Insurance Corporation ("MIC"), which organized the Company. Each share entitles the holder to one vote on matters on which that class of stock is entitled to vote. This proxy statement is accompanied by notice of the meeting, financial statements for the year ended December 31, 1992 and a form of proxy. MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED NOTICE NOTICE is hereby given that the Sixth Annual Meeting of the Shareholders of MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED will be held at the Miramar Conference Centre, Royal Pavilion Hotel, St. James, Barbados on Thursday the 29th day of April, 1993 at 12:00 noon for the following purposes: 1. Adoption of minutes of previous meeting. 2. To receive and consider the financial statements of the Company for the twelve month period ended December 31, 1992 together with the auditors report thereon. 3. To elect directors and alternate directors. 4. To consider proposals to amend the Articles of Incorporation. 5. To consider the proposal that Deloitte & Touche continue as the Company's auditors until the next Annual Meeting of the shareholders. 6. To conduct any other business that may properly be transacted at an annual meeting. DATED THE 2ND DAY OF APRIL, 1993 BY ORDER OF THE BOARD Robert S. Kirby AS SECRETARY OF MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED PROXY MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED I/We, , a member of the above-named company hereby appoint Ronald W. Jones, Vice President-Finance of the Company as my/our proxy to vote for me/us on my/our behalf at the shareholders meeting to be held on the 29th day of April, 1993 or at any adjournment thereof and in particular to vote for: (i) The election of Mark Miller to serve as a director representing the participating shareholders; (ii) The approval of the amendments of the Company's Articles of Incorporation as contained in the proxy statement dated April 2nd, 1993; and (iii) The confirmation of Deloitte & Touche as the auditors of the Company for the current fiscal year. Dated this _____ day of April, 1993. ELECTION OF DIRECTORS The Company has a board of directors of six members. Five directors, of whom one is a resident of Barbados, are elected by the holder of the common shares and one director is elected by holders of the participating shares. Directors serve without compensation other than reimbursement of actual expenses. They are elected for one year terms. Mark Miller has been nominated to stand for election as director by the participating shareholders. Other nominations can be made by the holders of at least two series of participating shares by notifying the secretary in writing at least ten days prior to the meeting. The nominee receiving the highest number of votes will be elected. In addition, five directors will be elected by the common shareholder. It is anticipated that MIC will choose to re-elect the incumbent directors. Information regarding the age and current occupation of directors to be re-elected by the common shareholder and the person nominated as director to be elected by the participating shareholders is set forth below. Name Age Position with the Company and Other Employment During the Past Five Years Robert T. O'Connell 54 Chairman and Chief Executive Officer and Director (Chairman of the Board, General Motors Acceptance Corporation, and MIC) Mr. O'Connell has been Chairman and Chief Executive Officer and a Director since 1992. Joseph J. Pero 53 President and Director (President and Director, MIC). Mr. Pero has been a Director since 1986. He served as Vice-president from 1986 until 1987 when he was appointed President. Vincent K. Quinn 61 Executive Vice-President and Director (Executive Vice-President and Director, MIC). Mr. Quinn has been a Director since 1986. He was appointed Executive Vice-President in 1992. Louis S. Carrio, Jr. 49 Vice-President and Director (Vice- President, MIC). Mr. Carrio has been a Vice-President & Director since 1991. Peter R.P. Evelyn 51 Director (Attorney, Evelyn Gittens & Farmer, a Barbados Law firm). Mr. Evelyn has been a Director since 1986. Mark Miller (Replacing James F. Wood) 43 Nominee for Director to be elected by the participating shareholder (President, Mark Miller Pontiac Inc.). ELECTION OF ALTERNATE DIRECTORS The Company's Bylaws allow for the election of an alternate director for a director. An alternate director may attend meetings of directors and vote in respect of any matters presented if the director for whom he is alternate is not present. Alternate directors are elected for one year terms. The common shareholder plans to elect Richard N. Carlson as the alternate director for Vincent K. Quinn and Robert E. Capstack as the alternate director for Louis S. Carrio, Jr. Mr. Carlson and Mr. Capstack are both employes of MIC. AMENDMENTS OF ARTICLES OF INCORPORATION 1. Dividends The Company's Articles of Incorporation currently provide that dividends, other than minimum dividends, may be declared and paid only as a uniform percentage of the earned surplus attributable to each series of shares. Management recommends that the dividend section of the Company's Articles of Incorporation be amended to permit dividends, other than minimum dividends, to be declared and paid based on a varying percentage of earned surplus and/or net income attributable to each series. This would give the Board of Directors of the Company greater flexibility in declaring dividends in two respects. First, it would permit the Board of Directors of the Company to declare and pay dividends, other than minimum dividends, based on earned surplus and/or net income. Second, it would permit the percentage used in calculating dividends to vary with the level of earned surplus and/or net income of each series of shares. Accordingly, Management proposes that the dividend section of the Company's Articles of Incorporation be amended by replacing section 3(5)(b) of the Articles with the following: (b) Dividends, payable in cash or such other property as the Board may determine, on a series of Shares or on common shares, shall be declared and payable only if the Company shall have, after giving effect to the dividend, sufficient net assets, without regard to any Letter of Credit or Guarantee, to meet the general business solvency margin prescribed by the Exempt Insurance Act and Section 51 of the Act; provided that dividends with respect to any series of Shares may be paid only out of earned surplus attributable to the Subsidiary Capital Account identified with those Shares, and only to the extent that, after giving effect to the dividend, the capital and surplus identified with that Subsidiary Capital Account (without regard to any Guarantee or Letter of Credit) would meet its pro rata share, based on allocable premium income, of the minimum net assets required of the Company under the Exempt Insurance Act. Subject to the right of the holders of Shares to receive minimum dividends pursuant to the following paragraph, to the extent a dividend is declared on the Shares, it shall be declared and paid subject to the foregoing limitations for each series of Shares as a percentage of the net income for the preceding calendar year and/or earned surplus as of the end of the preceding calendar year, attributable to each series, provided that such percentage may vary among series of Shares with the level of net income and/or earned surplus. Dividends shall only be declared and paid on Common shares to the extent that the earned surplus attributable to Common shares exceeds Restricted Earned Surplus. 2. Redemptions The Company's Articles of Incorporation currently provide that, in certain circumstances, participating shareholders have a right to have their shares redeemed by the Company without approval of the Board of Directors. Management recommends that the redemption section of the Company's Articles of Incorporation be amended to require approval by the Board of Directors of all redemptions of shares. This would give the Board of Directors the flexibility to prevent redemptions in circumstances where, for example, unexpired risks attributable to the shares for which redemption is sought appear likely to generate underwriting losses that would be borne entirely by other shareholders if redemption were permitted. Accordingly, Management proposes that the redemption section of the Company's Articles of Incorporation be amended by replacing section 3(6) of the Articles with the following: (6) REDEMPTION Subject to compliance with any applicable statute or act, the Company may redeem any of its issued and outstanding Common shares and/or Shares if: (a) In the case of a redemption of Shares, all Shares of the series involved are redeemed and the redemption of such Shares is approved by a majority of the Board, provided that the Director representing holders of the Shares votes in favor of the redemption. (b) In the case of a redemption of Common shares, such redemption is approved by a majority of all Shares issued and outstanding and a majority of the Board. The redemption of Shares and Common shares shall be effective on the last business day of the calendar year in which the redemption was approved by the Board, and in the case of a redemption of Common Shares, by holders of the Shares. Such date is herein called the "Redemption Date." The consideration payable to the holders of redeemed Shares or Common shares shall be the Subsidiary Capital Account balance of such shares as of the Redemption Date, as adjusted by the Board to reflect unrealized gains and losses on investments held by the Company and any contingent liabilities allocable to such account. Such consideration shall be paid within five (5) months of the Redemption Date, provided that the holder of the redeemed Shares or Common shares shall have delivered to the Company, certificates representing the shares being redeemed duly endorsed and accompanied by such other documents as the Company may require. Such consideration shall bear interest from the Redemption Date until the earlier of the date of payment or the date that is five (5) months from the Redemption Date, at a rate equal to the rate of interest paid on 26-week United States Treasury Bills for the issue following the Redemption Date. Upon redemption of the shares as aforesaid, the holder(s) thereof shall cease to have any further interest in the shares being redeemed. Shares of any class redeemed pursuant to this Section 3(6) shall return to the status of authorized but unissued shares of such class. ELECTION OF AUDITORS It is proposed to confirm the selection of Deloitte & Touche, Bridgetown, Barbados as the auditors of the Company for the current fiscal year. The auditors through their Detroit office also serve as auditors of MIC. PROXY MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED MOTORS INSURANCE CORPORATION ("MIC"), a shareholder of Motors Mechanical Reinsurance Company, Limited, a Barbados Corporation (the "Corporation"), hereby appoints RICHARD N. CARLSON as its proxy to vote for it and on its behalf, with respect to all shares in the Corporation owned by MIC, at (i) the special meeting of shareholders of the Corporation to be held on April 29, 1993, and at any meeting or meetings held in lieu of, or in substitution for said special meeting, and any adjournment thereof, and (ii) the annual meeting of shareholders of the Corporation to be held on April 29, 1993, and any adjournments thereof. Dated April , 1993 MOTORS INSURANCE CORPORATION By: Joseph J. Pero, President MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED Annual Meeting April 8, 1994 PROXY STATEMENT March 15, 1994 This proxy statement is furnished by management of Motors Mechanical Reinsurance Company, Limited (the "Company") in connection with the solicitation of proxies for use at the annual meeting of the company on April 8, 1994 at 12:00 noon at the Miramar Conference Centre, Royal Pavilion Hotel, St. James, Barbados. Please complete and return the attached proxy whether or not you plan to attend the meeting. A proxy may be revoked at any time prior to the meeting in writing or by attendance of the shareholder at the meeting. Shareholders of record as of the date of this proxy statement are entitled to notice and to vote at the meeting. As of such date, there were 19,700 participating shares outstanding, held by 355 persons representing 197 series. All the common stock is held by Motors Insurance Corporation ("MIC"), which organized the Company. Each share entitles the holder to one vote on matters on which that class of stock is entitled to vote. This proxy statement is accompanied by notice of the meeting, financial statements for the year ended December 31, 1993 and a form of proxy. ELECTION OF DIRECTORS The Company has a board of directors of six members. Five directors, of whom one is a resident of Barbados, are elected by the holder of the common shares and one director is elected by holders of the participating shares. Directors serve without compensation other than reimbursement of actual expenses. They are elected for one year terms. Donald C. Mealey has been nominated to stand for election as director by the participating shareholders. Other nominations can be made by the holders of at least two series of participating shares by notifying the secretary in writing at least ten days prior to the meeting. The nominee receiving the highest number of votes will be elected. In addition, five directors will be elected by the common shareholder. It is anticipated that MIC will choose to re-elect the incumbent directors. Information regarding the age and current occupation of directors to be re-elected by the common shareholder and the person nominated as director to be elected by the participating shareholders is set forth below. Name Age Position with the Company and Other Employment During the Past Five Years Robert T. O'Connell 55 Chairman and Chief Executive Officer and Director (Chairman of the Board, General Motors Acceptance Corporation, and MIC) Mr. O'Connell has been Chairman and Chief Executive Officer and a Director since 1992. Joseph J. Pero 54 President and Director (President and Director, MIC). Mr. Pero has been a Director since 1986. He served as Vice-president from 1986 until 1987 when he was appointed President. Vincent K. Quinn 62 Executive Vice-President and Director (Executive Vice-President and Director, MIC). Mr. Quinn has been a Director since 1986. He was appointed Executive Vice-President in 1992. Louis S. Carrio, Jr. 50 Vice-President and Director (Vice- President, MIC). Mr. Carrio has been a Vice-President & Director since 1991. Peter R.P. Evelyn 52 Director (Attorney, Evelyn Gittens & Farmer, a Barbados Law firm). Mr. Evelyn has been a Director since 1986. Donald C. Mealey (Replacing Mark Miller) 43 Nominee for Director to be elected by the participating shareholders (President, Don Mealey Chevrolet Inc.). ELECTION OF ALTERNATE DIRECTORS The Company's Bylaws allow for the election of an alternate director for a director. An alternate director may attend meetings of directors and vote in respect of any matters presented if the director for whom he is alternate is not present. Alternate directors are elected for one year terms. The common shareholder plans to elect Richard N. Carlson as the alternate director for Vincent K. Quinn and Robert E. Capstack as the alternate director for Louis S. Carrio, Jr. Mr. Carlson and Mr. Capstack are both employes of MIC. AMENDMENTS OF RESTATED ARTICLES OF INCORPORATION The Company's Restated Articles of Incorporation were recently amended to permit redemption of a series of participating shares by the Board of Directors in its discretion and to eliminate the right of participating shareholders to have their shares redeemed in certain circumstances without approval of the Board of Directors. Further review of the redemption provisions has led Management to recommend further changes. First, if the Board were to cause the redemption of a series that was in a net deficit position and which generated further run-off losses, the redemption would not be effective until the end of the calendar year, and any run-off losses after redemption would be allocated entirely to the subsidiary capital accounts of the other series of participating shares. Management proposes to amend the Articles (i) to give the Board authority to make the redemption effective at any time prior to year end and (ii) to allocate any net deficit in run-off first to the subsidiary capital account for the common stock (to the extent of "restricted earned surplus") before allocating any remaining deficit to the accounts for the participating shares. Second, management has been advised by legal counsel that the Barbados Companies Act has been interpreted to require that common stock must be non-redeemable in all circumstances. Therefore, certain provisions of the Articles that had permitted redemption of the common stock and had given the common shareholder the right to force liquidation of the Company if its request for redemption were not met, must be eliminated. Several corresponding changes to the Articles are necessary to give full effect to this change. As a result of the cumulative amendments to the Articles of Incorporation (if approved by the shareholders), the redemption provisions generally will operate as follows. The only class of stock that may be redeemed will be the participating shares. Shares of an entire series may be redeemed by vote of the Board of Directors, including the vote of the Director elected by the participating shareholders. The redemption will be effective on a date specified by the Board but no later than the end of the calendar year. At the effective date, any positive balance in the redeemed series' subsidiary capital account (as determined by the Board) will be paid to the holder(s) of the redeemed shares. After redemption, any quarterly deficits in the run-off will be allocated first to the common stock, up to the balance of restricted earned surplus, and the remainder to the other participating shareholder's accounts. Accordingly, Management proposes that the sections of the Company's Restated Articles of Incorporation indicated below be amended to read as follows: Section 3(1)(8)(b) Allocation to Subsidiary Capital Accounts Where all shares of a series of Shares are repurchased by the Company pursuant to Section 4 below or redeemed in accordance with the Company's procedures for redemption set forth in Section 3(6) below, the Subsidiary Capital Account for such series shall be terminated as of the Repurchase Date or Redemption Date (as those terms are defined in Sections 4 and 3(6) respectively). Thereafter, all income, expenses, gains and losses that would have been allocated to the terminated account will be allocated among the Subsidiary Capital Accounts of the existing series of Shares pro rata based upon relative earned premiums attributable to such accounts for the calendar quarter in which the item was earned or incurred; provided, however, that a net deficit for any such period shall be allocated in accordance with the provisions of Section 3(1)(7). Section 3(4) Liquidation The Company may be liquidated upon the vote of the holders of at least seventy-five percent (75%) of the Shares. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, after payment of all liabilities of the Company, each holder of Shares of a series shall be entitled to receive an amount equal to his share (based on his proportionate ownership of such series) of the Subsidiary Capital Account balance related to his series of Shares before any distribution of the assets of the Company shall be made to holders of the Common shares. After such payment shall have been made in full to the holders of the outstanding Shares, or funds necessary for such payment shall have been set aside in trust for the account of the holders of the outstanding Shares so as to available therefor, the holders of the outstanding Shares shall be entitled to no further participation in the distribution of the assets of the Company, and the remaining assets of the Company, if any, shall be divided and distributed among the holders of the Common shares then outstanding pro rata based on their respective shares. A consolidation or merger of the Company, or sale or transfer of all or substantially all its assets, or any purchase or redemption of shares of the Company of any class or series, shall not be regarded as a "liquidation, dissolution, or winding up" within the meaning of this paragraph. Section 3(5)(d) Dividends In no event shall any dividend whatever be paid upon or declared or set apart for the Common shares, unless and until all minimum annual dividends required to be paid on the then outstanding Shares for the then current period shall have been paid or declared and set apart for payment. PROXY MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED I/We, , a member of the above-named company hereby appoint Ronald W. Jones, Vice President-Finance of the Company as my/our proxy to vote for me/us on my/our behalf at the shareholders meeting to be held on the 8th day of April, 1994 or at any adjournment thereof and in particular to vote for: (i) The election of Donald C. Mealey to serve as a director representing the participating shareholders; (ii) The approval of the amendments of the Company's Restated Articles of Incorporation as contained in the proxy statement dated March 15, 1994; and (iii) The confirmation of Deloitte & Touche as the auditors of the Company for the current fiscal year. Dated this _____ day of April, 1994. -----END PRIVACY-ENHANCED MESSAGE-----