-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I3+X+6dxYsHrYZ3VLAjKm7NF5Y4I9f0H0I8tvcFm0JyBW2NTZdEH82ULhm6J4fHN D69m1wwTDr8hnuefkx88DQ== 0000898080-99-000315.txt : 19991117 0000898080-99-000315.hdr.sgml : 19991117 ACCESSION NUMBER: 0000898080-99-000315 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTORS MECHANICAL REINSURANCE CO LTD CENTRAL INDEX KEY: 0000790381 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-06534 FILM NUMBER: 99755743 BUSINESS ADDRESS: STREET 1: TRIDENT HOUSE CITY: BRIDGETOWN BARBADOS STATE: C8 ZIP: 00000 BUSINESS PHONE: 8094364895 MAIL ADDRESS: STREET 1: SUTHERLAND ASBILL & STREET 2: 1275 PENNSYLVANIA AVE N W CITY: WASHINGTON STATE: DC ZIP: 20004-2404 10-Q 1 QUARTERLY REPORT PAGE 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON. D.C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange - --- Act of 1934 For quarterly period ended September 30, 1999 ---------------------------------- Transition report pursuant to Section 13 or 15(d) of the Securities Exchange - --- Act of 1934 For the transition period from to --------- --------- Commission File Number 33-6534 ----------------- Motors Mechanical Reinsurance Company, Limited - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Barbados N/A - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Bishops Court Hill, St. Michael, Barbados N/A - -------------------------------------------------------------------------------- (Address of principle executive offices) (Zip Code) (246) 436-4895 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class As of September 30, 1999 ----- ------------------------ Common Stock, no par-value 2,000 Participating Stock, no par-value 30,700 PAGE 2 This quarterly report, filed pursuant to Rule 13a-13 of the General Rules and Regulations under the Securities Exchange Act of 1934, consists of the following information as specified in Form 10- Q: Part 1. FINANCIAL INFORMATION Item 1. Financial Statements 1. Balance Sheets, September 30, 1999 and December 31, 1998. 2. Statements of Income and Retained Earnings for the three month periods ended September 30, 1999 and 1998 and the nine month periods ended September 30, 1999 and 1998. 3. Statements of Cash Flows for the nine month periods ended September 30, 1999 and 1998. In the opinion of Management, the accompanying financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for a fair presentation of the results for the interim periods presented. -2- PAGE 3 MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED BALANCE SHEETS (Expressed in U.S. Dollars) Sept 30, 1999 December 31, (unaudited) 1998 ------------ ------------ ASSETS Investments $ 96,018,725 $ 89,474,377 Cash and cash equivalents 8,430,817 19,504,563 Accrued investment income 2,037,782 1,788,490 Deferred acquisition costs 24,181,324 28,660,753 Prepaid expenses 23,625 0 ------------ ------------ Total Assets $130,692,273 $139,428,183 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Unearned premiums $ 93,009,463 $110,243,074 Loss reserves 4,643,263 5,393,818 Due to Motors Insurance Corporation 19,114,910 115,667 Accrued liabilities 223,609 150,056 ------------ ------------ Total liabilities 116,991,245 115,902,615 ------------ ------------ STOCKHOLDERS' EQUITY Share Capital Common Stock-no par value; Authorized - 2,000 shares; issued and outstanding - 2,000 200,000 200,000 Participating Stock-no par value; Authorized - 100,000 shares; issued and outstanding - 30,700 shares as of September 30, 1999 and 31,500 shares as of December 31, 1998 2,302,500 2,362,500 ------------ ------------ 2,502,500 2,362,500 Retained Earnings 13,171,956 20,629,009 Accumulated other comprehensive (loss) income (1,973,428) 334,059 ------------ ------------ Total Stockholders' Equity 13,701,028 23,525,568 ------------ ------------ Total Liabilities and Stockholders' Equity $130,692,273 $139,428,183 ============ ============ -3-
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 AND THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 (UNAUDITED) (Expressed in U.S. Dollars) Three Month Periods Nine Month Periods Ended Sept 30, Ended Sept 30, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- INCOME Reinsurance premiums assumed $15,630,049 $18,680,819 $52,670,995 $54,738,752 Reinsurance premiums returned 24,934,234 0 24,934,234 0 Increase (decrease) in unearned premiums (22,559,363) 3,890,487 (17,233,611) 12,326,183 ----------- ----------- ----------- ----------- Premiums earned 13,255,178 14,790,332 44,970,372 42,412,569 ----------- ----------- ----------- ----------- Investment income Interest earned 1,540,605 1,714,696 4,321,589 4,520,786 Realized (losses) gains on investments (839,940) 2,269,101 (3,545,097) 3,374,836 ----------- ----------- ----------- ----------- Investment income 700,665 3,983,797 776,492 7,895,622 ----------- ----------- ----------- ----------- TOTAL INCOME 13,955,843 18,774,129 45,746,864 50,308,191 ----------- ----------- ----------- ----------- EXPENSES Acquisition costs 3,421,349 3,845,398 11,691,326 10,908,226 Losses paid 11,147,400 12,337,811 36,402,128 32,154,572 Increase (decrease) in loss reserves 180,933 305,166 458,761 (261,228) Administrative expenses - Related Parties 63,025 57,764 190,092 167,996 - Other 88,213 67,425 292,553 265,469 ----------- ----------- ----------- ----------- TOTAL EXPENSES 14,900,920 16,613,564 49,034,860 43,235,035 ----------- ----------- ----------- ----------- NET (LOSS) INCOME (945,077) 2,160,565 (3,287,996) 7,073,156 RETAINED EARNINGS, beginning of period 14,146,110 18,356,403 20,629,009 18,615,768 LESS: DIVIDENDS 0 0 (4,066,464) (5,171,956) LESS: REDEMPTION OF PARTICIPATING STOCK (29,077) (23,159) (102,593) (23,159) ----------- ----------- ----------- ----------- RETAINED EARNINGS, end of period $13,171,956 $20,493,809 $13,171,956 $20,493,809 =========== =========== =========== ===========
-4- PAGE 5 MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 (UNAUDITED) (Expressed in U.S. Dollars) Nine Month Periods Ended Sept. 30, 1999 1998 ----------- ----------- Cash flows from operating activities: Reinsurance premiums collected $54,936,354 $30,134,340 Losses and acquisition expenses paid (52,963,826) (25,691,013) Administrative expenses paid (539,482) (351,091) Investment income received 4,119,197 4,269,445 ----------- ----------- Net cash provided by operating activities 5,552,243 8,361,681 ----------- ----------- Cash flows from investing activities: Purchases of investments (294,876,253) 154,108,002) Sales of investments 282,479,321 152,924,666 ----------- ----------- Net cash invested (12,396,932) (1,183,336) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of Participating Stock 15,000 187,500 Redemption of participating stock (177,593) 0 Dividends paid (4,066,464) (5,171,956) ----------- ----------- Net cash used in financing activities (4,229,057) (4,984,456) ----------- ----------- (Decrease) increase in cash and cash equivalents (11,073,746) 2,193,889 Cash and cash equivalents, beginning of period 19,504,563 5,645,482 ----------- ----------- Cash and cash equivalents, end of period $ 8,430,817 $ 7,839,371 =========== =========== Reconciliation of net income to net cash provided by operating activities: Net (loss)income (3,287,996) 4,912,591 Realized losses(gains) on investments 3,545,097 (1,105,735) Change in: Accrued investment income (249,292) 1,461,355 Due from Motors Insurance Corporation 18,999,243 (2,583,827) Deferred acquisition costs 4,479,429 (2,193,921) Prepaid expenses (23,625) (35,686) Unearned premiums (17,233,611) 8,435,696 Loss reserves (750,555) (566,394) Accrued liabilities 73,553 37,602 ----------- ----------- Net cash provided by operating activities $ 5,552,243 $ 8,361,681 =========== =========== -5- PAGE 6 Item 2. Management's Discussion And Analysis of Financial Condition And Results of Operations Liquidity. Premiums generated by the Company's reinsurance business combined with investment earnings plus proceeds from the sale of Shares will continue to be the principal sources of funds for investment by the Company. Such funds will be available to meet the Company's liquidity requirements. Pursuant to the terms of the recapture by MIC (the Company's sole retroceding company and common shareholder) of certain business from the Company, as discussed in more detail below, the Company is obligated to make a payment to MIC in the amount of $19,660,649. It is anticipated that the Company will use cash and the proceeds from the sale of investment assets to fund this payment. It is anticipated that the Company will continue to be able to generate sufficient funds from operations to meet other current liquidity needs. No capital expenditures are expected in the foreseeable future. Capital Resources. During the quarter ended September 30, 1999, no new series of Shares were added and 4 series of Shares were redeemed bringing the total number of series issued and outstanding to 307 as of the end of the quarter. As of September 30, 1999, the share capital of the Company was $2,502,500 (compared with $2,562,500 as of December 31, 1998) comprised of paid in capital with respect to the Common Stock of $200,000 and paid in capital with respect to Participating Shares of $2,302,500 (compared with $2,362,500 as of December 31, 1998). As discussed below, subsequent to the end of the quarter under review, the Board of Directors voted to redeem 37 series of Participating Stock for no value. The Company had surplus from retained earnings in the amount of $13,171,956 as of September 30, 1999 compared with $20,629,009 as of December 31, 1998. The reduction in retained earnings has arisen primarily as a result of a dividend payment of $4,066,464 in February of 1999 and the net loss for the period which is discussed more fully below. Results of Operations. During the quarter ended September 30, 1999, the Company had a net loss of $945,077, compared with net income of $2,160,565 for the quarter ended September 30, 1998. For the nine month period ended September 30, 1999, the Company had a net loss of $3,287,996, compared with net income of $7,073,156 for the comparable period in 1998. As discussed below, the decreases in net income for the quarter and nine month period ended September 30, 1999 compared to the comparable periods of 1998 are primarily attributable to less favourable underwriting performance and a decline in returns on the Company's investment portfolio. Premiums earned decreased to $13,255,178 during the quarter ended September 30, 1999 compared to $14,790,332 for the same period in -6- PAGE 7 1998. Expenses incurred during the quarter ended September 30, 1999 were $14,900,920 compared to $16,613,564 for the comparable quarter of 1998. The Company experienced a net underwriting loss for the quarter ended September 30, 1999 of $1,645,742 compared to an underwriting loss of $1,823,232 for the comparable period in 1998. The ratio of losses incurred to premiums earned for each of the two quarters ended September 30, 1999 and 1998 was 85.5% primarily as a result of increases in losses paid. For the nine month period ended September 30, 1999, the Company had earned premiums of $44,970,372 compared to $42,412,569 for the comparable period of 1998. Expenses incurred during the nine month period ended September 30, 1999 were $49,034,860 compared to $43,235,035 for the comparable period in 1998. Net underwriting loss for the Company was $4,064,488 for the nine month period ended September 30, 1999 compared to $822,466 for the comparable period in 1998. The loss ratio for the nine month period ended September 30, 1999 was 81.2%, compared to 75.2% for the nine month period ended September 30, 1998. As result of adverse underwriting results, the Company, working with MIC, has continued to evaluate ways to improve its underwriting performance and has recently taken steps to achieve such goal. Subsequent to the end of the quarter under review, MIC agreed to commute the unearned premium and all unpaid losses as of the end of the second quarter of 1999 that are attributable to 37 series of Shares that, as discussed below, the Board has voted to redeem. In exchange for assuming this unearned premium and unpaid loss reserves, the Company will pay $19,660,649 to MIC, which amount represents the unearned premium of $24,934,234, less the 25% ceding commission and 1% federal excise taxes of $6,482,901 previously paid by the Company with respect to the commuted business, plus unpaid losses of $1,209,316, each as of June 30, 1999, that are attributable to the commuted business. If MIC had not recaptured this business from the Company, the Company would have experienced materially larger underwriting losses and higher loss ratios for the three month and nine month periods ended September 30, 1999. Subsequent to the end of the quarter under review, the Board of Directors voted to redeem 37 series of Shares that had consistently experienced adverse underwriting results and that the Board determined were unlikely to experience favourable underwriting results in the future. Because the subsidiary capital account for these series had a balance of zero, the redemption price for the Shares was zero. Notwithstanding the redemption by the Board of these series of Shares and the recapture of business by MIC, there can be no assurances that the Company will not continue to experience significant adverse underwriting results. In addition, there can be no assurances that MIC would recapture additional business from the Company if the Company does experience significant adverse underwriting results in the future. -7- PAGE 8 Apart from the foregoing redemption of Shares and recapture of business, the Company continues to work with MIC to evaluate ways for improving its underwriting performance. MIC continues to contact unprofitable accounts and implement procedures to discontinue ceding new business into the Company with respect to such accounts. Additionally, MIC continues to place claims adjusters at some unprofitable accounts. Furthermore, claims approval empowerment levels have been significantly reduced or eliminated. Investment income for the quarter ended September 30, 1999 was $700,665 compared to income of $3,983,797 for the comparable period of 1998. Investment income for the nine month period ended September 30, 1999 was $776,492 compared to $7,895,622 for the comparable period of 1998. During the quarter ended September 30, 1999, the Company realised losses on the sale of investment securities of $839,940, compared to realised gains of $2,269,101 during the comparable period of 1998. The Company realized losses on the sale of investment securities during the quarter and the nine month period ended September 30, 1999 as a result of sales of fixed income securities, the value of which had decreased as a result of increases in interest rates. The unrealised position on investments reflected unrealised gains of $334,059 at December 31, 1998 and unrealised losses of $1,973,428 at September 30, 1999. The change in the unrealised position during this period was brought about by a decline in the market value of the portfolio due to increasing interest rates. For the quarter ended September 30, 1999, the Company had interest income of $1,540,605 compared to $1,714,696 for the comparable period of 1998. For the nine month period ended September 30, 1999, the Company had interest income of $4,321,589 compared to $4,520,786 for the comparable period of 1998. These decreases were largely attributable to lower coupon rates on the Company's portfolio of fixed income securities partially offset by an increase in funds available for investment. As of September 30, 1999 the Company's investment portfolio comprised approximately $94 million in fixed income securities, cash and cash equivalents and approximately $10 million in international equities. Year 2000 Many computerized systems and microprocessors that are used by the Company's manager have the potential for operational problems if they lack the ability to handle the transition to the Year 2000. The effects of the Year 2000 issue are also complicated by the Company's dependence on its common shareholder, from whom the Company assumes all of its business, as well as other service providers such as investment advisors and custodians. The Year 2000 issue has the potential to cause disruption to the business of the Company and its -8- PAGE 9 customers. In early 1998, the Company initiated communications with its manager and other service and technology providers in order to assess and reduce the risk that the Company's operations could be adversely affected by the failure of these third parties to adequately address the Year 2000 issue. Motors Insurance Corporation, the Company's key retroceding company and common shareholder, has completed its Year 2000 assessment phase and is in the remediation and contingency planning phases with respect to its critical system. The Company does not separately own or license any computers or computer software applications. Instead, it has outsourced these functions through an insurance management agreement. To date, the Company has not incurred, expensed or capitalised amounts related to the Year 2000 remediation. The Company does not expect to incur incremental expenses or to forego or delay information technology projects due to Year 2000. In view of the foregoing, the Company does not currently anticipate that it will experience a significant disruption of its business as a result of the Year 2000 issue. However, there is still uncertainty about the broader scope of the Year 2000 issue as it may affect the Company and third parties that are critical to the Company's operations. In the event that the Company or its service providers are unable to complete remedial actions or are unable to implement adequate contingency plans in the event that problems are encountered, there could be a material adverse effect on the Company's business, results of operations or financial condition. Forward Looking Statements The foregoing Management Discussion and Analysis contains various forward looking statements within the meaning of applicable federal securities laws and are based upon Company's current expectations and assumptions concerning future events, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Accounting Standards In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, effective for fiscal years beginning after June 15, 1999. In the second quarter of 1999, the FASB delayed implementation of SFAS No. 133 until fiscal years beginning on or after June 15, 2000. The new standard requires that all companies record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Management is currently assessing the impact of SFAS No. 133 on the consolidated financial statements of the Company. The Company will adopt this accounting standard on January 1, 2001, as required. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter for which this report is filed. -9- PAGE 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED (Registrant) By: s/Ronald W. Jones -------------------------------- Ronald W. Jones Vice President, Finance Signing on behalf of the Registrant, and Principal Financial Officer Dated: November 15, 1999 -10- EX-27 2 FINANCIAL DATA SCHEDULE
7 This schedule contains summary financial information extracted from the unaudited financial statements contained in the Company's quarterly report on Form 10-Q for the nine months ended September 30, 1999 and is qualified in its entirety by references to such financial statements. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 96,018,725 0 0 0 0 0 96,018,725 8,430,817 0 24,181,324 130,692,273 4,643,263 93,009,463 0 0 0 0 0 200,000 13,501,028 130,692,273 44,970,372 4,321,589 (3,545,097) 0 36,860,889 11,691,326 482,645 (3,287,996) 0 (3,287,996) 0 0 0 (3,287,996) 0 0 0 0 0 0 0 0 0 Information as to earnings per share is not provided inasmuch as the results for each series of stock will vary with the underwriting experience attributable to each Subsidiary Capital Account established with respect to that series.
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