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 June 30, 2001
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Transition report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934
For the transition period from to
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Commission File Number 33-6534
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Motors Mechanical Reinsurance Company, Limited
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(Exact name of registrant as specified in its charter)
Barbados N/A
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Bishops Court Hill, St. Michael, Barbados N/A
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(Address of principal executive offices) (Zip Code)
(246) 436-4895
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class As of June 30, 2001
Common Stock, no par-value 2,000
Participating Stock, no par-value 25,600
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This quarterly report, filed pursuant to Rule 13a-13 of the General Rules
and Regulations under the Securities Exchange Act of 1934, consists of the
following information as specified in Form 10-Q:
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
1. Balance Sheets, June 30, 2001 and December 31, 2000.
2. Statements of Operations and Retained Earnings for the three
month periods ended June 30, 2001 and 2000 and the six month
periods ended June 30, 2001 and 2000.
3. Statements of Cash Flows for the six month periods ended June 30,
2001 and 2000.
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. The
information furnished for the three and six month periods ended June 30, 2001
may not be indicative of results for the full year.
2
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
(Expressed in U.S. Dollars)
June 30, December 31,
2001 2000
(unaudited) (audited)
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ASSETS
Investments $ 89,036,201 $ 92,121,679
Cash and cash equivalents 1,409,532 1,736,235
Accrued investment income 857,528 903,734
Deferred acquisition costs 23,461,667 23,898,021
Advances to Shareholders 527,500 190,000
Prepaid expenses 40,355 37,250
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Total Assets $115,332,783 $118,886,919
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums $ 90,237,179 $ 91,915,465
Loss reserves 4,659,826 4,754,710
Accrued liabilities 328,703 125,953
Due to Motors Insurance Corporation 754,087 968,864
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Total liabilities 95,979,795 97,764,992
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STOCKHOLDERS' EQUITY
Share Capital
Common Stock-no par value;
Authorized - 2,000 shares;
issued and outstanding -
2,000 shares 200,000 200,000
Participating Stock-no par value;
Authorized - 100,000 shares;
Issued and outstanding -
25,600 shares as of June 30,
2001 and 25,900 shares as of
December 31, 2000 1,920,000 1,942,500
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2,120,000 2,142,500
Retained Earnings 15,372,731 16,247,004
Accumulated other comprehensive
income 1,860,257 2,732,423
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Total Stockholders' Equity 19,352,988 21,121,927
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Total Liabilities and
Stockholders' Equity $115,332,783 $118,886,919
============ ============
Certain amounts from 2000 have been reclassified to conform with 2001
classification
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MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE
MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 AND THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
(Expressed in U.S. Dollars)
Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
INCOME
Reinsurance premiums
assumed $12,462,469 $14,080,473 $25,165,580 $28,131,702
(Increase)\decrease in
unearned premiums 852,088 (565,573) 1,678,286 (1,142,974)
------------ ----------- ----------- -----------
Premiums earned 13,314,557 13,514,900 26,843,866 26,988,728
------------ ----------- ----------- -----------
Investment income 1,193,964 1,298,537 2,340,166 2,618,359
Interest earned
Realized gains\(losses)
on investments 292,356 (177,110) 737,038 (1,167,018)
------------ ----------- ----------- -----------
Investment income 1,486,320 1,121,427 3,077,204 1,451,341
------------ ----------- ----------- -----------
TOTAL INCOME 14,800,877 14,636,327 29,921,070 28,440,069
------------ ----------- ----------- -----------
EXPENSES
Acquisition costs 3,441,283 3,514,579 6,979,677 7,021,467
Losses paid 10,061,053 9,981,591 20,232,166 20,763,553
Increase\(decrease) in
loss reserves (66,251) 12,983 (94,884) 3,667
Administrative
expenses
- Related Parties 61,400 83,805 118,074 137,992
- Other 180,981 128,486 304,236 244,615
------------ ----------- ----------- -----------
TOTAL EXPENSES 13,678,466 13,721,444 27,539,269 28,171,294
------------ ----------- ----------- -----------
NET INCOME\(LOSS) 1,122,411 914,883 2,381,801 268,775
RETAINED EARNINGS,
beginning of period 14,293,154 12,543,156 16,247,004 13,190,576
LESS: DIVIDENDS 0 (673,134) (3,083,096) (673,134)
LESS: REDEMPTION OF
PARTICIPATING STOCK (42,834) (125,000) (172,978) (126,312)
------------ ----------- ----------- -----------
RETAINED EARNINGS,
end of period $15,372,731 $12,659,905 $15,372,731 $12,659,905
============ =========== =========== ===========
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MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 2001 AND JUNE 30, 2000
(Expressed in U.S. Dollars)
Six Month Periods
Ended June 30,
2001 2001
(unaudited) (unaudited)
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Cash flows from operating activities:
Reinsurance premiums collected $ 23,805,905 $ 23,374,340
Reinsurance premiums returned 0 (24,934,234)
Losses and acquisition expenses paid (25,874,196) (23,325,786)
Acquisition expenses reclaimed 0 6,482,901
Administrative expenses paid (322,721) (233,582)
Investment income received 2,392,533 3,763,155
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Net cash provided by\(used in)
operating activities 1,521 (14,873,206)
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Cash flows from investing activities:
Purchases of investments (36,998,461) (109,326,134)
Sales and maturities of investments 39,948,811 104,718,626
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Net cash provided by\(used in)
investing activities 2,950,350 (4,607,508)
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Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 7,500 0
Redemption of Participating Stock (202,978) (148,812)
Dividends paid (3,083,096) (673,134)
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Net cash used in financing activities (3,278,574) (821,946)
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Decrease in cash and cash equivalents (326,703) (20,302,660)
Cash and cash equivalents,
beginning of period 1,736,235 26,602,226
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Cash and cash equivalents, end of period $ 1,409,532 $ 6,299,566
============ =============
Reconciliation of net income to net cash
provided by\(used in) operating activities:
Net income 2,381,801 268,775
Realized (gains)\losses on investments (737,038) 1,167,018
Change in:
Accrued investment income 46,206 1,226,954
Deferred acquisition costs 436,354 (303,359)
Accounts receivable (337,500) 0
Prepaid expenses (3,105) 1,461
Unearned premiums (1,678,286) 1,142,974
Loss reserves (94,884) 3,667
Accrued liabilities 202,750 69,133
Due to Motors Insurance Corporation (214,777) (18,449,829)
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Net cash provided by\(used in)
operating activities $ 1,521 $(14,873,206)
============ =============
Certain amounts from 2000 have been reclassified to conform with 2001
classification
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Item 2. Management's Discussion And Analysis of Financial Condition And Results
of Operations
Liquidity. It is anticipated that Motors Mechanical Reinsurance Company, Limited
(the "Company") will generate sufficient funds from operations to meet current
liquidity needs. Premiums generated by the Company's reinsurance business
combined with investment earnings plus proceeds from the sale of Shares will
continue to be the principal sources of funds for investment by the Company.
Such funds will be available to meet the Company's liquidity requirements. No
capital expenditures are expected in the foreseeable future.
On March 21, 2001 the Board of Directors authorized the payment of dividends to
eligible holders of Participating Shares aggregating $3,083,096.
Capital Resources. During the quarter ended June 30, 2001, one new series of
Shares was added and 2 series were redeemed bringing the total number of series
issued and outstanding to 256 as of the end of the quarter. As of June 30, 2001,
the share capital of the Company was $2,120,000 (compared with $2,142,500 as of
December 31, 2000) comprised of paid in capital with respect to the Common Stock
of $200,000 and paid in capital with respect to Participating Shares of
$1,920,000 (compared with paid in capital with respect to Common Stock of
$200,000 and paid in capital with respect to Participating Shares of $1,942,500
as of December 31, 2000). In addition, the Company had surplus from retained
earnings in the amount of $15,372,731 as of June 30, 2001 compared with
$16,247,004 as of December 31, 2000. The net decrease in retained earnings is
primarily attributable to the dividend payment of $3,083,096 during the first
quarter of 2001 partially offset by net income for the six months ended June 30,
2001.
Results of Operations. During the quarter ended June 30, 2001, the Company had
net income of $1,122,411, compared with net income of $914,883 for the
comparable period in 2000. For the six month period ended June 30, 2001, the
Company had net income of $2,381,801 compared with net income of $268,775 for
the comparable period in 2000. As discussed below, the increase in net income
for the quarter ended June 30, 2001 compared to the comparable period of 2000 is
primarily as a result of an increase in realized returns on the Company's
investment portfolio. The increase in net income for the six month period ended
June 30, 2001 compared to the comparable period of 2000 is the result of
improved underwriting performance and a significant increase in realized returns
on the Company's investment portfolio.
Premiums earned decreased slightly to $13,314,557 during the quarter ended June
30, 2001 compared to $13,514,900 for the comparable period in 2000. Expenses
incurred during the quarter ended June 30, 2001 were $13,678,466 compared to
$13,721,444 for the comparable period in 2000. The Company experienced a net
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underwriting loss for the quarter ended June 30, 2001 of $363,909 compared to an
underwriting loss of $206,544 for the comparable period in 2000. The ratio of
losses incurred to premiums earned for the quarter under review was 75% compared
to 74% for the comparable period in 2000. Other than as noted above, there were
no significant items to report for the quarter ended June 30, 2001.
For the six month period ended June 30, 2001, the Company had earned premiums of
$26,843,866 compared to $26,988,728 for the comparable period of 2000. Expenses
incurred during the six month period ended June 30, 2001 were $27,539,269
compared to $28,171,294 for the comparable period in 2000. The net underwriting
loss for the Company was $695,403 for the six month period ended June 30, 2001
compared to an underwriting loss of $1,182,566 for the comparable period in
2000. The loss ratio for the six month period ended June 30, 2001 was 75%
compared to 77% for the comparable period in 2000. Other than as noted above
there were no unusual or significant items to report for the six months ended
June 30, 2001.
The decreases in earned premium and expenses for the quarter and six month
periods ended June 30, 2001 compared to the comparable periods of 2000, were in
large part attributable to the fact that the number of active series of
participating stock has been declining over that period and an increasing number
of policies are reaching a fully earned position.
The fluctuations in loss ratios for the quarter and six month periods ended June
30, 2001 compared to the comparable periods of 2000 reflect normal changes in
loss experience, which are expected for the type of business underwritten. The
Company's loss ratios for the first six months of 2001 have continued to reflect
an improvement in performance by comparison to 2000.
Investment income for the quarter ended June 30, 2001 was $1,486,320 compared to
$1,121,427 for the comparable period of 2000. Investment income for the six
month period ended June 30, 2001 was $3,077,204 compared to $1,451,341 for the
comparable period of 2000. During the quarter ended June 30, 2001, the Company
realized gains on the sale of investment securities of $292,356 compared to
realized losses of $177,110 during the comparable period of 2000. During the six
month period ended June 30, 2001, the Company realized gains on the sale of
investment securities of $737,038 compared to realized losses of $1,167,018
during the comparable period of 2000. Also, during the six month period ended
June 30, 2001 the cash flows from purchases and sales of investments decreased
significantly from the comparable period of 2000 due to increased activity by
the investment
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manager in investing in shorter term cash and cash equivalents. The Company
realized gains on the sale of investment securities during the quarter and the
six month period ended June 30, 2001 as a result of sales of fixed income
securities, the value of which had increased as a result of decreases in
interest rates. The Company realized losses on the sale of investment securities
during the quarter and six month period ended June 30, 2000 as a result of sales
of fixed income securities, the value of which had decreased as a result of
increasing interest rates. In addition, the realized loss was in part due to
management's decision to allow the newly appointed investment manager to sell
off certain securities which had an unrealized loss position in order to
reposition the fixed income portfolio to facilitate investment in accordance
with new investment guidelines adopted by the Company's Board of Directors.
The unrealized appreciation on investments was $1,860,257 at June 30, 2001
compared to $2,732,423 at December 31, 2000. This decrease is mainly due to
decreases in the market value of the Company's investment in an international
equity fund and the reduction in the Company's unrealized gain position in its
fixed income portfolio resulting from the sale of securities.
For the quarter ended June 30, 2001 the Company had interest income of
$1,193,964 compared to $1,298,537 for the comparable period of 2000. For the six
month period ended June 30, 2001, the Company had interest income of $2,340,166
compared to $2,618,359 for the comparable period of 2000. These decreases were
largely attributable to falling interest rates during the first six months of
2001.
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.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
At the annual meeting of shareholders of the Company held on May 9, 2001 (the
"Annual Meeting") the holder of the Common Stock re-elected five directors,
William B. Noll, Thomas D. Callahan, John J. Dunn Jr., Robert E. Capstack and
Peter R.P. Evelyn. The holders of Participating Shares unanimously elected the
sixth director, J. Theodore Linhart. The holder of the Common Stock also elected
John A. Gressa and Kurt S. Halsey as alternate directors for Messrs. Callahan
and Capstack, respectively.
8
At the Annual Meeting, the shareholders of the Company unanimously approved
amendments to the Company's Restated Articles of Incorporation to:
(i) substitute the term "MIC Mechanical Account" for "MIC Agency Account."
(ii) clarify the basis for computation of the risk fund;
(iii) clarify the treatment of advances to shareholders for the purposes of
allocating expenses, liabilities and investment income and for calculating
dividend payments and payments upon liquidation of the Company, redemption
or repurchases of Shares;
(iv) clarify the treatment of repayments of deficits incurred after January 1,
1995; and,
(v) clarify the treatment of a Subsidiary Capital Account subsequent to the
redemption or repurchase of all of its shares.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED (Registrant)
By: s/Ronald W. Jones
-----------------------------
Ronald W. Jones
Vice President, Finance
Signing on behalf of
the Registrant, and
Principal Financial Officer
Dated: August 9, 2001
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