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, 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
----- -----
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, 2001
Common Stock, no par-value 2,000
Participating Stock, no par-value 25,100
1
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, 2001 and December 31, 2000.
2. Statements of Operations and Retained Earnings for the three month
periods ended September 30, 2001 and 2000 and the nine month periods
ended September 30, 2001 and 2000.
3. Statements of Cash Flows for the nine month periods ended September
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 nine month periods ended September 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)
September 30, December 31,
2001 2000
(unaudited) (audited)
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ASSETS
Investments $ 89,272,435 $ 92,121,679
Cash and cash equivalents 142,331 1,736,235
Accrued investment income 702,021 903,734
Deferred acquisition costs 23,114,853 23,898,021
Advances to Shareholders 527,500 190,000
Prepaid expenses 38,125 37,250
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Total Assets $113,797,265 $118,886,919
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums $ 88,903,280 $ 91,915,465
Loss reserves 4,682,153 4,754,710
Accrued liabilities 136,112 125,953
Due to Motors Insurance Corporation 1,262,656 968,864
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Total liabilities 94,984,201 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 -
25,100 shares as of September 30,
2001 and 25,900 shares as of
December 31, 2000 1,882,500 1,942,500
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2,082,500 2,142,500
Retained Earnings 16,108,321 16,247,004
Accumulated other comprehensive
income 622,243 2,732,423
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Total Stockholders' Equity 18,813,064 21,121,927
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Total Liabilities and
Stockholders' Equity $113,797,265 $118,886,919
============ ============
Certain amounts from 2000 have been reclassified to conform with 2001
classification
3
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE
MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
(Expressed in U.S. Dollars)
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
2001 2000 2001 2000
(unaudited) (unaudited) (unaudited) (unaudited)
INCOME
Reinsurance premiums
assumed $12,044,421 $13,118,404 $37,210,001 $41,250,106
(Increase)\decrease in
unearned premiums 1,333,898 640,685 3,012,184 (502,289)
----------- ----------- ----------- -----------
Premiums earned 13,378,319 13,759,089 40,222,185 40,747,817
----------- ----------- ----------- -----------
Investment income
Interest earned 986,456 961,803 3,326,622 3,580,162
Realized gains\(losses)
on investments 460,275 275,544 1,197,313 (891,474)
----------- ----------- ----------- -----------
Investment income 1,446,731 1,237,347 4,523,935 2,688,688
----------- ----------- ----------- -----------
TOTAL INCOME 14,825,050 14,996,436 44,746,120 43,436,505
----------- ----------- ----------- -----------
EXPENSES
Acquisition costs 3,478,414 3,577,674 10,458,091 10,599,141
Losses paid 10,255,763 10,705,771 30,487,929 31,469,324
Increase\(decrease) in
loss reserves 22,327 84,812 (72,557) 88,479
Administrative expenses
- Related Parties 53,247 54,502 171,321 192,494
- Other 91,789 72,469 396,025 317,084
----------- ----------- ----------- -----------
TOTAL EXPENSES 13,901,540 14,495,228 41,440,809 42,666,522
----------- ----------- ----------- -----------
NET INCOME 923,510 501,208 3,305,311 769,983
RETAINED EARNINGS,
beginning of period 15,372,731 12,659,905 16,247,004 13,190,576
DIVIDENDS 0 0 (3,083,096) (673,134)
REDEMPTION OF
PARTICIPATING STOCK (187,920) 22,500 (360,898) (103,812)
----------- ----------- ----------- -----------
RETAINED EARNINGS, $16,108,321 $13,183,613 $16,108,321 $13,183,613
end of period =========== =========== =========== ===========
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
(Expressed in U.S. Dollars)
Nine Month Periods
Ended September 30,
2001 1000
(unaudited) (unaudited)
Cash flows from operating activities:
Reinsurance premiums collected $36,268,374 $ 37,454,813
Reinsurance premiums returned 0 (24,934,234)
Losses and acquisition expenses paid (39,172,874) (30,513,854)
Administrative expenses paid (637,122) (528,735)
Investment income received 3,515,335 5,138,397
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Net cash used in
operating activities (26,287) (13,383,613)
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Cash flows from investing activities:
Purchases of investments (48,094,300) (141,824,644)
Sales and maturities of investments 50,030,677 135,396,527
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Net cash provided by\(used in)
investing activities 1,936,377 (6,428,117)
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Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 7,500 0
Redemption of Participating Stock (428,398) (148,812)
Dividends paid (3,083,096) (673,134)
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Net cash used in financing activities (3,503,994) (821,946)
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Decrease in cash and cash equivalents (1,593,904) (20,633,676)
Cash and cash equivalents, beginning
of period 1,736,235 26,602,226
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Cash and cash equivalents, end of period $ (142,331) $ 5,968,550
=========== ============
Reconciliation of net income to net cash
provided by\(used in) operating
activities:
Net income 3,305,311 769,983
Realized (gains)\losses on investments (1,197,313) 891,474
Change in:
Accrued investment income 201,713 1,584,836
Deferred acquisition costs 783,168 (136,780)
Advances to shareholders (337,500) 0
Prepaid expenses (875) 46,000
Unearned premiums (3,012,185) 502,289
Loss reserves (72,557) 88,479
Accrued liabilities 10,159 (93,296)
Due to Motors Insurance Corporation 293,792 (17,036,598)
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Net cash used in
operating activities $ (26,287) $ (13,383,613)
=========== =============
Certain amounts from 2000 have been reclassified to conform with 2001
classification
5
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 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 September 30, 2001 no new series of
Participating Shares were added and 5 series were redeemed as a result of the
business attributable to such series becoming fully earned, bringing the total
number of series issued and outstanding to 251 at September 30, 2001. As of
September 30, 2001 the share capital of the Company was $2,082,500 (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 $1,882,500 (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
retained earnings in the amount of $16,108,321 as of September 30, 2001 compared
with $16,247,004 as of December 31, 2000. The net decrease in retained earnings
is attributable to the dividend payment of $3,083,096 during the first quarter
of 2001 and payments made with respect to redeemed series of Participating
Shares during the nine months ended September 30, 2001, offset by net income for
the nine months ended September 30, 2001.
Results of Operations. During the quarter ended September 30, 2001 the Company
had net income of $923,510, compared with net income of $501,208 for the
comparable period in 2000. For the nine month period ended September 30, 2001
the Company had net income of $3,305,311 compared with net income of $769,983
for the comparable period in 2000. As discussed below, the increases in net
income for the quarter and nine month periods ended September 30, 2001 compared
to the comparable periods of 2000 are the result of improved underwriting
performance and increases in realized returns on the Company's investment
portfolio.
Premiums earned decreased slightly to $13,378,319 during the quarter ended
September 30, 2001 compared to $13,759,089 for the comparable period in 2000.
Expenses incurred during the quarter ended September 30, 2001 were $13,901,540
compared to $14,495,228 for the comparable period in 2000. The Company
experienced a net underwriting loss for the quarter ended September 30, 2001 of
$523,221 compared to an underwriting loss of $736,139 for the comparable period
in 2000. The ratio of losses incurred to premiums earned for the quarter under
review was 76.8% compared to 78.4% for the comparable period in 2000. Other than
as noted above, there were no significant items to report for the quarter ended
September 30, 2001.
6
For the nine month period ended September 30, 2001 the Company had earned
premiums of $40,222,185 compared to $40,747,817 for the comparable period of
2000. Expenses incurred during the nine month period ended September 30, 2001
were $41,440,809 compared to $42,666,522 for the comparable period in 2000. The
net underwriting loss for the Company was $1,218,624 for the nine month period
ended September 30, 2001 compared to an underwriting loss of $1,918,705 for the
comparable period in 2000. The ratio of losses incurred to premiums earned for
the nine month period ended September 30, 2001 was 75.6% compared to 77.4% for
the comparable period in 2000. Other than as noted above there were no unusual
or significant items to report for the nine months ended September 30, 2001.
The moderate decreases in earned premium and expenses as noted above for the
quarter and nine month periods ended September 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 Shares has been declining over that
period and an increasing number of policies reinsured by the Company are
reaching a fully earned position.
The fluctuations in loss ratios for the quarter and nine month periods ended
September 30, 2001 compared to the comparable periods of 2000 reflect normal
variations in loss experience, which are expected for the type of business
underwritten. The Company's loss ratios for the first nine months of 2001 have
continued to reflect an improvement in performance by comparison to 2000
primarily as a result of continuing efforts by the ceding company to control
losses.
Investment income for the quarter ended September 30, 2001 was $1,446,731
compared to $1,237,347 for the comparable period of 2000. Investment income for
the nine month period ended September 30, 2001 was $4,523,935 compared to
$2,688,688 for the comparable period of 2000. During the quarter ended September
30, 2001 the Company realized gains on the sale of investment securities of
$460,275 compared to realized gains of $275,544 during the comparable period of
2000. During the nine month period ended September 30, 2001 the Company realized
gains on the sale of investment securities of $1,197,313 compared to realized
losses of $891,474 during the comparable period of 2000. Also, during the nine
month period ended September 30, 2001 the cash flows arising from purchases and
sales of investments decreased from the comparable period of 2000 due to
increased activity by the investment manager in investing in shorter term cash
and cash equivalents during 2000. The Company realized gains on the sale of
investment securities during the quarter and the nine month period ended
September 30, 2001 as a result of sales of fixed income securities, the value of
which had increased as a result of decreases in market interest rates. In
addition, the Company realized losses during the nine month period ended
September 30, 2000 as a result of 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 in
accordance with new investment guidelines adopted by the Company's Board of
Directors.
7
The unrealized appreciation on investments was $622,243 at September 30, 2001
compared to $2,732,423 at December 31, 2000. This decrease is mainly due to a
decrease in the market value of the Company's investment in an international
equity fund, partially offset by an increase in the Company's unrealized gain
position in its fixed income portfolio.
For the quarter ended September 30, 2001 the Company had interest income of
$986,456 compared to $961,803 for the comparable period of 2000. For the nine
month period ended September 30, 2001 the Company had interest income of
$3,326,622 compared to $3,580,162 for the comparable period of 2000. The
decrease in the nine month period ended September 30, 2001 was largely
attributable to corresponding decreases in coupon rates as the new investment
guidelines were adopted in 2000 as noted above.
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 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.
8
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 9, 2001
9