10-Q 1 form10q.txt FORM 10-Q 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 ----------------------------- 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 principal 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 June 30, 2001 Common Stock, no par-value 2,000 Participating Stock, no par-value 25,600 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, 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)

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 PERIODS ENDED JUNE 30, 2001 AND 2000 AND THE SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 (Expressed in U.S. Dollars)

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 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 6 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 7 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 9

MOTORS MECHANICAL REINSURANCE CO LTD 10-Q