10-Q 1 form10q.txt QUARTERLY REPORT 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, 2002 ----------------------------- 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, 2002 Common Stock, no par-value 2,000 Participating Stock, no par-value 24,400 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 as of June 30, 2002 and December 31, 2001. 2. Statements of Operations and Retained Earnings for the three month and six month periods ended June 30, 2002 and 2001. 3. Statements of Cash Flows for the six month periods ended June 30, 2002 and 2001. 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, 2002 may not be indicative of results for the full year. 2 MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED BALANCE SHEETS (Expressed in U.S. Dollars)

3 MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 (Expressed in U.S. Dollars)

4 MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND JUNE 30, 2001 (Expressed in U.S. Dollars) Six Month Periods Ended June 30,

5 Item 2. Management's Discussion And Analysis of Financial Condition And Results of Operations Critical Accounting Policies. During the quarter ended June 30, 2002, Motors Mechanical Reinsurance Company, Limited (the "Company") had no change in its critical accounting policies as previously disclosed within the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Liquidity. It is anticipated that 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 Participating 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 5, 2002, the Board of Directors authorized the payment of dividends to eligible holders of Participating Shares aggregating $4,318,225. Capital Resources. During the quarter ended June 30, 2002, no new series of Participating Shares were added and 6 series were redeemed, bringing the total number of series issued and outstanding to 244 as of the end of the quarter. As of June 30, 2002, the share capital of the Company was $2,030,000 (compared with $2,075,000 as of December 31, 2001) comprised of paid in capital with respect to the Common Stock of $200,000 and paid in capital with respect to Participating Shares of $1,830,000 (compared with paid in capital with respect to Common Stock of $200,000 and paid in capital with respect to Participating Shares of $1,875,000 as of December 31, 2001). In addition, the Company had surplus from retained earnings in the amount of $17,982,346 as of June 30, 2002 compared with $18,521,974 as of December 31, 2001. The net decrease in retained earnings is primarily attributable to the dividend payment of $4,318,225 during the first quarter of 2002, partially offset by net income for the six months ended June 30, 2002. Results of Operations. During the quarter ended June 30, 2002, the Company had net income of $2,640,868, compared with net income of $1,122,411 for the comparable period in 2001. For the six month period ended June 30, 2002, the Company had net income of $3,983,342 compared with net income of $2,381,801 for the comparable period in 2001. As discussed below, the increases in net income for the quarter and six month periods ended June 30, 2002 compared to the comparable periods of 2001 were primarily a result of increases in investment income resulting from gains on sales of fixed income securities (although to a lesser extent with respect to the six month period ended June 30, 2002) combined with improved underwriting results. 6 Premiums earned decreased slightly to $12,596,353 during the quarter ended June 30, 2002 compared to $13,314,557 for the comparable period in 2001. Expenses incurred during the quarter ended June 30, 2002 were $12,356,012 compared to $13,678,466 for the comparable period in 2001. The Company experienced net underwriting income for the quarter ended June 30, 2002 of $240,341 compared to an underwriting loss of $363,909 for the comparable period in 2001. The ratio of losses incurred to premiums earned for the quarter under review was 71% compared to 75% for the comparable period in 2001. For the six month period ended June 30, 2002, the Company had earned premiums of $25,153,596 compared to $26,843,866 for the comparable period of 2001. Expenses incurred during the six month period ended June 30, 2002 were $24,984,700 compared to $27,539,269 for the comparable period in 2001. The net underwriting income for the Company was $168,896 for the six month period ended June 30, 2002 compared to an underwriting loss of $695,403 for the comparable period in 2001. The loss ratio for the six month period ended June 30, 2002 was 72% compared to 75% for the comparable period in 2001. Other than as noted above there were no material items to report for the six months ended June 30, 2002. The decreases in earned premium and expenses for the quarter and six month periods ended June 30, 2002, compared to the comparable periods of 2001, 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 six month periods ended June 30, 2002 compared to the comparable periods of 2001 reflect normal changes in loss experience, which are expected for the type of business underwritten, as well as the ongoing efforts by Motors Insurance Corporation, the ceding company, to improve underwriting results with respect to series of Participating Shares that have produced unprofitable business. The Company's loss ratios for the first six months of 2002 have continued to reflect an improvement in performance by comparison to 2001. Investment income for the quarter ended June 30, 2002 was $2,400,527 compared to $1,486,320 for the comparable period of 2001. Investment income for the six month period ended June 30, 2002 was $3,814,446 compared to $3,077,204 for the comparable period of 2001. During the quarter ended June 30, 2002, the Company realized gains on the sale of investment securities of $1,304,094 compared to realized gains of $292,356 during the comparable period of 2001. During the six month period ended 7 June 30, 2002, the Company realized gains on the sale of investment securities of $1,563,270 compared to realized gains of $737,038 during the comparable period of 2001. Also, during the six month period ended June 30, 2002, the cash flows from purchases and sales of investments increased significantly from the comparable period of 2001 due to increased activity by the investment manager in buying and selling securities in the Company's fixed income portfolio to take advantage of realized gains resulting from increased market values. The Company realized gains on the sale of investment securities during the quarter and the six month period ended June 30, 2002 and June 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. The unrealized loss on investments was $702,551 at June 30, 2002 compared to an unrealized gain of $1,769,048 at December 31, 2001. 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. As at June 30, 2002 the international equity fund had an unrealized loss position of $1,772,453 compared to an unrealized loss of $259,422 as at December 31, 2001. The Company's fixed income portfolio had an unrealized gain of $1,069,902 compared to an unrealized gain of $2,028,470 at December 31, 2001. As a result of adverse developments in international equity markets, the Company's unrealized loss position in its international equity fund increased from $1,772,453 at June 30, 2002 to $3,314,568 as of July 31, 2002. In the event of future volatility in equity markets, the Company's unrealized loss position could increase in the future. For the quarter ended June 30, 2002 the Company had interest income of $1,096,433 compared to $1,193,964 for the comparable period of 2001. For the six month period ended June 30, 2002, the Company had interest income of $2,251,176 compared to $2,340,166 for the comparable period of 2001. These decreases were largely attributable to falling interest rates during the first six months of 2002. 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. 8 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 8, 2002 (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 present in person or by proxy unanimously elected the sixth director, Harvey J. Koning. The holder of the Common Stock also elected John A. Gressa and Kurt S. Halsey as alternate directors for Messrs. Callahan and Capstack, respectively. At the Annual Meeting, the shareholders of the Company, present in person or by proxy, unanimously approved amendments to the Company's By Law No. 1. to allow an incumbent Director elected by the holders of Participating Shares to be re-elected to serve a second term of one year and to permit individuals who have previously served as the director elected by the holders of Participating Shares to be elected again. 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 14, 2002 9

MOTORS MECHANICAL REINSURANCE CO LTD 10-Q