MOTORS MECHANICAL REINSURANCE CO LTD - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

X Annual Report Pursuant to Section 13 or 15(d) of
- ----- The Securities Exchange Act of 1934

For the fiscal year ended December 31, 2000

Or

- ----- Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Commission file number 33-6534

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
(Exact name of registrant as specified in its charter)

Barbados Not Applicable
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)

One Financial Place

Collymore Rock Not Applicable
St. Michael, Barbados, W.I. (Zip Code)
(Address of principal
executive offices)

Registrant's telephone number, including area code (246) 436-4895

Securities registered pursuant to Section 12(b) of the Act:

Name of each
Title of each class Exchange on which registered

None None

Securities registered pursuant to Section 12(g) of the Act:

None

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

PAGE 2

Act of 1934 during the preceding 12 months (or 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 2001, was $1,942,500.*

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

Class As of March 1, 2001
----- -------------------

Common Stock, no-par value 2,000
Participating Stock, no-par value 25,900

* Based on current offering price of $75 per share.

PAGE 3

PART I

Item 1. BUSINESS

INTRODUCTION

Motors Mechanical Reinsurance Company, Limited (the "Company") was incorporated
in Barbados on June 12, 1986. It became registered in Barbados as an insurer on
June 30, 1986 and commenced insurance operations on December 11, 1987.

The business of the Company is the assumption of motor vehicle mechanical
service agreements arising under insurance policies reinsured by Motors
Insurance Corporation ("MIC") to the extent such policies are attributable to an
MIC Mechanical account in respect of which a series of shares is issued and
outstanding (the "Policies"). These policies are issued either to General Motors
Corporation or affiliates ("GM") or to automobile dealers, reinsured by MIC, and
retroceded to the Company. Shares of the Company's Participating Stock (the
"Shares") are sold to persons designated by owners of motor vehicle sales
franchises with respect to which MIC maintains an MIC Mechanical Account. A
separate series is created for Shares relating to each MIC Mechanical Account,
and a separate "Subsidiary Capital Account" is maintained for each such series.
The profitability of the Company reflects both underwriting and investment
experience, which is allocated among the Subsidiary Capital Accounts.

THE RETROCESSION

PAGE 4

The Retroceding Company. MIC, the retroceding company under the Retrocession
Agreement described below, is a stock insurance company organized under the laws
of Michigan. All of MIC's outstanding stock is owned by GMAC Insurance Holdings,
Inc., a subsidiary of General Motors Acceptance Corporation which, in turn, is a
wholly owned subsidiary of GM. MIC, directly and through its subsidiaries,
offers property and casualty coverages in all 50 states and the District of
Columbia, Canada, Europe, Latin America and Asia Pacific. MIC consistently has
been awarded A.M. Best Company's insurance financial rating of A + (Superior),
one of the highest possible ratings.

The Retrocession Agreement -- Principal Agreement. The Company has entered into
a "quota share" retrocession agreement (the "Agreement") which became effective
as of December 11, 1987. Pursuant to the Agreement, MIC retrocedes to the
Company, and the Company is obligated to assume, MIC's risks in respect of
policies issued by any MIC subsidiary and reinsured by MIC that cover motor
vehicle mechanical service agreements, to the extent that risks under such
policies are attributable to an MIC Mechanical Account in respect of which a
series of Shares is issued and outstanding. MIC retrocedes 100% of the risk and
the Company receives 75% of the original gross premium, reduced by agents'
commissions, if any, and cancellations. The remaining 25% of the net premium is
retained by MIC as a ceding commission. The Company assumes 75% of the risk with
respect to these policies and MIC pays 56.25% of the net premium at the time the
policies are written. The remaining 25% of the risk is ceded to the Company and
MIC pays 18.75% of the net premium as the premiums are earned. Net settlements
between the Company and MIC are made quarterly and accordingly will fluctuate
quarter to quarter.

PAGE 5

The Agreement may be terminated at any time by mutual consent of the parties, or
by either party upon 30 days written notice. Upon termination of the Agreement,
MIC and the Company will remain bound by their respective obligations under the
Agreement with respect to risks retroceded prior to the close of business on the
date of termination. However, risks not yet retroceded to the Company under the
Agreement shall remain risks of MIC.

The Retrocession Agreement -- Supplemental Agreement. MIC from time to time
enters into agreements with Franchise owners for which an MIC Mechanical Account
is established, pursuant to which MIC, acting for itself and on behalf of
certain of its subsidiaries, agrees to cede or retrocede to another insurance
company mutually satisfactory to MIC and the respective Franchise owners the
unexpired liability on service contracts, insured under the Policies, sold after
the date specified in each such agreement. This liability can be ceded or
retroceded to dealer-owned companies organized specifically with respect to a
particular Franchise or, if a series of Shares is issued which relates to the
Franchise, pursuant to an agreement between MIC and the Company (the
"Supplemental Retrocession Agreement"). For this purpose, unexpired liability
means MIC's liability in respect of the remaining period of coverage under the
Policy as of the effective date of the cession. Under the Supplemental
Retrocession Agreement, unexpired liability in respect of the Policies is
assumed on the same basis as risks retroceded to the Company under the principal
Retrocession Agreement.

Types of Risks Subject to Retrocession. Coverages assumed under the Agreement
are limited to service contracts or insurance policies insured or reinsured by
MIC that provide indemnification against specific motor vehicle mechanical

PAGE 6

repairs not covered by manufacturer's new vehicle warranties. Such service
contracts or insurance policies often provide additional coverages, such as
towing and rental allowances.

Loss Reserves. Reserves are balance sheet liabilities representing estimates of
amounts needed in the future to pay claims with respect to insured events which
have occurred as of the balance sheet dates.

For purposes of establishing loss reserves, the Company relies upon the advice
of MIC. Loss reserves are established after periodic actuarial reviews, based on
judgments of the effects of technological change, manufacturers' warranties, and
MIC's historical experience with motor vehicle mechanical service agreements.
Consequently, the determination of loss reserves is an estimate and a process
inherently subject to a number of highly variable factors. Any adjustments to
reserves are reflected in the operating results for the periods in which they
become known.

The Company's incurred loss ratios (losses incurred as a percentage of net
premium earned) on all mechanical business for the years ended December 31,
2000, 1999, and 1998 were 74.9%, 80%, and 78.8% respectively.

The following table sets forth an analysis of changes in the loss reserves for
the years ended December 31, 2000, 1999 and 1998:

Year Ended
12/31/00 12/31/99 12/31/98
-------- -------- --------
Beginning balance in
reserves for losses....... $ 4,725,239 $ 5,393,818 $ 5,421,160
----------- ----------- -----------

Add-provision for losses
incurred related to:

Current claim year..... 41,579,713 47,211,542 45,843,093

PAGE 7

Prior claim years..... (877,045) (427,390) (290,547)
----------- ----------- -----------

Total.............. 40,702,668 46,784,152 45,552,546
----------- ----------- -----------

Deduct-paid losses
attributable to:

Current claim......... 36,837,642 43,514,155 40,767,738

Prior claim years..... 3,835,555 3,938,576 4,812,150
----------- ----------- -----------

Total............. 40,673,197 47,452,731 45,579,888

Ending balance in reserves
for losses................ $ 4,754,710 $ 4,725,239 $ 5,393,818
=========== =========== ===========

PAGE 8

The following table analyzes the development of losses and loss adjustment
expenses from January 1, 1995 through December 31, 2000.

Years Ended
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
-------- -------- -------- -------- -------- --------

Liability for unpaid
claims and claims
adjustment expense.... $3,480,334 $4,284,304 $5,421,160 $5,393,818 $4,725,239 $4,754,710
---------- ---------- ---------- ---------- ---------- ----------
Paid (cumulative) in
subsequent year(s).... $2,903,588 $2,997,089 $4,812,150 3,938,576 3,835,555

Estimated unpaid
liability as of
year end*............. 534,495 541,191 318,463 1,027,852 12,639
---------- ---------- ---------- ---------- ----------

Cumulative Redundancy... $ 42,251 $ 746,024 $ 290,547 $ 427,390 $ 877,045
========== ========== ========== ========== ==========

*/ Because mechanical breakdown claims are generally paid within 90 days of when
they are incurred, liability for unpaid claims incurred in prior years is
negligible. Accordingly, liability for unpaid claims incurred in all prior years
has been combined at each year end.

PAGE 9

The table shows initial estimated reserves at December 31, 2000, 1999, 1998,
1997, 1996, and 1995 and amounts paid on claims unsettled at each prior period
end. Claims are typically processed for payment at the time the claim is
reported. Therefore, the recorded claim liability at each year end represents
the estimated incurred but not reported claims and claims in the process of
payment. The cumulative deficiency or redundancy represents the total change in
reserve estimates covering prior years.

The policies reinsured by the Company are written for multiple years (up to six
years) and losses do not occur equally over the period for which the policy is
written but tend to be clustered in the later years. Therefore, loss experience
for prior years may not be indicative of that for future years.

INVESTMENT INCOME

A major source of income to an insurance company is income earned on the
investment of amounts not currently required to meet losses or expenses. The
principal funds available for investment by the Company come from accumulated
capital and the cumulative excess of premiums collected over losses and
operating expenses paid.

The Company's investment portfolio consists of U.S. dollar denominated fixed
income securities and shares of a U.S. dollar denominated international equity
fund. At December 31, 2000 and 1999, 81% and 90%, respectively, of the Company's
investment portfolio consisted of cash and fixed income securities with the
balance of the portfolio consisting of shares of the international equity fund.

Effective February 8, 2000, the Company entered into an investment management
agreement with BlackRock International, Ltd. ("BlackRock") pursuant to which

PAGE 10

BlackRock manages the investment and reinvestment of the Company's fixed income
portfolio in accordance with the Company's investment guidelines. BlackRock is a
subsidiary of BlackRock, Inc. which had approximately $204 billion of assets
under management as of December 31, 2000. BlackRock, Inc. manages assets on
behalf of more than 3,300 institutions and 200,000 individuals through a variety
of equity, fixed income, liquidity and alternative investment, and mutual fund
products. Under the terms of the investment management agreement, BlackRock
charges a management fee calculated as a percentage of the net asset value of
the Company's portfolio managed by BlackRock. The applicable percentage is based
on the aggregate amount of assets managed by BlackRock on behalf of the Company
and certain other related entities. The applicable percentage is tiered on the
first $50 million of assets under management on behalf of the foregoing entities
and lower on all assets in excess of $50 million. Prior to the effective date of
the Company's agreement with BlackRock, the Company's fixed income portfolio was
managed by Rothschild Asset Management Limited ("Rothschild").

The Company's funds are invested in a manner consistent with investment
guidelines that are proposed by the Investment Committee for adoption by the
Board. In February of 2000, the Company began implementing new investment
guidelines for its fixed income portfolio. Under these guidelines, the Company
is permitted to invest in U.S. Treasury and agency securities, agency and non
agency mortgage-backed securities, obligations or domestic and foreign
corporations, asset-backed securities, taxable municipal securities and money
market instruments. In addition to these fixed income securities, pursuant to a
plan adopted in early 1999, the Company may invest a portion of its investment
portfolio in equity securities provided that the portion of the Company's
investment portfolio consisting of equity securities may not exceed 30%.

PAGE 11

Under the investment guidelines for fixed income securities in effect prior to
the implementation of the new investment guidelines, the Company had invested
primarily in U.S. dollar-denominated securities issued outside of the United
States by non-United States private or governmental issuers, U.S. dollar-
denominated back certificates of deposit issued by foreign banks and foreign
branches of U.S. banks, and, in certain situations, non-U.S. dollar denominated
bonds, on a fully currency-hedged basis. The Company's fixed income investment
portfolio was completely converted to investments permitted under the new
guidelines in the latter half of 2000.

In June 1999, the Company invested $10 million into equity securities by
purchasing shares in Capital International Fund (the "Fund"), an investment
company incorporated under the laws of Luxembourg. The Company invested an
additional $6 million in the Fund during November 2000. The Fund's investment
objective is capital appreciation and it aims to achieve this objective through
the continuous management of a diversified portfolio of transferable securities
consisting primarily of common stocks, researched and selected on a world-wide
basis. Shares are denominated in United States Dollars and are all of the same
class and have like rights and liabilities. Shares are listed on the Luxembourg
and the Amsterdam Stock Exchanges. The Fund had $836 million in total net assets
as of December 31, 2000. The market value of the Company's equity portfolio at
December 31, 2000 was approximately $17.1 million.

The Investment Committee reviews on a regular basis and, where appropriate,
recommends for Board approval revisions to the investment objectives and
guidelines for management of the Company's funds. There can be no assurance,
however, as to whether a particular investment objective, once adopted, can be
achieved or that adverse factors would not cause a decrease in the overall value
of the Company's investment portfolio.

PAGE 12

ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS

The Company has established a Subsidiary Capital Account with respect to the
Common Stock as a class, and establishes such an account with respect to each
series of Shares at the time a series is issued. Subsidiary Capital Accounts are
maintained solely for the purpose of the allocations described below, and do not
serve any other legal or accounting function. None of the Company's assets are
segregated or earmarked with respect to those accounts.

The consideration received by the Company upon the issuance of a particular
series of Shares and the Common Stock as a class are allocated to the Subsidiary
Capital Account for that series or class. Items of income and expense and losses
attributable to insurance underwriting activities are determined and allocated
to the Subsidiary Capital Accounts as of the end of each quarter. Investment
experience, and other items of income and expense, gains and losses and
distributions with respect to the Shares and the Common Stock, are determined
and allocated to the Subsidiary Capital Accounts as of the end of each quarter.
All such accounting determinations are made using accounting principles
generally accepted in the United States, unless otherwise required by the
Articles.

For purposes of the following description, items shall be "related" to the
Subsidiary Capital Account for the series identified with the MIC Mechanical
Account to which such items can be attributed.

(1) Allocations with respect to underwriting activities are made as follows:

(a) With respect to premiums ceded by MIC to the Company, 100% to the related
Subsidiary Capital Account; provided, however, that an amount equal to 1-1/3% of
those premiums, net of related ceding commissions, are subtracted

PAGE 13

from such Subsidiary Capital Account and allocated to the Subsidiary Capital
Account for the Common Stock.

(b) With respect to any agents' or brokers' commissions, commissions recaptured,
unearned premiums, reinsurance premiums ceded, and any United States excise tax,
100% to the related Subsidiary Capital Account.

(c) With respect to losses incurred, and any amount of losses recovered through
salvage, subrogation, reimbursement or otherwise one hundred percent (100%)
shall be allocated to the related Subsidiary Capital Account. For the purpose of
this section (1)(c), losses incurred includes both paid and unpaid (reported and
unreported) losses.

(d) With respect to return premiums, 98-2/3% to the related Subsidiary Capital
Account and 1-1/3% to the Subsidiary Capital Account for the Common Stock.

(2) Any expenses or liabilities attributable to day-to-day Company operations,
excluding any United States Federal income taxes, shall be allocated among all
Subsidiary Capital Accounts for the Shares pro rata in accordance with the
number of series issued and outstanding at the end of the fiscal quarter
immediately preceding the fiscal quarter in which the expense or liability is
incurred, provided, that for purposes of such allocation, series of shares
issued at any time during the twelve calendar months preceding the end of the
fiscal quarter in which the expense or liability is incurred and series with
respect to which unearned premium is zero as of the date of such allocation,
shall be excluded.

(3) Any United States Federal income tax liability (and any interest thereon or
any penalties related thereto) is allocated among the Subsidiary Capital

PAGE 14

Accounts based upon the relative contribution of each of those accounts to the
taxable income of the Company upon which the tax (or any interest or penalties)
is imposed.

(4) Any expenses or liabilities attributable to the sale and issuance of Shares,
including but not limited to the costs of compliance with regulations and
requirements of the Securities and Exchange Commission and state securities laws
(but not including ongoing periodic reporting costs), are allocated to the
Subsidiary Capital Account for the Common Stock; however, MIC may undertake to
pay such expenses.

(5) Any expenses or liabilities of the Company not allocable in the manner
described in paragraphs 2 through 4 above are allocated among the Subsidiary
Capital Accounts on the basis of the relative balances of those accounts as of
the end of the quarter preceding the date on which the expense or liability is
incurred.

(6) (a) Investment income, net of any direct investment expense, is allocated
among the Subsidiary Capital Accounts pro rata based upon the relative
Investment Asset Balance (as defined in subparagraph (b) below) of each of those
accounts as of the last day of the quarter preceding the quarter for which the
investment income is being allocated. For these purposes, net investment income
includes realized (but not unrealized) gains and losses.

(b) The Investment Asset Balance of each Subsidiary Capital Account is equal to
the capital and surplus of each account, increased by:

(i) the unearned portions of the written premiums that have been collected
by the Company attributable to those accounts as of the last day of the

PAGE 15

quarter preceding the quarter for which the income is being allocated, net of
any applicable commissions and taxes;

(ii) the outstanding loss reserves attributable to each of those accounts as of
the last day of the quarter preceding the quarter for which the income is being
allocated; and

(iii) any other outstanding liability that has been charged to the account as of
the last day of the quarter preceding the quarter for which the income is being
allocated.

(7) (a) If, after the credits and charges described in paragraphs 1-6 above are
made to the Subsidiary Capital Accounts there exists a deficit in one or more of
the accounts, then each such deficit is allocated to and charged against:

(i) first, the Subsidiary Capital Account for the Common Stock to the extent of
Restricted Earned Surplus (the phrase "Restricted Earned Surplus" refers to the
portion of the earned surplus, if any, in the Subsidiary Capital Account for the
Common Stock equal to that 1-1/3% of the premiums ceded to the Company during
the immediately preceding five-year period which was subtracted from the
Subsidiary Capital Accounts for the Shares pursuant to paragraph (1)(a) above,
net of losses allocated to that account during such period pursuant to the
allocation procedure described in this paragraph (7) and net of return premiums
allocated to that Account during such period pursuant to the allocation
procedure described in paragraph (1)(d) above);

(ii) then, the Subsidiary Capital Accounts for the Shares, pro rata, based upon
the relative earned premiums allocated to each such account for the quarter for
which the allocation is being made, provided, however, that only

PAGE 16

accounts which have positive balances are taken into account for purposes of
this allocation;

(iii) then, the remaining Subsidiary Capital Accounts for the Shares with
positive balances as of the last day of the quarter for which the allocation is
being made, pro rata, based upon such balances; and

(iv) then, to the extent necessary, the Subsidiary Capital Account for the
Common Stock.

(b) If, as a result of an allocation of a deficit as described in subparagraph
(ii) or (iii) of paragraph (a) above, a deficit is created in one or more of the
Subsidiary Capital Accounts, then the resulting deficit(s) are further allocated
in the manner provided in that subparagraph before applying a subsequent
subparagraph.

(c) Notwithstanding the foregoing, if any Subsidiary Capital Account for a
series of Shares had a deficit that was allocated to and charged against the
Restricted Earned Surplus or, after January 1, 1995, to the Subsidiary Capital
Account for any series of Shares, then at the end of any succeeding quarter for
which that account otherwise would show an account balance greater than zero,
the balance is reallocated to the Restricted Earned Surplus until all reductions
of that surplus attributable to that Subsidiary Capital Account have been
restored and thereafter, to the Subsidiary Capital Accounts for the Shares, pro
rata based on the relative amount of deficits allocated to such accounts, until
all reductions of such Subsidiary Capital Accounts after January 1, 1995 have
been restored.

Thus, a loss in a Subsidiary Capital Account which exceeds the balance in that
account is absorbed by other Subsidiary Capital Accounts, in general, as

PAGE 17

follows: The amount of such excess losses is charged first to the Restricted
Earned Surplus portion of the Subsidiary Capital Account of the Common Stock.
Any remaining losses, should the Restricted Earned Surplus be exhausted, is
allocated among the Subsidiary Capital Accounts of other participating series.
Any then unabsorbed losses are charged to the Subsidiary Capital Account of the
Common Stock.

Funds drawn from the Restricted Earned Surplus or the Subsidiary Capital
Accounts for the Shares in the manner described above must be restored from the
Subsidiary Capital Account that drew the funds if at any time it returns to a
positive balance.

(8) (a) Dividends, payments upon redemption or liquidation (described below),
and any other distributions with respect to the Shares and the Common Stock are
allocated to the Subsidiary Capital Account for the class or series with respect
to which the dividend, payment or distribution was made.

(b) Where all Shares of a series are repurchased by the Company pursuant to its
right of first refusal or redeemed in accordance with the Company's procedures
for redemption, the Subsidiary Capital Account for that series is terminated.
Thereafter, all underwriting income and expenses, and losses that would have
been allocated to the terminated account, are allocated among the Subsidiary
Capital Accounts of the existing series of Shares pro rata based upon relative
earned premiums attributable to each of those accounts for the calendar quarter
in which the item was earned or incurred; provided, however, that a net deficit
for any such period is allocated to the Subsidiary Capital Account for the
Common Stock (to the extent of Restricted Earned Surplus) before allocating any
remaining deficits to the Subsidiary Capital Accounts for the participating
series.

PAGE 18

Using the procedures described above, the Company has allocated items of gain
and loss to the Subsidiary Capital Account for each series. Initially each
Account had a balance of $7,500 representing the amount paid for the Shares of
that series. During the year ended December 31, 2000, $467,177 of net
underwriting losses and $663,358 of administrative expenses were allocated among
the series of Shares outstanding during the year ended December 31, 2000, and
$4,808,908 of net investment income was allocated among such series of Shares
and the Common Stock.

As of December 31, 2000, 175 series of Shares outstanding had balances greater
than or equal to $7,500 (ranging from $7,642 to $685,617) and 160 of such series
had balances less than $7,500 (ranging from $7,325 to zero). (The amounts in the
Subsidiary Capital Accounts can fluctuate substantially and therefore may not be
indicative of future accumulated amounts.) At December 31, 2000, an aggregate of
$4,516,426 had been advanced from the Restricted Earned Surplus (which forms a
portion of the Account established for the Common Stock owned by MIC) to 104
Subsidiary Capital Accounts and remained outstanding at that date including net
deficits of $3,637,222 associated with 56 series of Shares that have been
redeemed. As of December 31, 2000, $7,348,811 of aggregate deficits had been
reallocated among the Subsidiary Capital Accounts of the Shares and remained
outstanding. Of this amount $2,833,577 could be recovered from deficit accounts
should they return to profitability and to the extent that the risk fund is
repaid in full. However, there can be no assurances that such deficit accounts
will return to profitability or, if they return to profitability, that they will
generate sufficient profits to repay any portion of deficits previously
allocated to the Subsidiary Capital Account for the other series of Shares.

The Subsidiary Capital Account for the Common Stock had, at the time it was
established, a balance of approximately $200,000, representing the capital

PAGE 19

paid in by MIC for the 2,000 shares of the Common Stock issued to it. That
Subsidiary Capital Account is not affected directly by underwriting gains and
losses attributable to the various Subsidiary Capital Accounts related to series
of Shares, but is affected by those gains and losses indirectly to the extent
that one of the Subsidiary Capital Accounts for a series of Shares incurs a
deficit, in which case an allocation to the Subsidiary Capital Account for the
Common Stock will result, in the manner described above.

The allocations of income and expense, gains and losses, and distributions
described above are subject to approval by the Board, and when so approved are
considered final and conclusive and will be binding on all holders of Shares for
all purposes including without limitation any redemption of Shares pursuant to
the Company's procedures for redemption.

Barbados insurance law requires that the Company maintain certain levels of net
assets, calculated without regard to unrealized gains or losses. The Company is
currently in compliance with these requirements. However, in the event that the
Company is unable to comply with such requirements in the future, it has the
right to reduce the business related to a Subsidiary Capital Account by
retrocession or any other means to the extent necessary to permit the Subsidiary
Capital Account to meet its pro rata share of the Company's required capital and
surplus.

EMPLOYEES

The Company does not have any full-time employees. Rather, the Company relies
on Aon Insurance Managers (Barbados) Ltd. (the "Manager") to handle its
day-to-day operations. (See "Business of the Company -- Insurance Management
Agreement," below.) In addition, corporate secretarial services for the
Company are provided by Colybrand Company Services Limited of St. Michael,
Barbados. The Company's Board of Directors and the committees thereof,

PAGE 20

however, remain responsible for the establishment and implementation of policy
decisions.

COMPETITION

The insurance business is extremely competitive. MIC management believes that at
present, MIC and its subsidiaries are, as a group, one of the largest mechanical
repair insurers of new GM vehicles in the United States. There are other major
companies offering similar coverage. Because the insurance business of the
Company is limited to the assumption of certain motor vehicle mechanical service
agreement reinsurance business ceded by MIC, the profitability of the Company
depends to a large degree on the success experienced by MIC and its affiliates
in competing with those other insurers. Many commercial insurance groups are
seeking to capture additional mechanical insurance business by offering to
assist automobile dealers in the formation of their own dealer-owned reinsurance
companies. MIC has assisted in the establishment of such companies for a number
of qualified dealers. However, MIC believes that participation in the Company
represents a practical alternative for dealers who do not have the available
capital, insurance management expertise or time for the personal involvement
necessary for their own reinsurance company.

INSURANCE MANAGEMENT AGREEMENT

The Company has entered into an Insurance Management Agreement (the "Management
Agreement") with the Manager, pursuant to which the Manager collects and
disburses funds on behalf of the Company, provides accounting, clerical,
telephone, facsimile, information management and other services for the Company,
and advises and consults with the Company in regard to all aspects of the
Company's retrocession activities. The current Management Agreement is for a
continuous term subject to termination by either party upon 90 days advance
written notice.

PAGE 21

Pursuant to the Management Agreement, the Manager has undertaken to maintain an
office in Barbados to perform its duties. Further, during the term of the
Management Agreement and generally for a period of one year thereafter, the
Manager has agreed not to provide management or accounting services for any
other company which, by the nature of its operations, is offering, insuring or
reinsuring motor vehicle mechanical service agreements or extended warranty or
related coverages on a multi-state basis in the United States or Canada with
respect to motor vehicles sold by franchized GM dealerships. Under the terms of
the Management Agreement, the Company pays the Manager a fixed annual fee plus a
monthly variable fee based on the number of outstanding series of Shares at each
calendar month end. For the year ended December 31, 2000, the Company incurred
fees payable to the Manager in the amount of $232,178.

The Manager is responsible for the payment of the salaries of its officers and
employees and all office and staff overhead and other costs attributable to its
services on the Company's behalf. However, out-of-pocket expenses, such as
telephone, facsimile, postage, courier delivery, travel and other items are
borne by the Company on an expense reimbursement basis.

The Manager performs services similar to those performed for the Company for
several other entities. The Manager has thirteen employees. In addition, the
Manager may draw upon the resources of its affiliates as needed to provide the
services contemplated under the Management Agreement. No employee of the Manager
devotes all of his or her time to the business of the Company. However, the
Manager is obligated to devote all employee time necessary to ensure the
performance of the Manager's duties under the Management Agreement. The Manager
is subject to the control and direction of the Board.

The Manager has served in that capacity since 1986. The Manager was
incorporated in Barbados in 1984, and is an affiliate of the Aon Group of

PAGE 22

Companies ("Aon"), an international insurance brokerage and insurance consulting
firm. Aon, through its subsidiaries, offers and insures motor vehicle mechanical
service agreements, extended warranty and related coverages with respect to
vehicles sold by automobile dealerships in the United States. Under the terms of
the Management Agreement the Manager will treat all information concerning the
business of the Company as confidential and will not disclose such information
to Aon or any Aon affiliate without consent of the Company.

BARBADOS REGULATION AND TAXES

The Company's business is subject to regulation under the Barbados Exempt
Insurance Act, 1983, as amended (the "Exempt Insurance Act"). The principal
requirements of the Exempt Insurance Act require the Company to maintain its
principal office in Barbados, appoint various professional advisors, and to meet
certain capitalization and annual reporting requirements with respect to its
operating activities and solvency requirements.

Under the Exempt Insurance Act, no income tax, capital gains tax or other direct
tax or impost is levied in Barbados on the results of the Company's operations
(except as noted below), or on transfers of securities or assets of the Company
to any person who is not a resident of Barbados. The Company has received a
guarantee from the Minister of Finance of Barbados that such benefits and
exemptions will be available for a period ending December 31, 2031. Until
December 31, 2016 the Company will be required to pay an annual licencing fee,
which is currently $2,500, to obtain such guarantee. Thereafter, the Company
will be subject to tax at a rate of 2% on its taxable income provided that the
amount of such tax will not exceed $2,500 per annum.

Item 2. PROPERTIES

PAGE 23

The Company neither owns nor maintains any office space or facilities. Rather,
the business office for the Company is provided by the Manager and is located at
One Financial Place, Collymore Rock, St. Michael, Barbados. The Company believes
that these facilities are adequate for its current and anticipated future needs.
In addition, the Manager supplies all equipment for the Company.

Item 3. LEGAL PROCEEDINGS

The Company is not involved in any legal proceedings.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no
matters submitted to a vote of security holders during the quarter ended
December 31, 2000.

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

(a) There is no public market for the Shares or the other shares in the Common
Stock of the Company, and none is expected to develop. Transfer of the Shares is
restricted by the terms of a Stock Purchase Agreement and requires approval by
the Supervisor of Insurance in Barbados.

(b) All of the common stock of the Company is held by MIC. As of March 1, 2001
there were 458 holders of Shares of record, representing 259 series of Shares.

(c) Under the Articles of Incorporation, the holders of Shares are entitled to
receive minimum dividends equal to their pro-rata share of 20% of net income
attributable to the associated Subsidiary Capital Account provided (i) the
Company meets the Barbados regulatory requirements without regard to any

PAGE 24

letter of credit or guarantee, and (ii) the related Subsidiary Capital Account
would also meet those requirements after giving effect to the dividend. In March
of 2001, May of 2000, and February of 1999, the Company declared dividends of
$3,083,096, $673,134 and $4,066,464 respectively. These dividends were declared
as a varying percentage of earned surplus attributable to each series of Shares
with the percentage applicable depending on the amount of earned surplus
attributable to such series.

(d) The Board considers the minimum regulatory capital requirement, a provision
for fluctuations in the value of the Company's investment portfolio and a
provision for adverse development of loss experience to determine an appropriate
minimum capital level and therefore the amount of dividends to be paid. The
Board's objective is to maintain adequate capital to provide capacity for growth
in premium so that dividends may be paid annually. There can be no assurance
that a prior dividend amount will be paid in the future.

Item 6. SELECTED FINANCIAL DATA

The following selected financial data for the years ended December 31, 2000,
1999, 1998, 1997 and 1996 have been derived from financial statements audited by
Deloitte & Touche, independent chartered accountants, whose report with respect
to their audits of the financial statements as of December 31, 2000 and 1999 and
for each of the three years in the period ended December 31, 2000 is included
elsewhere herein.

PAGE 25

December 31
---------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----

Premiums Assumed $ 52,352,900 $ 67,104,475 $ 72,634,160 $ 57,071,313 $ 47,410,037
Premiums Returned $ 0 $ 24,934,234 $ 0 $ 0 $ 0
============ ============ ============ ============ ============
Premiums Earned $ 54,378,800 $ 58,471,950 $ 57,845,674 $ 45,701,595 $ 36,077,699
Net Investment
Income 4,808,908 655,755 10,375,464 5,704,678 5,341,924
------------ ------------ ------------ ------------ ------------
Total Income 59,187,708 59,127,705 68,221,138 51,406,273 41,419,623
Less Losses and
Expenses 55,509,335 62,662,673 61,027,782 43,503,363 33,965,100
------------ ------------ ------------ ------------ ------------
Net Income (Loss)* $ 3,678,373 $ (3,534,968) $ 7,193,356 $ 7,902,910 $ 7,454,523
Dividends Per
Common Share 0 0 0 0 0
Total Assets $118,886,919 $132,504,762 $139,428,183 $123,065,286 $106,041,164
Total Policy
Reserves and
Other Liabilities 97,764,992 117,281,645 115,902,615 100,999,317 88,479,590
Stockholders'
Equity 21,121,927 15,223,117 23,525,568 22,065,969 17,561,574
Dividends Paid on
Participating
Shares 673,134 4,066,464 5,171,956 4,196,730 4,007,483

*/ 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. See
Note 2 to the financial statements.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Liquidity. The Company expects to generate sufficient funds from operations to
cover current liquidity needs. The Company's liquidity requirements are related
to payment of insurance losses, administrative expenses, and dividends. 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 the Company. The Company believes that such funds
will be sufficient to meet its liquidity requirements in 2001 and in future
years to which its reinsurance liabilities extend. No capital expenditures are
expected during the next few years.

PAGE 26

The Company had unearned premium reserves of $91,915,465 as of December 31,
2000, and $93,941,365 as of December 31, 1999. This decrease in unearned premium
is primarily attributable to the Company discontinuing accepting new business
from certain unprofitable accounts. Unearned premium amounts are attributable to
the long-term nature of the contracts sold. Such contracts may extend for up to
72 months from date of issue. In addition, the risk of loss to the Company under
the contract arises primarily after the underlying manufacturer's warranty
expires. For new vehicles, the warranty generally covers 36 months or 36,000
miles. For used vehicles, the applicable warranty period depends on the
unexpired portion of the original manufacturer's warranty at the time of
purchase of the vehicle. Because the Company has limited exposure to risk of
loss prior to expiration of the underlying manufacturer's warranty, most premium
is not recognized as earned until such expiration. Since very little premium is
recognized as earned until the expiration of the underlying warranty, most of
the premium written in any year is recorded as unearned.

On March 21, 2001, the Board of Directors authorized the payment of dividends
aggregating $3,083,096 to eligible holders of Shares. See "Market for
Registrant's Common Equity and Related Stockholders Matters" for a discussion of
dividends paid and legal restriction on the payment of dividends.

Capital Resources. Capitalization of the Company, as of December 31, 2000, was
comprised of paid-in capital with respect to the Common Stock of $200,000,
paid-in capital with respect to the Shares of $1,942,500 (compared with
$1,995,000 and $2,362,500 as of December 31, 1999 and 1998, respectively), and
earnings retained for use in the business of $16,247,004. The reduction in the
amount of paid-in capital with respect to the Shares as of December 31, 2000
compared with December 31, 1999 is primarily attributable to redemption of
Shares with nil unearned premiums. The decrease in paid-in capital as of

PAGE 27

December 31, 1999 compared to December 31, 1998 is primarily attributable to the
Redemption and Recapture discussed below under "Results of Operations". There
were a total of 259 series outstanding at December 31, 2000 compared to 266 and
315 series of Shares outstanding at December 31, 1999 and 1998, respectively.
During 2000, the Company issued 1 new series of Shares and redeemed 8 series of
Shares for a net decrease of 7 series.

Barbados law requires that the Company's net assets equal at least the aggregate
of $1,000,000 and 10% of the amount by which the earned premium exceeded
$5,000,000 in the previous year. If the Company's net assets are less than
mandated by Barbados law, the Company has the right to reduce the business
related to a Subsidiary Capital Account by retrocession or any other means to
the extent necessary to permit the Subsidiary Capital Account to meet its pro
rata share of the Company's required capital and surplus. At January 1, 2001,
the Company's required minimum net assets computed in accordance with Barbados
law was approximately $5,937,880 compared to total capital and retained earnings
computed for purposes of Barbados law of $18,389,504.

Results of Operations. During the year ended December 31, 2000, the Company had
net income of $3,678,373 compared to a net loss of $3,534,968 for the year ended
December 31, 1999 and net income of $7,193,356 for the year ended December 31,
1998. The increase in net income in 2000 compared to 1999 arose from decreases
in underwriting losses incurred combined with increases in investment income. As
described below, the decrease in net income during 1999 compared to the previous
year was primarily as a result of increases in underwriting losses incurred and
decreases in investment income.

The Company had a net underwriting loss of $1,130,535 in 2000 compared to net
underwriting losses of $4,190,723 and $3,182,108 in 1999 and 1998 respectively.
During 2000, the Company earned premiums of $54,378,800

PAGE 28

compared to $58,471,950 and $57,845,674 during 1999 and 1998, respectively.
Premium income decreased primarily as a result of the Recapture as discussed
below.

The Company incurred losses and administrative expenses during the year ended
December 31, 2000 of $55,509,335 compared with $62,662,673 and $61,027,782 for
the years ended December 31, 1999 and 1998, respectively. Expenses in 2000 were
comprized of losses paid and provisions for losses incurred of $40,702,668,
ceding commissions and excise taxes of $14,143,309 and operating expenses of
$663,358. Losses incurred in 1999 and 1998 were $46,784,152 and $45,552,545,
respectively. The loss ratio for the year ended December 31, 2000 was 74.9%
compared to 80.0% and 78.8% for the years ended December 31, 1999 and 1998,
respectively.

During 1999, as a result of its adverse underwriting results, the Company,
working with MIC, took steps to improve its underwriting performance. During
1999, the Company's 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 favorable underwriting results in the
future (the "Redemption"). Because the Subsidiary Capital Accounts for these
series each had a balance of zero, the redemption price for the Shares was zero.

In addition to the Redemption, MIC agreed to commute the unearned premium and
all unpaid losses as of the end of the second quarter of 1999 that were
attributable to 37 series of Shares that the Board voted to redeem (the
"Recapture"). In exchange for assuming these unearned premium and unpaid loss
reserves, the Company paid $19,660,649 to MIC during the first quarter of 2000,
which amount represented the unearned premium and unpaid losses as of

PAGE 29

June 30, 1999 that were attributable to the commuted business (after offset by
the 25% ceding commission and 1% federal excise taxes previously paid by the
Company with respect to the recaptured business). If MIC had not recaptured this
business from the Company, the Company would likely have experienced larger
underwriting losses and higher loss ratios for the years ended December 31, 2000
and 1999.

Notwithstanding the Redemption and the Recapture, there can be no assurance that
the Company will not experience significant adverse underwriting results in the
future and there can be no assurance that MIC would recapture additional
business from the Company if the Company does experience significant adverse
underwriting results.

In addition to the Redemption and Recapture, 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 improve
profitability at those accounts. If unprofitable trends continue at some
accounts, then steps are initiated 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, claim approval
empowerment levels have been significantly reduced or eliminated.

The Company incurred operating expenses during the year ended December 31, 2000
of $663,358 compared to $671,587 and $555,321 for the years ended December 31,
1999 and 1998, respectively, which amounts do not include expenses paid directly
by MIC. MIC has agreed to pay directly certain such costs relating to
registering and issuing shares if such costs can not be allocated to the
Subsidiary Capital Account for the Common Stock. In 2000 $98,992 of such costs
were paid directly by MIC compared to $141,697 and $69,280 for the years ended
December 31, 1999 and 1998, respectively.

PAGE 30

Investment income in 2000 was $4,808,908 compared to $655,755 and $10,375,464
for the years ended December 31, 1999 and 1998, respectively. The increase in
investment income during 2000 compared to 1999 arose primarily as a result of
reduced realized losses on sale of investment securities which was attributable
to the positive impact of lower interest rates on the value of the Company's
fixed income securities. The decrease in investment income during 1999 compared
to 1998 arose primarily as a result of realized losses on sales of investment
securities as Rothschild, the prior investment manager, attempted to minimize
the impact of increasing interest rates.

The sale of investment securities for the year ended December 31, 2000 resulted
in realized losses of $313,531 compared to realized losses of $5,255,474 and
realized gains of $4,404,651 for the years ended December 31, 1999 and 1998,
respectively. Interest earned for the year ended December 31, 2000 was
$5,122,439 compared to $5,911,229 and $5,970,813 for the years ended December
31, 1999 and 1998, respectively. Interest earned during 2000 compared to 1999
decreased primarily as a result of the repayment during the first quarter of
2000 of premiums paid to MIC with respect to the Recapture, approximately 20% of
the invested assets of the Company combined with the movement of funds into the
equity fund. Interest earned during 1999 compared to 1998 was largely unchanged
as a result of very little change in the amount of assets under management or
their coupon rates.

Unrealized gains on investment securities held at December 31, 2000 were
$2,732,423 compared to unrealized losses at December 31, 1999 of $162,459. The
increase in unrealized gains as of December 31, 2000 compared to December 31,
1999 resulted primarily from the improved performance of the fixed income
markets and the related increase in market value of the fixed income portfolio.

PAGE 31

At December 31, 2000 approximately 19% (1999-10%) of the Company's investment
portfolio was in a U.S. dollar denominated international equity fund and the
remaining 81% (1999 - 90%) was held in cash and U.S. dollar denominated fixed-
income securities.

As a result of the investment return experienced by the Company, prior to
December 31, 1999, the Company's Board of Directors appointed BlackRock to
replace Rothschild as the investment manager of the Company's fixed income
portfolio and the Board adopted new investment guidelines for the portfolio.
(See "Item 1. BUSINESS - INVESTMENT INCOME.")

Pursuant to the Retrocession Agreement, the Company must furnish to MIC
collateral in the form of an irrevocable letter of credit of at least 12 months
duration equal in amount to the unearned premium in respect of risks retroceded
and unpaid loss reserves (including reserves for losses incurred but not
reported) otherwise required to be maintained by MIC in respect of the Policies.
As of December 31, 2000, the Company had furnished such a letter of credit in
the amount of $76,050,000.

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 1997, the Financial Accounting Standards Board ("FASB") issued a
Statement of Financial Accounting Standards ("FASB") No. 130, Reporting
Comprehensive Income, effective for fiscal years beginning after December 15,

PAGE 32

1997. Under this statement all items required to be recognized under accounting
standards as components of comprehensive income must be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company has adopted this accounting standard in 1998. Adopting
the accounting standard has no impact on reported net income of the Company.

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.

Market Risk

The Company is exposed to market risk from changes in interest rates, foreign
currency exchange rates, and certain equity security prices. Market risk is
inherent to all financial instruments. Active management of market risk is
integral to the Company's operations which seeks to manage its exposure to
market risk generally by monitoring the character of investments that are
purchased or sold.

A discussion of the Company's accounting policies for derivative instruments is
included in Note 3 to the consolidated financial statements included herein.

PAGE 33

The following analyses are based on sensitivity analysis tests that assume
instantaneous, parallel shifts in exchange rates, interest rates, and interest
rate yield curves. There are shortcomings inherent to the sensitivity analyses
presented. The model assumes interest rate changes are instantaneous, parallel
shifts in the yield curve. In reality, changes are rarely instantaneous or
parallel. Although certain assets may have similar maturities or periods to
repricing, they may not react correspondingly to changes in market interest
rates. Also, the interest rates on certain types of assets may fluctuate with
changes in market interest rates, while interest rates on other types of assets
may lag behind changes in market rates. The Company does not hold any financial
instruments for trading purposes.

Interest Rate Risk. The Company has exposure to economic losses due to interest
rate risk arising from changes in the level or volatility of interest rates and
attempts to mitigate that exposure through active portfolio management. The
Company's investment guidelines do not permit the use of derivatives in managing
interest rate risk. As of December 31, 2000 and 1999, the net fair value asset
exposure to interest rate risk was approximately $75 million and $93.9 million,
respectively. As of December 31, 2000 and 1999, the potential loss in fair value
resulting from a hypothetical 10% increase in interest rates would be
approximately $1.5 million and $2.1 million, respectively.

Foreign Exchange Risk. Foreign exchange rate risk arises from the possibility
that changes in foreign currency exchange rates will impact the value of
financial instruments. At December 31, 2000 and 1999, 100% of investments were
denominated in U.S. dollars.

PAGE 34

Equity Price Risk. Equity price risk results from changes in the level or
volatility of equity prices which affect the value of equity securities. At
December 31, 2000 and December 31, 1999, the Company had approximately 19% and
10% respectively of its portfolio invested in an international equity fund. As
of December 31, 2000 and 1999, the net fair value asset exposure to equity price
risk was approximately $17.1 million and $11.8 million, respectively, and the
potential gain in fair value resulting from a hypothetical 10% increase in the
underlying equity prices would be approximately $1.7 million and $1.2 million,
respectively.

Overall Limitations and Forward-Looking Statements

The Company has developed fair value estimates by utilization of available
market information or other appropriate valuation methodologies. However,
considerable judgement is required in interpreting market data to develop
estimates of fair value; therefore, the estimates are not necessarily indicative
of the amounts that could be realized or would be paid in a current market
exchange. The effect of using different market assumptions and/or estimation
methodologies may be material to the estimated fair market value amounts. In
addition, the above discussion and the estimated amounts generated from the
sensitivity analyses referred to above include forward- looking statements of
market risk which assume, for analytical purposes, that certain adverse market
conditions may occur. Actual future market conditions may differ materially from
such assumptions because the amounts noted previously are the result of analyses
used for the purpose of assessing possible risks and the mitigation thereof.
Accordingly, the forward-looking statements should be considered projections of
future events or losses.

PAGE 35

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page

1. Independent Auditors' Report................... 38
--

2. Balance Sheets, December 31, 2000 and 1999.... 39
--

3. Statements of Income and Retained Earnings
for the years ended December 31, 2000,
1999 and 1998 ............................... 40
--

4. Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 ............ 41
--

5. Statement of Changes in Shareholders Equity
for the years ended December 31, 2000,
1999 and 1998 .............................. 42 - 43
-------

6. Notes to Financial Statements.................. 44 - 52
-------

PAGE 36

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
Motors Mechanical Reinsurance Company, Limited
One Financial Place
Collymore Rock
St. Michael, Barbados

We have audited the accompanying balance sheets of Motors Mechanical Reinsurance
Company, Limited (the "Company") as at December 31, 2000 and 1999 and the
related statements of income\(loss) and retained earnings, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Motors Mechanical Reinsurance Company,
Limited as of December 31, 2000 and 1999 and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2000
in conformity with accounting principles generally accepted in the United States
of America.

s/DELOITTE & TOUCHE

CHARTERED ACCOUNTANTS

Bridgetown, Barbados
March 16, 2001

PAGE 37

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
----------------------------------------------
BALANCE SHEETS
--------------
DECEMBER 31, 2000 AND 1999
--------------------------

(Expressed in U.S. Dollars)

Notes 2000 1999
----- ------------- ------------

ASSETS

Investments 3,7 $ 92,121,679 79,184,187
Cash & cash equivalents 7 1,736,235 26,602,226
Accrued investment income 903,734 2,253,779
Deferred acquisition costs 23,898,021 24,418,570
Prepayments 227,250 46,000
------------- ------------

Total Assets 118,886,919 132,504,762
============= ============

LIABILITIES & STOCKHOLDERS' EQUITY

LIABILITIES
Unearned premiums 91,915,465 93,941,365
Reserves for unpaid losses 4 4,754,710 4,725,239
Accrued liabilities 125,953 276,116
Due to Motors Insurance Corporation 968,864 18,338,925
------------- ------------

Total Liabilities 97,764,992 117,281,645
------------- ------------

COMMITMENTS AND CONTINGENCIES 7

STOCKHOLDERS' EQUITY 5
Share Capital
Common stock - no par value;
Authorized - 2,000 shares;
Issued and outstanding -
2000 shares 200,000 200,000

Participating stock - no par value;
Authorized - 100,000 shares;
Issued and outstanding -
25,900 shares at December 31, 2000
And 26,600 shares at December 31, 1999 1,942,500 1,995,000
------------- ------------
2,142,500 2,195,000

Retained earnings 8 16,247,004 13,190,576
Accumulated other comprehensive income/(loss) 2,732,423 (162,459)
------------- ------------

Total Stockholders' Equity 21,121,927 15,223,117
------------- ------------

Total Liabilities and
Stockholders' Equity $118,886,919 $132,504,762
============= ============

The accompanying notes form an integral part of these financial statements.

PAGE 38

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
----------------------------------------------
STATEMENTS OF INCOME/(LOSS) AND RETAINED EARNINGS
-------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------

(Expressed in U.S. Dollars)

Years Ended December 31
--------------------------------
Notes 2000 1999 1998
----- ------------ ------------ -----------

INCOME

Reinsurance premiums assumed 6 52,352,900 $ 67,104,475 $ 72,634,160
Recapture of unearned reinsurance
premiums 9 0 (24,934,234) 0
Decrease/(Increase) in unearned
premiums 2,025,900 16,301,709 (14,788,486)
------------ ------------ ------------

Premiums earned 54,378,800 58,471,950 57,845,674
------------ ------------ ------------

Investment income
Interest earned 5,122,439 5,911,229 5,970,813
Realized (losses)/gains
on investments - net (313,531) (5,255,474) 4,404,651
------------ ------------ ------------

Investment income 4,808,908 655,755 10,375,464
------------ ------------ ------------

TOTAL INCOME 59,187,708 59,127,705 68,221,138
------------ ------------ ------------

EXPENSES

Acquisition costs 14,143,309 15,206,934 14,919,916
Losses paid 40,673,197 47,452,731 45,579,887
Increase/(Decrease) in loss
reserves 29,471 (668,579) (27,342)
Administrative expenses
Related Parties 245,953 252,299 225,922
Other 417,405 419,288 329,399
------------ ------------ ------------

TOTAL EXPENSES 55,509,335 62,662,673 61,027,782
------------ ------------ ------------

NET INCOME/(LOSS) FOR THE YEAR 3,678,373 (3,534,968) 7,193,356
RETAINED EARNINGS,
beginning of year 13,190,576 20,629,009 18,615,768

LESS: DIVIDENDS (673,134) (4,066,464) (5,171,956)

ADD/(DEDUCT) REDEMPTION OF
PARTICIPATING STOCK 51,189 162,999 (8,159)
------------ ------------ ------------

RETAINED EARNINGS, end of year $16,247,004 $ 13,190,576 $ 20,629,009
============ ============ ============

The accompanying notes form an integral part of these financial statements.

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS

PAGE 39

FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
-----------------------------------------------------
(Expressed in U.S. dollars)
Years Ended December 31
---------------------------------
2000 1999 1998
------------ ------------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Reinsurance premiums collected $ 64,624,446 $ 54,936,354 $ 67,293,382
Reinsurance premiums returned (24,934,234) 0 0
Losses and acquisition expenses paid (59,203,627) (52,963,826) (58,004,044)
Administrative expenses paid (698,452) (672,060) (581,648)
Investment income received 6,376,462 5,529,962 7,369,361
------------ ------------ ------------
Net cash (used in)/provided by operating
activities (13,835,405) 6,830,430 16,077,051
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (173,786,271) (396,939,849) (324,678,378)
Sales and maturities of investments 163,430,130 401,478,047 327,393,023
------------ ------------ ------------
Net cash (used in)/from investing
activities (10,356,141) 4,538,198 2,714,645
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
Participating Stock 7,500 15,000 277,500
Redemption of Participating Stock (8,811) (219,501) (38,159)
Dividends paid (673,134) (4,066,464) (5,171,956)
------------ ------------ ------------
Net cash used in financing activities (674,445) (4,270,965) (4,932,615)
------------ ------------ ------------

(DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS (24,865,991) 7,097,663 13,859,081

CASH AND CASH EQUIVALENTS,
beginning of year 26,602,226 19,504,563 5,645,48
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
end of year $ 1,736,235 $ 26,602,226 $ 19,504,563
============ ============ ============

RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income/(loss) $ 3,678,373 $ (3,534,968) $ 7,193,356
Realized losses/(gains) on investments 313,531 5,255,474 (4,404,651)
Change in:
Accrued investment income 1,350,045 (465,289) 1,389,956
Deferred acquisition costs 520,549 4,242,183 (3,846,835)
Prepayments (181,250) (46,000) 0
Unearned premiums (2,025,900) (16,301,709) 14,788,486
Loss reserves 29,471 (668,579) (27,342)
Accrued liabilities (150,163) 126,060 26,487
Due to Motors Insurance Corporation (17,370,061) 18,223,258 957,594
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $(13,835,405) $ 6,830,430 $ 16,077,051
============ ============ ============

The accompanying notes form an integral part of these financial statements.

PAGE 40

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
----------------------------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
-----------------------------------------------------
(Expressed in U.S. Dollars)

December 31, 2000
----------------------------------------------------------------------------------------
Accumulated
Total Other
Shareholders' Comprehensive Retained Comprehensive Common Participating
Equity Income Earnings Income Stock Stock
------ ------ -------- ------ ----- -----

Balance at December 31, 1999 $15,223,117 $ - $13,190,576 $ (162,459) $ 200,000 $ 1,995,000
Comprehensive Income:
Net income 3,678,373 3,678,373 3,678,373 - - -
Other comprehensive income,
net of tax:
Unrealized gain on securities
net of reclassification 2,894,882 2,894.882 - 2,894,882 - -
-----------
Comprehensive income - $6,573,255 - - - -
===========
Dividends declared on participating
stock (673,134) (673,134) - - -
Participating Stock
Issued 7,500 - - - 7,500
Redeemed (8,811) 51,189 - - (60,000)
----------- ----------- ---------- --------- -----------
Balance at December 31, 2000 $21,121,927 $16,247,004 $2,732,423 $ 200,000 $ 1,942,500
=========== =========== ========== ========= ===========
Disclosure of reclassification amount
Unrealized holding losses arising
during period 3,208,413
Less: reclassification adjustment
for losses included in net income (313,531)
-----------
Net unrealized gain on securities $ 2,894,882
===========

December 31, 1999
----------------------------------------------------------------------------------------
Accumulated
Total Other
Shareholders' Comprehensive Retained Comprehensive Common Participating
Equity Income Earnings Income Stock Stock
------ ------ -------- ------ ----- -----
Balance at December 31, 1998 $23,525,568 $ - $20,629,009 $ 334,059 $ 200,000 $ 2,362,500
Comprehensive Income:
Net loss (3,534,968) (3,534,968) (3,534,968) - - -
Other comprehensive income,
net of tax:
Unrealized loss on securities
net of reclassification (496,518) (496,518) - ( 496,518) - -
-----------
Comprehensive loss - $(4,031,486) - - - -
===========
Dividends declared on participating
stock (4,066,464) (4,066,464) - - -
Participating Stock
Issued 15,000 - - - 15,000
Redeemed (219,501) 162,999 - - (382,500)
----------- ----------- ---------- --------- -----------
Balance at December 31, 1999 $15,223,117 $13,190,576 $ (162,459) $ 200,000 $ 1,995,000
=========== =========== ========== ========= ===========
Disclosure of reclassification amount
Unrealized holding losses arising
during period (5,751,992)
Add: reclassification adjustment
for losses included in net income 5,255,474
-----------
Net unrealized loss on securities (496,518)
===========

The accompanying notes form an integral part of these financial statements.

PAGE 41

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
----------------------------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
-----------------------------------------------------
(Expressed in U.S. Dollars)

December 31, 1998
----------------------------------------------------------------------------------------
Accumulated
Total Other
Shareholders' Comprehensive Retained Comprehensive Common Participating
Equity Income Earnings Income Stock Stock
------ ------ -------- ------ ----- -----

Balance at December 31, 1997 $22,065,969 $ - $18,615,768 $1,135,201 $ 200,000 $2,115,000
Comprehensive Income:
Net income 7,193,356 7,193,356 7,193,356 - - -
Other comprehensive income,
net of tax:
Unrealized loss on securities
Net of reclassification (801,142) (801,142) - ( 801,142) - -
----------
Comprehensive income - $6,392,214 - - - -
==========
Dividends declared on participating
stock (5,171,956) (5,171,956) - - -
Participating Stock
Issued 285,000 - - - 285,000
Redeemed (45,659) (8,159) - - (37,500)
----------- ----------- ----------- --------- ----------
Balance at December 31, 1998 $23,525,568 $20,629,009 $ 334,059 $ 200,000 $2,362,500
=========== =========== =========== ========= ==========
Disclosure of reclassification amount
Unrealized holding gains arising
during period 3,603,509
Less: reclassification adjustment
for gains included in net income ( 4,404,651)
-----------
Net unrealized loss on securities (801,142)
===========

The accompanying notes form an integral part of these financial statements.

PAGE 42

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
-----------------------------------------------------

(Expressed in U.S. Dollars)

Note 1. OPERATIONS

The Company is incorporated under the laws of Barbados and is a licensed
insurer under the Exempt Insurance Act, 1983, and amendments thereto.

All of the common stock of the Company is owned by Motors Insurance
Corporation ("MIC"), a member of the GMAC Insurance Group. MIC is an
indirect wholly-owned subsidiary of General Motors Corporation. The
principal activity of the Company is the assumption of motor vehicle
mechanical service agreements arising under insurance policies reinsured by
MIC and attributable to an MIC Mechanical Account in respect of which
shares of Participating Stock are issued and outstanding. All premiums
received were assumed from MIC.

Note 2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements are stated in United States dollars and are
prepared in conformity with accounting principles generally accepted within
the United States of America.

Use of Estimates

The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.

Premium Income and Acquisition Costs

Reinsurance premiums are based on the Company assuming (after ceding
commission) 75% of the original policy premium written by the direct
insurer. Of these reinsurance premiums, 75% is retroceded to the Company
when written and 25% when earned.

Premiums are written on the basis of quarterly cessions and earned relative
to anticipated loss exposures. Acquisition costs, consisting of ceding
commissions and excise taxes, are taken into income on the basis of
premiums earned.

PAGE 43

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
-----------------------------------------------------

(Expressed in U.S. Dollars)

Note 2. SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
-------------------------------

Investments

Investments, all of which are available for sale, are comprized of
interest- bearing marketable securities, and an investment in an
international equity fund, which are carried at fair value based on quoted
market prices and dealer quotes obtained from an external pricing service.
Investments with original maturities of less than 90 days are classified as
cash equivalents. Unrealized appreciation (depreciation) is included in
accumulated other comprehensive income.

Realized gains and losses on the sale of investments are included as
investment income and are calculated based on amortized costs.

Loss Reserves

The Company provides for unsettled, reported losses based on estimates of
the final settlement, with an experience factor added to provide for losses
incurred but not reported. The final settlement may be greater or less than
the amounts provided. Any such differences, when they become known, are
recognized in current operations and can potentially be significant to the
financial statements.

Derivatives

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 issued SFAS No. 138 which amends SFAS No. 133 and delayed
implementation of statement 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 qualified for hedge accounting. The Company adopted this
accounting standard on January 1, 2001 as required. Adoption did not have a
material impact on the financial position or result of operations of the
Company.

Taxation

The Company has received an undertaking from the Barbados Government
exempting it from all local income, profits and capital gains taxes for a
period ending December 31, 2016. Thereafter and until December 31, 2031,
the Company will be subject to tax at a rate of 2% on its taxable income
provided that the amount of such tax will not exceed $2,500 per annum.

PAGE 44

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
-----------------------------------------------------

(Expressed in U.S. Dollars)

Note 2. SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
-------------------------------

Stockholders who are United States residents are taxed in the United States
on their share of the Company's income on a deemed distribution basis.

Earnings Per Share

No amount has been reported as earnings per share as the earnings
applicable to the Participating Stockholders vary with the underwriting
results of each series. Retained earnings applicable to the Common
Stockholder include allocated investment income and operating expenses and
amounts restricted for advances to Participating Stockholders (see Note 8).

Note 3. INVESTMENTS

The cost and fair value of investments in debt securities and equity are as
follows:
Gross Gross Fair
Unrealized Unrealized Value
Cost Appreciation Depreciation
------------ ------------ ------------ -----------
December 31, 2000

Governments and their
agencies $ 9,486,283 $ 259,398 $ - $ 9,745,681

Corporations 60,211,122 1,517,503 (138,769) 61,589,856

Supranationals 3,600,827 91,045 - 3,691,872
------------ ----------- ----------- -----------
Sub Total Debt Securities 73,298,232 1,867,946 (138,769) 75,027,409

Capital International Fund 16,091,024 1,003,246 - 17,094,270
------------ ----------- ----------- -----------

Total $ 89,389,256 $ 2,871,192 $ (138,769) $92,121,679
============ =========== =========== ===========

PAGE 45

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------

(Expressed in U.S. Dollars)

Note 3. INVESTMENTS (Cont'd)
-----------

Gross Gross Fair
Unrealized Unrealized Value
Cost Appreciation Depreciation
------------ ------------ ------------ -----------
December 31, 1999

Foreign governments and
their agencies $18,175,335 $ - $ (799,400) $17,375,935

Corporations 22,951,967 - (637,687) 22,314,280

Supranationals 28,205,097 - (559,927) 27,645,170
----------- ----------- ----------- -----------
Sub Total Debt Securities 69,332,399 - (1,997,014) 67,335,385

Capital International Fund 10,014,247 1,834,555 - 11,848,802
----------- ----------- ----------- -----------
Total $79,346,646 $ 1,834,555 $(1,997,014) $79,184,187
=========== =========== =========== ===========

The cost and fair value of debt securities at December 31, 2000, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.

Cost Fair Value
----------- -----------

Due after one year through five years $29,635,354 $30,030,550
Due after five years through ten years $12,072,012 $12,518,465
Due after ten years through thirty years $31,590,866 $32,478,394
----------- -----------
$73,298,232 $75,027,409
=========== ===========

In 2000, gross gains of $$1,735,049 and gross losses of $2,048,580 were
realized.
In 1999, gross gains of $1,571,947 and gross losses of $6,827,421 were
realized.
In 1998, gross gains of $6,253,358 and gross losses of $1,848,707 were
realized.

The following summarizes net unrealized appreciation (depreciation) on
investments:

Balance, December 31, 1997 $ 1,135,201
Net depreciation (801,142)
-----------

Balance, December 31, 1998 $ 334,059
Net depreciation (496,518)
-----------

Balance, December 31, 1999 $ (162,459)

Net appreciation $ 2,894,882
-----------

Balance December 31, 2000 $ 2,732,423
===========

PAGE 46

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------

(Expressed in U.S. Dollars)

Note 3. INVESTMENTS (Cont'd)
-----------

The investment portfolio is comprized of approximately 81% in diverse debt
securities which do not result in any concentration of credit risk and 19%
in an international equity fund. At December 31, 2000 and 1999, 100% of the
Company's investments are denominated in United States dollars.

Note 4. RESERVES FOR UNPAID LOSSES
--------------------------

The following table sets forth an analysis of changes in the loss reserves
for the years ended December 31, 2000, 1999 and 1998:

2000 1999 1998
Beginning balance in
reserves for losses $4,725,239 $ 5,393,818 $ 5,421,160
---------- ----------- -----------

Add/(deduct)-provision for
losses incurred related to:

Current claim year 41,579,713 47,211,542 45,843,093
Prior claim years ( 877,045) (427,390) (290,547)
---------- ----------- -----------

Total 40,702,668 46,784,152 45,552,546
---------- ----------- -----------

Deduct paid losses
attributable to:

Current claim year 36,837,642 43,514,155 40,767,738
Prior claim years 3,835,555 3,938,576 4,812,150
---------- ----------- -----------

Total 40,673,197 47,452,731 45,579,888
---------- ----------- -----------
Ending balance in
reserves for losses $4,754,710 $ 4,725,239 $ 5,393,818
========== =========== ===========

As a result of change in estimates of losses incurred in prior years, the
provisions for losses incurred in 2000, 1999 and 1998 decreased by
$877,045, $427,390 and $290,547, respectively.

PAGE 47

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------

(Expressed in U.S. Dollars)

Note 5. STOCKHOLDERS' EQUITY
--------------------

All of the Company's Common Stock is held by MIC.

During 2000, 1 additional series of 100 shares of Participating Stock was
issued as compared with 2 for the year ended December 31, 1999. In
addition, in 2000 the Board of Directors redeemed 8 series of 100 shares
which had been previously placed in run off and of which 7 series had
reached a fully earned position during 2000 and 6 were redeemed for nil
value. One series was redeemed for nil value due to unprofitable
performance. During 1999 the Board of Directors also redeemed 37 series of
100 shares for nil value, and thereafter, MIC recaptured the unearned
premium and loss reserves for those series. (See Note 9).

In the years ended December 31, 2000, 1999 and 1998, costs in the amount of
$98,992, $141,696 and $69,280 respectively, were incurred in the sale of
Participating Stock. The Common Stockholder reimbursed the Company directly
for these expenses.

The holder of Common Stock is entitled to elect five directors, at least
one of whom must be a resident of Barbados. The holder of Common Stock has
no right to vote with respect to liquidation of the Company. The holder
generally has the sole right to vote on matters not specifically reserved
to Participating Stock.

The holders of Participating Stock as a class are entitled to elect one
director. Generally, liquidation of the Company requires approval by at
least 75% of the outstanding shares of this class. Any redemption of a
series of shares requires a vote of the Board of Directors provided that
the director representing holders of the Participating Stock votes in favor
of the redemption. Any changes in the Company's Articles of Incorporation
or By-Laws require the approval of a majority of the shares of
Participating Stock present and voting together with a majority of the
shares of Common Stock.

From time to time, funds are held in escrow on account of Participating
Stock applications. Such amounts are not included in cash and cash
equivalents in the accompanying financial statements. At December 31, 2000,
there were no in funds held in escrow.

PAGE 48

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------

(Expressed in U.S. Dollars)

Note 6. REINSURANCE PREMIUMS
--------------------

Under the provisions of the retrocession agreement, the Company will assume
future additional premiums in 2000 of $30,638,488 ($31,313,788 at December
31, 1999) relating to premiums written by Motors Insurance Corporation but
unearned at the respective period ends. The amounts will be received as the
premiums are earned, net of related acquisition costs.

Note 7. LETTER OF CREDIT
----------------

The Company has provided an irrevocable letter of credit to MIC, in the
amount of $76,050,500 to collateralize the amounts recoverable from the
Company related to the business ceded to it. Cash equivalents and
investments are assigned to collateralize the letter of credit.

Note 8. RETAINED EARNINGS
-----------------

Items of income or loss and premiums and expenses attributable to insurance
underwriting activities are determined as of the end of each calendar
quarter and are allocated to the Participating Stockholders' capital
accounts.

An amount equal to 1 percent of assumed premiums is allocated to the
capital account of the Common Stockholder. Such allocations accumulate as
restricted retained earnings and may be used to advance capital to any
Participating Stockholders who incur a deficit in their capital accounts;
any such advances are repayable out of future profitable operations of the
respective Participating Stockholder. Amounts allocated to the Common
Stockholder, net of advances to Participating Stockholders, are presented
in the table below as "net transfers."

Dividends may be declared and paid at the discretion of the Company's Board
of Directors subject to the right of holders of participating stock to
receive minimum dividends. The minimum annual dividend payable on each
share shall be such share's pro rata portion of an amount equal to twenty
percent of the net income, if any, for the preceding year attributable to
the subsidiary capital account associated with the series of which that
share is part.

Barbados law requires that the Company maintain a minimum margin of
solvency based generally on the amount of premiums earned in the preceding
year. At January 1, 2001, the Company's required minimum stockholders'
equity computed in accordance with Barbados law was approximately
$5,937,880.

PAGE 49

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------

(Expressed in U.S. Dollars)

Note 8. RETAINED EARNINGS (Cont'd)
-----------------

Retained earnings applicable to the Common and Participating Stockholders
are comprized of the following:

Common Participating Total
---------- ------------- -----------
Balance (Deficit),
December 31, 1997 $ (8,158) $18,623,926 $18,615,768

Net income for the year 20,970 7,172,386 7,193,356
Dividends paid 0 (5,171,956) (5,171,956)
Redemption of participating
stock 0 (8,159) (8,159)
---------- ----------- -----------

Balance,
December 31, 1998 $ 12,812 $20,616,197 $20,629,009

Net income\(loss) for the year 1,422 (3,536,390) (3,534,968)
Dividends paid 0 (4,066,464) (4,066,464)
Redemption of participating
stock 0 162,999 162,999
---------- ----------- -----------

Balance,
December 31, 1999 $ 14,234 $13,176,342 $13,190,576

Net Income for the year 11,717 3,666,656 3,678,373
Dividends paid 0 (673,134) (673,134)
Redemption of participating 0 51,189 51,189
stock
---------- ----------- -----------

Balance December 31, 2000 $ 25,951 $16,221,053 $16,247,004
========== =========== ===========

Note 9. RECAPTURE OF UNEARNED REINSURANCE PREMIUMS
------------------------------------------

During 1999, The Company entered into a recapture agreement with MIC for 37
series of Participating Shares. Under the agreement MIC recaptured premium
of $24,934,234, which represents unearned premiums and an amount equal to
$1,209,316 for losses incurred, but unpaid in respect to the recapture
business as of June 30, 1999. Additionally, MIC has agreed to pay the
Company a recapture commission of $6,482,901 which represents the deferred
portion of the ceding commission previously paid by the Company.

PAGE 50

MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------

(Expressed in U.S. Dollars)

Note 10. SUBSEQUENT EVENT

At March 21, 2001 the Board of Directors declared and paid dividends in the
amount of $3,083,096 to the participating stockholders on record as at
December 31, 2000.

PAGE 51

PART III

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Five of the current directors of the Company were elected by MIC through its
ownership of the Common Stock at the Annual Shareholders' Meeting held on May
10, 2000 and one director was elected by the holders of the Shares at such
meeting. The directors and officers of the Company are as follows:

POSITION WITH THE COMPANY
(AND OTHER EMPLOYMENT DURING
NAME AGE PAST FIVE YEARS)

William B. Noll.......... 58 Chairman, Chief Executive Officer, President
and Director (President, Motors Insurance
Corporation ("MIC"), 1999; Executive Vice-
President & Chief Financial Officer, MIC,
1993-1999).

Mr. Noll became President and Director in
1995.

Thomas D. Callahan ..... 48 Executive Vice-President and Director
(Senior Vice President, MIC, 1998;
Vice-President, MIC, 1994-1998).

Mr. Callahan became Executive Vice-President
and Director in April of 1999.

John J. Dunn, Jr......... 42 Vice-President and Director (Vice-President
and Treasurer, MIC, 1998; Assistant Treasurer,
MIC, 1995-1998; manager, Coopers & Lybrand,
L.L.P.).

Mr. Dunn became Vice-President and
Director in 1996.

Robert E. Capstack ..... 60 Vice-President and Director (Section Manager,
MIC, 1994; Vice-President, GMAC Securities
Corporation, 1999).

Mr. Capstack became Vice-President and
Director in April of 1999.

Peter R. P. Evelyn ..... 59 Director (Attorney, Evelyn, Gittens & Farmer,
a Barbados law firm).

PAGE 52

Mr. Evelyn became a Director in 1986.

Haywood Hyman Jr. ...... 48 Director (Haywood-Clarke Automotive Group)

Mr. Hyman became a Director in May of 2000.

Ronald W. Jones ........ 48 Vice-President, Finance (Deputy Chairman, Aon
Insurance Managers (Barbados) Ltd.).

Mr. Jones has served as Vice-President,
Finance since 1987.

Michael B. Boyce........ 61 Secretary (Principal, Colybrand Company
Services, Limited, Barbados, since 1993;
previously principal, Price Waterhouse,
Eastern Caribbean).

Mr. Boyce was elected Secretary in 1994. Mr.
Boyce served previously as our Assistant
Secretary.

The directors and officers named above serve in those capacities until the
annual meeting of shareholders next following their election.

Item 11. EXECUTIVE COMPENSATION

No director or officer of the Company is compensated directly for services as
such. However, each director and officer of the Company is reimbursed for
expenses incurred for attendance at Board, committee, and shareholder meetings.
In addition, Mr. Jones is an officer of the Manager, which receives management
fees and compensation for financial and administrative services. Mr. Evelyn is a
member of the law firm of Evelyn, Gittens & Farmer, which serves as the
Company's Barbados counsel; and Mr. Boyce is affiliated with Colybrand Company
Services Limited, St. Michael, Barbados, which receives compensation for
corporate secretarial services provided to the Company.

PAGE 53

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

MIC owns all of the issued and outstanding shares of the Common Stock of the
Company, which consists of 2,000 shares. Haywood Hyman, Jr., a director, owns
100 shares of Participating Stock.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See Item 1, THE RETROCESSION, INSURANCE MANAGEMENT AGREEMENT and Item 11,
EXECUTIVE COMPENSATION

Part IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Index to Document List

(1) Financial Statements

The following are included in Item 8:

(i) Independent Auditors' Report.

(ii) Balance Sheets, December 31,
2000 and 1999.

(iii) Statements of Income and Retained
Earnings for the years ended
December 31, 2000, 1999 and 1998.

(iv) Statements of Cash Flows for the
years ended December 31, 2000,
1999, and 1998.

(v) Statement of Changes in Shareholders'
Equity for the years ended
December 31, 2000, 1999 and 1998.

(vi) Notes to Financial Statements.

(2) Financial Statement Schedules. Schedules are omitted because of
the absence of the conditions under which they are required or
because the information required is presented in the financial
statements or related notes.

(3) Exhibits. The following exhibits are included in response to Item
14(c):

3(a) Restated Articles of Incorporation and amendments thereto filed
by reference to Exhibit 3(I) to Quarterly Report on Form 10Q File
No. 33-6534 for the quarterly period ended June 30, 1996.

PAGE 54

3(b) By-laws of the Company dated June 6, 1986 filed by reference to
Exhibit 3(b) of the Registration Statement on Form S-1, File No.
33-6534, dated June 18, 1986.

4 Specimen Participating Stock Certificate filed by reference to
Exhibit 4 of Amendment No. 1 to Registration Statement on Form
S-1, File No. 33-6534, dated February 12, 1987.

10(a) Form of Principal Retrocession Agreement between Motors
Insurance Corporation and Registrant filed by reference to
Exhibit 10(a) of the Registration Statement on Form S-1, File No.
33-6534, dated June 18, 1986.

10(b) Form of Supplemental Retrocession Agreement between Motors
Insurance Corporation and Registrant filed by reference to
Exhibit 10(b) of the Registration Statement on Form S-1, File No.
33-6534 dated June 18, 1986.

10(c) Specimen Stock Purchase Agreement filed by reference to Exhibit
10(c) to Amendment No. 2 to Registration Statement on Form S-1,
File No. 33-6534, dated May 22, 1987.

10(d) Amended and Restated Stock Purchase Agreement between Registrant
and Motors Insurance Corporation filed by reference to Exhibit
10(d) to Amendment No. 1 to Registration Statement on Form S-1,
File No. 33-6534, dated February 12, 1987.

10(e) Insurance Management Agreement between Registrant and Aon
(formerly Alexander) Insurance Managers (Barbados) Ltd.,
effective January 1, 1996 filed by reference to Exhibit 10(e) to
Annual Report on Form 10K, File No. 33-6534 for the year ended
December 31, 1996.

10(f) Investment Management Agreement between Registrant and BlackRock
International, Ltd. filed by reference to Exhibit 10(f) to Annual
Report on Form 10-K, File No. 33-6534, for the year ended
December 31, 2000.

27 Financial Data Schedule.

28(c) Certificate of Barbados Residency filed by reference to Exhibit
28(c) to Amendment No. 1 to Registration Statement on Form S-1,
File No. 33-6534, dated June 18, 1986.

99(a) Certification Form filed by reference to Exhibit 28(a) to
Amendment No. 2 to Registration Statement on Form S-1, File No.
33-6534, dated June 18, 1986.

99(b) Guarantee issued by the Minister of Finance of Barbados filed by
reference to Exhibit 99(b) to Amendment No. 2 to Registration
Statement on Form S-2, File No. 33-60105, dated April 23, 1996.

(b) Reports on Form 8-K. No reports on Form 8-K for the quarter ended
December 31, 2000 have been filed.

PAGE 55

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

Date: March 30, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated.

Signature Title Date

s/William B. Noll Chairman, Chief Executive April 2, 2001
- -------------------------
William B. Noll Officer, President and
Director

s/Thomas D. Callahan Executive Vice-President and April 2, 2001
- -------------------------
Thomas D. Callahan Director

s/John J. Dunn, Jr. Vice-President and April 2, 2001
- -------------------------
John J. Dunn, Jr. Director

s/Robert E. Capstack Vice-President and April 2, 2001
- -------------------------
Robert E. Capstack Director

Director
- -------------------------
Haywood Hyman Jr.

s/Peter R. P. Evelyn Director March 30, 2001
- -------------------------
Peter R. P. Evelyn

s/Ronald W. Jones Vice-President March 30, 2001
- ------------------------- Finance, Principal
Ronald W. Jones Financial and
Accounting Officer

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANT WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT

Proxy solicitation materials will be sent to shareholders in connection
with an annual meeting to be held May 9th, 2001.