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Registration No. 33-6534
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
Or
Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1993
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)
Financial Services Centre
Bishops Court Hill Not Applicable
St. Michael, Barbados, W.I. (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code (809) 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
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, 1994, was $1,477,500*.
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, 1994
Common Stock, no-par value 2,000
Participating Stock, no-par value 19,700
* Based on current offering price of $75 per share.
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
breakdown insurance risks arising under insurance policies reinsured by Motors
Insurance Corporation ("MIC") to the extent such policies are attributable to
an MIC agency 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 Agency Account. A
separate series is created for Shares relating to each MIC Agency 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
The Retroceding Company. MIC, the retroceding company under the Retrocession
Agreement described below, is a stock insurance company organized under the
laws of New York. All of MIC's outstanding stock is owned by 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, as well as in Canada and Europe.
MIC consistently has been awarded A.M. Best Company's insurance financial
rating of A + (Superior), one of the highest possible ratings.
MIC maintains MIC Agency Accounts in respect of Franchises to which the risks
to be retroceded can be attributed. (A single MIC Agency Account may be estab-
lished either for a single Franchise or in respect of a group of Franchises
treated as a single business unit by MIC and its subsidiaries.) Currently,
there are more than 6,800 MIC Agency Accounts in respect of Franchises through
which mechanical insurance business is produced.
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
automobile mechanical breakdown risks, to the extent that risks under such
policies are attributable to an MIC Agency Account in respect of which a series
of Shares is issued and outstanding. MIC retrocedes 100% of the risk and the
Company assumes 75% of the original gross premium, reduced by agents'
commissions, if any. The remaining 25% of the gross 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 gross 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 gross premium as the premiums are earned.
Settlements between the Company and MIC are made quarterly.
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 Agency 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 automobile mechanical
breakdowns not covered by a manufacturer's new vehicle warranty. 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 based on judgments of the effects of technological
change, manufacturer's warranties, and MIC's historical experience with
automotive mechanical breakdown risks. Consequently, the determination of loss
reserves is 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 fiscal years ended December
31, 1993, 1992 and 1991, were 70.7%, 62.8% and 68.2%, respectively.
The following table sets forth an analysis of changes in the loss reserves for
the fiscal years ended December 31, 1993, 1992 and 1991:
Period Ended
12/31/91 12/31/92 12/31/93
Beginning balance in
reserves for losses....... $1,075,123 $1,396,542 $1,622,855
Add-provision for losses
incurred related to:
Current claim year...... $7,301,654 $8,461,984 $11,046,932
Prior claim years....... $ (282,726) $ (297,535) $ (134,249)
Total................ $7,018,928 $8,164,449 $10,912,683
Deduct-paid losses
attributable to:
Current claim
year.................... $5,948,952 $7,025,671 $9,363,720
Prior claim
years................... $ 748,557 $ 912,465 $1,261,788
Total................... $6,697,509 $7,938,136 $10,625,508
Ending balance in reserves
for losses................ $1,396,542 $1,622,855 $1,910,030
The following table analyzes the development of loss and loss adjustment
expense from February 1, 1989 through December 31, 1993.
1/31/90 12/31/90 12/31/91 12/31/92 12/31/93
Liability
for unpaid
claims and
claims
adjustment
expense
$ 766,912 $1,075,123 $1,396,542 $1,622,855 $1,910,030
Paid (cumulative)
in subsequent
year(s)
$ 666,866 $ 748,557 $ 912,465 $1,261,788
Estimated unpaid
liability as of
December 31*
2,393 43,840 186,542 226,818
Cumulative Deficiency
(Redundancy)
$ (97,653) $(282,726) $ (297,535) $ (134,249)
*/ 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.
The table shows initial estimated reserves at December 31, 1993, 1992, 1991 and
1990, and January 31, 1990 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.
It should be noted that 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 claims 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 funds are invested in a manner consistent with investment
guidelines that have been established by the Board. Under the
present guidelines, the Company is permitted to invest only in U.S.
dollar-denominated securities issued outside of the United States by
non-United States private or governmental issuers, and U.S. dollar-
denominated bank certificates of deposit issued by foreign banks and
foreign branches of U.S. banks. Such securities and certificates must be rated
at least AA2 by Moody's or AA by Standard & Poor's (S&P) or the equivalent, or
guaranteed by such an issuer. Investments in such securities, particularly
those of nongovernmental issuers, may involve considerations not ordinarily
associated with investments in domestic issuers. These considerations include,
but are not limited to, the possibility of expropriation, the unavailability of
financial information or difficulty in interpreting such information when it is
prepared under foreign accounting or regulatory standards, the possible
negative impact of political, social or diplomatic developments, and the
possible imposition of withholding taxes by foreign taxing authorities.
Rothschild Asset Management Limited ("Rothschild") manages the investment and
reinvestment of the Company's funds in accordance with the investment policies
and guidelines established by the Board. Rothschild, which is one of the
leading institutions engaged in the management of offshore fixed-income
portfolios, and which has been providing this service since 1974, is an
affiliate of NM Rothschild and Sons Limited, a prominent merchant bank in
London which has been in the investment management business worldwide for more
than 100 years. Rothschild charges a management fee of 0.3% per annum on the
first $20,000,000 of assets under management based on the market value of the
company's investment portfolio at the end of each calendar quarter, and 0.15%
per annum on the excess thereof.
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 Capital Stock, are
determined and allocated to the Subsidiary Capital Accounts as of the end of
each quarter. All such accounting determinations are made using United States
generally accepted accounting principles, unless otherwise required by the
Articles.
For purposes of the following discussion, items shall be "related" to the
Subsidiary Capital Account for the series identified with the MIC Agency
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 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:
(i) ninety percent (90%) to the related Subsidiary Capital Account; and
(ii) the remainder among all Subsidiary Capital Accounts of the Shares pro
rata in accordance with the relative earned premiums attributable to those
accounts for the quarter in which the losses are incurred.
(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, are allocated
among all Subsidiary Capital Accounts for the Shares pro rata in accordance
with the relative earned premiums allocated to those accounts for the quarter
in which the expense or liability is incurred.
(3) Any United States Federal income tax liability (and any interest thereon
or any penalties related thereto) is allocated among the Subsidiary Capital
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 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
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, 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.
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
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 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. Funds drawn from the Subsidiary
Capital Accounts of other series are not, however, restored.
(8) (a) Dividends, payments upon redemption or liquidation (described
below), and any other distributions with respect to the Capital 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.
The allocations of income and expense, gains and losses, and distributions
described above are subject to approval by the Board, and when finally 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.
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 fiscal year ended December 31, 1993, $507,643 of net
underwriting gains were allocated among the 189 series of Shares outstanding as
of December 31, 1993 and $2,700,242 of net investment income and $503,178 of
administrative expenses were allocated among the 189 series of Shares
outstanding as of December 31, 1993 and the Common Stock.
As of December 31, 1993, 163 such series had balances greater than $7,500
(ranging from $7,537 to $187,718) and 26 series had balances less than $7,500
(ranging from $6,904 to zero). (It should be noted that the amounts in the
Subsidiary Capital Accounts can fluctuate substantially and therefore may not
be indicative of future results.) At December 31, 1993, an aggregate of
$901,758 had been advanced from the Restricted Earned Surplus (which forms a
portion of the Account established for the Common Stock owned by MIC) to 15
Subsidiary Capital Accounts and remained outstanding at that date. Aggregate
deficits reallocated among the Subsidiary Capital Accounts of the Shares
through December 31, 1993 were $369,711.
The Subsidiary Capital Account for the Common Stock had, at the time it was
established, a balance of approximately $200,000, representing the capital 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 resort to the Subsidiary Capital Account for
the Common Stock will result, in the manner described above.
The Company is currently in compliance with the net asset value requirements of
Barbados insurance law. 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.
EMPLOYES
The Company does not have any full-time employes. Rather, the Company relies
on Alexander 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 Corporate Services Limited of St. Michael, Barbados.
The Board and the committees thereof, 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 breakdown 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 mechanical
breakdown insurance 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 itself has assisted in the
establishment of such companies for a number of qualified GM dealers. However,
MIC believes that participation in the Company represents a more 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 dis-
burses funds on behalf of the Company, provides bookkeeping, clerical, tele-
phone, telex, and other services for the Company, and advises and consults with
the Company in regard to all aspects of the Company's retrocession activities.
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 mechanical breakdown and/or extended warranty or related coverages
on a multi-state basis in the United States or Canada with respect to motor
vehicles sold by franchised GM dealerships. Under the terms of the Management
Agreement, the Company pays the Manager a fee based on hourly rates for
services performed. For the fiscal year ended December 31, 1993, the Company
paid fees to the Manager in the amount of $180,135.
The Manager is responsible for the payment of the salaries of its officers and
employes 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, telex, postage, travel, and other items are borne by the Company on
an expense reimbursement basis.
The Manager was incorporated in Barbados in 1984, and is an affiliate of
Alexander and Alexander, an international insurance brokerage and insurance
consulting firm. The Manager performs services similar to those performed for
the Company for several other entities. The Manager has nine employes. In
addition, the Manager may draw upon the resources of its affiliates as needed
to provide the services contemplated under the Management Agreement. No
employe of the Manager devotes all of his or her time to the business of the
Company. However, the Manager is obligated to devote all employe time neces-
sary 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 current Management
Agreement became effective on March 19, 1992 and may be terminated by either
party as of the end of the then current fiscal year by the giving of written
notice to the other party by September 1 of that year.
BARBADOS REGULATION AND TAXES
The Company's business is conducted outside of the United States and 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, or 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 January 31, 2001.
Item 2. PROPERTIES
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 Financial Services Centre, Bishops Court Hill, 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, and maintains all insurance records 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, 1993.
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 capital stock of the
Company, and none is expected to develop. Transfer of the Shares is restricted
by the terms of a Stock Purchase Agreement.
(b) All of the common stock of the Company is held by MIC. As of March 1,
1994 there were 335 holders of Shares of record, representing 197 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 letter
of credit or guarantee, and (ii) the related Subsidiary Capital Account would
also meet those requirements after giving effect to the dividend. In 1990 and
1991, the Company declared minimum dividends as described above in the
aggregate amounts of $114,376 and $150,317, respectively. In April of 1992,
the Company declared a dividend in the aggregate amount of $1,021,705, which
exceeded the required minimum dividend. In April of 1993, the Company declared
a dividend in the aggregate amount of $2,021,504, which also exceeded the
required minimum dividend.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data for the fiscal years ended December 31,
1993, 1992, 1991, the eleven month period ended December 31, 1990 and the
fiscal year ended January 31, 1990 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,
1993 and 1992 and for each of the three years in the period ended December 31,
1993 is included elsewhere herein.
December 31** January 31
1993 1992 1991 1990 1990
Premiums
Assumed $27,779,063 $19,386,455 $16,784,405 $12,957,759 $10,032,140
Premiums
Earned 15,429,611 13,005,184 10,292,788 8,177,525 5,183,768
Net Investment
Income 2,700,242 2,522,712 1,792,947 843,021 727,844
Total Income 18,129,853 15,527,896 12,085,735 9,020,546 5,911,612
Less Losses and
Expenses 15,425,146 12,020,682 10,165,350 8,280,612 5,297,836
Net Income* 2,704,707 3,507,214 1,920,385 739,934 613,776
Dividends Per
Common Share 0 0 0 0 0
Total Assets 50,359,633 36,847,490 28,124,056 18,759,382 12,507,645
Total Policy
Reserves and
Other
Liabilities 42,430,269 29,777,783 23,148,003 16,347,245 11,238,143
Stockholders'
Equity 7,929,364 7,069,707 4,976,053 2,412,137 1,269,502
Dividends Paid on
Participating
Shares 2,021,504 1,021,705 150,317 114,376 0
*/ 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(f) to the financial statements.
**/ In May of 1990, the Company changed its fiscal year end from January 31 to
December 31.
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. Premiums generated by the Company's reinsurance
business, combined with proceeds from the sale of Shares, will continue to be
the principal sources of funds for investment by the Company. Such funds, and
investment earnings thereon, will be available to meet the Company's liquidity
requirements. No capital expenditures are expected during the next few years.
Capital Resources. Capitalization of the Company, as of December 31, 1993, is
comprised of paid-in capital with respect to the Common Stock of $200,000,
paid-in capital with respect to the Shares of $1,417,500 (compared with
$1,072,500 and $817,500 as of December 31, 1992 and 1991, respectively), and
earnings retained for use in the business. 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 fiscal
year. If the Company's net asset ratio is 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, 1994, the Company's
required minimum net assets computed in accordance with Barbados law was
approximately $2,042,961, compared to total capital and retained earnings of
$7,929,364.
Results of Operations. The Company became operational during the fiscal year
ended January 31, 1988. The Company's first year of full operation was the
fiscal year ended January 31, 1989. In May of 1990, the Company changed its
fiscal year end from January 31 to December 31. A full 12 months of
underwriting activity are reflected in the financial statements for all periods
presented. The results of operations for the 11-month period ended December
31, 1990, however, include only 11 months' investment income and administrative
expense. Accordingly, results for the 11-month period ended December 31, 1990
are not fully comparable with results for full fiscal years.
____________________
For the 11-month period ended December 31, 1989, the Company had $5,183,768
of earned premium, $673,785 of investment income and incurred $5,278,717 of
losses and expenses. The net income of the Company for the period was
$578,836.
During the fiscal year ended December 31, 1993, the Company had net income of
$2,704,707 compared to $3,507,214 and $1,920,385 for the fiscal years ended
December 31, 1992 and 1991, respectively. The reduction in net income during
1993 compared to the previous year is the result primarily of an increase in
losses incurred as discussed below. The Company had earned premiums of
$15,429,611 compared to $13,005,184 and $10,292,788 for the fiscal years ended
December 31, 1992 and 1991, respectively. Increased premium income has been
generated by the addition of 46 new series during the year ended December 31,
1993, and the continuing flow of reinsurance premiums from series issued in
prior fiscal years. There were 189 series of Shares outstanding at
December 31, 1993 compared to 143 and 109 series of Shares outstanding at
December 31, 1992 and 1991, respectively. Investment income during the period
totaled $2,700,242 compared to $2,522,712 and $1,792,947 for the fiscal years
ended December 31, 1992 and 1991, respectively. These gains are attributable
to an increase in assets under management which were partially offset by lower
interest rates.
The Company incurred losses and expenses during the fiscal year ended
December 31, 1993 of $15,425,146 compared with $12,020,682 and $10,165,350 for
the fiscal years ended December 31, 1992 and 1991, respectively. This was
comprised of provisions for losses incurred during the period of $10,912,683,
ceding commissions and excise taxes of $4,009,285 and operating expenses of
$503,178. Losses incurred in 1992 and 1991 were $8,164,449 and $7,018,928,
respectively. The ratio of losses incurred to premiums earned for the fiscal
year ended December 31, 1993 was 70.7% compared to 62.8% and 68.2% for the
fiscal years ended December 31, 1992 and 1991, respectively. Management
believes the Company's increased loss experience in 1993 reflects the effects
of changes in underlying manufacturer's warranties. The favorable ratio
experienced in 1992 was attributable to a combination of factors including the
expiration during that year of certain unlimited mileage mechanical plans that
are retroceded to the Company.
The Company incurred operating expenses during the fiscal year ended December
31, 1993 of $503,178 compared to $478,475 for the fiscal year ended December
31, 1992 and $307,301 in 1991. In 1993 and 1992, the Company paid share
issuance costs and allocated such costs to the Subsidiary Capital Account for
the Common Stock. In previous years, these expenses had been paid by MIC
pursuant to an agreement by which MIC agreed to pay the costs of issuing shares
until such costs could be allocated to the Subsidiary Capital Account for the
Common Stock. Share issuance costs for the fiscal year ended December 31,
1993, which were paid by the Company and charged to the Subsidiary Capital
Account for the Common Stock, were $74,461 compared to $80,298 for the
fiscal year ended December 31, 1992.
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, 1993, the Company had furnished such a letter of
credit in the amount of $32,250,000.
FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" is effective for years beginning after December 15, 1993 and will
require the Company to classify its securities holdings into three categories
(trading, available for sale, and held to maturity). The Company intends to
adopt Statement No. 115 in 1994 and believes that the Statement will not have a
material effect on the Company's financial position and results of operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
1. Independent Auditors' Report................... __
2. Balance Sheets, December 31
1993 and 1992................................ __
3. Statements of Income and Retained
Earnings for the years ended
December 31, 1993, 1992 and 1991............. __
4. Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991............. __
5. Notes to Financial Statements.................. __
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Motors Mechanical Reinsurance Company, Limited
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados
We have audited the accompanying balance sheet of Motors Mechanical Reinsurance
Company, Limited as of December 31, 1993 and 1992 and the related statements of
income and retained earnings and cash flows for each of the three years in the
period ended December 31, 1993. 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 generally accepted auditing
standards. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Motors Mechanical Reinsurance
Company, Limited as of December 31, 1993 and 1992 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993 in accordance with the accounting principles generally
accepted in the United States of America.
s/DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
March 11, 1994
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(Expressed in U.S. Dollars)
December 31 December 31
Notes 1993 1992
ASSETS
Investments (c),3,6 $29,882,488 $24,382,923
Cash and cash equivalents 2(c),6 6,788,771 1,710,738
Accrued investment income 861,190 1,115,367
Due from ceding company 2,331,978 2,356,608
Deferred acquisition costs 2(b) 10,495,206 7,281,854
Total Assets $50,359,633 $36,847,490
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums 2(b) 40,413,058 28,063,606
Loss reserves 2(d) 1,910,030 1,622,855
Accrued liabilities 107,181 91,322
Total Liabilities 42,430,269 29,777,783
COMMITMENTS AND CONTINGENCIES 6
STOCKHOLDERS' EQUITY
Share capital
Common stock - no par value;
Authorized - 2,000 shares;
issued and outstanding -
2,000 shares 200,000 200,000
Participating - no par value;
Authorized - 100,000 shares;
issued and outstanding -
18,900 shares at December 31,
1993 and 14,300 shares at
December 31, 1992 4 1,417,500 1,072,500
1,617,500 1,272,500
Retained earnings 7 6,211,978 5,528,775
Unrealized appreciation
on investments 3 99,886 268,432
Total Stockholders' Equity 7,929,364 7,069,707
Total Liabilities and
Stockholders' Equity $50,359,633 $36,847,490
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Expressed in U.S. Dollars)
December 31 December 31 December 31
Notes 1993 1992 1991
INCOME
Reinsurance
premiums assumed 2(b),5 $27,779,063 $19,386,455 $16,784,405
Increase in
unearned premiums (12,349,452) (6,381,271) (6,491,617)
Premiums earned 15,429,611 13,005,184 10,292,788
Investment income:
Interest earned 1,827,955 1,658,430 1,300,603
Realized gains
on investments 872,287 864,282 492,344
Investment income - net 2,700,242 2,522,712 1,792,947
TOTAL INCOME 18,129,853 15,527,896 12,085,735
EXPENSES
Acquisition costs 2(b) 4,009,285 3,377,758 2,839,121
Losses paid 10,625,508 7,938,136 6,697,509
Increase in loss
reserves 287,175 226,313 321,419
Administrative expenses 503,178 478,475 307,301
TOTAL EXPENSES 15,425,146 12,020,682 10,165,350
NET INCOME 2,704,707 3,507,214 1,920,385
RETAINED EARNINGS,
beginning of period 5,528,775 3,043,266 1,273,198
DIVIDENDS (2,021,504) (1,021,705) (150,317)
RETAINED EARNINGS, end of period $ 6,211,978 $ 5,528,775 $ 3,043,266
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(Expressed in U.S. dollars)
December 31 December 31 December 31
1993 1992 1991
Cash flows from operating activities:
Reinsurance premiums collected $26,933,330 $17,624,088 $14,709,039
Losses and underwriting expenses
paid (16,977,784) (11,898,682) (10,575,830)
Administrative expenses paid (490,616) (429,735) (288,593)
Investment income received 2,957,718 2,302,829 1,542,361
Net cash provided by operating
activities 12,422,648 7,598,500 5,386,977
Cash flows from investing activities:
Purchases of investment securities (49,834,608) (60,877,408) (32,306,550)
Sales of investment securities 44,166,497 52,166,918 30,252,467
Net cash invested (5,668,111) (8,710,490) (2,054,083)
Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 345,000 255,000 120,000
Dividends paid (2,021,504) (1,021,705) (150,317)
Net cash used in financing
activities (1,676,504) (766,705) (30,317)
Increase (decrease) in cash and cash
equivalents 5,078,033 (1,878,695) 3,302,577
Cash and cash equivalents, beginning
of period 1,710,738 3,589,433 286,856
Cash and cash equivalents, end of
period $ 6,788,771 $ 1,710,738 $ 3,589,433
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 2,704,707 $ 3,507,214 $ 1,920,385
Change in:
Accrued investment income 254,177 (222,446) (277,412)
Due from ceding company 24,630 (653,270) (1,529,537)
Deferred acquisition costs (3,213,352) (1,662,778) (1,527,217)
Unearned premiums 12,349,452 6,381,271 6,491,617
Loss reserves 287,175 226,313 321,419
Accrued liabilities 15,859 22,196 (12,278)
Net cash provided by operating
activities $12,422,648 $ 7,598,500 $ 5,386,977
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(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.
All of the common stock of the Company is owned by Motors Insurance
Corporation ("MIC"). MIC is an indirect wholly-owned subsidiary of
General Motors Corporation. The principal activity of the Company is
the assumption of certain automobile mechanical breakdown risks
arising under insurance policies reinsured by MIC and attributable to
an MIC Agency Account in respect of which shares of Participating
Stock are issued and outstanding. All premiums received were derived
from MIC.
Note 2. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of Presentation
The financial statements are stated in United States dollars and are
prepared generally in conformity with accounting principles generally
accepted within the United States of America. Reinsurance premiums
assumed by the Company represent policies ceded by MIC during the
twelve months ended December 31 of each fiscal year.
(b) 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 taken into income on the basis of quarterly cessions and
are related to anticipated loss exposures. Acquisition costs,
consisting of ceding commissions and excise taxes, are taken into
income on the basis of premiums earned.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
Note 2. PRINCIPAL ACCOUNTING POLICIES (Cont'd)
(c) Investments
Investments are comprised of interest-bearing marketable securities
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
stockholders' equity.
Realized gains and losses on the sale of investments are included as
investment income. During 1991, the basis of determining the cost of
securities sold was changed from the specific identification method
to the average cost method. The effect of the change was not
material.
(d) 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.
(e) 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 January 31, 2001.
Stockholders who are United States residents are taxed on their share
of the Company's income on a deemed distribution basis.
(f) 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 7).
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS
The cost and estimated fair value of investments in debt securities
are as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
December 31, 1993:
Debt securities
issued by
foreign
governments
and their
agencies $16,327,184 $72,332 $(135,761) $16,263,755
Debt securities
issued by
supra-nationals 7,182,454 103,034 (25,925) 7,259,563
Corporate
securities 6,272,964 109,193 (22,987) 6,359,170
Total $29,782,602 $284,559 $(184,673) $29,882,488
December 31, 1992:
Debt securities
issued by
foreign
governments
and their
agencies $ 14,080,561 $204,554 $(43,057) $14,242,058
Debt securities
issued by
supra-nationals 9,826,630 107,771 (5,087) 9,929,314
Corporate
securities 207,300 4,251 - 211,551
Total $24,114,491 $316,576 $(48,144) $24,382,923
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS (Cont'd)
The cost and estimated fair value of debt securities at December 31,
1993, 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.
Estimated
Fair
Cost Value
Due after one year
through five years $15,463,270 $15,575,893
Due after five years
through ten years 14,319,332 14,306,595
$29,782,602 $29,882,488
Proceeds from sales of investments in debt securities during the
years ended December 31, 1993 and 1992 were $44,166,497 and
$52,166,918 respectively. In 1993, gross gains of $964,613 and gross
losses of $92,326 were realized. In 1992, gross gains of $1,008,932
and gross losses of $144,650 were realized. In 1991, gross gains of
$538,996 and gross losses of $46,652 were realized.
The following summarizes net unrealized appreciation (depreciation)
on investments:
Balance, December 31, 1990 $ 241,439
Net appreciation 673,848
Balance, December 31, 1991 $ 915,287
Net depreciation (646,855)
Balance, December 31, 1992 $ 268,432
Net depreciation (168,546)
Balance, December 31, 1993 $ 99,886
The investment portfolio is comprised of diverse U.S. dollar-
denominated debt securities which do not result in any concentration
in credit risks.
FASB Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" is effective for years beginning after
December 15, 1993 and will require the Company to classify its
securities holdings into three categories (trading, available for
sale, and held to maturity). The Company intends to adopt Statement
No. 115 in 1994 and believes that the Statement will not have a
material effect on the Company's financial position and results of
operations.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
Note 4. STOCKHOLDERS' EQUITY
All of the Company's Common Stock is held by MIC. A prospectus dated
June 4, 1993 is offering 26,500 shares of Participating Stock to
persons certified by owners of certain motor vehicle franchises. The
offering consists of 265 series of 100 shares each at a price of $75
per share.
During 1993, 46 additional series of 100 shares of Participating
Stock were issued as compared with 34 and 16 series for the years
ended December 31, 1992 and 1991, respectively. In the years ended
December 31, 1993 and 1992, costs in the amount of $74,461 and
$80,298, respectively, were incurred in the sale of Participating
Stock and were charged to the account of the Common Stockholder. In
1991, $74,589 of costs incurred in the sale of Participating Stock
were paid by MIC.
The holders of Common Stock as a class are entitled to elect five
directors, at least one of whom must be a resident of Barbados. They
generally have no right to vote with respect to liquidation of the
Company, but can effect a liquidation in certain circumstances. As a
class, these holders generally have the sole right to vote on matters
not specifically reserved to Participating Stock. Any redemption of
Common Stock must be approved by a majority of the holders of
Participating Stock issued and outstanding and by the Board.
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 provided that the director representing
holders of the Participating Stock votes in favor of the
redemption. Any changes in the Company's Articles or By-Laws
require the approval of a majority of the holders of
Participating Stock present and voting together with a majority
of the holders of Common Stock.
From time to time, funds are held in escrow on account of Participat-
ing Stock applications. Such amounts are not included in cash and
cash equivalents in the accompanying financial statements. At
December 31, 1993 and 1992, there were no amounts held in escrow.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
Note 5. REINSURANCE PREMIUMS
Under the provisions of the retrocession agreement, the Company will
receive additional cessions of 13,471,019 ($9,354,534 at December 31,
1992) relating to premiums written by the ceding insurer but unearned
at the respective period ends. The amounts will be received as the
premiums are earned, net of related acquisition costs.
Note 6. LETTERS OF CREDIT
As of December 31, 1993, the Company has provided an irrevocable
letter of credit to MIC, in the sum of $32,250,000 which is secured
by cash equivalents and investments to secure the amounts recoverable
from the Company related to the business ceded.
Note 7. RETAINED EARNINGS
Items of income or loss 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 1-1/3 percent of assumed premiums (net of related
ceding commissions) 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.
Dividends may be declared and paid at the discretion of the Company's
Board of Directors, except that dividends may not be paid out of
unrealized investment gains. Barbados law requires that the Company
maintain a minimum capitalization based generally on the amount of
premiums earned in the preceding fiscal year. On January 1, 1994 the
Company's required minimum capital computed in accordance with
Barbados law was approximately $2,042,961.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
Note 7. RETAINED EARNINGS (Cont'd)
Amounts of retained earnings applicable to the Common and
Participating Stockholders are comprised of the following:
Common Participating Total
Balance, December 31, 1990 $ 14,944 $1,258,254 $1,273,198
Net income for the year 23,911 1,896,474 1,920,385
Net transfers 38,702 (38,702) -
Dividends paid - (150,317) (150,317)
Balance, December 31, 1991 77,557 2,965,709 3,043,266
Net income (loss) for the
year (42,631) 3,549,845 3,507,214
Net transfers 173,954 (173,954) -
Dividends paid - (1,021,705) (1,021,705)
Balance, December 31, 1992 208,880 5,319,895 5,528,775
Net income (loss)
for the year (41,909) 2,746,616 2,704,707
Net transfers (175,245) 175,245 -
Dividends paid - (2,021,504) (2,021,504)
Balance (Deficit),
December 31, 1993 $ (8,274) $6,220,252 $6,211,978
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. One director was elected by the holders of the
Shares at the Annual Shareholders' Meeting held on April 29, 1993. The
directors and officers of the Company are as follows:
POSITION WITH THE COMPANY
(AND OTHER EMPLOYMENT DURING
NAME AGE PAST FIVE YEARS)
Robert T. O'Connell ....... 55 Chairman and Chief Executive Officer and
Director (Chairman of the Board, General
Motors Acceptance Corporation ("GMAC"), and
Motors Insurance Corporation ("MIC"); Senior
Vice-President, General Motors.
Mr. O'Connell became a Director and was
appointed Chairman and Chief Executive
Officer in April of 1992.
Joseph J. Pero ............ 54 President and Director (President and
Director, MIC).
Mr. Pero has been a director since 1986. He
served as Vice-President from 1986 until
1987 when he was appointed President.
Vincent K. Quinn .......... 62 Executive Vice-President and Director
(Executive Vice-President and Director,
MIC).
Mr. Quinn has been a Director since 1986 and
was appointed Executive Vice-President in
April of 1992.
Louis S. Carrio, Jr........ 50 Vice-President and Director (Vice-President,
MIC).
Mr. Carrio became a Director and was
appointed Vice-President in 1991.
Peter R. P. Evelyn ........ 52 Director (Attorney, Evelyn, Gittens &
Farmer, a Barbados law firm).
Mr. Evelyn has been a Director since 1986.
Mark Miller................ 43 Director (President, Mark Miller Pontiac,
Inc.).
Mr. Miller has been a Director since 1993.
Ronald W. Jones ........... 41 Vice-President, Finance (Managing Director,
Alexander Insurance Managers (Barbados)
Ltd.).
Mr. Jones has served as Vice-President,
Finance since 1987.
Robert S. Kirby ........... 53 Secretary (Senior Partner, Price Waterhouse,
Eastern Caribbean).
Mr. Kirby has served as Secretary since
1986.
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 his 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 data processing services. Mr. Evelyn is a member of
the law firm of Evelyn, Gittens & Farmer, which serves as the Company's
Barbados counsel; and Mr. Kirby is affiliated with Corporate Services Limited,
Bridgetown, Barbados, which receives compensation for corporate secretarial
services provided to the Company.
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. Mark Miller, 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, 1993 and 1992.
(iii) Statements of Income and Retained Earnings for
the years ended December 31, 1993, 1992 and 1991.
(iv) Statements of Cash Flows for the years ended
December 31, 1993, 1992, and 1991.
(v) 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 dated January 29,
1987, as amended, filed by reference to Exhibit 3(a) to
Post Effective Amendment No. 7 to Registration Statement
on Form S-1, File No. 33-6534, dated April 29, 1993.
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
Insurance Managers (Barbados) Ltd. filed by reference to
Exhibit 10(e) to Registration Statement on Form S-1,
File No. 33-6534, dated June 18, 1986.
10(f) Insurance Management Agreement between Alexander
Insurance Managers (Barbados) and MIC Life Reinsurance
Company, Ltd., dated March 12, 1992.
20(a) Proxy solicitation materials sent to shareholders in
connection with annual meeting held on April 29,
1993.
20(b) Proxy solicitation materials sent to shareholders in
connection with annual meeting to be held on April 8,
1994.
28(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.
28(b) Guarantee issued by the Minister of Finance of Barbados
filed by reference to Exhibit 28(b) to Amendment No. 1
to Registration Statement on Form S-1, File No. 33-6534,
dated June 18, 1986.
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.
(b) Reports on Form 8-K. No reports on Form 8-K for the quarter
ended December 31, 1993 have been filed.
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 ---, 1994
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/Robert T. O'Connell Chairman and Chief March 30, 1994
Robert T. O'Connell Executive Officer
and Director
s/Joseph J. Pero President and March 30, 1994
Joseph J. Pero Director
s/Vincent K. Quinn Executive Vice- March 30, 1994
Vincent K. Quinn President and Director
s/Louis S. Carrio, Jr. Vice-President and March 30, 1994
Louis S. Carrio, Jr. Director
s/Peter R. P. Evelyn Director March 30, 1994
Peter R. P. Evelyn
Director
Mark Miller
s/Ronald W. Jones Vice-President, March 30, 1994
Ronald W. Jones Finance, Principal
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 were sent to shareholders in connection with
the annual meeting held on April 29, 1993, and in connection with the 1994
annual meeting, to be held on April 8, 1994.