Back to GetFilings.com
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, 1995
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 of (I.R.S. employer
incorporation or organization) identification number)
Financial Services Centre Not Applicable
Bishops Court Hill (Zip Code)
St. Michael, Barbados, W.I.
(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, 1996, was
$1,830,000*.
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, 1996
Common Stock, no-par value 2,000
Participating Stock, no-par value 24,400
* 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 established 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 receives 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 established after
an annual actuarial review, based on judgments of the effects
of technological change, manufacturers' 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 years ended December 31, 1995, 1994, and 1993 were
67.5%, 69.6% and 70.7% respectively.
The following table sets forth an analysis of changes in the
loss reserves for the years ended December 31, 1993, 1994 and
1995:
Year Ended
12/31/93 12/31/94 12/31/95
Beginning balance in
reserves for losses $1,622,855 $1,910,030 $2,660,270
_________ _________ _________
Add-provision for losses
incurred related to:
Current claim year 11,046,932 14,893,890 19,540,192
Prior claim years (134,249) (63,724) (109,160)
_________ ________ _________
Total 10,912,683 14,830,166 19,431,032
__________ __________ __________
Deduct-paid losses
attributable to:
Current claim year 9,363,720 12,527,026 16,461,768
Prior claim years 1,261,788 1,552,900 2,149,200
_________ _________ _________
Total 10,625,508 14,079,926 18,610,968
__________ __________ __________
Ending balance in
reserves for losses $1,910,030 $2,660,270 $3,480,334
The following table analyzes the development of losses and
loss adjustment expenses from February 1, 1989 through
December 31, 1995.
1/31/90 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
Liability
for unpaid
claims and
claims
adjustment
expense $766,912 $1,075,123 $1,396,542 $1,622,855 $1,910,030 $2,660,270 $3,480,334
Paid
(cumulative)
in subsequent
year(s) $666,866 $748,557 $ 912,465 $1,261,788 $1,552,900 $2,149,200
Estimated
unpaid
liability as
of year end* 2,393 43,840 186,542 226,818 293,406 401,910
_____ ______ _______ ________ _______ _________
Cumulative
Deficiency
(Redundancy) $(97,653) $(282,726) $(297,535) $(134,249) $(63,724) $(109,160)
*/ 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,
1994, 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.
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 funds are invested in a manner consistent with
investment guidelines that are established by the Board. The
Company invests primarily 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. Subject to the
satisfaction of certain conditions, the Company may make
limited investments in non-dollar denominated bonds, on a
currency-hedged basis. The Company may invest only in
securities and certificates which are rated at least Aa3 by
Moody's or AA- by Standard & Poor's or the equivalent, or are
guaranteed by such an issuer. However, certain unrated
securities may also be held if, in the opinion of the
investment manager, they have at least equivalent credit
standing to the above rating standard. The Board reviews on a
regular basis and, where appropriate, revises the investment
objectives and guidelines for 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.
Investments in non-U.S. securities, particularly those of non-
governmental 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 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 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
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 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 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;
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.
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, 1995, $1,883,189
of net underwriting gains and $544,838 of administrative
expenses were allocated among the 241 series of Shares
outstanding as of December 31, 1995, and $5,563,573 of net
investment income was allocated among such series of Shares
and the Common Stock.
As of December 31, 1995, 216 series of Shares outstanding had
balances greater than $7,500 (ranging from $7,559 to $431,157)
and 25 of such series had balances less than $7,500 (ranging
from $6,762 to zero). (The amounts in the Subsidiary Capital
Accounts can fluctuate substantially and therefore may not be
indicative of future results.) At December 31, 1995, an
aggregate of $1,281,396 had been advanced from the Restricted
Earned Surplus (which forms a portion of the Account
established for the Common Stock owned by MIC) to 22
Subsidiary Capital Accounts and remained outstanding at that
date. In addition, at December 31, 1995, net deficits of
$458,609 associated with 4 series of Shares that have been
redeemed had been charged against Restricted Earned Surplus
and remained outstanding at that date. As of December 31,
1995, $849,452 of aggregate deficits has been reallocated
among the Subsidiary Capital Accounts of the Shares and
remained outstanding.
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 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 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 Colybrand Company
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 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 disburses funds on behalf of
the Company, provides bookkeeping, clerical, telephone, 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
year ended December 31, 1995, the Company paid fees to the
Manager in the amount of $168,577.
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,
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 ten
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
current Management Agreement became effective on March 19,
1992 and may be terminated by either party as of the end of
the then current 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 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 December
31, 2016.
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, 1995.
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, 1996 there were 422 holders of Shares of
record, representing 244 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 April of 1995, 1994
and 1993, the Company declared dividends of $1,188,614,
$2,156,304 and $2,021,504. 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.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991 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,
1995 and 1994 and for each of the three years in the period
ended December 31, 1995 is included elsewhere herein.
December 31
1995 1994 1993 1992 1991
Premiums
Assumed $44,084,952 $38,371,896 $27,779,063 $19,386,455 $16,784,405
Premiums
Earned $28,800,689 $21,316,685 $15,429,611 $13,005,184 $10,292,788
Net
Investment
Income 5,563,573 1,227,816 2,700,242 2,522,712 1,792,947
_________ _________ _________ _________ _________
Total
Income 34,364,262 22,544,501 18,129,853 15,527,896 12,085,735
Less
Losses
and
Expenses 27,462,338 20,825,943 15,425,146 12,020,682 10,165,350
__________ __________ __________ __________ __________
Net
Income* $6,901,924 $1,718,558 $2,704,707 $3,507,214 $1,920,385
Dividends
Per Common
Share 0 0 0 0 0
Total
Assets $91,526,976 $66,012,284 $50,359,633 $36,847,490 $28,124,056
Total
Policy
Reserves
and Other
Liabilities 76,350,313 60,246,641 42,430,269 29,777,783 23,148,003
Stock-
holders'
Equity 15,176,663 5,765,643 7,929,364 7,069,707 4,976,053
Dividends
Paid on
Particip-
ating
Shares 1,188,614 2,156,304 2,021,504 1,021,705 150,317
*/ 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. Although losses are expected to increase due
to the increased level of premiums assumed in each preceding
year and the anticipated incidence of claims following the
expiration of manufacturers' warranties, available funds from
the sources identified above have also grown. Net cash
provided by operating activities has increased to $16,418,640
in 1995 and $14,960,494 in 1994 from $11,550,335 in 1993. The
Company believes that such funds will be sufficient to meet
its liquidity requirements in 1996 and in future years to
which its reinsurance liabilities extend. No capital
expenditures are expected during the next few years.
The Company had unearned premium reserves of $72,752,532 as of
December 31, 1995, and $57,468,269 as of December 31, 1994.
These 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
little 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 April 6, 1995, the Board of Directors authorized the
payment of dividends to eligible holders of Participating
Shares aggregating $1,188,614. See "Market For Registrant's
Common Equity And Related Stockholder Matters" for a
discussion of dividends paid and legal restrictions on the
payment of dividends.
Capital Resources. Capitalization of the Company, as of
December 31, 1995, was comprised of paid-in capital with
respect to the Common Stock of $200,000, paid-in capital with
respect to the Shares of $1,807,500 (compared with $1,665,000
and $1,417,500 as of December 31, 1994 and 1993,
respectively), and earnings retained for use in the business
of $11,517,542. 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, 1996, the Company's required minimum net assets
computed in accordance with Barbados law was approximately
$3,380,069, compared to total capital and retained earnings
computed for purpose of Barbados law of $ 13,525,042.
Results of Operations. During the year ended December 31,
1995, the Company had net income of $6,901,924 compared to
$1,718,558 and $2,704,707 for the years ended December 31,
1994 and 1993, respectively. As described below, the increase
in net income during 1995 compared to the previous year was
the result of realized gains on the sale of investments,
increases in interest earned and improved underwriting
results. The reduction in net income during 1994 compared to
the previous year was the result primarily of realized losses
on the sale of investments.
The Company had net underwriting income of approximately
$1,338,351 in 1995 compared to $490,742 and $4,465 for the
years ended December 31, 1994 and 1993, respectively. The
increase in underwriting income during 1995 was the result of
an increase in the amount of premiums earned coupled with a
modest improvement in the loss ratio (the ratio of losses
incurred to premiums earned). During 1995, the Company had
earned premiums of $28,800,689 compared to $21,316,685 and
$15,429,611 during 1994 and 1993, respectively. Increased
premium income has been generated by the issuance of
additional series of Shares during the year ended December 31,
1995, and the continuing flow of reinsurance premiums from
series issued in prior years. During 1995, the Company issued
20 new series of Shares and redeemed 1 series of Shares for a
net increase of 19 series. There were a total of 241 series
outstanding at December 31, 1995 compared to 222 and 189
series of Shares outstanding at December 31, 1994 and 1993,
respectively.
The Company incurred losses and expenses during the year ended
December 31, 1995 of $27,462,338 compared with $20,825,943 and
$15,425,146 for the years ended December 31, 1994 and 1993,
respectively. Expenses in 1995 were comprised of provisions
for losses incurred of $19,431,032, ceding commissions and
excise taxes of $7,486,469 and operating expenses of $544,837.
Losses incurred in 1994 and 1993 were $14,830,166 and
$10,912,683 respectively. The loss ratio for the year ended
December 31, 1995 was 67.5% compared to 69.6% and 70.7% for
the years ended December 31, 1994 and 1993, respectively.
The Company incurred operating expenses during the year ended
December 31, 1995 of $544,837 compared to $455,238 and
$503,178 for the years ended December 31, 1994 and 1993,
respectively. MIC has agreed to pay directly certain costs of
registering and issuing shares if such costs can not be
allocated to the Subsidiary Capital Account for the Common
Stock. In 1995 and 1994, $171,079 and $162,989, respectively,
of such costs were paid directly by MIC. For the year ended
December 31, 1993, $74,461 of such costs were paid by the
Company and allocated to the Subsidiary Capital Account for
the Common Stock.
Investment income in 1995 was $5,563,573 compared to
$1,227,816 and $2,700,242 for the years ended December 31,
1994 and 1993, respectively. The increase in investment
income during 1995 compared to 1994 was attributable to
realized gains on the sale of investment securities and an
increase in interest earned. The decrease in investment
income during 1994 compared to 1993 was primarily attributable
to realized losses on the sale of investment securities which
offset an increase in interest earned. The sale of investment
securities for the year ended December 31, 1995 resulted in
realized gains of $1,857,519 compared to realized losses of
$1,543,358 for the year ended December 31, 1994, and realized
gains of $872,313 for the year ended December 31, 1993. The
realized gains during 1995 were due to increased sales of
investment securities to take advantage of market
opportunities presented by fluctuations in interest rates.
The realized losses on the sale of investment securities
during 1994 resulted from changes in interest rates which
adversely affected the market values of the Company's
investment portfolio. Interest earned for the year ended
December 31, 1995 was $3,706,054 compared to $2,771,174 and
$1,827,929 for the years ended December 31, 1994 and 1993,
respectively. The increase in interest earnings during 1995
was largely a result of an increase in the amount of assets
under management which offset the impact of lower interest
rates.
Unrealized appreciation on investment securities held at
December 31, 1995 was $1,651,621 compared to unrealized
depreciation at December 31, 1994 of $1,896,089. The
unrealized appreciation as of December 31, 1995 compared to
the unrealized depreciation as of December 31, 1994 is in
large part attributable to lower long term interest rates in
effect during 1995 which increased the market value of the
Company's investment portfolio.
At December 31, 1995, approximately 78.5% of the Company's
investments are in U.S. dollar-denominated fixed-income
securities. Approximately 21.5% of the Company's investments
are in non-U.S. dollar-denominated bonds, on a currency-hedged
basis. The Company's investment manager seeks to identify
non-U.S. dollar-denominated investments that offer a higher
rate of return (net of hedging costs) than would be available
in the market for similarly rated U.S. dollar-denominated
bonds. The Company's investment guidelines do not permit the
use of financial instrument derivatives in managing interest
rate risk. The instruments used to hedge non-U.S. dollar-
denominated investments involve, to varying degrees, elements
of credit risk in the event a counterparty should default on
its obligation under the hedge instrument. Such credit risk
is managed through the selection of financially sound
counterparties and periodic monitoring of counterparty
financial condition.
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, 1995, the Company
had furnished such a letter of credit in the amount of
$58,050,000.
Accounting Change. FASB Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" is
effective for years beginning after December 15, 1993 and
required the Company to classify its securities holdings into
three categories (trading, available for sale, and held to
maturity). The Company adopted Statement No. 115 in 1994 and
classified its securities portfolio as available for sale.
Adoption of the statement did 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
1995 and 1994................................
3. Statements of Income and Retained
Earnings for the years ended
December 31, 1995, 1994 and 1993 ............
4. Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 ............
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 sheets of Motors
Mechanical Reinsurance Company, Limited as of December 31,
1995 and 1994 and the related statements of income and
retained earnings and cash flows for each of the three years
in the period ended December 31, 1995. 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, 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, 1995 and 1994 and the results of its
operations and its cash flows for each of the three years in
the period ended December 31, 1995 in conformity with
accounting principles generally accepted in the United States
of America.
s/DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
March 1, 1996
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Expressed in U.S. Dollars)
1995 1994
ASSETS
Investments $59,898,265 $42,903,056
Cash and cash
equivalents 7,093,106 3,303,060
Accrued investment income 2,532,813 1,559,195
Due from Motor Insurance
Corporation 3,095,587 3,315,506
Deferred acquisition costs 18,907,205 14,931,467
__________ __________
Total Assets $91,526,976 $66,012,284
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES
Unearned premiums $72,752,532 $57,468,269
Loss reserves 3,480,334 2,660,270
Accrued liabilities 117,447 118,102
_______ _______
Total Liabilities 76,350,313 60,246,641
__________ __________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Share capital
Common stock - no par value;
Authorized - 2,000 shares;
issued and outstanding -
2,000 shares 200,000 200,000
Participating stock - no par
value;
Authorized - 100,000 shares;
issued and outstanding -
24,100 shares at December
31, 1995 and 22,200 shares
at December 31, 1994 1,807,500 1,665,000
_________ _________
2,007,500 1,865,000
Retained earnings 11,517,542 5,796,732
Unrealized appreciation
(depreciation) on
investments 1,651,621 (1,896,089)
_________ ___________
Total Stockholders' Equity 15,176,663 5,765,643
__________ _________
Total Liabilities and
Stockholders' Equity $91,526,976 $66,012,284
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, 1995, 1994 AND 1993
(Expressed in U.S. Dollars)
1995 1994 1993
INCOME
Reinsurance
premiums assumed $44,084,952 $38,371,896 $27,779,063
Increase in
unearned premiums (15,284,263) (17,055,211) (12,349,452)
____________ ____________ ____________
Premiums earned 28,800,689 21,316,685 15,429,611
__________ __________ __________
Investment income:
Interest earned 3,706,054 2,771,174 1,827,929
Realized gains
(losses) on
investments 1,857,519 (1,543,358) 872,313
_________ ___________ _______
Investment income -
net 5,563,573 1,227,816 2,700,242
_________ _________ _________
TOTAL INCOME 34,364,262 22,544,501 18,129,853
__________ __________ __________
EXPENSES
Acquisition costs 7,486,469 5,540,539 4,009,285
Losses paid 18,610,968 14,079,926 10,625,508
Increase in loss
reserves 820,064 750,240 287,175
Administrative
expenses:
Related Parties 174,443 171,135 168,933
Other 370,394 284,103 334,245
_______ _______ _______
TOTAL EXPENSES 27,462,338 20,825,943 15,425,146
__________ __________ __________
NET INCOME 6,901,924 1,718,558 2,704,707
RETAINED EARNINGS,
beginning of year 5,796,732 6,211,978 5,528,775
LESS: DIVIDENDS (1,188,614) (2,156,304) (2,021,504)
ADD: REDEMPTION OF
PARTICIPATING STOCK 7,500 22,500 -
_____ ______ ____
RETAINED EARNINGS,
end of year $11,517,542 $ 5,796,732 $ 6,211,978
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, 1995, 1994, AND 1993
(Expressed in U.S. dollars)
1995 1994 1993
CASH FLOWS FROM
OPERATING ACTIVITIES:
Reinsurance premiums
collected $42,818,628 $35,580,944 $26,933,330
Losses and
underwriting expenses
paid (28,599,428) (22,168,851) (16,977,784)
Administrative
expenses paid (540,841) (527,767) (490,616)
Investment income
received 2,740,281 2,076,168 2,085,405
_________ _________ _________
Net cash provided by
operating activities 16,418,640 14,960,494 11,550,335
__________ __________ __________
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of
investment securities (182,526,749) (70,748,944) (49,834,608)
Sales and maturities
of investment
securities 170,936,769 54,189,043 45,038,810
___________ __________ __________
Net cash invested (11,589,980) (16,559,901) (4,795,798)
____________ ____________ ___________
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from
issuance of
Participating Stock 150,000 270,000 345,000
Dividends paid (1,188,614) (2,156,304) (2,021,504)
___________ ___________ ___________
Net cash used in
financing activities (1,038,614) (1,886,304) (1,676,504)
___________ ___________ ___________
INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 3,790,046 (3,485,711) 5,078,033
CASH AND CASH
EQUIVALENTS,
beginning of year 3,303,060 6,788,771 1,710,738
_________ _________ _________
CASH AND CASH
EQUIVALENTS, end of
year $ 7,093,106 $ 3,303,060 $ 6,788,771
RECONCILIATION OF NET
INCOME TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES:
Net income $ 6,901,924 $ 1,718,558 $ 2,704,707
Realized losses
(gains) on
investments (1,857,519) 1,543,358 (872,313)
Change in:
Accrued investment
income (973,618) (698,005) 254,177
Due from Motors
Insurance Corporation 219,919 (983,528) 24,630
Deferred acquisition
costs (3,975,738) (4,436,261) (3,213,352)
Unearned premiums 15,284,263 17,055,211 12,349,452
Loss reserves 820,064 750,240 287,175
Accrued liabilities (655) 10,921 15,859
_____ ______ ______
NET CASH PROVIDED BY
OPERATING ACTIVITIES $16,418,640 $14,960,494 $11,550,335
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, and amendments thereto.
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 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
Basis of Presentation
The financial statements are stated in United States
dollars and are prepared in conformity with
accounting principles generally accepted in the
United States of America.
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure 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 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.
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 and are calculated
based on average 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.
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.
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
Effective January 1, 1994, the Company adopted the
requirements of Financial Accounting Standards Board
Statement No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" and the
Company's investments have been classified as
available for sale. The Company had previously
accounted for its investment securities at market
value, with the resulting unrealized gains and
losses included as a separate component of
stockholders' equity. Accordingly, the adoption of
Statement No. 115 had no material effect on the
Company's financial position and results of
operations.
The cost and fair value of investments in debt
securities are as follows:
Gross Gross
Unrealized Unrealized
Cost Appreciation Depreciation Fair Value
December
31, 1995:
Debt
securities
issued by
foreign
governments
and their
agencies $56,243,544 $1,711,611 $(135,765) $57,819,390
Debt
securities
issued by
supra-
nationals 2,003,100 75,775 -- 2,078,875
_________ ______ __ _________
Total $58,246,644 $1,787,386 $(135,765) $59,898,265
December
31, 1994:
Debt
securities
issued by
foreign
governments
and their
agencies $31,233,934 $23,323 $(1,324,106) $29,933,151
Debt
securities
issued by
supra-
nationals 13,565,211 -- (595,306) $12,969,905
__________ __ _________ ___________
Total $44,799,145 $23,323 $(1,919,412) $42,903,056
Note 3. INVESTMENTS (Cont'd)
The cost and fair value of debt securities at
December 31, 1995, 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 $40,242,673 $41,233,791
Due after five years
through ten years 18,003,971 18,664,474
___________ ___________
$58,246,644 $59,898,265
In 1995, gross gains of $3,147,972 and gross losses
of $1,290,453 were realized. In 1994, gross gains
of $150,704 and gross losses of $1,694,062 were
realized. In 1993, gross gains of $964,613 and
gross losses of $92,300 were realized.
The following summarizes net unrealized appreciation
(depreciation) on investments:
Balance, December 31, 1992 $ 268,432
Net depreciation (168,546)
___________
Balance, December 31, 1993 $ 99,886
Net depreciation (1,995,975)
___________
Balance, December 31, 1994 $(1,896,089)
Net appreciation $ 3,547,710
___________
Balance, December 31, 1995 $ 1,651,621
The investment portfolio is comprised of diverse
debt securities which do not result in any
concentration of credit risk. At December 31, 1995,
approximately 78.5% of the Company's investments are
denominated in U.S. dollars and 21.5% are in non-
U.S. dollar denominated securities on a currency-
hedged basis.
The Company uses forward currency contracts to hedge
its exposure to changes in currency exchange rates
relating to its investments denominated in
currencies other than the U.S. dollar. The
contracts provide for settlement in U.S. dollars in
the future. Credit risk is managed by dealing with
financially-sound counterparties. Market risk is
mitigated because the forward contracts hedge
corresponding non-U.S. dollar investments. The
notional amount of forward contracts outstanding at
December 31, 1995, all of which mature in 1996, was
$11,017,000.
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, 1995, 1994 and
1993:
1995 1994 1993
Beginning
balance in
reserves for
losses $2,660,270 $1,910,030 $1,622,855
__________ __________ __________
Add-provision
for losses
incurred
related to:
Current claim
year 19,540,192 14,893,890 11,046,932
Prior claim
years (109,160) (63,724) (134,249)
_________ ________ _________
Total 19,431,032 14,830,166 10,912,683
__________ __________ __________
Deduct-paid
losses
attributable
to:
Current claim
year 16,461,768 12,527,026 9,363,720
Prior claim
years 2,149,200 1,552,900 1,261,788
_________ _________ _________
Total 18,610,968 14,079,926 10,625,508
__________ __________ __________
Ending balance
in reserves for
losses $3,480,334 $2,660,270 $1,910,030
As a result of change in estimates of losses incurred in prior
years, the provisions for losses incurred in 1995, 1994 and
1993 decreased by $109,160, $63,724 and $134,249,
respectively, because of lower than expected claims.
Note 5. STOCKHOLDERS' EQUITY
All of the Company's Common Stock is held by MIC. A
prospectus dated July 12, 1994 is offering 12,000
shares of Participating Stock to persons certified
by owners of certain motor vehicle franchises. The
offering consists of 120 series of 100 shares each
at a price of $75 per share.
During 1995, 20 additional series of 100 shares of
Participating Stock were issued as compared with 36
for the year ended December 31, 1994. In addition,
in 1995 the Board of Directors redeemed 1 series of
100 shares that had a substantial accumulated
deficit. As a result of the redemption, $7,500 was
transferred from the Participating Stock to retained
earnings to eliminate the capital account and
accumulated deficit of that series.
In the years ended December 31, 1995, 1994 and 1993,
costs in the amount of $171,079, $162,989 and
$74,461, respectively, were incurred in the sale of
Participating Stock. The Common Stockholder
reimbursed the Company directly for these expenses
in 1995 and 1994. During 1993, these amounts were
expensed by the Company and allocated to the account
of the Common Stockholder.
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 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, 1994, $7,500 was held
in escrow.
Note 6. REINSURANCE PREMIUMS
Under the provisions of the retrocession agreement,
the Company will receive additional cessions of
$24,250,844 ($19,156,090 at December 31, 1994)
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. LETTERS OF CREDIT
The Company has provided an irrevocable letter of
credit to MIC, in the amount of $58,050,000 to
collateralize the amounts recoverable from the
Company related to the business ceded. 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 1-1/3 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. 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 shares 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 capitalization based generally on the amount
of premiums earned in the preceding year. At
January 1, 1996, the Company's required minimum
capital computed in accordance with Barbados law was
approximately $3,380,000.
Retained earnings applicable to the Common and
Participating Stockholders are comprised of the
following:
Common Participating Total
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
Net income (loss) for
the year (7,536) 1,726,094 1,718,558
Net transfers (37,410) 37,410
Dividends paid -- (2,156,304) (2,156,304)
Redemption of
participating stock -- 22,500 22,500
_____ ______ ______
Balance (Deficit)
December 31, 1994 (53,220) 5,849,952 5,796,732
Net income (loss) for
the year 18,627 6,883,297 6,901,924
Net transfers 23,732 (23,732) --
Dividend paid -- (1,188,614) (1,188,614)
Redemption of
participating stock -- 7,500 7,500
__ _____ _____
Balance (Deficit)
December 31, 1995 $(10,861) $11,528,403 $11,517,542
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 April 6, 1995 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
NAME AGE DURING PAST FIVE YEARS)
John D. Finnegan........... 47 Chairman and Chief
Executive Officer and
Director (Treasurer,
General Motors Corporation,
December 1995; Executive
Vice President & Chief
Financial Officer, General
Motors Acceptance
Corporation ("GMAC") June
1992; Assistant Treasurer
and Funds Officer, GMAC,
1987-1992).
Mr. Finnegan became
Chairman and Chief
Executive Officer and
Director in April of 1995.
William B. Noll............. 53 President and Director
(Executive Vice President &
Chief Financial Officer,
Motors Insurance
Corporation ("MIC") March
1993; Group Vice-President,
MIC, 1991-1993; Vice
President, MIC, 1989-1990).
Mr. Noll became President
and Director in April of
1995.
Louis S. Carrio, Jr........ 52 Vice-President and Director
(Vice-President, MIC).
Mr. Carrio became a
Director and was appointed
Vice-President in 1991.
Bernard J. Buselmeier....... 40 Vice-President and Director
(Vice-President and
Treasurer, MIC, March 1993;
Treasurer, MIC, 1989-1993)
Mr. Buselmeier became Vice-
President and Director in
April of 1995.
Peter R. P. Evelyn ........ 54 Director (Attorney, Evelyn,
Gittens & Farmer, a
Barbados law firm).
Mr. Evelyn has been a
Director since 1986.
Henry Faulkner, III......... 46 Director (President,
Faulkner Saturn of Trevose)
Mr. Faulkner became a
Director in April of 1995.
Ronald W. Jones ........... 43 Vice-President, Finance
(Managing Director,
Alexander Insurance
Managers (Barbados) Ltd.).
Mr. Jones has served as
Vice-President, Finance
since 1987.
Michael B. Boyce........... 55 Secretary (Principal,
Colybrand Company Services,
Limited, Barbados, since
1993; previously principal,
Price Waterhouse, Eastern
Caribbean).
Mr. Boyce has served as
Secretary since 1994. Mr.
Boyce served previously as
Assistant Secretary to the
Company.
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. Boyce is affiliated with Colybrand Company
Services Limited, St. Michael, 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.
Henry Faulkner, III, a director, owns 80 shares of
Participating Stock as a custodian.
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, 1995 and
1994.
(iii) Statements of Income and Retained
Earnings for the years ended December
31, 1995, 1994 and 1993.
(iv) Statements of Cash Flows for the
years ended December 31, 1995,1994,
and 1993.
(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 Alexander Insurance
Managers (Barbados) Ltd., dated March 19,
1992, filed by reference to Exhibit 10(f)
to Annual Report on Form 10-K, File No.
33-6534, for the year ended December 31,
1993.
20(a) Proxy solicitation materials sent to
shareholders in connection with annual
meeting held on April 6, 1995, filed by
reference to Exhibit 20(b) to Annual
Report on Form 10-K, File No. 33-6534, for
the year ended December 31, 1994.
20(b) Proxy solicitation materials sent to
shareholders in connection with annual
meeting to be held on April 11, 1996.
27 Financial Data Schedule.
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, 1995 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 under-
signed, thereunto duly authorized.
MOTORS MECHANICAL REINSURANCE
COMPANY, LIMITED
(Registrant)
By s/Ronald W. Jones
Ronald W. Jones
Vice-President, Finance
Date: March 13, 1996
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/John D. Finnegan Chairman and Chief March 18, 1996
John D. Finnegan Executive Officer
and Director
s/William B. Noll President and March 18, 1996
William B. Noll Director
s/Louis S. Carrio, Jr. Vice-President March 15, 1996
Louis S. Carrio, Jr. and Director
s/Bernard J. Buselmeier Vice-President March 15, 1996
Bernard J. Buselmeier and Director
s/Peter R. P. Evelyn Director March 14, 1996
Peter R. P. Evelyn
s/Ronald W. Jones Vice-President, March 13, 1996
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 6, 1995, and
in connection with the 1996 annual meeting, to be held on
April 11, 1996.