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, 1998
Or
_____ Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission file number 33-6534
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
(Exact name of registrant as specified in its charter)
Barbados Not Applicable
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
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 (246) 436-4895
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each class Exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange 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, 1999, was $2,362,500.*
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, 1999
Common Stock, no-par value 2,000
Participating Stock, no-par value 31,500
* Based on current offering price of $75 per share.
PART I
Item 1. BUSINESS
INTRODUCTION
Motors Mechanical Reinsurance Company, Limited (the "Company") was incorpo rated
in Barbados on June 12, 1986. It became registered in Barbados as an insurer on
June 30, 1986 and commenced insurance operations on December 11, 1987.
The business of the Company is the assumption of motor vehicle mechanical
service agreements arising under insurance policies reinsured by Motors
Insurance Corporation ("MIC") to the extent such policies are attributable to an
MIC Mechanical account in respect of which a series of shares is issued and
outstanding (the "Policies"). These policies are issued either to General Motors
Corporation or affiliates ("GM") or to automobile dealers, reinsured by MIC, and
retroceded to the Company. Shares of the Company's Participating Stock (the
"Shares") are sold to persons designated by owners of entities selling motor
vehicles with respect to which MIC maintains an MIC Mechanical Account. A
separate series is created for Shares relating to each MIC Mechanical Account,
and a separate "Subsidiary Capital Account" is maintained for each such series.
THE 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 GMAC Insurance Holdings,
Inc., a subsidiary of General Motors Acceptance Corporation which, in turn, is a
wholly owned subsidiary of GM. MIC, directly and through its subsidiaries,
offers property and casualty coverages in all 50 states and the District of
Columbia, Canada, Europe, Latin America and Asia Pacific. MIC consistently has
been awarded A.M. Best Company's insurance financial rating of A + (Superior),
one of the highest possible ratings.
The Retrocession Agreement -- Principal Agreement. The Company has entered into
a "quota share" retrocession agreement (the "Agreement") which became effective
as of December 11, 1987. Pursuant to the Agreement, MIC retrocedes to the
Company, and the Company is obligated to assume, MIC's risks in respect of
policies issued by any MIC subsidiary and reinsured by MIC that cover motor
vehicle mechanical service agreements, to the extent that risks under such
policies are attributable to an MIC Mechanical Account in respect of which a
series of Shares is issued and outstanding. MIC retrocedes 100% of the risk and
the Company receives 75% of the original gross premium, reduced by agents'
commissions, if any, and cancellations. The remaining 25% of the net premium is
retained by MIC as a ceding commission. The Company assumes 75% of the risk with
respect to these policies and MIC pays 56.25% of the net premium at the time the
policies are written. The remaining 25% of the risk is ceded to the Company and
MIC pays 18.75% of the net premium as the premiums are earned.
Net settlements between the Company and MIC are made quarterly and accordingly
will fluctuate quarter to quarter.
The Agreement may be terminated at any time by mutual consent of the parties, or
by either party upon 30 days written notice. Upon termination of the Agreement,
MIC and the Company will remain bound by their respective obligations under the
Agreement with respect to risks retroceded prior to the close of business on the
date of termination. However, risks not yet retroceded to the Company under the
Agreement shall remain risks of MIC.
The Retrocession Agreement -- Supplemental Agreement. MIC from time to time
enters into agreements with Franchise owners for which an MIC Mechanical Account
is established, pursuant to which MIC, acting for itself and on behalf of
certain of its subsidiaries, agrees to cede or retrocede to another insurance
company mutually satisfactory to MIC and the respective Franchise owners the
unexpired liability on service contracts, insured under the Policies, sold after
the date specified in each such agreement. This liability can be ceded or
retroceded to dealer-owned companies organized specifically with respect to a
particular Franchise or, if a series of Shares is issued which relates to the
Franchise, pursuant to an agreement between MIC and the Company (the
"Supplemental Retrocession Agreement"). For this purpose, unexpired liability
means MIC's liability in respect of the remaining period of coverage under the
Policy as of the effective date of the cession. Under the Supplemental
Retrocession Agreement, unexpired liability in respect of the Policies is
assumed on the same basis as risks retroceded to the Company under the principal
Retrocession Agreement.
Types of Risks Subject to Retrocession. Coverages assumed under the Agreement
are limited to service contracts or insurance policies insured or reinsured by
MIC that provide indemnification against specific motor vehicle mechanical
repairs not covered by manufacturer's new vehicle warranties. Such service
contracts or insurance policies often provide additional coverages, such as
towing and rental allowances.
Loss Reserves. Reserves are balance sheet liabilities representing estimates of
amounts needed in the future to pay claims with respect to insured events which
have occurred as of the balance sheet dates.
For purposes of establishing loss reserves, the Company relies upon the advice
of MIC. Loss reserves are established after periodic actuarial reviews, based on
judgments of the effects of technological change, manufacturers' warranties, and
MIC's historical experience with motor vehicle mechanical service agreements.
Consequently, the determination of loss reserves is an estimate and a process
inherently subject to a number of highly variable factors. Any adjustments to
reserves are reflected in the operating results for the periods in which they
become known.
The Company's incurred loss ratios (losses incurred as a percentage of net
premium earned) on all mechanical business for the years ended December 31,
1998, 1997, and 1996 were 79.4%, 68.1% and 66.6% respectively.
The following table sets forth an analysis of changes in the loss reserves for
the years ended December 31, 1998, 1997 and 1996:
Year Ended
12/31/98 12/31/97 12/31/96
Beginning balance in
reserves for losses......... $ 5,421,160 $ 4,284,304 $ 3,480,334
----------- ----------- -----------
Add-provision for losses incurred related to:
Current claim year........ 45,843,093 31,904,950 24,080,078
Prior claim years......... (290,547) (746,024) (42,251)
----------- ----------- ----------
Total................. 45,552,546 31,158,926 24,037,827
----------- ----------- ----------
Deduct-paid losses
attributable to:
Current claim year........ 40,767,738 27,024,981 20,330,269
Prior claim years......... 4,812,150 2,997,089 2,903,588
----------- ----------- ----------
Total................. 45,579,888 30,022,070 23,233,857
----------- ----------- ----------
Ending balance in reserves
for losses.................. $ 5,393,818 $ 5,421,160 $ 4,284,304
=========== =========== ===========
The following table analyzes the development of losses and loss adjustment
expenses from January 1, 1993 through December 31, 1998.
Years Ended
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
Liability for unpaid
claims and claims
adjustment expense $1,910,030 $2,660,270 $3,480,334 $4,284,304 $5,421,160 $5,393,818
========== ========== ========== ========== ========== ==========
Paid (cumulative) in
subsequent year(s) $1,552,900 $2,149,200 $2,903,588 $2,997,089 $4,812,150
Estimated unpaid
liability as of
year end* 293,406 401,910 534,495 541,191 318,463
---------- ---------- ---------- ---------- ----------
Cumulative Redundancy $ 63,724 $ 109,160 $ 42,251 $ 746,024 $ 290,547
========== ========== ========== ========== ==========
*/ 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, 1998, 1997, 1996,
1995, 1994, and 1993 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 proposed by the Investment Committee for adoption by the
Board. At present, 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-U.S. dollar denominated bonds, on a fully currency-hedged basis. The Company
also may invest up to 20% of its portfolio in equities. The Investment Committee
reviews on a regular basis and, where appropriate, recommends for Board approval
revisions to the investment objectives and guidelines for management of the
Company's funds. There can be no assurance, however, as to whether a particular
investment objective, once adopted, can be achieved or that adverse factors
would not cause a decrease in the overall value of the Company's investment
portfolio.
Investments in non-U.S. securities, particularly those of non-governmental
issuers, may involve considerations not ordinarily associated with investments
in U.S. 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 local
accounting or regulatory standards, the possible negative impact of political,
social or diplomatic developments, and the possible imposition of withholding
taxes by local taxing authorities.
Rothschild Asset Management Limited ("Rothschild") manages the investment and
reinvestment of the Company's bond portfolio in accordance with the investment
policies and guidelines recommended by the Investment Committee and adopted by
the Board. Rothschild is one of the leading institutions engaged in the
management of offshore fixed-income portfolios and has been providing this
service since 1974 as 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 0.225% per annum on the first $20,000,000 of assets under management, 0.20%
per annum on the next $20,000,000 and 0.15% per annum on the excess thereof
based on the market value of the Company's investment portfolio at the end of
each calendar quarter.
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 Mechanical
Account to which such items can be attributed.
(1) Allocations with respect to underwriting activities are made as follows:
(a) With respect to premiums ceded by MIC to the Company, 100% to the related
Subsidiary Capital Account; provided, however, that an amount equal to 1-1/3% of
those premiums, net of related ceding commissions, are subtracted from such
Subsidiary Capital Account and allocated to the Subsidiary Capital Account for
the Common Stock.
(b) With respect to any agents' or brokers' commissions, commissions recaptured,
unearned premiums, reinsurance premiums ceded, and any United States excise tax,
100% to the related Subsidiary Capital Account.
(c) With respect to losses incurred, and any amount of losses recovered through
salvage, subrogation, reimbursement or otherwise one hundred percent (100%)
shall be allocated to the related Subsidiary Capital Account. For the purpose of
this section (1)(c), losses incurred includes both paid and unpaid (reported and
unreported) losses.
(d) With respect to return premiums, 98-2/3% to the related Subsidiary Capital
Account and 1-1/3% to the Subsidiary Capital Account for the Common Stock.
(2) Any expenses or liabilities attributable to day-to-day Company operations,
excluding any United States Federal income taxes, shall be allocated among all
Subsidiary Capital Accounts for the Shares pro rata in accordance with the
number of series issued and outstanding at the end of the fiscal quarter
immediately preceding the fiscal quarter in which the expense or liability is
incurred, provided, that for purposes of such allocation, series of shares
issued at any time during the twelve calendar months preceding the end of the
fiscal quarter in which the expense or liability is incurred and series with
respect to which unearned premium is zero as of the date of such allocation,
shall be excluded.
(3) Any United States Federal income tax liability (and any interest thereon or
any penalties related thereto) is allocated among the Subsidiary Capital
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, 1998, $2,626,787 of net
underwriting losses and $555,321 of administrative expenses were allocated among
the 315 series of Shares outstanding as of December 31, 1998, and $10,375,464 of
net investment income was allocated among such series of Shares and the Common
Stock.
As of December 31, 1998, 236 series of Shares outstanding had balances greater
than or equal to $7,500 (ranging from $7,672 to $809,892) and 79 of such series
had balances less than $7,500 (ranging from $7,453 to zero). (The amounts in the
Subsidiary Capital Accounts can fluctuate substantially and therefore may not be
indicative of future accumulated amounts.) At December 31, 1998, an aggregate of
$3,530,320 had been advanced from the Restricted Earned Surplus (which forms a
portion of the Account established for the Common Stock owned by MIC) to 67
Subsidiary Capital Accounts and remained outstanding at that date including net
deficits of $946,174 associated with 7 series of Shares that have been redeemed.
As of December 31, 1998, $2,702,259 of aggregate deficits has been reallocated
among the Subsidiary Capital Accounts of the Shares and remained outstanding. Of
this amount $2,004,811 is available to be recovered from deficit accounts should
they return to profitability and to the extent that the risk fund is repaid in
full.
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 an allocation to the Subsidiary Capital Account for the Common
Stock will result, in the manner described above.
The allocations of income and expense, gains and losses, and distributions
described above are subject to approval by the Board, and when so approved are
considered final and conclusive and will be binding on all holders of Shares for
all purposes including without limitation any redemption of Shares pursuant to
the Company's procedures for redemption.
Barbados insurance law requires that the Company maintain certain levels of net
assets, calculated without regard to unrealized gains or losses. The Company is
currently in compliance with these requirements. However, in the event that the
Company is unable to comply with such requirements in the future, it has the
right to reduce the business related to a Subsidiary Capital Account by
retrocession or any other means to the extent necessary to permit the Subsidiary
Capital Account to meet its pro rata share of the Company's required capital and
surplus.
EMPLOYEES
The Company does not have any full-time employees. Rather, the Company relies on
Aon Insurance Managers (Barbados) Ltd. (the "Manager") to handle its day-to-day
operations. (See "Business of the Company -- Insurance Management Agreement,"
below.) In addition, corporate secretarial services for the Company are provided
by Colybrand Company Services Limited of St. Michael, Barbados. The Company's
Board of Directors and the committees thereof, however, remain responsible for
the establishment and implementation of policy decisions.
COMPETITION
The insurance business is extremely competitive. MIC management believes that at
present, MIC and its subsidiaries are, as a group, one of the largest mechanical
repair insurers of new GM vehicles in the United States. There are other major
companies offering similar coverage. Because the insurance business of the
Company is limited to the assumption of certain motor vehicle mechanical service
agreement reinsurance business ceded by MIC, the profitability of the Company
depends to a large degree on the success experi enced by MIC and its affiliates
in competing with those other insurers. Many commercial insurance groups are
seeking to capture additional mechanical insurance business by offering to
assist automobile dealers in the formation of their own dealer-owned reinsurance
companies. MIC has assisted in the establishment of such companies for a number
of qualified dealers. However, MIC believes that participation in the Company
represents a practical alternative for dealers who do not have the available
capital, insurance management expertise or time for the personal involvement
necessary for their own reinsurance company.
INSURANCE MANAGEMENT AGREEMENT
The Company has entered into an Insurance Management Agreement (the "Management
Agreement") with the Manager, pursuant to which the Manager collects and
disburses funds on behalf of the Company, provides accounting, clerical,
telephone, facsimile, information management and other services for the Company,
and advises and consults with the Company in regard to all aspects of the
Company's retrocession activities. The current Management Agreement is for a
continuous term subject to termination by either party upon 90 days advance
written notice.
Pursuant to the Management Agreement, the Manager has undertaken to maintain an
office in Barbados to perform its duties. Further, during the term of the
Management Agreement and generally for a period of one year thereafter, the
Manager has agreed not to provide management or accounting services for any
other company which, by the nature of its operations, is offering, insuring or
reinsuring motor vehicle mechanical service agreements or extended warranty or
related coverages on a multi-state basis in the United States or Canada with
respect to motor vehicles sold by franchised GM dealerships. Under the terms of
the Management Agreement, the Company pays the Manager a fixed annual fee plus a
monthly variable fee based on the number of outstanding series of Shares at each
calendar month end. For the year ended December 31, 1998, the Company incurred
fees payable to the Manager in the amount of $228,968.
The Manager is responsible for the payment of the salaries of its officers and
employees and all office and staff overhead and other costs attributable to its
services on the Company's behalf. However, out-of-pocket expenses, such as
telephone, facsimile, postage, courier delivery, travel and other items are
borne by the Company on an expense reimbursement basis.
The Manager performs services similar to those performed for the Company for
several other entities. The Manager has thirteen employees. In addition, the
Manager may draw upon the resources of its affiliates as needed to provide the
services contemplated under the Management Agreement. No employee of the Manager
devotes all of his or her time to the business of the Company.
However, the Manager is obligated to devote all employee time necessary to
ensure the performance of the Manager's duties under the Management Agreement.
The Manager is subject to the control and direction of the Board.
The Manager has served in that capacity since 1986. The Manager was incorporated
in Barbados in 1984, and is an affiliate of the Aon Group of Companies ("Aon"),
an international insurance brokerage and insurance consulting firm. Aon, through
its subsidiaries, offers and insures motor vehicle mechanical service
agreements, extended warranty and related coverages with respect to vehicles
sold by automobile dealerships in the United States. Under the terms of the
Management Agreement the Manager will treat all information concerning the
business of the Company as confidential and will not disclose such information
to Aon or any Aon affiliate without consent of the Company.
BARBADOS REGULATION AND TAXES
The Company's business is subject to regulation under the Barbados Exempt
Insurance Act, 1983, as amended (the "Exempt Insurance Act"). The principal
requirements of the Exempt Insurance Act require the Company to maintain its
principal office in Barbados, appoint various professional advisors, and to meet
certain capitalization and annual reporting requirements with respect to its
operating activities and solvency requirements.
Under the Exempt Insurance Act, no income tax, capital gains tax or other direct
tax or impost is levied in Barbados on the results of the Company's operations
(except as noted below), or on transfers of securities or assets of the Company
to any person who is not a resident of Barbados. The Company has received a
guarantee from the Minister of Finance of Barbados that such benefits and
exemptions will be available for a period ending December 31, 2031. Until
December 31, 2016 the Company will be required to pay an annual licencing fee,
which is currently $2,500, to obtain such guarantee. Thereafter, the Company
will be subject to tax at a rate of 2% on its taxable income provided that the
amount of such tax will not exceed $2,500 per annum.
Item 2. PROPERTIES
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
The 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.
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, 1998.
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 and requires approval by the
Supervisor of Insurance in Barbados.
(b) All of the common stock of the Company is held by MIC. As of March 1, 1999
there were 545 holders of Shares of record, representing 315 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 February of
1999, February of 1998, March of 1997 and April of 1996, the Company declared
dividends of $4,066,464, $5,171,956, $4,196,730 and $4,007,483 respectively.
These dividends were declared as a varying percentage of earned surplus
attributable to each series of Shares with the percentage applicable depending
on the amount of earned surplus attributable to such series.
(d) The Board considers the minimum regulatory capital requirement, a provision
for fluctuations in the value of the Company's investment portfolio and a
provision for adverse development of loss experience to determine an appropriate
minimum capital level and therefore the amount of dividends to be paid. The
Board's objective is to maintain adequate capital to provide capacity for growth
in premium so that dividends may be paid annually. There can be no assurance
that a prior dividend amount will be paid in the future.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31, 1998,
1997, 1996, 1995 and 1994 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, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998 is included
elsewhere herein.
December 31
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Premiums Assumed $ 72,634,160 $ 57,071,313 $ 47,410,037 $ 44,084,952 $ 38,371,896
============= ============ ============ ============ ============
Premiums Earned $ 57,845,674 $ 45,701,595 36,077,699 $ 28,800,689 $ 21,316,685
Net Investment
Income 10,375,464 5,704,678 5,341,924 5,563,573 1,227,816
------------ ------------ ------------ ------------ ------------
Total Income 68,221,138 51,406,273 41,419,623 34,364,262 22,544,501
Less Losses and
Expenses 61,027,782 43,503,363 33,965,100 27,462,338 20,825,943
------------ ------------ ------------ ------------ ------------
Net Income* $ 7,193,356 $ 7,902,910 $ 7,454,523 $ 6,901,924 $ 1,718,558
============ ============ ============ ============ ============
Dividends Per
Common Share 0 0 0 0 0
Total Assets $139,312,516 $123,065,286 $106,041,164 $ 91,526,976 $ 66,012,284
Total Policy
Reserves and
Other Liabilities 115,786,948 100,999,317 88,479,590 76,350,313 60,246,641
Stockholders' Equity 23,525,568 22,065,969 17,561,574 15,176,663 5,765,643
Dividends Paid on
Participating Shares 5,171,956 4,196,730 4,007,483 1,188,614 2,156,304
*/ 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 decreased to
$16,077,051 in 1998 from $17,304,385 in 1997 and $17,588,199 in 1996. The
Company believes that such funds will be sufficient to meet its liquidity
requirements in 1999 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 $110,243,074 as of December 31,
1998, and $95,454,588 as of December 31, 1997. 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 limited exposure to risk of
loss prior to expiration of the underlying manufacturer's warranty, most premium
is not recognized as earned until such expiration. Since very little premium is
recognized as earned until the expiration of the underlying warranty, most of
the premium written in any year is recorded as unearned.
On February 26, 1999, the Board of Directors authorized the payment of dividends
aggregating $4,066,464 to eligible holders of Participating Shares. 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, 1998, was
comprised of paid-in capital with respect to the Common Stock of $200,000,
paid-in capital with respect to the Shares of $2,362,500 (compared with
$2,115,000 and $1,905,000 as of December 31, 1997 and 1996, respectively), and
earnings retained for use in the business of $20,629,009. 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, 1999, the Company's required minimum net
assets computed in accordance with Barbados law was approximately $6,284,567,
compared to total capital and retained earnings computed for purposes of
Barbados law of $23,191,509.
Results of Operations. During the year ended December 31, 1998, the Company had
net income of $7,193,356 compared to $7,902,910 and $7,454,523 for the years
ended December 31, 1997 and 1996, respectively. As described below, the decrease
in net income during 1998 compared to the previous year was primarily a result
of an underwriting loss which partially offset an increase in investment income.
The increase in net income in 1997 compared to 1996 was primarily a result of an
increase in investment income combined with a modest increase in underwriting
income.
The Company had a net underwriting loss of $3,182,108 in 1998 compared to net
underwriting income of $2,198,232 and $2,112,599 for the years ended December
31, 1997 and 1996, respectively. The net underwriting loss recorded during 1998
reflected an increase in the Company's loss ratio (the ratio of losses incurred
to premiums earned) as more fully described below. The modest increase in
underwriting income during 1997 was the result of an increase in the amount of
premiums earned partially offset by an increase in the loss ratio of the
Company. During 1998, the Company earned premiums of $57,845,674 compared to
$45,701,595 and $36,077,699 during 1997 and 1996, respectively.
Increased premium income has been generated by the issuance of additional series
of Shares during the year ended December 31, 1998, and the continuing flow of
reinsurance premiums from series issued in prior years. During 1998, the Company
issued 37 new series of Shares and redeemed 4 series of Shares for a net
increase of 33 series. There were a total of 315 series outstanding at December
31, 1998 compared to 282 and 254 series of Shares outstanding at December 31,
1997 and 1996, respectively.
The Company incurred losses and administrative expenses during the year ended
December 31, 1998 of $61,027,782 compared with $43,503,363 and $33,965,100 for
the years ended December 31, 1997 and 1996, respectively. Expenses in 1998 were
comprised of losses paid and provisions for losses incurred of $45,552,545,
ceding commissions and excise taxes of $14,919,916 and operating expenses of
$555,321. Losses incurred in 1997 and 1996 were $31,118,622 and $24,037,827
respectively. The loss ratio for the year ended December 31, 1998 was 78.7%
compared to 68.1% and 66.6% for the years ended December 31, 1997 and 1996,
respectively.
The loss ratio in 1998 resulted from loss experience which was heavily
influenced by the type of repairs and price of repaired parts. During the second
and third quarters 1998 unusually hot weather in certain areas of the United
States resulted in a higher number of covered repairs for mechanical components
such as air conditioners and water pumps which contributed to higher loss costs.
Loss experience in 1998 also reflected, in part, implementation of previously
announced increases in suggested list prices of parts to dealers.
The ceding company, MIC, believes that dealer management is a key factor in loss
experience. Many of the dealerships producing mechanical business assumed by the
Company are profitable. At dealerships where loss experience has been
unprofitable, MIC has recently implemented loss cost procedures including
on-site adjusters and/or empowerment restrictions. MIC believes these loss cost
procedures should have a favourable effect on the performance of those
unprofitable accounts. However, there can be no assurance that such results will
be achieved.
The Company incurred operating expenses during the year ended December 31, 1998
of $555,321 compared to $503,020 and $548,525 for the years ended December 31,
1997 and 1996, 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 1998, $69,280 of such costs
were paid directly by MIC compared to $77,329 and $64,848 for the years ended
December 31, 1997 and 1996, respectively.
Investment income in 1998 was $10,375,464 compared to $5,704,678 and $5,341,924
for the years ended December 31, 1997 and 1996, respectively. The increase in
investment income during 1998 arose primarily as a result of increases in gains
on sale of investment securities as more fully described below. The increase in
investment income during 1997 compared to 1996 was attributable to an overall
increase in funds available for investment and somewhat higher yields available
in the U.S. and other global bond markets.
The sale of investment securities for the year ended December 31, 1998 resulted
in realized gains of $4,404,651 compared to realized gains of $750,923 and
$64,244 for the years ended December 31, 1997 and 1996, respectively. The
increases in realized gains during the year under review arose primarily as a
result of increased sales of investment securities to take advantage of market
opportunities presented by uncertainty in the U.S. dollar denominated
international equity markets. Interest earned for the year ended December 31,
1998 was $5,970,813 compared to $4,953,755 and $5,277,680 for the years ended
December 31, 1997 and 1996, respectively. The increase in interest earned during
1998 compared to 1997 was largely a result of an increase in the amount of
assets under management combined with a slight increase in the overall rate of
return. The decrease from 1996 compared to 1997 resulted from lower available
yields.
Unrealized appreciation on investment securities held at December 31, 1998 was
$334,059 compared to unrealized appreciation at December 31, 1997 of $1,135,201.
The decrease in unrealized appreciation as of December 31, 1998 compared to
December 31, 1997 resulted from sales of investment securities during the third
and fourth quarters of 1998 to take advantage of market conditions.
Although at December 31, 1998 and 1997, 100% of the Company's investments were
in U.S. dollar-denominated fixed-income securities, the Company's fixed income
investment manager seeks on occasion to identify non-U.S. dollar-denominated
investments that offer a higher rate of return (net of currency hedging costs)
than would be available in the market for similarly rated U.S.
dollar-denominated bonds. 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. The Company's
investment guidelines do not permit the use of derivatives in managing interest
rate risk.
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, 1998, the Company had furnished such a letter of credit in
the amount of $88,075,000.
In June 1997, the Financial Accounting Standards Board ("FASB") issued a
Statement of Financial Accounting Standards ("FASB") No. 130, Reporting
Comprehensive Income, effective for fiscal years beginning after December 15,
1997. Under this statement all items required to be recognized under accounting
standards as components of comprehensive income must be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company has adopted this accounting standard in 1998. Adopting
the accounting standard has no impact on reported net income of the Company.
Year 2000
Many computerized systems and microprocessors that are used by the Company's
Manager have the potential for operational problems if they lack the ability to
handle the transition to the Year 2000. The effects of the Year 2000 issue are
also complicated by the Company's dependence on its common shareholder, from
whom the Company assumes all of its business, as well as other service providers
such as investment advisors and custodians. The Year 2000 issue has the
potential to cause disruption to the business of the Company and its customers.
In early 1998, the Company initiated communications with its Manager and other
service and technology providers in order to assess and reduce the risk that the
Company's operations could be adversely affected by the failure of these third
parties to adequately address the Year 2000 issue. Motors Insurance Corporation,
the Company's key retroceding company and common shareholder, has completed its
Year 2000 assessment phase and is in the remediation phase with respect to its
critical systems.
The Company does not separately own or license any computers or computer
software applications, instead it has outsourced these functions through an
Insurance Management Agreement. To date, the Company has not incurred, expensed
or capitalized amounts related to the Year 2000 remediation. The Company does
not expect to incur incremental expenses or to forego or delay information
technology projects due to Year 2000. In view of the foregoing, the Company does
not currently anticipate that it will experience a significant disruption of its
business as a result of the Year 2000 issue. However, there is still uncertainty
about the broader scope of the Year 2000 issue as it may affect the Company and
third parties that are critical to the Company's operations. In the event that
the Company or its service providers are unable to complete remedial actions or
are unable to implement adequate contingency plans in the event that problems
are encountered, there could be a material adverse effect on the Company's
business, results of operations or financial condition.
The foregoing Management Discussion and Analysis contains various forward
looking statements within the meaning of applicable federal securities laws and
are based upon the Company's current expectations and assumptions concerning
future events, which are subject to a number of risks and uncertainties that
could cause actual results to differ materially from those anticipated.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
1. Independent Auditors' Report................... 34
2. Balance Sheets, December 31 , 1998 and 1997.... 35
3. Statements of Income and Retained Earnings
for the years ended December 31, 1998,
1997 and 1996 ............................... 36
4. Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 ............ 37
5. Statement of Changes in Shareholders Equity.... 38
5. Notes to Financial Statements.................. 39 - 46
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, 1998 and 1997 and the related statements of
income and retained earnings, and cash flows and changes for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Motors Mechanical Reinsurance Company,
Limited as of December 31, 1998 and 1997 and the results of its operations and
its cash flows and its changes for each of the three years in the period ended
December 31, 1998 in conformity with accounting principles generally accepted in
the United States of America.
s/DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
February 12, 1999
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(Expressed in U.S. Dollars)
Notes 1998 1997
----- ------------ ------------
ASSETS
Investments 3,7 $ 89,474,377 $ 88,585,513
Cash and cash equivalents 7 19,504,563 5,645,482
Accrued investment income 1,788,490 3,178,446
Due (to)/from Motors Insurance Corporation (115,667) 841,927
Deferred acquisition costs 28,660,753 24,813,918
------------ ------------
Total Assets 139,312,516 123,065,286
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums $110,243,074 $ 95,454,588
Loss reserves 4 5,393,818 5,421,160
Accrued liabilities 150,056 123,569
------------ ------------
Total Liabilities 115,786,948 100,999,317
------------ ------------
COMMITMENTS AND CONTINGENCIES 7
STOCKHOLDERS' EQUITY
Share capital 5
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 -
31,500 shares at December 31,
1998 and 28,200 shares at
December 31, 1997 2,362,500 2,115,000
------------ -----------
2,562,500 2,315,000
Retained earnings 8 20,629,009 18,615,768
Accumulated other comprehensive 3
income 334,059 1,135,201
------------ -----------
Total Stockholders' Equity 23,525,568 22,065,969
------------ ------------
Total Liabilities and
Stockholders' Equity $139,312,516 $123,065,286
============ ============
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, 1998, 1997 AND 1996
(Expressed in U.S. Dollars)
Notes Years Ended December 31
----- --------------------------------------------------
1998 1997 1996
----------- ----------- -----------
INCOME
Reinsurance
premiums assumed 6 $72,634,160 $57,071,313 $47,410,037
Increase in
unearned premiums (14,788,486) (11,369,718) (11,332,338)
----------- ----------- -----------
Premiums earned 57,845,674 45,701,595 36,077,699
----------- ----------- -----------
Investment income
Interest earned 5,970,813 4,953,755 5,277,680
Realized gains
on investments - net 4,404,651 750,923 64,244
----------- ----------- -----------
Investment income 10,375,464 5,704,678 5,341,924
----------- ----------- -----------
TOTAL INCOME 68,221,138 51,406,273 41,419,623
----------- ----------- -----------
EXPENSES
Acquisition costs 14,919,916 11,881,721 9,378,748
Losses paid 45,579,887 29,981,766 23,233,857
(Decrease)/Increase
in loss reserves (27,342) 1,136,856 803,970
Administrative expenses
Related Parties 225,922 219,760 211,001
Other 329,399 283,260 337,524
----------- ----------- -----------
TOTAL EXPENSES 61,027,782 43,503,363 33,965,100
----------- ----------- -----------
NET INCOME FOR THE YEAR 7,193,356 7,902,910 7,454,523
RETAINED EARNINGS,
beginning of year 18,615,768 14,913,053 11,517,542
LESS: DIVIDENDS (5,171,956) (4,196,730) (4,007,483)
DEDUCT REDEMPTION OF
PARTICIPATING STOCK (8,159) (3,465) (51,529)
----------- ----------- -----------
RETAINED EARNINGS, end of year $20,629,009 $18,615,768 $14,913,053
=========== =========== ===========
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, 1998, 1997 AND 1996
(Expressed in U.S. dollars)
Years Ended December 31
-----------------------------------------------------
1998 1997 1996
------------ ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Reinsurance premiums collected $67,293,382 $57,014,145 $46,031,997
Losses and acquisition
expenses paid (58,004,044) (42,436,530) (34,302,453)
Administrative expenses paid (581,648) (502,230) (501,147)
Investment income received 7,369,361 3,229,000 6,359,802
----------- ----------- -----------
Net cash provided by operating
activities 16,077,051 17,304,385 17,588,199
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (324,678,378) (318,139,315) (232,194,343)
Sales and maturities of investments 327,393,023 297,544,335 224,400,822
------------ ----------- ------------
Net cash from/(used) in investing
activities 2,714,645 (20,594,980) (7,793,521)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
Participating Stock 277,500 217,500 120,000
Redemption of Participating Stock (38,159) (10,965) (74,029)
Dividends paid (5,171,956) (4,196,730) (4,007,483)
----------- ----------- -----------
Net cash used in financing activities (4,932,615) (3,990,195) (3,961,512)
----------- ----------- -----------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 13,859,081 (7,280,790) 5,833,166
CASH AND CASH EQUIVALENTS, beginning
of year 5,645,482 12,926,272 7,093,106
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
year $19,504,563 $ 5,645,482 $12,926,272
=========== =========== ===========
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income $ 7,193,356 $7,902,910 $ 7,454,523
Realized gains on investments (4,404,651) (750,923) (64,244)
Change in:
Accrued investment income 1,389,956 (1,724,755) 1,079,122
Due from Motors Insurance
Corporation 957,594 2,316,137 (62,477)
Deferred acquisition costs (3,846,835) (2,958,711) (2,948,002)
Unearned premiums 14,788,486 11,369,718 11,332,338
Loss reserves (27,342) 1,136,856 803,970
Accrued liabilities 26,487 13,153 (7,031)
----------- ------------ -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 16,077,051 $ 17,304,385 $ 17,588,199
============ ============ ============
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(Expressed in U.S. Dollars)
December 31, 1998
------------------------------------------------------------------------------------------
Accumulated
Total Other
Shareholders' Comprehensive Retained Comprehensive Common Participating
Equity Income Earnings Income Stock Stock
------ ------ -------- ------ ----- -----
Balance at December 31, 1997 $22,065,969 $ - $18,615,768 $1,135,201 $200,000 $2,115,000
Comprehensive Income:
Net income 7,193,356 7,193,356 7,193,356 - - -
----------
Other comprehensive income,
net of tax:
Unrealized loss on securities-
net of reclassification (801,142) (801,142) - (801,142) - -
----------
Comprehensive income - $6,392,214 - - - -
===========
Dividends declared on participating stock (5,171,956) (5,171,956) - - -
Participating stock
Issued 285,000 - - - 285,000
Redeemed (45,659) (8,159) - - (37,500)
----------- ----------- ---------- --------- -----------
Balance at December 31, 1998 $23,525,568 $20,629,009 $ 334,059 $200,000 $2,362,500
============ ============ ========== ========= ===========
Disclosure of reclassification amount
Unrealized holding gains arising
during period 3,603,509
Less: reclassification adjustment
for gains included in net income (4,404,651)
-----------
Net unrealized loss on securities (801,142)
December 31, 1997
------------------------------------------------------------------------------------------
Accumulated
Total Other
Shareholders' Comprehensive Retained Comprehensive Common Participating
Equity Income Earnings Income Stock Stock
------ ------ -------- ------ ----- -----
Balance at December 31, 1996 $17,561,574 $ - $14,913,053 $ 543,521 $200,000 $1,905,000
Comprehensive Income:
Net income 7,902,910 7,902,910 7,902,910 - - -
----------
Other comprehensive income,
net of tax:
Unrealized loss on securities-
net of reclassification 591,680 591,680 591,680 - -
----------
Comprehensive income - $8,494,590 - - - -
==========
Dividends declared on participating stock (4,196,730) (4,196,730) - - -
Participating Stock
Issued 225,000 - - - 225,000
Redeemed (18,465) (3,465) - - (15,000)
------------ ------------- ----------- --------- -----------
Balance at December 31, 1997 $22,065,969 $18,615,768 $1,135,201 $200,000 $2,115,000
============ ============= =========== ========= ===========
Disclosure of reclassification amount
Unrealized holding gains arising
during period 1,342,603
Less: reclassification adjustment
for gains included in net income (750,923)
------------
Net unrealized gain on securities 591,680
============
December 31, 1996
------------------------------------------------------------------------------------------
Accumulated
Total Other
Shareholders' Comprehensive Retained Comprehensive Common Participating
Equity Income Earnings Income Stock Stock
------ ------ -------- ------ ----- -----
Balance at December 31, 1995 $15,176,663 $ - $11,517,542 $1,651,621 $200,000 $1,807,500
Comprehensive Income:
Net income 7,454,523 7,454,523 7,454,523 - - -
----------
Other comprehensive income,
net of tax:
Unrealized loss on securities-
net of reclassification (1,108,100) (1,108,100) - (1,108,100) - -
-----------
Comprehensive income - $6,346,423 - - - -
===========
Dividends declared on participating stock (4,007,483) (4,007,483) - - -
Participating stock
Issued 120,000 - - - 120,000
Redeemed (74,029) (51,529) - - (22,500)
----------- ------------ ----------- --------- -----------
Balance at December 31, 1996 $17,561,574 $14,913,053 $ 543,521 $200,000 $1,905,000
============ ============ =========== ========= ===========
Disclosure of reclassification amount
Unrealized holding loss arising
during period (1,043,856)
Less: reclassification adjustment
for gains included in net income (64,244)
-----------
Net unrealized loss on securities (1,108,100)
============
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(Expressed in U.S. Dollars)
Note 1. OPERATIONS
The Company is incorporated under the laws of Barbados and is a
licensed insurer under the Exempt Insurance Act, 1983, and amendments
thereto.
All of the common stock of the Company is owned by Motors Insurance
Corporation ("MIC"), a member of the GMAC Insurance Group. MIC is an
indirect wholly-owned subsidiary of General Motors Corporation. The
principal activity of the Company is the assumption of motor vehicle
mechanical service agreements arising under insurance policies
reinsured by MIC and attributable to an MIC Mechanical Account in
respect of which shares of Participating Stock are issued and
outstanding. All premiums received were assumed from MIC.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are stated in United States dollars and
prepared in conformity with accounting principles generally accepted
within 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.
Certain amounts in the 1996 financial statements have been
reclassified to conform with the 1997 and 1998 presentation.
Premium Income and Acquisition Costs
Reinsurance premiums are based on the Company assuming (after ceding
commission) 75% of the original policy premium written by the direct
insurer. Of these reinsurance premiums, 75% is retroceded to the
Company when written and 25% when earned.
Premiums are written on the basis of quarterly cessions and earned
relative to anticipated loss exposures. Acquisition costs, consisting
of ceding commissions and excise taxes, are taken into income on the
basis of premiums earned.
Investments
Investments, all of which are available for sale, 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. Unrealised
appreciation (depreciation) is included in accumulated other
comprehensive income.
Realized gains and losses on the sale of investments are included as
investment income and are calculated based on 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. Thereafter and until December
31, 2031, the Company will be subject to tax at a rate of 2% on its
taxable income provided that the amount of such tax will not exceed
$2,500 per annum.
Stockholders who are United States residents are taxed in the United
States on their share of the Company's income on a deemed distribution
basis.
Earnings Per Share
No amount has been reported as earnings per share as the earnings
applicable to the Participating Stockholders vary with the
underwriting results of each series. Retained earnings applicable to
the Common Stockholder include allocated investment income and
operating expenses and amounts restricted for advances to
Participating Stockholders (see Note 8).
Note 3. INVESTMENTS
The cost and fair value of investments in debt securities are as
follows:
Gross Gross
Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
----------- ------------ ------------ -----------
December 31, 1998:
Foreign governments
and their agencies $27,522,957 $ 43,649 $(290,075) $27,276,531
Corporations 25,150,984 538,236 (2,142) 25,687,078
Supranationals 36,466,377 154,367 (109,976) 36,510,768
----------- ---------- --------- ----------
Total $89,140,318 $ 736,252 $(402,193) $89,474,377
=========== ========== ========= ===========
December 31, 1997:
Foreign governments
and their agencies $27,300,940 $ 524,635 $ (119,450) $27,706,125
Corporations 46,527,723 714,077 (15,881) 47,225,919
Supranationals 13,621,649 31,820 - 13,653,469
----------- ---------- ---------- -----------
Total $87,450,312 $1,270,532 $ (135,331) $88,585,513
=========== ========== ========== ===========
Note 3. INVESTMENTS (Cont'd)
The cost and fair value of debt securities at December 31, 1998, 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 $58,087,649 $57,989,686
Due after five years
through ten years 31,052,669 31,484,691
----------- -----------
$89,140,318 $89,474,377
=========== ===========
In 1998, gross gains of $6,253,358 and gross losses of $1,848,707 were
realized. In 1997, gross gains of $1,494,878 and gross losses of
$743,955 were realized. In 1996, gross gains of $1,997,197 and gross
losses of $1,932,953 were realized.
The following summarizes net unrealized appreciation (depreciation) on
investments:
Balance, December 31, 1995 $ 1,651,621
Net depreciation (1,108,100)
-----------
Balance, December 31, 1996 $ 543,521
Net appreciation 591,680
-----------
Balance, December 31, 1997 $ 1,135,201
Net depreciation (801,142)
-----------
Balance, December 31, 1998 $ 334,059
===========
The investment portfolio is comprised of diverse debt securities which
do not result in any concentration of credit risk. At December 31,
1998, 100% of the Company's investments are denominated in U.S.
dollars.
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.
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, 1998, 1997 and 1996:
1998 1997 1996
---- ---- ----
Beginning balance in
reserves for losses $ 5,421,160 $ 4,284,304 $ 3,480,334
----------- ----------- -----------
Add/(deduct)-provision for
losses incurred related to:
Current claim year 45,843,093 31,904,950 24,080,078
Prior claim years (290,547) (746,024) (42,251)
----------- ----------- -----------
Total 45,552,546 31,158,926 24,037,827
----------- ----------- -----------
Deduct paid losses attributable to:
Current claim year 40,767,738 27,024,981 20,330,269
Prior claim years 4,812,150 2,997,089 2,903,588
---------- ----------- -----------
Total 45,579,888 30,022,070 23,233,857
----------- ----------- ------------
Ending balance in
reserves for losses $ 5,393,818 $ 5,421,160 $ 4,284,304
=========== =========== ===========
As a result of change in estimates of losses incurred in prior years, the
provisions for losses incurred in 1998, 1997 and 1996 decreased by $290,547,
$746,024 and $42,251 respectively, because of lower actual claims.
Note 5. STOCKHOLDERS' EQUITY
All of the Company's Common Stock is held by MIC. A prospectus dated
May 12, 1998 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 1998, 37 additional series of 100 shares of Participating Stock
were issued as compared with 29 for the year ended December 31, 1997.
In addition, in 1998 the Board of Directors redeemed 4 series of 100
shares at the request of the shareholders. The redeemed series had
been previously placed in run off and had reached a fully earned
position during 1998.
In the years ended December 31, 1998, 1997 and 1996, costs in the
amount of $69,280, $77,239 and $64,848 respectively, were incurred in
the sale of Participating Stock. The Common Stockholder reimbursed the
Company directly for these expenses.
The holder of Common Stock is entitled to elect five directors, at
least one of whom must be a resident of Barbados. The holder of Common
Stock has no right to vote with respect to liquidation of the Company.
The holder generally has the sole right to vote on matters not
specifically reserved to Participating Stock.
The holders of Participating Stock as a class are entitled to elect
one director. Generally, liquidation of the Company requires approval
by at least 75% of the outstanding shares of this class. Any
redemption of a series of shares requires a vote of the Board 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, 1998, there were no funds held in escrow.
Note 6. REINSURANCE PREMIUMS
Under the provisions of the retrocession agreement, the Company will
assume additional cessions of $36,747,691 ($31,818,196 at December 31,
1997) relating to premiums written by Motors Insurance Corporation but
unearned at the respective period ends. The amounts will be received
as the premiums are earned, net of related acquisition costs.
Note 7. LETTER OF CREDIT
The Company has provided an irrevocable letter of credit to MIC, in
the amount of $88,075,000 to collateralize the amounts recoverable
from the Company related to the business ceded to it. Cash equivalents
and investments are assigned to collateralize the letter of credit.
Note 8. RETAINED EARNINGS
Items of income or loss and premiums and expenses attributable to
insurance underwriting activities are determined as of the end of each
calendar quarter and are allocated to the Participating Stockholders'
capital accounts.
An amount equal to 1-1/3 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 share's pro rata portion of an
amount equal to twenty percent of the net income, if any, for the
preceding year attributable to the subsidiary capital account
associated with the series of which that share is part.
Barbados law requires that the Company maintain a minimum margin of
solvency based generally on the amount of premiums earned in the
preceding year. At January 1, 1999, the Company's required minimum
stockholders' equity computed in accordance with Barbados law was
approximately $6,284,567.
Retained earnings applicable to the Common and Participating
Stockholders are comprised of the following:
Common Participating Total
----------- ------------- -----------
Balance (Deficit),
December 31, 1995 $ (10,861) $11,528,403 $11,517,542
Net income for the year 14,131 7,440,392 7,454,523
Net transfers 6,147 (6,147) -
Dividends paid - (4,007,483) (4,007,483)
Redemption of participating
stock - (51,529) (51,529)
----------- ------------ ------------
Balance (Deficit),
December 31, 1996 9,417 14,903,636 14,913,053
Net income for the year 12,304 7,890,606 7,902,910
Net transfers (29,881) 29,881 -
Dividends paid - (4,196,730) (4,196,730)
Redemption of participating
stock - (3,465) (3,465)
----------- ------------ ------------
Balance (Deficit)
December 31, 1997 (8,160) 18,623,938 18,615,768
Net income for the year 20,970 7,172,386 7,193,356
Net transfers (21,529) 21,529 -
Dividends paid - (5,171,956) (5,171,956)
Redemption of participating
stock - (8,159) (8,159)
----------- ------------ ------------
Balance (Deficit),
December 31, 1998 $ (8,719) $20,637,728 $20,629,009
=========== ============ ============
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
23, 1998 and one director was elected by the holders of the Shares at such
meeting. The directors and officers of the Company are as follows:
POSITION WITH THE COMPANY
(AND OTHER EMPLOYMENT DURING
NAME AGE PAST FIVE YEARS)
William B. Noll............. 56 Chairman, Chief Executive Officer,
President and Director (President, Motors
Insurance Corporation ("MIC"), 1998;
President, GMAC Insurance Holdings, 1997,
Executive Vice President & Chief Financial
Officer, MIC, 1993-1998; Group Vice-
President, MIC, 1991-1993; Vice President,
MIC, 1989-1990).
Mr. Noll became President and Director in
1995.
Louis S. Carrio, Jr........ 55 Vice-President and Director (Vice-Pres-
ident, MIC).
Mr. Carrio became Vice-President and
Director in 1991.
Bernard J. Buselmeier....... 43 Vice-President and Director (Vice-
President and Treasurer, MIC, March 1993;
Treasurer, MIC, 1989-1993)
Mr. Buselmeier became Vice-President and
Director in 1995.
John J. Dunn, Jr............ 40 Vice-President and Director (Vice
President & Treasurer, MIC, 1998,
Assistant Treasurer, MIC 1995-1998;
previously manager, Coopers & Lybrand,
L.L.P.)
Mr. Dunn became Vice-President and
Director in 1996.
Peter R. P. Evelyn ........ 57 Director (Attorney, Evelyn, Gittens &
Farmer, a Barbados law firm).
Mr. Evelyn became a Director in 1986.
William Bradshaw ......... 49 Director (Bradshaw Automotive Group)
Mr. Bradshaw became a Director in 1998.
Ronald W. Jones ........... 46 Vice-President, Finance (Managing
Director, Aon Insurance Managers
(Barbados) Ltd.).
Mr. Jones has served as Vice-President,
Finance since 1987.
Michael B. Boyce........... 58 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 services as
such. However, each director and officer of the Company is reimbursed for
expenses incurred for attendance at Board, committee, and shareholder meetings.
In addition, Mr. Jones is an officer of the Manager, which receives management
fees and compensation for financial and administrative services. Mr. Evelyn is a
member of the law firm of Evelyn, Gittens & Farmer, which serves as the
Company's Barbados counsel; and Mr. Boyce is affiliated with Colybrand Company
Services Limited, St. Michael, Barbados, which receives compensation for
corporate secretarial services provided to the Company.
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. William Bradshaw, 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
(i) Financial Statements
The following are included in Item 8:
(i) Independent Auditors' Report.
(ii) Balance Sheets, December 31, 1998 and 1997.
(iii)Statements of Income and Retained Earnings for the
years ended December 31, 1998, 1997 and 1996.
(iv) Statements of Cash Flows for the years ended December
31, 1998, 1997, and 1996.
(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 and amendments thereto filed
by reference to Exhibit 3(I) to Quarterly Report on Form 10Q File
No. 33-6534 for the quarterly period ended June 30, 1996.
3(b) By-laws of the Company dated June 6, 1986 filed by reference to
Exhibit 3(b) of the Registration Statement on Form S-1, File No.
33-6534, dated June 18, 1986.
4 Specimen Participating Stock Certificate filed by reference to
Exhibit 4 of Amendment No. 1 to Registration Statement on Form
S-1, File No. 33-6534, dated February 12, 1987.
10(a)Form of Principal Retrocession Agreement between Motors
Insurance Corporation and Registrant filed by reference to
Exhibit 10(a) of the Registration Statement on Form S-1, File No.
33-6534, dated June 18, 1986.
10(b)Form of Supplemental Retrocession Agreement between Motors
Insurance Corporation and Registrant filed by reference to
Exhibit 10(b) of the Registration Statement on Form S-1, File No.
33-6534 dated June 18, 1986.
10(c)Specimen Stock Purchase Agreement filed by reference to Exhibit
10(c) to Amendment No. 2 to Registration Statement on Form S-1,
File No. 33-6534, dated May 22, 1987.
10(d)Amended and Restated Stock Purchase Agreement between Registrant
and Motors Insurance Corporation filed by reference to Exhibit
10(d) to Amendment No. 1 to Registration Statement on Form S-1,
File No. 33-6534, dated February 12, 1987.
10(e)Insurance Management Agreement between Registrant and Aon
(formerly Alexander) Insurance Managers (Barbados) Ltd.,
effective January 1, 1996 filed by reference to Exhibit 10(e) to
Annual Report on Form 10K, File No. 33-6534 for the year ended
December 31, 1996.
10(f)Investment Management Agreement between Registrant and N.M.
Rothschild Asset Management Limited, effective January 26, 1988.
20(a)Proxy solicitation materials sent to shareholders in connection
with annual meeting held on April 23, 1998, filed by reference to
Exhibit 20(b) to Annual Report on Form 10-K, File No. 33-6534,
for the year ended December 31, 1997.
20(b)Proxy solicitation materials sent to shareholders in connection
with annual meeting to be held on April 22, 1999.
27 Financial Data Schedule.
28(c)Certificate of Barbados Residency filed by reference to Exhibit
28(c) to Amendment No. 1 to Registration Statement on Form S-1,
File No. 33-6534, dated June 18, 1986.
99(a)Certification Form filed by reference to Exhibit 28(a) to
Amendment No. 2 to Registration Statement on Form S-1, File No.
33-6534, dated June 18, 1986.
99(b)Guarantee issued by the Minister of Finance of Barbados filed by
reference to Exhibit 99(b) to Amendment No. 2 to Registration
Statement on Form S-2, File No. 33-60105, dated April 23, 1996.
(b) Reports on Form 8-K. No reports on Form 8-K for the quarter ended
December 31, 1998 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 24, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated.
Signature Title Date
--------- ----- ----
s/William B. Noll Chairman, Chief Executive March 26, 1999
- ------------------------- Officer, President and
William B. Noll Director
s/Louis S. Carrio, Jr. Vice-President and March 26, 1999
- ------------------------- Director
Louis S. Carrio, Jr.
s/John J. Dunn, Jr. Vice-President and March 26, 1999
- ------------------------- Director
John J. Dunn, Jr.
s/Bernard J. Buselmeier Vice-President and March 26, 1999
- ------------------------- Director
Bernard J. Buselmeier
- ------------------------- Director
William Bradshaw
s/Peter R. P. Evelyn
- ------------------------- Director March 30, 1999
Peter R. P. Evelyn
s/Ronald W. Jones Vice-President March 24, 1999
- ------------------------- Finance, Principal
Ronald W. Jones Financial and
Accounting Officer
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANT WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
Proxy solicitation materials were sent to shareholders in connection with
the annual meeting held on April 23,1998 and in connection with the 1999 annual
meeting, to be held on April 22, 1999.