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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For quarterly period ended September 30, 2002
---------------------------------
Transition report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934
For the transition period from to
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Commission File Number 333-34088
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Integon Re (Barbados), Limited
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(Exact name of registrant as specified in its charter)
Barbados N/A
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Financial Place, Collymore Rock, St. Michael, Barbados N/A
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(Address of principal executive offices) (Zip Code)
(246) 436-4895
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes No X
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class As of September 30, 2002
Common Stock, no par-value 1,000,000
Participating Stock, 600
This quarterly report, filed pursuant to Rule 13a-13 of the General
Rules and Regulations under the Securities Exchange Act of 1934, consists of the
following information as specified in Form 10-Q:
Part I. FINANCIAL INFORMATION
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Item 1. Financial Statements
1. Balance Sheets, September 30, 2002 and December 31, 2001.
2. Statements of Operations and Retained Earnings for the
three-month periods ended September 30, 2002 and 2001 and
nine-month periods ended September 30, 2002 and 2001.
3. Statements of Cash Flows for the nine-month periods ended
September 30, 2002 and 2001.
In the opinion of Management, the accompanying financial statements reflect all
adjustments, consisting of normal recurring accruals, which are necessary for a
fair presentation of the results for the interim periods presented. The
information furnished for the three-month and nine-month periods ended September
30, 2002 may not be indicative of results for the full year.
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INTEGON RE (BARBADOS), LIMITED
BALANCE SHEETS
(Expressed in U.S. Dollars)
September 30,
2002 December 31, 2001
(unaudited) (Audited)
------------------- -------------------
ASSETS
Cash and cash equivalents 1,145,841 1,012,372
Accrued interest income 334 86
Due from Motors Insurance Corporation 124,174 0
Due from common shareholder 87,169 63,804
Deferred acquisition costs 59,786 0
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Total Assets $ 1,417,304 $ 1,076,262
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums 165,450 0
Reserves for unpaid losses 16,710 0
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Total Liabilities 182,160 0
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STOCKHOLDERS' EQUITY
Share Capital
Common Stock-no par value;
Authorized - unlimited
shares; issued and
outstanding - 1,000,000
shares at September 30,
2002 and December 31,
2001 $ 1,000,000 $ 1,000,000
Participating Stock
Authorized - unlimited
shares; issued and
outstanding - 600 shares
at September 30, 2002
and nil shares at
December 31, 2001 150,000 0
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1,150,000 1,000,000
Retained Earnings 85,144 76,262
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Total Stockholders' Equity 1,235,144 1,076,262
Total Liabilities and
Stockholders' Equity $ 1,417,304 $ 1,076,262
=================== ===================
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INTEGON RE (BARBADOS), LIMITED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE
THREE MONTH PERIODS ENDED SEPTEMBER 30,
2002 AND 2001 AND THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(Expressed in U.S. Dollars)
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
2002 2001 2002 2001
INCOME
Premiums earned $ 29,473 $ 0 $ 29,473 $ 0
Interest earned 2,123 7,482 7,082 29,495
--------- --------- --------- ---------
TOTAL INCOME 31,596 7,482 36,555 29,495
--------- --------- --------- ---------
EXPENSES
Acquisition costs 10,963 0 10,963 0
Increase in loss reserves 16,710 0 16,710 0
--------- --------- --------- ---------
TOTAL EXPENSES 27,673 0 27,673 0
--------- --------- --------- ---------
NET INCOME 3,923 7,482 8,882 29,495
RETAINED EARNINGS,
beginning of
period 81,221 65,680 76,262 43,667
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RETAINED EARNINGS, end of period $ 85,144 $ 73,162 $ 85,144 $ 73,162
========= ========= ========= =========
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INTEGON RE (BARBADOS), LIMITED
STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2002 AND 2001
UNAUDITED
(Expressed in U.S. Dollars)
Nine Month Periods
Ended September 30,
2002 2001
Cash flows from operating activities:
Administrative expenses paid and
recoverable $ (23,365) $ (18,670)
Interest income received 6,834 29,857
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Net cash (used in)/provided by operating
activities (16,531) 11,187
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Cash flows from financing activities:
Proceeds from issuance of
Participating Stock 150,000 0
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Net cash provided by financing activities 150,000 0
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Increase in cash and cash equivalents 133,469 11,187
Cash and cash equivalents,
beginning of period 1,012,372 1,005,501
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Cash and cash equivalents,
end of period $ 1,145,841 $ 1,016,688
============== =============
Reconciliation of net income to net cash
(used in)/provided by operating
activities:
Net income $ 8,882 $ 29,495
Change in:
Accrued interest income (248) 362
Due from Motors Insurance Corporation (124,174) 0
Due from common shareholder (23,365) (18,670)
Deferred acquisition expenses (59,786) 0
Unearned premiums 165,450 0
Reserves for unpaid losses 16,710 0
-------------- -------------
Net cash (used in)/provided by operating
activities $ (16,531) $ 11,187
============== =============
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Item 2. Management's Discussion And Analysis of Financial Condition And Results
of Operations
Critical Accounting Policies. During the quarter ended September 30, 2002, the
Company made no changes in its critical accounting policies as previously
disclosed within the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
Liquidity
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The Company was incorporated on March 20, 2000 and commenced operations during
the quarter ended September 30, 2002. Its liquidity requirements relate 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 the Company's Participating Shares, are
its principal sources of funds. The Company believes that such funds will be
sufficient to meet its liquidity requirements in 2002 and in future years to
which its reinsurance liabilities will extend. No capital expenditures are
expected during the next few years.
Capital Resources
- -----------------
During the quarter ended September 30, 2002, 6 series of Participating Shares
were issued. Prior to the quarter under review, the Company had not issued any
Participating Shares. The Company's capitalization on September 30, 2002, was
$1,235,144 consisting of paid in capital with respect to the Common Stock of
$1,000,000 and paid in capital with respect to the Participating Shares of
$150,000, and earnings retained for use in its business in the amount of
$85,144. The Company's capitalization on December 31, 2001, was $1,076,262
consisting of paid in capital with respect to the Common Stock of $1,000,000 and
earnings retained for use in its business in the amount of $76,262.
Barbados insurance law requires that the Company maintain a minimum
capitalization of $125,000 and, in addition, that the recorded value of the
Company's assets exceed its liabilities by: (a) $125,000 where the Company's
earned premium in the preceding financial year did not exceed $750,000; (b) an
amount equal to 20% of the Company's earned premium for the preceding financial
year, where such income exceeded $750,000 but did not exceed $5,000,000; and (c)
an amount equal to the aggregate of $1,000,000 and 10% of the amount by which
the Company's earned premium for the preceding financial year exceeded
$5,000,000. If the Company's net assets are less than mandated by Barbados law,
the Company has the right to reduce the business related to
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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.
Results of Operations
- ---------------------
During the quarter ended Septmber 30, 2002, the Company's Retrocession Agreement
("Retrocession Agreement") with Motors Insurance Company ("MIC"), pursuant to
which MIC retrocedes to the Company, a portion of MIC's risks in respect of
certain automobile and motorcycle insurance policies reinsured by MIC (the
"Policies") became effective. Under the Retrocession Agreement, MIC retrocedes
to the Company a portion (the "Retrocession Percentage") of MIC's risk in
respect of the Policies to the extent the Policies are attributable to an
Integon Account in respect of which a series of Participating Shares is issued,
outstanding and in good standing, and the policies are issued or renewed after
the effective date of the Retrocession Agreement. The amount of the Company's
liability for any loss paid on a Policy is equal to the Retrocession Percentage
multiplied by the amount of the loss. The Company's loss exposure is generally
not capped. The Retrocession Percentage, which can be either 20%, 30%, 40% or
50%, is established with respect to each series of Participating Shares. In
return for the Company assuming the risk retroceded to it by MIC under the
Retrocession Agreement, MIC pays the Company an amount equal to the Retrocession
Percentage multiplied by the gross premiums MIC receives with respect to the
retroceded business, after cancellations, reduced by:
(i) a ceding commission which is equal to the amount of such premiums
multiplied by 26.5%, reduced by the amount of certain service fees
paid to MIC;
(ii) any related agents' or brokers' commissions; and
(iii)any U.S. premium excise tax imposed on such premiums.
Settlements between MIC and the Company with respect to all amounts under the
Retrocession Agreement are made on a quarterly basis. This discussion of the
Retrocession Agreement should be read in conjunction with the discussion of the
Retrocession Agreement contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001.
Because the Company did not commence operations until the quarter ended
September 30, 2002, its only income prior to the quarter under review consisted
of interest income that it earned on paid in capital with respect to the Common
Stock. During the
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quarter ended September 30, 2002, the Company had net income of $3,923 compared
with net income of $7,482 for the comparable period in 2001. For the nine month
period ended September 30, 2002, the Company had net income of $8,882 compared
with net income of $29,495 for the comparable period in 2001. As discussed
below, the decreases in net income for the quarter and nine month periods ended
September 30, 2002 compared to the comparable periods of 2001 were primarily a
result of decreases in interest income which offset underwriting income earned
during the quarter under review.
During both the quarter and nine month periods ended September 30, 2002, the
Company had earned premiums of $29,473 and incurred expenses of $27,673,
producing net underwriting income of $1,800. Because the Company did not
commence operations until the quarter under review, it had no earned premiums,
incurred expenses or underwriting income for the comparable periods of 2001.
Interest income for the quarter ended September 30, 2002 was $2,123, compared to
$7,482 for the comparable period of 2001. Interest income for the nine month
period ended September 30, 2002 was $7,082, compared to $29,495 for the
comparable period of 2001. The Company's interest income consists of interest
earned on short term bank certificates of deposit. The decrease in interest
income for the quarter and nine month period under review compared to the
comparable periods of 2001 is attributable to reductions in the rate of interest
received on the Company's investments.
Forward Looking Statements
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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 4. Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the specified time periods. In designing and evaluating the
disclosure controls and procedures, management recognizes that
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any controls and procedures, no matter how well designed and executed, can
provide only reasonable assurance of achieving the desired control objectives.
Within the 90 days prior to the date of this report, the Company's Chief
Executive Officer and Chief Financial Officer evaluated, with the participation
of the Company's management, the effectiveness of the Company's disclosure
controls and procedures. Based on the evaluation, which disclosed no significant
deficiencies or material weakness, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to the evaluation.
Part II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGON RE (BARBADOS), LIMITED (Registrant)
By: s/Ronald W. Jones
------------------
Ronald W. Jones
Vice President, Finance
Signing on behalf of
the Registrant, and
Principal Financial Officer
Dated: November 14, 2002
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CERTIFICATIONS
I, Gary Y. Kusumi, Chief Executive Officer of Integon Re (Barbados), Limited,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Integon Re (Barbados),
Limited;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: Nov. 14, 2002 s/ Gary Y. Kusumi
--------------------- ---------------------------
Gary Y. Kusumi
Chairman, Chief Executive
Officer, President and
Director
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I, Ronald W. Jones, Principal Financial Officer of Integon Re (Barbados),
Limited, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Integon Re (Barbados),
Limited;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data
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and have identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: Nov. 14, 2002 s/ Ronald W. Jones
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Ronald W. Jones
Vice-President, Finance
and Principal Financial
Officer
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