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UNITED STATES
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 March 31, 2003
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[ ] 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 March 31, 2003
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Common Stock, no par-value 1,000,000
Participating Stock, 600
2
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
Item 1. Financial Statements
1. Balance Sheets, March 31, 2003 and December 31, 2002.
2. Statements of Operations and Retained Earnings for the
three-month periods ended March 31, 2003 and 2002.
3. Statements of Cash Flows for the three-month periods ended March
31, 2003 and 2002.
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 ended March 31, 2003 may not be
indicative of results for the full year.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
3
INTEGON RE (BARBADOS), LIMITED
BALANCE SHEETS
(Expressed in U.S. Dollars)
March 31, 2003 December 31, 2002
(unaudited) (Audited)
ASSETS
Cash and cash equivalents 1,475,335 1,261,920
Accrued interest income 0 383
Due from Motors Insurance Corporation 140,313 221,477
Due from common shareholder 110,360 97,784
Deferred costs 139,549 140,982
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Total Assets $1,865,557 $1,722,546
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums 406,842 398,793
Reserves for unpaid losses 169,584 74,082
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Total Liabilities 576,426 472,875
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STOCKHOLDERS' EQUITY
Share Capital
Common Stock-no par value;
Authorized - unlimited
shares; issued and
outstanding - 1,000,000
shares at March 31, 2003
and December 31, 2002 $1,000,000 $1,000,000
Participating Stock
Authorized - unlimited
shares; issued and
outstanding - 600 shares
at March 31, 2003 and
December 31, 2002 150,000 150,000
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1,150,000 1,150,000
Retained Earnings 139,131 99,671
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Total Stockholders' Equity 1,289,131 1,249,671
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Total Liabilities and Stockholders' Equity $1,865,557 $1,722,546
========== ==========
4
INTEGON RE (BARBADOS), LIMITED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE
MONTH PERIODS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(Expressed in U.S. Dollars)
Three Month Periods
Ended March 31,
2003 2002
INCOME
Reinsurance premiums assumed $ 311,513 $ 0
(Increase)/Decrease in unearned premium (8,049) 0
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Premiums earned 303,464 0
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INTEREST INCOME 1,996 2,370
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TOTAL INCOME 305,460 2,370
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EXPENSES
Acquisition and other costs 105,399 0
Losses paid 65,099 0
Increase in loss reserves 95,502 0
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TOTAL EXPENSES 266,000 0
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NET INCOME 39,460 2,370
RETAINED EARNINGS, beginning of
period 99,671 76,262
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RETAINED EARNINGS, end of period $ 139,131 $ 78,632
========== ========
5
INTEGON RE (BARBADOS), LIMITED
STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 2003 AND 2002
UNAUDITED
(Expressed in U.S. Dollars)
Three Month Periods
Ended March 31,
2003 2002
----------- -------------
Cash flows from operating activities:
Reinsurance premiums received $ 223,612 $ -
Administrative expenses paid and
recoverable (12,576) (5,339)
Interest income received 2,379 2,278
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Net cash provided by/(used in) operating
activities 213,415 (3,061)
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Increase in cash and cash equivalents 213,415 (3,061)
Cash and cash equivalents,
beginning of period 1,261,920 1,012,372
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Cash and cash equivalents,
end of period $ 1,475,335 $ 1,009,311
============ =============
Reconciliation of net income to net cash
provided by/(used in) operating
activities:
Net income $ 39,460 $ 2,370
Change in:
Accrued interest income 383 (92)
Due from Motors Insurance Corporation 81,164 0
Due from common shareholder (12,576) (5,339)
Deferred expenses 1,433 0
Unearned premiums 8,049 0
Reserves for unpaid losses 95,502 0
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Net cash provided by/(used in) operating
activities $ 213,415 $ (3,061)
============ =============
6
Item 2. Management's Discussion And Analysis of Financial Condition And Results
of Operations
The Company's 2002 Form 10K should be read in conjunction with the following
discussion since they contain important information for evaluating the Company's
operating results and financial condition.
Critical Accounting Policies
During the quarter ended March 31, 2003, 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, 2002.
Liquidity
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 2003 and in future years to
which its reinsurance liabilities will extend. No capital expenditures are
expected during the next few years.
Capital Resources
The Company's capitalization on March 31, 2003, was $1,289,131 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 $139,131. The Company's
capitalization on December 31, 2002, was $1,249,671 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 $99,671.
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; or (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.
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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.
Results of Operations
The Company has entered a Retrocession Agreement ("Retrocession Agreement") with
Motors Insurance Corporation ("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"). 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, 2002.
During the quarter ended March 31, 2003, the Company had net income of $39,460
compared with net income of $2,370 for the comparable period in 2002. The
Company assumed premiums of $311,513, earned premiums of $303,464 and incurred
expenses of
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$266,000, producing net underwriting income of $37,364. For the quarter, the
Company's incurred loss ratio was 52.9% and the combined ratio was 87.7%.
Because the Company did not commence operations until the quarter ended
September 30, 2002, it had no earned premiums, incurred expenses or underwriting
income for the comparable period of 2002.
Interest income for the quarter ended March 31, 2003 was $1,996, compared to
$2,370 for the comparable period of 2002. The Company's interest income consists
of interest earned on short term bank certificates of deposit. The decrease in
interest income for the quarter under review compared to the comparable period
of 2002 is attributable to reductions in the rate of interest received on the
Company's investments.
Reserves for Unpaid Losses
Reserves for unpaid losses are balance sheet liabilities representing estimates
of amounts needed in the future to pay claims under Policies 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 Integon Corporation. Loss reserves are established after periodic actuarial
reviews, based on historical claim experience, industry statistics and other
factors. Consequently, the determination of loss reserves is an estimate and a
process inherently subject to a number of highly variable factors. Consequently,
ultimate losses could exceed loss reserves and cause us to have to adjust our
loss reserves. 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 business for the three month period ended March 31, 2003
was 52.9%. At March 31, 2003, the reserves for unpaid losses was $169,584.
March 31, 2003 March 31, 2002
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Beginning Balance in Reserves for
Unpaid Losses 74,082 0
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10
Add: Provision for
Losses Incurred related to:
Current Year Claims 134,081 0
Prior Year Claims 26,520 0
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Total 160,601 0
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Less: Paid Losses attributable to:
Current Year Claims 30,465 0
Prior Year Claims 34,634 0
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Ending Balance in Reserves for Unpaid
Losses 169,584 0
============== ==============
Total $ 65,099 $ 0
============== ==============
Net loss reserves added for claims incurred in the quarter were $103,616,
including $43,996 for estimated incurred but not reported (IBNR) claims. Net
loss reserves for claims incurred prior to 2003 were reduced by $8,114, which
means that less was paid out than expected relative to loss reserve amounts
set-up previously for such claims. No change in loss reserves were recorded in
the comparable quarter of 2002 as operations of the company did not begin until
August 2002.
Forward Looking Statements
This document contains "forward-looking statements" that anticipate results
based on management's plans that are subject to uncertainty. These statements
are made subject to the safe-harbor provisions of the Private Securities
Litigation Reform Act of 1995.
Forward-looking statements do not relate strictly to historical or current facts
and may be identified by their use of words like "plans," "will," "anticipates,"
"estimates," "intends," "believes" and other words with similar meanings. These
statements may address, among other things, our strategy for growth, product
development, regulatory approvals, market position, expenses, financial results
and reserves. Forward-looking statements are based on management's current
11
expectations of future events. We cannot guarantee that any forward-looking
statement will be accurate. However, we believe that our forward-looking
statements are based on reasonable, current expectations and assumptions.
Whether or not actual results differ materially from forward-looking statements
may depend on numerous foreseeable and unforeseeable risks and uncertainties,
some of which relate particularly to our business, such as our ability to set
adequate premium rates and maintain adequate reserves, our ability to compete
effectively and our ability to grow our business through internal growth as well
as though acquisitions. Other risks and uncertainties may be related to the
insurance industry generally or the overall economy, such as regulatory
developments, industry consolidation and general economic conditions and
interest rates. We assume no obligation to update any forward-looking statements
as a result of new information or future events or developments.
If the expectations or assumptions underlying our forward-looking statements
prove inaccurate or if risks or uncertainties arise, actual results could differ
materially from those predicted in our forward-looking statements.
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 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
Principal Financial Officer evaluated, with the participation of the Company's
management, the effectiveness of the Company's disclosure controls and
procedures. Based on that evaluation, which disclosed no significant
deficiencies or material weakness, the Company's Chief Executive Officer and
Chief Financial Officer concluded that he Company's disclosure
12
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
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) No reports on Form 8-K were filed during the quarter for which this report
is filed.
13
SIGNATURES
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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: May 13, 2003
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: May 13, 2003 /s/ Gary Y. Kusumi
----------------------------
Gary Y. Kusumi
Chairman, Chief Executive
Officer, President and Director
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
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: May 13, 2003 /s/ Ronald W. Jones
---------------------------
Ronald W. Jones
Vice-President, Finance and
Principal Financial Officer