PURCHASE, N.Y.–(BUSINESS WIRE)–MBIA Inc. (NYSE:MBI) (the Company) today reported a consolidated GAAP
net loss of $17 million, or $(0.20) per diluted common share, for the
first quarter of 2019 compared to a consolidated GAAP net loss of $98
million, or $(1.12) per diluted common share, for the first quarter of
2018. The improved result was primarily due to the favorable variance of
$110 million in loss and loss adjustment expense, which was largely due
to the higher present-value of insurance recoveries on Puerto Rico
credits.
Book value per share was $13.16 as of March 31, 2019 compared with
$12.46 as of December 31, 2018. The increase in book value per share
since year-end 2018 was primarily due to unrealized gains on fixed
income investments resulting from lower interest rates.
The Company also reported Adjusted Net Income (a non-GAAP measure
defined in the attached Explanation of Non-GAAP Financial Measures) of
$39 million or $0.45 per diluted share for the first quarter of 2019
compared with an Adjusted Net Loss of $61 million or $(0.69) per diluted
share for the first quarter of 2018. The favorable comparison was
primarily due to the favorable variance of loss and loss adjustment
expense, which was largely due to the higher present-value of insurance
recoveries on Puerto Rico credits. In addition, the 2019 Adjusted Net
Income includes a $13 million loss for variable interest entities (VIEs)
that were consolidated by National Public Finance Guarantee Corporation
(National) during the first quarter of 2019 in connection with the
restructuring of the COFINA exposure insured by National. As the Company
does not own these VIEs and their consolidation does not properly
represent the company’s insurance liability on its COFINA exposure, MBIA
management removes the impact of these VIE consolidations for its
internal use of Adjusted Net Income (Loss).
Adjusted Net Income (Loss) provides investors with views of the
Company’s operating results that management uses in measuring financial
performance. Reconciliations of Adjusted Net Income (Loss) to net
income, calculated in accordance with GAAP, are also attached.
Historically, the Company has also presented Adjusted Book Value (“ABV”)
as a non-GAAP measure of financial performance, but beginning this
quarter, based on the SEC’s continued and evolving interpretations of
its guidance on non-GAAP financial measures, the Company will no longer
publicly disclose its internal ABV measurement. However, we will
continue to present the individual adjustments used by management to
calculate its internal ABV metric in the attached financial tables.
Statement from Company Representative
Bill Fallon, MBIA’s Chief Executive Officer noted, “The restructuring of
the Puerto Rico COFINA debt had a modest impact on our first quarter
financial results and yielded a 31 percent reduction in National’s
COFINA insurance exposure. It also provided court validation to a
substantial revenue source for the repayment of the new COFINA2 bonds.”
MBIA Inc.
As of March 31, 2019, MBIA Inc.’s liquidity position totaled $486
million, up $29 million from December 31, 2018. During the first quarter
of 2019, $56 million of National’s 2016 tax payment was released to MBIA
Inc. from the tax escrow facility in the form of cash.
During the first quarter of 2019, National purchased 0.5 million shares
of MBIA Inc. common stock at an average price of $8.94 per share. As of
May 1, 2019, there was $198 million remaining under the Company’s $250
million share repurchase authorization and 90.2 million of the Company’s
common shares were outstanding.
National Public Finance Guarantee Corporation
National had statutory capital of $2.6 billion and claims-paying
resources totaling $3.8 billion as of March 31, 2019. National’s total
fixed income investments plus cash and cash equivalents had a
book/adjusted carrying value of $3.1 billion as of March 31, 2019.
National’s insured portfolio declined by $2 billion during the quarter,
ending the quarter with $56 billion of gross par outstanding. National
ended the quarter with a leverage ratio of gross par to statutory
capital of 22 to 1, down from 23 to 1 as of year-end 2018.
MBIA Insurance Corporation
The statutory capital of MBIA Insurance Corporation as of March 31, 2019
was $575 million and claims-paying resources totaled $1.3 billion. As of
March 31, 2019, MBIA Insurance Corporation’s liquidity position
(excluding resources from its subsidiary and branch) totaled $165
million consisting primarily of cash and cash equivalents and liquid
short-term invested assets.
Conference Call
The Company will host a webcast and conference call for investors
tomorrow, Thursday, May 9, 2019 at 8:00 AM (ET) to discuss its first
quarter 2019 financial results and other matters relating to the
Company. The webcast and conference call will consist of brief remarks
followed by a question and answer session.
The dial-in number for the call is (877) 694-4769 in the U.S. and (404)
665-9935 from outside the U.S. The conference call code is 6459449. A
live webcast of the conference call will also be accessible on www.mbia.com.
A replay of the conference call will become available approximately two
hours after the completion of the call and will remain available until
11:59 p.m. on May 23 by dialing (800) 585-8367 in the U.S. or (404)
537-3406 from outside the U.S. The code for the replay of the call is
6459449. In addition, a recorded replay of the call will become
available on the Company’s website approximately two hours after the
completion of the call.
Forward-Looking Statements
This release includes statements that are not historical or current
facts and are “forward-looking statements” made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. The words “believe,, “anticipate,” “project,” “plan,” “expect,”
“estimate,” “intend,” “will,” “will likely result,” “looking forward,”
or “will continue,” and similar expressions identify forward-looking
statements. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected,
including, among other factors, the possibility that MBIA Inc. or
National will experience increased credit losses or impairments on
public finance obligations issued by state, local and territorial
governments and finance authorities that are experiencing unprecedented
fiscal stress; the possibility that loss reserve estimates are not
adequate to cover potential claims; MBIA Inc.’s or National’s ability to
fully implement their strategic plan; and changes in general economic
and competitive conditions. These and other factors that could affect
financial performance or could cause actual results to differ materially
from estimates contained in or underlying MBIA Inc.’s or National’s
forward-looking statements are discussed under the “Risk Factors”
section in MBIA Inc.’s most recent Annual Report on Form 10-K and
Quarterly Report on Form 10-Q, which may be updated or amended in MBIA
Inc.’s subsequent filings with the Securities and Exchange Commission.
MBIA Inc. and National caution readers not to place undue reliance on
any such forward-looking statements, which speak only to their
respective dates. National and MBIA Inc. undertake no obligation to
publicly correct or update any forward-looking statement if it later
becomes aware that such result is not likely to be achieved.
MBIA Inc., headquartered in Purchase, New York is a holding company
whose subsidiaries provide financial guarantee insurance for the public
and structured finance markets. Please visit MBIA’s website at www.mbia.com.
Explanation of Non-GAAP Financial Measures
The following are explanations of why the Company believes that the
non-GAAP financial measures used in this press release, which serve to
supplement GAAP information, are meaningful to investors.
Book value adjustments: Management adjusts GAAP book value
to remove the book value of MBIA Corp. and for certain items which the
Company believes will reverse from GAAP book value through GAAP earnings
and comprehensive income, as well as add in the impact of certain items
which the Company believes will be realized in GAAP book value in future
periods. The Company has limited such adjustments to those items that it
deems to be important to fundamental value and performance and for which
the likelihood and amount can be reasonably estimated. The following
provides a description of management’s adjustments to GAAP book value:
-
Negative Book value of MBIA Corp. – We remove the negative book
value of MBIA Corp. based on our view that given MBIA Corp.’s current
financial condition, the regulatory regime in which it operates, the
priority given to its policyholders, surplus note holders and
preferred stock holders with respect to the distribution of assets,
and its legal structure, it is not and will not likely be in a
position to upstream any economic benefit to MBIA Inc. Further, MBIA
Inc. does not face any material financial liability arising from MBIA
Corp. -
Net unrealized (gains) losses on available-for-sale (“AFS”)
securities excluding MBIA Corp. – We remove net unrealized gains
and losses on AFS securities recorded in accumulated other
comprehensive income since they will reverse from GAAP book value when
such securities mature. Gains and losses from sales and OTTI of AFS
securities are recorded in book value through earnings. -
Net unearned premium revenue in excess of expected losses of
National – We include net unearned premium revenue in excess of
expected losses. Net unearned premium revenue in excess of expected
losses consists of the financial guarantee unearned premium revenue of
National in excess of expected insurance losses, net of reinsurance
and deferred acquisition costs. In accordance with GAAP, a loss
reserve on a financial guarantee policy is only recorded when expected
losses exceed the amount of unearned premium revenue recorded for that
policy. As a result, we only add to GAAP book value the amount of
unearned premium revenue in excess of expected losses for each policy
in order to reflect the full amount of our expected losses. The
Company’s net unearned premium revenue will be recognized in GAAP book
value in future periods, however, actual amounts could differ from
estimated amounts due to such factors as credit defaults and policy
terminations, among others. -
Gain (loss) related to National VIE consolidations – We remove
the impact of VIE consolidations by National. GAAP requires the
Company to consolidate certain VIEs as a result of the Company’s
insurance policies. However, since the Company does not own such VIEs,
management uses certain measures adjusted to remove the impact of VIE
consolidations for National in order to reflect financial exposure
limited to its financial guaranty contracts.
Claims-paying Resources (CPR): CPR is a key measure of the
resources available to National and MBIA Corp. to pay claims under their
respective insurance policies. CPR consists of total financial resources
and reserves calculated on a statutory basis. CPR has been a common
measure used by financial guarantee insurance companies to report and
compare resources and continues to be used by MBIA’s management to
evaluate changes in such resources. The Company has provided CPR to
allow investors and analysts to evaluate National and MBIA Corp. using
the same measure that MBIA’s management uses to evaluate their resources
to pay claims under their respective insurance policies. There is no
directly comparable GAAP measure.
Adjusted Net Income (Loss): Adjusted Net Income (Loss) is a
useful measurement of performance because it measures income from the
Company excluding its international and structured finance insurance
segment, which is not part of our ongoing business strategy. Also
excluded from Adjusted Net Income (Loss) are investment portfolio
realized gains and losses, gains and losses on financial instruments at
fair value and foreign exchange, and realized gains and losses on
extinguishment of debt. Adjusted Net Income (Loss) eliminates the tax
provision (benefit) as a result of a full valuation allowance against
the Company’s net deferred tax asset. Trends in the underlying
profitability of the Company’s businesses can be more clearly identified
without the fluctuating effects of the excluded items previously noted.
Adjusted Net Income (Loss) as defined by the Company does not include
all revenues and expenses required by GAAP. Adjusted Net Income (Loss)
is not a substitute for and should not be viewed in isolation from GAAP
net income.
Adjusted Net Income (Loss) per share represents that amount of Adjusted
Net Income (Loss) allocated to each fully diluted weighted-average
common share outstanding for the measurement period.
MBIA management further adjusts Adjusted Net Income (Loss) and Adjusted
Net Income (Loss) per share by removing the impact of our U.S. public
finance insurance segment VIE consolidations. GAAP requires the Company
to consolidate certain VIEs that have issued debt obligations insured by
the Company. However, since the Company does not own such VIEs,
management uses certain measures that remove the impact of VIE
consolidations for our U.S. public finance insurance segment in order to
reflect financial exposure limited to its financial guaranty contracts.
| MBIA INC. AND SUBSIDIARIES | |||||||||||||
| CONSOLIDATED BALANCE SHEETS (Unaudited) | |||||||||||||
| (In millions except share and per share amounts) | |||||||||||||
| March 31, 2019 | December 31, 2018 | ||||||||||||
| Assets | |||||||||||||
| Investments: | |||||||||||||
|
Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $3,415 and $3,601) |
$ | 3,458 | $ | 3,565 | |||||||||
| Investments carried at fair value | 231 | 222 | |||||||||||
|
Investments pledged as collateral, at fair value (amortized cost $7 and $46) |
3 | 43 | |||||||||||
| Short-term investments, at fair value (amortized cost $407 and $241) | 407 | 241 | |||||||||||
| Other investments at amortized cost | 1 | 1 | |||||||||||
| Total investments | 4,100 | 4,072 | |||||||||||
| Cash and cash equivalents | 132 | 222 | |||||||||||
| Premiums receivable | 293 | 296 | |||||||||||
| Deferred acquisition costs | 69 | 74 | |||||||||||
| Insurance loss recoverable | 1,583 | 1,564 | |||||||||||
| Other assets | 161 | 122 | |||||||||||
| Assets of consolidated variable interest entities: | |||||||||||||
| Cash | 31 | 58 | |||||||||||
|
Investments held-to-maturity, at amortized cost (fair value $948 and $925) |
890 | 890 | |||||||||||
| Investments carried at fair value | 861 | 157 | |||||||||||
| Loans receivable at fair value | 206 | 172 | |||||||||||
| Loan repurchase commitments | 420 | 418 | |||||||||||
| Other assets | 32 | 31 | |||||||||||
| Total assets | $ | 8,778 | $ | 8,076 | |||||||||
| Liabilities and Equity | |||||||||||||
| Liabilities: | |||||||||||||
| Unearned premium revenue | $ | 544 | $ | 587 | |||||||||
| Loss and loss adjustment expense reserves | 806 | 934 | |||||||||||
| Long-term debt | 2,284 | 2,249 | |||||||||||
|
Medium-term notes (includes financial instruments carried at fair value of $106 and $102) |
721 | 722 | |||||||||||
| Investment agreements | 313 | 311 | |||||||||||
| Derivative liabilities | 199 | 199 | |||||||||||
| Other liabilities | 152 | 198 | |||||||||||
| Liabilities of consolidated variable interest entities: | |||||||||||||
|
Variable interest entity notes (includes financial instruments carried at fair value of $1,325 |
|||||||||||||
| and $480) | 2,558 | 1,744 | |||||||||||
| Total liabilities | 7,577 | 6,944 | |||||||||||
| Equity: | |||||||||||||
|
Preferred stock, par value $1 per share; authorized shares–10,000,000; issued and outstanding–none |
– | – | |||||||||||
|
Common stock, par value $1 per share; authorized shares–400,000,000; issued shares–283,625,689 |
|||||||||||||
| and 283,625,689 | 284 | 284 | |||||||||||
| Additional paid-in capital | 2,996 | 3,025 | |||||||||||
| Retained earnings | 949 | 966 | |||||||||||
|
Accumulated other comprehensive income (loss), net of tax of $4 and $8 |
(74 | ) | (156 | ) | |||||||||
| Treasury stock, at cost–193,446,168 and 193,803,976 shares | (2,967 | ) | (3,000 | ) | |||||||||
| Total shareholders’ equity of MBIA Inc. | 1,188 | 1,119 | |||||||||||
| Preferred stock of subsidiary | 13 | 13 | |||||||||||
| Total equity | 1,201 | 1,132 | |||||||||||
| Total liabilities and equity | $ | 8,778 | $ | 8,076 | |||||||||
| MBIA INC. AND SUBSIDIARIES | |||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) | |||||||||||||||
| (In millions except share and per share amounts) | |||||||||||||||
| Three Months Ended March 31, | |||||||||||||||
| 2019 | 2018 | ||||||||||||||
| Revenues: | |||||||||||||||
| Premiums earned: | |||||||||||||||
| Scheduled premiums earned | $ | 18 | $ | 23 | |||||||||||
| Refunding premiums earned | 5 | 17 | |||||||||||||
| Premiums earned (net of ceded premiums of $1 and $1) | 23 | 40 | |||||||||||||
| Net investment income | 32 | 31 | |||||||||||||
| Fees and reimbursements | – | 6 | |||||||||||||
| Change in fair value of insured derivatives: | |||||||||||||||
| Realized gains (losses) and other settlements on insured derivatives | – | (19 | ) | ||||||||||||
| Unrealized gains (losses) on insured derivatives | 14 | 14 | |||||||||||||
| Net change in fair value of insured derivatives | 14 | (5 | ) | ||||||||||||
|
Net gains (losses) on financial instruments at fair value and foreign exchange |
22 | (9 | ) | ||||||||||||
| Net investment losses related to other-than-temporary impairments: | |||||||||||||||
| Investment losses related to other-than-temporary impairments | – | – | |||||||||||||
| Other-than-temporary impairments recognized in accumulated | |||||||||||||||
| other comprehensive income (loss) | (28 | ) | (1 | ) | |||||||||||
| Net investment losses related to other-than-temporary impairments | (28 | ) | (1 | ) | |||||||||||
| Other net realized gains (losses) | 1 | (1 | ) | ||||||||||||
| Revenues of consolidated variable interest entities: | |||||||||||||||
| Net investment income | 10 | 8 | |||||||||||||
|
Net gains (losses) on financial instruments at fair value and foreign exchange |
18 | 4 | |||||||||||||
| Other net realized gains (losses) | (42 | ) | – | ||||||||||||
| Total revenues | 50 | 73 | |||||||||||||
| Expenses: | |||||||||||||||
| Losses and loss adjustment | (38 | ) | 72 | ||||||||||||
| Amortization of deferred acquisition costs | 4 | 4 | |||||||||||||
| Operating | 26 | 20 | |||||||||||||
| Interest | 52 | 51 | |||||||||||||
| Expenses of consolidated variable interest entities: | |||||||||||||||
| Operating | 3 | 2 | |||||||||||||
| Interest | 22 | 20 | |||||||||||||
| Total expenses | 69 | 169 | |||||||||||||
| Income (loss) before income taxes | (19 | ) | (96 | ) | |||||||||||
| Provision (benefit) for income taxes | (2 | ) | 2 | ||||||||||||
| Net income (loss) | $ | (17 | ) | $ | (98 | ) | |||||||||
| Net income (loss) per common share: | |||||||||||||||
| Basic | $ | (0.20 | ) | $ | (1.12 | ) | |||||||||
| Diluted | $ | (0.20 | ) | $ | (1.12 | ) | |||||||||
| Weighted average number of common shares outstanding: | |||||||||||||||
| Basic | 85,554,236 | 88,131,373 | |||||||||||||
| Diluted | 85,554,236 | 88,131,373 | |||||||||||||
|
ADJUSTED NET INCOME (LOSS) RECONCILIATION(1) |
|||||||||||||||
| (In millions except per share amounts) | |||||||||||||||
| Three Months Ended | |||||||||||||||
| March 31, | |||||||||||||||
| 2019 | 2018 | ||||||||||||||
| Net income (loss) | $ | (17 | ) | $ | (98 | ) | |||||||||
| Less: adjusted net income (loss) adjustments: | |||||||||||||||
| Income (loss) before income taxes of the international and structured | |||||||||||||||
| finance insurance segment and eliminations | (55 | ) | (36 | ) | |||||||||||
| Adjustments to income before income taxes of the U.S. public finance | |||||||||||||||
| insurance and corporate segments: | |||||||||||||||
| Mark-to-market gains (losses) on financial instruments(2) | (16 | ) | 22 | ||||||||||||
| Foreign exchange gains (losses)(2) | 7 | (13 | ) | ||||||||||||
| Net gains (losses) on sales of investments(2) | 33 | (5 | ) | ||||||||||||
| Net investment losses related to OTTI | (28 | ) | (1 | ) | |||||||||||
| Other net realized gains (losses) | (1 | ) | (2 | ) | |||||||||||
| Adjusted net income adjustment to the (provision) benefit for | |||||||||||||||
| income tax(3) | 4 | (2 | ) | ||||||||||||
| Adjusted net income (loss) | $ | 39 | $ | (61 | ) | ||||||||||
| Adjusted net income (loss) per diluted common share | $ | 0.45 | $ | (0.69 | ) | ||||||||||
| – | |||||||||||||||
| Gain (loss) related to our U.S. public finance insurance segment VIE | |||||||||||||||
| consolidations included in adjusted net income (loss) | (13 | ) | – | ||||||||||||
| Gain (loss) related to our U.S. public finance insurance segment VIE | |||||||||||||||
| consolidations per diluted common share included in adjusted net | |||||||||||||||
| income (loss) per diluted common share | (0.15 | ) | – | ||||||||||||
| (1) |
A non-GAAP measure; please see Explanation of non-GAAP Financial Measures. |
|
| (2) |
Reported within “Net gains (losses) on financial instruments at |
|
|
|
||
| (3) |
Reported within “Provision (benefit) for income taxes” on the Company’s consolidated statements of operations. |
|
COMPONENTS OF BOOK VALUE PER SHARE |
||||||||||||
|
As of |
As of |
|||||||||||
| Reported Book Value per Share | $ | 13.16 | $ | 12.46 | ||||||||
| Management’s book value per share adjustments: | ||||||||||||
| Remove negative book value of MBIA Corp. | (11.39 | ) | (10.93 | ) | ||||||||
| Remove net unrealized gains (losses) on available-for-sale securities | ||||||||||||
| included in other comprehensive income (loss) | 0.38 | (0.46 | ) | |||||||||
| Include net unearned premium revenue in excess of expected losses | 3.43 | 3.53 | ||||||||||
| Remove gain (loss) related to National VIE consolidations | (0.19 | ) | – | |||||||||
| Shares outstanding in millions | 90.2 | 89.8 | ||||||||||
| INSURANCE OPERATIONS | ||||||||||
|
Selected Financial Data Computed on a |
||||||||||
| (Dollars in millions) | ||||||||||
|
National Public Finance Guarantee |
||||||||||
| March 31, 2019 | December 31, 2018 | |||||||||
| Policyholders’ surplus | $ | 2,069 | $ | 1,998 | ||||||
| Contingency reserves | 518 | 522 | ||||||||
| Statutory capital | 2,587 | 2,520 | ||||||||
| Unearned premiums |
474 |
496 |
||||||||
| Present value of installment premiums (1) | 149 | 150 | ||||||||
| Premium resources (2) | 623 | 646 | ||||||||
| Net loss and loss adjustment expense reserves (1) | 12 | 71 | ||||||||
| Salvage reserves (1) | 614 | 607 | ||||||||
| Gross loss and loss adjustment expense reserves | 626 | 678 | ||||||||
| Total claims-paying resources | $ | 3,836 | $ | 3,844 | ||||||
| Net debt service outstanding | $ | 104,259 | $ | 108,032 | ||||||
| Capital ratio (3) | 40:1 | 43:1 | ||||||||
| Claims-paying ratio (4) | 27:1 | 28:1 | ||||||||
|
MBIA Insurance Corporation |
||||||||||||||
| March 31, 2019 | December 31, 2018 | |||||||||||||
| Policyholders’ surplus | $ | 380 | $ | 356 | ||||||||||
| Contingency reserves | 195 | 199 | ||||||||||||
| Statutory capital | 575 | 555 | ||||||||||||
| Unearned premiums | 107 | 109 | ||||||||||||
| Present value of installment premiums (5) (7) | 136 | 139 | ||||||||||||
| Premium resources (2) | 243 | 248 | ||||||||||||
| Net loss and loss adjustment expense reserves (5) | (830 | ) | (865 | ) | ||||||||||
| Salvage reserves (5) (6) | 1,361 | 1,402 | ||||||||||||
| Gross loss and loss adjustment expense reserves | 531 | 537 | ||||||||||||
| Total claims-paying resources | $ | 1,349 | $ | 1,340 | ||||||||||
| Net debt service outstanding | $ | 14,996 | $ | 15,832 | ||||||||||
| Capital ratio (3) | 26:1 | 29:1 | ||||||||||||
| Claims-paying ratio (4) | 11:1 | 12:1 | ||||||||||||
| (1) |
Calculated using discount rates of 3.67% as of March 31, 2019 and December 31, 2018. |
|
| (2) |
Includes financial guarantee and insured credit derivative related premiums. |
|
| (3) | Net debt service outstanding divided by statutory capital. | |
| (4) |
Net debt service outstanding divided by the sum of statutory |
|
|
|
||
| (5) |
Calculated using discount rates of 5.17% as of March 31, 2019 and December 31, 2018. |
|
| (6) |
This amount primarily consists of expected recoveries related to the Company’s excess spread, put-backs and CDOs. |
|
| (7) |
Based on the Company’s estimate of the remaining life for its insured exposures. |
Contacts
MBIA Inc.
Greg Diamond, 914-765-3190
Investor and Media
Relations
[email protected]
