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Mbia Inc (MBI) SEC Filing 8-K Material Event for the period ending Wednesday, August 4, 2021

Mbia Inc

CIK: 814585 Ticker: MBI

Exhibit 99.1

 

LOGO

MBIA Inc. Second Quarter 2021 Financial Results

August 4, 2021

MBIA Inc. (NYSE:MBI) (the Company) today reported a consolidated GAAP net loss of $61 million, or $(1.23) per share, for the second quarter of 2021 compared to a consolidated GAAP net loss of $106 million, or $(1.69) per share, for the second quarter of 2020. The improved result versus last year’s second quarter was primarily due to lower loss and loss adjustment expenses (LAE) in the insurance segments and gains related to the extinguishment of Corporate segment debt, partially offset by unfavorable variances from revenues of consolidated variable interest entities (VIEs), lower mark-to-market gains on National Public Finance Guarantee Corporation (National) investments and mark-to-market losses on interest rate swaps in the second quarter of 2021 compared with mark-to-market gains in the second quarter of 2020. The loss and LAE for the second quarter of 2021 resulted from losses at MBIA Insurance Corporation (MBIA Corp.), primarily due to losses on insurance loss recoveries on collateralized debt obligations and a largely offsetting loss benefit at National for recoveries on paid claims on its insured Puerto Rico exposure that was primarily due to the impact of decreases in discount rates during the quarter.

Book value per share was negative $0.66 as of June 30, 2021 compared with a positive $2.55 as of December 31, 2020. The decrease in book value per share since year-end 2020 was primarily due to the year-to-date net loss, which was primarily driven by the net loss of MBIA Corp. that largely resulted from expenses for its surplus notes interest and losses and LAE.

The Company also reported Adjusted Net Income (a non-GAAP measure defined in the attached Explanation of Non-GAAP Financial Measures) of $37 million or $0.76 per diluted share for the second quarter of 2021 compared with an Adjusted Net Loss of $72 million or $(1.15) per diluted share for the second quarter of 2020. The improved result was primarily due to the favorable variance of losses and LAE at National that largely resulted from its insured Puerto Rico exposure.

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.


Statement from Company Representative

Bill Fallon, MBIA’s Chief Executive Officer noted, “We are pleased to see the debt restructuring agreements that will largely resolve National’s Puerto Rico exposure continue to progress towards confirmation and implementation. Once these debt restructuring plans are confirmed, anticipated to occur before the end of 2022, we will be in better position to implement our longer term strategic plans for the Company.”

Year-to-Date Results

The Company recorded a consolidated GAAP net loss of $167 million, or $(3.38) per diluted common share, for the six months ended June 30, 2021 compared with a consolidated GAAP net loss of $439 million, or $(6.51) per diluted common share, for the first six months of 2020. The lower net loss for 2021 was primarily due to lower loss and loss adjustment expenses related to lower losses insurance loss recoveries on collateralized debt obligations insured by MBIA Corp. and lower net losses on Puerto Rico bonds insured by National.

The Company’s non-GAAP Adjusted Net Loss for the six months ended June 30, 2021 was $79 million or $(1.60) per diluted share compared with an Adjusted Net Loss of $119 million or $(1.77) per diluted share for the first six months of 2020. The lesser adjusted net loss for the first six months of 2021 was primarily due to lower loss and loss adjustment expense at National that largely resulted from its insured Puerto Rico exposure.

MBIA Inc.

As of June 30, 2021, MBIA Inc.’s liquidity position totaled $238 million, consisting primarily of cash and cash equivalents and other liquid invested assets. During the quarter, the Company repurchased $63 million par value outstanding of GFL medium-term notes issued by the corporate segment at a weighted average cost of approximately 78% of par value. As of July 28, 2021, there were 54.3 million of the Company’s common shares outstanding.

National Public Guarantee Financial Corporation

National had statutory capital of $2.0 billion and claims-paying resources totaling $3.1 billion as of June 30, 2021. National’s total fixed income investments plus cash and cash equivalents had a book/adjusted carrying value of $2.0 billion as of June 30, 2021. National’s insured portfolio declined by $0.9 billion during the quarter, ending the quarter with $39.5 billion of gross par outstanding. National ended the quarter with a leverage ratio of gross par to statutory capital of 20 to 1, down from 21 to 1 as of year-end 2020.

MBIA Insurance Corporation

The statutory capital of MBIA Insurance Corporation as of June 30, 2021 was $160 million and claims-paying resources totaled $786 million. As of June 30, 2021, MBIA Insurance Corporation’s liquidity position (excluding resources from its subsidiaries and branches) totaled $461 million consisting primarily of cash and cash equivalents and other liquid invested assets.


Conference Call

The Company will host a webcast and conference call for investors tomorrow, Thursday, August 5, 2021 at 8:00 AM (ET) to discuss its second quarter 2021 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 3781469. 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 end of the call on August 5 and will remain available until 11:59 p.m. on August 19 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 also 3781469. 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; changes in general economic and competitive conditions; and the impact on our insured portfolios or business operations caused by the global spread of the novel coronavirus COVID-19. 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.

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, comprising the results of MBIA Corp. which given its capital structure and business prospects, we do not expect its financial performance to have a material impact on MBIA Inc. 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.

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 when measuring financial 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 impairment of AFS securities are recorded in book value through earnings.

 

   

Net unearned 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.

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.

Leverage Ratio: Gross Par Outstanding divided by Statutory Capital (Policyholders’ Surplus plus Contingency Reserve).

Contacts

MBIA Inc.

Greg Diamond, 914-765-3190

Investor and Media Relations

greg.diamond@mbia.com


MBIA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions except share and per share amounts)

 

     June 30, 2021     December 31, 2020  

Assets

    

Investments:

    

Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $2,016 and $2,078)

   $ 2,154     $ 2,257  

Investments carried at fair value

     223       196  

Investments pledged as collateral, at fair value (amortized cost $2 and $6)

     2       1  

Short-term investments, at fair value (amortized cost $418 and $281)

     418       282  
  

 

 

   

 

 

 

Total investments

     2,797       2,736  

Cash and cash equivalents

     342       158  

Premiums receivable (net of allowance for credit losses $5 and $5)

     206       216  

Deferred acquisition costs

     46       50  

Insurance loss recoverable

     1,561       1,677  

Other assets

     82       84  

Assets of consolidated variable interest entities:

    

Cash

     5       9  

Investments carried at fair value

     63       77  

Loans receivable at fair value

     129       120  

Loan repurchase commitments

     —         604  

Other assets

     21       20  
  

 

 

   

 

 

 

Total assets

   $ 5,252     $ 5,751  
  

 

 

   

 

 

 

Liabilities and Equity

    

Liabilities:

    

Unearned premium revenue

   $ 372     $ 405  

Loss and loss adjustment expense reserves

     954       990  

Long-term debt

     2,283       2,229  

Medium-term notes (includes financial instruments carried at fair value of $105 and $110)

     638       710  

Investment agreements

     269       269  

Derivative liabilities

     140       215  

Other liabilities

     169       161  

Liabilities of consolidated variable interest entities:

    

Variable interest entity notes (includes financial instruments carried at fair value of $321 and $350)

     450       623  
  

 

 

   

 

 

 

Total liabilities

     5,275       5,602  
  

 

 

   

 

 

 

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—283,186,115 and 283,186,115

     283       283  

Additional paid-in capital

     2,934       2,962  

Retained earnings (deficit)

     (180     (13

Accumulated other comprehensive income (loss), net of tax of $8 and $8

     103       115  

Treasury stock, at cost—228,780,540 and 229,508,967 shares

     (3,176     (3,211
  

 

 

   

 

 

 

Total shareholders’ equity of MBIA Inc.

     (36     136  

Preferred stock of subsidiary

     13       13  
  

 

 

   

 

 

 

Total equity

     (23     149  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 5,252     $ 5,751  
  

 

 

   

 

 

 


MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In millions except share and per share amounts)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2021     2020     2021     2020  

Revenues:

        

Premiums earned:

        

Scheduled premiums earned

   $ 12     $ 15     $ 27     $ 31  

Refunding premiums earned

     2       4       7       8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Premiums earned (net of ceded premiums of $1, $1, $2 and $2)

     14       19       34       39  

Net investment income

     14       20       29       43  

Fees and reimbursements

     1       —         1       —    

Net gains (losses) on financial instruments at fair value and foreign exchange

     (20     24       31       (39

Net gains (losses) on extinguishment of debt

     14       —         14       —    

Revenues of consolidated variable interest entities:

        

Net investment income

     —         5       —         13  

Net gains (losses) on financial instruments at fair value and foreign exchange

     —         23       (14     38  

Other net realized gains (losses)

     (5     23       (5     14  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     18       114       90       108  

Expenses:

        

Losses and loss adjustment

     9       136       107       379  

Amortization of deferred acquisition costs

     3       3       5       5  

Operating

     21       22       47       40  

Interest

     41       45       82       92  

Expenses of consolidated variable interest entities:

        

Operating

     1       1       3       3  

Interest

     4       13       13       28  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     79       220       257       547  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (61     (106     (167     (439

Provision (benefit) for income taxes

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (61   $ (106   $ (167   $ (439
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share:

        

Basic

   $ (1.23   $ (1.69   $ (3.38   $ (6.51

Diluted

   $ (1.23   $ (1.69   $ (3.38   $ (6.51

Weighted average number of common shares outstanding:

        

Basic

     49,488,368       62,605,656       49,373,883       67,347,335  

Diluted

     49,488,368       62,605,656       49,373,883       67,347,335  


ADJUSTED NET INCOME (LOSS) RECONCILIATION(1)

(In millions except per share amounts)

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2021      2020      2021      2020  

Net income (loss)

   $ (61    $ (106    $ (167    $ (439

Less: adjusted net income (loss) adjustments:

           

Income (loss) before income taxes of the international and structured finance insurance segment and eliminations

     (99      (59      (143      (279

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)

     (9      17        29        (60

Foreign exchange gains (losses)(2)

     (4      (8      13        —    

Net gains (losses) on sales of investments(2)

     —          16        (1      19  

Net gains (losses) on extinguishment of debt

     14        —          14        —    

Adjusted net income adjustment to the (provision) benefit for income tax

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted net income (loss)

   $ 37      $ (72    $ (79    $ (119
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted net income (loss) per diluted common share

   $ 0.76      $ (1.15    $ (1.60    $ (1.77

 

(1)

A non-GAAP measure; please see Explanation of non-GAAP Financial Measures.

(2)

Reported within “Net gains (losses) on financial instruments at fair value and foreign exchange” on the Company’s consolidated statements of operations.

COMPONENTS OF BOOK VALUE PER SHARE

 

     As of
June 30, 2021
     As of
December 31, 2020
 

Reported Book Value per Share

   $ (0.66    $ 2.55  

Management’s book value per share adjustments:

     

Remove negative book value of MBIA Corp.

     (33.51      (31.97

Remove net unrealized gains (losses) on available-for-sale securities included in other comprehensive income (loss)

     2.01        2.86  

Include net unearned premium revenue in excess of expected losses

     3.87        4.29  

Shares outstanding in millions

     54.4        53.7  


INSURANCE OPERATIONS

Selected Financial Data Computed on a Statutory Basis

(Dollars in millions)

National Public Finance Guarantee Corporation

 

     June 30, 2021     December 31, 2020  

Policyholders’ surplus

   $ 1,534     $ 1,526  

Contingency reserves

     428       445  
  

 

 

   

 

 

 

Statutory capital

     1,962       1,971  

Unearned premiums

     338       355  

Present value of installment premiums (1)

     128       129  
  

 

 

   

 

 

 

Premium resources (2)

     466       484  

Net loss and loss adjustment expense reserves (1)

     (322     (301

Salvage reserves on paid claims (1)

     1,000       961  
  

 

 

   

 

 

 

Gross loss and loss adjustment expense reserves

     678       660  
  

 

 

   

 

 

 

Total claims-paying resources

   $ 3,106     $ 3,115  
  

 

 

   

 

 

 

Net debt service outstanding

   $ 75,092     $ 79,074  

Gross par outstanding

   $ 39,535     $ 41,856  

Capital ratio (3)

     38:1       40:1  

Claims-paying ratio (4)

     24:1       25:1  

Leverage Ratio (5)

     20:1       21:1  

MBIA Insurance Corporation

    
     June 30, 2021     December 31, 2020  

Policyholders’ surplus

   $ 118     $ 106  

Contingency reserves

     42       167  
  

 

 

   

 

 

 

Statutory capital

     160       273  

Unearned premiums

     72       79  

Present value of installment premiums (6) (8)

     64       73  
  

 

 

   

 

 

 

Premium resources (2)

     136       152  

Net loss and loss adjustment expense reserves (6)

     151       (478

Salvage reserves on paid claims (6) (7)

     339       1,045  
  

 

 

   

 

 

 

Gross loss and loss adjustment expense reserves

     490       567  
  

 

 

   

 

 

 

Total claims-paying resources

   $ 786     $ 992  
  

 

 

   

 

 

 

Net debt service outstanding

   $ 7,707     $ 9,327  

Capital ratio (3)

     48:1       34:1  

Claims-paying ratio (4)

     10:1       9:1  

 

(1)

Calculated using discount rates of 3.49% as of June 30, 2021 and December 31, 2020.

(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 capital, unearned premium reserve (after-tax), present value of installment premiums (after-tax), net loss and loss adjustment expense reserves and salvage reserves.

(5)

Gross par outstanding divided by statutory capital.

(6)

Calculated using discount rates of 5.10% as of June 30, 2021 and December 31, 2020.

(7)

This amount primarily consists of expected recoveries related to the Company’s excess spread, put-backs and CDOs.

(8)

Based on the Company’s estimate of the remaining life for its insured exposures.

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Ticker: MBI
CIK: 814585
Form Type: 8-K Corporate News
Accession Number: 0001193125-21-236463
Submitted to the SEC: Wed Aug 04 2021 5:43:44 PM EST
Accepted by the SEC: Thu Aug 05 2021
Period: Wednesday, August 4, 2021
Industry: Surety Insurance
Events:
  1. Earnings Release
  2. Financial Exhibit
  3. Regulated Disclosure

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