MBIA Inc. Reports Full Year and Fourth Quarter 2018 Financial Results

PURCHASE, N.Y.–(BUSINESS WIRE)–MBIA Inc. (NYSE:MBI) (the Company) today reported a consolidated GAAP
net loss of $296 million, or $(3.33) per diluted common share, for 2018
compared to a consolidated GAAP net loss of $1.6 billion, or $(13.50)
per diluted common share, for 2017. The $1.3 billion year-over-year
improvement was primarily due to the $944 million reduction in the tax
provision (that was largely driven by the 2017 establishment of a full
valuation allowance on the Company’s net deferred tax asset) and a $620
million reduction in loss and loss adjustment expenses. The reduction in
losses and loss adjustment expenses was primarily related to Puerto Rico
insured credits.

Book value per share was $12.46 as of December 31, 2018 compared with
$15.44 as of December 31, 2017. The decrease in book value per share
during 2018 was mainly due to the consolidated net loss for the year.

The Company also reported an Adjusted Net Loss (a non-GAAP measure
defined in the attached Explanation of Non-GAAP Financial Measures) of
$38 million or $(0.42) per diluted common share for 2018 compared with
an Adjusted Net Loss of $410 million or $(3.45) per diluted common share
for 2017. The favorable comparison for 2018 was primarily due to reduced
losses and loss adjustment expenses at National, primarily related to
its Puerto Rico exposures.

Adjusted Book Value (ABV) per share (a non-GAAP measure defined in the
attached Explanation of Non-GAAP Financial Measures) was $27.38 as of
December 31, 2018 compared with $28.77 as of December 31, 2017. The
decrease in ABV per share since year-end 2017 was primarily due to
additional losses and loss adjustment expense reserves at National, fair
value losses associated with the MBIA Global Funding medium-term notes
and the loss of tax benefits associated with maintaining a full
valuation allowance on the company’s net deferred tax asset.

Adjusted Net Income (Loss) and ABV per share provide investors with
views of the Company’s operating results that management uses in
measuring financial performance. Reconciliations of ABV per share to
book value per share, and Adjusted Net Income (Loss) to net income,
calculated in accordance with GAAP, are attached.

Statement from Company Representative

Bill Fallon, MBIA’s Chief Executive Officer noted, “From an MBIA
shareholder perspective, the resolution of National’s Puerto Rico
exposures remains our most important and significant objective. The
confirmation of the COFINA debt restructuring settlement is a meaningful
and favorable development for us, as it addresses nearly half of
National’s insured Puerto Rico debt service. However, we also need to
resolve our other Puerto Rico insurance obligations. We are also keenly
focused on our holding company’s liquidity position, which was further
enhanced during 2018. MBIA Inc.’s current liquidity is sufficient to
cover all of its estimated obligations through 2021 and partially
through 2022.”

Fourth Quarter Results

The Company recorded a consolidated GAAP net loss of $7 million, or
$(0.08) per diluted common share, for the fourth quarter of 2018
compared with a consolidated net loss of $37 million, or $(0.39) per
diluted common share, for the fourth quarter of 2017. The lower loss
this year was primarily due to lower losses and loss adjustment expenses
partially offset by a reduction in total revenues that was due, in part,
to prior year gains on consolidated variable interest entities.

The Company reported Adjusted Net Income for the fourth quarter of 2018
of $106 million or $1.20 per share compared with an Adjusted Net Loss of
$167 million or $(1.73) per share for the fourth quarter of 2017. The
$273 million favorable comparison for the year-over-year quarters was
primarily due to National’s benefit of losses and loss adjustment
expenses in the fourth quarter of 2018 versus a loss for the prior
year’s quarter. The losses and loss adjustment expenses for both periods
was primarily related to National’s insurance of Puerto Rico debt. The
benefit of losses and loss adjustment expenses for the fourth quarter of
2018 primarily resulted from lower discounting rates, which increased
the value of recoveries associated with insured loss payments.

MBIA Inc.

As of December 31, 2018, MBIA Inc.’s liquidity position totaled $457
million consisting primarily of cash and cash equivalents and liquid
invested assets. During the fourth quarter of 2018, MBIA Inc. received
$108 million of proceeds from a National dividend payment and received
$41 million from National for the sale of previously repurchased MBIA
Inc. debentures that were not extinguished.

During the fourth quarter of 2018, National purchased 3.9 million of
MBIA Inc. common shares at an average price of $8.70 per share.
Subsequent to year-end, National purchased another 0.5 million shares of
MBIA Inc. stock at an average price of $8.94 per share. As of February
21, 2019, there was $198 million remaining under the Company’s $250
million share repurchase authorization that was approved on November 3,
2017 and 89.6 million of the Company’s common shares were outstanding.

National Public Guarantee Financial Corporation

National had statutory capital of $2.5 billion and claims-paying
resources totaling $3.8 billion as of December 31, 2018. National’s
total fixed-maturity investments plus cash and cash equivalents had a
total market value of $3.1 billion as of December 31, 2018. National’s
insured portfolio declined by $3 billion during the quarter, ending the
quarter with $58 billion of gross par outstanding. National ended the
quarter with a leverage ratio of gross par to statutory capital of 23 to
1, down from 26 to 1 as of year-end 2017.

MBIA Insurance Corporation

The statutory capital of MBIA Insurance Corporation as of December 31,
2018 was $555 million and claims-paying resources totaled $1.3 billion.
As of December 31, 2018, MBIA Insurance Corporation’s liquidity position
(excluding resources from its subsidiary and branch) totaled $145
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, Friday, March 1, 2019 at 8:00 AM (ET) to discuss its full year
and fourth quarter 2018 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 1977156. 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 on March 1 and will remain
available until 11:59 p.m. on March 15 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 1977156. 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.

Adjusted Book Value: Adjusted Book Value (ABV), a non-GAAP
measure, is used by the Company to supplement its analysis of GAAP book
value. The Company uses ABV as a measure of fundamental value and
considers the change in ABV an important measure of periodic financial
performance. ABV adjusts GAAP book value by removing the GAAP book value
amounts for items that are not expected to impact shareholder value and
to 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 which the likelihood and amount
can be reasonably estimated. ABV assumes no new business activity. The
Company has presented ABV to allow investors and analysts to evaluate
the Company using the same measure that MBIA’s management regularly uses
to measure financial performance. ABV is not a substitute for and should
not be viewed in isolation from GAAP book value.

ABV per share represents that amount of ABV allocated to each common
share outstanding at the measurement date.

Claims-Playing 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 the establishment of a full valuation
allowance against the Company’s net deferred tax asset in 2017. 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 INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions except share and per share amounts)
     
December 31, 2018 December 31, 2017
Assets
Investments:
Fixed-maturity securities held as available-for-sale, at fair value
(amortized cost $3,601 and $3,728)
$ 3,565 $ 3,712
Investments carried at fair value 222 200
Investments pledged as collateral, at fair value (amortized cost $46
and $147)
43 148
Short-term investments, at fair value (amortized cost $241 and $589) 241 589
Other investments (includes investments at fair value of $- and $4)   1 6
Total investments 4,072 4,655
 
Cash and cash equivalents 222 122
Premiums receivable 296 369
Deferred acquisition costs 74 95
Insurance loss recoverable 1,564 511
Other assets 122 128
Assets of consolidated variable interest entities:
Cash 58 24
Investments held-to-maturity, at amortized cost (fair value $925 and
$916)
890 890
Investments carried at fair value 157 182
Loans receivable and other instruments at fair value 172 1,679
Loan repurchase commitments 418 407
Other assets   31   33
Total assets $ 8,076 $ 9,095
 
Liabilities and Equity
Liabilities:
Unearned premium revenue $ 587 $ 752
Loss and loss adjustment expense reserves 934 979
Long-term debt 2,249 2,121
Medium-term notes (includes financial instruments carried at fair
value of $102 and $115)
722 765
Investment agreements 311 337
Derivative liabilities 199 262
Other liabilities 198 165
Liabilities of consolidated variable interest entities:

Variable interest entity notes (includes financial instruments
carried at fair value of $480

and $1,069)   1,744   2,289
Total liabilities   6,944   7,670
 
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 283,717,973 284 284
Additional paid-in capital 3,025 3,171
Retained earnings 966 1,095
Accumulated other comprehensive income (loss), net of tax of $8 and
$16
(156) (19)
Treasury stock, at cost–193,803,976 and 192,233,526 shares   (3,000) (3,118)
Total shareholders’ equity of MBIA Inc. 1,119 1,413
Preferred stock of subsidiary   13   12
Total equity   1,132   1,425
Total liabilities and equity $ 8,076 $ 9,095
 
 
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions except share and per share amounts)

           
Three Months Ended December 31, Years Ended December 31,
2018 2017 2018 2017
 
Revenues:
Premiums earned:
Scheduled premiums earned $ 18 $ 25 $ 114 $ 107
Refunding premiums earned   6   30   48   94
Premiums earned (net of ceded premiums
of $1, $1, $5 and $6) 24 55 162 201
Net investment income 34 32 130 154
Fees and reimbursements 2 6 25 15
Change in fair value of insured derivatives:
Realized gains (losses) and other settlements on insured
derivatives (7) (10) (56) (51)
Unrealized gains (losses) on insured derivatives   (5)   10   31  
Net change in fair value of insured derivatives (12) (25) (51)
Net gains (losses) on financial instruments at fair value and
foreign exchange (35) 31 (17) (24)

Net investment losses related to other-than-temporary impairments:

Investment losses related to other-than-temporary impairments (21) (101)
Other-than-temporary impairments recognized in accumulated
other comprehensive income (loss)   (2)   (1)   (5)   (5)
Net investment losses related to other-than-temporary
impairments (2) (22) (5) (106)
Net gains (losses) on extinguishment of debt 19 3 28
Other net realized gains (losses) (5) 31
Revenues of consolidated variable interest entities:
Net investment income 10 7 35 27
Net gains (losses) on financial instruments at fair value and
foreign exchange (4) 128 25 130
Other net realized gains (losses)   (45)     (171)   28
Total revenues (28) 251 162 433
 
Expenses:
Losses and loss adjustment (114) 214 63 683
Amortization of deferred acquisition costs 3 20 23
Operating 14 24 71 106
Interest 51 49 206 197
Expenses of consolidated variable interest entities:
Operating 3 2 11 10
Interest   24   20   87   75
Total expenses   (19)   309   458   1,094
Income (loss) before income taxes (9) (58) (296) (661)
Provision (benefit) for income taxes   (2)   (21)     944
Net income (loss) $ (7) $ (37) $ (296) $ (1,605)
 
Net income (loss) per common share:
Basic $ (0.08) $ (0.39) $ (3.33) $ (13.50)
Diluted $ (0.08) $ (0.39) $ (3.33) $ (13.50)
 
Weighted average number of common shares outstanding:
Basic 88,829,193 96,040,601 89,013,711 118,930,282
Diluted 88,829,193 96,040,601 89,013,711 118,930,282
 
 

ADJUSTED NET INCOME (LOSS) RECONCILIATION(1)

(In millions except per share amounts)
           
Three Months Ended Years Ended
December 31, December 31,
2018 2017 2018 2017
Net income (loss) $ (7) $ (37) $ (296) $ (1,605)
Less: adjusted net income (loss) adjustments:
Income (loss) before income taxes of the international and structured
finance insurance segment and eliminations (88) 83 (278) (185)
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) (29) 35 16 64
Foreign exchange gains (losses)(2) 6 (6) 21 (63)
Net gains (losses) on sales of investments(2) (1) (13) 14
Net investment losses related to OTTI (2) (22) (5) (106)
Net gains (losses) on extinguishment of debt 19 3 28
Other net realized gains (losses) (2) (3)
Adjusted net income adjustment to the (provision) benefit for
income tax(3)   1   21     (944)
Adjusted net income (loss) $ 106 $ (167) $ (38) $ (410)
 
Adjusted net income (loss) per diluted common share $ 1.20 $ (1.73) $ (0.42) $ (3.45)
 
    (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.

(3) Reported within “Provision (benefit) for income taxes” on the
Company’s consolidated statements of operations.
 
 

COMPONENTS OF ADJUSTED BOOK VALUE PER
SHARE
(1)(2)

 
     

As of
December 31, 2018

 

As of
December 31, 2017

Reported Book Value per Share $ 12.46 $ 15.44
Book value per share adjustments:
Remove negative book value of MBIA Corp. (3) 10.93 8.84
Remove net unrealized (gains) losses on available-for-sale
securities included in
other comprehensive income (loss) 0.46 0.26
Add net unearned premium revenue in excess of expected losses
(4)(5)
  3.53   4.23
Total book value per share adjustments   14.92   13.33
Adjusted book value per share $ 27.38 $ 28.77
Shares outstanding in millions 89.8 91.5
 
    (1)   A non-GAAP measure; please see Explanation of Non-GAAP Financial
Measures.
(2)

In the second quarter of 2018, we modified our calculation of ABV
and revised the prior year’s calculation to conform to the correct
presentation. The net unearned premium revenue component of ABV
has been adjusted to remove the amount of unearned premium revenue
that is used in the GAAP calculation of our insurance loss
reserves.

(3)

The book value of MBIA Corp. does not provide significant economic
or shareholder value to MBIA Inc. The amounts being reversed
exclude all deferred taxes available to MBIA Inc., net of
valuation allowance.

(4)

The discount rate on financial guarantee installment premiums was
the risk-free rate as defined by GAAP for financial guarantee
insurance contracts.

(5) The amounts consist of financial guarantee premiums in excess of
expected losses, net of the related deferred acquisition costs.
 
       
INSURANCE OPERATIONS
 

Selected Financial Data Computed on a
Statutory Basis

(Dollars in millions)
 

National Public Finance Guarantee
Corporation

 

 

December 31, 2018

December 31, 2017

Policyholders’ surplus $ 1,998 $ 2,166
Contingency reserves   522   594
Statutory capital

 

2,520

 

2,760

 
Unearned premiums 496 585
Present value of installment premiums (1)   150   164
Premium resources (2)

 

646

 

749

 

Net loss and loss adjustment expense reserves (1)

71 227

Salvage reserves(1)

  607   387
Gross loss and loss adjustment expense reserves

 

 

678

 

 

614

Total claims-paying resources $ 3,844 $ 4,123
 
Net debt service outstanding $ 108,032 $ 129,668
Capital ratio (3) 43:1 47:1
Claims-paying ratio (4) 28:1 33:1
 
 

MBIA Insurance Corporation

 

 

December 31, 2018

December 31, 2017

Policyholders’ surplus $ 356 $ 237
Contingency reserves   199   227
Statutory capital

 

555

 

464

 
Unearned premiums 109 195
Present value of installment premiums (5) (7)   139   192
Premium resources (2)

 

248

 

387

 

Net loss and loss adjustment expense reserves (5)

(865) (792)

Salvage reserves(5) (6)

  1,402   1,428
Gross loss and loss adjustment expense reserves

 

 

537

 

 

636

Total claims-paying resources $ 1,340 $ 1,487
 
Net debt service outstanding $ 15,832 $ 20,151
Capital ratio (3) 29:1 43:1
Claims-paying ratio (4) 12:1 14:1
 
            (1)   Calculated using discount rates of 3.67% and 3.25% as of December
31, 2018 and 2017, respectively.
(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) Calculated using discount rates of 5.17% and 5.20% as of December
31, 2018 and 2017, respectively.
(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
greg.diamond@mbia.com

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