MBIA Inc (MBI)

[Enterprising Investor]

MBIA Inc. Reports Third Quarter 2016 Financial Results (11/08/16)

PURCHASE, N.Y.--(BUSINESS WIRE)--MBIA Inc. (NYSE:MBI) (the Company) today reported consolidated GAAP net income of $31 million, or $0.23 per diluted share, for the third quarter of 2016 compared with a consolidated net loss of $35 million, or $(0.23) per diluted share, for the third quarter of 2015. The $66 million favorable change in the financial result versus the year-ago quarter was primarily due to a favorable variance in the fair value of interest rate swaps and net gains on the sale of investments.

Book value per share was $26.95 as of September 30, 2016 compared with $24.61 as of December 31, 2015. The increase in book value per share since year-end 2015 was primarily due to share repurchases that decreased common shares outstanding. During the first nine months of 2016, the Company repurchased 16.6 million shares of its common stock.

The Company also reported Combined Operating Income (a non-GAAP measure defined in the attached Explanation of Non-GAAP Financial Measures) of $5 million or $0.04 per diluted share for the third quarter of 2016 compared with Combined Operating Income of $24 million or $0.15 per diluted share for the third quarter of 2015. The decline in Combined Operating Income for the third quarter of 2016 compared to the same period of 2015 was primarily driven by higher losses and loss adjustment expenses.

Adjusted Book Value (ABV) per share (a non-GAAP measure defined in the attached Explanation of Non-GAAP Financial Measures) was $32.39 as of September 30, 2016 compared with $29.69 as of December 31, 2015. The increase in ABV per share since year-end 2015 was primarily driven by the repurchase of 16.6 million shares during the first nine months of 2016.

Operating Income and ABV per share provide investors with two perspectives of the Company’s financial results that management uses in measuring financial performance. Reconciliations of ABV per share to book value per share, and Operating Income to net income, calculated in accordance with GAAP, are attached.

Statements from Company Representative

Bill Fallon, MBIA Inc.’s President and Chief Operating Officer stated, “This quarter, we continued to lay the groundwork for our future success, as we further expanded our network of new business relationships, pursued favorable resolutions for our stressed insured credits and strengthened our financial foundation by further reducing leverage and trimming expenses.”

Mr. Fallon added, “In particular, the market’s expanding acceptance of National in this challenging low interest rate environment is encouraging. More counterparties are seeking bond insurance from National and National’s trading differential with its competitors continues to narrow.”

Year-to-Date Results

The Company recorded a consolidated GAAP net loss of $73 million, or $(0.55) per diluted common share for the nine months ended September 30, 2016, compared with consolidated net income of $98 million, or $0.55 per diluted common share, for the first nine months of 2015. The $171 million adverse variance was primarily driven by a $111 million unfavorable variance in the fair value of insured derivatives and a $70 million increase in losses and loss adjustment expenses.

The Company’s Combined Operating Income for the nine months ended September 30, 2016 was $36 million or $0.28 per diluted share compared with Combined Operating Income of $77 million or $0.45 per diluted share for the first nine months of 2015. The $41 million decrease in the Combined Operating Income for the first nine months of 2016 was primarily due to lower premiums earned and an adverse variance in losses and loss adjustment expenses.

U.S. Public Finance Insurance Results

The Company’s U.S. public finance insurance business is primarily conducted through National Public Finance Guarantee Corporation (“National”), its primary operating subsidiary. The U.S. Public Finance Insurance segment recorded GAAP net income of $44 million for the third quarter of 2016 versus $46 million for the third quarter of 2015.

National also recorded $24 million of Operating Income in the third quarter of 2016 compared with $48 million of Operating Income for the third quarter of 2015. The $24 million decrease in Operating Income was primarily due to a $35 million adverse variance in losses and loss adjustment expenses.

Net premiums earned in the U.S. Public Finance Insurance segment were $60 million in the third quarter of 2016, down 12 percent from $68 million of net premiums earned in the third quarter of 2015, which comprised a 16 percent decrease in scheduled premiums earned and a 9 percent decrease in refunded premiums earned.

National insured $339 million of new business gross par exposure during the third quarter of 2016, up from $129 million during the third quarter of 2015.

Net investment income for the U.S. Public Finance Insurance segment was $29 million for both the third quarter of 2016 and the prior year’s third quarter.

Net gains on financial instruments at fair value and foreign exchange was $31 million for the third quarter of 2016 versus $1 million for the third quarter of 2015. The change was primarily related to net gains on the sale of investments.

The U.S. Public Finance Insurance segment’s losses and loss adjustment expenses were $28 million in the third quarter of 2016, primarily related to its insured Puerto Rico bonds, versus a benefit of $7 million in the third quarter of 2015.

For the third quarter of 2016, the amortization of deferred acquisition costs totaled $12 million versus $15 million for the third quarter of 2015, reflecting the reduction in premiums earned. Operating expenses were $15 million and $17 million for the third quarters of 2016 and 2015, respectively.

National had statutory capital of $3.5 billion and claims-paying resources totaling $4.7 billion as of September 30, 2016. National’s insured portfolio declined by $13 billion during the quarter, ending the quarter with $125 billion of gross par outstanding. National ended the quarter with a leverage ratio of gross par to statutory capital of 35 to 1, down from 48 to 1 at year-end 2015.

Corporate Results

The corporate segment includes general corporate activities, as well as the support services provided to the Company’s other operating businesses and asset and capital management activities. The corporate segment recorded a GAAP net loss of $15 million for the third quarter of 2016 versus a net loss of $43 million for the third quarter of 2015. The $28 million favorable variance was primarily driven by a $43 million reduction of net losses on financial instruments at fair value and foreign exchange, which largely resulted from a favorable change in the fair value of interest rate swaps.

The corporate segment recorded an Operating Loss of $19 million in the third quarter of 2016 compared with an Operating Loss of $24 million in the third quarter of 2015. The $5 million improvement in the corporate segment's Operating Loss was primarily driven by a favorable variance in investment related activity included in the Operating Loss.

As of September 30, 2016, MBIA Inc. held cash and liquid assets of $237 million, which excludes assets in its tax escrow account that totaled $295 million at quarter-end.

The Company’s consolidated net operating loss carryforward for income tax purposes as of September 30, 2016 was approximately $2.7 billion.

During the third quarter of 2016, the Company and its subsidiaries did not repurchase any of its common shares. As of September 30, 2016, there was $88 million remaining capacity under the Company’s current share repurchase authorization. As of November 2, 2016, 136 million of the Company’s common shares were outstanding.

International and Structured Finance Insurance Results

The Company’s international and structured finance insurance business is primarily conducted through MBIA Corp. Unless otherwise indicated or the context otherwise requires, references to “MBIA Corp.” are to MBIA Insurance Corporation, together with its subsidiaries, MBIA UK Insurance Limited and MBIA Mexico S.A. de C.V.

MBIA Insurance Corporation’s statutory net loss was $40 million in the third quarter of 2016, compared with a net loss of $12 million in the third quarter of 2015. Statutory net losses and loss adjustment expenses incurred for the third quarter of 2016 were $74 million compared with net losses and loss adjustment expenses incurred of $50 million in the comparable quarter of the prior year. The statutory capital of MBIA Insurance Corporation as of September 30, 2016 was $674 million and claims-paying resources totaled $2.1 billion.

As of September 30, 2016, MBIA Insurance Corporation’s liquidity position (excluding resources from its subsidiaries and branches) totaled $238 million consisting of cash and liquid invested assets.

During the third quarter of 2016, MBIA Insurance Corporation announced that its wholly owned subsidiary, MBIA UK (Holdings) Ltd., had reached an agreement to sell its operating subsidiary, MBIA UK Insurance Limited (MBIA UK), subject to satisfying closing conditions and securing several regulatory approvals. The potential sale of MBIA UK is an element of MBIA Insurance Corporation’s strategy to satisfy its claims payment obligations on the Zohar II 2005-1 CLO (Zohar II Notes) it insures. The Zohar II Notes had $770 million of gross par outstanding as of September 30, 2016 and are currently scheduled to mature on January 20, 2017.

Conference Call

The Company will host a webcast and conference call for investors tomorrow, Wednesday, November 9, 2016 at 8:00 AM (ET) to discuss its third quarter 2016 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 [phone] in the U.S. and [phone] from outside the U.S. The conference call code is 99802609. 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 November 9 and will remain available until 11:59 p.m. on November 23 by dialing [phone] in the U.S. or [phone] from outside the U.S. The code for the replay of the call is also 99802609. 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.

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