ARMONK, N.Y.--(BUSINESS WIRE)--
MBIA Inc. (NYSE: MBI):
Highlights
-- MBIA Inc.'s Adjusted Book Value (ABV) per share (a non-GAAP measure) was
$40.01 as of June 30, 2009, compared with $40.06 as of December 31,
2008. ABV excludes the impact of changes in the fair value of insured
credit derivatives but includes estimated credit impairments. Those
impairments in the first half of 2009 essentially offset the benefit
from other components of ABV.
-- MBIA Inc.'s book value per share was $13.30 as of June 30, 2009 compared
with $4.78 as of December 31, 2008. Book value increased due to a $2.0
billion improvement in the fair values of insured credit derivatives and
$455 million from all other components of pre-tax income.
-- The Company recorded net income available to common shareholders of $1.6
billion, or $7.64 per share, for the first half of 2009, compared with a
net loss of $706.4 million, or $3.33 per share, during the same period
in 2008.
-- The Company recorded net income available to common shareholders of
$894.7 million, or $4.30 per share, for the second quarter of 2009,
compared with net income of $1.7 billion, or $7.14 per share, for the
second quarter of 2008.
-- The Company recorded $1.1 billion in pre-tax estimated recoveries
related to ineligible mortgages included in insured second-lien
residential mortgage loan securitization exposures that are subject to a
contractual obligation by seller/servicers to remove or replace such
mortgages. In addition, during the second quarter, the Company observed
continued deterioration in the performance of its insured second-lien
residential mortgage loan securitization exposures and increased its
related case loss reserves reflecting expectations for additional claims
payments to policyholders in those transactions, resulting in an
increase to incurred losses of $353.7 million. The net effect of the
anticipated recoveries, increase to incurred losses and certain other
reserve adjustments was a reduction in loss reserves of $729.3 million
as of June 30, 2009. The Company also estimated $287.0 million in
incremental credit impairments on its insured multi-sector CDO exposures
in the second quarter.
-- The Company's exposure to structured finance credits in the Structured
Finance and International Insurance segment declined in the second
quarter, to $216.6 billion as of June 30, 2009, down from $224.8 billion
as of March 31, 2009. During the second quarter, nine insured credit
derivative transactions representing $9.4 billion in net par exposure
either matured or were contractually terminated prior to maturity
without a payment by MBIA.
-- Within Investment Management Services (IMS) operations, the Advisory
Services business turned in a strong performance and continued to add
new clients, as its ending assets under management increased by 5
percent in the second quarter, and by 9 percent excluding assets managed
for affiliates.
MBIA Inc. (NYSE: MBI) today reported Adjusted Book Value (ABV) per share
(a non-GAAP measure) of $40.01 as of June 30, 2009 compared with $40.06
as of December 31, 2008. Book value per share as of June 30, 2009 was
$13.30 compared to $4.78 as of December 31, 2008.
The increase in book value per share is primarily due to a decrease in
the cumulative unrealized loss on insured credit derivatives of $6.19
per share. Other elements of net income contributed $1.33 to book value
per share. ABV per share was essentially unchanged over the first six
months of 2009, as increased impairments on insured credit derivatives
were offset by the other elements of net income.
Net income available to common shareholders for the first half of 2009
was $1.6 billion, or $7.64 per share, compared with a net loss of $706.4
million, or $3.33 per share, during the same period in 2008. For the
second quarter of 2009, net income available to common shareholders was
$894.7 million, or $4.30 per share, compared with net income of $1.7
billion, or $7.14 per share, for the second quarter of 2008. Net income
in the second quarter of 2009 was primarily the result of a net decrease
in loss reserves, as a $353.7 million increase to incurred losses on
insured second-lien residential mortgage backed securities (RMBS) was
more than offset by $1.1 billion in estimated recoveries recorded in
connection with ineligible mortgage loans in certain insured second-lien
residential mortgage loan securitizations. The Company also recorded
$423.8 million in unrealized gains on insured credit derivatives and
$116.3 million in gains on the extinguishment of debt. Partially
offsetting these positive amounts in the second quarter were $113.7
million in pre-tax other-than-temporary impairments, primarily on
structured investments in the Company's Asset Liability Management (ALM)
investment portfolio.
"The performance of insured RMBS continued to deteriorate in the second
quarter, and we expect continued high levels of claims payments for the
balance of 2009," said President and Chief Financial Officer Chuck
Chaplin. "We believe MBIA Insurance Corp. has more than adequate
resources to cover these expected payments. In addition, our embedded
earnings stream continued to be evident, and we made progress in growing
the asset management Advisory Services business. While litigation has
slowed the progress toward re-establishing our position in the municipal
bond insurance business, we continue to believe that we will ultimately
prevail, and have laid the groundwork to resume writing new business."
Segment Results
The following is a summary of results for the first six months and
second quarter of 2009, as well as book value and ABV per share data:
Structured Investment
$ in millions U.S. Public
except per Finance and Management Corporate Consolidated
share data Finance
International Services
YTD Pre-tax $ 233 $ 2,330 $ (34 ) $ (46 ) $ 2,488
Income
Q2 Pre-tax $ 146 $ 1,260 $ 115 $ (19 ) $ 1,503
Income
6/30/09 BV per $ 11.84 $ 11.67 $ (9.28 ) $ (0.93 ) $ 13.30
share
12/31/08 BV per $ 10.97 $ 5.16 $ (10.53 ) $ (0.82 ) $ 4.78
share
6/30/09 ABV per $ 19.81 $ 24.85 $ (3.72 ) $ (0.93 ) $ 40.01
share
12/31/08 ABV $ 18.95 $ 25.17 $ (3.26 ) $ (0.80 ) $ 40.06
per share
U.S. Public Finance Results
The contribution to MBIA Inc.'s book value per share attributable to the
U.S. Public Finance Insurance segment was $11.84 as of June 30, 2009
compared with $10.97 as of December 31, 2008 (pro forma). The
contribution to ABV per share was $19.81 as of June 30, 2009 as compared
with $18.95 (pro forma) as of December 31, 2008. The increase in
both book value and ABV per share is the result of net income for the
segment. The U.S. Public Finance insurance business is conducted in the
National Public Finance Guarantee Corporation (National) subsidiary.
While the U.S. Public Finance Insurance segment wrote virtually no new
business in the first half of the year, the existing book of business
performed as expected and generated scheduled premiums earned of $217.7
million in the first six months of 2009 and $104.0 million in the second
quarter, up 78 percent and 73 percent, respectively, from the first half
and second quarter of 2008. The growth was primarily the result of the
previously announced reinsurance transaction with Financial Guaranty
Insurance Corp. (FGIC) in 2008. Refunded premiums earned totaled $65.2
million for the first half of 2009, down 28 percent from $90.1 million
in the first half of 2008. Refunded premiums earned were $29.0 million
in the second quarter of 2009, down 65 percent from $83.8 million in the
second quarter of 2008. Refundings were unusually high in the second
quarter of 2008 as municipal issuers converted from auction rate
securities to fixed rate debt.
Pre-tax net investment income for the U.S. Public Finance Insurance
segment was $91.1 million for the first six months of 2009 and $60.0
million in the second quarter. National's investment portfolio averaged
Double-A credit quality, and totaled $5.1 billion as of June 30, 2009.
National's investment portfolio comprised 46 percent taxable securities
and 54 percent tax-exempt securities as of quarter-end.
Loss and loss adjustment expenses for the U.S. Public Finance Insurance
segment totaled $63.0 million in the first half of 2009 and $5.3 million
in the second quarter. Approximately $55.3 million of the loss in the
first half of the year was attributable to a Texas affordable housing
transaction that was first recognized in the first quarter.
Expenses in the U.S. Public Finance Insurance segment for the first half
of 2009 consisted of $56.7 million from the amortization of deferred
acquisition costs associated with ceding commissions paid to MBIA Corp.
and $28.4 million in operating expenses. In the second quarter, the
amortization of deferred acquisition costs totaled $28.5 million and
operating expenses were $20.6 million. No expenses were deferred in the
first half of 2009 as there was virtually no new business written in the
segment.
Structured Finance and International Insurance Results
The contribution to MBIA Inc.'s book value per share attributable to the
Structured Finance and International Insurance segment was $11.67 as of
June 30, 2009, compared with $5.16 as of December 31, 2008 (pro forma).
The contribution to ABV per share was $24.85 as of June 30, 2009, as
compared with $25.17 (pro forma) as of December 31, 2008. The
increase in book value per share reflects net income for the segment
driven by unrealized net gains (marks-to-market) on insured derivatives.
The modest reduction in ABV per share reflects the impact of impairments
on insured credit derivatives. The Structured Finance and International
Insurance business is conducted in MBIA Corp. and its subsidiaries.
While there was no new business written in the Structured Finance and
International Insurance segment in the first half of 2009, the existing
book of business generated $198.6 million in scheduled premiums earned
in the first six months of the year and $79.5 million in scheduled
premiums earned in the second quarter. Refunded premiums earned totaled
$2.0 million in the first half of the year and $1.3 million in the
second quarter.
Pre-tax net investment income for the Structured Finance and
International Insurance segment was $191.2 million in the first half of
2009 and $84.5 million in the second quarter. Both the second quarter
and first six months of the year were affected by a lower level of
invested assets due to claims payments and, to a lesser extent, by lower
average yields resulting from MBIA Corp.'s shift toward a greater
proportion of cash and short-term investments.
Fee income for the Structured Finance and International Insurance
segment totaled $90.4 million in the first six months of 2009 and $48.4
million in the second quarter. Fees in the second quarter included $28.5
million representing the amortization of ceding commission income
received by MBIA Corp. from National in connection with the Company's
Transformation.
Realized gains and other settlements on insured derivatives totaled
$63.6 million in the first half of 2009 and $31.9 million in the second
quarter, consisting almost entirely of premiums attributable to insured
credit derivatives.
The Structured Finance and International Insurance segment recognized
$423.6 million in pre-tax unrealized net gains (marks-to-market) on
insured credit derivatives in the second quarter of 2009. Pre-tax
unrealized net gains on insured credit derivatives totaled $2.0 billion
for the first six months of 2009. The table below estimates the
attributes of the second quarter unrealized net gain on insured credit
derivatives.
Change Non-
Spread Credit Collateral Time to
in Performance Other Total
Changes Migration Erosion Maturity Libor
Risk
$ millions
Multi-sector 2 (85) (621) 17 77 (51) 416 (245)
CDO
Multi-sector (1) (8) 4 (11) 95 (114) 65 30
CDO-squared
Commercial
Real 540 (85) 10 194 306 (785) 47 227
Estate/CMBS
Corporate 2,097 (33) (67) 231 153 (1,966) (25) 390
Other (3) 0 6 39 12 (216) 183 21
Total 2,635 (211) (668) 470 643 (3,132) 686 423
During the second quarter spreads on collateral narrowed, remaining time
to maturity decreased and the discount rate increased. These positive
effects were partially offset by the impact of MBIA Corp.'s and its
reinsurers' non-performance risk on all factors affecting the fair
value. The market's perception of MBIA's and its reinsurers' default
risk, as measured by credit default swap spreads, was essentially
unchanged in the second quarter.
Pre-tax net investment losses from other-than-temporary impairments in
the Structured Finance and International Insurance segment totaled $6.2
million in the second quarter. An additional $85.4 million of pre-tax
non-credit-related impairments on debt securities were charged directly
to equity through other comprehensive income from the application of the
recently issued accounting guidance on the recognition and presentation
of other-than-temporary impairments.
The Structured Finance and International Insurance segment incurred a
$734.6 million net benefit to loss and loss adjustment expenses in the
second quarter of 2009 as it recorded approximately $1.1 billion in
estimated recoveries in connection with ineligible mortgages in certain
insured second-lien residential mortgage loan securitizations that are
subject to a contractual obligation by the seller/servicer to repurchase
or replace the mortgages. The anticipated recoveries arise from a
forensic review of 23,765 defaulted mortgage loans in 24 insured
second-lien mortgage loan securitizations. These 24 securitizations
contain a total of 496,917 mortgage loans. The 23,765 defaulted mortgage
loans reviewed thus far represent approximately 27 percent of the total
number of mortgage loans in these securitizations that are currently
delinquent or defaulted. Based on this review, the Company has concluded
that the delinquent and defaulted loans that were reviewed breached the
representations and warranties in the related insured RMBS
securitization and that, as a result, the seller/servicer is
contractually obligated to repurchase these ineligible loans at a price
equal to their outstanding principal balance plus accrued interest or to
replace them with eligible mortgage loans. While the Company believes
that these mortgage loans are subject to a repurchase or replacement
obligation by the seller/servicers, successful challenges of such
determinations by the seller/servicers could result in the Company
recovering less than the amount of its estimated recoveries. The Company
is continuing to review and evaluate additional mortgage loans in its
insured RMBS pools and expects that there will be additional mortgages
in these or in other transactions that are subject to a repurchase or
replacement obligation by the seller/servicer. In addition, recoveries
and damages from legal actions that MBIA has filed against certain of
the seller/servicers could result in recoveries that are substantially
higher than the amount currently recognized as recoveries. Partially
offsetting the $1.1 billion in pre-tax recoveries was a $353.7 million
increase in losses incurred, reflecting additional deterioration in the
performance of these insured exposures.
As part of the ongoing review of the performance expectations for its
insured portfolio, the Company monitors and discloses a non-GAAP measure
that it refers to as "credit impairments." Credit impairments represent
the present value of future expected loss payments on insured credit
derivatives, net of recoveries. In the second quarter of 2009, the
Company estimated $287.0 million in incremental credit impairments on
its multi-sector CDO exposures. Although the Company's income statement
includes the change in fair value of insured credit derivatives, it
regards the changes in credit impairment estimates as critical
information for investors since the credit impairment estimates reflect
the present value of amounts it expects to pay in claims net of
recoveries with respect to insured credit derivatives. The aggregate
total credit impairment for the Company's outstanding insured credit
derivatives was $1.6 billion as of the end of the second quarter. The
total impairment amount on insured credit derivatives is analogous to
case loss reserves on financial guarantee policies as both represent the
present value of future expected loss payments net of recoveries.
Other than the credit impairments, the Company expects the unrealized
gains and losses in fair value (marks-to-market) to be reversed prior to
or upon the maturities of the insured credit derivatives. As of June 30,
2009, the Company carried a net derivative liability (the cumulative
mark-to-market on insured credit derivatives) of $3.4 billion for all
insured credit derivatives.
While the Company believes that its current estimates for loss reserves
and credit impairments on insured credit derivatives for its
housing-related exposures reflect expected losses, it will continue to
monitor the performance of the collateral underlying these exposures and
adjust its loss reserves and credit impairment estimates in future
periods should expectations change.
The Structured Finance and International Insurance segment's insured
portfolio declined in size in the second quarter of 2009, to $216.6
billion as of June 30, 2009, down from $224.8 billion as of March 31,
2009. During the second quarter, nine insured credit derivative
transactions representing $9.4 billion in net par exposure either
matured or were contractually terminated prior to maturity without
payments by MBIA. There were no material commutations of insured credit
derivative exposures requiring a payment by MBIA in the quarter. The
reduction in net par resulting from amortization, terminations and
maturities during the quarter was partially offset by the reassumption
of approximately $1.3 billion in previously ceded exposure as a result
of a commutation agreement with one reinsurer.
The Structured Finance and International Insurance segment's gross
insurance operating expenses (prior to deferrals or the amortization of
previously deferred amounts) were $104.9 million in the first half of
2009 and $35.7 million in the second quarter. While cost-reduction
efforts have resulted in lower compensation-related expenses, the
segment has experienced increases in consulting, legal and loss
prevention expenses, a significant portion of which are related to
efforts to obtain recoveries on improperly originated and serviced
transactions. As there was no new business written in the segment during
the first half of 2009, no expenses were deferred.
During the second quarter of 2009, MBIA Corp. paid a total of $644.6
million in net claims primarily in connection with its second-lien
residential mortgage exposures. As of June 30, 2009, MBIA Corp.'s
statutory balance sheet reflected $5.6 billion in cash and invested
assets including $1.3 billion of cash and short-term investments
available to meet demands on its liquidity. In addition, MBIA Corp.'s
other invested assets included a $2.0 billion inter-company secured loan
facility, $1.7 billion in long-term investments and other assets, and
$583 million in investments in subsidiaries.
MBIA Insurance Corp.'s statutory capital and surplus was $2.9 billion at
June 30, 2009. In addition, MBIA's statutory contingency reserve was
$1.3 billion. MBIA Corp.'s claims-paying resources totaled $7.8 billion
as of June 30, 2009.
Investment Management Services
The Investment Management Services business' contribution to book value
per share improved from ($10.53) as of December 31, 2008 to ($9.28) as
of June 30, 2009. The improvement resulted from a reduction in
unrealized losses in Other Comprehensive Income. ABV per share declined
slightly, from ($3.26) to ($3.72) due to the impact of lower expected
future spread income from asset impairments.
Ending assets under management in the Advisory Services business were
$34.9 billion as of June 30, 2009, a 5 percent increase from $33.1
billion as of March 31, 2009 and a 9 percent increase from $31.9 billion
as of year-end 2008. Excluding assets managed for affiliates, assets
under management in the Advisory Services business increased 9 percent
in the second quarter of 2009 and 18 percent in the first six months of
the year. The growth reflects the Company's success in adding new
clients despite a difficult business environment.
The ALM and conduit businesses continued to wind-down throughout the
first half of 2009. As of June 30, 2009, the Company had $8.8 billion in
outstanding guaranteed investment contract, medium term note and
repurchase agreement liabilities (all at book value) related to its ALM
business, down from $9.7 billion as of March 31, 2009 and $12.3 billion
as of December 31, 2008. Total invested assets in the ALM business were
$8.1 billion as of June 30, 2009, excluding unrealized losses, of which
$1.3 billion consisted of cash and short-term investments. The Company
believes that its liquidity resources, along with cash flows generated
from the ALM assets, will adequately provide for the cash outflows and
collateral posting requirements of the ALM business, irrespective of
ratings.
Assets under management in the conduit business totaled $1.8 billion as
of June 30, 2009, down from $2.1 billion as of March 31, 2009 and $2.4
billion as of December 31, 2008. Conduit assets declined due to the
maturity and scheduled amortization of transactions and the repurchase
of a medium-term note.
First half and second quarter 2009 results for the IMS operation,
excluding gains and losses, reflected the negative impact of lower ALM
contract balances, negative net interest spread resulting from sales of
assets and reinvestment in cash to meet termination payments and
collateralization requirements as well as the additional cost of
liquidity borrowings from external and intercompany sources.
In the second quarter, the pre-tax net gain for the IMS operation on
financial instruments at fair value and foreign exchange was $114.7
million, net realized gains were $18.7 million and net investment losses
from other-than-temporary impairments totaled $107.4 million. An
additional $158.4 million of pre-tax non-credit-related impairments on
debt securities were charged directly to equity through other
comprehensive income from the application of the recently issued
accounting guidance on the recognition and presentation of
other-than-temporary impairments. The pre-tax net gain on financial
instruments at fair value and foreign exchange was primarily the result
of gains on interest rate swaps in the ALM portfolio, while the
investment losses primarily resulted from the recognition of
other-than-temporary impairments to securities held in the ALM asset
portfolio. There were no impairments to conduit assets. Pre-tax net
gains on the extinguishment of debt totaled $115.1 million in the second
quarter and resulted from the repurchase of medium-term notes at
discounts.
Corporate Segment
The contribution to MBIA Inc.'s book value per share attributable to the
Corporate segment was $(0.93) as of June 30, 2009, compared with $(0.82)
as of December 31, 2008. The contribution to consolidated ABV per share
was $(0.93) as of June 30, 2009, as compared with $(0.80) as of December
31, 2008.
MBIA Inc. purchased 39 percent of the outstanding preferred shares of
MBIA Insurance Corporation during the second quarter through the
combination of a tender offer and open market transactions. The purchase
price of the preferred shares totaled $10.8 million, or 10 percent of
their liquidation preference amount of $108.2 million. The Company also
repurchased $1.7 million of its 4.50% Notes due June 2010 and $7.0
million of its 9.375% Notes due February 2011 at discounts during the
second quarter, resulting in gains totaling $1.2 million. The Company
did not repurchase any shares of its common stock during the second
quarter.
As of June 30, 2009 the Corporate segment of MBIA Inc. had $378.0
million in cash and short-term investments, an amount sufficient to meet
approximately the next 2.4 years of debt service and operating expense
requirements.
Deferred Tax Asset
As of June 30, 2009, the Company carried a net deferred tax asset of
$1.3 billion on its consolidated balance sheet. The amount of the net
deferred tax asset, which can be used to offset future income, is driven
by cumulative mark-to-market unrealized losses recorded on the Company's
insured credit derivative and investment portfolios. Capital losses,
primarily associated with the write-down due to other-than-temporary
impairments and sale of assets in the ALM portfolio and MBIA Corp., can
only be used to offset available realized capital gains. Consequently,
the Company has increased its previously established valuation allowance
by $23.7 million in the second quarter to a total of $90.9 million for
the year against the portion of the deferred tax asset related to
other-than-temporary impairments and realized capital losses expected to
be carried forward. In addition, $29.9 million of the valuation
allowance that was established in prior periods has been reversed as
part of the cumulative effect adjustment of adopting new accounting
guidance on the recognition and presentation of other-than-temporary
impairments. As of June 30, 2009, the Company has a valuation allowance
totaling $412.3 million. The Company continues to have no net deferred
tax asset recorded for the realized capital losses on the sales of, and
other-than-temporary impairments on, assets in the investment portfolio.
The Company believes that the income expected in the future will be
sufficient to allow it to realize the full value of the remaining net
deferred tax asset. However, the Company's valuation allowance may
increase or decrease in the future depending on the nature and amount of
future earnings of appropriate character for tax purposes.
Conference Call
MBIA Inc. will host a webcast and conference call for investors
tomorrow, Thursday, August 6, 2009 at 8:00 AM (EDT) to discuss its
second quarter 2009 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 20124515. A
live webcast of the conference call will also be accessible on www.mbia.com.
A replay of the call will be available approximately two hours after the
completion of the call on August 6 until 5:00 p.m. on August 20 by
dialing (800) 642-1687 in the U.S. or (706) 645-9291 from outside the
U.S. The replay call code is also 20124515. In addition, a recording of
the call will be available on MBIA Inc.'s Web site 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,"
"intend," "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 risks,
the possibility that the Company will experience severe losses due to
increased deterioration in its insurance portfolios; significant
fluctuations in liquidity and asset values with the global credit
markets; the Company's ability to fully implement its Strategic Plan as
outlined in the Company's most recent Annual Report on Form 10-K;
further changes in the Company's credit ratings; 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 the Company's
forward-looking statements are discussed under the "Risk Factors"
section in MBIA Inc.'s most recent Annual Report on Form 10-K, which may
be updated or amended in the Company's subsequent filings with the
Securities and Exchange Commission. MBIA cautions readers not to place
undue reliance on any such forward-looking statements, which speak only
to their respective dates. The Company undertakes 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 Armonk, New York is a holding company whose
subsidiaries provide financial guarantee insurance, fixed-income asset
management, and other specialized financial services. The Company
services its clients around the globe, with offices in New York, Denver,
San Francisco, Paris, London, Madrid, Mexico City and Sydney. Please
visit MBIA's Web site at www.mbia.com.
Explanation of Non-GAAP Financial Measures
The following are explanations of why MBIA 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 ("ABV"): The Company believes the
presentation of ABV, which includes items that are expected to impact
shareholders' equity in future periods and, in general, do not require
any additional future performance obligation on the Company's part and
excludes gains and losses due to market value changes that have not been
realized through sales or impairments of assets or extinguishment of
liabilities, provides additional information that gives a comprehensive
measure of the value of the Company. ABV is not a substitute for GAAP
book value but does provide investors with additional information when
viewed in conjunction with GAAP book value.
Credit Impairments: Although MBIA's income statement includes the
change in fair value of insured credit derivatives, the Company believes
the estimation of credit impairments, which are the present value of
future expected loss and loss adjustment expense payments, net of
recoveries, on insured credit derivatives, provides additional important
information for investors. Other than the impairments, the Company
expects the gains and losses in fair value of insured credit derivatives
to reverse over time.
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands)
June 30, 2009 December 31, 2008
Assets
Investments:
Fixed-maturity securities held as
available-for-sale, at fair value
(amortized cost $11,907,958 and $13,245,574)
(includes hybrid
financial instruments at fair value $29,428 $9,797,192 $11,223,716
and $25,498)
Investments held-to-maturity, at amortized
cost
(fair value $2,295,828 and $3,109,248) 2,843,238 3,156,969
Investments pledged as collateral, at fair
value
(amortized cost $848,303 and $1,101,929) 736,615 845,887
Short-term investments held as
available-for-sale, at fair value
(amortized cost $3,403,448 and $4,728,090) 3,365,229 4,693,283
Short-term investments held-to-maturity, at
amortized cost (fair value
$1,113,431 and $485,857) 1,114,288 498,865
Other investments 417,248 220,412
Total investments 18,273,810 20,639,132
Cash and cash equivalents 899,599 2,279,783
Accrued investment income 119,982 201,688
Premiums receivable 2,130,976 7,744
Deferred acquisition costs 514,194 560,632
Prepaid reinsurance premiums 450,667 216,609
Receivable for insurance loss recoveries 1,745,144 458,512
Reinsurance recoverable on paid and unpaid 52,100 173,548
losses
Goodwill 76,938 76,938
Property and equipment (net of accumulated 103,942 105,364
depreciation)
Receivable for investments sold 304,118 77,464
Derivative assets 754,890 911,188
Current income taxes 64,194 240,871
Deferred income taxes, net 1,274,821 2,374,164
Other assets 531,092 706,812
Total assets $27,296,467 $29,030,449
Liabilities and Equity
Liabilities:
Unearned premium revenue $ 5,336,856 $ 3,424,402
Loss and loss adjustment expense reserves 1,260,652 1,557,884
Reinsurance premiums payable 297,153 8,672
Investment agreements 3,026,784 4,666,944
Medium-term notes (includes financial
instruments at
fair value $122,006 and $176,261) 4,135,921 6,339,527
Variable interest entity notes 2,637,031 1,791,597
Securities sold under agreements to repurchase 690,661 802,938
Long-term debt 2,516,725 2,396,059
Deferred fee revenue 86,523 44,989
Payable for investments purchased 36,671 239
Derivative liabilities 4,189,241 6,470,874
Other liabilities 300,311 504,306
Total liabilities 24,514,529 28,008,431
Equity:
Common stock 274,885 273,200
Additional paid-in capital 3,054,045 3,050,506
Retained earnings 3,361,494 1,629,187
Accumulated other comprehensive loss (1,741,199 ) (1,775,954 )
Treasury stock (2,184,065 ) (2,182,519 )
Total shareholders' equity of MBIA Inc. 2,765,160 994,420
Preferred stock of subsidiary 16,778 27,598
Total equity 2,781,938 1,022,018
Total liabilities and equity $27,296,467 $29,030,449
MBIA INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (Unaudited)
(in thousands)
U.S. Structured
Public Finance and Investment
Three months Intercompany
ended June 30, Finance International Management Corporate Subtotal Consolidated
2009 Eliminations
Insurance Insurance Services
(National) (MBIA Corp.)
Revenues:
Scheduled
premiums $ 103,973 $ 79,544 $ - $ - $ 183,517 $ (30,391 ) $ 153,126
earned
Refunded
premiums 29,028 1,289 - - 30,317 (5,495 ) 24,822
earned
Total premiums 133,001 80,833 - - 213,834 (35,886 ) 177,948
earned
Net investment 60,028 84,468 52,082 4,082 200,660 (21,372 ) 179,288
income
Fees and 333 48,442 12,088 - 60,863 (39,057 ) 21,806
reimbursements
Realized gains
and other
settlements
on insured 130 31,906 - - 32,036 - 32,036
derivatives
Unrealized
gains on 188 423,598 - - 423,786 - 423,786
insured
derivatives
Net change in
fair value of 318 455,504 - - 455,822 - 455,822
insured
derivatives
Net gains
(losses) on
financial
instruments
at fair value
and foreign - 12,298 114,720 (2,639 ) 124,379 - 124,379
exchange
Net realized 7,019 604 18,746 3,853 30,222 - 30,222
gains
Investment
losses - other - (91,586 ) (265,832 ) - (357,418 ) - (357,418 )
than temporary
impairments
Non-credit
related losses
on investments
not expected
to be
sold
(recognized in
accumulated - 85,369 158,383 - 243,752 - 243,752
other
comprehensive
loss)
Net investment
losses - other - (6,217 ) (107,449 ) - (113,666 ) - (113,666 )
than temporary
impairments
Net gains on
extinguishment - - 115,138 1,165 116,303 - 116,303
of debt
Total revenues 200,699 675,932 205,325 6,461 1,088,417 (96,315 ) 992,102
Expenses:
Loss and LAE 5,250 (734,561 ) - - (729,311 ) - (729,311 )
incurred
Amortization
of deferred 28,477 58,484 - - 86,961 (60,894 ) 26,067
acquisition
costs
Operating 20,574 39,310 20,741 7,203 87,828 (7,877 ) 79,951
Interest - 53,022 69,157 17,839 140,018 (27,544 ) 112,474
Total expenses 54,301 (583,745 ) 89,898 25,042 (414,504 ) (96,315 ) (510,819 )
Pre-tax income $ 146,398 $ 1,259,677 $ 115,427 $ (18,581 ) $ 1,502,921 $ - 1,502,921
(loss)
Provision for 604,907
income taxes
Net income 898,014
Preferred
stock 3,271
dividends of
subsidiary
Net income
available to $ 894,743
common
shareholders
Investment
Three months Intercompany
ended June 30, Insurance Management Corporate Subtotal Consolidated
2008 Eliminations
Services
Revenues:
Scheduled
premiums $ 153,865 $ - $ - $ 153,865 $ (8,229 ) $ 145,636
earned
Refunded
premiums 87,757 - - 87,757 - 87,757
earned
Total premiums 241,622 - - 241,622 (8,229 ) 233,393
earned
Net investment 148,067 253,175 7,707 408,949 8,397 417,346
income
Fees and 2,453 14,235 - 16,688 (4,132 ) 12,556
reimbursements
Realized gains
and other
settlements
on insured 34,304 - - 34,304 - 34,304
derivatives
Unrealized
gains on 3,324,313 - - 3,324,313 - 3,324,313
insured
derivatives
Net change in
fair value of 3,358,617 - - 3,358,617 - 3,358,617
insured
derivatives
Net gains
(losses) on
financial
instruments
at fair value
and foreign 102,287 (69,952 ) 54,450 86,785 - 86,785
exchange
Net realized 22,762 (407,568 ) 1,509 (383,297 ) - (383,297 )
gains (losses)
Investment
losses - other - (436,164 ) - (436,164 ) - (436,164 )
than temporary
impairments
Non-credit
related losses
on investments
not expected
to be
sold
(recognized in
accumulated - - - - - -
other
comprehensive
loss)
Net investment
losses - other - (436,164 ) - (436,164 ) - (436,164 )
than temporary
impairments
Net gains on
extinguishment - 65,676 - 65,676 - 65,676
of debt
Total revenues 3,875,808 (580,598 ) 63,666 3,358,876 (3,964 ) 3,354,912
Expenses:
Loss and LAE 22,344 - - 22,344 - 22,344
incurred
Amortization
of deferred 22,977 - - 22,977 - 22,977
acquisition
costs
Operating 41,034 23,844 4,877 69,755 (3,433 ) 66,322
Interest 46,664 241,826 19,956 308,446 (531 ) 307,915
Total expenses 133,019 265,670 24,833 423,522 (3,964 ) 419,558
Pre-tax income $ 3,742,789 $ (846,268 ) $ 38,833 $ 2,935,354 $ - 2,935,354
(loss)
Provision for 1,234,994
income taxes
Net income $ 1,700,360
MBIA INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (Unaudited)
(in thousands)
U.S. Structured
Public Finance and Investment
Six months Intercompany
ended June 30, Finance International Management Corporate Subtotal Consolidated
2009 Eliminations
Insurance Insurance Services
(National) (MBIA Corp.)
Revenues:
Scheduled
premiums $ 217,672 $ 198,578 $ - $ - $ 416,250 $ (68,149 ) $ 348,101
earned
Refunded
premiums 65,175 2,035 - - 67,210 (8,694 ) 58,516
earned
Total premiums 282,847 200,613 - - 483,460 (76,843 ) 406,617
earned
Net investment 91,128 191,248 122,356 11,329 416,061 (47,871 ) 368,190
income
Fees and 577 90,368 24,103 - 115,048 (74,022 ) 41,026
reimbursements
Realized gains
and other
settlements
on insured 186 63,632 - - 63,818 - 63,818
derivatives
Unrealized
gains (losses) (167 ) 2,033,117 - - 2,032,950 - 2,032,950
on insured
derivatives
Net change in
fair value of 19 2,096,749 - - 2,096,768 - 2,096,768
insured
derivatives
Net gains
(losses) on
financial
instruments
at fair value
and foreign - 12,496 160,705 (11,443 ) 161,758 - 161,758
exchange
Net realized 7,019 8,926 45,572 2,894 64,411 - 64,411
gains
Investment
losses - other - (125,730 ) (461,677 ) - (587,407 ) - (587,407 )
than temporary
impairments
Non-credit
related losses
on investments
not expected
to be
sold
(recognized in
accumulated - 85,369 158,383 - 243,752 - 243,752
other
comprehensive
loss)
Net investment
losses - other - (40,361 ) (303,294 ) - (343,655 ) - (343,655 )
than temporary
impairments
Net gains on
extinguishment - 488 118,815 1,940 121,243 5,158 126,401
of debt
Total revenues 381,590 2,560,527 168,257 4,720 3,115,094 (193,578 ) 2,921,516
Expenses:
Loss and LAE 62,998 (98,584 ) - - (35,586 ) - (35,586 )
incurred
Amortization
of deferred 56,733 116,021 - - 172,754 (125,987 ) 46,767
acquisition
costs
Operating 28,364 104,859 38,234 15,545 187,002 (14,512 ) 172,490
Interest - 107,972 164,444 35,574 307,990 (58,237 ) 249,753
Total expenses 148,095 230,268 202,678 51,119 632,160 (198,736 ) 433,424
Pre-tax income $ 233,495 $ 2,330,259 $ (34,421 ) $ (46,399 ) $ 2,482,934 $ 5,158 2,488,092
(loss)
Provision for 889,430
income taxes
Net income 1,598,662
Preferred
stock 7,213
dividends of
subsidiary
Net income
available to $ 1,591,449
common
shareholders
Investment
Six months Intercompany
ended June 30, Insurance Management Corporate Subtotal Consolidated
2008 Eliminations
Services
Revenues:
Scheduled
premiums $ 310,013 $ - $ - $ 310,013 $ (16,857 ) $ 293,156
earned
Refunded
premiums 95,552 - - 95,552 - 95,552
earned
Total premiums 405,565 - - 405,565 (16,857 ) 388,708
earned
Net investment 300,700 603,036 14,864 918,600 13,810 932,410
income
Fees and 2,269 25,085 - 27,354 (7,506 ) 19,848
reimbursements
Realized gains
and other
settlements
on insured 68,062 - - 68,062 - 68,062
derivatives
Unrealized
losses on (252,790 ) - - (252,790 ) - (252,790 )
insured
derivatives
Net change in
fair value of (184,728 ) - - (184,728 ) - (184,728 )
insured
derivatives
Net gains
(losses) on
financial
instruments
at fair value
and foreign 162,058 (9,980 ) 11,269 163,347 - 163,347
exchange
Net realized 42,114 (369,673 ) 868 (326,691 ) - (326,691 )
gains (losses)
Investment
losses - other - (659,779 ) - (659,779 ) - (659,779 )
than temporary
impairments
Non-credit
related losses
on investments
not expected
to be
sold
(recognized in
accumulated - - - - - -
other
comprehensive
loss)
Net investment
losses - other - (659,779 ) - (659,779 ) - (659,779 )
than temporary
impairments
Net gains on
extinguishment - 79,217 - 79,217 - 79,217
of debt
Total revenues 727,978 (332,094 ) 27,001 422,885 (10,553 ) 412,332
Expenses:
Loss and LAE 309,952 - - 309,952 - 309,952
incurred
Amortization
of deferred 38,529 - - 38,529 - 38,529
acquisition
costs
Operating 87,303 40,371 12,053 139,727 (9,948 ) 129,779
Interest 93,411 565,660 40,090 699,161 (605 ) 698,556
Total expenses 529,195 606,031 52,143 1,187,369 (10,553 ) 1,176,816
Pre-tax income $ 198,783 $ (938,125 ) $ (25,142 ) $ (764,484 ) $ - (764,484 )
(loss)
Benefit for (58,111 )
income taxes
Net loss $ (706,373 )
MBIA INC. AND SUBSIDIARIES
Components of Adjusted Book Value per Share
June 30, 2009
National
Public MBIA Investment
Finance Insurance Management Corporate Consolidated
Guarantee Corporation Services
Corporation
Reported Book Value $11.84 $11.67 ($9.28 ) ($0.93 ) $13.30
Cumulative
unrealized loss
Plus: on insured 0.00 10.74 0.00 0.00 10.74
credit
derivatives,
after tax
Cumulative
impairments on
Less: insured credit 0.00 (4.98 ) 0.00 0.00 (4.98 )
derivatives,
after tax
Unrealized
Reverse: (gains) losses 0.20 1.54 6.94 0.00 8.68
included in OCI
Analytic Book Value 12.04 18.97 (2.34 ) (0.93 ) 27.74
Net unearned
Plus: premium 8.93 6.80 0.00 0.00 15.73
revenue, after
tax(1) (2)
Asset/Liability
Plus: products 0.00 0.00 (1.38 ) 0.00 (1.38 )
adjustment
Plus: Loss provision (1.16 ) (0.92 ) 0.00 0.00 (2.08 )
(3)
Adjusted Book Value(4) $19.81 $24.85 ($3.72 ) ($0.93 ) $40.01
December 31, 2008
National
Public MBIA Investment
Finance Insurance Management Corporate Consolidated
Guarantee Corporation Services
Corporation
Reported Book Value $10.97 $5.16 ($10.53 ) ($0.82 ) $4.78
Cumulative
unrealized loss
Plus: on insured 0.00 16.92 0.00 0.00 16.92
credit
derivatives,
after tax
Cumulative
impairments on
Less: insured credit 0.00 (3.78 ) 0.00 0.00 (3.78 )
derivatives,
after tax
Unrealized
Reverse: (gains) losses (0.02 ) 1.18 7.85 0.02 9.03
included in OCI
Analytic Book Value 10.95 19.48 (2.68 ) (0.80 ) 26.95
Net unearned
Plus: premium 9.42 6.38 0.00 0.00 15.80
revenue, after
tax(1) (2)
Asset/Liability
Plus: products 0.00 0.00 (0.58 ) 0.00 (0.58 )
adjustment
Plus: Loss provision (1.42 ) (0.69 ) 0.00 0.00 (2.11 )
(3)
Adjusted Book Value(4) $18.95 $25.17 ($3.26 ) ($0.80 ) $40.06
(1) The amounts consist of Financial Guarantee premiums and Insured
Derivative revenue.
At June 30, 2009 the discount rate on Financial Guarantee installment
premiums was the risk free rate as defined by SFAS 163 and the discount
(2) rate on Insured Derivative installment revenue was 5.03%. At December 31,
2008 the discount rate was 5.03% for both Financial Guarantee and Insured
Derivative installments.
(3) The loss provision is calculated by applying 12% to net unearned premiums
and net unearned Insured Derivative revenue on an after-tax basis.
(4) A non-GAAP measure.
Net Income (Loss) per Common Share:
Three Months Ended Six Months Ended
June 30 June 30
2009 2008 2009 2008
Basic $4.30 $7.14 $7.64 ($3.33 )
Diluted $4.30 $7.14 $7.64 ($3.33 )
Weighted-Average
Number of Common
Shares
Outstanding:
Basic 208,097,729 238,152,768 208,287,929 212,242,994
Diluted 208,097,729 238,152,768 208,287,929 212,242,994
INSURANCE OPERATIONS
Selected Financial Data Computed on a Statutory Basis
(dollars in millions)
National Public Finance Guarantee Corporation
Proforma
June 30, 2009 December 31, 2008
Capital and surplus $ 353.6 $ 416.0
Contingency reserve 1,367.9 1,357.0
Capital base 1,721.5 1,773.0
Unearned premium reserve 3,321.7 3,479.0
Present value of installment premiums (1) 302.2 298.0
Premium resources(2) 3,623.9 3,777.0
Loss and loss adjustment expense reserves 147.3 179.0
Total claims-paying resources $ 5,492.7 $ 5,729.0
Net debt service outstanding $ 874,233.0 $ 908,087.0
Capital ratio(3) 508:1 512:1
Claims-paying ratio(4) 207:1 206:1
MBIA Insurance Corporation
Proforma
June 30, 2009 December 31, 2008
Capital and surplus $ 2,927.4 $ 3,087.0
Contingency reserve 1,315.1 1,238.0
Capital base 4,242.5 4,325.0
Unearned premium reserve 730.1 691.0
Present value of installment premiums (1) 1,947.8 2,088.0
Premium resources(2) 2,677.9 2,779.0
Loss and loss adjustment expense reserves 857.5 1,692.0
Total claims-paying resources $ 7,777.9 $ 8,796.0
Net debt service outstanding $ 284,183.5 $ 290,261.0
Capital ratio(3) 67:1 67:1
Claims-paying ratio(4) 42:1 37:1
(1) At June 30, 2009 and December 31, 2008 the discount rate was 5.03%.
(2) The amounts consist of Financial Guarantee premiums and Insured Derivative
premiums.
(3) Net debt service outstanding divided by the capital base.
Net debt service outstanding divided by the sum of the capital base,
(4) unearned premium reserve (after-tax), present value of installment premiums
(after-tax) and loss and loss adjustment expense.
Source: MBIA, Inc.
Contact: MBIA Inc., Media:
Kevin Brown, +1-914-765-3648
or
MBIA Inc., Media:
Elizabeth James, +1-914-765-3889
or
MBIA Inc., Investor Relations:
Greg Diamond +1-914-765-3190