ARMONK, N.Y.--(BUSINESS WIRE)--
MBIA Inc. (NYSE: MBI) (the Company) today reported adjusted pre-tax
income (a non-GAAP measure defined in the attached Explanation of
Non-GAAP Financial Measures) of $39 million for the second quarter of
2014 compared with an adjusted pre-tax loss of $160 million for the same
period of 2013. MBIA Inc. recorded consolidated net income of $120
million, or $0.45 per diluted share, for the second quarter of 2014
compared with a consolidated net loss of $178 million, or $0.94 per
diluted share, for the same period of 2013.
Adjusted Book Value (ABV) per share (a non-GAAP measure defined in the
attached Explanation of Non-GAAP Financial Measures) was $27.05 as of
June 30, 2014 compared with $26.64 as of March 31, 2014 and $27.78 as of
December 31, 2013.
“Our risk-reduction efforts continued in the second quarter of 2014, and
we are increasingly seeing the results in our financial metrics,” said
MBIA Inc. President and Chief Financial Officer Chuck Chaplin. “We had
our first adjusted pre-tax gain since the fourth quarter of 2012 and had
positive consolidated operating cash flow. Net payments on second-lien
exposures in MBIA Corp., which began a long decline in the second
quarter of 2009, resulted in net recoveries in this quarter for the
first time and adjusted book value was higher than the level in the
preceding quarter.”
“In National, earnings improved relative to last year’s second quarter.
Consistent with the underwriting and pricing discipline in our business
plan, we did not write any new business in the face of continued low
interest rates, narrow spreads and competitive pricing levels throughout
the second quarter,” Mr. Chaplin continued. “Stress affecting our
exposures to the Commonwealth of Puerto Rico continued in the quarter,
and we’re closely monitoring the situation. Whatever the outcome,
investors holding National-wrapped bonds will receive all of their
contractually-due payments, which we believe will increase appreciation
of the value of insurance in the marketplace.”
The improvement in adjusted pre-tax income for the three months ended
June 30, 2014 compared with the same period of 2013 was driven primarily
by lower losses on insured exposures and decreases in legal and
litigation related operating expenses.
ABV per share and adjusted pre-tax income provide investors with
alternative views of the Company’s operating results that management
finds useful in measuring financial performance. Reconciliations of ABV
per share to book value (BV) per share calculated in accordance with
GAAP and adjusted pre-tax income to pre-tax income calculated in
accordance with GAAP are attached.
The increase in reported consolidated net income in the second quarter
of 2014 was primarily due to lower losses and loss adjustment expenses
(LAE), lower net losses on the fair value of insured derivatives, higher
net gains on the sale of investments and lower operating expenses,
partially offset by putback recoveries in consolidated variable interest
entities (VIEs) in the second quarter of 2013 that did not recur in the
second quarter of 2014. Net income and ABV per share in the second
quarter of 2014 were also positively impacted by a reduction in the
valuation allowance against the Company’s deferred tax asset following
the sale of certain previously impaired assets.
Consolidated total revenues for the three months ended June 30, 2014
included $47 million of net losses on the fair value insured derivatives
compared with $182 million of net losses for the same period of 2013.
The net losses on the fair value of insured derivatives in the second
quarter of 2014 were principally the result of claim payments and
changes in spreads and pricing of underlying collateral, partially
offset by the effects of changes in the weighted average lives on
transactions. The net losses on the fair value of insured derivatives in
the second quarter of 2013 were principally the result of favorable
changes in the market perception of MBIA Insurance Corporation’s (MBIA
Corp.) credit risk, partially offset by the commutation of derivatives
at prices below fair value. Consolidated total expenses for the three
months ended June 30, 2014 included $12 million of net insurance loss
and LAE compared with $188 million for the same period of 2013. The
decrease in net insurance loss and LAE was principally the result of
lower losses from an international road transaction and high-yield
corporate CDOs in 2014 compared to 2013.
Year-to-Date Results
The Company’s consolidated adjusted pre-tax loss for the six months
ended June 30, 2014 was $60 million compared with an adjusted pre-tax
loss of $180 million in the same period of 2013. The reduction in the
adjusted pre-tax loss for the six months ended June 30, 2014 was
primarily due to a decrease in losses and LAE on insured exposures and
lower legal and litigation-related operating expenses.
The Company recorded consolidated net income of $376 million, or $1.83
per diluted common share for the six months ended June 30, 2014,
compared with a consolidated net loss of $14 million, or $0.07 per
diluted common share, for the same period of 2013. Consolidated total
revenues for the six months ended June 30, 2014 included $422 million of
net gains on insured derivatives compared with $243 million of net
losses for the same period of 2013. The net gains on insured derivatives
in 2014 were principally associated with the reversal of unrealized
losses from commutations partially offset by settlements and claim
payments. Consolidated total expenses for the six months ended June 30,
2014 included $62 million of net insurance loss and LAE compared with a
benefit of $6 million for the same period of 2013. The increase in net
insurance loss and LAE in 2014 compared with 2013 was principally
related to putback recoveries on second-lien RMBS transactions in the
first half of 2013 that did not recur in the first half of 2014,
partially offset by a decrease in losses for certain U.S. public finance
transactions.
U.S. Public Finance Insurance Results
The Company’s U.S. public finance insurance business is primarily
conducted through its National Public Finance Guarantee Corporation
(National) subsidiary. The U.S. Public Finance Insurance segment
recorded $62 million of pre-tax income in the second quarter of 2014
compared with $14 million of pre-tax income in the same period of 2013.
Total premiums earned in the U.S. Public Finance Insurance segment were
$67 million in the second quarter of 2014, down 34 percent from $102
million of total premiums earned in the same period of 2013, reflecting
a 43 percent decrease in refunded premiums earned and a 26 percent
decline in scheduled earned premiums. Refunded premiums earned declined
due to a lower level of refunded transactions within National’s insured
portfolio. The decline in scheduled earned premiums resulted from
portfolio amortization and high refunding volume over the past several
years. National did not write any new business during the second quarter
of 2014 as it maintained its underwriting and pricing discipline in a
market where low interest rates, narrow spreads and competitive pricing
levels were inconsistent with meeting its return targets.
Net investment income for the U.S. Public Finance Insurance segment was
$27 million in the second quarter of 2014, down 23 percent from $35
million in the second quarter of 2013 primarily due to lower average
yields following the repayment in May of 2013 of the secured loan that
National had extended to MBIA Insurance Corporation.
Net gains on financial instruments at fair value and foreign exchange
totaled $15 million in the second quarter of 2014, compared with $2
million of losses in the same period of 2013. The improvement was
primarily attributable to higher gains from asset sales and from
increased mark-to-market gains on investments in the second quarter of
2014 compared with the second quarter of 2013.
The U.S. Public Finance Insurance segment’s losses and LAE totaled $17
million in the second quarter of 2014 compared with $66 million in the
same period of 2013. The losses and LAE for the three months ended June
30, 2014 primarily related to reserve increases for Puerto Rico
exposures, partially offset by decreases in reserves for certain general
obligation bonds. The losses and LAE for the same period of 2013 related
to increases in reserves for certain general obligation bonds. The
Company estimates future losses by using probability-weighted scenarios
that are customized to each insured transaction. Future loss estimates
consider debt service due for each insured transaction, as well as the
credit profile of the transaction and security provisions that either
mitigate losses or provide opportunities for the Company to recover paid
claims.
Expenses associated with the amortization of deferred acquisition costs
totaled $15 million in the second quarter of 2014, compared with $21
million in the same period of 2013, reflecting lower premiums earned and
the reduction in the outstanding balance of the Company’s insured public
finance portfolio.
Operating expenses were $16 million in the second quarter of 2014,
compared with $35 million in the same period of 2013. The decrease in
operating expenses in the second quarter of 2014 was driven by lower
legal and consulting expenses following the settlement of certain
litigation challenging the creation of National.
National had qualified statutory capital of $3.4 billion and
claims-paying resources totaling $5.2 billion as of June 30, 2014.
On May 12, 2014, the Kroll Bond Rating Agency assigned a AA+, Stable
Outlook insurance financial strength rating to National. On July 2,
2014, Moody's Investors Service affirmed National’s insurance financial
strength rating at A3, and changed the outlook on the rating to negative
from stable.
Structured Finance and International Insurance Results
The structured finance and international 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.
The Structured Finance and International Insurance segment had a pre-tax
loss of $12 million in the second quarter of 2014, compared with a
pre-tax loss of $256 million in the same period of 2013. The pre-tax
loss in the second quarter of 2014 decreased compared with the second
quarter of 2013 primarily due to lower net losses on the fair value of
insured derivatives and lower losses on insured exposures, partially
offset by putback recoveries on second-lien RMBS transactions in
consolidated VIEs in the first half of 2013 that did not recur in the
first half of 2014.
The Structured Finance and International Insurance segment had an
adjusted pre-tax loss of $28 million for the second quarter of 2014
compared with an adjusted pre-tax loss of $93 million for the second
quarter of 2013. The decline in the adjusted pre-tax loss in the second
quarter of 2014 was principally due to decreases in losses on insured
exposures, legal and litigation-related costs and interest expense on
the secured loan from National, which was repaid in full in May of 2013.
These decreases were partially offset by a decrease in net gains on
financial instruments at fair value and foreign exchange.
Insured portfolio economic loss (a non-GAAP measure defined in the
attached Explanation of Non-GAAP Financial Measures) activity totaled
$44 million in the second quarter of 2014, compared with $126 million in
the same period of 2013. Economic losses from second-lien RMBS
transactions and CMBS pools in the second quarter of 2014 were $34
million and $61 million, respectively, partially offset by $51 million
of positive changes on ABS CDOs and other exposures.
Net loss and LAE payments on insured second-lien RMBS exposures were a
negative $16 million in the second quarter of 2014 as recoveries from
excess cash flow in the underlying transactions exceeded paid claims and
LAE for the first time since the onset of the financial crisis. Net loss
and LAE payments on these exposures totaled $74 million in the second
quarter of 2013.
As of June 30, 2014, MBIA Corp.’s statutory balance sheet reflected $482
million in cash and invested assets. Cash, short-term investments and
other highly liquid investments available to meet liquidity demands,
excluding amounts held by subsidiaries, totaled $427 million. The
Company believes MBIA Corp.’s current liquidity position, together with
future cash inflows, is adequate to make expected future claim payments.
MBIA Corp. had qualified statutory capital of $741 million and
claims-paying resources totaling $2.9 billion as of June 30, 2014.
Advisory Services
The Company’s Advisory Services business is primarily conducted through
its Cutwater Asset Management subsidiary. The Advisory Services segment
recorded a pre-tax loss of $2 million in the second quarter of 2014
compared with a pre-tax loss of $6 million in the same period of 2013.
The lower pre-tax loss in the second quarter of 2014 resulted from a
reduction in compensation, legal and consulting expenses.
MBIA Inc. Holding Company
MBIA Inc. contains the Corporate segment and Wind-down Operations.
General corporate activities are conducted through the Corporate
segment. The Company’s corporate operations primarily consist of holding
company activities, including its shared services company. The Company’s
Wind-down Operations comprise its Asset/Liability Management (ALM) and
Conduit segments. The ALM segment remains in run-off, while the
wind-down of the Conduit segment was completed in the second quarter of
2014, as the remaining outstanding medium-term notes of Meridian Funding
Corporation were retired and Meridian was dissolved.
The Corporate segment recorded pre-tax income of $88 million in the
second quarter of 2014 compared with a pre-tax loss of $59 million in
the same period of 2013. The improvement in the Corporate segment's
pre-tax income was primarily driven by increased gains on the sale of
invested assets and increased mark-to-market gains on the value of
outstanding warrants issued on the Company’s common stock.
The Company’s Wind-down Operations recorded a pre-tax loss of $40
million in the second quarter of 2014 compared with a pre-tax loss of
$26 million in the same period of 2013. The larger pre-tax loss in the
second quarter of 2014 compared with the same period of 2013 was driven
by greater net losses on financial instruments at fair value and foreign
exchange and higher operating expenses of consolidated VIEs due to
higher fees paid to the Corporate segment, partially offset by lower
interest expense. The greater net losses on financial instruments at
fair value and foreign exchange resulted from mark-to-market losses on
interest rate swaps in the ALM asset portfolio in the second quarter of
2014 compared with gains in the second quarter of 2013, partially offset
by lower losses on asset sales. Lower interest expense in the second
quarter of 2014 compared with the second quarter of 2013 reflected lower
outstanding debt in the ALM business following scheduled maturities,
terminations and repurchases.
As of June 30, 2014, MBIA Inc. had liquidity of $365 million comprising
cash and liquid assets of $317 million held in the Corporate segment
available for general corporate liquidity purposes and $48 million not
pledged directly as collateral held in the ALM segment. MBIA Inc. seeks
to maintain sufficient liquidity and capital resources to meet its
general corporate needs as well as the needs of the ALM operations.
These amounts exclude $417 million held in escrow under its tax sharing
agreement. The Company’s consolidated net operating loss (NOL)
carryforward as of June 30, 2014 was approximately $3.4 billion. The
Company expects to fully use the NOL carryforward prior to its
expiration.
During the second quarter of 2014, the Company repurchased 842,072 of
its common shares at a cost of $9 million and an average price of $11.07
per share. In July of 2014, the Company repurchased 1,244,665 of its
common shares at cost of $14 million and an average price of $11.03 per
share. There are no further shares authorized for repurchase under the
Company’s 2007 share repurchase program.
Conference Call
The Company will host a webcast and conference call for investors
tomorrow, Thursday, August 7, 2014 at 8:00 AM (EDT) to discuss its
second quarter 2014 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 74173128. 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 7 until 11:59 p.m. on August 22 by
dialing (800) 585-8367 in the U.S. or (404) 537-3406 from outside the
U.S. The replay call code is also 74173128. In addition, a recording of
the call will be available on the Company's website approximately two
hours after the completion of the call.
Forward-Looking Statements
The information contained in this press release should be read in
conjunction with our filings made with the Securities and Exchange
Commission. 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
and uncertainties, the possibility that the Company will experience
increased credit losses or impairments on public finance obligations we
insure issued by state, local and territorial governments and finance
authorities that are experiencing unprecedented fiscal stress, the
possibility that MBIA Corp. will have inadequate liquidity to pay
expected claims as a result of increased losses on certain structured
finance transactions, in particular residential mortgage-backed
securities transactions that include a substantial number of ineligible
mortgage loans, or a delay or failure in collecting expected recoveries,
the possibility that loss reserve estimates are not adequate to cover
potential claims, a disruption in the cash flow from our subsidiaries or
an inability to access capital and our exposure to significant
fluctuations in liquidity and asset values within the global credit
markets as a result of collateral posting requirements, our ability to
fully implement our strategic plan, including our ability to maintain
high stable ratings for National and generate investor demand for our
financial guarantees, deterioration in the economic environment and
financial markets in the United States or abroad, and adverse
developments in European sovereign credit performance, real estate
market performance, credit spreads, interest rates and foreign currency
levels, the effects of governmental regulation, including insurance
laws, securities laws, tax laws, legal precedents and accounting rules;
and uncertainties that have not been identified at this time. 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 and Quarterly Report on Form 10-Q, which may be updated or
amended in the Company’s subsequent filings with the Securities and
Exchange Commission. The Company 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, as well as related
reinsurance, advisory and portfolio services, for the public and
structured finance markets, and asset management advisory services.
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 to remove the impact of certain
items which the Company believes will reverse over time, as well as 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 is calculated on a consolidated basis and a segment basis. ABV by
segment provides information about each segment’s contribution to
consolidated ABV and is calculated using the same formula. ABV per share
represents that amount of ABV allocated to each common share outstanding
at the measurement date.
Adjusted Pre-tax Income (Loss): Adjusted pre-tax income (loss), a
non-GAAP measure, is used by the Company to supplement its analysis of
GAAP pre-tax income (loss). The Company uses adjusted pre-tax income
(loss) as a measure of fundamental periodic financial performance.
Adjusted pre-tax income (loss) adjusts GAAP pre-tax income (loss) to
remove the effects of consolidating insured VIEs and unrealized gains
and losses related to fair valuing insured credit derivatives, which the
Company believes will reverse over time, and adds in changes in the
present value of insurance claims the Company expects to pay on insured
credit derivatives, including those related to consolidated VIEs, based
on its ongoing insurance loss monitoring and loss adjustment expenses.
Adjusted pre-tax income (loss) is not a substitute for and should not be
viewed in isolation from GAAP pre-tax income (loss) and the Company’s
definition of adjusted pre-tax income (loss) may differ from that used
by other companies.
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.
Credit Impairments on Insured Derivatives: Credit impairments on
insured derivatives represent actual net payments for the period plus
the present value of the Company’s estimate of expected future net claim
payments for such transactions, using a discount rate required by
statutory accounting principles, plus loss adjustment expenses. Since
the Company’s insured credit derivatives have similar terms, conditions,
risks, and economic profiles to its financial guarantee insurance
policies, the Company evaluates them for impairment periodically in the
same way that it estimates loss and loss adjustment expenses for its
financial guarantee insurance policies. Credit impairments on insured
derivatives are equal to the Company’s statutory losses and loss
adjustment expenses for such contracts.
Credit impairments on insured derivatives may differ from the fair
values recorded in the Company’s financial statements. The Company
expects that the majority of its exposure written in derivative form
will not be settled at fair value. The fair value of an insured
derivative contract will be influenced by a variety of market and
transaction-specific factors that may be unrelated to potential future
claim payments. In the absence of credit impairments or the termination
of derivatives at losses, the cumulative unrealized losses recorded from
fair valuing insured derivatives should reverse before or at the
maturity of the contracts. Contracts also may be settled prior to
maturity at amounts that may be more or less than their recorded fair
values. Those settlements can result in realized gains or losses, and
the reversal of unrealized losses. For these reasons, the Company
believes its disclosure of credit impairments on insured derivatives
provides additional meaningful information to investors about potential
realized losses on these contracts.
Economic Losses: Economic losses for a reporting period represent
the change in the discounted values of net payments without regard to
the manner in which they are presented in the Company’s financial
statements. Economic losses are calculated in accordance with GAAP, with
the exception of those related to insured credit derivative impairments.
The amounts reported for insured credit derivative impairments are
calculated in accordance with U.S. STAT because GAAP does not contain a
comparable measurement basis for these contracts. Losses and
recoverables on VIEs that are eliminated in consolidation are included
because the consolidation of these VIEs does not impact whether or not
the Company will be required to make payments under insurance contracts.
As a result of the different accounting bases of amounts, the total
economic losses represent a non-GAAP measure.
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MBIA INC. AND SUBSIDIARIES
|
|
CONSOLIDATED BALANCE SHEETS (unaudited)
|
|
(In millions except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
Assets
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed-maturity securities held as available-for-sale, at fair value
(amortized cost $5,235 and $5,064)
|
|
$
|
5,340
|
|
|
$
|
4,987
|
|
|
|
Investments carried at fair value
|
|
|
244
|
|
|
|
204
|
|
|
|
Investments pledged as collateral, at fair value (amortized cost
$370 and $483)
|
|
|
341
|
|
|
|
424
|
|
|
|
Short-term investments held as available-for-sale, at fair value
(amortized cost $1,218 and $1,203)
|
|
|
1,219
|
|
|
|
1,204
|
|
|
|
Other investments (includes investments at fair value of $13 and $11)
|
|
|
17
|
|
|
|
16
|
|
|
|
|
|
Total investments
|
|
|
7,161
|
|
|
|
6,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
534
|
|
|
|
1,161
|
|
|
Premiums receivable
|
|
|
975
|
|
|
|
1,051
|
|
|
Deferred acquisition costs
|
|
|
243
|
|
|
|
260
|
|
|
Insurance loss recoverable
|
|
|
624
|
|
|
|
694
|
|
|
Assets held for sale
|
|
|
29
|
|
|
|
29
|
|
|
Deferred income taxes, net
|
|
|
986
|
|
|
|
1,109
|
|
|
Other assets
|
|
|
243
|
|
|
|
222
|
|
|
Assets of consolidated variable interest entities:
|
|
|
|
|
|
|
|
|
Cash
|
|
|
66
|
|
|
|
97
|
|
|
|
Investments held-to-maturity, at amortized cost (fair value $2,780
and $2,651)
|
|
|
2,787
|
|
|
|
2,801
|
|
|
|
Investments held as available-for-sale, at fair value (amortized
cost $0 and $136)
|
|
|
-
|
|
|
|
136
|
|
|
|
Fixed-maturity securities at fair value
|
|
|
474
|
|
|
|
587
|
|
|
|
Loans receivable at fair value
|
|
|
1,539
|
|
|
|
1,612
|
|
|
|
Loan repurchase commitments
|
|
|
363
|
|
|
|
359
|
|
|
|
|
|
Total assets
|
|
$
|
16,024
|
|
|
$
|
16,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Unearned premium revenue
|
|
$
|
2,251
|
|
|
$
|
2,441
|
|
|
|
Loss and loss adjustment expense reserves
|
|
|
554
|
|
|
|
641
|
|
|
|
Investment agreements
|
|
|
660
|
|
|
|
700
|
|
|
|
Medium-term notes (includes financial instruments carried at fair
value of $217 and $203)
|
|
|
1,286
|
|
|
|
1,427
|
|
|
|
Long-term debt
|
|
|
1,755
|
|
|
|
1,702
|
|
|
|
Derivative liabilities
|
|
|
449
|
|
|
|
1,152
|
|
|
|
Other liabilities
|
|
|
313
|
|
|
|
294
|
|
|
|
Liabilities of consolidated variable interest entities:
|
|
|
|
|
|
|
|
|
|
Variable interest entity notes (includes financial instruments
carried at fair value of $2,150 and $2,356)
|
|
|
4,937
|
|
|
|
5,286
|
|
|
|
|
Derivative liabilities
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
Total liabilities
|
|
|
12,216
|
|
|
|
13,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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--281,359,451
|
|
|
|
|
|
|
|
|
|
and 277,812,430
|
|
|
281
|
|
|
|
278
|
|
|
|
Additional paid-in capital
|
|
|
3,118
|
|
|
|
3,115
|
|
|
|
Retained earnings
|
|
|
2,665
|
|
|
|
2,289
|
|
|
|
Accumulated other comprehensive income (loss), net of tax of $20 and
$54
|
|
|
56
|
|
|
|
(86
|
)
|
|
|
Treasury stock, at cost--86,924,313 and 85,562,546 shares
|
|
|
(2,333
|
)
|
|
|
(2,318
|
)
|
|
|
|
|
Total shareholders' equity of MBIA Inc.
|
|
|
3,787
|
|
|
|
3,278
|
|
|
|
Preferred stock of subsidiary and noncontrolling interest
|
|
|
21
|
|
|
|
21
|
|
|
|
|
|
Total equity
|
|
|
3,808
|
|
|
|
3,299
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
16,024
|
|
|
$
|
16,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled premiums earned
|
|
$
|
63
|
|
|
$
|
77
|
|
|
$
|
132
|
|
|
$
|
156
|
|
|
|
|
Refunding premiums earned
|
|
|
26
|
|
|
|
47
|
|
|
|
45
|
|
|
|
88
|
|
|
|
|
|
Premiums earned (net of ceded premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of $2, $2, $5 and $5)
|
|
|
89
|
|
|
|
124
|
|
|
|
177
|
|
|
|
244
|
|
|
|
Net investment income
|
|
|
42
|
|
|
|
38
|
|
|
|
92
|
|
|
|
76
|
|
|
|
Fees and reimbursements
|
|
|
4
|
|
|
|
6
|
|
|
|
8
|
|
|
|
12
|
|
|
|
Change in fair value of insured derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) and other settlements on insured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives
|
|
|
(24
|
)
|
|
|
(1,532
|
)
|
|
|
(393
|
)
|
|
|
(1,520
|
)
|
|
|
|
Unrealized gains (losses) on insured derivatives
|
|
|
(23
|
)
|
|
|
1,350
|
|
|
|
815
|
|
|
|
1,277
|
|
|
|
|
|
Net change in fair value of insured derivatives
|
|
|
(47
|
)
|
|
|
(182
|
)
|
|
|
422
|
|
|
|
(243
|
)
|
|
|
Net gains (losses) on financial instruments at fair value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
foreign exchange
|
|
|
61
|
|
|
|
(6
|
)
|
|
|
6
|
|
|
|
57
|
|
|
|
Net gains (losses) on extinguishment of debt
|
|
|
2
|
|
|
|
39
|
|
|
|
3
|
|
|
|
43
|
|
|
|
Other net realized gains (losses)
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
Revenues of consolidated variable interest entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
13
|
|
|
|
14
|
|
|
|
25
|
|
|
|
30
|
|
|
|
|
Net gains (losses) on financial instruments at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
foreign exchange
|
|
|
23
|
|
|
|
78
|
|
|
|
26
|
|
|
|
111
|
|
|
|
|
Net gains (losses) on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
|
Other net realized gains (losses)
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
Total revenues
|
|
|
187
|
|
|
|
112
|
|
|
|
764
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment
|
|
|
12
|
|
|
|
188
|
|
|
|
62
|
|
|
|
(6
|
)
|
|
|
Amortization of deferred acquisition costs
|
|
|
8
|
|
|
|
11
|
|
|
|
18
|
|
|
|
27
|
|
|
|
Operating
|
|
|
49
|
|
|
|
103
|
|
|
|
95
|
|
|
|
209
|
|
|
|
Interest
|
|
|
52
|
|
|
|
60
|
|
|
|
106
|
|
|
|
120
|
|
|
|
Expenses of consolidated variable interest entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
1
|
|
|
|
2
|
|
|
|
4
|
|
|
|
6
|
|
|
|
|
Interest
|
|
|
10
|
|
|
|
12
|
|
|
|
20
|
|
|
|
24
|
|
|
|
|
|
|
Total expenses
|
|
|
132
|
|
|
|
376
|
|
|
|
305
|
|
|
|
380
|
|
|
Income (loss) before income taxes
|
|
|
55
|
|
|
|
(264
|
)
|
|
|
459
|
|
|
|
(49
|
)
|
|
Provision (benefit) for income taxes
|
|
|
(65
|
)
|
|
|
(86
|
)
|
|
|
83
|
|
|
|
(35
|
)
|
|
Net income (loss)
|
|
$
|
120
|
|
|
$
|
(178
|
)
|
|
$
|
376
|
|
|
$
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.61
|
|
|
$
|
(0.94
|
)
|
|
$
|
1.93
|
|
|
$
|
(0.07
|
)
|
|
|
Diluted
|
|
$
|
0.45
|
|
|
$
|
(0.94
|
)
|
|
$
|
1.83
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
189,169,042
|
|
|
|
189,163,527
|
|
|
|
189,101,884
|
|
|
|
189,135,587
|
|
|
|
Diluted
|
|
|
192,906,871
|
|
|
|
189,163,527
|
|
|
|
193,051,436
|
|
|
|
189,135,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBIA INC. AND SUBSIDIARIES
|
|
ADJUSTED PRE-TAX INCOME (LOSS)
RECONCILIATION(1)
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
Adjusted pre-tax income (loss)
|
|
$
|
39
|
|
|
$
|
(160
|
)
|
|
$
|
(60
|
)
|
|
$
|
(180
|
)
|
|
Additions to adjusted pre-tax income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of consolidating certain VIEs
|
|
|
(1
|
)
|
|
|
(20
|
)
|
|
|
18
|
|
|
|
(2
|
)
|
|
|
Mark-to-market gains (losses) on insured credit derivatives
|
|
|
(24
|
)
|
|
|
1,350
|
|
|
|
814
|
|
|
|
1,277
|
|
|
Subtractions from adjusted pre-tax income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments on insured credit derivatives
|
|
|
(41
|
)
|
|
|
1,434
|
|
|
|
313
|
|
|
|
1,144
|
|
|
Pre-tax income (loss)
|
|
$
|
55
|
|
|
$
|
(264
|
)
|
|
$
|
459
|
|
|
$
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STRUCTURED FINANCE & INTERNATIONAL
INSURANCE (MBIA CORP.)
|
|
ADJUSTED PRE-TAX INCOME (LOSS)
RECONCILIATION(1)
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
Adjusted pre-tax income (loss)
|
|
$
|
(28
|
)
|
|
$
|
(93
|
)
|
|
$
|
(138
|
)
|
|
$
|
(190
|
)
|
|
Additions to adjusted pre-tax income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of consolidating certain VIEs
|
|
|
(1
|
)
|
|
|
(79
|
)
|
|
|
17
|
|
|
|
(63
|
)
|
|
|
Mark-to-market gains (losses) on insured credit derivatives
|
|
|
(24
|
)
|
|
|
1,350
|
|
|
|
814
|
|
|
|
1,277
|
|
|
Subtractions from adjusted pre-tax income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments on insured credit derivatives
|
|
|
(41
|
)
|
|
|
1,434
|
|
|
|
313
|
|
|
|
1,144
|
|
|
Pre-tax income (loss)
|
|
$
|
(12
|
)
|
|
$
|
(256
|
)
|
|
$
|
380
|
|
|
$
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) A non-GAAP measure; please see Explanation of Non-GAAP Financial
Measures.
|
|
|
MBIA INC. AND SUBSIDIARIES
|
|
|
|
Components of Adjusted Book Value per
Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014
|
|
|
|
|
|
|
|
|
Structured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Public
|
|
Finance and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
International
|
|
Advisory
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
Insurance
|
|
Services
|
|
|
|
|
Wind-down
|
|
|
|
|
|
|
(National)
|
|
(MBIA Corp.)
|
|
(Cutwater)
|
|
Corporate
|
|
Operations
|
|
Consolidated
|
|
Reported Book Value per Share
|
$
|
20.62
|
|
|
$
|
4.67
|
|
|
$
|
0.11
|
|
$
|
(2.89
|
)
|
|
$
|
(3.03
|
)
|
|
$
|
19.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse net unrealized (gains) losses included in OCI
(after-tax)
|
|
(0.15
|
)
|
|
|
0.03
|
|
|
|
-
|
|
|
(0.04
|
)
|
|
|
(0.16
|
)
|
|
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add net unearned premium revenue (after-tax) (1) (2)
|
|
3.73
|
|
|
|
3.26
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
6.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse cumulative net loss from consolidating certain
VIEs
(after-tax) (3)
|
|
-
|
|
|
|
0.30
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse cumulative unrealized loss on insured credit
derivatives
(after-tax)
|
|
-
|
|
|
|
1.11
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtract cumulative impairments on insured credit
derivatives
(after-tax) (1)
|
|
-
|
|
|
|
(0.51
|
)
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Book Value per Share (4)
|
$
|
24.20
|
|
|
$
|
8.86
|
|
|
$
|
0.11
|
|
$
|
(2.93
|
)
|
|
$
|
(3.19
|
)
|
|
$
|
27.05
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured
|
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U.S. Public
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Finance and
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Finance
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International
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Advisory
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Insurance
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Insurance
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Services
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Wind-down
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(National)
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(MBIA Corp.)
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(Cutwater)
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Corporate
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Operations
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Consolidated
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Reported Book Value per Share
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$
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19.83
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$
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3.48
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$
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0.12
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$
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(2.89
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$
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(3.49
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$
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17.05
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Reverse net unrealized (gains) losses included in OCI
(after-tax)
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0.34
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(0.06
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-
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0.08
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0.01
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0.37
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Add net unearned premium revenue (after-tax) (1) (2)
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4.15
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3.55
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-
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-
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-
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7.70
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Reverse cumulative net loss from consolidating certain
VIEs
(after-tax) (3)
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-
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0.38
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-
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-
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0.38
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Reverse cumulative unrealized loss on insured credit
derivatives
(after-tax)
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-
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3.87
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-
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-
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-
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3.87
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Subtract cumulative impairments on insured credit
derivatives
(after-tax) (1)
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-
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(1.59
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-
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-
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-
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(1.59
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Adjusted Book Value per Share (4)
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$
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24.32
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$
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9.63
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$
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0.12
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$
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(2.81
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$
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(3.48
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$
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27.78
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(1) The discount rate on financial guarantee installment
premiums was the risk-free rate as defined by the accounting principles
for financial guarantee insurance contracts and the discount rate on
insured derivative installment revenue and impairments was 5.0%.
(2) The amounts consist of installment and upfront financial
guarantee premiums, insured derivative revenue and deferred
commitment/structuring fees, net of deferred acquisition costs.
(3) Represents the impact on consolidated total equity of
VIEs that are not considered a business enterprise of the Company.
(4) A non-GAAP measure; please see Explanation of Non-GAAP
Financial Measures.
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INSURANCE OPERATIONS
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Selected Financial Data Computed on a
Statutory Basis
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(Dollars in millions)
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National Public Finance Guarantee
Corporation
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June 30, 2014
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December 31, 2013
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Policyholders’ surplus
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$
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2,207
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$
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2,086
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Contingency reserves
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1,148
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1,172
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Statutory capital
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3,355
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3,258
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Unearned premium reserve
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1,548
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1,678
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Present value of installment premiums (1)
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221
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226
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Premium resources (2)
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1,769
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1,904
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Net loss and loss adjustment expense reserves (1)
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(24)
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(87)
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Salvage reserves
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140
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177
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Gross loss and loss adjustment expense reserves
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116
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90
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Total claims-paying resources
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$
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5,240
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$
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5,252
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Net debt service outstanding
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$
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400,366
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$
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435,194
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Capital ratio (3)
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119:1
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134:1
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Claims-paying ratio (4)
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87:1
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95:1
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MBIA Insurance Corporation
(5)
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June 30, 2014
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December 31, 2013
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Policyholders’ surplus
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$
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371
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$
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403
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Contingency reserves
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387
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422
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Statutory capital
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758
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825
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Unearned premium reserve
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526
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535
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Present value of installment premiums (6)
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771
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850
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Premium resources (2)
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1,297
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1,385
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Net loss and loss adjustment expense reserves (6)
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(235)
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103
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Salvage reserves
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1,051
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1,148
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Gross loss and loss adjustment expense reserves
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816
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1,251
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Total claims-paying resources
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$
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2,871
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$
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3,461
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Net debt service outstanding
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$
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92,278
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$
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106,385
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Capital ratio (3)
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122:1
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129:1
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Claims-paying ratio (4)
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38:1
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36:1
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(1) At June 30, 2014 and December 31, 2013 the discount rate
was 3.14%.
(2) The amounts consist of financial guarantee premiums and
insured derivative 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) The table reflects MBIA Insurance Corporation including
its subsidiary MBIA UK Limited.
(6) At June 30, 2014 and December 31, 2013 the discount rate
was 5.09%.
MBIA Inc.
Media
Kevin Brown, +1-914-765-3648
or
MBIA
Inc.
Investor Relations:
Greg Diamond,
+1-914-765-3190
Source: MBIA Inc.