MBIA Inc. 2020 Form 10-K Summary
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020; it is not a quarterly filing. MBIA’s insurance subsidiaries are in runoff and do not expect to write significant new business. National manages U.S. public finance insurance; MBIA Corp. manages international and structured finance insurance. Management’s priorities are maintaining holding-company liquidity, mitigating insured losses and maximizing recoveries.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $282 million | $280 million |
| Total expenses | $860 million | $637 million |
| Net loss | $578 million | $359 million |
| Diluted loss per share | $9.78 | $4.43 |
| Adjusted net loss (non-GAAP) | $173 million | $17 million |
| Net cash used in operating activities | $390 million | $368 million |
| Cash and cash equivalents at year-end | $167 million | $83 million |
| Total shareholders’ equity | $136 million | $826 million |
Amounts are in millions except per-share figures. The filing does not present a conventional operating-margin measure. Net insurance premiums earned were $73 million, down from $85 million. Insurance losses and loss-adjustment expenses were $530 million, versus $242 million, primarily reflecting higher losses on Puerto Rico exposures and lower expected CDO recoveries. Lower investment income also weighed on results.
At December 31, 2020, total assets were $5.751 billion and total liabilities were $5.602 billion. Investments were $2.736 billion. Consolidated debt and other financing obligations included $2.229 billion of long-term debt, $710 million of medium-term notes and $269 million of investment agreements. Long-term debt includes $940 million principal of MBIA Corp. surplus notes and $991 million of accrued interest; surplus-note interest payments require regulatory approval.
Holding-company liquidity was $294 million, including cash and liquid assets available for general corporate purposes. National held $2.1 billion of cash and investments; MBIA Corp. held $243 million. National claims-paying resources were $3.115 billion, down from $3.546 billion. MBIA Corp. claims-paying resources were $992 million, down from $1.239 billion. These statutory measures are non-GAAP measures and are not directly comparable to GAAP balance-sheet amounts.
Material changes versus the prior year
- Net loss widened to $578 million from $359 million as losses and loss-adjustment expenses rose substantially, while total revenue was nearly unchanged.
- National’s insured gross par outstanding declined to $41.9 billion from $48.9 billion. Below-investment-grade exposure increased to 8.5% of gross par from 7.8%.
- MBIA Inc. shareholders’ equity fell to $136 million from $826 million; GAAP book value per share declined to $2.55 from $10.40.
- MBIA Inc. or National repurchased 26.4 million shares for $198 million, exhausting the applicable authorizations. MBIA paid no common-stock cash dividend in 2020 or 2019.
- MBIA Inc. redeemed the remaining $115 million principal amount of its 6.400% senior notes due 2022. National paid an $81 million dividend to MBIA Inc., compared with $134 million in 2019.
- Investing activities provided $1.738 billion of cash, in part reflecting VIE activity and asset movements; financing activities used $1.265 billion. Consolidated cash flow should be read alongside the separate legal-entity liquidity disclosures.
Outlook, risks and unusual items
- Runoff and liquidity: Management expects MBIA Inc. to meet obligations over the next several years without accessing capital markets, primarily relying on National dividends. Those dividends are subject to statutory limits and regulatory oversight; future amounts and timing are not assured.
- Puerto Rico: National reported $2.925 billion of debt service outstanding at year-end and paid $391 million of gross claims during 2020. Puerto Rico defaulted on additional scheduled debt service on January 1, 2021, leading to $51 million of gross claims. National joined a revised Commonwealth/PBA plan support agreement in February 2021, with a right to terminate by March 31, 2021; the proposed restructuring and timeline were uncertain.
- MBIA Corp. capital and recoveries: MBIA Corp. had statutory capital of $273 million, down from $476 million, and a 2020 statutory net loss of $202 million. It lacked qualifying assets to support certain statutory reserves and has not had statutory capacity to pay dividends. Delays or shortfalls in recoveries could strain liquidity and capital and prompt NYSDFS action, including rehabilitation or liquidation.
- Credit Suisse settlement after year-end: In February 2021, Credit Suisse paid MBIA Corp. $600 million to settle litigation. At December 31, 2020, the related consolidated VIE reported $604 million of loan repurchase commitments. The filing describes the settlement as a subsequent event; investors should verify its accounting, cash availability and effect on statutory capital.
- Other uncertain recoveries and claims: Expected recoveries include RMBS excess spread, Puerto Rico claim recoveries and proceeds from monetizing Zohar assets. Management’s estimates are model-dependent and sensitive to economic, legal, political and discount-rate assumptions. The Zohar facility matures January 20, 2022.
- COVID-19 and markets: Management said the pandemic’s effects on insured credits and liquidity were difficult to quantify. Municipal stress, mortgage delinquencies, collateral calls, asset values, low yields, foreign-exchange movements and the LIBOR transition could affect results and liquidity.
- Accounting and audit: The 2020 loss and recovery estimates were identified as a critical audit matter. The auditor issued an unqualified opinion and concluded internal control over financial reporting was effective at year-end. Management provided no earnings guidance.
Key facts investors should verify
- Progress, final terms and timing of Puerto Rico restructurings, including National’s participation in the revised agreement and subsequent claim payments.
- Collection and accounting treatment of the $600 million Credit Suisse settlement, and whether proceeds are available to MBIA Corp. for claims and obligations.
- Changes in National and MBIA Corp. statutory capital, claims-paying resources, single-risk-limit compliance and regulatory restrictions.
- Actual recoveries versus the recorded $1.677 billion insurance loss recoverable and the $990 million loss and LAE reserve, particularly for Puerto Rico, RMBS and Zohar exposures.
- MBIA Inc.’s holding-company liquidity after debt service, collateral requirements, permitted National dividends and any further capital or debt actions.
- Effects of COVID-19, interest rates, credit spreads, foreign exchange and LIBOR transition on insured portfolios, reserve estimates and collateral needs.