MBIA INC annual report, FY2014

Vollständiges Dokument

MBIA Inc. — 2014 Form 10-K Summary

Business context and reporting period

Reports the fiscal year ended December 31, 2014; fourth-quarter data are unaudited. MBIA’s principal ongoing business is U.S. municipal financial-guarantee insurance through National Public Finance Guarantee Corporation. Legacy international and structured-finance exposures are managed through MBIA Corp.; the company does not expect meaningful new business there. MBIA liquidated its conduit business during 2014 and completed the sale of Cutwater effective January 1, 2015.

Financial results and key metrics

  • FY 2014: Total revenue was $1.270 billion, versus $1.209 billion in 2013. Net income was $569 million ($2.76 diluted EPS), versus $250 million ($1.29 diluted EPS). Non-GAAP operating income was $185 million, compared with a $15 million operating loss in 2013.
  • Fourth quarter: Revenue was $215 million and net income was $20 million ($0.10 diluted EPS), versus $458 million revenue and $132 million net income in Q4 2013.
  • Revenue composition: Premiums earned were $397 million, down from $457 million; net investment income was $179 million, up from $166 million. The $459 million net gain on insured derivatives was a major contributor to reported results and reflected, in part, commutations and fair-value movements.
  • Losses and reserves: Losses and loss-adjustment expense were $133 million, versus $117 million. Balance-sheet loss reserves declined to $506 million from $641 million; insurance loss recoverable declined to $533 million from $694 million.
  • Cash flow: Operating activities used $333 million, versus providing $1.829 billion in 2013, when recoveries were unusually large. Investing activities provided $812 million; financing activities used $892 million. Year-end cash and cash equivalents were $729 million on the balance sheet.
  • Liquidity and capital: MBIA Inc.’s corporate-segment liquidity was $498 million, up from $359 million. National reported $3.3 billion of statutory capital and $4.95 billion of claims-paying resources. MBIA Corp. reported $859 million of statutory capital and $2.66 billion of claims-paying resources; these measures include premium and recovery components and are not directly comparable to GAAP equity.
  • Debt: MBIA Inc.’s net debt was $740 million, down from $1.0 billion. MBIA Corp. had $953 million principal outstanding on surplus notes, with roughly $282 million of accrued unpaid interest; payments require New York regulator approval, which had not been granted for scheduled interest since 2013.
  • Balance sheet: Total assets were $16.3 billion, total liabilities $12.3 billion, and MBIA Inc. shareholders’ equity $3.9 billion. Book value per share was $20.47; management-reported adjusted book value per share, a non-GAAP measure, was $24.87.

Material changes versus the prior comparable period

  • Net income rose year over year, while non-GAAP operating results improved from a loss to income. The increase in GAAP income was affected by derivative fair-value gains and tax items, so it should not be read as equivalent to stronger recurring underwriting revenue.
  • Premiums earned continued to decline as insured policies matured or refunded and new writings remained limited. National insured $343 million of par during 2014.
  • MBIA Corp. reduced gross par exposure through $7.1 billion of commutations during 2014. Its insured portfolio fell to $55.2 billion from $80.4 billion in 2013; the company reports a longer-term decline from $331.2 billion at year-end 2007.
  • MBIA Inc. repurchased shares and debt. It paid $122 million to repurchase GFL debt, retired $129 million of Meridian notes, and repurchased shares under a new $200 million authorization. National paid MBIA Inc. a $220 million dividend.
  • Conduit operations were wound down, and Cutwater was classified as held for sale at year-end. The Cutwater sale’s reported impact was positive but immaterial.

Outlook, management commentary, risks and unusual items

  • Management expects National to remain the main source of future new insurance business and subsidiary cash distributions. It intends to use cash flows, principally from National, to reduce holding-company leverage. No specific earnings or revenue guidance was provided.
  • National’s year-end financial-strength ratings were AA+ (stable) from Kroll, AA- (stable) from S&P, and A3 (negative) from Moody’s. Ratings, competitive pricing, low interest rates and limited demand for bond insurance constrain growth prospects.
  • National had $4.5 billion of gross insured exposure to Puerto Rico. Puerto Rico’s fiscal stress, the status of its debt-restructuring framework and subsequent rating downgrades create risks; the filing says insured obligations listed were current on debt service at year-end.
  • MBIA Corp.’s largest uncertainties include RMBS claims and recoveries, structured-credit and commercial-real-estate losses, and the amount and timing of excess-spread and mortgage-loan put-back recoveries. The company recorded $523 million in present-value expected second-lien RMBS excess-spread receipts and $379 million in Credit Suisse loan-repurchase commitments; collection timing and ultimate recovery are uncertain. Credit Suisse litigation remained unresolved.
  • Management said MBIA Corp. had adequate resources for expected claims, but cautioned that higher claims or delayed/failed recoveries could create liquidity shortfalls and prompt regulatory rehabilitation or liquidation. Its statutory resources and claims-paying capacity are distinct from MBIA Inc.’s holding-company liquidity.
  • Reported earnings include significant fair-value effects on insured derivatives and a tax benefit associated with releasing the deferred-tax valuation allowance and reducing uncertain-tax-position reserves. The company reported a $1.0 billion net deferred tax asset with no valuation allowance at year-end; realization depends on future taxable income.
  • Other risks include municipal fiscal stress, reserve-model uncertainty, regulatory and rating-agency requirements, collateral and capital-market access, and potential acceleration of obligations. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued an unqualified opinion.

Important facts for investors to verify

  • How much of 2014 net income and operating cash generation is sustainable after separating derivative fair-value changes, commutations, tax benefits and prior-year recovery comparisons.
  • National’s Puerto Rico exposures, payment status, reserve assumptions and the effects of subsequent legal and rating developments.
  • Whether MBIA Corp. collects the modeled RMBS excess spread and Credit Suisse recoveries on the amounts and timetable assumed, and whether claims remain within available liquidity.
  • National’s dividend capacity and the reliability and timing of tax-sharing escrow releases as sources of MBIA Inc. liquidity and debt repayment.
  • The terms, regulatory status and payment prospects of MBIA Corp.’s surplus notes, including unpaid interest, and the distinction between subsidiary statutory resources and parent-company resources.