MBIA Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. MBIA operates financial-guarantee insurance businesses through National (U.S. public finance), MBIA Inc. and affiliates (corporate), and MBIA Insurance Corporation (international and structured finance). The financial statements are unaudited.
Financial results and position
| Metric | Q1 2022 / March 31, 2022 | Prior comparable / December 31, 2021 |
|---|---|---|
| Total revenue | $40 million | $72 million in Q1 2021 |
| Total expenses | $113 million | $178 million in Q1 2021 |
| Net loss | $73 million; $1.48 per diluted share | $106 million; $2.16 per diluted share in Q1 2021 |
| Adjusted net loss (non-GAAP) | $96 million; $1.94 per diluted share | $116 million; $2.36 per diluted share in Q1 2021 |
| Net cash from operating activities | $273 million | $529 million in Q1 2021 |
| Cash and cash equivalents | $147 million on the balance sheet; $151 million including consolidated VIE cash | $151 million on the December 31, 2021 balance sheet |
| Total assets / total liabilities | $4.443 billion / $4.995 billion | $4.696 billion / $4.996 billion |
| MBIA Inc. shareholders’ equity | Negative $565 million | Negative $313 million |
| Loss and loss adjustment expense reserves | $886 million | $894 million |
| Insurance loss recoverable | $366 million | $1.296 billion |
| Long-term debt / medium-term notes / investment agreements | $2.344 billion / $589 million / $274 million | $2.331 billion / $590 million / $274 million |
Q1 other comprehensive loss was $182 million, driven mainly by $171 million of unrealized losses on available-for-sale securities. The effective tax rate was 0%; MBIA maintained a full valuation allowance against its $1.1 billion net deferred tax asset. The company reported $3.474 billion of total investments at March 31.
Material changes and business developments
- Revenue fell 44% year over year, largely reflecting investment fair-value losses, smaller gains on interest-rate swaps, and lower foreign-exchange gains. Expenses fell 37%; loss and LAE expense declined to $49 million from $98 million, primarily due to lower CDO losses and a net decrease in losses on certain Puerto Rico exposures.
- Operating cash flow was lower than in Q1 2021, which included $600 million from settled loan repurchase commitments. In Q1 2022, MBIA received $622 million of recoveries and reinsurance proceeds, while paying $336 million of claims and LAE.
- Puerto Rico’s GO and PBA plan became effective March 15, 2022. National received approximately $1.0 billion in cash, GO bonds and a contingent value instrument, then made $277 million of acceleration and commutation payments. Its GO and PBA par and debt-service exposure were reduced to zero.
- Puerto Rico defaulted on scheduled National-insured debt service on January 1; National paid $47 million of gross claims. National had $2.1 billion of Puerto Rico debt service outstanding at quarter-end, including $1.063 billion for PREPA and $932 million across HTA exposures.
- PREPA and Puerto Rico’s fiscal agency terminated the PREPA restructuring support agreement on March 8. Court-ordered mediation began under an April 8 order; the PREPA restructuring and related litigation remained unresolved. National sold another $231 million of PREPA bankruptcy claims in January and had sold about 35% of its par claims.
- The Oversight Board filed an HTA plan on May 2, after quarter-end. National expected to receive its allocable share of cash and contingent value instruments during Q2 2022, and bonds or their cash equivalent after the plan became effective. The filing gives aggregate distributions to bondholders of approximately $264 million cash, $2.2 billion in CVIs and $1.2 billion in new HTA bonds or cash equivalent; National’s specific allocation is not stated here.
Liquidity, outlook, risks and contingencies
- Management expects MBIA Inc. to have sufficient cash for debt service and general corporate needs, based on projected National dividends and other inflows, but warns that reduced or interrupted National dividends, weaker asset performance, collateral calls, or restricted capital-market access could impair liquidity. Parent liquidity was $216 million at March 31, versus $239 million at year-end.
- National reported $2.7 billion of cash and investments, including $310 million of cash and short-term investments. Its statutory capital was $2.1 billion and claims-paying resources were $2.946 billion. National was within aggregate risk limits but not certain single-risk limits; regulators could restrict new business.
- MBIA Corp. had $560 million of cash and investments, including $272 million immediately available. Management cautions that recoveries from Zohar collateral and RMBS are uncertain and that inadequate liquidity or delayed recoveries could hinder timely claims payments. The NYSDFS could place MBIA Insurance Corporation into rehabilitation or liquidation if it concludes claims cannot be paid. The insurer had $131 million statutory capital, $76 million of “free and divisible surplus,” and $1.1 billion of unpaid interest on $953 million of surplus notes; NYSDFS approval is required for payments.
- MBIA identifies Puerto Rico credit and restructuring outcomes, reserve adequacy, recoverability of claims, investment and market volatility, collateral requirements, and legal and regulatory developments as material risks. PREPA mediation, HTA plan implementation, and litigation outcomes could materially affect results and recoveries. The company states that litigation loss amounts or ranges cannot currently be estimated.
- Management said COVID-19 had not materially adversely affected the business to date, but future effects remain uncertain. It noted elevated inflation, higher energy prices, rising rates, and uncertainty related to the Russia-Ukraine conflict. MBIA reported immaterial direct or indirect Russian and Ukrainian investment exposure and a credit-loss allowance associated with an issuer affected by the conflict; it does not insure Russian or Ukrainian sovereign or sub-sovereign debt.
- No formal earnings guidance is provided. Management does not expect National or MBIA Corp. to write significant new business. National’s statutory dividend capacity is subject to insurance-law limits and regulatory approval for amounts above the ordinary limit.
Most important facts for investors to verify
- How the PREPA mediation and HTA plan progress, and whether anticipated recoveries arrive on the stated schedule and at expected values.
- Whether National’s claims-paying resources, statutory dividend capacity and parent-company cash flows remain sufficient amid continuing Puerto Rico claims.
- Whether MBIA Corp. collects expected Zohar and RMBS recoveries and maintains enough liquidity to meet policyholder obligations; monitor NYSDFS actions and surplus-note approvals.
- How rising interest rates and wider credit spreads affect investment values, OCI, collateral requirements and cash available for obligations.
- Whether loss reserves and recoverable estimates remain appropriate, given that management relies on probability-weighted scenarios and uncertain timing and values of recoveries.
- Reconcile the reported $151 million ending cash-flow figure with the $147 million balance-sheet cash balance: the difference is $4 million of cash held by consolidated VIEs.