MBIA Inc. 2019 Form 10-K Summary
Business context and reporting period
MBIA reported for the fiscal year ended December 31, 2019. Its insurance subsidiaries are principally in runoff: National manages U.S. public finance insurance, while MBIA Corp. manages international and structured finance exposure. Neither is expected to write significant new business. Management’s focus is preserving holding-company liquidity, mitigating insurance losses and collecting recoveries.
Financial results and key metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $280 million | $162 million |
| Net premiums earned | $85 million | $162 million |
| Net investment income | $114 million | $130 million |
| Losses and loss adjustment expense | $242 million | $63 million |
| Net loss | $359 million | $296 million |
| Adjusted net loss, non-GAAP | $17 million | $38 million |
| Operating cash flow | $(368) million | $(319) million |
| Investing cash flow | $1.267 billion | $1.206 billion |
| Financing cash flow | $(1.096) billion | $(752) million |
| Total assets | $7.284 billion | $8.107 billion |
| Total equity | $839 million | $1.132 billion |
| Book value per share | $10.40 | $12.46 |
Revenue and income include substantial fair-value, insurance-reserve and consolidated variable-interest-entity effects; conventional operating margins are not a useful measure for this runoff insurer. Fourth-quarter 2019 net loss was $243 million, including $153 million of losses and LAE.
At year-end, consolidated cash and cash equivalents were $83 million and investments were $3.462 billion. Holding-company liquidity was $375 million, versus $457 million a year earlier. National held $2.7 billion in cash and investments, including $442 million in cash, cash equivalents or short-term investments. MBIA Corp. held $230 million in cash and investments, of which $124 million was immediately available liquid assets.
Reported consolidated liabilities included $2.228 billion of long-term debt, $680 million of medium-term notes and $304 million of investment agreements. MBIA Inc. also redeemed $150 million of senior notes at par and paid $57 million of GFL debt maturities during 2019. These debt categories are not all holding-company obligations; they include obligations across the consolidated group.
Material changes versus the prior comparable period
- Net loss widened by $63 million. Total revenue rose $118 million, largely on consolidated VIE results, gains associated with Puerto Rico bond transactions and a favorable change in insured derivatives; these were more than offset by higher insurance losses and LAE.
- Premiums earned fell by $77 million, primarily reflecting prior-year policy terminations and refundings, maturities and settlements. Losses and LAE increased by $179 million, principally due to insured CDO and first-lien RMBS developments, partly offset by lower losses on certain Puerto Rico credits.
- Operating cash outflow increased $49 million, reflecting higher claim payments and lower premiums and fees received, partly offset by increased recoveries. Investing cash inflow mainly reflected investment maturities and paydowns; financing outflow increased with VIE and debt repayments and share repurchases.
- National’s U.S. public finance gross par outstanding declined to $48.9 billion from $57.9 billion. Its below-investment-grade share declined to 7.8% from 8.5%.
- MBIA Inc. and National repurchased 11.1 million shares for $101 million in 2019, compared with 5.8 million shares for $48 million in 2018. The year-end remaining authorization was $101 million.
- Total claims-paying resources (a non-GAAP/statutory measure) declined to $3.546 billion at National from $3.844 billion, and to $1.239 billion at MBIA Corp. from $1.340 billion.
Outlook, commentary, risks and unusual items
- Management said holding-company liquidity is expected to support debt service and operating needs for the next several years without capital-market access, based on expected National dividends and other inflows. It cautioned that future dividends and tax-escrow releases are uncertain and that National is its expected source of dividends; MBIA Corp. is not expected to distribute funds to the parent.
- Puerto Rico remained a principal National risk. At year-end, National had $2.322 billion gross par and $3.325 billion debt service outstanding related to Puerto Rico and had paid about $1.1 billion of gross claims on non-COFINA credits. COFINA exposure was reduced to zero after the restructuring and a $66 million additional payment. National paid a further $59 million of claims after Puerto Rico defaulted on January 1, 2020.
- National joined the PREPA restructuring support agreement, but its effectiveness depends on a confirmed plan, definitive documentation, Puerto Rico legislation and regulatory approval. Puerto Rico GO, PBA, PRHTA and PREPA proceedings and related lien disputes remained unresolved.
- MBIA Corp.’s expected recoveries are a significant uncertainty. Its year-end insurance loss recoverable was $783 million and loss and LAE reserves were $469 million. It recorded $191 million of expected RMBS excess-spread recoveries, including amounts related to consolidated VIEs. Recovery timing and amounts, including Zohar asset monetization and Credit Suisse loan-repurchase litigation, are uncertain; shortfalls could pressure MBIA Corp.’s liquidity and statutory capital.
- MBIA Corp.’s statutory capital was $476 million, down from $555 million; it reported a $141 million statutory net loss. It met minimum policyholders’ surplus but lacked qualifying assets to support certain required reserves and was not compliant with certain single-risk limits. The NYSDFS had not approved surplus-note interest payments since 2013; unpaid interest was $887 million as of January 15, 2020. Regulatory rehabilitation or liquidation is a risk if the insurer cannot meet expected claims.
- The 2019 loss included $67 million of investment losses related to other-than-temporary impairments. The company also early adopted an income-tax accounting update, revising 2019 quarterly results. A full valuation allowance remained against its $873 million net deferred tax asset.
- Management reported that a material weakness in controls over MBIA Corp. RMBS loss-reserve and recovery estimates was remediated by year-end 2019. Management and the auditor concluded internal control over financial reporting was effective at December 31, 2019; the auditor issued an unqualified opinion.
Most important facts for investors to verify
- Progress and creditor recoveries in Puerto Rico, especially PREPA, GO, PBA and PRHTA; confirm actual claims, settlements and any changes in National’s exposure.
- Whether MBIA Corp. realizes its Zohar, RMBS excess-spread and Credit Suisse recoveries in the amounts and timeframes assumed, and the implications for liquidity, reserves and regulatory capital.
- Holding-company liquidity, collateral requirements, National dividend capacity and scheduled debt service, including the distinction between parent and insurance-subsidiary resources.
- Reserve and fair-value assumptions, including the sensitivity of reported results to discount rates, credit outcomes, litigation and model inputs.
- Implementation of the PREPA restructuring agreement, regulatory actions concerning MBIA Corp., and the continued effectiveness of remediated internal controls.