Q1 2020 Earnings Call
Welcome to the M.B. I Inc. first quarter 2020 financial results Conference call.
I would now like to turn the call over to Greg Diaman, managing director of Investor and media relations and the <unk>. Please go ahead Sir.
Correct. Your Maria welcome Debbie I use conference call for first quarter 2020 financial results.
After the market closed yesterday, we issued in posted several items on our web sites, including a financial results 10-Q quarterly operating supplement that statutory financial statements for bolt on be all your insurance Corporation and National Public Finance guarantee Corporation.
We also posted updates to the listings of our insurance portfolios.
Regarding todays call. Please note that anything said on this call.
As qualified by the information provided in the company's Tuncay 10-Q, and other FCC filings as our company's definitive disclosures are incorporated in those documents.
Urge investors to read our 10-K and 10-Q the container most current disclosures about the company and its financial and operating results.
Those documents also contain information that may not be addressed on todays call.
The definitions and reconciliations of the non-GAAP charge included in our remarks. Today are also included in our 10-K and thank you.
We're also financial results report and quarterly operating supplement.
The recorded replay of todays call will become available approximately two hours. After the end of the call any information for accessing it.
I was included in last week press announcement and in the financial results that we posted on <unk> that'd be a website yesterday.
Now for our Safe Harbor statement.
Our remarks on todays conference call may contain forward looking statements important factors, such as general market conditions, and the competitive environment could cause our actual results could differ materially.
From the projected results referenced in our forward looking statements.
These factors are detailed in our 10-K and 10-Q, which are available on our website at <unk> Dot com.
The company cautions not the place undue reliance of any such forward looking statements company also undertakes no obligation to publicly correct well update any forward looking statements laid it becomes aware that such statement that's no longer accurate.
Our call today, Bill Phelan and happy to Mccarran, I will provide introductory comment.
Which will be followed by a question and answer session.
Here is bill Phelan.
Thanks, Greg Good morning, everyone.
Thank you for being with US today, we hope youre well in these challenging times.
The first quarter of 2020, most of the company's net loss was caused by loss and loss adjustment expenses with approximately two thirds of those loss expenses recorded by N.B. I Insurance Corporation.
And the other third by National Public Finance guarantee Corporation.
These elevated losses for the first quarter were modestly influenced by the Cobot 19 pandemic.
Well the pandemic has affected a wide range of economic activities and influenced a number of financial relief and social programs.
Given the nature of our insured credits in the terms for insurance policies, the ultimate financial impact from most of the credits in our insurance portfolios.
Uncertain at this time.
In light of the Cobot 19 pandemic, we have augmenting our monitoring activities on a number of credits in our insurance portfolios.
Our loss reserve assessments will continue to be updated this new information becomes available that informs the probability weighted cashflow scenarios used to estimate those losses.
Our remaining Puerto Rico exposure is largely comprised of three Puerto Rico credits.
The Commonwealth General obligation bonds.
The Puerto Rico Electric power authority or Prabha.
And the Puerto Rico Highway Transportation authority for H.T.A.
At March 30, Onest 2020, or exposure the general obligation bonds was about $655 million of gross par for about $815 million of total debt service.
Our prep exposure was $968 million of gross par well $1.3 billion of total debt service.
Our H.T. exposure is about $600 million for gross par or $1 billion with total debt service.
At this time, the 90 19 motion seeking approval the title three quarters for the prep restructuring support agreement has been a journey indefinitely due to the cobot 19 pandemic.
Oversight Board is scheduled to deliver status report on prep on May 15th.
There's also a plant up adjustment between the oversight board and a group of Commonwealth Bond holdings, representing approximately 55% of the par amount.
We and several other large bondholders do not support that proposed agreement and neither does the Commonwealth government.
As yet there are no specific agreements related to the H.T. a debt.
As I mentioned earlier due the cobot 19 pandemic, we've enhanced our review of a number of other credits in the insurance portfolios.
Most of the credits in our insurance portfolios continue to perform consistent with our expectations.
Yeah outstanding gross par the insured portfolios continue to reduce.
Nationals insured portfolio has further declined to $47 billion.
Down approximately $2 billion from year end 2019.
Nationals leverage ratio gross part of statutory capital was 23 to one.
During the fourth first quarter National purchased 8.1 million and be a common shares at an average price of $7, a 99 cents per share.
Year to date through May four 2020 National is 12.5 million M.B. I a shares at an average price of $7, an 82 cents per share.
As of May 4th 2020, M.B. I had 67.7 million shares outstanding.
On May 15, 2020, our board of directors approved a new share repurchase authorization for $100 million.
Now Anthony will cover the financial results.
Thanks, Bill and good morning.
I will begin a review of our first with our first quarter 2020, GAAP and non-GAAP results thin cover the holding company balance sheet, and lastly walk through our statutory results for national and it'd be a insurance Corp.
The company reported a consolidated GAAP net loss of $333 million run negative $4.62 per share for the quarter ended March 31st 2020, compared to what consolidated GAAP net loss of $21 million or negative 24 cents per share for the quarter ended March 30, Onest 2000.
19.
The results for the quarter were driven by several factors.
Increased loss and loss adjusted tax adjustment expense at M.B.A. Corp, primarily due to a reduction in expected recoveries on claims paid on the zone horse yellows.
Increased loss and loss adjustment expense at national related to certain of its remaining Puerto Rico exposures as well as or utility credit that was new to whats loss Reserve list.
Mark to market losses related to interest rate swaps associated with the get book of business due to a declining interest rates and to a lesser extent related to investments carried at fair value due to widening credit spreads.
These items were somewhat offset by an increase in our estimated at credit Suisse recovery and FX gains.
On January Onest 2020, we adopted new accounting guidance for establishing credit loss allowances on financial assets, commonly referred to was Cecil.
Upon adopting Cecil we established $42 million of credit loss allowances by recording a negative adjustment to retained earnings.
Book value per share decreased to $6.70 per share as of March 30, Onest 2020, compared to $10.40 as of December 30, Onest 2019, primarily due to the net loss for the first quarter of 2020, partially offset by unrealized gains on it.
Vestments and 7 million fewer net shares outstanding due to share repurchases during the course, the first quarter.
The company's adjusted net loss on non-GAAP measure was $47 million were negative 65 cents per share for the first quarter of 2020 compared with adjusted net income of $39 million or 45 cents per share for the first quarter of 2019.
Yeah, and favorable change was primarily due to the loss and loss adjustment expense at national in Q1, 2020, compared to a loss and loss adjustment expense benefit in Q1 2019.
I will now spend a few minutes on the corporate segment balance sheet and the insurance companies.
The corporate segment, which primarily includes the activity of the holding company M.B. <unk> Inc. had total assets of $1 billion as of March 31st 2020.
Within this total or the following material items.
Unencumbered cash and liquid assets held by M.B. <unk> Inc. totaled $314 million as of March 30, Onest 2020 versus $375 million as of December 30, Onest 2019.
The decrease was primarily due to increases in collateralization requirements associated with the get business. As a result of coated 19 related market impacts on credit spreads and a decline in interest rates.
As of March 31st 2020, there were $28 million of tax deposits and the tax escrow account, which represented the remaining portion of nationals 2018 tax payments.
In February of 2020 due to a full year 2019 tax loss at national and be <unk>, Inc. returned $7 million of Nationals, 2019 tax deposits and $26 million nationals 2018 texture deposits.
As we stated last quarter tax escrow releases are not expected to be a meaningful contributor to holding company liquidity in the future.
There were approximately $560 million of assets at market value pledged to the gics and the interest rate swaps supporting the get book.
Turning to the insurance companies statutory results National reported a statutory net loss of $80 million for the first quarter of 2020 compared to net income of $48 million for the prior years comparable quarter.
The unfavorable result was primarily due to higher loss in L. AG.
And lower revenues, partially offset by a tax benefit generated in Q1 2020 from nationals net operating loss and the impact of longer carry back period for its 2019 in 2020 tax losses under the cares Act.
In January of 2020 National paid $59 million in gross Puerto Rico related claims, which brings inception to date gross claims paid to $1.2 billion.
As of March 31st 2020 Nationals total fixed income investment portfolio, including cash and cash equivalents had a book adjusted carrying value of $2.4 billion.
Statutory capital was $2.1 billion, a decrease from year end 2019, due to unrealized losses share repurchases and the quarterly net loss.
Claims paying resources totaled $3.3 billion.
And shirt gross par outstanding reduced by $1.6 billion during the quarter and now stands at $47.4 billion.
Turning to N.B. I insurance Corp. The statutory net loss was $91 million for the first quarter of 2020 compared to a statutory net loss of $1 million for the first quarter of 2019.
The unfavorable result was primarily due to higher loss and really related to the Zohar credits and the current your quarter somewhat offset by foreign exchange gains.
As of March 31st 2020, the statutory capital of M.B. I Insurance Corp was $382 million versus $476 million as of December 30, Onest 2019.
Claims paying resources told what totaled $1.1 billion in cash and liquid assets totaled $120 million.
And be a corp.'s insured gross par outstanding reduced by just under $1 billion during the quarter and was $9.1 billion as of March 30, Onest 2020.
And now we will turn the call over to the operator to begin the question and answer session.
Thank you at this time, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad again that is star one.
If your question has been answered and you wish to remove yourself from the Q press the pound key.
Our first question comes from one of Bose George of KBW.
Hey, Good morning, guys. This is telling us during entre bears good morning, I hope everyone as well.
So so you re up the the repurchase authorization that rational last week, how should we think about nationals capacity in terms of purchasing shares longer term and intend to higher balancing that with the need to potentially preserve capital us. If this answer not lessons up worsening of it.
Yeah, Tommy a with regard to that there are several aspects as you know and we've been quite clear that we look at many factors as we think about the share repurchases that national has done as of March 31st from a regulatory perspective, there is 349 million of capacity remaining so that's the first.
[noise] sort of constraint from a regulatory perspective, that's your point, we look at many other factors in terms of the resources that national needs, what the stock prices and many other things that you would think about.
So the one known requirements that 349.
The board has authorized another 100 million, we essentially just it's almost a completely exhausted 250 million, which we had spent roughly over about a two and a half year period. So we'll continue to look at all these things.
And decide what we think the appropriate.
Approaches and that obviously subject to change at any point in time.
But we have I think always been very clear that we think a buying shares at attractive prices is beneficial for long term shareholder value.
Right I don't make sense.
And just kind of broadly speaking.
Obviously it is that there's a ton of uncertainty, but how are you thinking about kind of municipal financial position right now just.
Given the challenging environment, how do you compare this to what we saw backend Nate and then how dependent is your view on getting support from the federal government and the next spending bill.
So as you know, there's several or many uncertainties at this point and you touched on the financial situation back in 2008, which is 12 years ago from that.
The municipal portfolio that we ensure really did not see any.
False things like Detroit in Puerto Rico, We would all you had to do with other factors not the financial crisis back in 2008, and even you go back to other unfortunate catastrophe such as Katrina.
Even before that municipals have held up pretty well, but this is clearly something very different in terms of the pandemic that we're facing right now.
We do not know at this point, what the breadth and depth of the impact will be into your point, the mitigating factors such as federal aid or federal programs that either have been approves already or might be approved in the near future. So we'll continue to look at it closely theres no doubt that there are certain revenue streams.
Two states and in cities that have been adversely affected.
For example sales tax revenues, we've seen a significant drop in those but we continue to monitor monitor it there have not been any claims made against one of our policies at this point, but as we've we've mentioned we will look at it closely.
Thank you and just last one.
He releasing in your prepared marks you called out Puerto Rico exposure, that's contributing to that loss and LAE expenses quarter was that just related to the timing items you want to continuing to cover claims given the downside of Kobe delayed.
Kind of any resolution or was the other adverse development on quickly.
Got you just sit on the primary one because of the pandemic.
Timing has been delayed with regard to pretty much all aspects of the restructuring and we'll wait and see exactly how long those delays might be but you hit the right one.
Okay in the May 15.
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Okay with that though is that definitely made public you know.
Oh, we would expect to some portion or all of what we made public shortly after that.
Okay, great. Thank you yes.
Our next question comes from the line of Giuliano Valonia of BTI G.
Good morning, and thank you for taking my questions start selling on the loss reserve side. Obviously, there are few adjustments, but I'd be curious to get a sense of how much the impact was from kind of credit driven assumptions versus interest rate assumptions.
So giuliano good morning.
Assumptions govern the increase in loss reserves that if it changes in profiles to both the amount of payments that we would be making in the decrease in salvage.
Drove the loss reserves, obviously, it's a credit by credit issue for six foot. So for those credits that we made those adjustments.
You know the assumptions drove into because you have lower discount rates on the payments themselves, which drove it for other credits, where we did not make those kind of adjustments or as money adjustments the lower discount rate. Obviously reflects itself an increasing salvage so I would say assumptions fall in a governed.
The loss reserves for the quarter, but certainly discount rates are a factor, especially for Puerto Rico, just given that theres a significant salvage piece.
That makes sense and then thinking about.
Have a holding company liquidity.
Are there any opportunities to.
By any of the securities backed whether it be some of the remaining whether it be bonds or any other debt securities at the holding company to the discount to accelerate de leveraging in Britain and take out interest expense on these.
Potentially take out interest expense faster.
So so there's you know during the last year, we took out a part of the 2022 6.4.
Per cent that we still essentially concentrated on getting through the liquidity window of 2022 at this point, we're now starting to be able to look beyond that but that's really been our focus but to the degree again that theres opportunities. We're always we're always looking to see if something is optimal for us to do.
Makes sense.
I appreciate that and thanks for taking my questions. Thank you. So much. Thank you. Thank you.
Our next question comes from one of Geoffrey Dunn of Dowling partners.
Thanks, Good morning, I, just wanted to follow up and that can you actually disclosed the impact the discount rate changes had on the nationals 48 million this quarter for incurred losses.
No we're not we can't break it out exactly only just to say again these assumptions assumptions drove the loss reserves more than the impacted discount rates, but it's a credit by credit impact. So I can't give you the exact breakdown.
Okay.
And then can you discuss the investor owned utility reserve adjustment for the quarter.
Oh sure. That's that's it that's a credit that was on or caution list prior to the quarter.
Which.
Given your change in facts and circumstances on it we wound up taking a reserve this quarter that was in part contributing to the loss finale for national.
This quarter.
And what are what are the issues that probably going to caution less than incrementally drove the reserve.
Essentially we had a bankruptcy of utility.
Okay, and then just I want to revisit this discount rate question again.
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Excluding the impact the discount rates when they're favorable development on the quarter or was there an actual incurred loss provision.
There was an incurred loss provision.
Okay. Thank you.
Again, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad.
Our next question comes from one of Paul Saunders as much capital.
My question has actually been asked asked and answered already thanks, guys. Thank you okay. Thank you.
And at this time I'm showing no further questions I'd like to turn the floor back over to management for any additional closing remarks.
Thanks again area.
Thanks to all of you are listening to the call today. Please contact us directly if you have any additional questions. We also recommend that you visit our website at <unk> Dot com for additional information on the company.
Thank you for your interest in MBJ today and Goodbye.
Yes.
Thank you ladies and gentlemen, this does conclude today's first quarter. Two some 20 <unk> earnings Conference call you may now disconnect.
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