Q3 2020 MBIA Inc Earnings Call
Maintain our most current disclosures about the company and its financial and operating results those documents also contain information that may not be addressed on today's call the definitions and reconciliations of the non-gaap terms included in our remarks today are also included in our 10-K and 10-q use as well as our financial results report in our quarterly operating supplement to recorded off of today's call will become available approximately two hours after the end of the call and the information for accessing it was included in last week to press announcement and in the financial results that we posted on our on the website yesterday.
now for our Safe Harbor
my remarks on today's conference call may contain forward-looking statements important factors such as General market conditions in the competitive environment could cause our actual results to differ materially from the projected results referenced in our forward-looking statements risk factors are detailed in our 10-K and 10-q, which are available on our website that the company cautions Thursday to place undue Reliance on any such forward-looking statements. The company also undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware, that such statement is no longer accurate for our call today Bill Fallon and Anthony McKiernan will provide introductory comments, which will be followed by a question-and-answer session now here is Bill Fallon.
Thanks, Greg. Good morning, everyone. Thank you for being with us today. We remain focused on the resolution of Nationals Puerto Rico exposure, which is largely comprised of three credits off Commonwealth General obligation bonds the Puerto Rico Electric Power Authority or prepa and the Puerto Rico Highway and Transportation Authority were HTA.
They've been no meaningful changes regarding the resolution of the debt of those credits during the last three months in September judge, Swain entered a final order denying the Mana lines HTA off of stay motion National and the other Mana lines have appealed this decision to the first circuit and all argument is expected in February.
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Currently proceeding with its litigation against certain Underwriters of some of our insured Puerto Rico debt. The case was remanded to the Commonwealth of Puerto Rico where we originally had filed it and briefing the banks motion to dismiss the case is scheduled to be completed by the end of this month.
most of the credits our insurance portfolios continue to perform consistent with our expectations
There has been no material impact on the company's financial performance attributable to the COVID-19 pandemic, but we continue to focus on that risk in connection with our ongoing review of our insured portfolios dead.
The outstanding gross part of the insured portfolios continued to reduce where Nationals insured portfolio has further declined to forty four billion dollars down two billion dollars from the last call at September 30th, 2020 Nationals leverage ratio of gross part of statutory. Capital was 22 to 1.
During the third quarter National purchased eight point six million shares of common stock at an average price of $7.23 per share.
You're today through September 30th, 2020 National has purchased twenty six point four million shares in an average price of $7.50 per share off as of November 2nd 2020 fifty three point nine million shares outstanding the company's share repurchase authorization has been fully utilised since the end of 2015. The company has repurchased eight six million shares of common stock which we believe has contributed substantial value to M bi Inc shareholders.
Now Anthony will cover the financial results.
Thanks, Bill and good morning. I will begin with a review of our third quarter 2020 gaap and non-gaap results. The company reported a Consolidated gaap. Net loss of $58 million negative $1.11 per share for the quarter ended September 30th, 2020 compared to Consolidated gaap. Net income of 83 million dollars or $1 per share a quarter ended September 30th 2019.
The net loss this quarter versus net income in the third quarter of 2019 was driven by several factors higher loss and expense at National.
Lower gains from Investment Portfolio security sales as Q3 2019 benefited from the sale of Nationals prep a bonds from its Investment Portfolio lower viee income in 2020 income in the prior comparable quarter was related to mark-to-market games on the cofina v i e which has since been D Consolidated in conjunction with the elimination of Nationals insured cofina exposure as well as higher put back Recovery Corp.
Elliott National this quarter was due primarily to accretion on its Puerto Rico credits as there were no material changes to our law scenarios the large loss and gain a benefit for the prior comparable quarter was largely due to lower discount rates on the present value of estimated future recoveries on paid losses at National.
Loss and loss adjustment expense this quarter. I didn't Corp was primarily due to a reduction and expected recoveries on claims paid on the Zohar see an increase in our laws.
Discount rates played a minimal part in Lawson for the quarter as the risk-free rate. This quarter were on average consistent with 2020.
Book value per share decreased to $4.25 per share as of September 30th, 2020 compared to $10.40 as of December 31st, 2019 primarily off the 2020 year-to-date net loss of $497 million dollars partially offset by unrealized gains on investments and twenty six million fewer net shares outstanding due to share repurchases during the first nine months of the year.
The company's adjusted net loss non-gaap measure Was Eighteen million dollars or a -34 cents per diluted share for the third quarter of 2020 compared with a rep net income of $115 or $1.46 per diluted share for the third quarter of 2019.
The unfavorable change was primarily due to higher loss in l e e and lower premium and net investment income for national.
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 and the ink had total assets of 1 billion dollars as of September 30th 2020.
within this total or the following material items
unencumbered cash and liquid assets held it in ink totaled $335 million dollars as of September 30th, 2020 versus $375 million dollars as of December 31st of 2019. The decrease was primarily due to increases in collateral requirements associated with the big business as a result of COVID-19 related Market impacts on credit spread, which I've tightened somewhat from q1.
As of September 30th 2020 there were twelve million dollars of tax deposits made by national under our tax sharing agreement that had not yet been refunded to National or released to think which represented the remaining portion of Nationals 2018 tax deposits. As we have stated in recent prior quarters tax escrow releases are not expected to be a meaningful contributor at a holding company recorded it in the future.
There were approximately $540 of assets at market value pledge to the Geeks and the interest rate swaps supporting the Legacy gig operation.
Today mbia in will receive the annual as of right dividend from National in the amount of 81 million dollars after receiving this dividend and bi Inc will have sufficient assets to cover. It's estimated foreseeable obligations through at least the end of 2022.
Turning to the insurance company statutory results National reported statutory income before taxes of thirty-six million dollars for quarter and September 30th, 2020 versus income before taxes of 112 million dollars for September 30th, 2019 the lower income before taxes. This quarter was due to lower capital gains as well as lower premium and investment.
Q3 2019 benefited from games related to the sale of prepa bonds in the Investment Portfolio. This was somewhat offset by lower loss and expense in the current quarter.
National report is a statutory net loss of eight million dollars for the third quarter of 2020 compared to statutory. Net income of 87 million dollars for the prior Year's comparable quarter ton favorable change was due to the aforementioned lower Revenue items as well as a higher tax expense generated in Q3 2020 as the quarter-to-date taxable income reduce, the year-to-date taxable loss that under the cares act can can be carried back up to five years at a 35% tax rate when applicable on July First National paid 333 million dollars in Gross Puerto Rico related claims, which increases Inception to date gross claims paid on in life. Rico bonds to 1.6 billion dollars.
As of September 30th 2020 Nationals total fixed income Investment Portfolio, including cash and cash equivalents had a book adjusted carrying value of two billion dollars worth of capital was two million dollars impacted from your end 2019 by its purchases of mbia in shares and its year-to-date net loss claims-paying resources totaled a 3.2 billion dollars in short gross par outstanding reduced by one point nine billion dollars during the quarter and now stands at forty three point nine billion dollars.
Turning to pay insurance Corp, the statutory net loss was thirty-five million dollars for the third quarter of 2020 compared to a statutory net loss of twenty six million dollars for the June 2019. The unfavorable result was due to Foreign Exchange losses in Q3 2020.
As of September 30th 2020 the statutory capital of insurance Corp was 328 million dollars versus 476 million dollars as of December 31st, 2019 claims-paying resources totaled 1 billion dollars in cash and liquid assets have remained consistent throughout the year and totaled $129 million dollars and be I am insured gross par outstanding was nine billion dollars as of September 30th 2020. We await a decision in the Credit Suisse trial as well as progress on the Zohar monetization process go back to recent court rulings.
Now we will.
And the call over to the operator to begin the question-and-answer session.
Thank you. The floor is not open for questions to ask a question at this time. Simply, press star. Then the number one on your telephone keypad again. That is star one.
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Our first question comes from the line Atomic joint. Hey, good morning guys. So it seems like some delays in the in the proceedings and some of them are restructuring procedures do the simple delay pause you to increase your expected losses on those credits because you're potentially be paying claims longer or is there really no impact until your ultimate recovery of life has changed.
At this point Tommy we looked at our analysis this quarter as we said the the increase in loss reserves was due to accretion primarily in some way. So we just moved our scenarios forward a quarter will continue to evaluate the timing but we still think based on our scenarios. It's going to take some time for this to solve itself. So we didn't make any material changes to the timing this quarter.
Okay outside of Puerto Rico. What are the kind of Pop credits that you guys are focused on establishing reserves against those credits and kind of gives you confidence that you wouldn't need deserves. Yeah as we've looked Tommy at the impact of as I mentioned. We're watching it quite closely and we do think obviously have been situations where there's been a reduction in revenues to the municipality that we may be looking at. However, at this point we can't identify any where they expect to see if I have any claims so we'll continue to monitor it a lot of it will depend on how long the impact of covet goes on but at this point there are not situations where we've taken you know, substantial reserves specifically because of COVID-19 of the credits
Okay, and then last one so you bought back about 40% of stock at National over the past couple of years or you instruct replenishing that that authorization further or kind of what are your what are your plans regarding Capital? Yeah, I think you're right. We have bought back a substantial amount through National. So this year alone is almost bought a third of the shares that were outstanding at the beginning of the year to your point of view about probably three years. It's just under 60% of the shares that were outstanding at that point in time. So it's been a substantial amount of shares and we think it's been very beneficial to shareholders at this point. We're just pausing we don't have a current authorization. We're just looking at the situation to your point. It was probably taking a little bit longer than people expected when the oversight board that was created on the premisa was put into place as I think people are aware that board is in transition right now. Yep.
Be seven members. It's down to
For because of some resignations and there's a thought that there may be even additional replacement. So we would guess over the next month or two that board will be fully situated and seated and then what should get some indication of how they're going to proceed in what that would mean for the timing of the restructuring in Puerto, Rico given all that. We do believe that share repurchases can be extremely beneficial and will continue to look at having National buy additional shares in the future. But at this point as I said, we're just going to pause for a while.
Tanks, and so just to clarify what's the time line on when the board should be have its full membership that it's hard to know exactly we would expect in the next couple of months. We would think actually before the inauguration of the president here in the US because there are certain appointments that occur based on you know, who took the presidency who has the majority of minority in the house and in the Senate so we would expect those to take place over the next just over two months.
Thank you.
Again, ladies and gentlemen, in order to ask a question. Simply, press star. Then the number one on your telephone keypad.
Our next question comes from one of Andrew heart of btig.
Hey, good morning, maybe to start. Could you talk about the company received any claims the day that could be attributed to stress arriving from the COVID-19 demek.
We not at this point. No.
Okay, great. And then under what circumstances would the company approached? Its regulator regarding special dividend from National to the holding company? Yeah, I think what we've said on that for quite a while now is it would take substantial restructuring and Puerto Rico? So we've had one large credit resolved in Puerto Rico. That was the cofina credit long. As you know, the other three large ones that we have are in different phases of being restructured. So when there's more progress than we would evaluate going to the regulator and assign a New York DFS to consider and discuss a special dividend.
Great. Thank you.
Our next question comes from one of John's daily daily Castle. Yes a two questions. Can you comment on the current fiscal state of Puerto Rico? So I understand from other sources that they have significant cash balances. It'd be upwards of nine billion dollars or some number like that and secondly with your aggressive strategy of buying stock back and have just simply watched either the adjusted Book value or Book value declined from the high 30s off all the way down to $4 today, which is probably stated but not adjusted. I'm curious how you articulate how shareholders checked it myself. I own a million shares of your stock available for a long time. We're going to benefit other than through a Final Exit then what you see in the value when the markets not acknowledging it.
and it's not
So I got banana peel Financial numbers.
Yeah, okay. Let me start with the first one and then Anthony can comment on the 2nd and I may have some additional thoughts as well with regard to your comments on Book Value Extra with regard to the fiscal situation in Puerto Rico John you stated quite correctly. It seems a little strange given the way they've approached things that they actually continue to build up a substantial cash balance and your number is pretty much on target. It's an excess of nine million dollars may depend on which accounts were talking about on the island, but they have built up substantial cash. And I think that's one of the reasons creditors believe that in fact the recoveries or you know, the what they can offer to pay is greater than perhaps what they have suggested or offered on certain credits. In addition. It's not just the cash they have it's also the overall economic situation. But as I think people are aware, there's been substantial Aid there was a month.
For by President Trump just recently about thirteen billion going to the island that had been previously approved by congress not about nine million of that is for prepa. So we continue to believe that situation is perhaps better than people have led on so we'll continue to look at that then let me have Anthony start on the questions of a book value adjusted Book value sure am good morning. So I think just the the first of all just level set the book value of the company has gone from $10.40 at December $2,000.25. If you look at the adjustments to book value, the the main drag on Book value is mbia Corp. So when you eliminate mbia Corp, you take the share repurchases into account and make the other assorted adjustments to book value, actually those adjustments of increased the adjustments to book value from wage.
December by I believe 5 to $6 a share you are correct that the share price today is is you know, not necessarily reflecting, you know with our lack of of value is at this point, but we do believe that the share repurchases have been a creative and when you take mbia Corp out of the picture, that's really when you can see it.
Thank you. I hope your patience is running out on realizing that value. Thank you.
Again, 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. Our next question comes from one of our honorable Anya I was compass point.
Good morning, and thank you for taking my questions. I guess jumping in on on the boss's room side in Puerto Rico when I think about the different exposures, you've paid a a significant claims already when it comes to the Geo and you probably paid more than you know, you probably have paid more claims for me. I realized you know perspective than the current deals would imply from on the recovery side and similarly probably in a position when it comes to prepa. Just trying to think about you know, where the sources of stress are when you're thinking about the loss reserving analysis and potential losses going forward because you probably stand to get some recovery paid claims on I guess is it more, you know might be a little more debatable because you haven't incurred as much on a relative basis compared to your claims, but just trying to figure out where this stress points come in off from the perspective of looking at your analysis on their losses outside.
So how you good morning Juliano? So there's a few things it really depends on the credit. So when you look at the different iterations of the credits, so for prepa again, there is a foundation for a transaction.
And the stress point is if that if that transaction ultimately doesn't consummate and results in a worse outcome that there's the stress on that credit for HTA as you know how this year has gone. We've made adjustments, you know based on some of the proposed transactions that have been out there and and the ruling from from last quarter. So again there and I think still speak for geo as well really the stress just comes down to you know, what the ultimate deals struck will be we have with our probability waited scenarios as a you know over the year taken adjustments particularly the HTA and Geo reflecting whether it's court rulings or the blowouts of the materials on a proposed transactions, but but really ultimately the the stress on the the current recoveries on claims paid or future recoveries really is going to depend on
On the the the nature of the transaction struck in the timing of those recoveries coming in.
That makes a lot of sense. Thank you for that. Then I guess I think about you know kind of the the different puts and takes, you know getting back to have the topic of the special dividend, you know, it seems that there's a relative basis because there's a transaction, you know, potentially outstanding for prep. Oh, there's less volatility. Whereas there's a lot more timing and potential volatility in the analysis for geo and and I guess would those be the ones that you would probably we should be focused on from a resolution perspective that could you know, at least give give you give you more clarity too, you know potentially request a special dividend. Yeah. I I think you hit off. I mean both it's actually both prepa and the would play into the mix as we try to evaluate the situation and so it's a little bit hard as you said to predict timing on the resolution of each of those but those would be the ones that would move this forward.
That makes a lot of sense. Thank you very much. And thanks for answering my questions.
Our next question comes from one of Jeffrey Dunn of dominant partners.
Thanks, good morning. I wanted to revisit the the pausing of the buyback. Would you categorize it more as kind of taking a breather after doing so much activity over the last three years or?
We had a point where additional buyback through National is contingent on a little bit more clarity with respect to Puerto Rico and just follow up to that. What is your estimate of the remaining capacity for National two months back and bi sake
Yeah, let me deal with the first and Anthony will give you the exact number of capacity. I think it's both the things that you mentioned yet. So we have as you know bought back a substantial amount of money as I indicated earlier. So for the last three years, I think it's roughly 57% of the shares even this year. We bought back roughly a third of the shares since January 1st, so we have done a lot. So I think that's one reason just to pause but I do think second the timing around Puerto. Rico is one where we want to make sure actually for the benefit of shareholders as well as policy holders that they're substantial equivalence always at National which there is at this point and as I mentioned a little bit earlier, we do want to see the approach that the new board and Weiss a new board there still maybe some of the members that served at the beginning but there's going to be substantial turnover. We'd like to see what the new board and also with the new governor how things start to proceed with regard to timing and I think as we get a handle on those things off,
We were always we visiting share.
Repurchase authorization and we will continue to do so and I just just to follow up on bills point on on capacity as of September 30th National had about two hundred and fifty million dollars remaining capacity to purchasing shares.
Okay. Thank you.
And at this time or no further questions, I'd like to turn the call back over to mr. Greg diamond for an additional closing remarks.
Thank you Maria, and thanks to all of you for listening to the call today. Please contact me directly. If you have any additional questions. We also recommend that you visit our website for additional information on the company. Thank you for your interested in be a good day, and good-bye.
Thank you. Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.
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