Q2 2023 MBIA Inc Earnings Call
[music]. Please standby your program is about to begin completion, David in cardio assistance during the call. Please press star zero.
Got it.
Welcome to the MBIA, Inc. Second quarter 2023 financial results Conference call I would now like to turn the call over to Greg Diamond Managing director of Investor and media Relations at MBIA. Please go ahead Sir.
Thank you Ashley and welcome everybody.
After the market closed yesterday, we issued and posted several items on our websites, including our financial results 10-Q quarterly operating supplements and statutory financial statements for both MBIA Insurance Corporation and National Public Finance guarantee Corporation.
We also posted updates to the listings of our insurance company insurance portfolios.
Guarding today's call. Please note that anything said on the call is qualified by the information provided in the company's 10-K 10-Q, and other SEC filings as our company's definitive disclosures are incorporated in those documents.
We urge investors to read our 10-K and 10-Qs as they contain 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-Qs as well as our financial results report and our quarterly operating supplement.
The recorded replay 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's press announcement and in the financial results report posted yesterday on the MBIA website.
Now for our Safe Harbor disclosure statement.
Our remarks on today's conference call May contain forward looking statements important factors, such as general market conditions, and the competitive environment could cause our actual results to differ materially from the projected results referenced in our forward looking statements risks.
Risk factors are detailed in our 10-K and 10-Qs which are available on our website at MBIA Dot com.
Company cautions not 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 and then a question and answer session will follow now here's Bill Fallon. Thanks, Greg Good morning, everyone.
Thank you for being with us today.
Our principal focus remains on achieving a final resolution of our last material exposure to the Commonwealth of Puerto Rico.
Puerto Rico.
Power authority or PREPA while.
We await the filing of the purpose third plan of adjustment, we continue our efforts to deliver shareholder value in other areas, including by reducing expenses monitoring the run off of our insurance portfolios and repurchasing shares.
<unk> Board of directors approved a $100 million share repurchase authorization in May <unk>.
National and MBIA, Inc. Had purchased a combined 3 million shares of MBIA common stock at an average price of $8 eight per share, which has reduced MBIA outstanding share count of $51 9 million as of July 26 2023.
$76 million remained outstanding from the May authorization.
Regarding our second quarter financial results, while NASA National had a modest net loss for the quarter for the first six months of 2023. It maintained positive net income on a GAAP basis and had a modest loss on a statutory basis.
Our results demonstrate the stability of National's financial results absent significant adjustments to its losses and loss adjustment expenses.
As noted earlier, we remain hopeful that PREPA will resolved sooner rather than later.
Following the insurance claims payments made by National in July one of this year its remaining exposure to PREPA $610 million of gross par insured.
The remainder of the insured credits in National's portfolio have continued to perform consistent with our expectations.
National's insured portfolio has continued to run off as it outstanding gross par declined by approximately $1 $2 billion from year end 2000, $22 billion to $35 billion at June 32023.
National leverage ratio gross par to statutory capital at the end of the second quarter remained unchanged from year end 2022 at 16 to one.
As of June 32023 National had total claims paying resources of $2 4 billion in statutory capital and surplus of $1.9 billion.
In May our chairman Charlie Reinhart retired from the board after 14 years and eight as chairman.
I greatly appreciate Charlie's contribution and leadership over those many years.
Steve Gilbert who has been on our board since 2011 was elected as the new chairman.
Now Anthony will provide additional comments about our financial results.
Thanks, Bill and good morning.
I will begin with a review of our second quarter 2023, GAAP and non-GAAP results.
The company reported a consolidated GAAP net loss of $74 million or a negative $1 46 per share for the second quarter of 2023 compared to a consolidated GAAP net loss of $36 million or negative <unk> 72 per share for the second quarter ended June 30th 2022.
The higher GAAP net loss this quarter was largely driven by losses on V. I E. At MBIA Corp, due to the Derisking activity, resulting in the deconsolidation of two legacy ABS Cdos, where the majority of losses were reclassified from other comprehensive income and therefore had no effect on total equity.
Higher interest expense, primarily attributed to MBIA Corp surplus notes and.
Loss in LAE expense this quarter at MBIA Corp versus a loss in LAE benefit in Q2 2022.
The increase in operating expenses for the quarter was largely due to an increase in value in the company's nonqualified deferred compensation plan liabilities with a corresponding offset in the asset value of the plan, which is reflected in net gains on financial instruments and net investment income.
Offsetting these negative variances were lower loss and LAE at National higher investment income.
And lower net realized investment losses.
The company's adjusted net loss, a non-GAAP measure was $22 million or a negative 45 cents per diluted share for the second quarter of 2023.
Compared with an adjusted net loss of $47 million or a negative <unk> 93 per diluted share for the second quarter of 2022.
The favorable change was due primarily to the lower loss and LAE at Nashville.
MBIA, Inc. 's book value per share decreased to a negative $19 21 per share.
June 30 of 2023 versus a negative $16 seven per share as of December 31, 2022, primarily due to a net loss for the year and second quarter of 2023 share repurchases, partially offset by decreased unrealized losses on investments recorded to other comprehensive income.
Driven by tighter credit spreads and lower interest rates.
Included in book value as of June 32023 is a negative $41.88 per share book value of MBIA Corp.
I will now spend a few minutes on the corporate segment balance sheet and our insurance company's statutory results.
Corporate segment, which primarily includes the activity of the holding company MBIA, Inc. Had total assets of approximately seven $611 million as of June 32023.
Within this total are the following material items.
Unencumbered cash and liquid assets held by MBIA, Inc. Totaled approximately $197 million as of June 32023, compared with $230 million as of December 31, 2022, due to the repurchase of $10 million of 2020 for maturity GSL MTN said it.
Discount and debt service and operating expenses.
The corporate segment's assets also included approximately $306 million of assets at market value pledged to the <unk> and the interest rate swaps supporting the legacy <unk> operation.
Turning to the insurance company's statutory results National reported a statutory net loss of $11 million for the quarter ended June 32023 versus a statutory net loss of $44 million for the quarter ended June 32022.
The favorable comparison was primarily due to lower loss in LAE and higher investment income.
Statutory capital decreased by $10 million from year end 2022, and was $1 $9 billion as of 632023, primarily due to nationals purchase of MBIA, Inc shares during the second quarter.
Claims paying resources were $2 $4 billion.
From inception through 632023 gross claims paid uninsured, Puerto Rico exposure totaled approximately $2 $9 billion and in July national paid additional gross claims of $119 million on the PREPA bonds that insurers.
Turning to MBIA insurance Corp. S. Statutory net loss was $128000 for the second quarter of 2023 compared to a statutory net loss of $6 $3 million for the second quarter of 2022.
The favorable comparison was primarily due to lower loss and LAE expense in <unk> 2023.
As of June 32023, the statutory capital of MBIA Insurance Corp was $148 million down from $169 million at the end of 2022, primarily due to its year to date net loss.
Claims paying resources totaled $561 million versus $669 million at year end 2022, due in part to a reduction in gross loss reserves associated with several deal liquidations and the year to date net loss.
MBIA Corp's insured gross par outstanding reduced by approximately $130 million during the quarter and was $3 $2 billion as of June 32023.
And now we will turn the call over to the operator to begin the question and answer session.
Thank you and if you have a question at this time. Please press star one on your telephone keypad, if you wish to remove yourself from the queue Press star two.
When posing your question you. Please pickup your handset to allow optimal sound quality.
Our first question from Tommy Moll, Julian with K B W.
Go ahead.
Hey, good morning, guys. Thanks for taking my question.
I can't remember if you mentioned this on the prepared remarks, but what is national's statutory capacity for buybacks as of June 30th.
As of June <unk>, good morning, Tommy as of June 30th National had about $50 million of capacity.
Left to purchase shares.
Okay got it.
And then forgive me just because it's somewhat complicated to think about but to the extent that national is monetized by a sale to a third party.
Piece of it just looking at as there is the delay the lack of subscription from other parties at this point and looking at court rulings and you know just potential risks to confirm ability and levels.
We just took all that into account this quarter and made some adjustments to our view of our compensation and claims are.
Okay got it thank you.
Thank you next question from Paul Sanders with Hutch capital. Please go ahead.
Good morning, guys. Thanks for taking my question.
I just have a quick one on PREPA just a lot happened since you guys last reported I was just hoping to get your perspective on.
I guess the state of play for National until I know National has the settlement.
I'm curious what your thoughts do you expect that I know it seems like they're trying to keep that in the latest plan and just can you just provide a little more color on how you see this plan process.
Going on it's just a little hard to follow in the papers in the filings.
Yeah, Paul you actually just gave a pretty good description of of the state of play I'm not sure that I can add much to it the they were supposed to file a plan a few weeks back they've had two extensions.
Current deadline.
Is tomorrow I don't know if there'll be another extension.
Or whether they will file something.
Other than that you know you mentioned and we have a PSA that's been in place for quite a while at this point that details our agreement with prep in the oversight board.
So.
We're very focused on it as we mentioned in our comments, we'll see what happens over the next short period of time with regard to a plan.
And other than that I don't know if there's a whole lot more that we can.
Well I <unk> I'm not sure if you can discuss it but but our other bondholders or has anyone you know asking you guys to <unk>. The PSA you have or what's I guess, what can you give me any sense of your confidence level of <unk>.
That ultimately being in the plan that gets confirmed.
Our view is we have a legal contract, which is the PSA and our sense was a few weeks ago and more thoughts about the file that PSA would be.
Part of the plan of adjustment that would be filed and our view is that will continue to be the case, but other than that.
I know, there's lots of speculation out there, but I I don't know what's going to transpire.
Sounds good thanks, thanks for the comments.
Once again as a reminder, that is star and one for your questions.
We will take our next question from John Staley with theory capital Advisors. Please go ahead.
<unk>. Thank you for the update and nervously, Puerto Rico's the issue, but I'm very curious.
You tried it before and after our call.
[noise] about sensitivity.
The buyback price and then you can.
Did you stay at 100 million dollar program based on the market value of etc.
Forgetting book value.
There is no intrinsic value here, there's a value that you guys.
From your insights in the industry.
<unk> says she went through with Barclays.
What kind of spread motivate you.
Versus the guys who were selling you're always at 3 million shares which is a pretty substantial amount given the trading volume of people who've got that $8 plus a share with it was a good price to sell it.
You're obviously is.
Forget all these transfer your normal account numbers.
The intrinsic value here.
It motivates you to use your capital to buy the stock back at eight Bucks plus what is that spring I mean, where are you in the market save Barton anymore.
I'm just curious.
What what drives the decision I made.
The mechanics of buyback searching for corporate what drives the real issue of what you'll pay versus what you feel.
Creating value for the remaining shareholders and our Saturday Ms shrinkage since occurring justify offering an experienced designer company and it's not our our doing anything in terms of new issuance of insurance just.
Battling to recover value from your prior Puerto Rico exposure.
Yeah. Good morning, John in some ways I think implicitly you cited a lot of things that we look at Joe as we've said in the past has lots of factors.
<unk>.
We buy and you are absolutely correct put aside all the accounting numbers. There was some intrinsic value that all shareholders, probably think about with regard to their buying and selling of all star.
<unk>, we do a similar analysis and as you can imagine that's a fairly dynamic process. So at any point in time, because there's lots of variables that are moving around.
As we mentioned in the the release in in the prepared remarks, we bought it just over $8 a share obviously, we thought that was a good price one.
One of the challenges is that because of regulations were limited in how many shares we can buy for example on any given day right. It has to do with the average trading volume over the previous four weeks.
Put your appointment we bought you know between five and six per cent of the outstanding.
Sure since we last talked.
Again, we thought it was a good opportunity for the longer term shareholders of the company and again, it's all the facts as you mentioned, it's what we think for example, we might get in a sale. It's what we think the financial situation is it national any point in time interest rates come into play.
How much liquidity, we have at National and you did see that we bought some shares in ink since the last earnings call and so we have to be sort of judicious and how we use that liquidity and at what price. We buy shares. So there may be at times, where people think while we should've.
Even more shares it could be that we're just trying to conserve in this case, we had 100 million authorization, but we also look beyond that to what long term liquidity might look at so I think it's all the things that you mentioned, we don't actually stayed at any point in time, what we think the spread is versus sort of you know an estimate.
Range of intrinsic value, but you can be assured if we're buying shares we think it's good for a long term shareholders.
Thank you I bought some with you right away.
Good to hear.
[laughter]. Thank you.
And once again as a reminder, that is star and one for your questions.
And we will take a follow up from Paul Saunders with Hutch capital. Please go ahead.
Thanks for taking another one of my questions.
John question on the share buybacks.
I mean, I guess, it's not often that I see companies with with that trading at 30 40 cents in the dollar and double digit yields.
Buying back stock as opposed to the discount of that so.
Could you guys to talk at all about how you view sort of what's the better use of capital in terms of.
<unk> <unk> I know you you tackle the shorter dated bonds, but I'm thinking more <unk>.
The ones once you're getting to the 11 12 per cent yields with longer maturities. How do you guys think about the value of those verses.
The value of repurchasing shares.
Paul I'll, let Anthony get into the details of the binary purchases but.
I'm not sure that there's.
Bonds are trading on 30 cents trading at 30 cents on the dollar.
Yeah I just maybe just go onto the mechanical part of your question you know the way the holding company is set up we look at <unk> near near term liquidity and we look to see how far we can go on and handle the obligations under a steady state operation, which I would define.
<unk> as normal income at Inc, plus b as of right dividend from National every year. So when we look at that liquidity profile. We look at the near returned to your point, we're looking at the near term.
That which we did this quarter for example, which we were able to get any good discount, but we are focused on the near to medium term obligations with the holding company. So just generally speaking first of all I don't think that that's trading nearly that that that low that I've seen but also just going out you know significantly further.
On the curb at this point, it's just probably not the most prudent thing for the holding company.
Okay got you have to be clear those discounted <unk> talking about her or the G. F. L is not not the whole code yet but.
I view them, you know sort of wholesale obligations as well yeah.
Mmm Thanks, guys.
Okay. Thank you.
And it appears to be no further questions. At this time I will turn the call back a very quick diamond for closing remarks.
Thanks, again, Ashley and thanks for those of you listening to the call today. Please contact US directly if you have any additional questions. We also recommend that you visit our website at M. B I, a dot com for additional information on the company.
Thank you for your interest in M. B I, a good day and goodbye.
Thank you ladies and gentlemen, this does conclude today's the M. B I a second quarter of 2023 financial results Conference call you may now disconnect.
Mmm.
[music].
Mmm Mmm Mmm Mmm Mmm Mmm.
[music].