Q3 2023 MBIA Inc Earnings Call
Welcome to the MBIA, Inc. Third 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, Inc. Please go ahead Sir.
Very good. Thank you Todd welcome to Mbia's Conference call for our third quarter 2023 financial results after.
After the market close yesterday, we issued and posted several items on our websites, including our financial results.
In 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.
In 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 supplements.
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 is included in last week's press announcement and in the financial results report posted yesterday on Mbia's website.
Now for our Safe Harbor.
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.
Risk factors are detailed in our 10-K and 10-Qs which are available on our website at MBIA Dot com.
The company cautions not.
To place undue reliance on any such forward looking statements company also undertakes no obligation to publicly correct or update any forward looking statement if it later.
It it 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.
We are continuing our efforts to resolve our Alaska material exposure to Puerto Rico, which is the Puerto Rico Electric power authority or PREPA.
Regarding PREPA at the end of the third quarter National's remaining exposure to PREPA with $610 million of gross par insured.
The Puerto Rico oversight Board filed an amended plan of adjustment for PREPA in August, which provide substantially less consideration for bondholders and the original plan.
The confirmation hearing for this amended plan is scheduled to begin on March 4th of next year.
In conjunction with the PREPA plan natural entered into an amended plan support agreement providing for a lower potential recovery than previously agreed in January.
The terms of the amended P. S. A contributor to the adverse change in National's loss and loss adjustment expense for the quarter.
Regarding national's insured portfolio.
Those credits other than pop up.
Continue to perform generally consistent with our expectations.
The gross par amount outstanding for National's insured portfolio has declined by approximately $2 $6 billion from year end 2022 to $29 $1 billion at the end of the third quarter.
National's leverage ratio of gross par to statutory capital at the end of the second quarter remained unchanged from year end 2022 at 16 to one.
At the end of the third quarter National had total claims paying resources of $2 $3 billion in statutory capital and surplus of $1 $8 billion.
Now Anthony will provide additional comments about our financial results.
Thanks, Bill and good morning.
I will begin with a review of our third quarter 2023, GAAP and non-GAAP results.
The company reported a consolidated GAAP net loss of $185 million or a negative $3 94 per share for the third quarter of 2023 compared to a consolidated GAAP net loss of $34 million or a negative 67 cents per share for the third quarter ended September 32022.
The higher GAAP net loss this quarter was largely driven by loss in LAE expense this quarter at national related to PREPA, reflecting an updated range of recoveries under the amended Psa.
The company's adjusted net loss, a non-GAAP measure was $138 million or a negative $2.92 per diluted share for the third quarter of 2023, compared with an adjusted net loss of $17 million or a negative 34 cents per diluted share for the third quarter of 2022.
The unfavorable change was primarily due to the higher loss in LAE at National.
MBIA, Inc. 's book value per share decreased to a negative $24 22 per share as of September 32023 versus a negative $16 seven per share as of December 31, 2022, primarily due to the net loss for the year and second quarter 2023 share repurchases.
Partially offset by the release of credit losses recorded to other comprehensive income driven by Derisking activity at MBIA Corp.
Included in book value as of September 30 of 2023 is a negative $43.56 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. The corporate segment, which primarily includes the activity of the holding company MBIA, Inc. Had total assets of approximately $564 million as of September 32023.
Within this total are there following material items.
Unencumbered cash and liquid assets held by MBIA, Inc. Totaled approximately $194 million as of September 30 of 2023 in line with last quarter and lower compared with $230 million as of December 31, 2022, due to $6 million of holding company common share buybacks in Q3.
Three the repurchase of $10 million of 2020 for maturity GSL MTN is at a discount in Q2 and debt service and operating expenses.
The corporate segment's assets also included approximately $249 million of assets at market value pledged to the <unk> and the interest rate swaps supporting the legacy <unk> operations.
Turning to the insurance company's statutory results National reported a statutory net loss of $133 million for the quarter ended September 32023 versus a statutory net loss of $25 million for the quarter ended September 32022.
This unfavorable comparison was primarily due to higher loss in LAE related to PREPA.
Statutory capital decreased by $159 million from year end 2022, and was $1 $8 billion as of 932023, primarily due to the year to date net loss and nationals purchase of MBIA, Inc shares during the second quarter.
Claims paying resources were $2 $3 billion.
In July National paid gross claims of $119 million on the PREPA bonds and insurers.
Turning to MBIA insurance Corp had statutory net loss was $14 million for the third quarter of 2023 compared to statutory net income of $50 million for the third quarter of 2022.
The unfavorable comparison was primarily due to a significantly lower loss in Hawaii benefit in Q3 2023 related to salvage on Zohar CLO Clay claims paid and to a lesser extent higher loss in LAE expense in Q3, 2023, uninsured RMB due to higher interest rates and credit losses.
Yes.
As of September 30th 2023 of the statutory capital of MBIA Insurance Corp was $145 million down from $169 million at year end 2022, primarily due to its year to date net loss claims.
Claims paying resources totaled $502 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 $300 million during the quarter and was $2 $9 billion as of September 32023.
And now we will turn the call over to the operator to begin the question and answer session.
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Our first question will come from Thomas Mcdonald with <unk>. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
The first one hearings will kind of a multi parter around capital and buybacks.
I'll ask them all together.
So what is national's statutory capacity for buybacks at the current stock price.
Also what was the regular Atwood right October dividend, Adam also the holding company.
And then kind of a third part there is why did the buybacks this quarter happened out of MBIA, Inc, holdco rather than national.
Good morning, Tammi its Anthony let me.
Start with National's capacity at the end of the third quarter National had about $100 million.
Share repurchase capacity.
The shares at that point I believe were about $7 21.
So that was the capacity for for National I'm, Sorry tell me again your second question.
But as of right dividend actually doesn't get paid until November.
I would anticipate a $97 million as of right dividend being paid in November.
And your sons.
Your third question on ink not national part of it had to do with timing issues and our plan. We had in place at MBIA, Inc. Debt governed our share repurchases at the time.
We were governed by the plan because of material nonpublic information when we purchased so we had to go by the plan. So Inc. With the purchaser of the shares at that point.
So that was sort of an anomaly not something we should think of as.
Likely to be sustained going forward buybacks should continue to be down out of national.
Okay.
Tom It's bill generally I think that's correct as you know we have substantial capital at National as Andy mentioned as well as capacity.
And we're always looking at.
How much capital as well as liquidity.
And as you know at the holding company.
While there is plenty of liquidity to service its obligations.
And much more capacity at Nashville.
Okay. Thanks, and then my second question on PREPA and the marquee Tech.
How much of the.
<unk> related loss provision this quarter.
Actual lower recovery dollars expected in the plan and then how much was just more of a time value of money with the extension.
That plan is expected settlement date, and then does your scenario analysis that you've alluded to give any weight or probability to an extended sort of drawn out legal battle, if somebody opposing the bond holders successfully challenged the latest plan of adjustment.
So let me.
To answer that in a few ways. One is the the loss for the quarter was primarily due to lower recovery estimates versus timing timing certainly was a factor, but it was driven by the lower recovery levels.
In the amended Psa versus the prior deal debt.
That we were engaged in and so lower recoveries drove that.
Second we have factored in the scenarios.
Various downside.
Possibilities.
<unk> at this point just dealing with.
Confirm ability issues and the legal risks and appeals that are out there today. So we did factor that into the loss reserves in the quarter, which were additional losses.
In addition to the absolute lower recoveries that the deal we're in wood.
Would employ.
Got it Thanks, and then just my third question here.
Yes. Thank you started kind of strategic alternatives review process and I know that.
Secondly on pause right now we haven't seen a really sharp increase in interest rates.
Does that at all impact kind of your your evaluation of strategic alternatives, the higher overall rate environment and potentially slower runoff of the portfolio balances.
Yes, two parts to that so in terms of the slower runoff that you mentioned at the end.
Refundings, which is often determined by the interest rate environment have slowed substantially even before the recent increase.
And interest rates and just given where our portfolio is in a long period of low interest rates.
Generally speaking most of the refundings that we would anticipate.
Taking place have probably at this point been done so we see very little.
In terms of early refundings, and that's been true now for quite a while.
With regard to the first part which is around the valuation.
Like many.
Other companies given the fact that we have a large investment portfolio primarily of fixed income clearly changes in interest rates would impact the value of that.
Okay. Thank you.
Thank you. Our next question will come from John Daly with Daily Capital Advisors.
Bill.
Obviously, that's continues to be a very frustrating experience.
You just called me in plain English.
A couple of things one are you going to resume the buyback program.
Where you appear to have.
The structure is a $17 billion of luck.
And secondly.
And your comment about interest rates.
And rather.
Rather or not the second issue of the oversight Board is this last deal now the revision which has pushed too.
In the first quarter of 24.
To your best estimate you think that's it or are these guys going to squeeze more out of alignment.
How much has this truly impacted the <unk>.
<unk> value of MBIA to an acquirer.
I'm very confused about the status of the buyback.
Very confused about.
The <unk>.
Value of MBIA treasury value.
To protect their strategic acquire.
Been impacted by all of this.
Okay. Good morning, John and thank you for the questions.
First of all with regard to the buybacks.
You know we constantly are looking at the liquidity the capacity.
What the stock is trading at.
And then as Anthony mentioned at different points in time, we may have trading plans in place.
There may be times, where we don't and because for example, when it's the end of a quarter and we have blackout periods or at other times when we have material nonpublic information.
We may be prohibited from buying shares, but as we've mentioned consistently it is one of the levers we believe.
We can use to enhance shareholder value and so we will continue to look at that and if all the conditions.
Sort of a line, we will look to buy back shares and as Anthony mentioned, we do have capacity.
With regard to the oversight board and PREPA.
Now this amended plan.
I'd love to be able to tell you that the hearing in March will be will confirm the plan and that shortly after that everything will be executed.
But given that you've been a long term shareholder.
And we've been at this now for probably close to seven years.
I would probably be remiss, if I asserted that it is going to be done that quickly in such a straightforward fashion. We hope that is the case.
But we continue to monitor the situation as you can imagine we spent a tremendous amount of time on it and it has been hard to tell exactly how this one fold.
<unk>.
Uh huh.
We will keep at it and hopefully this is getting close to the end in terms of restructuring PREPA.
Yes.
Equally frustrating to you.
Did your shareholder as well.
But I mean, when do these bureaucrats front of me to say enough is enough.
That is the $64000 question or I guess.
Our case, even more than that.
$610 million I think is what we have left so.
We hope it's coming to a conclusion.
And.
So all sorts of reasons, including the strategic sale that we started last year, we'd like to get that.
Zoom as soon as possible.
Alright, thank you.
Thank you. Our next question comes from Giuliano Bologna, <unk> with Compass point. Please go ahead.
Good morning wondering I'd be curious about is are.
You, obviously have the March timeline.
So you want to see how that unfolds to the PREPA exposure.
The first part is I'm, assuming that's kind of the main trigger.
Trigger event, essentially resume a strategic process, but along those lines when it makes sense to pursue reinsurance transactions or other.
Other transactions that can release capital to kind of continue to accelerate.
We're starting capital to shareholders or buying down debt at the holding company at discounts.
Yeah.
Yeah, So first of all Joanna.
The March.
Date that you mentioned, we think is sort of the catalyst or the trigger for moving things forward.
See exactly how things play out in judge <unk> Court for the confirmation hearing in March.
With regard to then the strategic alternatives as we've suggested in the past we think the <unk>.
Optical.
Transaction would be a sale of the company.
As opposed to some of the other things that you suggested or other things that had been mentioned, but we'll wait and see how things play out but.
That's how we're thinking about at this point in time and I think we feel pretty good about how this moves forward.
That's great. Thank you very much and then I'll jump back in queue.
Thank you as a reminder, if you would like to ask a question. Please press star one at this time.
Our next question comes from Geoffrey Dunn with Dowling and partners.
Thanks, Good morning.
As you continue to see the oversight board come back with these revised plans and continue to.
Chop away at recovery how long.
Management and the board evaluate deciding onto our plan versus pursuing the right for litigation is it purely a.
DCF.
Quantitative approach.
Or is there more subjectivity qualitative assessments that go into that as well.
Yes, I think it's a combination of things, it's a pretty detailed analysis.
It may be able to be summarized in in pretty quick fashion, but theres a trend Matt tremendous amount of work that goes into it both on the litigation analysis and the likelihood is and the strength of the different arguments that have been put forth.
As well as the recovery so.
I think everything you suggested in your question as part of the calculation that we do as we make decisions around this.
Okay, great. Thank you.
Right.
Thank you once again, if you would like to ask a question. Please press star one.
We have no further questions at this time I would now like to turn the call back over to Greg Diamond for any additional or closing remarks.
Thanks, again, Todd and thanks to all of you for listening to our call today. Please.
Please contact us directly if you have any additional questions.
Also recommend that you visit our website at <unk> Dot com for additional information on our company.
Thank you for your interest in MBIA, Good day and Goodbye.
Thank you ladies and gentlemen, this does conclude today's MBIA, Inc. Third quarter 2023 financial results Conference call you may now disconnect.
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Tom.
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Uh huh.
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Yes.
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Yes.
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