MBIA Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 8 speakers on the call.

Operator

Welcome to the MBIA Inc. First 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.

Speaker 1

Thank you, Chelsea, and yes, welcome everybody. After the market closed yesterday, we issued and posted several items on our website, including our financial results, 10 Q, quarterly operating supplement and statutory financial statements for both MBIA Insurance Corporation and National Public Finance Guarantee Corporation. We also posted the updates to the listings of our insurance company's insurance portfolios. Regarding today's call, please note that anything said on the call is We urge investors to read our 10 ks 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.

Speaker 1

Definitions and reconciliations of the non GAAP terms The recorded replay of today's call will become available approximately 2 hours after the end of the call and the information for accessing is 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. 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 ks and 10 Qs, which are available on our website at mbia.com.

Speaker 1

The 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 McCarron will provide introductory comments and then a question and answer session will follow. Now here is Bill Fallon.

Speaker 2

Thanks, Greg. Good morning, everyone. Thank you for being with us today. As noted in yesterday's financial results report, Given prevailing volatile market conditions and feedback that we received during the pursuit of our strategic alternatives, We have decided to suspend that process. We will continue with our mission to deliver shareholder value by continuing to finalize our PREPA remediation, Seeking additional cost reductions, monitoring the runoff of our insurance portfolios and pursuing regulatory approval of special dividends from National.

Speaker 2

We also disclosed yesterday that MBI Inc. Board of Directors has approved a new $100,000,000 Share repurchase authorization that can be used by MBI Inc. And or National. Regarding our Q1 financial results, I'd like to point out that National had positive net income for both GAAP and statutory presentations, which reflects the substantial reduction of uncertainty regarding its remaining Puerto Rico exposure. It also demonstrates the stability of National's financial results, absent significant adjustments to its loss and loss adjustment expenses.

Speaker 2

During the Q1, National also sold its Puerto Rico related investment holdings. Regarding National's last Material Puerto Rico Exposure, PREPA, while bondholder challenges remain to the plan of adjustment incorporating National's Plan support agreement with the Oversight Board. The Title III court has not modified the timing for the confirmation hearings for the plan, which are scheduled for July. As of March 31, National's remaining exposure to PREPA $710,000,000 of gross par insured. The remainder of the insured credits in National's portfolio have continued to Excuse me.

Speaker 2

To withdraw, as its outstanding gross part declined by $600,000,000 from year end 2022 to $31,000,000,000 At March 31, 2023, National's leverage ratio of gross part of statutory capital at the end of the quarter remains unchanged from year end As of March 31, 2023, National had total claims paying resources $2,400,000,000 and statutory capital and surplus of $1,900,000,000 I also want to note that Charlie Reinhart, our Board Chairman, resigned this week after 15 years of service. I greatly appreciate Charlie's contributions and Leadership to MBIA and counsel to me. Now Anthony will provide additional comments about our financial results.

Speaker 3

Thanks, Bill, and good morning. I will begin with a review of our Q1 2023 GAAP and non GAAP results. The company reported a consolidated GAAP net loss of $93,000,000 or a negative $1.86 per share for the Q1 of 2023 Compared to a consolidated GAAP net loss of $73,000,000 or negative $1.48 per share for the Q1 ended March 31, 2020 2, the higher GAAP net loss this quarter was largely driven by losses on financial instruments at fair value and foreign Change in the holding company's legacy ALM business due to lower interest rates and a weaker dollar versus gains due to higher rates and a stronger dollar for the prior comparable And losses on VIEs at MBIA Corp. Due to the termination and deconsolidation of a legacy ABS CDO where losses were reclassified from other comprehensive income and therefore had no effect on total equity. Offsetting these negative variances Lower loss in LAE at National and higher investment income.

Speaker 3

The company's adjusted net loss, a non GAAP measure, was $1,000,000 or negative $0.03 per diluted share for the Q1 of 2023 compared with an adjusted net loss of $96,000,000 or negative $1.94 per diluted share for the Q1 of 2022. The favorable change was due primarily to the lower loss in MBA International. MBIA Inc. Book value per share decreased to a negative $16.57 per share As of March 31, 2023 versus a negative $16.07 per share as of December 31, 2022, primarily due to the net loss for the year, partially offset by decreased unrealized losses on investments recorded to other comprehensive income driven by lower interest rates. Included in book value as of March 31, 2023 is a negative $38.82 per share book value of MBIA Corp.

Speaker 3

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 $638,000,000 as of March 31, 2023. Within this total are the following material items. Unencumbered cash and liquid assets held by MBIA Inc. Totaled approximately $214,000,000 as of March 31, 2023, compared with $230,000,000 as of December 30 1, 2022, due to debt service and operating expenses.

Speaker 3

The corporate segment's assets also included approximately $313,000,000 assets at market value pledged to the GICS and the interest rate swaps supporting the legacy GIC operation. Turning to the insurance company's statutory results. National reported statutory net income of $11,000,000 the quarter ended March 31, 2023 versus statutory net income of $104,000,000 for the quarter ended March 31, 2022. The unfavorable comparison was primarily due to the large loss in LAE benefit across its Puerto Rico exposures in Q1 2022 Versus modest loss in LAE expense in Q1 2023 related to PREPA and lower premium income, somewhat offset by higher investment income. Statutory capital increased by $22,000,000 from year end 2022 And was $1,900,000,000 as of threethirty onetwenty 23 due to the quarterly net profit and unrealized gains in the investment portfolio.

Speaker 3

Claims paying resources were $2,400,000,000 From inception through threethirty onetwenty 23, Gross claims paid on insured Puerto Rico exposure totaled approximately $2,900,000,000 including $18,000,000 of claims paid in Q1 2023 related to PREPA. Turning to MBIA Insurance Corp. Its statutory net loss was $20,000,000 for the Q1 of 2023 compared to a statutory net loss of $14,000,000 in the Q1 of 2022. The unfavorable comparison was primarily due to increased Lawson LAE expense in Q1 2023, driven by lower salvage value and former Zohar related collateral. As of March 31, 2023, the statutory capital of MBIA Insurance Corp.

Speaker 3

Was 140 $7,000,000 down from $169,000,000 at year end 2022 due to the quarterly net loss. Claims paying resources totaled $608,000,000 MBIA Corp. Insured gross par outstanding reduced by approximately $47,000,000 during quarter and was $3,300,000,000 as of March 31, 2023. And now, we will turn the call over to the operator to begin the question and answer

Operator

And we'll take our first question from Tommy McJoynt with KBW. Your line is open.

Speaker 4

Hey, good morning guys. Thanks for taking my question. You called out a couple of reasons for the suspension of exploring those strategic alternatives. Just to clarify, was the main reason attributed to the macroeconomic backdrop of tighter credit? Or was it more so interest Effectively just going sale from some of the potential suitors that you guys have been speaking with.

Speaker 4

Tommy, I don't

Speaker 2

know if there's a main or primary reason, but it's more the former that you mentioned is the overall conditions In the marketplace as we sort of progressed through the process.

Speaker 4

Okay, got it. Thanks. And it's been a few years since National has had capacity to buy back stock of The parent company, MBIA Inc. Could you give us a refresher on the mechanics of the statutory capacity rules for National to purchase its parent company shares? And then relative to those limits, where do you stand today?

Speaker 3

Good morning, Tommy. It's Anthony. So the measurement for National to buy shares is based on a calculation related to its surplus. So it's essentially 50% of National Surplus minus its common and preferred, which there's very little at National. So give or take, it's around 50% of surplus is Capacity and you measure that against the prevailing share price.

Speaker 3

So obviously capacity fluctuates, But given where the share price has been and again it's authorization for National and for Inc, we do have capacity To purchase shares at National at this point.

Speaker 4

Got it. Thanks. In any way you could quantify how much that capacity is at National? And then also you did mention The authorization also applies to the parent company to buy its own shares. Just remind us, is there any flexibility up there currently?

Speaker 4

Or is the Funding at the holding company is really just dependent on future capital releases up from National.

Speaker 3

So on your first question, if you measured it At the end of the Q1, as of threethirty one, National had about $50,000,000 of capacity at that point, but that amount has Increased as the share price has gone down, along with the market over the last month or 2. So the capacity is higher at this point. As far as ink goes, we just have to make a decision as we go along if we want to use ink. We've really focused on keeping the liquidity at ink At a point where we can look into the future several years and now we're looking to the 20 28 timeframe as far as being able to cover It's debt and expenses just through as of right dividends from National. So we'd have to be thoughtful about using But we've been using National primarily, as you know, the last few years that we were buying shares back.

Speaker 4

Okay. Thank you. Appreciate the color.

Operator

Thank you. Our next question will come from Paul Saunders with Hutch Capital. Your line is open.

Speaker 5

Good morning. Thanks for taking my call guys. The previous caller answered, I mean asked a lot of the questions that I had. So I'll be quick on this one, but just Wanted to stick on the strategic plan and the sale process and just Can you provide any color just on the future? Like are we thinking this is a pricing exercise when you talk about macro?

Speaker 5

Do you think the macro environment Impacted the pricing or, I guess I'm just sort of trying to get inside your guys' heads in terms of Do you really run this off for 10, 15 years? Or what is kind of the game plan if a sale is not That game plan?

Speaker 2

Yes. Paul, it's obviously difficult to predict. It's not 10 or 15 years of running off the company. So, I think the feedback and our conclusion from the process as well as looking at the macro environment Is that what we have been doing is absolutely the right thing. So we're going to continue to finalize Puerto Rico and all the other things that we mentioned.

Speaker 2

But we could be back sort of restarting the process very soon. I think there's some things we'd like to do to eliminate uncertainty. For Example, getting PREPA finalized would be a good thing, etcetera. And it could be by the Q4 of this year, 1st quarter next year that we've restarted the process. Great.

Speaker 5

That's helpful. And just actually a follow-up on that. Is PREPA and actually the finalizing of that, do you think that was I know you said previously you did not think It would be an impediment, but with the process concluded, do you think that that was kind of a gating factor for certain interested parties?

Speaker 2

As you just referenced, we believe the fact that we've probably restructured 80% of our Large Puerto Rico credits positioned us well to sell the company. The situation with PREPA did come up with 1 or more prospective buyers, so it's hard to tell. I think different people look at it differently. And as we said, we'll continue to monitor the PREPA situation and clearly finalizing it will help. But again, it's just one factor that was mentioned by some.

Speaker 5

Great. Thanks for taking my questions.

Operator

Thank you. Our next question will come from Geoffrey Dunn with Dowling Partners. Your line is open.

Speaker 6

Thank you. Good morning. Just a few questions to clarify some things. With respect to your comment about the Spreads are wider, creating a PGAAP challenge on evaluation for any prospective buyer, particularly in the industry.

Speaker 2

Jeff, it's probably some of both. It's hard to attribute how much is the first and how much is the second or is it more The second or the first? We should have concluded both in the process, but we'll continue to look at the situation.

Speaker 6

Okay. And as you consider your next strategic moves, I guess two questions. Number 1, do you think there is a role for Select strategic reinsurance deals to help with the runoff effectively of National. And second, Do you believe there is a framework in place with your state regulator with National for special dividends? Or is that something that needs To be developed between you and New York?

Speaker 2

Yes. With regard to the first, we will continue to look for things that would enhance shareholder value. We've looked at reinsurance in the past. The fact that we haven't done it suggests that we haven't concluded that there's been a situation that would benefit Shareholders, but if that were to change, we'd obviously pursue it. With regard to dividends, National hasn't Actually gone for dividends since it's been in existence, but New York is very experienced with regard to insurance companies and assessing Special dividends up to the holding company.

Speaker 6

So do

Speaker 5

you believe that could be a fairly quick process? It seems like the regulators kind of gotten a little outdated with assessing how much capital is needed, especially for runoff situations.

Speaker 2

Yes, I'm not quite sure What experiences you're referring to, but we think there's a process with the department And we'll pursue that as a normal course of our activities.

Speaker 5

Okay. Thank you.

Operator

All right. Thank you. And our next question will come from Karl Sheeser with Shawton Capital. Your line is open.

Speaker 7

Yes. Hi. It's Carl Schechter at Shawton. I wanted to better understand Whether National in fact has capacity to do a buyback, I was under the impression or misimpression maybe that there's some concentration limits that might preclude that. And the second part of the question would be geared towards the true economic book value.

Speaker 7

Buybacks would only make sense if it's at a meaningful discount. So can you address that as well? Thank you.

Speaker 3

Sure. Karl, on your first point, the capacity for National is dynamic. So Depending on where the share price trades and National owns a substantial amount of MBIA Inc. Shares, You're calculating the share price against the formula that I talked about before, which is basically the 50% of the surplus minus common and preferred. So Depending on where the shares trade, there's either capacity or there's not.

Speaker 3

Where the shares have been trading the last couple of months, that capacity has opened up And has done so to a point where we could buy some meaningful shares if we decided to do that. And on the second point related to repurchase, I think we've been extremely diligent about Purchasing shares that we feel are very solid discounted prices to enhance shareholder value and our philosophy is the same as it's been.

Speaker 7

Can you quantify that a little bit more as to what you view the true economic book value is that you're buying at a discount to at this moment?

Speaker 3

I really can't give specific numbers on it at this point. But to the degree, again, we feel that it's prudent to do Yes, we'll make those purchases, but I'm not going to give specific amounts on that.

Speaker 7

Understood. Thank you.

Operator

Thank you. And at this time, I am showing no further questions. I'd like to turn the floor back over to management for any additional or closing remarks.

Speaker 1

Thank you again, Chelsea, and thanks to those of you listening to our call today. Please contact me directly if you have any additional questions. We also recommend that you visit our website atmbia.com for additional information about our company. Thank you for your interest in MBIA. Good day and goodbye.

Operator

Thank you, ladies and gentlemen. This does conclude today's MBIA First Quarter 2023 Financial Results Conference Call. You may now disconnect.

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