MBIA Inc.
Q1 2020 Earnings Call Transcript

Published:

  • Operator:
    Welcome to the MBIA Inc. First Quarter 2020 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.
  • Greg Diamond:
    Thank you, Maria. Welcome to MBIA’s conference call for our first quarter 2020 financial results. 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 portfolios.Regarding 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-Q as it contains 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 as well as our financial results report and quarterly operating supplements. A 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 that we posted on the MBIA website yesterday.Now, for our safe harbor 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. Risk factors are detailed in our 10-K and 10-Q, which are available on our website at mbia.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 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's Bill Fallon.
  • Bill Fallon:
    Thanks, Greg. Good morning, everyone. Thank you for being with us today. We hope you are well in these challenging times. For the first quarter of 2020 most of the company's net loss was caused by loss and loss adjustment expenses, but approximately two thirds of those loss expenses recorded by MBIA Insurance Corporation and the other third by National Public Finance Guarantee Corporation. These elevated losses for the first quarter were modestly influenced by the COVID-19 pandemic.While 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 of our insurance policies, the ultimate financial impact from most of the credits in our insurance portfolios is uncertain at this time. In light of the COVID-19 pandemic, we have augmented our monitoring activities on a number of credits in our insurance portfolios. Our loss reserve assessments will continue to be updated as new information becomes available that informs the probability weighted cashless scenarios used to estimate those losses.Our remaining Puerto Rico exposure is largely comprised of three Puerto Rico credits
  • Anthony McKiernan:
    Thanks, Bill, and good morning. I will begin a review of our first – with our first quarter 2020 GAAP and non-GAAP results, then cover the holding company balance sheet, and lastly walk through our statutory results for National and MBIA Insurance Corp.The company reported a consolidated GAAP net loss of $333 million, or negative $4.62 per share for the quarter ended March 31, 2020, compared to a consolidated GAAP net loss of $21 million or negative $0.24 per share for the quarter ended March 31, 2019. The results for the quarter were driven by several factors
  • Operator:
    Thank you. [Operator Instructions] Our first question comes from the line of Bose George of KBW.
  • Tommy McJoynt:
    Hey good morning guys, this is Tommy McJoynt, on for Bose.
  • Bill Fallon:
    Good morning.
  • Tommy McJoynt:
    I hope everyone is well. So you re-upped the repurchase authorization at National last week. How should we think about National's capacity to purchase MBIA's shares longer term? And kind of how you're balancing that with the need to potentially preserve capital if this uncertain outlook ends up worsening a bit?
  • Bill Fallon:
    Yes, Tommy, 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 31, from a regulatory perspective, there is $349 million of capacity remaining, so that's the first sort of constraint from a regulatory perspective. Then to your point, we look at many other factors in terms of the resources that National needs, what the stock price is and many other things that you would think about. So the one known requirement is that $349 million, the Board has authorized another $100 million, we had essentially just almost completely exhausted $250 million, which we had spent roughly over about a 2.5-year period.So we'll continue to look at all these things and decide what we think the appropriate approach is, and that obviously is subject to change at any point in time. But we have, I think, always been very clear that we think buying shares at attractive prices is beneficial for long-term shareholder value.
  • Tommy McJoynt:
    All right, that all makes sense. And just kind of broadly speaking, obviously, there's a ton of uncertainty, but how are you thinking about the kind of municipal financial position right now just given the challenging environment? How do you compare this to what we saw back in 2008? And then how dependent is your view on getting support from the federal government in the next spending, Bill?
  • Bill Fallon:
    So as you know, there are 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 defaults; things like Detroit and Puerto Rico, we would argue, had to do with other factors, not the financial crisis back in 2008. And even if you go back to other unfortunate catastrophes, 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. And to your point, the mitigating factors such as federal aid or federal programs that either have been approved already or might be approved in the near future.So we'll continue to look at that closely. There's no doubt that there are certain revenue streams to states and cities that have been adversely affected; for example, sales tax revenues, we've seen a significant drop in those, but we continue to monitor it. There have not been any claims made against any of our policies at this point. But as we've mentioned, we will look at it closely.
  • Tommy McJoynt:
    Thanks. And then just last one. In the release and in your prepared remarks, you called out Puerto Rico exposure that's contributing to the loss in LAE expense this quarter. Was that just related to the timing of you kind of continuing to cover claims, given the down set of COVID delayed kind of any resolution? Or was there other adverse developments that you incorporated?
  • Bill Fallon:
    You just hit 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.
  • Tommy McJoynt:
    Okay. In the May 15 update with PREPA, is that going to be made public, do you know?
  • Bill Fallon:
    We would expect that some portion or all of it will be made public shortly after that.
  • Tommy McJoynt:
    Okay, great. Thank you guys.
  • Operator:
    Our next question comes from the line of Giuliano Bologna of BTIG.
  • Giuliano Bologna:
    Good morning guys. Thank you for taking my questions. Starting on the loss reserve side, obviously, there were a 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?
  • Anthony McKiernan:
    So Giuliano good morning. Assumptions governed the increase in loss reserves, the changes in profiles to both the amount of payments that we'll be making and the decrease in salvage drove the loss reserves. Obviously, it's a credit by credit issue for some of those credits that we made those adjustments. The assumptions drove it 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 many adjustments, the lower discount rate obviously reflects itself in increasing salvage.So I would say assumptions all in governed the loss reserves for the quarter, but certainly discount rates are a factor, especially for Puerto Rico, just given that there's a significant salvage piece.
  • Giuliano Bologna:
    That makes sense. And then thinking about the holding company liquidity, are there any opportunities to buy any of the securities back, whether it be some of the remain – whether it be bonds or any of the other debt securities at the holding company at a discount to accelerate deleveraging and take out interest expense – and potentially take out interest expense faster?
  • Anthony McKiernan:
    So there as you know, during the last year, we took out a part of the 2022 6.4% debt. We're still essentially concentrated on getting through the liquidity window of 2022 at this point we're you know now starting to be able to look beyond that, but that's really been our focus. But to the degree, again, that there's opportunities, we're always looking to see if something is optimal for us to do.
  • Giuliano Bologna:
    That makes sense. I appreciate that. And thanks for taking my questions.
  • Bill Fallon:
    Thank you so much.
  • Anthony McKiernan:
    Thank you.
  • Operator:
    Our next question comes from the line of Geoffrey Dunn of Dowling Partners.
  • Geoffrey Dunn:
    Thanks. Good morning. I just want to follow-up on that. Can you actually disclose the impact the discount rate changes had on the National's $48 million this quarter for incurred losses?
  • Anthony McKiernan:
    No. We're not – we can't break it out exactly. Only just to say, again, the 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.
  • Geoffrey Dunn:
    Okay. And then can you discuss the investor-owned utility reserve adjustment for the quarter?
  • Anthony McKiernan:
    Sure. That's a credit that was on our caution list prior to the quarter, which given change in facts and circumstances on it, we wound up taking a reserve this quarter that was in part contributing to the loss in LAE for National this quarter.
  • Geoffrey Dunn:
    And what are the issues that had it on your caution list and incrementally drove the reserve?
  • Anthony McKiernan:
    Essentially, we had a bankruptcy of the utility.
  • Geoffrey Dunn:
    Okay. And then I just want to revisit this discount rate question again. Excluding the impact of discount rates, was there favorable development in the quarter or was there an actual incurred loss provision?
  • Anthony McKiernan:
    There was an incurred loss provision.
  • Geoffrey Dunn:
    Okay, thank you.
  • Operator:
    [Operator Instructions] Our next question comes from the line of Paul Saunders of Hutch Capital.
  • Paul Saunders:
    My questions have actually been asked and answered already. Thanks guys.
  • Bill Fallon:
    Thank you.
  • Anthony McKiernan:
    Okay, thank you.
  • Operator:
    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.
  • Greg Diamond:
    Thanks, again, Maria. And thanks to all of you who 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 mbia.com for additional information on the company. Thank you for your interest in MBIA. Good day, and goodbye.
  • Operator:
    Thank you, ladies and gentlemen. This does conclude today's first quarter 2020 earnings conference call. You may now disconnect.

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