MBIA Inc.

Welcome to the MBIA Inc. Third 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.

Thank you, Maria. Welcome to MBIA's conference call for our Third Quarter 2020 Financial Results. After the market closed yesterday, we issued and posted several items on our websites, including our financial results, PENQ, quarterly operating supplement, and statutory financial statements for both MVIA 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 this call is qualified by the information provided in the company's 10-K, 10-Qs, and other SEC filings, as our company's definitive disclosures are incorporated in those documents. we urge investors to read our most recent 10-K and subsequent 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 that we posted on the NBIA website yesterday. 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-Q, which are available on our website at mbaa.com. 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 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. Thanks for being with us today. We remain focused on the resolution of National's Puerto Rico Exposure, which is largely comprised of three credits, the Commonwealth's General Obligation Bonds, the Puerto Rico Electric Power Authority, or PREPA, and the Puerto Rico Highway and Transportation Authority, or HTA. There have 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 monoline's HTA lift-stay motion. National and the other monolines have appealed this decision to the First Circuit, and all argument is expected in February. National is 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 on the bank's 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. The outstanding gross part of the insured portfolio has continued to reduce, where National's insured portfolio has further declined to $44 billion, down $2 billion from the last quarter. At September 30, 2020, National's leverage ratio of gross part of statutory capital was 22 to 1. During the third quarter, National purchased 8.6 million shares of MBIA's common stock at an average price of $7.23 per share. Year-to-date, through September 30, 2020, National has purchased 26.4 million MBIA shares at an average price of $7.50 per share. As of November 2, 2020, MBIA had 53.9 million shares outstanding. The company's share repurchase authorization has been fully utilized. Since the end of 2015, the company has repurchased 86 million shares of MBI common stock, which we believe has contributed substantial value to MBI 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, or a negative $1.11 per share, for the quarter ended September 30, 2020, compared to consolidated GAAP net income of $83 million, or $1 per share, for the quarter ended September 30, 2019. The net loss this quarter versus net income in the third quarter of 2019 was driven by several factors. higher loss and LAE expense at national, lower gains from investment portfolio security sales as Q3 2019 benefited from the sale of national's PREPA bonds from its investment portfolio, and lower VIE income in 2020. Income in the prior comparable quarter was related to mark-to-market gains on the COFINA VIE which has since been deconsolidated in conjunction with the elimination of National's insured cofina exposure, as well as higher RMBS put-back recoveries at MBIA Corp. Loss in LAE at National this quarter was due primarily to accretion on its Puerto Rico credits, as there were no material changes to our loss scenarios. The large loss in LAE 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 at MBIA Corp. was primarily due to a reduction in expected recoveries on claims paid on the ZOHAR CLOs and an increase in RMBS losses. Discount rates played a minimal part in loss in LAE for the quarter, as the risk-free rates this quarter were, on average, consistent with Q2 2020. Book value per share decreased to $4.25 per share as of September 30, 2020, compared to $10.40 as of December 31, 2019, primarily due to the 2020 year-to-date net loss of $497 million. partially offset by unrealized gains on investments, and 26 million fewer net shares outstanding due to share repurchases during the first nine months of the year. The company's adjusted net loss, a non-GAAP measure, was $18 million, or a negative 34 cents per diluted share, for the third quarter of 2020, compared with adjusted net income of $115 million, or $1.46 per diluted share for the third quarter of 2019. The unfavorable change was primarily due to higher loss in LAE 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, MBIA Inc., had total assets of $1 billion as of September 30, 2020. Within this total are the following material items. Unencumbered cash and liquid assets held in MBIA Inc. totaled $335 million as of September 30, 2020, versus $375 million as of December 31, 2019. The decrease was primarily due to increases in collateral requirements associated with the GIC business as a result of COVID-19-related market impacts on credit spreads, which have tightened somewhat from Q1. As of September 30, 2020, there were $12 million of tax deposits made by National under our tax sharing agreement that had not yet been refunded to National or released to NBIA Inc., and which represented the remaining portion of National's 2018 tax deposits. As we have stated in recent prior quarters, tax escrow releases are not expected to be a meaningful contributor to holding company liquidity in the future. There were approximately $540 million of assets at market value pledged to the GICs and the interest rate swaps supporting the legacy GIC operation. Today, MBIA, Inc. will receive the annual As of Right dividend from National in the amount of $81 million. After receiving this dividend, MBIA, Inc. will have sufficient assets to cover its estimated foreseeable obligations through at least the end of 2022. Turning to the insurance company's statutory results, National reported statutory income before taxes of $36 million for quarter end September 30, 2020 versus income before taxes of $112 million for September 30, 2019. The lower income before taxes this quarter was due to lower capital gains as well as lower premium and investment income. Q3 2019 benefited from gains related to the sale of PREPA bonds in the investment portfolio. This was somewhat offset by lower loss in LAE expense in the current quarter. National reported a statutory net loss of $8 million for the third quarter of 2020 compared to statutory net income of $87 million for the prior year's comparable quarter. The unfavorable 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 reduced the year-to-date taxable loss that under the CARES Act can be carried back up to five years at a 35% tax rate when applicable. On July 1st, National paid $333 million in gross Puerto Rico-related claims. which increases inception-to-date gross claims paid on insured Puerto Rico bonds to $1.6 billion. As of September 30, 2020, National's total fixed-income investment portfolio, including cash and cash equivalents, had a book-adjusted carrying value of $2 billion. Statutory capital was $2 billion, impacted from year-end 2019 by its purchases of MBIA-ing shares and its year-to-date net loss. Claims paying resources totaled $3.2 billion. Insured gross par outstanding reduced by $1.9 billion during the quarter and now stands at $43.9 billion. Turning to MBIA Insurance Corp., the statutory net loss was $35 million for the third quarter of 2020 compared to a statutory net loss of $26 million for the third quarter of 2019. The unfavorable result was due to foreign exchange losses in Q3 2020. As of September 30, 2020, the statutory capital of NBIA Insurance Corp was $328 million versus $476 million as of December 31, 2019. Claims paying resources totaled $1 billion, and cash and liquid assets have remained consistent throughout the year and totaled $129 million. MBIA Corp's insured gross par outstanding was $9 billion as of September 30th, 2020. We awaited decision in the Credit Suisse trial as well as progress on the Zohar monetization process given the recent court rulings. And now we will turn the call over to the operator to begin the question and answer session.