美國
證券交易委員會
華盛頓特區20549
形式
根據1934年《證券交易法》第13或15（d）條的季度報告 |
截至季度
或
根據1934年《證券交易所法》第13或15（d）條提交的過渡報告 |
從 到
委員會文件號：
（章程中規定的註冊人的確切名稱）
（州或其他司法管轄區 成立或組織） |
（國稅局僱主 識別號） |
|
|
（主要行政辦公室地址） |
(郵政編碼) |
(
(註冊人的電話號碼，包括區號)
不適用
(前姓名、前地址和前財政年度，如果自上次報告以來發生變化)
根據該法第12(B)條登記的證券：
每個班級的標題 |
交易代碼 |
註冊的每個交易所的名稱 |
用複選標記表示註冊人(1)是否在過去12個月內(或註冊人被要求提交此類報告的較短時間內)提交了1934年《證券交易法》第13條或15(D)節要求提交的所有報告，以及(2)在過去90天內是否符合此類提交要求。
用複選標記表示註冊人是否在過去12個月內(或在註冊人被要求提交此類文件的較短時間內)以電子方式提交了根據S-T規則第405條(本章232.405節)要求提交的每個交互數據文件。
通過複選標記來確定註冊人是大型加速申報人、加速申報人、非加速申報人、小型報告公司還是新興成長型公司。請參閱《交易法》第120億.2條規則中「大型加速申報人」、「加速申報人」和「小型報告公司」以及「新興成長型公司」的定義。
大型加速文件服務器 |
☐ |
|
☒ |
|
非加速文件服務器 |
☐ |
|
規模較小的報告公司 |
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新興成長型公司 |
如果是一家新興的成長型公司，用複選標記表示註冊人是否已選擇不使用延長的過渡期來遵守根據《交易所法》第13(A)節提供的任何新的或修訂的財務會計準則。☐
通過勾選標記檢查註冊人是否是空殼公司（定義見《交易法》第120億.2條）。是的否
截至2024年10月31日,
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項目1. |
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項目1. |
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FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This quarterly report of MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA”, the “Company”, “we”, “us” or “our”) includes statements that are not historical or current facts and are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe”, “anticipate”, “project”, “plan”, “expect”, “estimate”, “intend”, “will likely result”, “looking forward”, or “will continue” and similar expressions identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. MBIA cautions readers not to place undue reliance on any such forward-looking statements, which speak only to their respective dates. We undertake no obligation to publicly correct or update any forward-looking statement if the Company later becomes aware that such result is not likely to be achieved.
The following are some of the general factors that could affect financial performance or could cause actual results to differ materially from estimates contained in or underlying the Company’s forward-looking statements:
The above factors provide a summary of and are qualified in their entirety by the risk factors discussed under “Risk Factors” in Part II, Other Information, Item 1A included in Quarterly Report on Form 10-Q. The Company encourages readers to review these risk factors in their entirety.
This quarterly report of MBIA Inc. also includes statements of the opinion and belief of MBIA management which may be forward-looking statements subject to the preceding cautionary disclosure. Unless otherwise indicated herein, the basis for each statement of opinion or belief of MBIA management in this report is the relevant industry or subject matter experience and views of certain members of MBIA’s management. Accordingly, MBIA cautions readers not to place undue reliance on any such statements, because like all statements of opinion or belief they are not statements of fact and may prove to be incorrect. We undertake no obligation to publicly correct or update any statement of opinion or belief if the Company later becomes aware that such statement of opinion or belief was not or is not then accurate. In addition, readers are cautioned that each statement of opinion or belief may be further qualified by disclosures set forth elsewhere in this report or in other disclosures by MBIA.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions except share and per share amounts)
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September 30, 2024 |
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December 31, 2023 |
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Assets |
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Investments: |
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Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $ |
$ |
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$ |
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Investments carried at fair value |
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Short-term investments, at fair value (amortized cost $ |
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Other investments at amortized cost |
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Total investments |
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Cash and cash equivalents |
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Premiums receivable (net of allowance for credit losses of $ |
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Deferred acquisition costs |
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Insurance loss recoverable |
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Assets held for sale |
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Other assets |
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Assets of consolidated variable interest entities: |
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Cash |
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Investments carried at fair value |
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Loans receivable at fair value |
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Other assets |
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Total assets |
$ |
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$ |
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Liabilities and Equity |
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Liabilities: |
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Unearned premium revenue |
$ |
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$ |
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Loss and loss adjustment expense reserves |
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Long-term debt |
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Medium-term notes (includes financial instruments carried at fair value of $ |
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Investment agreements |
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Liabilities held for sale |
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Other liabilities |
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Liabilities of consolidated variable interest entities: |
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Variable interest entity debt (includes financial instruments carried at fair value of $ |
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Derivative liabilities |
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Total liabilities |
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and contingencies (Refer to Note 12: Commitments and Contingencies) |
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Equity: |
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Preferred stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Retained earnings (deficit) |
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( |
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Accumulated other comprehensive income (loss), net of tax of $ |
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( |
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Treasury stock, at cost-- |
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( |
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Total shareholders' equity of MBIA Inc. |
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( |
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Preferred stock of subsidiary and noncontrolling interest held for sale |
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Total equity |
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( |
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( |
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Total liabilities and equity |
$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
1
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In millions except share and per share amounts)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenues |
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Premiums earned: |
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Scheduled premiums earned |
$ |
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$ |
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$ |
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$ |
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Refunding premiums earned |
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Premiums earned (net of ceded premiums of $ |
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Net investment income |
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Net realized investment gains (losses) |
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( |
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( |
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( |
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Net gains (losses) on financial instruments at fair value and foreign exchange |
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( |
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( |
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Fees and reimbursements |
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Other net realized gains (losses) |
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( |
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( |
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Revenues of consolidated variable interest entities: |
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Net gains (losses) on financial instruments at fair value and foreign exchange |
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( |
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( |
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( |
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Other net realized gains (losses) |
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( |
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( |
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( |
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Total revenues |
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Expenses |
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Losses and loss adjustment |
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Amortization of deferred acquisition costs |
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Operating |
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Interest |
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Expenses of consolidated variable interest entities: |
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Operating |
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Interest |
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Total expenses |
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Income (loss) from continuing operations before income taxes |
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( |
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( |
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( |
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( |
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Provision (benefit) for income taxes |
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Income (loss) from continuing operations |
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( |
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( |
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( |
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( |
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Income (loss) from discontinued operations, net of income taxes |
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( |
) |
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( |
) |
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( |
) |
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( |
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Net income (loss) |
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( |
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( |
) |
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( |
) |
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( |
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Less: Net income from discontinued operations attributable to noncontrolling interest |
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( |
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Net income (loss) attributable to MBIA Inc. |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net income (loss) per common share attributable to MBIA Inc. - basic and diluted |
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Continuing operations |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Discontinued operations |
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( |
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( |
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( |
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( |
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Net income (loss) per common share attributable to MBIA Inc. - basic and diluted |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average number of common shares outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of the consolidated financial statements.
2
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In millions)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net income (loss) attributable to MBIA Inc. |
$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss): |
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Available-for-sale securities with no credit losses: |
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Unrealized gains (losses) arising during the period |
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( |
) |
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( |
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Reclassification adjustments for (gains) losses included in net income (loss) |
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Instrument-specific credit risk of liabilities measured at fair value: |
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Unrealized gains (losses) arising during the period |
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( |
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Reclassification adjustments for (gains) losses included in net income (loss) |
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Total other comprehensive income (loss) |
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( |
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Comprehensive income (loss) attributable to MBIA Inc. |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of the consolidated financial statements.
3
MBIA INC. AND SUBSIDIARIES
(In millions except share amounts)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Common shares |
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Balance at beginning and end of period |
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Common stock amount |
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Balance at beginning and end of period |
$ |
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$ |
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$ |
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$ |
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Additional paid-in capital |
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Balance at beginning of period |
$ |
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$ |
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$ |
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$ |
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Share-based compensation |
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( |
) |
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( |
) |
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Balance at end of period |
$ |
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$ |
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$ |
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$ |
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Retained earnings (deficit) |
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Balance at beginning of period |
$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Net income (loss) attributable to MBIA Inc. |
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( |
) |
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( |
) |
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( |
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( |
) |
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Balance at end of period |
$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Accumulated other comprehensive income (loss) |
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Balance at beginning of period |
$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Other comprehensive income (loss) |
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( |
) |
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Balance at end of period |
$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Treasury shares |
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Balance at beginning of period |
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( |
) |
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( |
) |
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( |
) |
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( |
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Treasury shares acquired under share repurchase program |
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( |
) |
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( |
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Other |
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( |
) |
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|
|
|
|
( |
) |
|
|||
Balance at end of period |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
||
Treasury stock amount |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at beginning of period |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
||
|
Treasury shares acquired under share repurchase program |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|||
|
Other |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
||||
Balance at end of period |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
||
Total shareholders' equity of MBIA Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at beginning of period |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
||
|
Period change |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
Balance at end of period |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
||
Preferred stock of subsidiary shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at beginning and end of period |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Preferred stock of subsidiary and noncontrolling interest held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at beginning of period |
$ |
|
|
|
|
|
$ |
|
|
|
|
|
||||||
|
Period change |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
||||
Balance at end of period |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
Total equity |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
The accompanying notes are an integral part of the consolidated financial statements.
4
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
|
|
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
|
2024 |
|
|
2023 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|||||
|
Premiums, fees and reimbursements received |
|
$ |
|
|
$ |
|
||||
|
Investment income received |
|
|
|
|
|
|
||||
|
Financial guarantee losses and loss adjustment expenses paid |
|
|
( |
) |
|
|
( |
) |
||
|
Proceeds from recoveries and reinsurance, net of salvage paid to reinsurers |
|
|
|
|
|
|
||||
|
Operating expenses paid and other operating |
|
|
( |
) |
|
|
( |
) |
||
|
Other proceeds from consolidated variable interest entities |
|
|
|
|
|
|
||||
|
Interest paid, net of interest converted to principal |
|
|
( |
) |
|
|
( |
) |
||
|
Cash (used) provided by discontinued operations |
|
|
( |
) |
|
|
( |
) |
||
|
|
Net cash provided (used) by operating activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|||||
|
Purchases of available-for-sale investments |
|
|
( |
) |
|
|
( |
) |
||
|
Sales of available-for-sale investments |
|
|
|
|
|
|
||||
|
Paydowns, maturities and other proceeds of available-for-sale investments |
|
|
|
|
|
|
||||
|
Purchases of investments at fair value |
|
|
( |
) |
|
|
( |
) |
||
|
Sales, paydowns, maturities and other proceeds of investments at fair value |
|
|
|
|
|
|
||||
|
Sales, paydowns and maturities (purchases) of short-term investments, net |
|
|
|
|
|
( |
) |
|||
|
Paydowns and maturities of loans receivable |
|
|
|
|
|
|
||||
|
Deconsolidation of variable interest entities |
|
|
|
|
|
( |
) |
|||
|
(Payments) proceeds for derivative settlements |
|
|
( |
) |
|
|
( |
) |
||
|
Proceeds (payments) from discontinued operations |
|
|
|
|
|
( |
) |
|||
|
|
Net cash provided (used) by investing activities |
|
|
|
|
|
|
|||
Cash flows from financing activities: |
|
|
|
|
|
|
|||||
|
Proceeds from investment agreements |
|
|
|
|
|
|
||||
|
Principal paydowns of investment agreements |
|
|
( |
) |
|
|
( |
) |
||
|
Principal paydowns of medium-term notes |
|
|
( |
) |
|
|
( |
) |
||
|
Proceeds from variable interest entity debt |
|
|
|
|
|
|
||||
|
Principal paydowns/redemptions of variable interest entity debt |
|
|
( |
) |
|
|
( |
) |
||
|
Principal paydowns of long-term debt |
|
|
( |
) |
|
|
|
|||
|
Purchases of treasury stock |
|
|
( |
) |
|
|
( |
) |
||
|
Cash provided (used) by discontinued operations |
|
|
( |
) |
|
|
|
|||
|
|
Net cash provided (used) by financing activities |
|
|
( |
) |
|
|
( |
) |
|
Net increase (decrease) in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|||
Cash and cash equivalents - beginning of year |
|
|
|
|
|
|
|||||
Cash and cash equivalents - end of year |
|
$ |
|
|
$ |
|
|||||
Reconciliation of net income (loss) to net cash provided (used) by operating activities: |
|
|
|
|
|
|
|||||
|
Net income (loss) |
|
$ |
( |
) |
|
$ |
( |
) |
||
|
Income (loss) from discontinued operations, net of income taxes |
|
|
( |
) |
|
|
( |
) |
||
|
Income (loss) from continuing operations |
|
|
( |
) |
|
|
( |
) |
||
|
Adjustments to reconcile net income (loss) from continuing operations to net cash provided (used) by operating activities: |
|
|
|
|
|
|
||||
|
|
Change in: |
|
|
|
|
|
|
|||
|
|
|
Unearned premium revenue |
|
|
( |
) |
|
|
( |
) |
|
|
|
Loss and loss adjustment expense reserves |
|
|
|
|
|
|
||
|
|
|
Insurance loss recoverable |
|
|
( |
) |
|
|
( |
) |
|
|
|
Accrued interest payable |
|
|
|
|
|
|
||
|
|
|
Other assets and liabilities |
|
|
|
|
|
( |
) |
|
|
|
Net realized investment gains (losses) |
|
|
|
|
|
|
|||
|
|
Net (gains) losses on financial instruments at fair value and foreign exchange |
|
|
|
|
|
|
|||
|
|
Other net realized (gains) losses |
|
|
|
|
|
|
|||
|
|
Other operating |
|
|
( |
) |
|
|
|
||
|
|
Total adjustments to income (loss) from continuing operations |
|
|
|
|
|
|
|||
|
|
|
Net cash provided (used) by operating activities |
|
$ |
( |
) |
|
$ |
( |
) |
Supplementary Disclosure of Consolidated Cash Flow Information: |
|
|
|
|
|
|
|||||
|
Non-cash investing activities: |
|
|
|
|
|
|
||||
|
Loans receivable disposed of a variable interest entity |
|
$ |
|
|
$ |
|
||||
|
Other investments, received from sale of net assets held for sale |
|
|
|
|
|
|
||||
|
Non-cash financing activities: |
|
|
|
|
|
|
||||
|
Variable interest entity notes disposed of upon deconsolidation |
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||
The accompanying notes are an integral part of the consolidated financial statements.
5
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Business Developments and Risks and Uncertainties
Summary
MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA” or the “Company”) operates within the financial guarantee insurance industry. MBIA manages
Refer to “Note 9: Business Segments” for further information about the Company’s operating segments.
Business Developments
PREPA
On January 1, 2024, the Puerto Rico Electric Power Authority (“PREPA”) defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $
On January 31, 2023, National entered into a restructuring support agreement (“PREPA RSA”) with the Financial Oversight and Management Board for Puerto Rico (the “Oversight Board”), on behalf of itself and as the sole Title III representative of PREPA.
A plan of adjustment for PREPA (the "Plan") and related disclosure statement was filed on February 9, 2023. Subsequently, both the Plan and PREPA RSA were amended. The Title III Court conducted confirmation hearings in March 2024. On June 12, 2024, the First Circuit Court of Appeals reversed Judge Swain's prior rulings on bondholder liens and claim amounts (the "Appeal Decision"), following which the Oversight Board informed the Court that it intended to file an amendment to the Plan it believed would account for the changes required by the First Circuit opinion. On June 26, 2024, the Oversight Board filed a petition for a First Circuit panel rehearing, and the Unsecured Creditors Committee filed an en banc appeal. Both are currently pending. Following a status conference held on July 10, 2024, the Court imposed a 60-day stay of all litigation and other filings related to the amended Plan, which stay was subsequently extended until January 31, 2025, and ordered the parties into mediation. Following the Appeal Decision, the Oversight Board informed the Court, National and other parties that it intended to modify National’s settlement in a forthcoming amended Plan. Thereafter, National provided notice to the Oversight Board that National did not support the board's actions and that such actions constituted a breach and termination of the PREPA RSA, as amended. There is no assurance that a plan that is substantially similar in the treatment of National's claims and rights will ultimately be confirmed and become effective. In the event of a substantially different confirmed plan, National’s PREPA loss reserves and recoveries could be materially adversely affected. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for additional information of the Company’s PREPA reserves and recoveries.
6
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Business Developments and Risks and Uncertainties (continued)
Zohar CDOs
Payment of claims on MBIA Corp.’s policies insuring the Class A-1 and A-2 notes issued by Zohar collateralized debt obligation (“CDO”) 2003-1, Limited (“Zohar I”) and Zohar II 2005-1, Limited (“Zohar II”) (collectively, the “Zohar CDOs”), entitled MBIA Corp. to reimbursement of such amounts plus interest and expenses and/or to exercise certain rights and remedies to seek recovery of such amounts. MBIA Corp. has anticipated that it would receive substantial recoveries on the loans made to, and equity interests in, portfolio companies that, until late March of 2020, were purportedly controlled and managed by the sponsor and former collateral manager of the Zohar CDOs (collectively, the “Zohar Collateral”). Since March of 2018, MBIA Corp. had been pursuing those recoveries in a Delaware bankruptcy proceeding filed by the Zohar CDOs (“Zohar Funds Bankruptcy Cases”). Pursuant to a plan of liquidation that became effective in August of 2022, all remaining Zohar Collateral was distributed to MBIA Corp. either directly or in the form of interests in certain asset recovery entities. There still remains significant uncertainty with respect to the realizable value of the remaining loans and equity interests that formerly constituted the Zohar Collateral. Further, as the monetization of these assets unfolds, and new information concerning the financial condition of the portfolio companies is disclosed, the Company will continue to revise its expectations for recoveries.
The interests in the asset recovery entities include various loans to and equity interest in portfolio companies. For those portfolio companies in which the Company does not have a majority of the voting interest, the Company recorded these assets as investments. For those portfolio companies in which the Company owns a majority of the voting interest, the Company consolidated the assets, liabilities, and financial results of these companies. In accordance with Accounting Standards Codification (“ASC”) 360-10, Property, Plant, and Equipment and ASC 205-20, Presentation of Financial Statements-Discontinued Operations, certain of these portfolio companies met the criteria to be classified as held for sale and discontinued operations. Refer to the following “Discontinued Operations” section below for further information about the Company’s discontinued operations. In addition, certain of the Zohar debtors’ litigation claims were transferred into a litigation trust that the Company consolidated as a variable interest entity (“VIE”).
Discontinued Operations
For those Zohar-related portfolio companies in which the Company acquired an interest and which have met the criteria for held for sale classification in accordance with ASC 360, the Company classified these entities as held for disposition. Accordingly, the Company classified the assets and liabilities of consolidated portfolio companies and the interests in certain nonconsolidated portfolio companies as held for sale. Furthermore, as these entities met the one-year probable sale criteria on the acquisition date, and the remaining held for sale criteria within a short period following the acquisition date, these entities were classified as discontinued operations in accordance with ASC 205. As of September 30, 2024 and December 31, 2023, the assets and liabilities of these entities are presented within “Assets held for sale” and “Liabilities held for sale” on the Company’s consolidated balance sheets. Additionally, the results of operations for these entities are classified as “Income from discontinued operations, net of income taxes” on the Company’s consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023. During 2024, certain net assets of one of the Company's Zohar-related portfolio companies that was classified as held for sale was disposed. Any remaining assets and liabilities are being wound-down and were classified as held for use. The consideration received as part of this disposition was approximate to the carrying value of the assets and liabilities sold. For the net assets of the Company's Zohar-related portfolio companies that are classified as held for sale beyond one year, the Company continues to actively market its net assets held for sale and has identified interested parties, including having attained various stages of a sales or liquidation process. In addition, the Company has continued to (i) take necessary actions to respond to changes in circumstances, including recording a loss on disposal group; (ii) actively market the net assets at prices that are deemed reasonable; and (iii) meet the criteria for held for sale classification.
7
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Business Developments and Risks and Uncertainties (continued)
The following table summarizes the components of assets and liabilities held for sale:
|
|
As of |
||||||
In millions |
|
September 30, 2024 |
|
December 31, 2023 |
||||
Assets held for sale |
|
|
|
|
|
|
|
|
Cash |
|
$ |
- |
|
|
$ |
|
|
Accounts receivable |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Loss on disposal group |
|
|
( |
) |
|
|
( |
) |
Total assets held for sale |
|
$ |
|
|
$ |
|
||
Liabilities held for sale |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
$ |
|
||
Debt |
|
|
|
|
|
|
||
Accrued expenses and other |
|
|
|
|
|
|
||
Total liabilities held for sale |
|
$ |
|
|
$ |
|
||
The results of operations from discontinued operations for the three and nine months ended September 30, 2024 and 2023 consist of the following:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
In millions |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total revenues from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Operating |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Increase (decrease) on loss on disposal group |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
Total expenses from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) before income taxes from discontinued operations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Provision (benefit) for income taxes from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income (loss) from discontinued operations, net of income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Risks and Uncertainties
The Company’s financial statements include estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The outcome of certain significant risks and uncertainties could cause the Company to revise its estimates and assumptions or could cause actual results to differ materially from the Company’s estimates. The discussion below highlights the significant risks and uncertainties that could have a material effect on the Company’s financial statements and business objectives in future periods.
National’s Insured Portfolio
National continues to monitor and remediate its existing insured portfolio. Certain state and local governments and territory obligors that National insures are under financial and budgetary stress. This could lead to an increase in defaults by such entities on the payment of their obligations and losses or impairments on a greater number of National’s insured transactions. In particular, PREPA is currently in bankruptcy-like proceedings in the United States District Court for the District of Puerto Rico. There is no assurance that a PREPA plan that is substantially similar in the treatment of National's claims and rights will ultimately be confirmed and become effective. PREPA may continue to fail to make payments when due, which could cause National to make additional claims payments which could be material. Refer to the above “Business Developments - PREPA” section for additional information.
8
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Business Developments and Risks and Uncertainties (continued)
MBIA Corp.’s Insured Portfolio
MBIA Corp.’s primary objectives are to satisfy all claims by its policyholders and to maximize future recoveries, if any, for its surplus note holders, and then its preferred stock holders. MBIA Corp. is executing this strategy by, among other things, taking steps to maximize the collection of recoveries and by reducing and mitigating potential losses on its insurance exposures. MBIA Corp.’s insured portfolio performance could deteriorate and result in additional significant loss reserves and claim payments. MBIA Corp.’s ability to meet its obligations is limited by available liquidity and its ability to secure additional liquidity through financing and other transactions. There can be no assurance that MBIA Corp. will be successful in generating sufficient resources to meet its obligations.
Recoveries
In addition to the recoveries on the Zohar Collateral, MBIA Corp. also projects to collect recoveries from prior claims associated with insured residential mortgage-backed securities (“RMBS”); however, the amount and timing of these collections are uncertain.
Failure to collect its expected recoveries could impede MBIA Corp.’s ability to make payments when due on other policies. MBIA Corp. believes that if the New York State Department of Financial Services (“NYSDFS”) concludes at any time that MBIA Insurance Corporation will not be able to pay its policyholder claims, the NYSDFS would likely put MBIA Insurance Corporation into a rehabilitation or liquidation proceeding under Article 74 of the New York Insurance Law (“NYIL”) and/or take such other actions as the NYSDFS may deem necessary to protect the interests of MBIA Insurance Corporation’s policyholders. The determination to commence such a proceeding or take other such actions is within the exclusive control of the NYSDFS.
Given the separation of MBIA Inc. and MBIA Corp. as distinct legal entities, the absence of any cross defaults between the entities and the lack of reliance by MBIA Inc. on MBIA Corp. for dividends, the Company does not believe that a rehabilitation or liquidation proceeding with respect to MBIA Insurance Corporation would have any significant liquidity impact on MBIA Inc. Such a proceeding could have material adverse consequences for MBIA Corp., including the termination of derivative contracts for which counterparties may assert market-based claims, the acceleration of debt obligations issued by affiliates and insured by MBIA Corp., the loss of control of MBIA Insurance Corporation to a rehabilitator or liquidator, and unplanned costs.
Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for additional information about MBIA Corp.’s recoveries.
Note 2: Significant Accounting Policies
The Company has disclosed its significant accounting policies in “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The following significant accounting policies provide an update to those included in the Company’s Annual Report on Form 10-K.
9
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 2: Significant Accounting Policies (continued)
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual periods. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2023. The accompanying consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with the standards of the Public Company Accounting Oversight Board (U.S.), but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company’s consolidated financial position and results of operations. All material intercompany balances and transactions have been eliminated. Certain amounts have been reclassified in prior years' financial statements to conform to the current presentation.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in operating results.
The results of operations for the three and nine months ended September 30, 2024 may not be indicative of the results that may be expected for the year ending December 31, 2024. The December 31, 2023 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP for annual periods.
Note 3: Recent Accounting Pronouncements
Recently Adopted Accounting Standards
The Company has not adopted any new accounting pronouncements that had a material impact on its consolidated financial statements.
Recent Accounting Developments
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07)
In November of 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, “Improvements to Reportable Segment Disclosures” which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Upon the effective date, the amendments should be applied retrospectively to all periods presented. The Company plans to adopt the amendments of ASU 2023-07 for fiscal year ending December 31, 2024 and is currently evaluating the potential impact of adopting ASU 2023-07.
Income Taxes (Topic 740): Improvements to Income Tax Disclosure (ASU 2023-09)
In December of 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, information on income taxes paid, and contain other disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. Upon the effective date, the amendments should be applied prospectively with retrospective application permitted. The Company is currently evaluating the potential impact of adopting ASU 2023-09.
10
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 4: Variable Interest Entities
Primarily through MBIA’s international and structured finance insurance segment, the Company provides credit protection to issuers of obligations that may involve issuer-sponsored special purpose entities (“SPEs”). An SPE may be considered a VIE to the extent the SPE’s total equity at risk is not sufficient to permit the SPE to finance its activities without additional subordinated financial support or its equity investors lack any one of the following characteristics: (i) the power to direct the activities of the SPE that most significantly impact the entity’s economic performance or (ii) the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity. A holder of a variable interest or interests in a VIE is required to assess whether it has a controlling financial interest, and thus is required to consolidate the entity as primary beneficiary. An assessment of a controlling financial interest identifies the primary beneficiary as the variable interest holder that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. An ongoing reassessment of controlling financial interest is required to be performed based on any substantive changes in facts and circumstances involving the VIE and its variable interests.
The Company evaluates issuer-sponsored SPEs initially to determine if an entity is a VIE, and is required to reconsider its initial determination if certain events occur. For all entities determined to be VIEs, MBIA performs an ongoing reassessment to determine whether its guarantee to provide credit protection on obligations issued by VIEs provides the Company with a controlling financial interest. Based on its ongoing reassessment of controlling financial interest, the Company determines whether a VIE is required to be consolidated or deconsolidated.
The Company makes its determination for consolidation based on a qualitative assessment of the purpose and design of a VIE, the terms and characteristics of variable interests of an entity, and the risks a VIE is designed to create and pass through to holders of variable interests. The Company generally provides credit protection on obligations issued by VIEs, and holds certain contractual rights according to the purpose and design of a VIE. The Company may have the ability to direct certain activities of a VIE depending on facts and circumstances, including the occurrence of certain contingent events, and these activities may be considered the activities that most significantly impact the VIE’s economic performance. The Company generally considers its guarantee of principal and interest payments of insured obligations, given nonperformance by a VIE, to be an obligation to absorb losses of the entity that could potentially be significant to the VIE. At the time the Company determines it has the ability to direct the activities of a VIE that most significantly impact the economic performance of the entity based on facts and circumstances, MBIA is deemed to have a controlling financial interest in the VIE and is required to consolidate the entity as primary beneficiary. The Company performs an ongoing reassessment of controlling financial interest that may result in consolidation or deconsolidation of any VIE.
Consolidated VIEs
The carrying amounts of assets and liabilities are presented separately in “Assets of consolidated variable interest entities” and “Liabilities of consolidated variable interest entities” on the Company’s consolidated balance sheets. VIEs are consolidated or deconsolidated based on an ongoing reassessment of controlling financial interest, when events occur or circumstances arise, and whether the ability to exercise rights that constitute power to direct activities of any VIE are present according to the design and characteristics of these entities. During the first and third quarters of 2024, the Company had
Holders of insured obligations of issuer-sponsored VIEs do not have recourse to the general assets of the Company. In the event of nonpayment of an insured obligation issued by a consolidated VIE, the Company is obligated to pay principal and interest, when due, on the respective insured obligation only. The Company’s exposure to consolidated VIEs is limited to the credit protection provided on insured obligations and any additional variable interests held by the Company.
11
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 4: Variable Interest Entities (continued)
Nonconsolidated VIEs
The following tables present the Company’s maximum exposure to loss for nonconsolidated VIEs and carrying values of the assets and liabilities for its interests in these VIEs in its insurance operations as of September 30, 2024 and December 31, 2023. The maximum exposure to loss as a result of MBIA’s variable interests in VIEs is represented by insurance in force. Insurance in force is the maximum future payments of principal and interest which may be required under commitments to make payments on insured obligations issued by nonconsolidated VIEs. The Company has aggregated nonconsolidated VIEs based on the underlying credit exposure of the insured obligation. The nature of the Company’s variable interests in nonconsolidated VIEs is related to financial guarantees and any investments in obligations issued by nonconsolidated VIEs.
|
|
September 30, 2024 |
||||||||||||||||||||||
|
|
|
|
Carrying Value of Assets |
|
Carrying Value of Liabilities |
||||||||||||||||||
In millions |
|
Maximum Exposure to Loss |
|
|
Investments |
|
|
Premiums Receivable |
|
|
Insurance Loss Recoverable |
|
|
Unearned Premium Revenue |
|
|
Loss and Loss Adjustment Expense Reserves |
|
||||||
Insurance: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global structured finance: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed residential |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Consumer asset-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
||||||
Corporate asset-backed |
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|
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|
|
|
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|
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|
|
|
|
||||||
Total global structured finance |
|
|
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|
|
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|
|
|
|
|
|
|
|
|
||||||
Global public finance |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total insurance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
December 31, 2023 |
||||||||||||||||||||||
|
|
|
|
Carrying Value of Assets |
|
Carrying Value of Liabilities |
||||||||||||||||||
In millions |
|
Maximum Exposure to Loss |
|
|
Investments |
|
|
Premiums Receivable |
|
|
Insurance Loss Recoverable |
|
|
Unearned Premium Revenue |
|
|
Loss and Loss Adjustment Expense Reserves |
|
||||||
Insurance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global structured finance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed residential |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Consumer asset-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate asset-backed |
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
||||||
Total global structured finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Global public finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total insurance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Note 5: Loss and Loss Adjustment Expense Reserves
U.S. Public Finance Insurance
U.S. public finance insured transactions consist of municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utilities, airports, health care institutions, higher educational facilities, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. The Company estimates future losses by using probability-weighted cash flow scenarios that are customized to each insured transaction. Future loss estimates consider debt service due for each insured transaction, which includes par outstanding and interest due, as well as recoveries for such payments, if any. Gross par outstanding for capital appreciation bonds represents the par amount at the time of issuance of the insurance policy.
12
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves (continued)
PREPA
In formulating loss reserves and recoveries for PREPA, estimates in the Company’s probability-weighted scenarios include assumptions related to the nature, value, and timing of net cash flows considering the following: environmental, economic, and political developments on the island; litigation and ongoing discussions with creditors and obligors on the Title III proceedings; contractual debt service payments; any existing settlement agreements or proposals and deviations from these proposals; the remediation strategy for insured obligations that have defaulted or are expected to default; and values of other obligations of the issuer. Refer to “Note 1: Business Developments and Risks and Uncertainties” for further information on the Company’s PREPA exposure.
International and Structured Finance Insurance
The international and structured finance insurance segment’s case basis reserves and insurance loss recoveries recorded in accordance with GAAP do not include reserves and recoveries on consolidated VIEs, since they are eliminated in consolidation.
RMBS Case Basis Reserves (Financial Guarantees)
The Company’s RMBS case basis reserves primarily relate to RMBS backed by alternative A-paper and subprime mortgage loans. The Company calculated RMBS case basis reserves as of September 30, 2024 using a process called the Roll Rate Methodology (“Roll Rate Methodology”). The Roll Rate Methodology is a multi-step process using databases of loan level information, proprietary internal cash flow models, and commercially available models to estimate potential losses and recoveries on insured bonds. Roll Rate is defined as the probability that current loans become delinquent and subsequently default and loans in the delinquent pipeline are charged-off or liquidated. The loss reserve estimates are based on a probability-weighted average of potential scenarios of loan losses. Additional data used for both first and second-lien loans include historic averages of deal specific voluntary prepayment rates, forward projections of the secured overnight financing rate, and historic averages of deal-specific loss severities. Where applicable, the Company factors in termination scenarios when clean up calls are imminent.
In calculating ultimate cumulative losses for RMBS, the Company estimates the amount of first-lien loans that are expected to be liquidated in the future through foreclosure or short sale, and estimates, the amount of second-lien loans that are expected to be charged-off (deemed uncollectible by servicers of the transactions). The time to liquidation for a defaulted loan is specific to the loan’s delinquency bucket.
For all RMBS transactions, cash flow models consider allocations and other structural aspects and claims against MBIA Corp.’s insurance policy consistent with such policy’s terms and conditions. The estimated net claims from the procedure above are then discounted using a risk-free rate to a net present value reflecting MBIA’s general obligation to pay claims over time and not on an accelerated basis.
The Company monitors RMBS portfolio performance on a monthly basis against projected performance, reviewing delinquencies, roll rates, and prepayment rates (including voluntary and involuntary). However, loan performance remains difficult to predict and losses may exceed expectations. In the event of a material deviation in actual performance from projected performance, the Company would increase or decrease the case basis reserves accordingly and re-evaluate its assumptions.
RMBS Recoveries
The Company’s RMBS recoveries relate to structural features within the trust structures that allow for the Company to be reimbursed for prior claims paid. These reimbursements for specific trusts include recoveries that are generated from the excess spread of the transactions. Excess spread within insured RMBS securitizations is the difference between interest inflows on mortgage loan collateral and interest outflows on the insured RMBS notes.
13
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves (continued)
Summary of Loss and LAE Reserves and Recoveries
The Company’s loss and loss adjustment expense ("LAE") reserves and recoveries before consolidated VIE eliminations, along with amounts that were eliminated as a result of consolidating VIEs for the international and structured finance insurance segment, which are included in the Company’s consolidated balance sheets as of September 30, 2024 and December 31, 2023 are presented in the following table:
|
|
|
As of September 30, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
In millions |
Balance Sheet Line Item |
|
|
Balance Sheet Line Item |
|
||||||||||||
|
|
|
Insurance loss recoverable |
|
|
Loss and LAE reserves (1) |
|
|
Insurance loss recoverable |
|
|
Loss and LAE reserves (1) |
|
||||
U.S. Public Finance Insurance |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
International and Structured Finance Insurance: |
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Before VIE eliminations |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
VIE eliminations |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
Total international and structured finance insurance |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
(1) -
Changes in Loss and LAE Reserves
Loss and LAE reserves represent the Company’s estimate of future claims and LAE payments, net of any future recoveries of such payments. The following table presents changes in the Company’s loss and LAE reserves for the nine months ended September 30, 2024. Changes in loss and LAE reserves, with the exception of loss and LAE payments, are recorded in “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations. As of September 30, 2024 and December 31, 2023, the weighted average risk-free rates used to discount the Company’s loss reserves (claim liability) were
In millions |
|
|
Changes in Loss and LAE Reserves for the Nine Months Ended September 30, 2024 |
|
|
|
|
|||||||||||||||||||
Gross Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loss |
|
|||||||
and LAE |
|
|
|
|
|
Accretion |
|
|
|
|
|
|
|
|
Changes in |
|
|
and LAE |
|
|||||||
Reserves as of |
|
|
Loss |
|
|
of Claim |
|
|
Changes in |
|
|
|
|
|
Unearned |
|
|
Reserves as of |
|
|||||||
December 31, |
|
|
and LAE |
|
|
Liability |
|
|
Discount |
|
|
Changes in |
|
|
Premium |
|
|
September 30, |
|
|||||||
2023 |
|
|
Payments |
|
|
Discount |
|
|
Rates |
|
|
Assumptions (1) |
|
|
Revenue |
|
|
2024 |
|
|||||||
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
(1) -
The increase in the Company’s loss and LAE reserves was primarily due to assumption changes for National's PREPA reserves, partially offset by the January and July of 2024 claim payments on PREPA. Refer to “Note 1: Business Developments and Risks and Uncertainties” for further information on PREPA. In addition, National established reserves on a U.S. Public Finance lease-backed transaction.
Changes in Insurance Loss Recoverable
Insurance loss recoverable represents the Company’s estimate of expected recoveries on paid claims and LAE. The Company recognizes potential recoveries on paid claims based on the probability-weighted net cash inflows present valued at applicable risk-free rates as of the measurement date. The following table presents changes in the Company’s insurance loss recoverable for the nine months ended September 30, 2024. Changes in insurance loss recoverable with the exception of collections, are recorded in “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations.
|
|
|
|
|
|
|
Changes in Insurance Loss Recoverable |
|
|
|||||||||||||||||
|
|
|
|
|
|
|
for the Nine Months Ended September 30, 2024 |
|
|
|||||||||||||||||
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
||||||
|
|
|
|
Recoverable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverable |
|
||||||
|
|
|
|
as of |
|
|
|
|
|
Accretion |
|
|
Changes in |
|
|
|
|
|
as of |
|
||||||
|
|
|
|
December 31, |
|
|
Collections |
|
|
of |
|
|
Discount |
|
|
Changes in |
|
|
September 30, |
|
||||||
In millions |
|
|
2023 |
|
|
for Cases |
|
|
Recoveries |
|
|
Rates |
|
|
Assumptions |
|
|
2024 |
|
|||||||
Insurance loss recoverable |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
|
|
|||||||||||||||||||||||||
14
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves (continued)
The increase in the Company’s insurance loss recoverable was primarily due to reclassifying expected PREPA recoveries from loss and LAE reserves on paid claims related to the January and July of 2024 claim payments. This increase was partially offset by assumption changes for PREPA reserves.
Loss and LAE Activity
For the three months ended September 30, 2024, the incurred loss primarily related to a decline in risk-free rates which caused future liabilities, net of recoveries to increase and accretion on the Company's insured RMBS transactions. This was partially offset by a decline in the secured overnight financing rate, which decreased floating rate liabilities. For the nine months ended September 30, 2024, the incurred loss primarily related to assumption changes for National's PREPA reserves. In addition, for the nine months ended September 30, 2024, the incurred loss related to reserves on a U.S. public finance lease-backed transaction and accretion on insured RMBS reserves.
For the three and nine months ended September 30, 2023, the incurred loss primarily related to updating PREPA scenarios to reflect the Amended PSA, which resulted in lower net expected recoveries. Changes in scenario assumptions also included extending the effective date of a settlement until 2024. This incurred loss was partially offset by an increase in risk-free rates, which caused future reserves, net of recoveries, to decline, primarily on the Company's first-lien RMBS portfolio. In addition, for the nine months ended September 30, 2023, the incurred loss included the termination of a first-lien RMBS insured transaction.
Costs associated with remediating insured obligations assigned to the Company’s surveillance categories are recorded as LAE and are included in “Losses and loss adjustment” expenses on the Company’s consolidated statements of operations. For the three months ended September 30, 2024 and 2023, gross LAE related to remediating insured obligations was $
Surveillance Categories
The following table provides information about the financial guarantees and related claim liability included in each of MBIA’s surveillance categories as of September 30, 2024:
|
|
|
|
|
Surveillance Categories |
|
|||||||||||||||||
|
|
|
|
|
Caution |
|
|
Caution |
|
|
Caution |
|
|
|
|
|
|
|
|||||
|
|
|
|
|
List |
|
|
List |
|
|
List |
|
|
Classified |
|
|
|
|
|||||
$ in millions |
|
Low |
|
|
Medium |
|
|
High |
|
|
List |
|
|
Total |
|
||||||||
Number of policies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Number of issues (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Remaining weighted average contract period (in years) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||||||
Gross insured contractual payments outstanding: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Principal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Gross Claim Liability (3) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Gross Potential Recoveries (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Discount, net (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net claim liability (recoverable) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Unearned premium revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Reinsurance recoverable on paid and unpaid losses (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
||||||||
(1) -
(2) -
(3) -
(4) -
(5) -
(6) -
15
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 5: Loss and Loss Adjustment Expense Reserves (continued)
The following table provides information about the financial guarantees and related claim liability included in each of MBIA’s surveillance categories as of December 31, 2023:
|
|
|
|
|
Surveillance Categories |
|
|||||||||||||||||
|
|
|
|
|
Caution |
|
|
Caution |
|
|
Caution |
|
|
|
|
|
|
|
|||||
|
|
|
|
|
List |
|
|
List |
|
|
List |
|
|
Classified |
|
|
|
|
|||||
$ in millions |
|
Low |
|
|
Medium |
|
|
High |
|
|
List |
|
|
Total |
|
||||||||
Number of policies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Number of issues (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Remaining weighted average contract period (in years) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|||||
Gross insured contractual payments outstanding: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Principal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Gross Claim Liability (3) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Gross Potential Recoveries (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Discount, net (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net claim liability (recoverable) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Unearned premium revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Reinsurance recoverable on paid and unpaid losses (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
||||||||
(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments on the insured debt.
(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
(3) - The gross claim liability with respect to Puerto Rico exposures are net of expected recoveries for policies in a net payable position.
(4) - Gross potential recoveries with respect to certain Puerto Rico exposures are net of the claim liability for policies in a net recoverable position.
(5) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.
(6) - Included in "Other assets" on the Company's consolidated balance sheets.
Note 6: Fair Value of Financial Instruments
Fair Value Measurement
Financial Assets and Liabilities
Financial assets held by the Company primarily consist of investments in debt and equity securities and loans receivables at fair value. Financial liabilities issued by the Company primarily consist of debt issued for general corporate purposes within its corporate segment, medium-term notes ("MTNs"), investment agreements, and debt issued by consolidated VIEs.
Valuation Techniques
Valuation techniques for financial instruments measured at fair value are described below.
Fixed-Maturity Securities Held as Available-For-Sale, Investments Carried at Fair Value and Short-term Investments
These investments include available-for-sale ("AFS") investments in U.S. Treasury and government agencies, state and municipal bonds, foreign governments, corporate obligations, mortgage-backed securities ("MBS"), asset-backed securities, money market securities, equity investments and loans carried at fair value.
16
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Substantially all of these investments are valued based on recently executed transaction prices or quoted market prices by independent third parties, including pricing services and brokers. When quoted market prices are not available, fair value is generally determined using quoted prices of similar investments or a valuation model based on observable and unobservable inputs. Inputs vary depending on the type of investment. Observable inputs include contractual cash flows, interest rate yield curves, credit default swap (“CDS”) spreads, prepayment and volatility scores, diversity scores, cross-currency basis index spreads, and credit spreads for structures similar to the financial instrument in terms of issuer, maturity and seniority. Unobservable inputs include cash flow projections, the value of any credit enhancement and currently for certain equity investments, a discount rate, EBITDA multiple, and EBITDA royalty share.
Investments based on quoted market prices of identical investments in active markets are classified as Level 1 of the fair value hierarchy. Level 1 investments generally consist of U.S. Treasury and government agency, money market securities and equity investments. Quoted market prices of investments in less active markets, as well as investments which are valued based on other than quoted prices for which the inputs are observable, such as interest rate yield curves, are categorized in Level 2 of the fair value hierarchy. Investments that contain significant inputs that are not observable are categorized as Level 3.
Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents approximate fair value due to the short-term nature and credit worthiness of these instruments and are categorized in Level 1 of the fair value hierarchy.
Variable Interest Entity Loans Receivable at Fair Value
Loans receivable at fair value are assets held by a consolidated VIE consisting of residential mortgage loans and are categorized in Level 3 of the fair value hierarchy. Fair values of residential mortgage loans are determined using quoted prices for similar securities, adjusted for the fair values of the financial guarantees provided by MBIA Corp. on the related MBS. The fair values of the financial guarantees consider expected claim payments, net of recoveries, under MBIA Corp.’s policies.
Other Assets
As of December 31, 2023, other assets included receivables representing the right to receive reimbursement payments on claim payments expected to be made on certain insured VIE liabilities due to risk mitigating transactions with third parties executed to effectively defease, or, in-substance commute the Company’s exposure on its financial guarantee policies. The right to receive reimbursement payments was based on the value of the Company’s financial guarantee determined using a cash flow model. The fair value of the financial guarantee primarily contained unobservable inputs and is categorized in Level 3 of the fair value hierarchy.
Medium-term Notes at Fair Value
The Company has elected to measure certain MTNs at fair value on a recurring basis. The fair values of certain MTNs are based on quoted market prices provided by third-party sources, where available. When quoted market prices are not available, the Company applies a matrix pricing grid to determine fair value based on the quoted market prices received for similar instruments and considering the MTNs’ stated maturity and interest rate. Nonperformance risk is included in the quoted market prices and the matrix pricing grid. MTNs are categorized in Level 3 of the fair value hierarchy and do not include accrued interest.
17
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Variable Interest Entity Debt
The fair values of VIE debt are determined based on recently executed transaction prices or quoted prices where observable. When position-specific quoted prices are not observable, fair values are based on quoted prices of similar securities. Fair values based on quoted prices of similar securities may be adjusted for factors unique to the securities, including any credit enhancement. Observable inputs include interest rate yield curves, bond spreads of similar securities and MBIA Corp.’s CDS spreads. Unobservable inputs include the value of any credit enhancement. VIE debt are categorized in Level 3 of the fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety.
Derivatives
A VIE consolidated by the Company entered into a derivative instrument consisting of a cross currency swap that as of September 30, 2024 and December 31, 2023 had outstanding notional amounts of $
Significant Unobservable Inputs
The following tables provide quantitative information regarding the significant unobservable inputs used by the Company for assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:
|
|
|
Fair Value as of |
|
|
|
|
|
|
Range |
|
|
|
|
September 30, |
|
|
|
|
|
|
(Weighted |
|
In millions |
|
2024 |
|
|
Valuation Techniques |
|
Unobservable Input |
|
Average) |
||
Assets: |
|
|
|
|
|
|
|
|
|
||
|
Equity Investments |
|
$ |
|
|
Discounted cash flow |
|
Discount rate (1) |
|
|
|
|
|
|
|
|
|
|
|
EBITDA multiple (1) |
|
|
|
|
|
|
|
|
|
Type certificate |
|
Discount rate (1) |
|
|
|
|
|
|
|
|
|
|
|
EBITDA royalty share (1) |
|
|
|
|
Loans carried at fair value |
|
|
|
|
Discounted cash flow |
|
Discount rate (1) |
|
|
|
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
||
|
Loans receivable at fair value |
|
|
|
|
Market prices of similar liabilities adjusted for financial guarantees provided to VIE obligations |
|
Impact of financial guarantee |
|
||
(1) -
(2) -
18
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
|
|
|
Fair Value as of |
|
|
|
|
|
|
Range |
|
|
|
|
December 31, |
|
|
|
|
|
|
(Weighted |
|
In millions |
|
2023 |
|
|
Valuation Techniques |
|
Unobservable Input |
|
Average) |
||
Assets: |
|
|
|
|
|
|
|
|
|
||
|
Equity Investments |
|
$ |
|
|
Discounted cash flow |
|
EBITDA multiples (1) |
|
|
|
|
|
|
|
|
|
|
|
Discount rate (1) |
|
|
|
|
|
|
|
|
|
|
|
Weightings (1) |
|
|
|
|
|
|
|
|
|
Sum of the parts |
|
Hard asset values (1) |
|
|
|
|
|
|
|
|
|
|
|
Type certificate values (1) |
|
|
|
|
|
|
|
|
|
|
|
Weightings (1) |
|
|
|
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
||
|
Loans receivable at fair value |
|
|
|
|
Market prices of similar liabilities or internal cash flow models adjusted for financial guarantees provided to VIE obligations |
|
Impact of financial guarantee |
|
||
Liabilities of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
||
|
Variable interest entity notes |
|
|
|
|
Market prices of VIE assets adjusted for financial guarantees provided or market prices of similar liabilities |
|
Impact of financial guarantee |
|
||
(1) -
(2) -
Sensitivity of Significant Unobservable Inputs
The significant unobservable inputs used in the fair value measurement of the Company’s equity investments at fair value are the discount rate, EBITDA multiple and EBITDA royalty share. The fair value of equity investments is determined as the mid-point of a range of valuation scenarios. If there had been lower or higher EBITDA multiple or EBITDA royalty share, the value of equity investments would have been lower or higher, respectively. If there had been a lower or higher discount rate, the value of equity investments would have been higher or lower, respectively. Prior to the second quarter of 2024, the significant unobservable inputs used in the fair value measurement of the Company’s equity investments at fair value were the EBITDA multiples, discount rate, hard asset values and type certificate values. The fair value of equity investments was determined by taking a weighted average of valuation scenarios. If there had been lower or higher EBITDA multiples, hard asset values or type certificate values, the value of equity investments would have been lower or higher, respectively. If there had been a lower or higher discount rate, the value of equity investments would have been higher or lower, respectively.
The significant unobservable input used in the fair value measurement of the loans carried at fair value is the discount rate. The loans carried at fair value is determined by discounting cash flows. The discount rate includes the credit spread which primarily reflects the credit quality of the obligor. If there had been a lower or higher discount rate, the value of loans carried at fair value would have been higher or lower, respectively.
The significant unobservable input used in the fair value measurement of the Company’s residential loans receivable at fair value of consolidated VIEs is the impact of the financial guarantee. The fair value of residential loans receivable is calculated by subtracting the value of the financial guarantee from the market value of similar instruments to that of the VIE liabilities. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments, net of recoveries, under the policy. If there had been a lower expected cash flow on the underlying loans receivable of the VIE, the value of the financial guarantee provided by the Company under the insurance policy would have been higher. This would have resulted in a lower fair value of the residential loans receivable in relation to the obligations of the VIE.
As of December 31, 2023, the significant unobservable input used in the fair value measurement of the Company’s VIE notes of consolidated VIEs was the impact of the financial guarantee. The fair value of VIE notes was calculated by adding the value of the financial guarantee to the market value of VIE assets. When the VIE note is backed by RMBS, the fair value of the VIE liability is calculated by applying the market value of similar instruments to that of the VIE liabilities. The value of a financial guarantee was estimated by the Company as the present value of expected cash payments under the policy. If the value of the guarantee provided by the Company to the obligations issued by the VIE had increased, the credit support would have added value to the liabilities of the VIE. This would have resulted in an increased fair value of the liabilities of the VIE.
19
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Fair Value Measurements
The following tables present the fair value of the Company’s assets (including short-term investments) and liabilities measured and reported at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
||||||||||
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Significant |
|
|
|
|
|
||||
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
Balance as of |
|
|
||||
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
September 30, |
|
|
||||
In millions |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2024 |
|
|
||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Fixed-maturity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
U.S. Treasury and government agency |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||
|
State and municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Foreign governments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Corporate obligations |
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|||||||
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Residential mortgage-backed agency |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Residential mortgage-backed non-agency |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Commercial mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Collateralized debt obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Other asset-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Total fixed-maturity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money market securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
||||||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Loans receivable at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Residential loans receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Medium-term notes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||||
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Insured credit derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Liabilities of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Variable interest entity notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Currency derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||||
(1) -
(2) -
20
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
||||||||||
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Significant |
|
|
|
|
|
||||
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
Balance as of |
|
|
||||
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
December 31, |
|
|
||||
In millions |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2023 |
|
|
||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Fixed-maturity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
U.S. Treasury and government agency |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||
|
State and municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Foreign governments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Corporate obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Residential mortgage-backed agency |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Residential mortgage-backed non-agency |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Commercial mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Collateralized debt obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Other asset-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
Total fixed-maturity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money market securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Residential mortgage-backed non-agency |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Commercial mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Collateralized debt obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Other asset-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Loans receivable at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Residential loans receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Medium-term notes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||||
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Insured credit derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Non-insured interest rate derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Liabilities of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Variable interest entity notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Currency derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||||
Level 3 assets at fair value as of September 30, 2024 and December 31, 2023 represented approximately
21
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
The following tables present the fair values and carrying values of the Company’s assets and liabilities that are disclosed at fair value but not reported at fair value on the Company’s consolidated balance sheets as of September 30, 2024 and December 31, 2023. The majority of the financial assets and liabilities that the Company requires fair value reporting or disclosures are valued based on the Company’s or a third-party’s estimate of discounted cash flow model estimates, or quoted market values for identical or similar products.
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
Significant |
|
|
Fair Value |
|
|
Carry Value |
|
|
|||||
|
|
|
Active Markets for |
|
|
Other Observable |
|
|
Unobservable |
|
|
Balance as of |
|
|
Balance as of |
|
|
|||||
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
September 30, |
|
|
September 30, |
|
|
|||||
In millions |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2024 |
|
|
2024 |
|
|
||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Other investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Long-term debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||
|
Medium-term notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|||||
|
Investment agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Variable interest entity loans payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
Financial Guarantees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Gross liability (recoverable) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||
|
Ceded recoverable (liability) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(1) -
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
Significant |
|
|
Fair Value |
|
|
Carry Value |
|
|
|||||
|
|
|
Active Markets for |
|
|
Other Observable |
|
|
Unobservable |
|
|
Balance as of |
|
|
Balance as of |
|
|
|||||
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
December 31, |
|
|
December 31, |
|
|
|||||
In millions |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2023 |
|
|
2023 |
|
|
||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Other investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Long-term debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||
|
Medium-term notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|||||
|
Investment agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Variable interest entity loans payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||
Financial Guarantees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Gross liability (recoverable) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||
|
Ceded recoverable (liability) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(1) -
22
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2024 and 2023:
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Change in |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
|
|
Gains |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) for |
|
|
(Losses) for |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the Period |
|
|
the Period |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in |
|
|
Included in |
|
||||||||||||
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
OCI |
|
||||||||||||
|
|
|
|
|
Gains / |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for Assets |
|
|
for Assets |
|
||||||||||||
|
|
|
|
|
(Losses) |
|
|
Gains / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
still held |
|
|
still held |
|
||||||||||||
|
|
Balance, |
|
|
Included |
|
|
(Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers |
|
|
Transfers |
|
|
|
|
|
as of |
|
|
as of |
|
||||||||||||
|
|
Beginning |
|
|
in |
|
|
Included |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into |
|
|
out of |
|
|
Ending |
|
|
September 30, |
|
|
September 30, |
|
||||||||||||
In millions |
|
of Period |
|
|
Earnings |
|
|
in OCI(1) |
|
|
Purchases |
|
|
Issuances |
|
|
Settlements |
|
|
Sales |
|
|
Level 3 |
|
|
Level 3 |
|
|
Balance |
|
|
2024 |
|
|
2024(1) |
|
||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
(3) |
$ |
|
|
$ |
|
||||||||||||
Equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loans receivable - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Change in |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) |
|
|
(Gains) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses for |
|
|
Losses for |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the Period |
|
|
the Period |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in |
|
|
Included in |
|
||||||||||||
|
|
|
|
|
Total |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings for |
|
|
OCI for |
|
||||||||||||
|
|
|
|
|
(Gains) / |
|
|
(Gains) / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
Liabilities |
|
||||||||||||
|
|
|
|
|
Losses |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
still held |
|
|
still held |
|
||||||||||||
|
|
Balance, |
|
|
Included |
|
|
Included |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers |
|
|
Transfers |
|
|
|
|
|
as of |
|
|
as of |
|
||||||||||||
|
|
Beginning |
|
|
in |
|
|
in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into |
|
|
out of |
|
|
Ending |
|
|
September 30, |
|
|
September 30, |
|
||||||||||||
In millions |
|
of Period |
|
|
Earnings |
|
|
in OCI(2) |
|
|
Purchases |
|
|
Issuances |
|
|
Settlements |
|
|
Sales |
|
|
Level 3 |
|
|
Level 3 |
|
|
Balance |
|
|
2024 |
|
|
2024(2) |
|
||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Medium-term notes |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||||||||
Liabilities of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
VIE notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Currency derivatives |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||||||||
(1) -
(2) -
(3) -
23
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Change in |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
|
|
Gains |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) for |
|
|
(Losses) for |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the Period |
|
|
the Period |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in |
|
|
Included in |
|
||||||||||||
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings for |
|
|
OCI for |
|
||||||||||||
|
|
|
|
|
Gains / |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
Assets |
|
||||||||||||
|
|
|
|
|
(Losses) |
|
|
Gains / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
still held |
|
|
still held |
|
||||||||||||
|
|
Balance, |
|
|
Included |
|
|
(Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers |
|
|
Transfers |
|
|
|
|
|
as of |
|
|
as of |
|
||||||||||||
|
|
Beginning |
|
|
in |
|
|
Included |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into |
|
|
out of |
|
|
Ending |
|
|
September 30, |
|
|
September 30, |
|
||||||||||||
In millions |
|
of Period |
|
|
Earnings |
|
|
in OCI(1) |
|
|
Purchases |
|
|
Issuances |
|
|
Settlements |
|
|
Sales |
|
|
Level 3 |
|
|
Level 3 |
|
|
Balance |
|
|
2023 |
|
|
2023(1) |
|
||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||||
Equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loans receivable- |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Change in |
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) |
|
|
(Gains) |
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses for |
|
|
Losses for |
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the Period |
|
|
the Period |
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in |
|
|
Included in |
|
|
||||||||||||
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings for |
|
|
OCI for |
|
|
||||||||||||
|
|
|
|
|
(Gains) / |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
Liabilities |
|
|
||||||||||||
|
|
|
|
|
Losses |
|
|
(Gains) / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
still held |
|
|
still held |
|
|
||||||||||||
|
|
Balance, |
|
|
Included |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers |
|
|
Transfers |
|
|
|
|
|
as of |
|
|
as of |
|
|
||||||||||||
|
|
Beginning |
|
|
in |
|
|
Included |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into |
|
|
out of |
|
|
Ending |
|
|
September 30, |
|
|
September 30, |
|
|
||||||||||||
In millions |
|
of Period |
|
|
Earnings |
|
|
in OCI(2) |
|
|
Purchases |
|
|
Issuances |
|
|
Settlements |
|
|
Sales |
|
|
Level 3 |
|
|
Level 3 |
|
|
Balance |
|
|
2023 |
|
|
2023(2) |
|
|
||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Medium-term notes |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
||||||||||
Liabilities of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
VIE notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Currency |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
||||||||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
||||||||
(1) - Reported within the "Unrealized gains (losses) on available-for-sale securities" on the Company's consolidated statements of comprehensive income (loss).
(2) - Reported within the "Instrument-specific credit risk of liabilities measured at fair value" on the Company's consolidated statements of comprehensive income (loss).
24
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
For the three months ended September 30, 2024 and 2023, there were no transfers into or out of Level 3.
For the three months ended September 30, 2023, sales include the impact of the deconsolidation of VIEs. Refer to “Note 4: Variable Interest Entities” for additional information about the deconsolidation of VIEs.
The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2024 and 2023:
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Change in |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
|
|
Gains |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) for |
|
|
(Losses) for |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the Period |
|
|
the Period |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in |
|
|
Included in |
|
||||||||||||
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings for |
|
|
OCI for |
|
||||||||||||
|
|
|
|
|
Gains / |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
Assets |
|
||||||||||||
|
|
|
|
|
(Losses) |
|
|
Gains / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
still held |
|
|
still held |
|
||||||||||||
|
|
Balance |
|
|
Included |
|
|
(Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers |
|
|
Transfers |
|
|
|
|
|
as of |
|
|
as of |
|
||||||||||||
|
|
Beginning |
|
|
in |
|
|
Included |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into |
|
|
out of |
|
|
Ending |
|
|
September 30, |
|
|
September 30, |
|
||||||||||||
In millions |
|
of Year |
|
|
Earnings |
|
|
in OCI(1) |
|
|
Purchases |
|
|
Issuances |
|
|
Settlements |
|
|
Sales |
|
|
Level 3 |
|
|
Level 3 |
|
|
Balance |
|
|
2024 |
|
|
2024(1) |
|
||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate obligations |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
(3) |
$ |
|
|
$ |
|
|||||||||||
Equity investments |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loans receivable - |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Change in |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) |
|
|
(Gains) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses for |
|
|
Losses for |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the Period |
|
|
the Period |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in |
|
|
Included in |
|
||||||||||||
|
|
|
|
|
Total |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings for |
|
|
OCI for |
|
||||||||||||
|
|
|
|
|
(Gains) / |
|
|
(Gains) / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
Liabilities |
|
||||||||||||
|
|
|
|
|
Losses |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
still held |
|
|
still held |
|
||||||||||||
|
|
Balance, |
|
|
Included |
|
|
Included in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers |
|
|
Transfers |
|
|
|
|
|
as of |
|
|
as of |
|
||||||||||||
|
|
Beginning |
|
|
in |
|
|
Credit Risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into |
|
|
out of |
|
|
Ending |
|
|
September 30, |
|
|
September 30, |
|
||||||||||||
In millions |
|
of Year |
|
|
Earnings |
|
|
in OCI(2) |
|
|
Purchases |
|
|
Issuances |
|
|
Settlements |
|
|
Sales |
|
|
Level 3 |
|
|
Level 3 |
|
|
Balance |
|
|
2024 |
|
|
2024(2) |
|
||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Medium-term notes |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||||||||
Liabilities of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
VIE notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Currency derivatives |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||||||
(1) - Reported within the "Unrealized gains (losses) on available-for-sale securities" on the Company's consolidated statements of comprehensive income (loss).
(2) - Reported within the "Instrument-specific credit risk of liabilities measured at fair value" on the Company's consolidated statements of comprehensive income (loss).
(3) -
25
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Change in |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
|
|
Gains |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) for |
|
|
(Losses) for |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the Period |
|
|
the Period |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in |
|
|
Included in |
|
||||||||||||
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings for |
|
|
OCI for |
|
||||||||||||
|
|
|
|
|
Gains / |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
Assets |
|
||||||||||||
|
|
|
|
|
(Losses) |
|
|
Gains / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
still held |
|
|
still held |
|
||||||||||||
|
|
Balance, |
|
|
Included |
|
|
(Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers |
|
|
Transfers |
|
|
|
|
|
as of |
|
|
as of |
|
||||||||||||
|
|
Beginning |
|
|
in |
|
|
Included |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into |
|
|
out of |
|
|
Ending |
|
|
September 30, |
|
|
September 30, |
|
||||||||||||
In millions |
|
of Year |
|
|
Earnings |
|
|
in OCI(1) |
|
|
Purchases |
|
|
Issuances |
|
|
Settlements |
|
|
Sales |
|
|
Level 3 |
|
|
Level 3 |
|
|
Balance |
|
|
2023 |
|
|
2023(1) |
|
||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||||
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Assets of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loans receivable - |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||||||
Total assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
Change in |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) |
|
|
(Gains) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses for |
|
|
Losses for |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the Period |
|
|
the Period |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in |
|
|
Included in |
|
||||||||||||
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings for |
|
|
OCI for |
|
||||||||||||
|
|
|
|
|
(Gains) / |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
Liabilities |
|
||||||||||||
|
|
|
|
|
Losses |
|
|
(Gains) / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
still held |
|
|
still held |
|
||||||||||||
|
|
Balance, |
|
|
Included |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers |
|
|
Transfers |
|
|
|
|
|
as of |
|
|
as of |
|
||||||||||||
|
|
Beginning |
|
|
in |
|
|
Included |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into |
|
|
out of |
|
|
Ending |
|
|
September 30, |
|
|
September 30, |
|
||||||||||||
In millions |
|
of Year |
|
|
Earnings |
|
|
in OCI(2) |
|
|
Purchases |
|
|
Issuances |
|
|
Settlements |
|
|
Sales |
|
|
Level 3 |
|
|
Level 3 |
|
|
Balance |
|
|
2023 |
|
|
2023(2) |
|
||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Medium-term notes |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||||||||
Liabilities of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
VIE notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Currency derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||||||
(1) - Reported within the "Unrealized gains (losses) on available-for-sale securities" on the Company's consolidated statements of comprehensive income (loss).
(2) - Reported within the "Instrument-specific credit risk of liabilities measured at fair value" on the Company's consolidated statements of comprehensive income (loss).
For the nine months ended September 30, 2024, there were no transfers into or out of Level 3.
For the nine months ended September 30, 2024 and 2023, sales include the impact of the deconsolidation of VIE's. Refer to “Note 4: Variable Interest Entities” for additional information about the deconsolidation of VIEs.
For the nine months ended September 30, 2023, transfers into Level 3 and out of Level 2 were related to corporate obligations, where inputs, which are significant to their valuation, became unobservable during the year. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers out of Level 3.
Gains and losses (realized and unrealized) included in earnings related to Level 3 assets and liabilities for the three and nine months ended September 30, 2024 and 2023 are reported on the Company’s consolidated statements of operations as follows:
26
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
|
|
Three Months Ended September 30, 2024 |
|
|
Three Months Ended September 30, 2023 |
|
||||||||||
|
|
|
|
|
Change in |
|
|
|
|
|
Change in |
|
||||
|
|
|
|
|
Unrealized |
|
|
|
|
|
Unrealized |
|
||||
|
|
|
|
|
Gains (Losses) |
|
|
|
|
|
Gains (Losses) |
|
||||
|
|
|
|
|
for the |
|
|
|
|
|
for the |
|
||||
|
|
|
|
|
Period Included |
|
|
|
|
|
Period Included |
|
||||
|
|
|
|
|
in Earnings |
|
|
|
|
|
in Earnings |
|
||||
|
|
|
|
|
for Assets |
|
|
|
|
|
for Assets |
|
||||
|
|
|
|
|
and |
|
|
|
|
|
and |
|
||||
|
|
Total Gains |
|
|
Liabilities still |
|
|
Total Gains |
|
|
Liabilities still |
|
||||
|
|
(Losses) |
|
|
held as of |
|
|
(Losses) |
|
|
held as of |
|
||||
|
|
Included |
|
|
September 30, |
|
|
Included |
|
|
September 30, |
|
||||
In millions |
in Earnings |
|
|
2024 |
|
|
in Earnings |
|
|
2023 |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net gains (losses) on financial instruments |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
|
Revenues of consolidated VIEs (1) |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
(1) -
|
|
Nine Months Ended September 30, 2024 |
|
|
Nine Months Ended September 30, 2023 |
|
||||||||||
|
|
|
|
|
Change in |
|
|
|
|
|
Change in |
|
||||
|
|
|
|
|
Unrealized |
|
|
|
|
|
Unrealized |
|
||||
|
|
|
|
|
Gains (Losses) |
|
|
|
|
|
Gains (Losses) |
|
||||
|
|
|
|
|
for the |
|
|
|
|
|
for the |
|
||||
|
|
|
|
|
Period Included |
|
|
|
|
|
Period Included |
|
||||
|
|
|
|
|
in Earnings |
|
|
|
|
|
in Earnings |
|
||||
|
|
|
|
|
for Assets |
|
|
|
|
|
for Assets |
|
||||
|
|
|
|
|
and |
|
|
|
|
|
and |
|
||||
|
|
Total Gains |
|
|
Liabilities still |
|
|
Total Gains |
|
|
Liabilities still |
|
||||
|
|
(Losses) |
|
|
held as of |
|
|
(Losses) |
|
|
held as of |
|
||||
|
|
Included |
|
|
September 30, |
|
|
Included |
|
|
September 30, |
|
||||
In millions |
in Earnings |
|
|
2024 |
|
|
in Earnings |
|
|
2023 |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net gains (losses) on financial instruments |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
|
Revenues of consolidated VIEs (1) |
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
(1) -
Derivative Instruments
The following tables present the effects of derivative instruments on the Company's consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023:
In millions |
|
|
|
|
|
|
|
|
||
Derivatives Not Designated |
|
|
|
Three Months Ended September 30, |
|
|||||
as Hedging Instruments |
|
Location of Gain (Loss) Recognized in Income on Derivative |
|
2024 |
|
|
2023 |
|
||
Interest rate swaps |
|
Net gains (losses) on financial instruments at fair value and foreign exchange |
|
$ |
( |
) |
|
$ |
|
|
Currency swaps-VIE |
|
Net gains (losses) on financial instruments at fair value and foreign exchange-VIE |
|
|
|
|
|
|
||
|
|
|
$ |
|
|
$ |
|
|||
27
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 6: Fair Value of Financial Instruments (continued)
In millions |
|
|
|
|
|
|
|
|
|
|||
Derivatives Not Designated |
|
|
|
Nine Months Ended September 30, |
|
|||||||
as Hedging Instruments |
|
Location of Gain (Loss) Recognized in Income on Derivative |
|
2024 |
|
|
2023 |
|
||||
Interest rate swaps |
|
Net gains (losses) on financial instruments at fair value and foreign exchange |
|
|
$ |
( |
) |
|
|
$ |
|
|
Currency swaps-VIE |
|
Net gains (losses) on financial instruments at fair value and foreign exchange-VIE |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
$ |
|
|
|
$ |
|
|||
Fair Value Option
The Company elected to record at fair value certain financial instruments, including certain equity investments and financial instruments that are consolidated in connection with the adoption of the accounting guidance for consolidation of VIEs.
The following table presents the gains and (losses) included in the Company's consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 for financial instruments for which the fair value option was elected:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
In millions |
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|||||
Investments carried at fair value (1) |
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Fixed-maturity securities held at fair value-VIE (2) |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Loans receivable at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Residential mortgage loans (2) |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other assets-VIE (2) |
|
|
|
|
|
|
|
|
|
|
|
|||||
Medium-term notes (1) |
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Variable interest entity notes (2) |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
(1) -
(2) -
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of September 30, 2024 and December 31, 2023 for loans and notes for which the fair value option was elected:
|
|
As of September 30, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||||||||||
|
|
Contractual |
|
|
|
|
|
|
|
|
Contractual |
|
|
|
|
|
|
|
||||||
|
|
Outstanding |
|
|
Fair |
|
|
|
|
|
Outstanding |
|
|
Fair |
|
|
|
|
||||||
In millions |
Principal |
|
|
Value |
|
|
Difference |
|
|
Principal |
|
|
Value |
|
|
Difference |
|
|||||||
Loans receivable at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Residential mortgage loans - current |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
Residential mortgage loans (90 days or more past due) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total loans receivable and other instruments at fair value |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Variable interest entity notes |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Medium-term notes |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
The differences between the contractual outstanding principal and the fair values on loans receivable, VIE notes and MTNs in the preceding table are primarily attributable to credit risk. This is due to the high rate of defaults on loans (90 days or more past due), the collateral supporting the VIE notes and the nonperformance risk of the Company on its MTNs, all of which resulted in depressed pricing of the financial instruments.
Instrument-Specific Credit Risk of Liabilities Elected Under the Fair Value Option
As of September 30, 2024 and December 31, 2023, the cumulative changes in instrument-specific credit risk of liabilities elected under the fair value option were gains of $
28
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments
Investments, excluding equity instruments, and those elected under the fair value option, primarily consist of debt instruments classified as AFS.
The following tables present the amortized cost, allowance for credit losses, corresponding gross unrealized gains and losses and fair value for AFS investments in the Company’s consolidated investment portfolio as of September 30, 2024 and December 31, 2023:
|
|
|
|
|
|
September 30, 2024 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
Allowance |
|
|
Gross |
|
|
Gross |
|
|
|
|
|||||
|
|
|
|
|
|
Amortized |
|
|
for Credit |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|||||
In millions |
|
Cost |
|
|
Losses |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed-maturity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
U.S. Treasury and government agency |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||||
|
State and municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
|
Foreign governments |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
|
Corporate obligations |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Residential mortgage-backed agency |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Residential mortgage-backed non-agency |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Commercial mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Collateralized debt obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Other asset-backed |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
Total AFS investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
|
|
|
|
|
|
December 31, 2023 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
Allowance |
|
|
Gross |
|
|
Gross |
|
|
|
|
|||||
|
|
|
|
|
|
Amortized |
|
|
for Credit |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|||||
In millions |
|
Cost |
|
|
Losses |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed-maturity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
U.S. Treasury and government agency |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||||
|
State and municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
|
Foreign governments |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
|
Corporate obligations |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Residential mortgage-backed agency |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Residential mortgage-backed non-agency |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Commercial mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Collateralized debt obligations |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Other asset-backed |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
Total AFS investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||||
29
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
The following table presents the distribution by contractual maturity of AFS fixed-maturity securities at amortized cost, net of allowance for credit losses, and fair value as of September 30, 2024. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.
|
|
AFS Securities |
|
|||||
|
|
Net |
|
|
|
|
||
|
|
Amortized |
|
|
Fair |
|
||
In millions |
|
Cost |
|
|
Value |
|
||
Due in one year or less |
|
$ |
|
|
$ |
|
||
Due after one year through five years |
|
|
|
|
|
|
||
Due after five years through ten years |
|
|
|
|
|
|
||
Due after ten years |
|
|
|
|
|
|
||
Mortgage-backed and asset-backed |
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|||
Deposited and Pledged Securities
The fair value of securities on deposit with various regulatory authorities as of September 30, 2024 and December 31, 2023 was $
Investment agreement obligations require the Company to pledge securities as collateral. Securities pledged in connection with investment agreements may not be repledged by the investment agreement counterparty. As of September 30, 2024 and December 31, 2023, the fair value of securities pledged as collateral for these investment agreements were $
Impaired Investments
The following tables present the non-credit related gross unrealized losses related to AFS investments as of September 30, 2024 and December 31, 2023:
|
|
|
|
|
|
September 30, 2024 |
|
|||||||||||||||||||||
|
|
|
|
|
|
Less than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|||||||||||||||
|
|
|
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||||
In millions |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Fixed-maturity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
U.S. Treasury and government agency |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||||||
|
State and municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||||
|
Foreign governments |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||||
|
Corporate obligations |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||||
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Residential mortgage-backed agency |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
|
|
Residential mortgage-backed non-agency |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
|
|
Commercial mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Collateralized debt obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Other asset-backed |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
Total AFS investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||||||||
30
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
|
|
|
|
|
|
December 31, 2023 |
|
|||||||||||||||||||||
|
|
|
|
|
|
Less than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|||||||||||||||
|
|
|
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||||
In millions |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Fixed-maturity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
U.S. Treasury and government agency |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||||||
|
State and municipal bonds |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
|
Foreign governments |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||||
|
Corporate obligations |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||||
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Residential mortgage-backed agency |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
|
|
Residential mortgage-backed non-agency |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
|
|
Commercial mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Collateralized debt obligations |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
|
|
Other asset-backed |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
Total AFS investments |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||||||
Gross unrealized losses on AFS investments decreased as of September 30, 2024 compared with December 31, 2023 primarily due to lower interest rates.
With the weighting applied on the fair value of each security relative to the total fair value, the weighted average contractual maturity of securities in an unrealized loss position as of September 30, 2024 and December 31, 2023 was
The following table presents the distribution of securities in an unrealized loss position for a continuous twelve-month period or longer where fair value was below book value by more than 5% as of September 30, 2024:
|
|
AFS Securities |
|
|||||||||
Percentage of Fair Value |
|
Number of |
|
|
Book Value |
|
|
Fair Value |
|
|||
Below Book Value |
|
Securities |
|
|
(in millions) |
|
|
(in millions) |
|
|||
> |
|
|
|
|
$ |
|
|
$ |
|
|||
> |
|
|
|
|
|
|
|
|
|
|||
> |
|
|
|
|
|
|
|
|
|
|||
> |
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
|
|
$ |
|
|
$ |
|
|||
31
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
As of September 30, 2024, the Company concluded that it does not have the intent to sell securities in an unrealized loss position and it is more likely than not, that it would not have to sell these securities before recovery of their cost basis. In making this conclusion, the Company examined the cash flow projections for its investment portfolios, the potential sources and uses of cash in its businesses, and the cash resources available to its business other than sales of securities. It also considered the existence of any risk management or other plans as of September 30, 2024 that would require the sale of impaired securities. For the three and nine months ended September 30, 2023, impairment loss due to intent to sell securities in an unrealized loss position was $
Credit Losses on Investments
The Company’s fixed-maturity securities for which fair value is less than amortized cost are reviewed quarterly in order to determine whether a credit loss exists. If the Company determines that the declines in the fair value are related to credit loss, the Company will establish an allowance for credit losses and recognize the credit component through earnings. Refer to “Note 8: Investments” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of the Company’s policy for its determination of credit losses. The Company did not purchase any credit-deteriorated assets or establish an allowance for credit losses for AFS securities for the three and nine months ended September 30, 2024 and 2023.
The Company does not recognize credit losses on securities insured by MBIA Corp. and National since those securities, whether or not owned by the Company, are evaluated for impairments in accordance with its loss reserving policy.
|
|
|
|
|
|
|
Unrealized |
|
|
Insurance Loss |
|
|||
In millions |
|
Fair Value |
|
|
Loss |
|
|
Reserve (1) |
|
|||||
Mortgage-backed |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Corporate obligations |
|
|
|
|
|
( |
) |
|
|
|
||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
(1) -
Sales of Available-for-Sale Investments
Gross realized gains and losses from sales of AFS investments are recorded within “Net realized investment gains (losses)” on the Company’s consolidated statements of operations.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||
In millions |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|||||||
Proceeds from sales |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|||||
Gross realized gains |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|||||
Gross realized losses |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Equity and Trading Investments
Equity and trading investments when held are included within “Investments carried at fair value” on the Company’s consolidated balance sheets. Unrealized gains and losses recognized on equity and trading investments held as of the end of each period for the three and nine months ended September 30, 2024 and 2023 are as follows:
32
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 7: Investments (continued)
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|||||||||||
In millions |
|
2024 |
|
2023 |
|
|
2024 |
|
|
2023 |
|
|||||||
Net gains (losses) recognized during the period on equity and trading securities |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net gains (losses) recognized during the period on equity and trading securities sold during the period |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Unrealized gains (losses) recognized during the period on equity and trading securities still held at the reporting date |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Note 8: Income Taxes
The Company’s income taxes and the related effective tax rates for the three and nine months ended September 30, 2024 and 2023 are as follows:
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|||||||||||
In millions |
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
|||||
Income (loss) from continuing operations before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Provision (benefit) for income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||
Effective tax rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
||||
For the nine months ended September 30, 2024 and 2023, the Company’s effective tax rate applied to its loss from continuing operations before income taxes was lower than the U.S. statutory tax rate due to the full valuation allowance on the changes in its net deferred tax asset.
Deferred Tax Asset, Net of Valuation Allowance
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of its existing deferred tax assets. A significant piece of objective negative evidence evaluated was the Company having a three-year cumulative loss. Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections of pre-tax income. On the basis of this evaluation, the Company has recorded a full valuation allowance against its net deferred tax asset of $
Net operating losses (“NOLs”) of property and casualty insurance companies are permitted to be carried back two years and carried forward 20 years. NOLs of property and casualty insurance companies are not subject to the 80 percent taxable income limitation and indefinite lived carryforward period required by the Tax Cuts and Jobs Act applicable to general corporate NOLs.
Accounting for Uncertainty in Income Taxes
The Company’s policy is to record and disclose any change in unrecognized tax benefit (“UTB”) and related interest and/or penalties to income tax in the consolidated statements of operations. The Company includes interest as a component of income tax expense. As of September 30, 2024 and December 31, 2023, the Company had
Federal income tax returns through 2011 have been examined or surveyed. As of September 30, 2024, the Company’s NOL is approximately $
Section 382 of the Internal Revenue Code
Included in the Company’s Amended By-Laws are restrictions on certain acquisitions of Company stock that otherwise may have increased the likelihood of an ownership change within the meaning of Section 382 of the Internal Revenue Code. With certain exceptions, the By-Laws generally prohibit a person from becoming a “Section 382 five-percent shareholder” by acquiring, directly or by attribution, 5% or more of the outstanding shares of the Company’s common stock.
33
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 9: Business Segments
As defined by segment reporting, an operating segment is a component of a company (i) that engages in business activities from which it earns revenue and incurs expenses, (ii) whose operating results are regularly reviewed by the Chief Operating Decision Maker to assess the performance of the segment and to make decisions about the allocation of resources to the segment and, (iii) for which discrete financial information is available.
The Company manages its businesses across
The following sections provide a description of each of the Company’s reportable operating segments.
U.S. Public Finance Insurance
The Company’s U.S. public finance insurance portfolio is managed through National. The financial guarantees issued by National provide unconditional and irrevocable guarantees of the payment of the principal of, and interest or other amounts owing on, U.S. public finance insured obligations when due. The obligations are not subject to acceleration, except that National may have the right, at its discretion, to accelerate insured obligations upon default or otherwise. National’s guarantees insure municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utilities, airports, health care institutions, higher educational facilities, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects are generally supported by taxes, assessments, fees or tariffs related to the use of these projects, lease payments or other similar types of revenue streams.
Corporate
The Company’s corporate segment consists of general corporate activities, including providing support services to MBIA Inc.’s subsidiaries as well as asset and capital management. Support services are provided by the Company’s service company, MBIA Services, and include, among others, management, legal, accounting, treasury, information technology, and insurance portfolio surveillance, on a fee-for-service basis. MBIA Services is compensated for services at cost and its net revenues and expenses are generally managed to break-even. Capital management includes activities related to servicing obligations issued by MBIA Inc. and its subsidiary, MBIA Global Funding, LLC (“GFL”). MBIA Inc. issued debt to finance the operations of the MBIA group. GFL raised funds through the issuance of MTNs with varying maturities, which were in turn guaranteed by MBIA Corp. GFL lent the proceeds of these MTN issuances to MBIA Inc. MBIA Inc. also provided customized investment agreements, guaranteed by MBIA Corp., for bond proceeds and other public funds for such purposes as construction, loan origination, escrow and debt service or other reserve fund requirements. The Company has ceased issuing new MTNs and investment agreements and the outstanding liability balances and corresponding asset balances have declined over time as liabilities matured, terminated or were called or repurchased. All of the debt within the corporate segment is managed collectively and is serviced by available liquidity.
International and Structured Finance Insurance
The Company’s international and structured finance insurance segment is principally conducted through MBIA Corp. The financial guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees of the payment of principal of, and interest or other amounts owing on, non-U.S. public finance and global structured finance insured obligations when due, or in the event MBIA Corp. has the right, at its discretion, to accelerate insured obligations upon default or otherwise. MBIA Corp. insures non-U.S. public finance and global structured finance obligations, including asset-backed obligations. MBIA Corp. has insured sovereign-related and sub- sovereign bonds, utilities, privately issued bonds used for the financing of projects that include toll roads, bridges, public transportation facilities, and other types of infrastructure projects serving a substantial public purpose. MBIA Corp. also insures structured finance and asset-backed obligations repayable from expected cash flows generated by a specified pool of assets, such as residential and commercial mortgages, consumer loans and structured settlements. MBIA Corp. insures the investment contracts written by MBIA Inc., and if MBIA Inc. were to have insufficient assets to pay amounts due upon maturity or termination, MBIA Corp. would make such payments. MBIA Insurance Corporation also insures debt obligations of GFL. MBIA Corp. has also written policies guaranteeing obligations under certain derivative contracts, including termination payments that may become due upon certain insolvency or payment defaults of the financial guarantor or the issuer. MBIA Corp. has not written any meaningful amount of business since 2008.
34
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 9: Business Segments (continued)
Segments Results
The following tables provide the Company’s segment results for the three months ended September 30, 2024 and 2023:
|
|
|
|
Three Months Ended September 30, 2024 |
|
|||||||||||||||||
|
|
|
|
U.S. |
|
|
|
|
|
International |
|
|
|
|
|
|
|
|||||
|
|
|
|
Public |
|
|
|
|
|
and Structured |
|
|
|
|
|
|
|
|||||
|
|
|
|
Finance |
|
|
|
|
|
Finance |
|
|
|
|
|
|
|
|||||
In millions |
|
Insurance |
|
|
Corporate |
|
|
Insurance |
|
|
Eliminations |
|
|
Consolidated |
|
|||||||
Revenues (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net gains (losses) on financial instruments at fair value and foreign exchange |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|||||
Revenues of consolidated VIEs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Inter-segment revenues (2) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Losses and loss adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Amortization of deferred acquisition costs and operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Expenses of consolidated VIEs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Inter-segment expenses (2) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Total expenses |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Income (loss) from continuing operations before income taxes |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||||
Identifiable assets per segment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
(3) |
$ |
|
||||||
Assets held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total identifiable assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
(1) -
(2) -
(3) -
|
|
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
|
|
U.S. |
|
|
|
|
|
International |
|
|
|
|
|
|
|
|||||
|
|
|
|
Public |
|
|
|
|
|
and Structured |
|
|
|
|
|
|
|
|||||
|
|
|
|
Finance |
|
|
|
|
|
Finance |
|
|
|
|
|
|
|
|||||
In millions |
|
Insurance |
|
|
Corporate |
|
|
Insurance |
|
|
Eliminations |
|
|
Consolidated |
|
|||||||
Revenues (1) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net gains (losses) on financial instruments at fair value and foreign exchange |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Revenues of consolidated VIEs |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Inter-segment revenues (2) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Total revenues |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Losses and loss adjustment |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Amortization of deferred acquisition costs and operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Expenses of consolidated VIEs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Inter-segment expenses (2) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Total expenses |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Income (loss) from continuing operations before income taxes |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||||
(1) -
(2) -
35
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 9: Business Segments (continued)
The following tables provide the Company's segment results for the nine months ended September 30, 2024 and 2023:
|
|
|
|
Nine Months Ended September 30, 2024 |
|
|||||||||||||||||
|
|
|
|
U.S. |
|
|
|
|
|
International |
|
|
|
|
|
|
|
|||||
|
|
|
|
Public |
|
|
|
|
|
and Structured |
|
|
|
|
|
|
|
|||||
|
|
|
|
Finance |
|
|
|
|
|
Finance |
|
|
|
|
|
|
|
|||||
In millions |
|
Insurance |
|
|
Corporate |
|
|
Insurance |
|
|
Eliminations |
|
|
Consolidated |
|
|||||||
Revenues (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net gains (losses) on financial instruments at fair value and foreign exchange |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Revenues of consolidated VIEs |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Inter-segment revenues (2) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Total revenues |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Losses and loss adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Amortization of deferred acquisition costs and operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Expenses of consolidated VIEs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Inter-segment expenses (2) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Total expenses |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Income (loss) from continuing operations before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
Identifiable assets per segment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
(3) |
$ |
|
||||||
Assets held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total identifiable assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
(1) -
(2) -
(3) -
|
|
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||
In millions |
|
U.S. Public Finance Insurance |
|
|
Corporate |
|
|
International and Structured Finance Insurance |
|
|
Eliminations |
|
|
Consolidated |
|
|||||||
Revenues (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
Net gains (losses) on financial instruments at fair value and foreign exchange |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Revenues of consolidated VIEs |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Inter-segment revenues (2) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Total revenues |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Losses and loss adjustment |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Amortization of deferred acquisition costs and operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Expenses of consolidated VIEs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Inter-segment expenses (2) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
Total expenses |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Income (loss) from continuing operations before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
(1) -
(2) -
36
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 10: Earnings Per Share
Earnings per share is calculated using the two-class method in which earnings are allocated to common stock and participating securities based on their rights to receive nonforfeitable dividends or dividend equivalents. The Company grants restricted stock to certain employees and non-employee directors in accordance with the Company’s long-term incentive programs, which entitle the participants to receive nonforfeitable dividends or dividend equivalents during the vesting period on the same basis as those dividends are paid to common shareholders. These unvested stock awards represent participating securities. During periods of net income, the calculation of earnings per share exclude the income attributable to participating securities in the numerator and the dilutive impact of these securities from the denominator. During periods of net loss, no effect is given to participating securities in the numerator and the denominator excludes the dilutive impact of these securities since they do not share in the losses of the Company.
Basic earnings per share excludes dilution and is reported separately for continuing operations and discontinued operations. Basic earnings per share for continuing operations and discontinued operations is computed by dividing net income from continuing operations and discontinued operations available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the dilutive effect of all unvested restricted stock outstanding during the period that could potentially result in the issuance of common stock. The dilution from unvested restricted stock is calculated by applying the two-class method and using the treasury stock method. The treasury stock method assumes the proceeds from the unrecognized compensation expense from unvested restricted stock will be used to purchase shares of the Company’s common stock at the average market price during the period. If the potentially dilutive securities disclosed in the table below become vested, the transaction would be net share settled resulting in a significantly lower impact to the outstanding share balance in comparison to the total amount of the potentially dilutive securities. During periods of net loss, unvested restricted stock is excluded from the calculation because it would have an antidilutive effect. Therefore, in periods of net loss, the calculation of basic and diluted earnings per share would result in the same value.
The following table presents the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2024 and 2023:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
In millions except per share amounts |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|||||
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income (loss) from continuing operations available to common shareholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Income (loss) from discontinued operations, net of income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Less: Net income (loss) from discontinued operations attributable to noncontrolling interests |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Net income (loss) from discontinued operations attributable to MBIA Inc. |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Net income (loss) attributable to MBIA Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Basic and diluted weighted average shares (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income (loss) per common share attributable to MBIA Inc. - basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Discontinued operations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net income (loss) per share attributable to MBIA Inc. - basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Potentially dilutive securities excluded from the calculation of diluted EPS because of antidilutive affect |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(1) -
37
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 11: Accumulated Other Comprehensive Income
The following table presents the changes in the components of AOCI for the nine months ended September 30, 2024:
|
In millions |
|
Unrealized Gains (Losses) on AFS Securities, Net |
|
|
Foreign Current Translation, Net |
|
|
Instrument-Specific Credit Risk of Liabilities Measured at Fair Value, Net |
|
|
Total |
|
|||||
|
Balance, December 31, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Other comprehensive income (loss) before reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Amounts reclassified from AOCI |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net period other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance, September 30, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
The following table presents the details of the reclassifications from AOCI for the three and nine months ended September 30, 2024 and 2023:
In millions |
|
Amounts Reclassified from AOCI |
|
|
|
||||||||||||||
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
Affected Line Item on the Consolidated Statements of Operations |
||||||||||
Details about AOCI Components |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
|
|||||
Unrealized gains (losses) on AFS securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Realized gains (losses) on sale of securities |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net realized investment gains (losses) |
|
Instrument-specific credit risk of liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Deconsolidation of VIEs |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Other net realized gains (losses) - VIEs |
||
|
Settlement of liabilities |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net gains (losses) on financial instruments at fair value and foreign exchange - VIEs |
|
Total reclassifications for the period |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net income (loss) |
||
38
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 12: Commitments and Contingencies
The following commitments and contingencies provide an update of those discussed in “Note 19: Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and should be read in conjunction with the complete descriptions provided in the aforementioned Form 10-K.
Litigation
Refer to “Note 1: Business Developments and Risks and Uncertainties” for further information regarding PREPA's Title III proceedings. There are otherwise
Lease Commitments
The Company has a lease agreement for its headquarters in Purchase, New York. The initial lease term expires in 2030 with the option to terminate the lease in 2025 upon the payment of a termination amount. This lease agreement included an incentive amount to fund certain leasehold improvements, renewal options, escalation clauses and a free rent period. This lease agreement has been classified as an operating lease, and operating rent expense is recognized on a straight-line basis.
In May of 2024, the Company notified its landlord of the Purchase, New York lease that it is exercising its right to terminate the lease in August of 2025 ("Termination Date"). In connection with this termination notice, the Company will pay a termination fee that includes the unamortized amount of incentives, free rent and other costs at the Termination Date. The Company accounted for this termination as a lease modification and remeasured its lease liability to the present value of the remaining lease payments and adjusted its right-of-use ("ROU") asset as of the modification date in accordance with ASC 842. This resulted in a decrease of the Company's ROU asset and lease liability of $
$ in millions |
|
As of September 30, 2024 |
|
|
Balance Sheet Location |
|
||
ROU asset |
|
$ |
|
|
|
|
||
Lease liability |
|
$ |
|
|
|
|
||
Weighted average remaining lease term (years) |
|
|
0 |
|
|
|
|
|
Discount rate used for operating leases |
|
|
|
|
|
|
|
|
Total future minimum lease payments |
|
$ |
|
|
|
|
|
|
Other Commitment
MBIA Corp. and other non-affiliates agreed to provide a delayed draw term loan commitment to an entity which MBIA Corp. holds as an equity investment. MBIA Corp.'s maximum commitment to this loan is approximately $
39
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations of MBIA Inc. should be read in conjunction with the other sections of our Annual Report on Form 10-K for the year ended December 31, 2023 and the consolidated financial statements and notes thereto included in this Form 10-Q. In addition, this discussion and analysis of financial condition and results of operations includes statements of the opinion of MBIA Inc.’s management which may be forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Refer to “Risk Factors” in Part II, Item 1A and “Forward-Looking and Cautionary Statements” and “Risk Factors” in Part I, Item 1A of MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2023 for a further discussion of risks and uncertainties.
OVERVIEW
MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA”, the “Company”, “we”, “us”, or “our”) operates within the financial guarantee insurance industry. MBIA manages its business within three operating segments: 1) United States (“U.S.”) public finance insurance; 2) corporate; and 3) international and structured finance insurance. Our U.S. public finance insurance portfolio is managed through National Public Finance Guarantee Corporation (“National”), our corporate segment is managed through MBIA Inc. and several of its subsidiaries, including our service company, MBIA Services Corporation (“MBIA Services”), and our international and structured finance insurance business is primarily managed through MBIA Insurance Corporation and its subsidiaries (“MBIA Corp.”).
National’s primary objectives are to maximize the performance of its existing insured portfolio through effective surveillance and remediation activity and effectively manage its investment portfolio. Our corporate segment consists of general corporate activities, including providing support services to MBIA’s operating subsidiaries and asset and capital management. MBIA Corp.’s primary objectives are to satisfy all claims by its policyholders and to maximize future recoveries, if any, for its surplus note holders, and then its preferred stock holders. MBIA Corp. is executing this strategy by, among other things, taking steps to maximize the collection of recoveries and reducing and mitigating potential losses on its insurance exposures. We do not expect National or MBIA Corp. to write new financial guarantee policies outside of remediation related activities.
Economic Environment
U.S. economic activity indicators have continued to expand at a solid pace with slowing job gains and a low unemployment rate. Inflation remains elevated. With the Federal Open Market Committee (“FOMC”) seeking to achieve maximum employment and 2% inflation over the longer run, at the September of 2024 meeting, the FOMC lowered its federal funds rate target range by 50 basis points to 4.75% to 5.00%. Economic and financial market trends could impact the Company’s financial results. Economic improvement at the state and local level strengthens the credit quality of the issuers of our insured municipal bonds, improves the performance of our insured U.S. public finance portfolio and could reduce the amount of National’s potential incurred losses. Higher interest rates could adversely affect the values of our Company’s investment portfolio, but increase investment portfolio yield and income, and decrease the present value of loss reserves.
2024 Business Developments
The following is a summary of 2024 business developments:
PREPA
40
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW (continued)
Refer to the following “U.S. Public Finance Insurance Puerto Rico Exposures” section for additional information on our PREPA exposure.
41
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Summary of Consolidated Results
The following table presents a summary of our consolidated financial results for the three and nine months ended September 30, 2024 and 2023:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
In millions except for per share, percentage and share amounts |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|||||
Total revenues |
|
$ |
29 |
|
|
$ |
8 |
|
|
$ |
5 |
|
|
$ |
38 |
|
|
Total expenses |
|
|
80 |
|
|
|
193 |
|
|
|
396 |
|
|
|
384 |
|
|
Income (loss) from continuing operations before income taxes |
|
|
(51 |
) |
|
|
(185 |
) |
|
|
(391 |
) |
|
|
(346 |
) |
|
Provision (benefit) for income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net income (loss) from continuing operations |
|
|
(51 |
) |
|
|
(185 |
) |
|
|
(391 |
) |
|
|
(346 |
) |
|
Income (loss) from discontinued operations, net of income taxes |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
Net income (loss) |
|
|
(52 |
) |
|
|
(186 |
) |
|
|
(393 |
) |
|
|
(348 |
) |
|
Less: Net income (loss) from discontinued operations attributable to noncontrolling interests |
|
|
4 |
|
|
|
(1 |
) |
|
|
3 |
|
|
|
5 |
|
|
Net income (loss) attributable to MBIA Inc. |
|
$ |
(56 |
) |
|
$ |
(185 |
) |
|
$ |
(396 |
) |
|
$ |
(353 |
) |
|
Net income (loss) per basic and diluted common share attributable to MBIA Inc. |
|
$ |
(1.18 |
) |
|
$ |
(3.94 |
) |
|
$ |
(8.37 |
) |
|
$ |
(7.25 |
) |
|
Adjusted net income (loss) (1) |
|
$ |
- |
|
|
$ |
(138 |
) |
|
$ |
(162 |
) |
|
$ |
(161 |
) |
|
Adjusted net income (loss) per diluted share (1) |
|
$ |
- |
|
|
$ |
(2.92 |
) |
|
$ |
(3.43 |
) |
|
$ |
(3.31 |
) |
|
Weighted average basic and diluted common shares outstanding |
|
|
47,671,114 |
|
|
|
47,009,765 |
|
|
|
47,332,337 |
|
|
|
48,654,638 |
|
|
___________________ |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(1) - Adjusted net income (loss) and adjusted net income (loss) per diluted share are non-GAAP measures. Refer to the following Non-GAAP Adjusted Net Income (Loss) section for a discussion of adjusted net income (loss) and adjusted net income (loss) per diluted share and a reconciliation of GAAP net income (loss) to adjusted net income (loss) and GAAP net income (loss) per diluted share to adjusted net income (loss) per diluted share. |
|
||||||||||||||||
Three Months Ended September 30, 2024 vs. Three Months Ended September 30, 2023
Income (loss) from Continuing Operations Before Income Taxes
The increase in consolidated total revenues for the three months ended September 30, 2024 compared with the same period of 2023 was principally due to favorable changes in revenues from consolidated variable interest entities ("VIEs") and net realized investment losses. These favorable changes were partially offset by unfavorable changes from our interest rate swaps and by unfavorable changes from movements in foreign exchange rates. The three months ended September 30, 2023 included $30 million of consolidated VIE losses primarily from the reclassification of credit risk losses from AOCI to net income (loss) due to early redemptions of VIE liabilities and a loss from the deconsolidation of a VIE compared with a gain of $1 million for the same period of 2024. The three months ended September 30, 2023 also included $13 million of net realized investment losses from the sales of investments with no comparable losses in 2024. The three months ended September 30, 2023 included fair value net gains on our interest rate swaps of $20 million with no comparable amounts for the same period of 2024. This variance was primarily due to the termination of substantially all of the interest rates swaps in 2023. The three months ended September 30, 2024 included foreign currency losses of $4 million on euro-denominated liabilities compared with foreign currency gains of $4 million on these liabilities for the same period of 2023. This unfavorable change was due to the weakening of the U.S. dollar against the euro in 2024 compared with the U.S. dollar strengthening against the euro in 2023.
Consolidated total expenses for the three months ended September 30, 2024 included $11 million of losses and loss adjustment expense (“LAE”) compared with $123 million for the same period of 2023. This decrease in losses and LAE was primarily due to changes in PREPA net reserves. Refer to the following “Losses and Loss Adjustment Expenses” sections of the U.S. Public Finance Insurance and International and Structured Finance Insurance segments for additional information on our losses and LAE.
42
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
Nine Months Ended September 30, 2024 vs. Nine Months Ended September 30, 2023
Income (loss) from Continuing Operations Before Income Taxes
The decrease in consolidated total revenues for the nine months ended September 30, 2024 compared with the same period of 2023 was principally due to unfavorable changes from fair valuing investments, net investment income and our interest rate swaps. These unfavorable changes were partially offset by favorable changes from revenues from consolidated VIEs and net realized investment losses from sales of investments. The nine months ended September 30, 2024 included $56 million of losses from fair valuing investments compared with $4 million of gains for the same period of 2023. Net investment income decreased $24 million for the nine months ended September 30, 2024 compared with the same period of 2023 primarily due to a lower average asset base as a result of the extraordinary cash dividend payment on MBIA Inc.'s stock in December of 2023. The nine months ended September 30, 2023 included fair value net gains on our interest rate swaps of $22 million with no comparable amounts for the same period of 2024. This variance was primarily due to the termination of substantially all of the interest rates swaps in 2023. The nine months ended September 30, 2024 and 2023 included $37 million and $72 million, respectively, of consolidated VIE losses primarily from the reclassification of credit risk losses from AOCI to net income (loss) due to early redemptions of VIE liabilities and losses from the deconsolidation of VIEs. In addition, the nine months ended September 30, 2024 and 2023 included $3 million and $23 million, respectively, of net realized investment losses from sales of investments
Consolidated total expenses for the nine months ended September 30, 2024 included $171 million of losses and LAE compared with $158 million for the same period of 2023, primarily related to PREPA. In addition, the nine months ended September 30, 2024 included an incurred loss from accretion compared with an incurred benefit from the impact of changes in risk-free interest rates on the present value of loss reserves for the same period of 2023 on our insured residential mortgage-backed securities ("RMBS") exposure. Refer to the following “Losses and Loss Adjustment Expenses” sections of the U.S. Public Finance Insurance and International and Structured Finance Insurance segments for additional information on our losses and LAE.
Three and Nine Months Ended September 30, 2024 vs. Three and Nine Months Ended September 30, 2023
Provision for Income Taxes
For the three and nine months ended September 30, 2024 and 2023, our effective tax rate applied to our loss before income taxes was below the U.S. statutory tax rate of 21% due to the full valuation allowance on the changes in our net deferred tax asset, which included our net operating loss (“NOL”).
As of September 30, 2024 and December 31, 2023, the Company’s valuation allowance against its net deferred tax asset was $1.3 billion and $1.2 billion, respectively. Notwithstanding the full valuation allowance on its net deferred tax asset, the Company believes that it may be able to use some of its net deferred tax asset before the expirations associated with that asset based upon expected earnings at National. Accordingly, the Company will continue to re-evaluate its net deferred tax asset on a quarterly basis. There is no assurance that the Company will reverse any of its valuation allowance on its net deferred tax asset in the future. Refer to “Note 8: Income Taxes” in the Notes to Consolidated Financial Statements for a further discussion of income taxes, including the valuation allowance against the Company’s net deferred tax asset and its accounting for tax uncertainties.
Income (loss) from discontinued operations, net of income taxes
Pursuant to a plan of liquidation that became effective in August of 2022, MBIA Corp.'s interest in the remaining collateral of the Zohar collateralized debt obligation (“CDO”) 2003-1, Limited (“Zohar I”) and Zohar II 2005-1, Limited (“Zohar II”) (collectively, the "Zohar CDOs") was distributed to MBIA Corp. either directly or in the form of interests in certain asset recovery entities. The interests in the asset recovery entities include various loans to and equity interest in portfolio companies. The Company classifies certain of these portfolio companies as discontinued operations. Included in this amount are the results of operations for the three and nine months ended September 30, 2024 and 2023. Refer to “Note 1: Business Developments and Risks and Uncertainties” in the Notes to Consolidated Financial Statements for a further discussion of our discontinued operations.
43
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
Non-GAAP Adjusted Net Income (Loss)
In addition to our results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we also analyze the operating performance of the Company using adjusted net income (loss) and adjusted net income (loss) per diluted common share, both non-GAAP measures. Since adjusted net income (loss) is used by management to assess performance and make business decisions, we consider adjusted net income (loss) and adjusted net income (loss) per diluted common share fundamental measures of periodic financial performance which are useful in understanding our results. Adjusted net income (loss) and adjusted net income (loss) per diluted common share are not substitutes for net income (loss) and net income (loss) per diluted common share determined in accordance with GAAP, and our definitions of adjusted net income (loss) and adjusted net income (loss) per diluted common share may differ from those used by other companies.
Adjusted net income (loss) and adjusted net income (loss) per diluted common share include the after-tax results of the Company and remove the after-tax results of our international and structured finance insurance segment, comprising the results of MBIA Corp. and its discontinued operations net of noncontrolling interest and income taxes, which given MBIA Corp.’s capital structure and business prospects, we do not expect its financial performance to have a material economic impact on MBIA Inc., as well as adjusting the following:
44
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
The following table presents our adjusted net income (loss) and adjusted net income (loss) per diluted common share and provides a reconciliation of GAAP net income (loss) attributable to MBIA Inc. to adjusted net income (loss) for the three and nine months ended September 30, 2024 and 2023:
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended |
|
||||||||||
In millions except share and per share amounts |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|||||||
Net income (loss) attributable to MBIA Inc. |
|
$ |
(56 |
) |
|
$ |
(185 |
) |
|
$ |
(396 |
) |
|
$ |
(353 |
) |
|||
Less: adjusted net income (loss) adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Income (loss) from discontinued operations, net of noncontrolling interest |
|
|
(5 |
) |
|
|
- |
|
|
|
(5 |
) |
|
|
(7 |
) |
||
|
Income (loss) before income taxes of our international and structured finance insurance segment and eliminations |
|
|
(45 |
) |
|
|
(55 |
) |
|
|
(231 |
) |
|
|
(185 |
) |
||
|
Adjustments to income before income taxes of our U.S. public finance insurance and corporate segments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Mark-to-market gains (losses) on financial instruments (1) |
|
|
(2 |
) |
|
|
20 |
|
|
|
3 |
|
|
|
25 |
|
||
|
Foreign exchange gains (losses) (1) |
|
|
(4 |
) |
|
|
5 |
|
|
|
(1 |
) |
|
|
1 |
|
||
|
Net realized investment gains (losses) |
|
|
- |
|
|
|
(9 |
) |
|
|
(2 |
) |
|
|
(19 |
) |
||
|
Net investment losses related to impairments of securities (2) |
|
|
- |
|
|
|
(8 |
) |
|
|
- |
|
|
|
(8 |
) |
||
|
Other net realized gains (losses) |
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
1 |
|
||
Adjusted net income adjustment to the (provision) benefit for income tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|||
Adjusted net income (loss) |
|
$ |
- |
|
|
$ |
(138 |
) |
|
$ |
(162 |
) |
|
$ |
(161 |
) |
|||
Adjusted net income (loss) per diluted common share (3) |
|
$ |
- |
|
|
$ |
(2.92 |
) |
|
$ |
(3.43 |
) |
|
$ |
(3.31 |
) |
|||
___________________ |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
(1) - Reported within “Net gains (losses) on financial instruments at fair value and foreign exchange” on the Company’s consolidated statements of operations. |
|
||||||||||||||||||
(2) - Reported within “Other net realized gains (losses)” on the Company’s consolidated statements of operations. |
|
||||||||||||||||||
(3) - Adjusted net income (loss) per diluted common share is calculated by taking adjusted net income (loss) divided by the GAAP weighted average number of diluted common shares outstanding. |
|
||||||||||||||||||
45
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
Book Value Adjustments Per Share
In addition to GAAP book value per share, for internal purposes management also analyzes adjusted book value (“ABV”) per share, changes to which we view as an important indicator of financial performance. ABV is also used by management in certain components of management’s compensation. Since many of the Company’s investors and analysts continue to use ABV to evaluate MBIA’s share price and as the basis for their investment decisions, we present GAAP book value per share as well as the individual adjustments used by management to calculate its internal ABV metric.g
Management adjusts GAAP book value to remove the book value of MBIA Corp., its discontinued operations, and for certain items which the Company believes will reverse from GAAP book value through GAAP earnings and comprehensive income, as well as add in the impact of certain items which the Company believes will be realized in GAAP book value in future periods. The Company has limited such adjustments to those items that it deems to be important to fundamental value and performance and for which the likelihood and amount can be reasonably estimated. The following provides a description of management’s adjustments to GAAP book value:
Since the Company has a full valuation allowance against its net deferred tax asset and a zero consolidated effective tax rate, the book value per share adjustments reflect a zero effective tax rate.
The following table provides the Company’s GAAP book value per share and management’s adjustments to book value per share used in our internal analysis:
|
|
|
|
|
As of September 30, |
|
|
As of December 31, |
|
||
In millions except share and per share amounts |
|
2024 |
|
|
2023 |
|
|||||
Total shareholders' equity of MBIA Inc. |
|
$ |
(2,001 |
) |
|
$ |
(1,657 |
) |
|||
Common shares outstanding |
|
|
51,029,400 |
|
|
|
50,862,931 |
|
|||
GAAP book value per share |
|
$ |
(39.19 |
) |
|
$ |
(32.56 |
) |
|||
Management's adjustments described above: |
|
|
|
|
|
|
|||||
|
|
Remove negative book value per share of MBIA Corp. |
|
|
(48.80 |
) |
|
|
(44.91 |
) |
|
|
|
Remove net unrealized gains (losses) on available-for-sale securities included in other comprehensive income (loss) |
|
|
(2.10 |
) |
|
|
(2.40 |
) |
|
|
|
Include net unearned premium revenue in excess of expected losses |
|
|
2.54 |
|
|
|
2.91 |
|
|
46
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
U.S. Public Finance Insurance Segment
Our U.S. public finance insurance portfolio is managed through National. The financial guarantees issued by National provide unconditional and irrevocable guarantees of the payment of the principal of, and interest or other amounts owing on, insured obligations when due or, in the event National has exercised, at its discretion, the right to accelerate the payment under its policies upon the acceleration of the underlying insured obligations due to default or otherwise. National’s guarantees insure municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utility districts, airports, healthcare institutions, higher educational facilities, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects are generally supported by taxes, assessments, user fees or tariffs related to the use of these projects, lease payments or other similar types of revenue streams. As of September 30, 2024, National had total insured gross par outstanding of $25.9 billion.
National continues to monitor and remediate its existing insured portfolio and has pursued and may continue to pursue other transactions that could enhance shareholder value. Regarding its insured portfolio, some state and local governments and territory obligors that National insures are experiencing financial and budgetary stress which could lead to an increase in defaults by such entities on the payment of their obligations and, while such stress has not yet occurred materially, losses or impairments on a greater number of the Company’s insured transactions. In particular, PREPA had been experiencing significant fiscal stress and constrained liquidity. Refer to the “U.S. Public Finance Insurance Puerto Rico Exposures” section for additional information on our PREPA exposures. We continue to monitor and analyze these situations and other stressed credits closely, and the overall extent and duration of stress affecting our insured credits remains uncertain.
The following table presents our U.S. public finance insurance segment results for the three and nine months ended September 30, 2024 and 2023:
|
|
|
Three Months Ended September 30, |
|
|
Percent Change |
|
|
Nine Months Ended September 30, |
|
|
Percent Change |
|
||||||||||||
In millions |
2024 |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
2023 |
|
|
|
|
||||||||
Net premiums earned |
$ |
8 |
|
|
$ |
7 |
|
|
|
14 |
% |
|
$ |
22 |
|
|
$ |
22 |
|
|
|
- |
% |
||
Net investment income |
|
16 |
|
|
|
23 |
|
|
|
-30 |
% |
|
|
51 |
|
|
|
71 |
|
|
|
-28 |
% |
||
Net realized investment gains (losses) |
|
- |
|
|
|
(2 |
) |
|
|
-100 |
% |
|
|
(2 |
) |
|
|
(11 |
) |
|
|
-82 |
% |
||
Net gains (losses) on financial instruments at fair value and foreign exchange |
|
1 |
|
|
|
(1 |
) |
|
n/m |
|
|
|
2 |
|
|
|
1 |
|
|
|
100 |
% |
|||
Fees and reimbursements |
|
2 |
|
|
|
1 |
|
|
|
100 |
% |
|
|
3 |
|
|
|
2 |
|
|
|
50 |
% |
||
Other net realized gains (losses) |
|
- |
|
|
|
(8 |
) |
|
|
-100 |
% |
|
|
- |
|
|
|
(8 |
) |
|
|
-100 |
% |
||
|
|
Total revenues |
|
27 |
|
|
|
20 |
|
|
|
35 |
% |
|
|
76 |
|
|
|
77 |
|
|
|
-1 |
% |
Losses and loss adjustment |
|
2 |
|
|
|
143 |
|
|
|
-99 |
% |
|
|
165 |
|
|
|
169 |
|
|
|
-2 |
% |
||
Amortization of deferred acquisition costs |
|
2 |
|
|
|
2 |
|
|
|
- |
% |
|
|
5 |
|
|
|
5 |
|
|
|
- |
% |
||
Operating |
|
9 |
|
|
|
9 |
|
|
|
- |
% |
|
|
31 |
|
|
|
30 |
|
|
|
3 |
% |
||
|
|
Total expenses |
|
13 |
|
|
|
154 |
|
|
|
-92 |
% |
|
|
201 |
|
|
|
204 |
|
|
|
-1 |
% |
Income (loss) from continuing operations before income taxes |
$ |
14 |
|
|
$ |
(134 |
) |
|
|
-110 |
% |
|
$ |
(125 |
) |
|
$ |
(127 |
) |
|
|
-2 |
% |
||
_______________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
n/m - Percent change not meaningful. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
47
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
NET PREMIUMS EARNED Net premiums earned on financial guarantees represent gross premiums earned net of premiums ceded to reinsurers, and include scheduled premium earnings and premium earnings from refunded issues. Refunding activity over the past several years has accelerated premium earnings in prior years and reduced the amount of scheduled premiums that would have been earned in the current year. Refunding activity can vary significantly from period to period based on issuer refinancing behavior. Included in net premiums earned for the three months ended September 30, 2024 and 2023, were scheduled premiums earned of $7 million and $6 million, respectively. Included in net premiums earned for the nine months ended September 30, 2024 and 2023, were scheduled premiums earned of $20 million and $21 million, respectively.
NET INVESTMENT INCOME The decrease in net investment income for the three and nine months ended September 30, 2024 compared with the same periods of 2023 were primarily due to a lower average invested asset base as a result of the dividend payments to National's ultimate parent, MBIA Inc., in 2023. This decrease was partially offset by higher yields on investments.
NET REALIZED INVESTMENT GAINS (LOSSES) The net realized investment losses for the nine months ended September 30, 2023 related to sales of securities from the ongoing management of our U.S. public finance investment portfolio, including to generate liquidity to pay claims.
OTHER NET REALIZED GAINS (LOSSES) The other net realized losses for the three and nine months ended September 30, 2023 related to impairments of certain investments that were in an unrealized loss position and which we intended to sell before their values recovered to their amortized cost basis.
LOSSES AND LOSS ADJUSTMENT EXPENSES Our U.S. public finance insured portfolio management group is responsible for monitoring our U.S. public finance segment’s insured obligations. The level and frequency of monitoring of any insured obligation depends on the type, size, rating and our assessed performance of the insured issue. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for additional information related to the Company’s insurance loss recoverables and loss and LAE reserves.
For the three months ended September 30, 2024, losses and LAE activity was primarily due to accretion partially offset by a decline in risk-free rates, which caused future liabilities, net of recoveries to increase related to our PREPA exposure. For the nine months ended September 30, 2024, losses and LAE incurred primarily related to changes in PREPA reserves as a result of current developments in the PREPA remediation. Refer to the following “U.S. Public Finance Insurance Puerto Rico Exposures” section for additional information on our PREPA exposures. In addition, the nine months ended September 30, 2024 incurred loss included reserves on a U.S. public finance lease-backed transaction.
For three and nine months ended September 30, 2023, losses and LAE incurred related to updating PREPA scenarios to reflect the Amended PSA, which included extending the effective date of a settlement until 2024.
The following table presents information about our U.S. public finance insurance loss recoverable asset and loss and LAE reserves liabilities as of September 30, 2024 and December 31, 2023:
|
|
|
September 30, |
|
|
December 31, |
|
|
Percent |
|
|||
In millions |
|
2024 |
|
|
2023 |
|
|
Change |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
||||
|
Insurance loss recoverable |
|
$ |
171 |
|
|
$ |
152 |
|
|
|
13 |
% |
|
Reinsurance recoverable on paid and unpaid losses (1) |
|
|
15 |
|
|
|
11 |
|
|
|
36 |
% |
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
|
Loss and LAE reserves |
|
|
280 |
|
|
|
230 |
|
|
|
22 |
% |
|
Insurance loss recoverable - ceded (2) |
|
|
2 |
|
|
|
1 |
|
|
|
100 |
% |
|
Net reserve (salvage) |
|
$ |
96 |
|
|
$ |
68 |
|
|
|
41 |
% |
|
(1) - Reported within "Other assets" on our consolidated balance sheets. |
|
|||||||||||
|
(2) - Reported within "Other liabilities" on our consolidated balance sheets. |
|
|
|
|
|
|
|
|||||
The changes to insurance loss recoverable and loss and LAE reserves as of September 30, 2024 compared with December 31, 2023 were primarily due to changes related to PREPA as discussed above. In addition, the increase in loss and LAE reserves included reserves on a lease-backed transaction and was partially offset by the January and July of 2024 PREPA claim payments.
48
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
POLICY ACQUISITION COSTS AND OPERATING EXPENSES U.S. public finance insurance segment expenses for the three and nine months ended September 30, 2024 and 2023 are presented in the following table:
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
||||||||
In millions |
|
|
2024 |
|
|
|
2023 |
|
|
|
Change |
|
|
|
2024 |
|
|
|
2023 |
|
|
|
Change |
|
Gross expenses |
|
$ |
9 |
|
|
$ |
9 |
|
|
|
- |
% |
|
$ |
31 |
|
|
$ |
30 |
|
|
|
3 |
% |
Amortization of deferred acquisition costs |
|
$ |
2 |
|
|
$ |
2 |
|
|
|
- |
% |
|
$ |
5 |
|
|
$ |
5 |
|
|
|
- |
% |
Operating |
|
|
9 |
|
|
|
9 |
|
|
|
- |
% |
|
|
31 |
|
|
|
30 |
|
|
|
3 |
% |
Total insurance operating expenses |
|
$ |
11 |
|
|
$ |
11 |
|
|
|
- |
% |
|
$ |
36 |
|
|
$ |
35 |
|
|
|
3 |
% |
Gross expenses represent total insurance expenses before the deferral of any policy acquisition costs.
When an insured obligation refunds, we accelerate to expense any remaining deferred acquisition costs associated with the policy covering the refunded insured obligation. We did not defer a material amount of policy acquisition costs during 2024 or 2023 as we did not write any new insurance business in those years.
INSURED PORTFOLIO EXPOSURE Financial guarantee insurance companies use a variety of approaches to assess the underlying credit risk profile of their insured portfolios. National uses both an internally developed credit rating system as well as third-party rating sources in the analysis of credit quality measures of its insured portfolio. In evaluating credit risk, we obtain, when available, the underlying rating(s) of the insured obligation before the benefit of National’s insurance policy from nationally recognized rating agencies, Moody’s Investor Services (“Moody’s”) and Standard & Poor’s Financial Services LLC (“S&P”). Other companies within the financial guarantee industry may report credit quality information based upon internal ratings that would not be comparable to our presentation. We maintain internal ratings on our entire portfolio, and our ratings may be higher or lower than the underlying ratings assigned by Moody’s or S&P.
The following table presents the credit quality distribution of National’s U.S. public finance outstanding gross par insured as of September 30, 2024 and December 31, 2023. Capital appreciation bonds are reported at the par amount at the time of issuance of the insurance policy. All ratings are as of the period presented and represent S&P underlying ratings, where available. If transactions are not rated by S&P, a Moody’s equivalent rating is used. If transactions are not rated by either S&P or Moody’s, an internal equivalent rating is used.
|
|
|
Gross Par Outstanding |
|
|||||||||||||
In millions |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|||||||||||
Rating |
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|||||
AAA |
|
$ |
1,028 |
|
|
|
4.0 |
% |
|
$ |
1,283 |
|
|
|
4.5 |
% |
|
AA |
|
|
10,882 |
|
|
|
42.0 |
% |
|
|
11,919 |
|
|
|
42.0 |
% |
|
A |
|
|
10,085 |
|
|
|
39.0 |
% |
|
|
10,539 |
|
|
|
37.1 |
% |
|
BBB |
|
|
1,832 |
|
|
|
7.1 |
% |
|
|
2,394 |
|
|
|
8.5 |
% |
|
Below investment grade |
|
|
2,058 |
|
|
|
7.9 |
% |
|
|
2,242 |
|
|
|
7.9 |
% |
|
|
Total |
|
$ |
25,885 |
|
|
|
100.0 |
% |
|
$ |
28,377 |
|
|
|
100.0 |
% |
U.S. Public Finance Insurance Puerto Rico Exposures
On May 3, 2017, the Oversight Board certified and filed a petition under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act for Puerto Rico with the District Court of Puerto Rico thereby commencing a bankruptcy-like case for the Puerto Rico Commonwealth GO ("GO"). Under separate petitions, the Oversight Board subsequently commenced Title III proceedings for the Puerto Rico Sales Tax Financing Corporation (“COFINA”), Puerto Rico Highway and Transportation Authority ("HTA"), PREPA and the Public Buildings Authority (“PBA”) on May 5, 2017, May 21, 2017, July 2, 2017 and September 27, 2019, respectively. On February 4, 2019, the District of Puerto Rico entered the order confirming the Third Amended Title III Plan of Adjustment for COFINA. The Title III cases for GO and PBA were confirmed on January 18, 2022, and became effective on March 15, 2022. The confirmation hearing for the HTA Title III case was completed on August 17, 2022, and the confirmation order was entered on October 12, 2022, which became effective on December 6, 2022.
49
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
As a result of prior defaults, various stays and the Title III cases, Puerto Rico failed to make certain scheduled debt service payments for National insured bonds. As a consequence, National has paid gross claims in the aggregate amount of $3.1 billion relating to GO, PBA, PREPA and HTA bonds through September 30, 2024, inclusive of the commutation payment and the additional payment in the amount of $66 million in 2019 related to COFINA and the GO and HTA acceleration and commutation payments of $277 million and $556 million, respectively, in 2022.
Status of Puerto Rico’s Fiscal Plans
On June 23, 2023, the Oversight Board filed a fiscal plan for PREPA for FY2023, which provided for approximately $2.4 billion of distributions to PREPA bondholders. The University of Puerto Rico (the "University") is not a debtor in Title III and continues to be current on its debt service payment. However, the University is subject to a standstill agreement with its senior bondholders, which has been extended to November 30, 2024. National is not a party to the standstill agreement. As of September 30, 2024, National had $62 million of insured debt service outstanding related to the University.
PREPA
National’s largest remaining exposure to Puerto Rico, by gross par outstanding, is to PREPA.
On January 31, 2023, National entered into the PREPA RSA with the Oversight Board, on behalf of itself and as the sole Title III representative of PREPA. The Plan and related disclosure statement was filed on February 9, 2023. Subsequently, both the Plan and PREPA RSA were amended. The Title III Court conducted confirmation hearings in March 2024. On June 12, 2024, following the Appeal Decision, the Oversight Board informed the Court that it intended to file an amendment to the Plan it believed would account for the changes required by the First Circuit opinion. On June 26, 2024, the Oversight Board filed a petition for a First Circuit panel rehearing, and the UCC filed an en banc appeal. Both are currently pending. Following a status conference held on July 10, 2024, the Court imposed a 60-day stay of all litigation and other filings related to the amended Plan, which stay was subsequently extended until January 31, 2025, and ordered the parties into mediation. Following the Appeal Decision, the Oversight Board informed the Court, National and other parties that it intended to modify National’s settlement in a forthcoming amended Plan. Thereafter, National provided notice to the Oversight Board that National did not support the board's actions and that such actions constituted a breach and termination of the PREPA RSA, as amended.
On June 22, 2020, the Oversight Board and the Puerto Rico P3 Authority announced an agreement and contract with LUMA Energy, LLC (“LUMA”) which calls for LUMA to take full responsibility for the operation and maintenance of PREPA’s transmission and distribution system; the contract runs for 15-years following a transition period expected to take 12 months. PREPA retains ownership of the system as well as responsibility for the power generation system. LUMA assumed responsibility for operations on June 1, 2021.
On September 18, 2020, FEMA and the PR COR3 Authority announced the commitment by FEMA to provide approximately $11.6 billion (net of the required 10% cost share) to fund projects built by PREPA and the PR Department of Education; approximately $9.4 billion (net) of this amount is designated for PREPA. LUMA is now involved in the planning of the related projects as well as proceedings related thereto in front the PR Energy Bureau as well as PR-COR3.
On January 25, 2023, the Oversight Board and Puerto Rico P3 Authority announced an agreement and contract with Genera PR LLC (“Genera”) which calls for Genera to take full responsibility of the operation and maintenance of the existing power generation assets owned by PREPA; the contract will run for 10-years following a transition period. PREPA retains ownership of the assets.
The following table presents our scheduled gross debt service due on our PREPA insured exposures as of September 30, 2024, for the three months ending December 31, 2024, for each of the subsequent four years ending December 31, and thereafter:
|
|
Three Months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Ending |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
In millions |
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
Thereafter |
|
|
Total |
|
|||||||
Puerto Rico Electric Power Authority (PREPA) |
|
$ |
- |
|
|
$ |
105 |
|
|
$ |
57 |
|
|
$ |
20 |
|
|
$ |
20 |
|
|
$ |
468 |
|
|
$ |
670 |
|
50
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
Corporate Segment
Our corporate segment consists of general corporate activities, including providing support services to MBIA Inc.’s subsidiaries and asset and capital management. Support services are provided by our service company, MBIA Services, and include, among others, management, legal, accounting, treasury, information technology, and insurance portfolio surveillance, on a fee-for-service basis. Capital management includes activities related to servicing obligations issued by MBIA Inc. and its subsidiary, MBIA Global Funding, LLC (“GFL”). MBIA Inc. issued debt to finance the operations of the MBIA group. GFL raised funds through the issuance of medium-term notes (“MTNs”) with varying maturities, which were in turn guaranteed by MBIA Corp. GFL lent the proceeds of these MTN issuances to MBIA Inc. MBIA Inc. provided customized investment agreements, guaranteed by
MBIA Corp., for bond proceeds and other public funds for such purposes as construction, loan origination, escrow and debt service or other reserve fund requirements. The Company ceased issuing new MTNs and investment agreements and the outstanding liability balances and corresponding asset balances have declined over time as liabilities matured, terminated, were called or repurchased. All of the debt within the corporate segment is managed collectively and is serviced by available liquidity.
The following table summarizes the consolidated results of our corporate segment for the three and nine months ended September 30, 2024 and 2023:
|
|
|
|
Three Months Ended September 30, |
|
|
Percent Change |
|
|
Nine Months Ended September 30, |
|
|
Percent Change |
|
||||||||||||
In millions |
|
2024 |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
2023 |
|
|
|
|
||||||||
Net investment income |
|
$ |
7 |
|
|
$ |
7 |
|
|
|
- |
% |
|
$ |
23 |
|
|
$ |
17 |
|
|
|
35 |
% |
||
Net realized investment gains (losses) |
|
|
- |
|
|
|
(7 |
) |
|
|
-100 |
% |
|
|
- |
|
|
|
(8 |
) |
|
|
-100 |
% |
||
Net gains (losses) on financial instruments at fair value and foreign exchange |
|
|
(7 |
) |
|
|
23 |
|
|
|
-130 |
% |
|
|
5 |
|
|
|
25 |
|
|
|
-80 |
% |
||
Fees |
|
|
11 |
|
|
|
12 |
|
|
|
-8 |
% |
|
|
39 |
|
|
|
38 |
|
|
|
3 |
% |
||
Other net realized gains (losses) |
|
|
- |
|
|
|
- |
|
|
|
- |
% |
|
|
2 |
|
|
|
1 |
|
|
|
100 |
% |
||
|
|
Total revenues |
|
|
11 |
|
|
|
35 |
|
|
|
-69 |
% |
|
|
69 |
|
|
|
73 |
|
|
|
-5 |
% |
Operating |
|
|
13 |
|
|
|
12 |
|
|
|
8 |
% |
|
|
48 |
|
|
|
49 |
|
|
|
-2 |
% |
||
Interest |
|
|
19 |
|
|
|
19 |
|
|
|
- |
% |
|
|
55 |
|
|
|
57 |
|
|
|
-4 |
% |
||
|
|
Total expenses |
|
|
32 |
|
|
|
31 |
|
|
|
3 |
% |
|
|
103 |
|
|
|
106 |
|
|
|
-3 |
% |
Income (loss) from continuing operations before income taxes |
|
$ |
(21 |
) |
|
$ |
4 |
|
|
n/m |
|
|
$ |
(34 |
) |
|
$ |
(33 |
) |
|
|
3 |
% |
|||
____________________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
n/m - Percent change not meaningful. |
|
|
||||||||||||||||||||||||
NET REALIZED INVESTMENT GAINS (LOSSES) The net realized investment losses for the three and nine months ended September 30, 2023 related to sales of securities that supported the terminated interest rate swaps.
NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE Net gains (losses) on financial instruments at fair value and foreign exchange were primarily driven by changes in market values on interest rate swaps and changes in the revaluation of euro-denominated liabilities.
The three and nine months ended September 30, 2023 included fair value net gains of $20 million and $22 million, respectively, on interest rate swaps with no comparable material amounts for the same periods of 2024. The 2023 gains were due to an increase in interest rates on swaps that we received floating rates. Substantially all of the interest rates swaps were terminated in the second half of 2023. In addition, the three months ended September 30, 2024 included foreign currency losses of $4 million on euro-denominated liabilities compared with foreign currency gains of $5 million on these liabilities for the same period of 2023. This decrease was due to the U.S. dollar weakening against the euro in 2024 compared with the U.S. dollar strengthening against the euro in 2023.
International and Structured Finance Insurance Segment
Our international and structured finance insurance portfolio is managed through MBIA Corp. The financial guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees of the payment of the principal of, and interest or other amounts owing on, non-U.S. public finance and global structured finance insured obligations when due or, in the event MBIA Corp. has the right, at its discretion, to accelerate insured obligations upon default or otherwise.
51
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
MBIA Corp. insures sovereign-related and sub- sovereign bonds, utilities, privately issued bonds used for the financing of projects that include toll roads, bridges, public transportation facilities, and other types of infrastructure projects serving a substantial public purpose. MBIA Corp. also insures structured finance and asset-backed obligations repayable from expected cash flows generated by a specified pool of assets, such as residential and commercial mortgages, consumer loans and structured settlements. MBIA Insurance Corporation insures the investment agreements written by MBIA Inc., and if MBIA Inc. were to have insufficient assets to pay amounts due upon maturity or termination, MBIA Insurance Corporation would be required to make such payments under its insurance policies. MBIA Insurance Corporation also insures debt obligations of GFL and obligations under certain types of derivative contracts. As of September 30, 2024, MBIA Corp.’s total insured gross par outstanding was $2.5 billion. In addition, MBIA Corp. consolidates insured transactions as VIEs if it determines it is the primary beneficiary, and deconsolidates such VIEs when it is no longer the primary beneficiary.
MBIA Corp. has contributed to the Company’s NOL carryforward, which is used in the calculation of our consolidated income taxes. If MBIA Corp. becomes profitable, it is not expected to make any tax payments under our tax sharing agreement. Based on MBIA Corp.’s current projected earnings and our expectation that it will not write new business outside of remediation activities, we believe it is unlikely that MBIA Corp. will generate significant income in the near future. As a result of MBIA Corp.’s capital structure and business prospects, we do not expect its financial performance to have a material economic impact on MBIA Inc.
The following table presents our international and structured finance insurance segment results for the three and nine months ended September 30, 2024 and 2023:
|
|
|
|
|
Three Months Ended September 30, |
|
|
Percent Change |
|
|
Nine Months Ended September 30, |
|
|
Percent Change |
|
||||||||||||
In millions |
|
2024 |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
2023 |
|
|
|
|
|||||||||
Net premiums earned |
|
$ |
2 |
|
|
$ |
3 |
|
|
|
-33 |
% |
|
$ |
7 |
|
|
$ |
8 |
|
|
|
-13 |
% |
|||
Net investment income |
|
|
3 |
|
|
|
3 |
|
|
|
- |
% |
|
|
8 |
|
|
|
20 |
|
|
|
-60 |
% |
|||
Net realized investment gains (losses) |
|
|
- |
|
|
|
(4 |
) |
|
|
-100 |
% |
|
|
(1 |
) |
|
|
(4 |
) |
|
|
-75 |
% |
|||
Net gains (losses) on financial instruments at fair value and foreign exchange |
|
|
1 |
|
|
|
(1 |
) |
|
n/m |
|
|
|
(63 |
) |
|
|
(6 |
) |
|
n/m |
|
|||||
Fees and reimbursements |
|
|
2 |
|
|
|
1 |
|
|
|
100 |
% |
|
|
7 |
|
|
|
5 |
|
|
|
40 |
% |
|||
Other net realized gains (losses) |
|
|
2 |
|
|
|
2 |
|
|
|
- |
% |
|
|
5 |
|
|
|
3 |
|
|
|
67 |
% |
|||
Revenues of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net gains (losses) on financial instruments at fair value and foreign exchange |
|
|
1 |
|
|
|
(23 |
) |
|
|
-104 |
% |
|
|
(23 |
) |
|
|
(47 |
) |
|
|
-51 |
% |
||
|
Other net realized gains (losses) |
|
|
- |
|
|
|
(7 |
) |
|
|
-100 |
% |
|
|
(14 |
) |
|
|
(25 |
) |
|
|
-44 |
% |
||
|
|
|
Total revenues |
|
|
11 |
|
|
|
(26 |
) |
|
|
-142 |
% |
|
|
(74 |
) |
|
|
(46 |
) |
|
|
61 |
% |
Losses and loss adjustment |
|
|
9 |
|
|
|
(20 |
) |
|
|
-145 |
% |
|
|
6 |
|
|
|
(11 |
) |
|
n/m |
|
||||
Amortization of deferred acquisition costs |
|
|
1 |
|
|
|
1 |
|
|
|
- |
% |
|
|
5 |
|
|
|
5 |
|
|
|
- |
% |
|||
Operating |
|
|
4 |
|
|
|
7 |
|
|
|
-43 |
% |
|
|
17 |
|
|
|
18 |
|
|
|
-6 |
% |
|||
Interest |
|
|
40 |
|
|
|
40 |
|
|
|
- |
% |
|
|
120 |
|
|
|
118 |
|
|
|
2 |
% |
|||
Expenses of consolidated VIEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Operating |
|
|
1 |
|
|
|
1 |
|
|
|
- |
% |
|
|
9 |
|
|
|
9 |
|
|
|
- |
% |
||
|
Interest |
|
|
- |
|
|
|
- |
|
|
|
- |
% |
|
|
1 |
|
|
|
- |
|
|
n/m |
|
|||
|
|
|
Total expenses |
|
|
55 |
|
|
|
29 |
|
|
|
90 |
% |
|
|
158 |
|
|
|
139 |
|
|
|
14 |
% |
Income (loss) from continuing operations before income taxes |
|
$ |
(44 |
) |
|
$ |
(55 |
) |
|
|
-20 |
% |
|
$ |
(232 |
) |
|
$ |
(185 |
) |
|
|
25 |
% |
|||
_______________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
n/m - Percent change not meaningful. |
|
|
|
|
|
|
|
|
|||||||||||||||||||
NET PREMIUMS EARNED Our international and structured finance insurance segment generates net premiums from insurance policies accounted for as financial guarantee contracts. Net premiums earned represent gross premiums earned net of premiums ceded to reinsurers, and include scheduled premium earnings and premium earnings from refunded issues. Certain premiums may be eliminated in our consolidated financial statements as a result of the Company consolidating VIEs. Net premiums earned were primarily non-U.S.
52
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
NET INVESTMENT INCOME The decrease in net investment income for the nine months ended September 30, 2024 compared with the same period of 2023 was primarily due to the acceleration of accretion to par value upon the redemption of securities that were purchased at a discount in 2023.
NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE The net losses for the nine months ended September 30, 2024 was primarily due to fair value losses on investments for which the fair value option was elected. The net losses for the nine months ended September 30, 2023 was primarily driven by foreign exchange losses on the revaluation of non-U.S. dollar insurance balances.
REVENUES OF CONSOLIDATED VIEs The net losses of consolidated VIE revenues for the three and nine months ended September 30, 2024 and 2023 were primarily driven by recognizing credit risk losses from the early redemptions of VIE liabilities and losses from the deconsolidation of VIEs. For the three months ended September 30, 2023, the nine months ended September 30, 2024 and 2023, net losses of consolidated VIE revenues included the reclassification of $11 million, $28 million and $45 million, respectively, of credit risk losses from AOCI to net income (loss). In addition, the three and nine months ended September 30, 2023 included a loss of $7 million from the deconsolidation of a VIE.
LOSSES AND LOSS ADJUSTMENT EXPENSES Our international and structured finance insured portfolio management group is responsible for monitoring international and structured finance insured obligations. The level and frequency of monitoring of any insured obligation depends on the type, size, rating and our assessed performance of the insured issue. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for a description of the Company’s loss reserving policy and additional information related to its insurance loss recoverables and loss and LAE reserves.
For the three months ended September 30, 2024, losses incurred primarily related to a decline in risk-free rates which caused future liabilities, net of recoveries to increase and accretion of loss reserves on our insured RMBS transactions. This was partially offset by a decline in the secured overnight financing rate ("SOFR"), which decreased floating rate liabilities. For the nine months ended September 30, 2024, the incurred loss primarily related to accretion of our insured RMBS loss reserves.
For three and nine months ended September 30, 2023, the incurred benefit primarily related to an increase in risk-free rates used to discount loss reserves, which caused the present value of loss reserves, net of recoveries, to decline. In addition, for the nine months ended September 30, 2023, the incurred benefit was partially offset by the termination of a first-lien RMBS insured transaction for which claim payments were higher than previous reserves.
As a result of the consolidation of VIEs, losses and LAE excluded a losses and LAE benefit of $0.2 million and losses and LAE of $21 million for the three and nine months ended September 30, 2024, respectively, and excluded losses and LAE of $1 million and a losses and LAE benefit of $31 million for the three and nine months ended September 30, 2023, respectively, as VIE losses and LAE are eliminated in consolidation.
The following table presents information about our insurance loss recoverable and loss and LAE reserves as of September 30, 2024 and December 31, 2023:
|
|
|
September 30, |
|
|
December 31, |
|
|
Percent |
|
|||
In millions |
|
2024 |
|
|
2023 |
|
|
Change |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
||||
|
Insurance loss recoverable |
|
$ |
31 |
|
|
$ |
31 |
|
|
|
- |
% |
|
Reinsurance recoverable on paid and unpaid losses (1) |
|
|
- |
|
|
|
2 |
|
|
|
-100 |
% |
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
|
Loss and LAE reserves |
|
|
244 |
|
|
|
243 |
|
|
|
- |
% |
|
Net reserve (salvage) |
|
$ |
213 |
|
|
$ |
210 |
|
|
|
1 |
% |
_______________ |
|
||||||||||||
|
|
||||||||||||
(1) - Reported within "Other assets" on our consolidated balance sheets. |
|
||||||||||||
The insurance loss recoverable primarily relates to reimbursement rights arising from the payment of claims on MBIA Corp.’s policies insuring certain RMBS transactions. Such payments also entitle MBIA Corp. to exercise certain rights and remedies to seek recovery of its reimbursement entitlements.
53
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
POLICY ACQUISITION COSTS AND OPERATING EXPENSES International and structured finance insurance segment expenses for the three and nine months ended September 30, 2024 and 2023 are presented in the following table:
|
|
|
Three Months Ended September 30, |
|
Percent Change |
|
|
Nine Months Ended September 30, |
|
Percent Change |
||||||||||
In millions |
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
||||
Gross expenses |
|
$ |
4 |
|
|
$ |
7 |
|
-43 |
% |
|
$ |
17 |
|
|
$ |
18 |
|
-6 |
% |
Amortization of deferred acquisition costs |
|
$ |
1 |
|
|
$ |
1 |
|
- |
% |
|
$ |
5 |
|
|
$ |
5 |
|
- |
% |
Operating |
|
|
4 |
|
|
|
7 |
|
-43 |
% |
|
|
17 |
|
|
|
18 |
|
-6 |
% |
Total insurance operating expenses |
|
$ |
5 |
|
|
$ |
8 |
|
-38 |
% |
|
$ |
22 |
|
|
$ |
23 |
|
-4 |
% |
Gross expenses represent total insurance expenses before the deferral of any policy acquisition costs. We did not defer a material amount of policy acquisition costs during 2024 or 2023 as no new business was written. Policy acquisition costs in these periods were primarily related to ceding commissions and premium taxes on installment policies written in prior periods.
INTEREST EXPENSE Interest expense relates to MBIA Corp.’s surplus notes that are indexed to 3-month SOFR. During the third quarter of 2023, the Company transitioned from the previously indexed 3-month London Interbank Offered Rate to the 3-month SOFR plus 0.26161%. The increase in interest expense for the nine months ended September 30, 2024 compared with the same period of 2023 was due to an increase in interest rates. Refer to the following “Liquidity and Capital Resources” section for more information about MBIA Corp.’s surplus notes.
International and Structured Finance Insurance Portfolio Exposures
Credit Quality
The credit quality of our international and structured finance insured portfolio is assessed in the same manner as our U.S. public finance insured portfolio. As of September 30, 2024 and December 31, 2023, 23% and 26%, respectively, of our international and structured finance insured portfolio was rated below investment grade, before giving effect to MBIA’s guarantees, based on MBIA’s internal ratings, which are generally more current than the underlying ratings provided by S&P and Moody’s for this subset of our insured portfolio. As of September 30, 2024, below investment grade insurance policies primarily include our first-lien RMBS exposures.
54
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
Selected Portfolio Exposures
MBIA Corp. insures RMBS backed by residential mortgage loans, including first-lien alternative A-paper and subprime mortgage loans directly through RMBS securitizations. As of September 30, 2024 and December 31, 2023, MBIA Corp. had $565 million and $596 million, respectively, of first-lien RMBS gross par outstanding. These amounts include the gross par outstanding related to transactions that the Company consolidates under accounting guidance for VIEs and includes international exposure of $37 million and $39 million, as of September 30, 2024 and December 31, 2023, respectively. In addition, during the nine months ended September 30, 2024, MBIA Corp. terminated all of its remaining ABS CDO exposure. As of December 31, 2023, MBIA Corp. insured $117 million of ABS CDOs.
We may experience considerable incurred losses in certain of these sectors. There can be no assurance that the loss reserves recorded in our financial statements will be sufficient or that we will not experience losses on transactions on which we currently have no loss reserves, in particular if the economy deteriorates. We may seek to purchase, directly or indirectly, obligations guaranteed by MBIA Corp. or seek to commute policies. The amount of insurance exposure reduced, if any, and the nature of any such actions will depend on market conditions, pricing levels from time to time, and other considerations. In some cases, these activities may result in a reduction of loss reserves, but in all cases they are intended to limit our ultimate losses and reduce the future volatility in loss development on the related policies. Our ability to purchase guaranteed obligations and to commute policies will depend on management’s assessment of available liquidity.
Effective in the first quarter of 2022, MBIA Corp. was granted a permitted practice by the New York State Department of Financial Services (“NYSDFS”) related to the purchase of certain MBIA Corp.-insured securities with gross case base loss reserves (“Remediation Securities”). The Remediation Securities are acquired with the intent to terminate or commute the related insurance policies. MBIA Corp. may elect to sell the Remediation Securities to facilitate a termination or commutation.
U.S. Public Finance and International and Structured Finance Reinsurance
Reinsurance enables the Company to cede exposure for purposes of syndicating risk. The Company generally retains the right to reassume the business ceded to reinsurers under certain circumstances, including a reinsurer’s rating downgrade below specified thresholds. Currently, we do not intend to use reinsurance to decrease the insured exposure in our portfolio.
As of September 30, 2024, the aggregate amount of insured par outstanding ceded by MBIA to reinsurers under reinsurance agreements was $693 million compared with $782 million as of December 31, 2023. Under National’s reinsurance agreement with MBIA Corp., if a reinsurer of MBIA Corp. is unable to pay claims ceded by MBIA Corp. on U.S. public finance exposure, National will assume liability for such ceded claim payments. For a further discussion of the Company’s reinsurance, refer to “Note 13: Insurance in Force” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We use a liquidity risk management framework, the primary objective of which is to match liquidity resources to needs. We monitor our cash and liquid asset resources using cash forecasting and stress-scenario testing. Members of MBIA’s senior management meet regularly to review liquidity metrics, discuss contingency plans and establish target liquidity levels. We evaluate and manage liquidity on a legal-entity basis to take into account the legal, regulatory and other limitations on available liquidity resources within the enterprise.
55
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
Consolidated Cash Flows
Information about our consolidated cash flows by category is presented on our consolidated statements of cash flows. The following table summarizes our consolidated cash flows for the nine months ended September 30, 2024 and 2023:
|
|
|
Nine Months Ended September 30, |
|
|
Percent Change |
|
||||||
In millions |
|
2024 |
|
|
2023 |
|
|
2024 vs 2023 |
|
||||
Statement of cash flow data: |
|
|
|
|
|
|
|
|
|
||||
Net cash provided (used) by: |
|
|
|
|
|
|
|
|
|
||||
|
Operating activities |
|
$ |
(179 |
) |
|
$ |
(193 |
) |
|
|
-7 |
% |
|
Investing activities |
|
|
282 |
|
|
|
307 |
|
|
|
-8 |
% |
|
Financing activities |
|
|
(137 |
) |
|
|
(117 |
) |
|
|
17 |
% |
Cash and cash equivalents - beginning of period |
|
|
108 |
|
|
|
78 |
|
|
|
38 |
% |
|
Cash and cash equivalents - end of period |
|
$ |
74 |
|
|
$ |
75 |
|
|
|
-1 |
% |
|
Operating activities
Net cash used by operating activities decreased for the nine months ended September 30, 2024 compared with the same period of 2023 primarily due to a decrease in losses and LAE paid and operating expenses, partially offset by higher net investment income and other proceeds from VIEs in 2023.
Investing activities
Net cash provided by investing activities decreased for the nine months ended September 30, 2024 compared with the same period of 2023 primarily due to higher net proceeds from sales of investments in 2023 related to generating liquidity to pay higher claims and stock repurchases in 2023.
Financing activities
Net cash used by financing activities increased for the nine months ended September 30, 2024 compared with the same period of 2023 primarily due to an increase in principal paydowns of GFL MTNs of $52 million, partially offset by a decrease of $31 million related to purchases of treasury stock. Refer to the following “Liquidity and Capital Resources-Capital Resources” section for additional information on debt repurchases.
Consolidated Investments
The following discussion of investments, including references to consolidated investments, excludes investments reported under “Assets of consolidated variable interest entities” on our consolidated balance sheets. Investments of VIEs support the repayment of VIE obligations and are not available to settle obligations of MBIA. Fixed-maturity securities purchased by the Company are generally designated as AFS. Our AFS investments comprise high-quality fixed-income securities and short-term investments.
The credit quality distribution of the Company’s AFS fixed-maturity investment portfolios, excluding short-term investments, are based on ratings from Moody’s and alternate ratings sources, such as S&P or the best estimate of the ratings assigned by the Company, have been used for a small percentage of securities that are not rated by Moody’s. As of September 30, 2024, the weighted average credit quality rating of the Company’s AFS fixed-maturity investment portfolio, excluding short-term investments, was Aa and 95% of the investments were investment grade.
The fair values of securities in the Company’s AFS fixed-maturity investment portfolio are sensitive to changes in interest rates. Decreases in interest rates generally result in increases in the fair values of fixed-maturity securities and increases in interest rates generally result in decreases in the fair values of fixed-maturity securities.
56
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
Refer to “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on 10-K for the year ended December 31, 2023 and “Note 7: Investments” in the Notes to Consolidated Financial Statements for further information about our accounting policies and investments.
Insured Investments
MBIA’s consolidated investment portfolio includes investments that are insured by various financial guarantee insurers (“Insured Investments”), including investments insured by National and MBIA Corp. (“Company-Insured Investments”). When purchasing Insured Investments, the Company’s third-party portfolio manager independently assesses the underlying credit quality, structure and liquidity of each investment, in addition to the creditworthiness of the insurer. Insured Investments are diverse by sector, issuer and size of holding. The third-party portfolio manager assigns underlying ratings to Insured Investments without giving effect to financial guarantees based on underlying ratings assigned by Moody’s, or S&P when a rating is not published by Moody’s. When a Moody’s or S&P underlying rating is not available, the underlying rating is based on the portfolio manager’s best estimate of the rating of such investment. If the Company determines that declines in the fair values of third-party Insured Investments are related to credit loss, the Company will establish an allowance for credit losses and recognize the credit component through earnings.
As of September 30, 2024, Insured Investments at fair value represented $142 million or 8% of consolidated investments, of which $132 million or 8% of consolidated investments were Company-Insured Investments. As of September 30, 2024, based on the actual or estimated underlying ratings of our consolidated investment portfolio, without giving effect to financial guarantees, the weighted average rating of only the Insured Investments in the investment portfolio would be in the below investment grade range. Without giving effect to the National and MBIA Corp. guarantees of the Company-Insured Investments in the consolidated investment portfolio, as of September 30, 2024, based on actual or estimated underlying ratings, the weighted average rating of the consolidated investment portfolio was in the Aa range. The weighted average rating of only the Company-Insured Investments was in the below investment grade range, and investments rated below investment grade in the Company-Insured Investments were 7% of the total consolidated investment portfolio.
National Liquidity
The primary sources of cash available to National are:
The primary uses of cash by National are:
As of September 30, 2024 and December 31, 2023, National held cash and investments of $1.2 billion and $1.3 billion, respectively, of which $75 million was cash and cash equivalents or short-term investments comprised of highly rated commercial paper, money market funds and municipal, U.S. agency and corporate bonds.
The insurance policies issued or reinsured by National provide unconditional and irrevocable guarantees of payments of the principal of, and interest or other amounts owing on, insured obligations when due. In the event of a default in payment of principal, interest or other insured amounts by an issuer, National generally promises to make funds available in the insured amount within one to three business days following notification. In some cases, the amount due can be substantial, particularly if the default occurs on a transaction to which National has a large notional exposure or on a transaction structured with large, bullet-type principal maturities. The U.S. public finance insurance segment’s financial guarantee contracts generally cannot be accelerated by a party other than the insurer which helps to mitigate liquidity risk in this segment.
57
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
As of September 30, 2024, National has a stand-alone NOL carryforward of $586 million. If National becomes profitable, it is not expected to make any tax payments under our tax sharing agreement until it fully utilizes the available stand-alone NOL.
Corporate Liquidity
The primary sources of cash available to MBIA Inc. are:
assets; and
The primary uses of cash by MBIA Inc. are:
As of September 30, 2024 and December 31, 2023, the liquidity positions of MBIA Inc. were $326 million and $411 million, respectively, and included cash and cash equivalents and other investments comprised of highly rated commercial paper and U.S. government and asset-backed bonds.
Based on our projections of National’s and MBIA Corp.’s future earnings and losses, we expect that for the foreseeable future National will be the primary source of payments to MBIA Inc. There can be no assurance as to the amount and timing of any future dividends from National. We expect that National will continue to seek approval to pay special dividends to MBIA Inc. in future years. However, there can be no assurance whether or when NYSDFS will approve such requests and, if the NYSDFS does approve such dividends, in what amounts. Refer to the following “Liquidity and Capital Resources-Capital Resources” section for additional information on payments of dividends. We do not expect MBIA Inc. to receive dividends from MBIA Corp.
Furthermore, any future dividend payments by MBIA Inc. to shareholders are within the absolute discretion of our board of directors and will depend on, among other things, the receipt of additional special dividends from National, our results of operations, working capital requirements, capital expenditure requirements, financial condition, level of indebtedness, contractual restrictions with respect to the payment of dividends, business opportunities, anticipated cash needs, provisions of applicable law and other factors that our board of directors may deem relevant.
Currently, a portion of the cash and securities held by MBIA Inc. is pledged against investment agreement liabilities, the Asset Swap (simultaneous repurchase and reverse repurchase agreement), which limits its ability to raise liquidity through asset sales of these securities. As the market value or rating eligibility of the assets pledged against MBIA Inc.’s obligations declines, we are required to pledge additional eligible assets in order to meet minimum required collateral amounts against these liabilities. To mitigate these risks, we seek to maintain cash and liquidity resources that we believe will be sufficient to make all payments due on our obligations and to meet other financial requirements, such as posting collateral. Contingent liquidity resources include sales of invested assets exposed to credit spread stress risk, which may occur at losses, and accessing the capital markets. These actions, if taken, are expected to result in either additional liquidity or reduced exposure to adverse credit spread movements. There can be no assurance that these actions will be sufficient to fully mitigate this risk.
MBIA Corp. Liquidity
The primary sources of cash available to MBIA Corp. are:
58
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
The primary uses of cash by MBIA Corp. are:
As of September 30, 2024 and December 31, 2023, MBIA Corp. held cash and investments of $235 million and $323 million, respectively, of which $27 million and $41 million, respectively, were cash and cash equivalents or liquid investments comprised of money market funds and municipal, U.S. Treasury and corporate bonds that were immediately available to MBIA Insurance Corporation.
Insured obligations that require payment of scheduled debt service payments when due or payment in full of the principal insured at maturity could present liquidity risk for MBIA Corp., as any salvage recoveries from such payments could be recovered over an extended period of time after the payment is made. MBIA Corp. is generally required to satisfy claims within one to three business days, and as a result seeks to identify potential claims in advance through our monitoring process. In order to monitor liquidity risk and maintain appropriate liquidity resources, we use the same methodology as we use to monitor credit quality and losses within our insured portfolio, including stress scenarios.
Contractual Obligations
For a discussion of the Company’s contractual obligations, refer to “Liquidity and Capital Resources - Liquidity - Contractual Obligations” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There were no material changes in contractual obligations since December 31, 2023.
Capital Resources
The Company manages its capital resources to minimize its cost of capital while maintaining appropriate claims-paying resources (“CPR”) for National and MBIA Corp. The Company’s capital resources consist of total shareholders’ equity, total debt issued by MBIA Inc. for general corporate purposes and surplus notes issued by MBIA Corp. In addition to scheduled debt maturities, from time to time, we reduce unsecured debt through calls or repurchases. Also, MBIA Inc. may repurchase or National may purchase outstanding MBIA Inc. common shares when we deem it beneficial to our shareholders. Purchases or repurchases of debt and common stock may be made from time to time in the open market or in private transactions as permitted by securities laws and other legal requirements. We may also choose to redeem debt obligations where permitted by the relevant agreements. MBIA Inc. or National may acquire or redeem outstanding common shares of MBIA Inc. and outstanding debt obligations at prices when we deem it beneficial to our shareholders. We seek to maintain sufficient liquidity and capital resources to meet the Company’s general corporate needs and debt service. Based on MBIA Inc.’s debt service requirements and expected operating expenses, we expect that MBIA Inc. will have sufficient resources to satisfy its debt obligations and its general corporate needs over time from distributions from National; however, there can be no assurance that MBIA Inc. will have sufficient resources to do so. In addition, the Company may also consider raising third-party capital. Refer to “Capital, Liquidity and Market Related Risk Factors” in Part I, Item 1A of our Form 10-K for the year ended December 31, 2023 and the “Liquidity and Capital Resources—Liquidity—Corporate Liquidity” section included herein for additional information about MBIA Inc.’s liquidity.
Debt securities
During the nine months ended September 30, 2024, the Company repurchased $63 million par value outstanding of GFL MTNs with maturities in 2024 and 2025 issued by our corporate segment at a discount.
During the nine months ended September 30, 2024, MBIA Inc. repurchased $16 million principal amount of its Debentures.
59
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
Insurance Statutory Capital
National and MBIA Insurance Corporation are incorporated and licensed in, and are subject to primary insurance regulation and supervision by the NYSDFS. MBIA Mexico is regulated by the Comisión Nacional de Seguros y Fianzas in Mexico. National and MBIA Insurance Corporation each are required to file detailed annual financial statements, as well as interim financial statements, with the NYSDFS and similar supervisory agencies in each of the other jurisdictions in which it is licensed. These financial statements are prepared in accordance with New York State and with statutory accounting principles ("U.S. STAT") and assist our regulators in evaluating minimum standards of solvency, including minimum capital requirements, and business conduct.
National – Statutory Capital and Surplus
National had statutory capital of $1.0 billion and $1.1 billion as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, National’s policyholders' surplus was $687 million. For the nine months ended September 30, 2024, National had a statutory net loss of $123 million. Refer to the “National — Claims - Paying Resources (Statutory Basis)” section below for additional information on National’s statutory capital.
In order to maintain its New York State financial guarantee insurance license, National is required to maintain a minimum of $65 million of policyholders’ surplus. National is also required to maintain contingency reserves to provide protection to policyholders in the event of extreme losses in adverse economic events. As of September 30, 2024, National was in compliance with its aggregate risk limits under New York Insurance Law (“NYIL”), but was not in compliance with certain of its single risk limits. Since National does not comply with certain of its single risk limits, the NYSDFS could prevent National from transacting any new financial guarantee insurance business.
NYIL regulates the payment of dividends by financial guarantee insurance companies and provides that such companies may not declare or distribute dividends except out of statutory earned surplus. National had positive earned surplus as of September 30, 2024 from which it may pay dividends, subject to limitations. Under NYIL, the sum of (i) the amount of dividends declared or distributed during the preceding 12-month period and (ii) the dividend to be declared may not exceed the lesser of (a) 10% of policyholders’ surplus, as reported in the latest statutory financial statements or (b) 100% of adjusted net investment income for such 12-month period (the net investment income for such 12-month period plus the excess, if any, of net investment income over dividends declared or distributed during the two-year period preceding such 12-month period), unless the Superintendent of the NYSDFS approves a greater dividend distribution based upon a finding that the insurer will retain sufficient surplus to support its obligations.
National – Claims-Paying Resources (Statutory Basis)
CPR is a key measure of the resources available to National to pay claims under its insurance policies. CPR consists of total financial resources and reserves calculated on a statutory basis. CPR has been a common measure used by financial guarantee insurance companies to report and compare resources and continues to be used by MBIA’s management to evaluate changes in such resources. We have provided CPR to allow investors and analysts to evaluate National using the same measure that MBIA’s management uses to evaluate National’s resources to pay claims under its insurance policies. There is no directly comparable GAAP measure. Our calculation of CPR may differ from the calculation of CPR reported by other companies.
60
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
National’s CPR and components thereto, as of September 30, 2024 and December 31, 2023 are presented in the following table:
|
|
|
As of September 30, |
|
|
As of December 31, |
|
||
In millions |
|
2024 |
|
|
2023 |
|
|||
Policyholders' surplus |
|
$ |
687 |
|
|
$ |
763 |
|
|
Contingency reserves |
|
|
313 |
|
|
|
354 |
|
|
|
Statutory capital |
|
|
1,000 |
|
|
|
1,117 |
|
Unearned premiums |
|
|
215 |
|
|
|
237 |
|
|
Present value of installment premiums (1) |
|
|
98 |
|
|
|
101 |
|
|
|
Premium resources (2) |
|
|
313 |
|
|
|
338 |
|
Net loss and LAE reserves (1) |
|
|
105 |
|
|
|
75 |
|
|
Salvage reserves on paid claims (1) |
|
|
168 |
|
|
|
151 |
|
|
|
Gross loss and LAE reserves |
|
|
273 |
|
|
|
226 |
|
Total claims-paying resources |
|
$ |
1,586 |
|
|
$ |
1,681 |
|
|
________________ |
|
|
|
|
|
|
|||
(1) - Calculated using a discount rate of 4.67% as of September 30, 2024 and December 31, 2023, respectively. |
|
||||||||
(2) - Includes financial guarantee and insured derivative related premiums. |
|
||||||||
MBIA Insurance Corporation – Statutory Capital and Surplus
MBIA Insurance Corporation had statutory capital of $87 million as of September 30, 2024 compared with $152 million as of December 31, 2023. As of September 30, 2024, MBIA Insurance Corporation’s negative unassigned surplus was $1.9 billion. For the nine months ended September 30, 2024, MBIA Insurance Corporation had a statutory net loss of $68 million. Refer to the “MBIA Insurance Corporation — Claims - Paying Resources (Statutory Basis)” section below for additional information on MBIA Insurance Corporation’s statutory capital.
In order to maintain its New York State financial guarantee insurance license, MBIA Insurance Corporation is required to maintain a minimum of $65 million of policyholders’ surplus. In addition, under NYIL, MBIA Insurance Corporation is required to invest its minimum surplus and contingency reserves and 50% of its loss reserves and unearned premium reserves in certain qualifying assets. As of September 30, 2024, MBIA Insurance Corporation maintained its minimum requirement of policyholders’ surplus but did not have enough qualifying assets to support its contingency reserves and 50% of its loss reserves and unearned premium reserves. As of September 30, 2024, MBIA Insurance Corporation was in compliance with its aggregate risk limits under the NYIL, but was not in compliance with certain of its single risk limits. Since MBIA Insurance Corporation does not comply with its single risk limits, the NYSDFS could prevent MBIA Insurance Corporation from transacting any new financial guarantee insurance business.
MBIA Insurance Corporation is also required to maintain contingency reserves to provide protection to policyholders in the event of extreme losses in adverse economic events. MBIA Corp. maintains a fixed $5 million of contingency reserves.
Due to its significant earned surplus deficit, MBIA Insurance Corporation has not had the statutory capacity to pay dividends since December 31, 2009. Based on estimated future income, MBIA Insurance Corporation is not expected to have any statutory capacity to pay dividends.
61
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
The NYSDFS has not approved MBIA Insurance Corporation’s requests to make interest payments on MBIA Insurance Corporation’s Surplus Notes due January 15, 2033 (the “Surplus Notes”) since, and including, the January 15, 2013 interest payment. The NYSDFS has cited both MBIA Insurance Corporation’s liquidity and financial condition as well as the availability of “free and divisible surplus” as the basis for such non-approvals. As of October 15, 2024, the most recent scheduled interest payment date, there was $1.5 billion of unpaid interest on the par amount outstanding of $953 million of the Surplus Notes. Under Section 1307 of the NYIL and the Fiscal Agency Agreement governing the surplus notes, Surplus Note payments may be made only with the prior approval by the NYSDFS and if MBIA Insurance Corporation has sufficient “Eligible Surplus”, or as we believe, “free and divisible surplus” as an appropriate calculation of “Eligible Surplus.” As of September 30, 2024, MBIA Insurance Corporation had “free and divisible surplus” of $64 million. There is no assurance the NYSDFS will approve Surplus Note payments, notwithstanding the sufficiency of MBIA Insurance Corporation’s liquidity and financial condition. The unpaid interest on the Surplus Notes will become due on the first business day on or after which MBIA Insurance Corporation obtains approval to pay some or all of such unpaid interest. No interest has been accrued or will accrue on the deferred interest.
MBIA Insurance Corporation — Claims - Paying Resources (Statutory Basis)
CPR is a key measure of the resources available to MBIA Corp. to pay claims under its insurance policies. CPR consists of total financial resources and reserves calculated on a statutory basis. CPR has been a common measure used by financial guarantee insurance companies to report and compare resources, and continues to be used by MBIA’s management to evaluate changes in such resources. We have provided CPR to allow investors and analysts to evaluate MBIA Corp., using the same measure that MBIA’s management uses to evaluate MBIA Corp.’s resources to pay claims under its insurance policies. There is no directly comparable GAAP measure. Our calculation of CPR may differ from the calculation of CPR reported by other companies.
MBIA Corp.’s CPR and components thereto, as of September 30, 2024 and December 31, 2023 are presented in the following table:
|
|
|
As of September 30, |
|
|
As of December 31, |
|
||
In millions |
|
2024 |
|
|
2023 |
|
|||
Policyholders’ surplus |
|
$ |
82 |
|
|
$ |
147 |
|
|
Contingency reserves |
|
|
5 |
|
|
|
5 |
|
|
|
Statutory capital |
|
|
87 |
|
|
|
152 |
|
Unearned premiums |
|
|
24 |
|
|
|
30 |
|
|
Present value of installment premiums (1) |
|
|
22 |
|
|
|
26 |
|
|
|
Premium resources (2) |
|
|
46 |
|
|
|
56 |
|
Net loss and LAE reserves (1) |
|
|
48 |
|
|
|
27 |
|
|
Salvage reserves on paid claims (1) (3) |
|
|
177 |
|
|
|
269 |
|
|
|
Gross loss and LAE reserves |
|
|
225 |
|
|
|
296 |
|
Total claims-paying resources |
|
$ |
358 |
|
|
$ |
504 |
|
|
________________ |
|
||||||||
(1) - Calculated using a discount rate of 5.48% as of September 30, 2024 and December 31, 2023. |
|
||||||||
(2) - Includes financial guarantee and insured derivative related premiums. |
|
||||||||
(3) - This amount primarily consists of expected recoveries related to the payment of claims on insured CDOs and RMBS. In addition, the December 31, 2023 amount includes salvage related to a permitted practice granted by NYSDFS. |
|
||||||||
62
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CRITICAL ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in accordance with GAAP, which requires the use of estimates and assumptions. Management has discussed and reviewed the development, selection, and disclosure of critical accounting estimates with the Company’s Audit Committee. Our most critical accounting estimates include loss and LAE reserves and valuation of financial instruments, since these estimates require significant judgment. Any modifications in these estimates could materially impact our financial results.
For a discussion of the Company’s critical accounting estimates, refer to “Critical Accounting Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. In addition, refer to “Note 5: Loss and Loss Adjustment Expense Reserves” and “Note 6: Fair Value of Financial Instruments” in the Notes to Consolidated Financial Statements for a current description of estimates used in our insurance loss reserving process and information about our financial assets and liabilities that are accounted for at fair value, including valuation techniques and significant inputs.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to “Note 3: Recent Accounting Pronouncements” in the Notes to Consolidated Financial Statements for a discussion of new accounting pronouncements and the potential impact on the Company's consolidated financial statements.
63
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s market risk exposures relate to changes in interest rates, foreign exchange rates and credit spreads that affect the fair value of its financial instruments, primarily investment securities, MTNs and investment agreement liabilities. The Company’s investments are primarily U.S. dollar-denominated fixed-income securities including municipal bonds, U.S. government bonds, corporate bonds, mortgage-backed and asset-backed securities. In periods of rising and/or volatile interest rates, foreign exchange rates and credit spreads, profitability could be adversely affected should the Company have to liquidate these securities. The Company minimizes its exposure to interest rate risk, foreign exchange risk and credit spread movement through active portfolio management to ensure a proper mix of the types of securities held and to stagger the maturities of its fixed-income securities. There were no material changes in market risk since December 31, 2023 related to interest rates, foreign exchange rates credit spreads. For a discussion of our quantitative and qualitative disclosures about market risk, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures
As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) was performed under the supervision and with the participation of the Company’s senior management, including the Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the fiscal quarter to which this report relates that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.
64
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of the Company’s litigation and related matters, see “Note 12: Commitments and Contingencies” in the Notes to Consolidated Financial Statements of MBIA Inc. and Subsidiaries in Part I, Item 1. In the normal course of operating its businesses, MBIA Inc. may be involved in various legal proceedings. As a courtesy, the Company posts on its website under the section “Legal Proceedings,” selected information and documents in reference to selected legal proceedings in which the Company is the plaintiff or the defendant. The Company will not necessarily post all documents for each proceeding and undertakes no obligation to revise or update them to reflect changes in events or expectations. The complete official court docket can be publicly accessed by contacting the clerk’s office of the respective court where each litigation is pending.
Item 1A. Risk Factors
The following should be read in conjunction with and supplements the risk factors described under Part I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Except as set forth below, there have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Insured Portfolio Loss Related Risk Factors
Some of the state, local and territorial governments and finance authorities and other providers of public services, located in the U.S. or abroad, that issued public finance obligations we insured are experiencing fiscal stress that could result in increased credit losses or impairments on those obligations.
Certain issuers are reporting fiscal stress that has resulted in a significant increase in taxes and/or a reduction in spending or other measures in efforts to satisfy their financial obligations. In particular, certain jurisdictions have significantly underfunded pension liabilities which are placing additional stress on their finances and are particularly challenging to restructure either through negotiation or under Chapter 9 of the United States Bankruptcy Code. If the issuers of the obligations in our public finance portfolio are unable to raise taxes, or increase other revenues, cut spending, reduce liabilities, and/or receive state or federal assistance, we may experience losses or impairments on those obligations, which could materially and adversely affect our business, financial condition and results of operations. The financial stress experienced by certain municipal issuers could result in the filing of Chapter 9 proceedings in states where municipal issuers are permitted to seek bankruptcy protection. In these proceedings, which remain rare, the resolution of bondholder claims (and by extension, those of bond insurers) may be subject to legal challenge by other creditors.
In particular, while the Commonwealth of Puerto Rico has completed its court-ordered restructuring pursuant to the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), the Puerto Rico Electric Power Authority (“PREPA”) currently remains in a bankruptcy-like proceeding under PROMESA in the United States District Court for the District of Puerto Rico.
As of September 30, 2024, National had $670 million of insured debt service outstanding related to PREPA. On January 1, 2024 and July 1, 2024, PREPA defaulted on scheduled debt service for certain National insured bonds and National paid gross claims in the aggregate of $16 million and $122 million, respectively.
On January 29, 2024, the First Circuit Court of Appeals heard argument on the appeal of Judge Swain's ruling on the scope of the bondholder liens and the allowed amount of the under-secured portion of the bondholders' unsecured claim. On June 12, 2024, the First Circuit reversed Judge Swain's prior rulings on bondholder liens and claim amounts. On June 26, 2024, the Oversight Board filed a petition for a First Circuit panel rehearing, and the Unsecured Creditors Committee filed an en banc appeal. Both are currently pending. Following a status conference held on July 10, 2024, the Court imposed a 60-day stay of all litigation and other filings related to the amended Plan, and ordered the parties into mediation. The stay was subsequently extended until January 31, 2025. The Oversight Board unilaterally altered the consideration provided in the amended PREPA RSA and, as a result, National provided notice to the Oversight Board that National did not support the board's actions and that such actions constituted a breach and termination of the PREPA RSA, as amended. There is no assurance that a plan that is substantially similar in the treatment of National's claims and rights will ultimately be confirmed and become effective.
Refer to the “U.S. Public Finance Insurance Puerto Rico Exposures” section in Part I, Item 2 of this Form 10-Q for additional information on our Puerto Rico exposures.
65
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
The table below presents purchases or repurchases made by the Company or National in each month during the third quarter of 2024:
|
|
|
|
Total Number |
|
|
|
Maximum Amount That |
|
|||||||
|
|
|
Total |
|
|
|
Average |
|
|
|
of Shares |
|
|
|
May Be |
|
|
|
|
Number |
|
|
|
Price |
|
|
|
Purchased as |
|
|
|
Purchased |
|
Month |
|
|
of Shares Purchased (1) |
|
|
|
Paid Per Share |
|
|
|
Part of Publicly Announced Plan |
|
|
|
Under the Plan (in millions) (2) |
|
July |
|
|
113 |
|
|
$ |
4.91 |
|
|
|
0 |
|
|
$ |
71 |
|
August |
|
|
152 |
|
|
|
3.72 |
|
|
|
0 |
|
|
|
71 |
|
September |
|
|
155 |
|
|
|
3.57 |
|
|
|
0 |
|
|
|
71 |
|
|
|
|
420 |
|
|
$ |
3.98 |
|
|
|
0 |
|
|
|
|
|
66
Item 6. Exhibits
*31.1. |
Chief Executive Officer—Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
*31.2. |
Chief Financial Officer—Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
**32.1. |
|
**32.2. |
|
*101.INS. |
XBRL Instance Document – the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the Inline XBRL document. |
*101.SCH. |
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
*104. |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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MBIA Inc. (Registrant) |
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Date: November 7, 2024 |
/s/ Joseph R. Schachinger |
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Joseph R. Schachinger |
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Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) |
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