MBIA Inc. and its municipal bond insurance unit reported profits declined for a second straight quarter as a drop in muni issuance and interest rates near historic lows continued to crimp business for debt guarantors.
Combined operating income fell to $16 million from $34 million in the same period last year, MBIA said in a statement after markets closed Monday. The company attributed the decline to a decrease in net premiums earned and an increase in losses and loss adjustment expenses.
MBIA also reported a net loss of $78 million under generally accepted accounting principles, compared with GAAP net income of $69 million during the first three months of 2015. Adjusted book value increased to $31.74 a share from $29.69 as the company repurchased 15 million of its common stock.
"We are also continuing with our financial progress with another quarter of operating income," said Bill Fallon, MBIA's chief operating officer. "The GAAP net loss for the quarter was driven by two large fair value items. MBIA Inc.'s liquidity position remains among our highest priorities, and we expect that continuing payments from National [Public Finance Guarantee Corp.] will satisfy MBIA Inc.'s future liquidity needs."
Fallon said share repurchases drove an increase of $2.05 of ABV for the quarter, as the company looked to increase shareholder value as new business ramps up.
National, the muni only arm of MBIA, said GAAP income slipped to $41 million, from $57 million during the same period last year. National cited a decline in premiums earned and an unfavorable variance of $15 million for losses and LAE as the primary reason for the decline.
National also reported a decline in operating incoming to $37 million in the first quarter from $56 million a year earlier. The decline was primarily due to a drop in premiums earned and an unfavorable variance of $15 million for losses and LAE, National said.
National wrote $158 million gross par amount of new insurance during the first quarter of 2016, equal to the amount written during the fourth quarter of 2015 and up from $38 million in the first quarter of 2015. Gross premiums written during the first quarter of 2016 were $1.3 million, matching the fourth quarter amount and improving on the $195 thousand written in the first quarter of 2015.
"National's new business platform continues to expand," said Bill Fallon. "We are making steady headway with our expanded new business team, despite the ongoing challenging business environment for our industry."
Mark Palmer, analyst at BTIG LLC, said in a report released on Monday that the amount of new municipal bond insurance that MBIA wrote during the first quarter remained tepid due to the persistent low-interest-rate environment. The firm's gross insured exposure of $3.86 billion to Puerto Rico's debt as of March 31 remains an overhang as the Commonwealth approaches potential defaults on nearly $2 billion in debt on July 1, Palmer said.
"Even so, MBIA during the first quarter demonstrated its ability to engineer shareholder value amidst such challenges as it boosted ABV per share by $2.05 or almost 7%," Palmer wrote in the report. "We note that when we use the steep haircuts to various Puerto Rico debt issues that were included in the Commonwealth's latest proposal to creditors – as this was the Commonwealth's offer, we believe it can be viewed as a worst-case scenario – to calculate the impact on MBI, the result is a loss per share of $7.42 of ABV."
BTIG expects more clarity on the Puerto Rico situation by the time MBIA releases its second quarter results in August, as The U.S. House Natural Resources Committee is set to release its latest iteration of H.R. 4900, otherwise known as the PROMESA bill, tomorrow, with a vote likely to be scheduled for a week later.
"Investors will be watching for any change to the debt restructuring provision in the bill, as the retention of collective action clauses (CACs) would be relatively more benign for MBI and its peers, while the debt cramdowns favored by the Obama Administration would be less so," Palmer said.
Next month, Palmer said, the U.S. Supreme Court is expected to release its ruling on Puerto Rico's appeal of its Recovery Act, which had been invalidated by a U.S. district court and San Juan, in a decision upheld by the U.S. Court of Appeals First Circuit. If the law were to be reinstated, it would provide the Commonwealth with a bankruptcy-like framework it could apply to the debt of its public corporations.
"We continue to strive for appropriate resolutions for our Puerto Rico credits," Fallon said. "But progress remains slow as the debates rage as to the appropriate course of action for U.S. Congress to implement."
