MBIA Inc. reported a loss in the second quarter as near record low interest rates made it harder to sell municipal bond insurance and the company focused on managing its exposure in Puerto Rico.
The net loss under generally accepted accounting principles of $27 million or $0.20 cents a share, compared with GAAP income of $64 million or $0.36 cents a share a year earlier, MBIA
Combined operating income fell to $15 million from $19 million, while it rose to 12 cents a share from 11 cents a year earlier. The decline in operating income was primarily driven by lower premiums earned, while the company used share repurchases to increase in combined operating income per share, MBIA said.
"Focus inside and outside the Company remains on National's Puerto Rico's exposures," said Bill Fallon, president and chief operating officer of MBIA, referring to National Public Finance Guarantee, MBIA's municipal-only unit.
President Obama on June 30 signed the Puerto Rico Oversight, Management, and Economic Stability Act, setting the stage for a restructuring of the island's debts. Separately, the Puerto Rico Electric Power Authority is working on an agreement with its creditors that has been extended into December this year, Fallon said.
"On July 1, Puerto Rico defaulted on some of its debt service obligations and National paid $173 million of claims – primarily on the General Obligation bonds," Fallon said. "Despite Puerto Rico's misguided decision to violate its constitution and the seniority of payments on its debts, we are pleased by the positive reactions of our insured bondholders and analysts who are increasingly recognizing the value bond insurance provides, and we remain confident that insurance penetration in the market will benefit as a result."
Adjusted book value per share increased to $32.42 as of June 30, 2016 from $29.69 as of Dec. 31. The increase was "driven by the repurchase of 16.6 million shares during the first six months of 2016," MBIA said
At NPFG, GAAP income increased to $50 million from $37 million. "The $13 million increase in net income was primarily driven by a $25 million increase in net gains (losses) on financial instruments due to the sale of investments," according to the release
National wrote $209 million gross par amount of new insurance, up from $158 million and also reported a decline in operating incoming to $34 million from $40 million.
"The expansion of our new business activity continues to be constrained by low interest rates and competitive insurance pricing, which limit the opportunities to achieve attractive returns on our new business production," the company said.
Also, during the second quarter, certain PREPA creditors, including National, purchased new bonds issued by PREPA to replenish PREPA's working capital and to enhance its liquidity.
"Further, now that PROMESA has become law, we anticipate better progress in reaching resolutions on each of our insured Puerto Rico credits. In the meantime," Fallon said, "National's new business efforts continue to make headway, despite the ongoing challenges of the low interest rate environment."
