MBIA Inc. said first quarter profit of its U.S. public finance business fell as premiums from refunding transactions declined for the second straight quarter.

MBIA's National Public Finance Guarantee Corp. unit recorded GAAP net income of $27 million for the first quarter of 2017 versus $41 million for the first quarter of 2016, according to a press release Wednesday. The decline was primarily due to a $17 million drop in net premiums earned.

MBIA reported its consolidated general accepted accounting principles net loss narrowed to $72 million or $0.55 a share for the first quarter of 2017, from the consolidated GAAP net loss of $78 million, or $0.58 per share, a year earlier.

According to the report , the reduction in year-over-year consolidated GAAP net loss was primarily due to fair value gains associated with interest rate swaps and common stock warrants and lower foreign exchange losses, largely offset by greater loss and loss adjustment expenses, primarily at MBIA Insurance Corporation, and lower net premiums earned.

National Public Finance Guarantee chief executive officer Bill Fallon said he was disappointed with the Puerto Rico Oversight Board.
Bill Fallon, MBIA’s chief operating officer and National's CEO.

“National continues to execute on a disciplined and measured expansion of its business activities,” said Bill Fallon, MBIA’s chief operating officer. “Since re-entering the market in 2014, National has now insured business in 27 states, having insured transactions in 5 new states in 2016 and in another 7 new states in the first quarter of 2017. National’s business production in the first quarter of 2017 was its second-highest quarter by policies issued since it re-entered the market.”

NPFG recorded $25 million of operating income in the first quarter of 2017 compared with $37 million of operating income in the same period of 2016. The decline in was also primarily due to the decline in net premiums earned.

Total net premiums earned in the U.S. public finance insurance segment was $41 million in the first quarter of 2017, down 29% from $58 million of total premiums earned in the same period of 2016. Premiums earned from refunded transactions decreased 35% and scheduled premiums earned declined by 20%. The decline in scheduled premiums earned resulted from the continued decrease of National’s insured portfolio, the release said.

“More significantly, National’s capital position continues to strengthen, driven by an $8 billion net reduction of insured exposure during the quarter, which further improves its capacity for its first special dividend payment,” Fallon said.

National wrote $252 million gross par of new insurance during the first quarter of 2017, up from $158 million written during the first quarter of 2016. National wrote $1.7 billion of gross par for the four quarters ending March 31, 2017 versus $0.7 billion for the four quarters ending March 31, 2016.

The U.S. Public Finance Insurance segment recorded loss and loss adjustment expenses of $11 million in the first quarter of 2017, compared with $9 million in the first quarter of 2016. The increase in losses and loss adjustment expenses was primarily due to additions for certain Puerto Rico credits in the first quarter of 2017.

The amortization of deferred acquisition costs totaled $8 million in the first quarter of 2017 compared with $12 million in the same period of 2016. The decrease in the amortization of deferred acquisition costs corresponds to lower premiums earned.

National’s operating expenses were $17 million in the first quarter of 2017 versus $15 million in the same period of 2016.

National had statutory capital of $3.5 billion and claims-paying resources totaling $4.6 billion as of March 31, 2017. National’s insured portfolio declined by $8 billion during the quarter, ending the quarter with $102 billion of gross par outstanding. National ended the quarter with a leverage ratio of gross par outstanding to statutory capital of 29 to 1, down from 32 to 1 as of year-end 2016.

The parent company reported a 2016 net loss under general accepted accounting principles of $72 million, or $0.55 a share, compared with a loss of $78 million or $0.58 a share in 2015. MBIA said the reduction in year-over-year consolidated GAAP net loss was primarily due to fair value gains associated with interest rate swaps and common stock warrants and lower foreign exchange losses, largely offset by greater loss and loss adjustment expenses, primarily at MBIA Insurance Corporation, and lower net premiums earned.

National's book value per share was $23.87 as of Dec. 31, compared with $24.61 a year earlier. The decrease in book value per share since year-end 2015 was primarily due to the $324 million or $2.40 per share after-tax impairment recorded during the fourth quarter of 2016 associated with the sale of MBIA UK, partially offset by share repurchases that decreased common shares outstanding, they said.

MBIA's combined operating income for the full year 2016 was $30 million or $0.23 per diluted share compared to $87 million or $0.52 per diluted share for the full year 2015. According to the report, the decline in combined operating income for 2016 compared to 2015 was driven primarily by $69 million of higher loss and loss adjustment expenses and a $68 million reduction of net premiums earned, partially offset by a favorable variance in the provision for income taxes.

The company also said that the calculation of adjusted book value per share was refined in the fourth quarter of 2016 to exclude MBIA Insurance Corp. as a separate stand-alone legal entity, and that previously, the calculation of ABV excluded the international and structured finance insurance segment, which is not the same as the legal entity MBIA Insurance Corp.

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