Q4 2023 MBIA Inc Earnings Call
Participants
Greg Diamond; Managing Director, Investor & Media Relations; MBIA Inc
William Fallon; Chief Executive Officer, Director; MBIA Inc
Anthony McKiernan; Chief Financial Officer, Executive Vice President; MBIA Inc
Tommy McJoynt; Analyst; Keefe, Bruyette & Woods, Inc.
Ethan Meister
John Stanley; Analyst; Stanley Capital Advisors
Paul Saunders; Analyst; Hutch Capital Management
Presentation
Operator
Welcome to the MBIA. Inc. fourth quarter and full year 2023 financial results conference call. I would now like to turn the call over to Greg Diamond, Managing Director of Investor and Media Relations at MDA. Please go ahead, sir.
Greg Diamond
Thank you, Brittany, and welcome to MBIA's conference call for our full year and fourth quarter 2023 financial results. After the market closed yesterday, we issued and posted several items on our websites, including our financial results, 10 K, quarterly operating supplement and statutory financial statements for both MBA Insurance Corporation and National Public Finance Guarantee Corporation.
Regarding today's call, please note that anything said on the call is qualified by the information provided in the Company's 10 K and other SEC filings as our company's definitive disclosures are incorporated in those documents. We urge investors to read our 10 K as it contains our most current disclosures about the Company and its financial and operating results. The 10 K also contains information that may not be addressed on today's call. The definitions and reconciliations of the non-GAAP terms included in our remarks today are also included in our 10 K as well as our financial results report and our quarterly operating supplement. The recorded replay of today's call will become available approximately two hours after the end of the call, and the information for accessing it is included in last week's press announcement and in the financial results report posted yesterday on the NBIA. website.
Now I'll read our Safe Harbor disclosure statement. Our remarks on today's conference call may contain forward-looking statements. Important factors such as general market conditions and the competitive environment could cause our actual results to differ materially from the projected results referenced in our forward-looking statements. Risk factors are detailed in our 10 K, which is available on our website at MDA.com. The Company cautions not to place undue reliance on any such forward-looking statements the Company also undertakes no obligation to publicly correct or update any forward-looking statements if it later becomes aware that such statement is no longer accurate.
For our call today, Bill Fallon and Anthony McKiernan will provide introductory comments and then a question and answer session will follow. Now. Here's Bill Fallon.
William Fallon
Thanks, Greg. Good morning, everyone. Thanks for being with us today. In December, we obtained the approval from the New York Department of Financial Services for National to pay an extraordinary dividend of $550 million from its excess capital that enabled MBIA Inc pay an extraordinary dividend of $8 per share to our shareholders that qualified as a return of capital but also retained about $235 million of National's dividends at the holding company to enhance MBIX. liquidity and financial flexibility.
At this time, our primary objectives are to resolve our remaining Puerto Rico exposure and then restart the process to sell the company regarding proper National's remaining exposure to prep, it was $610 million of gross par insured at year end 2023 Title three court begins the confirmation hearing for purpose plan of adjustment on Monday, March fourth, regarding the balance of National's insured portfolio, those credits have continued to perform generally consistent with our expectations.
The gross par amount outstanding for National's insured portfolio has declined by approximately $3.3 billion from year end 2022 to $28.4 billion at the end of 2023. National's leverage ratio of gross par to statutory capital at the end of the year was 25:1. At the end of the fourth quarter, National had total claims-paying resources of $1.7 billion and statutory capital surplus of $1.1 billion.
Now Anthony will provide additional comments about our financial results.
Anthony McKiernan
Thanks, Bill, and good morning. I will begin with a review of our fourth quarter and year end 2023 GAAP and non-GAAP results company reported a consolidated GAAP net loss of $138 million or negative $2.94 per share for the fourth quarter of 2023 compared to a consolidated GAAP net loss of $52 million or negative $1.05 per share for the fourth quarter ended December 31, 2022.
Higher GAAP net loss this quarter was largely driven by loss in LAE expense at MBA Corp. on its first lien RMBS insured credits related primarily to lower risk-free rates and lower revenues, driven by realized losses from sales of investments associated with funding dividends at national and the termination of swaps in the legacy ALM business at the holding company, the company's adjusted net loss, a non-GAAP measure was $8 million or a negative $0.16 per diluted share for the fourth quarter of 2023 compared with adjusted net income of $15 million or $0.3 per diluted share for the fourth quarter of 2022.
The unfavorable change was due primarily to lower premium revenues and nominal loss in LAE expense at National versus a benefit in the prior comparable quarter. For the 12 months ended December 31, 2023, the company reported a consolidated GAAP net loss of $491 million or negative $10.18 per share, compared to a consolidated GAAP net loss of $195 million or negative $3.92 per share for the 12 months ended December 31st, 2022. Higher GAAP net loss in 2023 was largely driven by an increase in loss and LAE expense at MBI Corp. compared to loss and LAE benefits in the prior year, driven by an increase in risk-free rates during 2022 and at National related to Puerto Rico credits, lower revenues driven by the IE. activity in MBA Corp. Which was partially equity neutral net losses on investments and higher interest expense related to MBI Corp. surplus notes.
The Company's non-GAAP adjusted net loss was $169 million or negative $3.49 per diluted share for the fiscal year 2023 compared with an adjusted net loss of $145 million or negative $2.90 per diluted share for fiscal year 2022. The unfavorable change was due primarily to higher loss and LAE expense at National and BIAX. book value per share decreased to a negative $32.56 per share as of December 31st, 2023 versus a negative $16.07 per share as of December 31st, 2022, primarily due to the net loss for the year and the $8 per share shareholder distribution in the fourth quarter of 2023. Included in book value as of December 31st, 2023 is a negative $44.91 per share. Book value of NBIA. Corp.
I will now spend a few minutes on the corporate segment balance sheet and our insurance company statutory results. Corporate segment, which primarily includes the activity of the holding company MBIA. Inc. had total assets of approximately $755 million as of December 31st, 2023. Within this total are the following material items, unencumbered cash and liquid assets held by MBIA. Inc. totaled approximately $411 million compared with $230 million as of December 31st 2022.
The increase was due primarily to approximately $235 million of retained net cash inflows related to the as-of-right and special dividend proceeds from national in Q4 2023. The corporate segment's assets also included approximately $241 million of assets at market value pledged to the GX. All swaps supporting the legacy operation were terminated in Q4 2023 and Q1 2024.
Turning to the insurance company's statutory results. National reported a statutory net loss of $9 million for the quarter ended December 31st, 2023, versus statutory net income of $40 million for the quarter ended December 31st, 2022. The unfavorable comparison was primarily due to higher net realized investment losses, higher loss and LAE and lower premiums.
National reported statutory net loss of $142 million for the year ended December 31, 2023 versus statutory net income of $75 million for the year ended December 31, 2022. The unfavorable comparison was primarily due to higher loss in LAE E net realized investment losses and lower premiums.
Statutory capital decreased by $807 million from year-end 2022 and was $1.1 billion as of 12-31-2023, primarily due to the dividend payments in the fourth quarter and the full year net loss claims paying resources were $1.7 billion versus $2.4 billion at 1231 2022.
Turning to MBI Insurance Corp., its statutory net income was $6 million for the fourth quarter of 2023 compared to statutory net income of $16 million for the fourth quarter of 2022. The unfavorable comparison was primarily due to a lower loss in LAE benefit in Q4 2023 and lower premiums earned for the year ended 1231 2023 Corp. Statutory net loss was $28 million compared to statutory net income of $46 million for the year ended 1231 2022.
The unfavorable comparison was primarily due to loss and LAE expense in 2023 on first lien RMBS and salvage write-downs as of December 31st, 2023, the statutory capital of MBIA Insurance Corp was $152 million, down from $169 million at year-end 2022, primarily due to its year to date net loss.
Claims paying resources totaled $504 million versus $669 million at year end 2022. The decrease was due in part to a reduction in gross loss reserves associated with several deal liquidations and the year to date net loss MBIA Corp's insured gross par outstanding was $2.9 billion as of December 31st, 2023.
And now we will turn the call over to the operator to begin the question and answer session.
Question and Answer Session
Operator
(Operator Instructions) Tommy McJoynt, KBW.
Tommy McJoynt
Hey, good morning. Thanks for taking my questions. I wanted to ask about capital and national. Obviously, well done on getting the approval for the large special dividend out of national and when you think about the amount of capital that's still at National relative to its exposure, how much capital how much excess capital do you think is still in that entity in really just asking just as we as we think of a scenario where in case a sale of the Company scenario doesn't come to fruition soon. And over time, the plan I assume would be to continue releasing capital from national.
So it'd be helpful to think about how much excess is still there after the December maneuver. Is there a way to quantify the capital ratios such as surplus to par exposure that you could point to or from what we just have to wait for the exposure to continue to run performance more excess is freed up again. Just any help with quantifying this topic would be helpful.
William Fallon
Yes, Tom, I think you've hit on probably the two primary things. I think given the size of the portfolio and the runoff and other than the prep of exposure, what we think of as a very clean portfolio.
The two things to look for going forward is the continued runoff of the portfolio, which obviously we report every quarter and then the resolution of properties. And I think as you see those two things continue to happen going forward, you can then start to make some determination with regard to how much capital could come out. But obviously, at the end of the day, New York State Department of Financial Services is the final arbiter of how much capital comes out of our company.
Tommy McJoynt
Okay. Got it. And with the liquidity that you now have at the at the holding company level and this naturally does give you some options for the first time, which is certainly a good thing looking at the right side of the holding company balance sheet. Tom, can you remind us which of those liabilities are now available to repurchase in the open market, which ones are redeemable right now. And just what is your your overall urgency to pay down some of those liabilities at the holding company?
Anthony McKiernan
Good morning, Tom. It's Anthony on. I think to your point, we are in a good position where we've got additional flexibility because of the inflows from the dividend. So when we look at the kind of liquidity window that I talk about, we're now looking with the cash on hand and assuming as-of-right dividends and normal income over the next few years, we're looking at kind of the 2030 timeframe at this point.
As far as looking out with the current ability of the holding company, we'll look at opportunities to repurchase debt. Specifically, there's no callable debt left at this point, but opportunistically, we'll look at our MTN.s and on holding company debentures during the first quarter, we actually did repurchase our 2024 MTNs at a discount.
So we'll continue to look for opportunities that makes sense to us economically. But when as far as ability to repurchase the debentures and the MTNs, we can repurchase the Qix. There's not as much flexibility there for us to actually enforce any kind of terminations and those exposures. So we're really focused on the MTNs and the holding company debt.
Tommy McJoynt
Okay. Did do a number of the MTNs traded at a discount? Like is there any ability to kind of accelerate some of those repurchases. You mentioned the first quarter, one at a discount. And I guess what would prevent you from getting more aggressive with repurchasing a number of MTN this if they're available at discounts, not sure if they are well, again, we'll get out that the prices have fluctuated, especially since the dividend and the view of the holding company.
Anthony McKiernan
So we'll continue to look for when we look at the investment profile of the bank versus going to repurchasing the debt, we'll look at what's a better yielding transaction, and we'll certainly be open to executing on that basis, we're still looking more in the 2028 and in timeframe we'd have to look, I'd say, the 2030 and beyond timeframe, a little bit more carefully but there's definitely some opportunities.
Operator
[Ethan Meister], private investor.
Ethan Meister
Thanks for taking the call. I just wanted to run through the kind of the current state of play of prep as we head into the confirmation hearing some. So against the $610 million of par exposure under the current agreement. And assuming it's not changed our type of confirmation, you'll get about $599 million in cash plus the $20 million expense fee, plus $237 billion notional of CVI.s, is that right?
Anthony McKiernan
Yes, yes, that sounds right.
Ethan Meister
Okay. And then so I was just kind of surprised the city looks like the loss adjustment expenses kind of reflective. It seemed like there were some pretty positive developments in Q4. Are you just kind of waiting for confirmation and a potential appeal?
William Fallon
Yes, I think at this point, Ethan, have you in Ascentage just answered the question. There are a lot of things happening is the appeal which you referenced which happened about a month ago, as we said, confirmation starts next week. That's about a 2 to 2.5 week process. We believe there are some people have indicated depending on how judge 20 rules, the confirmation could then be appealed. So I think we'll have a whole lot more information over the next couple of months. With regard to prep, both the timing and the resolution of it.
Ethan Meister
Okay. And is it fair to say that there's some upside if the plan goes ahead as projected now?
William Fallon
Yes. Yesterday, as you know, the way we do this. There are different scenarios that we have to go through for the reserving process. Obviously, one would be what the agreement says. Then there are other ones that you have to put forth as well. And I think if everything plays out the way you are suggesting, I think there is the potential for some upside.
Ethan Meister
Okay. And then my second question is just on the NOLs. And so there's a $1.2 billion of NOLs that are fully reserved, right?
William Fallon
There's a $1.2 billion EBITDA that's been that's not on the balance sheet at this point, but that's correct. It's $1.2 billion EBITDA.
Ethan Meister
And $474 million of that is at the has it national right. That's their standalone NOL.
William Fallon
National has a $474 million standalone as well.
Ethan Meister
Okay. And is there any opportunity to kind of realize any of that value as you're going through the transaction review process.
William Fallon
But the answer is yes, it is something that is looked at by each prospective buyer will come to their own determination as to how much of that they think they could use going forward.
Operator
[John Stanley, Stanley Capital Advisors].
John Stanley
It has steadily did not become Stanley that the bill, it's obvious that the market it doesn't fully appreciate all the complexity within MBA. I must confess it's the first time I've ever had a company valued at $7.25 or $7.5 or whatever was trading at and it pays an $8 return of capital dividend and now it's trading at less than cash per share. Our robots are pretty crude. Our calculation you got a share of cash as the stock should trade. I don't know where it'll be after all these announcements, but as around seven, I'd rather certain you're going to have trouble buying stock because of all of the tremendous dynamics of the information flow. And there, you guys are not only on the core. Now there are all other aspects of this, but where is the Company in terms of its ability to continue to buy? I mean, you haven't bought any since I think it was a third quarter of 23. Can you be in the market at all. And my other question is, is that a fair assumption that this residual MBIA. entity should be worth more than cash per share?
Anthony McKiernan
John, I'm this is Anthony. On your first question. As far and share repurchases, we've done a lot of share repurchases over the last few years out of national on at this point National has no capacity to buy back shares given the amount of shares that it owns and where the shares are trading today versus of its surplus and requirements calculations under New York insurance law. So any share repurchases at this point?
We'd be out of a holding company and we just need just as the earlier questioner brought up, we need to look at that in the context of what's really the best uses of the holding company liquidity to maximize the value of the company for our strategic alternatives.
So at any given time we're looking at, does it make sense to buy back debt or are we looking at share repurchases? Where would we buy? So we'll continue to look at that. We do have a share repurchase authorization that remains outstanding. But again, we've got to balance that against some of the other opportunities that we're having as we continue to simplify the Company and positioned it for our strategic alternatives.
William Fallon
And John, it's Bill. Let me just add to that. So which gets really, I guess, to the second part of your question.
Yes, as we think about this going forward. I think what we've focused on over the last year or so as we set out to sell the company and then paused that process, there were a couple of things that really were the focus of prospective buyers and things that we had focused on as well. One was getting money out of national, and the second was resolving our Puerto Rico credits. And at this point, that's just proper, I think with regard to the special dividend that came from national at the end of last year and then the distribution to shareholders. If you remember back the first time since the creation of national approximately 15 years ago, that we had any special dividends come out of national. So there was a question whether or not you could get money out. The answer obviously is yes. And it's one or the other our callers asked earlier. We think the Company is well positioned going forward as we resolve prep and the portfolio runs off to get additional money out of National, which I think is only beneficial for our shareholders.
The second is the Puerto Rico situation, which again, over the next couple of months, as I indicated, I think we're going to learn a lot more about where that's going and the timing related the proper So both those things we think are real positive as you think about the value of the Company going forward.
John Stanley
Thank you. Thank again for the distributions made me a lot. We made a lot of long term shareholders of pleased to see their basis and in many cases, surgery markets still way beyond their base's return.
William Fallon
Thank you for your support.
Operator
Paul Saunders, Hutch Capital.
Paul Saunders
Morning, guys. Thanks for taking my question. And morning. My first, my first question is pretty similar to excuse me, too. The first caller.
Yes, I would start by saying congrats on getting the special dividend out of national. That's impressive and in great news. And so similar to the first question or just operating under the assumption that there is no sale and you look at your N. and HoldCo liabilities, do you expect with kind of the lower investment base, an as-of-right dividend from National, but the cash flow can cover the debt as it comes due or or would part of the assumption be to repaying that debt would a special dividend be needed at some point in the future to make those payments?
Anthony McKiernan
So good morning. This is Anthony. On I said earlier, where we are now on accounting for potentially lower absolute as-of-right dividends just because of the lower investment base?
Obviously, part of that depends on what yield possibilities are, and we think we're looking at 2030 under the current operating metrics, which again, it's just as of right dividends, cash on hand at the Company and normal income at the at the holding company. So it's always been contemplated that there would be potentially additional special dividends going up to the holding company at some point.
But obviously, when you look at it National's profile and the time lead. We now have there's an ample amount of time assuming there was no sale of the Company to fund future debt requirements. In addition or those things do go our refinancings that we will achieve and national does hold a very large portion of the 2034 and in that. So that gives us possibilities as far as restructuring and things of that nature if we wanted to do that. So we have several arrows in the quiver there. But again, as far as additional distributions based on kind of a steady state assumption we've got ample time for additional distributions and we're looking more toward 2030 at this point.
Paul Saunders
And then just on that, you certainly with the $400 million of liquidity unencumbered at the holdco, it looks like you're more than covered on debt all the way through the 2028. So when you when you answered the question before when someone asked about repurchasing liabilities. You said that's really what you're focused on doing as opposed to beyond 2030. My question is just even considering you have you don't have enough liquidity to satisfy all of your debt, but you have touched more than enough. What can you give me a little more color on? I mean, I'm obviously just saying that somewhat changes the prices that people are willing to sell their debt. There's a pretty steep yield curve maybe because you guys have made those comments. So I guess I'm just wondering like if you're buying shorter term debt at 7% versus the total debt. That's longer term, that's at 12. How big of a yield differential do you need to where you would actually purchase the longer term debt instead of the shorter term debt?
William Fallon
Yes, Paul, it's Bill speaking. You focused on the right thing. We look at all the possibilities and we don't know, but that information with regard to what the differential would need to be to your point there are certain things you just don't provide to the public, but we do look at all the maturities we make decisions with regard to what the differential is, we will make decisions with regard to liquidity, holding companies Anthony mentioned. So we're constantly looking at all those possibilities Okay, sounds good.
Operator
Ethan Meister, private investor.
Ethan Meister
Thanks again. And just to clarify was that by 2030, the portfolio at National Low significantly run down, right. So you wouldn't you anticipate the capital required there? I mean, it looks like it will be somewhere in the low teens billions by the end of 2030.
William Fallon
That's correct.
Ethan Meister
Okay. And I just wanted to check on the share repurchase. Is that the $71 million remaining, was that all contemplated them to be at the Inc. and didn't because I think you had previously said it was between national and anchor and now you said there's no capacity at National, right?
William Fallon
You're correct. It can be used by either entity right now, as Anthony described Under The Dome department regulations, we have more capacity at National. So right now would only be a If for some reason, the situation national were to change in the future, the $71 million would still apply there as well.
Ethan Meister
Okay. And is that something that you are considering to restart the repurchase after you get through the quiet period here?
William Fallon
Again, we always look at what the opportunities are with our capital, whether it be debt shares or anything else we might need it for.
Operator
At this time, I am showing no further questions. I'd like to turn the floor back over to management for any additional or closing remarks.
Greg Diamond
Thank you, Britney, and thanks to all of you for listening to the call today. Please contact us directly if you have any additional correct questions.
We also recommend that you visit our website at mbia.com for additional information about the Company. Thank you for your interest in MBIA. Good day and goodbye.
Operator
Thank you, ladies and gentlemen, this does conclude today's MBDA Fourth Quarter and Full Year 2023 financial results conference call. You now disconnect your line and have a wonderful day.
