Ct Healthmarket via BizWire
08-05-2003, 05:31 AM
MBIA Inc. Reports 54 Percent Increase in First Half Net Income Per Share; Operating Earnings Per Share up 15 Percent in First Half of 2003
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ARMONK, N.Y.--(BUSINESS WIRE)--Aug. 5, 2003--MBIA Inc. (NYSE:
MBI), the holding company for MBIA Insurance Corporation, reported
today that diluted earnings per share increased 54 percent in the
first six months to $3.04 from $1.98 in last year's first half. Net
income for the first half was $441.2 million compared with $295.0
million in the same period last year, a 50 percent increase.
Second quarter diluted earnings per share increased 57 percent to
$1.51 from $0.96. Net income for the second quarter rose 53 percent to
$217.9 million from $142.6 million in last year's second quarter.
Diluted earnings per share information
--------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
2003 2002 2003 2002
------ ------ ------ ------
Net income $1.51 $0.96 $3.04 $1.98
Cumulative effect of accounting change 0.00 0.00 0.00 (0.05)
------ ------ ------ ------
Net income before accounting change 1.51 0.96 3.04 2.03
Net realized gains 0.09 0.00 0.23 0.00
Change in fair value of derivative
instruments 0.19 (0.06) 0.46 (0.01)
------ ------- ----- ------
Operating income (1) $1.22 $1.02 $2.35 $2.04
(1) Comparable to First Call estimates.
Net income and the unrealized appreciation on the company's
investment portfolio increased MBIA's book value per share at June 30,
2003 to $42.19 from $37.95 at December 31, 2002, up 11 percent.
Adjusted book value (ABV) per share, a non-GAAP measure, at June 30,
2003 rose 7 percent to $55.44 from $51.77 at December 31, 2002. ABV
includes the after-tax effects of deferred premium revenue less
prepaid reinsurance premiums and deferred acquisition costs, the
present value of installment premiums, unrealized gains or losses on
investment contract liabilities and a provision for loss and loss
adjustment expenses.
Neil G. Budnick, MBIA Chief Financial Officer, said, "MBIA
recorded strong financial results for the first half of 2003, driven
by increased insurance revenues. Earned premiums grew a very healthy
25 percent, reflecting strong top line production at very attractive
pricing levels over the past few years. Demand for MBIA's guarantee
across all sectors of the global capital markets continues to be
strong and our insured portfolio has held up well in a stressful
economic environment."
Insurance Operations
Strong growth in adjusted direct premium (ADP) for the first half
of 2003 was driven by MBIA's public finance business. ADP, a non-GAAP
measure, includes both upfront premiums written and the present value
of estimated installment premiums for new business writings and
excludes premiums assumed or ceded, increased 33 percent to $612.4
million from $459.9 million in the first half of 2002.
Adjusted Direct Premium
(in millions)
-----------------------
Three Months Six Months
Ended Ended
June 30 June 30
2003 2002 % Change 2003 2002 % Change
------- ------- --------- ------- ------- ---------
Public Finance
United States $217.2 $92.0 136 $349.4 $186.3 88
Non-United
States 28.8 6.1 n/m 59.9 9.7 n/m
------- ------- --------- ------- ------- ---------
Total 246.0 98.1 151 409.3 196.0 109
Structured Finance
United States 72.6 154.9 (53) 113.1 206.6 (45)
Non-United
States 50.3 51.5 (2) 90.0 57.3 57
------- ------- ---------- ------ ------- ---------
Total 122.9 206.4 (40) 203.1 263.9 (23)
Total $368.9 $304.5 21 $612.4 $459.9 33
Public finance showed strong growth for the first half of the year
with a 109 percent increase in ADP over last year's first half due to
strong business production in both U. S. and international operations,
compared to minimal international production in the first half of last
year. Credit quality for public finance remained very high, with 91
percent of insured business written rated Single-A or above in the
first half of 2003 compared with 93 percent in the same period of
2002.
New U.S. municipal issuance in the first half of 2003 totaled $199
billion, a 21 percent increase, as a result of states and
municipalities taking advantage of the low interest rate environment
and their growing infrastructure needs. A flight to quality by
fixed-income investors helped drive insured penetration to 53 percent
of the new issue market as insured volume reached a record $106
billion for the first half of 2003.
Structured finance ADP declined 23 percent due to a sharp drop in
U.S. business, which was partially offset by a strong performance in
international structured finance operations. The company was very
selective in insuring mortgage and consumer asset-backed transactions
due to generally unattractive market pricing and credit terms in those
sectors as the senior subordinated market offered more favorable
economic and structural terms than insured transactions. In addition,
there was less available attractive CDO product in the marketplace
during the first half of 2003. In structured finance, 60 percent of
insured business written in the first half of 2003 was rated Single-A
or higher, down from 71 percent in the same period last year. The
decline in credit quality was a result of the company insuring fewer
highly-rated CDO transactions in the first half of this year.
Worldwide securitization volume was very strong in the first half
of 2003, increasing 27 percent over the same period last year due to
strong growth in the mortgage-backed securities market. In the U. S.
asset-backed and mortgage-backed market, overall volume increased 31
percent while insured volume dropped 40 percent as a result of a sharp
decline in insured mortgage-backed transactions as more issuers
utilized a senior subordinated structure in the first half of 2003.
Net premiums written for the first half of 2003 rose 63 percent to
$495.6 million from $304.1 million due to increased new business
activity, particularly in public finance, as well as a lower
reinsurance cession rate. Total earned premium rose 25 percent to
$346.9 million from $276.8 million. Strong levels of new business
written over the last 12 months resulted in a 17 percent increase in
scheduled premiums earned over last year's first half. Earned premiums
from refundings were up 97 percent to $54.6 million in the first half
of 2003 due to a large increase in municipal issuance driven by the
low interest rate environment.
Pre-tax net investment income in the first half of 2003, excluding
net realized gains, was $214.1 million compared with $214.6 million in
the same period of 2002. Investment income continued to be impacted by
the low-yield environment as well as the ongoing implementation of the
company's duration-shortening strategy. In the first six months of
2003, lower yields were offset by a 9 percent increase in invested
assets. After-tax net investment income in the first half of 2003
decreased by 2 percent to $171.4 million, compared with $175.3 million
in the first half of last year, due to a shift in asset allocation
towards a greater proportion of taxable investments.
MBIA's advisory fees in the first six months of 2003 were up 58
percent to $30.6 million from $19.3 million during the same period of
2002. The increase was a result of greater new business production,
including an Italian toll road transaction in the second quarter, as
well as fees related to the activities of MBIA's Insured Portfolio
Management Division.
Insurance operating expenses were up 25 percent for the first half
of 2003. The increase was a result of costs associated with higher
levels of new business activity, a previously announced reallocation
of certain expenses between the company's various business segments,
and a non-recurring expense to establish a new conduit, Toll Road
Funding Plc. (TRF). Although the $3.4 million of expenses incurred to
establish TRF significantly increased the company's expenses, the
conduit generated substantially greater revenues. Excluding the change
in the allocation of expenses among business segments and the
nonrecurring conduit expenses, operating expenses increased 9 percent
for the first six months of 2003, modestly above the company's 5-7
percent long-term goal.
The statutory expense ratio for insurance operations was 12.8
percent for the first half, compared to 21.3 percent in the first half
of 2002 due to greater ceding commissions and a significant increase
in net premiums written.
MBIA's pre-tax operating income from insurance operations rose 14
percent to $476.2 million from $416.4 million in last year's first
half.
Risk Management and Loss Reserves
The company incurred $35.1 million in loss and loss adjustment
expenses in the first half of 2003, a 17 percent increase compared
with $29.9 million in last year's first half due to the growth in
scheduled earned premium. Total case-incurred activity was $28.2
million in the first half of 2003, which primarily included additional
case reserves for MBIA's guaranteed tax lien portfolios and Allegheny
Health, Education and Research Foundation (AHERF) accretion.
There has been no material change in the company's previously
disclosed exposure to a defaulted obligation issued by Trenwick
America Corporation. MBIA is continuing to work closely with
management and regulatory authorities to ensure the orderly run-off of
the underlying insurance operations over the next three to six years.
In addition, there have been no significant developments in the
litigation in the Federal District Court in Delaware with Royal
Indemnity Company as MBIA's motion for summary judgment is still
pending following the hearing in June 2003. MBIA expects to prevail in
the litigation and to incur no ultimate losses.
The company expects that there will be continuing budget stress in
the municipal sector over the next 12-18 months, driven by lower tax
revenues and the weaker economy. However, the ability of state and
municipal governments to raise revenues and cut expenses in order to
meet debt service obligations has enabled them to weather economic
slowdowns very successfully in the past. The probability of default
remains extremely low among state and municipal borrowers due to the
essential nature of the services which they provide.
The political process can also exacerbate short-term uncertainty
as most recently reflected in the downgrade by Standard & Poor's of
California's general obligation bonds. Although economic uncertainty
can create stress in MBIA's existing insured portfolio, it also
typically translates into higher pricing and increased demand for
insured securities.
In examining the outstanding MBIA-insured structured finance
portfolio, transaction performance in the second quarter of 2003 was
generally stable compared to deal performance in the first quarter. As
the economic outlook seemed to be trending toward an improved
environment, overall corporate default rates declined from levels of
the recent past, and consumer payment patterns generally improved.
Even for those transactions that have been experiencing performance
issues, the second quarter generally did not see increased
deterioration in loss data. The structure of these underlying
transactions, which include performance triggers and servicer transfer
rights, continue to protect MBIA as the insurer of senior tranches of
structured finance transactions.
Investment Management Services
MBIA's asset management business in the first half of 2003 showed
a modest improvement on a sequential basis as a result of a solid
performance by the company's fixed-income businesses. The market value
of average assets under management was $35.8 billion in the second
quarter of 2003, up 1 percent from $35.3 billion in the first quarter
of 2003.
Average assets supporting the investment agreement and medium-term
note businesses grew to $8.8 billion in the second quarter of 2003
from $8.2 billion in the first quarter, a 7 percent increase. Average
third party fixed-income assets under management were $14.4 billion in
the second quarter of 2003, down slightly from the $14.7 billion of
assets under management in this year's first quarter.
Pre-tax operating income from investment management services for
the first half of 2003 decreased 9 percent to $23.5 million from $25.9
million in last year's first half. Based on the continued solid
performance of the company's fixed-income businesses, the company
expects this segment to match or exceed 2002's full year results.
Municipal Services
For the first half of 2003, municipal services operations reported
a $179,000 pre-tax operating profit compared with $193,000 in the same
period last year.
Corporate
The corporate segment includes net investment income, interest
expense and corporate expenses. Net corporate segment expenses in the
first half increased 26 percent to $36.3 million from $28.8 million in
the same period last year. A 31 percent increase in interest expense
resulting from additional debt issued in the third quarter of 2002 was
only partially offset by an increase in investment income and a
reduction in corporate expenses.
Gains and Losses
In the first half of 2003, MBIA recorded net realized gains of
$51.0 million, compared with a net realized loss of $0.4 million in
the first half of 2002, as the company reduced the duration of its
investment portfolio in 2003.
The company recorded a pre-tax net unrealized gain of $103.3
million for the first half of 2003 on its derivative exposure,
compared with a pre-tax net unrealized loss of $2.7 million for the
first half of 2002. This $0.46 per share mark-to-market unrealized
gain was primarily attributable to insured synthetic CDOs, reflecting
the impact of tighter credit spreads in the investment grade bond
market in the first half of 2003.
Share Repurchase
The company repurchased 1.4 million shares during the first half
of the year at an average cost of $38.28 per share. Approximately 2.2
million shares remain in the company's 11.3 million share buyback
program.
Corporate Developments
The dynamics of the reinsurance market have changed considerably
over the last year with many of MBIA's traditional reinsurers
experiencing downgrades or choosing to exit the financial guarantee
reinsurance business entirely. While these developments will not
significantly impact MBIA's capital position and the company believes
that reinsurance availability remains adequate to satisfy its business
needs, MBIA has launched several strategic initiatives designed to
maximize its financial flexibility and Triple-A reinsurance capacity.
As previously disclosed, MBIA invested $25 million in RAM Reinsurance
Company Ltd., a Triple-A rated financial guarantee reinsurance company
based in Bermuda. In addition, MBIA is working closely with other
potential investors on the formation of a new financial guarantee
reinsurance company.
In addition, during the second quarter, the company established a
new single-seller conduit, TRF, in order to participate in a financing
facility for a toll road system in Italy. TRF issued approximately
$1.4 billion in Euro-denominated medium-term notes insured by MBIA
Insurance Corporation, the proceeds of which were used as part of the
financing. As a newly created conduit, TRF is subject to consolidation
in MBIA's financial statements under applicable accounting rules. The
consolidation of TRF resulted in the addition of approximately $1.4
billion in both assets and liabilities to MBIA's balance sheet during
the second quarter.
As of June 30, 2003, the outstanding balance of commercial paper
and medium-term notes issued by the unconsolidated conduits
administered by MBIA was approximately $7.4 billion. The assets and
liabilities of these conduits will be consolidated on the company's
balance sheet in the third quarter.
Conference Call
MBIA will host a conference call for investors today at 11 a.m.
EDT. The conference call will consist of brief comments by Neil G.
Budnick, the company's chief financial officer, followed by a question
and answer session. The conference call will be web cast live on
MBIA's Web site at http://investor.mbia.com (then click "Conference
Call"). Those who are unable to participate in the conference call may
listen to a replay by dialing 1-800-396-1244 in the United States and
1-402-998-1607 for international calls. A recording will also be
available on MBIA's Web site approximately two hours after the end of
the conference call.
MBIA Inc., through its subsidiaries, is a leading financial
guarantor and provider of specialized financial services. MBIA's
innovative and cost-effective products and services meet the credit
enhancement, financial and investment needs of its public and private
sector clients, domestically and internationally. MBIA Inc.'s
principal operating subsidiary, MBIA Insurance Corporation, has a
financial strength rating of Triple-A from Moody's Investors Service,
Standard & Poor's Ratings Services, Fitch Ratings, and Rating and
Investment Information, Inc. Please visit MBIA's Web site at
http://www.mbia.com.
This news release contains forward-looking statements. Important
factors such as general market conditions and the competitive
environment could cause actual results to differ materially from those
projected in these forward-looking statements. The company undertakes
no obligation to revise or update any forward-looking statements to
reflect changes in events or expectations.
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
2003 2002
---------- ------------
Assets
------
Investments:
Fixed-maturity securities held as
available-for-sale at fair value
(amortized cost $7,710,958
and $7,555,978) $ 8,402,450 $ 8,093,650
Short-term investments 834,976 687,238
Other investments 269,605 212,673
----------- -----------
9,507,031 8,993,561
Investment agreement and medium-term
note portfolios held as
available-for-sale at fair value
(amortized cost $7,546,332
and $7,080,870) 8,019,458 7,433,615
Investment agreement portfolio pledged
as collateral at fair value
(amortized cost $853,404 and $646,287) 898,075 667,854
Conduit investments held-to-maturity 1,417,079 ---
----------- -----------
Total investments 19,841,643 17,095,030
Cash and cash equivalents 127,004 83,218
Accrued investment income 222,856 215,265
Deferred acquisition costs 310,278 302,222
Prepaid reinsurance premiums 528,013 521,641
Reinsurance recoverable on unpaid losses 42,030 43,828
Goodwill 90,041 90,041
Property and equipment (net of accumulated
depreciation) 124,923 128,441
Receivable for investments sold 368,968 91,767
Derivative assets 188,313 191,755
Other assets 101,337 88,893
----------- -----------
Total assets $21,945,406 $18,852,101
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Deferred premium revenue $ 2,920,240 $ 2,755,046
Loss and loss adjustment expense
reserves 525,860 573,275
Investment agreement and medium-term
note obligations 7,604,564 7,230,562
Securities sold under agreements to
repurchase 764,441 539,561
Conduit debt obligations 1,416,398 ---
Short-term debt 13,597 ---
Long-term debt 1,032,883 1,033,070
Current income taxes 46,795 17,648
Deferred income taxes 589,347 471,534
Deferred fee revenue 23,090 24,838
Payable for investments purchased 380,174 58,436
Derivative liabilities 218,620 309,749
Other liabilities 336,735 345,031
----------- -----------
Total liabilities 15,872,744 13,358,750
Shareholders' Equity:
Common stock 153,068 152,555
Additional paid-in capital 1,266,280 1,239,313
Retained earnings 4,278,726 3,895,112
Accumulated other comprehensive income 764,009 541,250
Unallocated ESOP shares (3) (653)
Unearned compensation - restricted
stock (15,468) (12,646)
Treasury stock (373,950) (321,580)
----------- -----------
Total shareholders' equity 6,072,662 5,493,351
Total liabilities and shareholders'
equity $21,945,406 $18,852,101
=========== ===========
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
2003 2002 2003 2002
--------- -------- --------- ---------
Insurance
operations
Revenues:
Gross
premiums
written $ 327,094 $ 205,812 $ 615,241 $ 392,584
Ceded
premiums (55,571) (36,155) (119,690) (88,470)
--------- --------- --------- ---------
Net premiums
written 271,523 169,657 495,551 304,114
Scheduled
premiums
earned 151,588 124,582 292,241 249,068
Refunding
premiums
earned 34,083 13,187 54,610 27,739
--------- --------- --------- ---------
Premiums
earned 185,671 137,769 346,851 276,807
Net
investment
income 107,728 108,370 214,149 214,569
Advisory
fees 17,342 12,255 30,644 19,344
--------- --------- --------- ---------
Total
insurance
revenues 310,741 258,394 591,644 510,720
Expenses:
Losses and
LAE
incurred 18,192 14,950 35,070 29,888
Amortization
of deferred
acquisition
costs 14,619 11,022 27,401 22,145
Operating 29,318 22,080 52,961 42,292
--------- --------- --------- ---------
Total
insurance
expenses 62,129 48,052 115,432 94,325
Insurance
income 248,612 210,342 476,212 416,395
--------- --------- --------- ---------
Investment
management
services
Revenues 26,368 25,727 55,608 55,578
Expenses 16,274 14,730 32,073 29,708
--------- --------- --------- ---------
Investment
management
services
income 10,094 10,997 23,535 25,870
--------- --------- --------- ---------
Municipal
services
Revenues 7,419 5,908 13,461 11,599
Expenses 7,292 5,802 13,282 11,406
--------- --------- --------- ---------
Municipal
services
income 127 106 179 193
--------- --------- --------- ---------
Corporate
Net
investment
income 2,208 2,043 4,581 4,260
Interest
expense 16,932 12,956 33,881 25,790
Corporate
expenses 3,384 3,056 7,047 7,261
--------- --------- --------- ---------
Corporate loss (18,108) (13,969) (36,347) (28,791)
--------- --------- --------- ---------
Gains and losses
Net realized
gains (losses) 20,822 439 50,979 (397)
Change in fair
value of
derivative
instruments 43,132 (14,530) 103,341 (2,663)
--------- --------- --------- ---------
Net gains and
losses 63,954 (14,091) 154,320 (3,060)
--------- --------- --------- ---------
Income before
income taxes 304,679 193,385 617,899 410,607
Provision for
income taxes 86,825 50,798 176,719 107,908
--------- --------- --------- ---------
Income before
cumulative
effect of
accounting
change 217,854 142,587 441,180 302,699
Cumulative
effect of
accounting
change --- --- --- (7,731)
--------- --------- --------- ---------
Net income $ 217,854 $ 142,587 $ 441,180 $ 294,968
========= ========= ========= =========
Net income
per common
share:
Basic $ 1.52 $ 0.97 $ 3.07 $ 2.00
Diluted $ 1.51 $ 0.96 $ 3.04 $ 1.98
Weighted-
average
common shares
outstanding:
Basic 143,132,545 147,568,448 143,584,818 147,809,271
Diluted 144,628,641 148,761,391 144,999,949 149,033,999
MBIA INC. AND SUBSIDIARIES
Reconciliation of Adjusted Direct Premiums to Gross Premiums
Written (in millions)
--------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
--------------- ---------------
2003 2002 2003 2002
------- ------- ------- -------
Adjusted direct premiums (1) $368.9 $304.5 $612.4 $459.9
Adjusted premiums assumed 26.4 0.1 31.8 6.1
------- ------- ------- -------
Adjusted gross premiums 395.3 304.6 644.2 466.0
Present value of estimated future
installment premiums (2) (202.4) (200.1) (300.3) (292.2)
------- ------- ------- -------
Gross upfront premiums written 192.9 104.5 343.9 173.8
Gross installment premiums
received 134.2 101.3 271.3 218.8
------- ------- ------- -------
Gross premiums written $327.1 $205.8 $615.2 $392.6
======= ======= ======= =======
(1) Management believes adjusted direct premiums are a meaningful
measure of the total value of the insurance business written since
they represent the present value of all premiums expected to be
collected on policies closed during the period.
(2) The first and second quarters of 2003 were discounted at 5.6% and
5.3%, respectively, while 2002 was discounted at 9.0%.
Components of Net Income per Share
--------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
--------------- ---------------
2003 2002 2003 2002
------- ------- ------- -------
Net income $1.51 $0.96 $3.04 $1.98
Cumulative effect of accounting
change 0.00 0.00 0.00 (0.05)
------- ------- ------- -------
Net income before accounting change 1.51 0.96 3.04 2.03
Net realized gains 0.09 0.00 0.23 0.00
Change in fair value of derivative
instruments 0.19 (0.06) 0.46 (0.01)
------- ------- ------- -------
Operating income (1) (2) $1.22 $1.02 $2.35 $2.04
======= ======= ======= =======
(1) Management believes operating income is a useful measurement of
performance because it provides income from operations, unaffected by
investment portfolio realized gains and losses, and unrealized gains
and losses on derivatives contracts.
(2) May not add due to rounding.
MBIA INC. AND SUBSIDIARIES
Components of Adjusted Book Value per Share (1)
-----------------------------------------------
June 30, 2003 December 31, 2002
----------------- -----------------
Book value $42.19 $37.95
After-tax value of:
Deferred premium revenue 13.18 12.38
Prepaid reinsurance premiums (2.38) (2.34)
Deferred acquisition costs (1.40) (1.36)
------ ------
Net deferred premium revenue 9.40 8.68
Present value of installment
premiums (2) 7.14 5.84
Unrealized losses on investment
contract liabilities (1.14) (0.70)
Loss provision (3) (2.15) --
----------- -----------
Adjusted book value $55.44 $51.77
=========== ===========
(1) Management believes the presentation of adjusted book value, which
includes items that will not be realized until future periods,
provides additional information that gives a comprehensive measure of
the value of the company.
(2) The first and second quarters of 2003 were discounted at 5.6% and
5.3%, respectively, while 2002 was discounted at 9.0%.
(3) The loss provision is calculated by applying 12% to the following
items on an after-tax basis: (a) deferred premium revenue;
(b) prepaid reinsurance premiums; and, (c) the present value of
installment premiums.
CONSOLIDATED INSURANCE OPERATIONS
----------------------------------------------------------------------
Selected Financial Data Computed on a Statutory Basis
--------------------------------------------------------
(dollars in millions) June 30, December
2003 31, 2002
------------ -----------
Capital and surplus $3,381.6 $3,158.0
Contingency reserve 2,322.0 2,276.8
----------- -----------
Capital base 5,703.6 5,434.8
Unearned premium reserve 2,954.3 2,774.1
Present value of installment premiums (1) 1,579.9 1,300.1
----------- -----------
Premium resources 4,534.2 4,074.2
Loss and loss adjustment expense reserves 192.4 244.9
Standby line of credit/stop loss 1,460.7 1,260.8
----------- -----------
Total claims-paying resources $11,890.9 $11,014.7
=========== ===========
Net debt service outstanding $805,481.4 $781,589.4
Capital ratio (2) 141:1 144:1
Claims-paying ratio (3) 78:1 82:1
(1) The first and second quarters of 2003 were discounted at 5.6% and
5.3%, respectively, while 2002 was discounted at 9.0%.
(2) Net debt service outstanding divided by the capital base.
(3) Net debt service outstanding divided by the sum of the capital
base, unearned premium reserve (after-tax), present value of
installment premiums (after-tax), loss and loss adjustment expense
reserves and standby line of credit/stop loss.
----------------------------------------------------------------------
ARMONK, N.Y.--(BUSINESS WIRE)--Aug. 5, 2003--MBIA Inc. (NYSE:
MBI), the holding company for MBIA Insurance Corporation, reported
today that diluted earnings per share increased 54 percent in the
first six months to $3.04 from $1.98 in last year's first half. Net
income for the first half was $441.2 million compared with $295.0
million in the same period last year, a 50 percent increase.
Second quarter diluted earnings per share increased 57 percent to
$1.51 from $0.96. Net income for the second quarter rose 53 percent to
$217.9 million from $142.6 million in last year's second quarter.
Diluted earnings per share information
--------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
2003 2002 2003 2002
------ ------ ------ ------
Net income $1.51 $0.96 $3.04 $1.98
Cumulative effect of accounting change 0.00 0.00 0.00 (0.05)
------ ------ ------ ------
Net income before accounting change 1.51 0.96 3.04 2.03
Net realized gains 0.09 0.00 0.23 0.00
Change in fair value of derivative
instruments 0.19 (0.06) 0.46 (0.01)
------ ------- ----- ------
Operating income (1) $1.22 $1.02 $2.35 $2.04
(1) Comparable to First Call estimates.
Net income and the unrealized appreciation on the company's
investment portfolio increased MBIA's book value per share at June 30,
2003 to $42.19 from $37.95 at December 31, 2002, up 11 percent.
Adjusted book value (ABV) per share, a non-GAAP measure, at June 30,
2003 rose 7 percent to $55.44 from $51.77 at December 31, 2002. ABV
includes the after-tax effects of deferred premium revenue less
prepaid reinsurance premiums and deferred acquisition costs, the
present value of installment premiums, unrealized gains or losses on
investment contract liabilities and a provision for loss and loss
adjustment expenses.
Neil G. Budnick, MBIA Chief Financial Officer, said, "MBIA
recorded strong financial results for the first half of 2003, driven
by increased insurance revenues. Earned premiums grew a very healthy
25 percent, reflecting strong top line production at very attractive
pricing levels over the past few years. Demand for MBIA's guarantee
across all sectors of the global capital markets continues to be
strong and our insured portfolio has held up well in a stressful
economic environment."
Insurance Operations
Strong growth in adjusted direct premium (ADP) for the first half
of 2003 was driven by MBIA's public finance business. ADP, a non-GAAP
measure, includes both upfront premiums written and the present value
of estimated installment premiums for new business writings and
excludes premiums assumed or ceded, increased 33 percent to $612.4
million from $459.9 million in the first half of 2002.
Adjusted Direct Premium
(in millions)
-----------------------
Three Months Six Months
Ended Ended
June 30 June 30
2003 2002 % Change 2003 2002 % Change
------- ------- --------- ------- ------- ---------
Public Finance
United States $217.2 $92.0 136 $349.4 $186.3 88
Non-United
States 28.8 6.1 n/m 59.9 9.7 n/m
------- ------- --------- ------- ------- ---------
Total 246.0 98.1 151 409.3 196.0 109
Structured Finance
United States 72.6 154.9 (53) 113.1 206.6 (45)
Non-United
States 50.3 51.5 (2) 90.0 57.3 57
------- ------- ---------- ------ ------- ---------
Total 122.9 206.4 (40) 203.1 263.9 (23)
Total $368.9 $304.5 21 $612.4 $459.9 33
Public finance showed strong growth for the first half of the year
with a 109 percent increase in ADP over last year's first half due to
strong business production in both U. S. and international operations,
compared to minimal international production in the first half of last
year. Credit quality for public finance remained very high, with 91
percent of insured business written rated Single-A or above in the
first half of 2003 compared with 93 percent in the same period of
2002.
New U.S. municipal issuance in the first half of 2003 totaled $199
billion, a 21 percent increase, as a result of states and
municipalities taking advantage of the low interest rate environment
and their growing infrastructure needs. A flight to quality by
fixed-income investors helped drive insured penetration to 53 percent
of the new issue market as insured volume reached a record $106
billion for the first half of 2003.
Structured finance ADP declined 23 percent due to a sharp drop in
U.S. business, which was partially offset by a strong performance in
international structured finance operations. The company was very
selective in insuring mortgage and consumer asset-backed transactions
due to generally unattractive market pricing and credit terms in those
sectors as the senior subordinated market offered more favorable
economic and structural terms than insured transactions. In addition,
there was less available attractive CDO product in the marketplace
during the first half of 2003. In structured finance, 60 percent of
insured business written in the first half of 2003 was rated Single-A
or higher, down from 71 percent in the same period last year. The
decline in credit quality was a result of the company insuring fewer
highly-rated CDO transactions in the first half of this year.
Worldwide securitization volume was very strong in the first half
of 2003, increasing 27 percent over the same period last year due to
strong growth in the mortgage-backed securities market. In the U. S.
asset-backed and mortgage-backed market, overall volume increased 31
percent while insured volume dropped 40 percent as a result of a sharp
decline in insured mortgage-backed transactions as more issuers
utilized a senior subordinated structure in the first half of 2003.
Net premiums written for the first half of 2003 rose 63 percent to
$495.6 million from $304.1 million due to increased new business
activity, particularly in public finance, as well as a lower
reinsurance cession rate. Total earned premium rose 25 percent to
$346.9 million from $276.8 million. Strong levels of new business
written over the last 12 months resulted in a 17 percent increase in
scheduled premiums earned over last year's first half. Earned premiums
from refundings were up 97 percent to $54.6 million in the first half
of 2003 due to a large increase in municipal issuance driven by the
low interest rate environment.
Pre-tax net investment income in the first half of 2003, excluding
net realized gains, was $214.1 million compared with $214.6 million in
the same period of 2002. Investment income continued to be impacted by
the low-yield environment as well as the ongoing implementation of the
company's duration-shortening strategy. In the first six months of
2003, lower yields were offset by a 9 percent increase in invested
assets. After-tax net investment income in the first half of 2003
decreased by 2 percent to $171.4 million, compared with $175.3 million
in the first half of last year, due to a shift in asset allocation
towards a greater proportion of taxable investments.
MBIA's advisory fees in the first six months of 2003 were up 58
percent to $30.6 million from $19.3 million during the same period of
2002. The increase was a result of greater new business production,
including an Italian toll road transaction in the second quarter, as
well as fees related to the activities of MBIA's Insured Portfolio
Management Division.
Insurance operating expenses were up 25 percent for the first half
of 2003. The increase was a result of costs associated with higher
levels of new business activity, a previously announced reallocation
of certain expenses between the company's various business segments,
and a non-recurring expense to establish a new conduit, Toll Road
Funding Plc. (TRF). Although the $3.4 million of expenses incurred to
establish TRF significantly increased the company's expenses, the
conduit generated substantially greater revenues. Excluding the change
in the allocation of expenses among business segments and the
nonrecurring conduit expenses, operating expenses increased 9 percent
for the first six months of 2003, modestly above the company's 5-7
percent long-term goal.
The statutory expense ratio for insurance operations was 12.8
percent for the first half, compared to 21.3 percent in the first half
of 2002 due to greater ceding commissions and a significant increase
in net premiums written.
MBIA's pre-tax operating income from insurance operations rose 14
percent to $476.2 million from $416.4 million in last year's first
half.
Risk Management and Loss Reserves
The company incurred $35.1 million in loss and loss adjustment
expenses in the first half of 2003, a 17 percent increase compared
with $29.9 million in last year's first half due to the growth in
scheduled earned premium. Total case-incurred activity was $28.2
million in the first half of 2003, which primarily included additional
case reserves for MBIA's guaranteed tax lien portfolios and Allegheny
Health, Education and Research Foundation (AHERF) accretion.
There has been no material change in the company's previously
disclosed exposure to a defaulted obligation issued by Trenwick
America Corporation. MBIA is continuing to work closely with
management and regulatory authorities to ensure the orderly run-off of
the underlying insurance operations over the next three to six years.
In addition, there have been no significant developments in the
litigation in the Federal District Court in Delaware with Royal
Indemnity Company as MBIA's motion for summary judgment is still
pending following the hearing in June 2003. MBIA expects to prevail in
the litigation and to incur no ultimate losses.
The company expects that there will be continuing budget stress in
the municipal sector over the next 12-18 months, driven by lower tax
revenues and the weaker economy. However, the ability of state and
municipal governments to raise revenues and cut expenses in order to
meet debt service obligations has enabled them to weather economic
slowdowns very successfully in the past. The probability of default
remains extremely low among state and municipal borrowers due to the
essential nature of the services which they provide.
The political process can also exacerbate short-term uncertainty
as most recently reflected in the downgrade by Standard & Poor's of
California's general obligation bonds. Although economic uncertainty
can create stress in MBIA's existing insured portfolio, it also
typically translates into higher pricing and increased demand for
insured securities.
In examining the outstanding MBIA-insured structured finance
portfolio, transaction performance in the second quarter of 2003 was
generally stable compared to deal performance in the first quarter. As
the economic outlook seemed to be trending toward an improved
environment, overall corporate default rates declined from levels of
the recent past, and consumer payment patterns generally improved.
Even for those transactions that have been experiencing performance
issues, the second quarter generally did not see increased
deterioration in loss data. The structure of these underlying
transactions, which include performance triggers and servicer transfer
rights, continue to protect MBIA as the insurer of senior tranches of
structured finance transactions.
Investment Management Services
MBIA's asset management business in the first half of 2003 showed
a modest improvement on a sequential basis as a result of a solid
performance by the company's fixed-income businesses. The market value
of average assets under management was $35.8 billion in the second
quarter of 2003, up 1 percent from $35.3 billion in the first quarter
of 2003.
Average assets supporting the investment agreement and medium-term
note businesses grew to $8.8 billion in the second quarter of 2003
from $8.2 billion in the first quarter, a 7 percent increase. Average
third party fixed-income assets under management were $14.4 billion in
the second quarter of 2003, down slightly from the $14.7 billion of
assets under management in this year's first quarter.
Pre-tax operating income from investment management services for
the first half of 2003 decreased 9 percent to $23.5 million from $25.9
million in last year's first half. Based on the continued solid
performance of the company's fixed-income businesses, the company
expects this segment to match or exceed 2002's full year results.
Municipal Services
For the first half of 2003, municipal services operations reported
a $179,000 pre-tax operating profit compared with $193,000 in the same
period last year.
Corporate
The corporate segment includes net investment income, interest
expense and corporate expenses. Net corporate segment expenses in the
first half increased 26 percent to $36.3 million from $28.8 million in
the same period last year. A 31 percent increase in interest expense
resulting from additional debt issued in the third quarter of 2002 was
only partially offset by an increase in investment income and a
reduction in corporate expenses.
Gains and Losses
In the first half of 2003, MBIA recorded net realized gains of
$51.0 million, compared with a net realized loss of $0.4 million in
the first half of 2002, as the company reduced the duration of its
investment portfolio in 2003.
The company recorded a pre-tax net unrealized gain of $103.3
million for the first half of 2003 on its derivative exposure,
compared with a pre-tax net unrealized loss of $2.7 million for the
first half of 2002. This $0.46 per share mark-to-market unrealized
gain was primarily attributable to insured synthetic CDOs, reflecting
the impact of tighter credit spreads in the investment grade bond
market in the first half of 2003.
Share Repurchase
The company repurchased 1.4 million shares during the first half
of the year at an average cost of $38.28 per share. Approximately 2.2
million shares remain in the company's 11.3 million share buyback
program.
Corporate Developments
The dynamics of the reinsurance market have changed considerably
over the last year with many of MBIA's traditional reinsurers
experiencing downgrades or choosing to exit the financial guarantee
reinsurance business entirely. While these developments will not
significantly impact MBIA's capital position and the company believes
that reinsurance availability remains adequate to satisfy its business
needs, MBIA has launched several strategic initiatives designed to
maximize its financial flexibility and Triple-A reinsurance capacity.
As previously disclosed, MBIA invested $25 million in RAM Reinsurance
Company Ltd., a Triple-A rated financial guarantee reinsurance company
based in Bermuda. In addition, MBIA is working closely with other
potential investors on the formation of a new financial guarantee
reinsurance company.
In addition, during the second quarter, the company established a
new single-seller conduit, TRF, in order to participate in a financing
facility for a toll road system in Italy. TRF issued approximately
$1.4 billion in Euro-denominated medium-term notes insured by MBIA
Insurance Corporation, the proceeds of which were used as part of the
financing. As a newly created conduit, TRF is subject to consolidation
in MBIA's financial statements under applicable accounting rules. The
consolidation of TRF resulted in the addition of approximately $1.4
billion in both assets and liabilities to MBIA's balance sheet during
the second quarter.
As of June 30, 2003, the outstanding balance of commercial paper
and medium-term notes issued by the unconsolidated conduits
administered by MBIA was approximately $7.4 billion. The assets and
liabilities of these conduits will be consolidated on the company's
balance sheet in the third quarter.
Conference Call
MBIA will host a conference call for investors today at 11 a.m.
EDT. The conference call will consist of brief comments by Neil G.
Budnick, the company's chief financial officer, followed by a question
and answer session. The conference call will be web cast live on
MBIA's Web site at http://investor.mbia.com (then click "Conference
Call"). Those who are unable to participate in the conference call may
listen to a replay by dialing 1-800-396-1244 in the United States and
1-402-998-1607 for international calls. A recording will also be
available on MBIA's Web site approximately two hours after the end of
the conference call.
MBIA Inc., through its subsidiaries, is a leading financial
guarantor and provider of specialized financial services. MBIA's
innovative and cost-effective products and services meet the credit
enhancement, financial and investment needs of its public and private
sector clients, domestically and internationally. MBIA Inc.'s
principal operating subsidiary, MBIA Insurance Corporation, has a
financial strength rating of Triple-A from Moody's Investors Service,
Standard & Poor's Ratings Services, Fitch Ratings, and Rating and
Investment Information, Inc. Please visit MBIA's Web site at
http://www.mbia.com.
This news release contains forward-looking statements. Important
factors such as general market conditions and the competitive
environment could cause actual results to differ materially from those
projected in these forward-looking statements. The company undertakes
no obligation to revise or update any forward-looking statements to
reflect changes in events or expectations.
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
2003 2002
---------- ------------
Assets
------
Investments:
Fixed-maturity securities held as
available-for-sale at fair value
(amortized cost $7,710,958
and $7,555,978) $ 8,402,450 $ 8,093,650
Short-term investments 834,976 687,238
Other investments 269,605 212,673
----------- -----------
9,507,031 8,993,561
Investment agreement and medium-term
note portfolios held as
available-for-sale at fair value
(amortized cost $7,546,332
and $7,080,870) 8,019,458 7,433,615
Investment agreement portfolio pledged
as collateral at fair value
(amortized cost $853,404 and $646,287) 898,075 667,854
Conduit investments held-to-maturity 1,417,079 ---
----------- -----------
Total investments 19,841,643 17,095,030
Cash and cash equivalents 127,004 83,218
Accrued investment income 222,856 215,265
Deferred acquisition costs 310,278 302,222
Prepaid reinsurance premiums 528,013 521,641
Reinsurance recoverable on unpaid losses 42,030 43,828
Goodwill 90,041 90,041
Property and equipment (net of accumulated
depreciation) 124,923 128,441
Receivable for investments sold 368,968 91,767
Derivative assets 188,313 191,755
Other assets 101,337 88,893
----------- -----------
Total assets $21,945,406 $18,852,101
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Deferred premium revenue $ 2,920,240 $ 2,755,046
Loss and loss adjustment expense
reserves 525,860 573,275
Investment agreement and medium-term
note obligations 7,604,564 7,230,562
Securities sold under agreements to
repurchase 764,441 539,561
Conduit debt obligations 1,416,398 ---
Short-term debt 13,597 ---
Long-term debt 1,032,883 1,033,070
Current income taxes 46,795 17,648
Deferred income taxes 589,347 471,534
Deferred fee revenue 23,090 24,838
Payable for investments purchased 380,174 58,436
Derivative liabilities 218,620 309,749
Other liabilities 336,735 345,031
----------- -----------
Total liabilities 15,872,744 13,358,750
Shareholders' Equity:
Common stock 153,068 152,555
Additional paid-in capital 1,266,280 1,239,313
Retained earnings 4,278,726 3,895,112
Accumulated other comprehensive income 764,009 541,250
Unallocated ESOP shares (3) (653)
Unearned compensation - restricted
stock (15,468) (12,646)
Treasury stock (373,950) (321,580)
----------- -----------
Total shareholders' equity 6,072,662 5,493,351
Total liabilities and shareholders'
equity $21,945,406 $18,852,101
=========== ===========
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
2003 2002 2003 2002
--------- -------- --------- ---------
Insurance
operations
Revenues:
Gross
premiums
written $ 327,094 $ 205,812 $ 615,241 $ 392,584
Ceded
premiums (55,571) (36,155) (119,690) (88,470)
--------- --------- --------- ---------
Net premiums
written 271,523 169,657 495,551 304,114
Scheduled
premiums
earned 151,588 124,582 292,241 249,068
Refunding
premiums
earned 34,083 13,187 54,610 27,739
--------- --------- --------- ---------
Premiums
earned 185,671 137,769 346,851 276,807
Net
investment
income 107,728 108,370 214,149 214,569
Advisory
fees 17,342 12,255 30,644 19,344
--------- --------- --------- ---------
Total
insurance
revenues 310,741 258,394 591,644 510,720
Expenses:
Losses and
LAE
incurred 18,192 14,950 35,070 29,888
Amortization
of deferred
acquisition
costs 14,619 11,022 27,401 22,145
Operating 29,318 22,080 52,961 42,292
--------- --------- --------- ---------
Total
insurance
expenses 62,129 48,052 115,432 94,325
Insurance
income 248,612 210,342 476,212 416,395
--------- --------- --------- ---------
Investment
management
services
Revenues 26,368 25,727 55,608 55,578
Expenses 16,274 14,730 32,073 29,708
--------- --------- --------- ---------
Investment
management
services
income 10,094 10,997 23,535 25,870
--------- --------- --------- ---------
Municipal
services
Revenues 7,419 5,908 13,461 11,599
Expenses 7,292 5,802 13,282 11,406
--------- --------- --------- ---------
Municipal
services
income 127 106 179 193
--------- --------- --------- ---------
Corporate
Net
investment
income 2,208 2,043 4,581 4,260
Interest
expense 16,932 12,956 33,881 25,790
Corporate
expenses 3,384 3,056 7,047 7,261
--------- --------- --------- ---------
Corporate loss (18,108) (13,969) (36,347) (28,791)
--------- --------- --------- ---------
Gains and losses
Net realized
gains (losses) 20,822 439 50,979 (397)
Change in fair
value of
derivative
instruments 43,132 (14,530) 103,341 (2,663)
--------- --------- --------- ---------
Net gains and
losses 63,954 (14,091) 154,320 (3,060)
--------- --------- --------- ---------
Income before
income taxes 304,679 193,385 617,899 410,607
Provision for
income taxes 86,825 50,798 176,719 107,908
--------- --------- --------- ---------
Income before
cumulative
effect of
accounting
change 217,854 142,587 441,180 302,699
Cumulative
effect of
accounting
change --- --- --- (7,731)
--------- --------- --------- ---------
Net income $ 217,854 $ 142,587 $ 441,180 $ 294,968
========= ========= ========= =========
Net income
per common
share:
Basic $ 1.52 $ 0.97 $ 3.07 $ 2.00
Diluted $ 1.51 $ 0.96 $ 3.04 $ 1.98
Weighted-
average
common shares
outstanding:
Basic 143,132,545 147,568,448 143,584,818 147,809,271
Diluted 144,628,641 148,761,391 144,999,949 149,033,999
MBIA INC. AND SUBSIDIARIES
Reconciliation of Adjusted Direct Premiums to Gross Premiums
Written (in millions)
--------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
--------------- ---------------
2003 2002 2003 2002
------- ------- ------- -------
Adjusted direct premiums (1) $368.9 $304.5 $612.4 $459.9
Adjusted premiums assumed 26.4 0.1 31.8 6.1
------- ------- ------- -------
Adjusted gross premiums 395.3 304.6 644.2 466.0
Present value of estimated future
installment premiums (2) (202.4) (200.1) (300.3) (292.2)
------- ------- ------- -------
Gross upfront premiums written 192.9 104.5 343.9 173.8
Gross installment premiums
received 134.2 101.3 271.3 218.8
------- ------- ------- -------
Gross premiums written $327.1 $205.8 $615.2 $392.6
======= ======= ======= =======
(1) Management believes adjusted direct premiums are a meaningful
measure of the total value of the insurance business written since
they represent the present value of all premiums expected to be
collected on policies closed during the period.
(2) The first and second quarters of 2003 were discounted at 5.6% and
5.3%, respectively, while 2002 was discounted at 9.0%.
Components of Net Income per Share
--------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
--------------- ---------------
2003 2002 2003 2002
------- ------- ------- -------
Net income $1.51 $0.96 $3.04 $1.98
Cumulative effect of accounting
change 0.00 0.00 0.00 (0.05)
------- ------- ------- -------
Net income before accounting change 1.51 0.96 3.04 2.03
Net realized gains 0.09 0.00 0.23 0.00
Change in fair value of derivative
instruments 0.19 (0.06) 0.46 (0.01)
------- ------- ------- -------
Operating income (1) (2) $1.22 $1.02 $2.35 $2.04
======= ======= ======= =======
(1) Management believes operating income is a useful measurement of
performance because it provides income from operations, unaffected by
investment portfolio realized gains and losses, and unrealized gains
and losses on derivatives contracts.
(2) May not add due to rounding.
MBIA INC. AND SUBSIDIARIES
Components of Adjusted Book Value per Share (1)
-----------------------------------------------
June 30, 2003 December 31, 2002
----------------- -----------------
Book value $42.19 $37.95
After-tax value of:
Deferred premium revenue 13.18 12.38
Prepaid reinsurance premiums (2.38) (2.34)
Deferred acquisition costs (1.40) (1.36)
------ ------
Net deferred premium revenue 9.40 8.68
Present value of installment
premiums (2) 7.14 5.84
Unrealized losses on investment
contract liabilities (1.14) (0.70)
Loss provision (3) (2.15) --
----------- -----------
Adjusted book value $55.44 $51.77
=========== ===========
(1) Management believes the presentation of adjusted book value, which
includes items that will not be realized until future periods,
provides additional information that gives a comprehensive measure of
the value of the company.
(2) The first and second quarters of 2003 were discounted at 5.6% and
5.3%, respectively, while 2002 was discounted at 9.0%.
(3) The loss provision is calculated by applying 12% to the following
items on an after-tax basis: (a) deferred premium revenue;
(b) prepaid reinsurance premiums; and, (c) the present value of
installment premiums.
CONSOLIDATED INSURANCE OPERATIONS
----------------------------------------------------------------------
Selected Financial Data Computed on a Statutory Basis
--------------------------------------------------------
(dollars in millions) June 30, December
2003 31, 2002
------------ -----------
Capital and surplus $3,381.6 $3,158.0
Contingency reserve 2,322.0 2,276.8
----------- -----------
Capital base 5,703.6 5,434.8
Unearned premium reserve 2,954.3 2,774.1
Present value of installment premiums (1) 1,579.9 1,300.1
----------- -----------
Premium resources 4,534.2 4,074.2
Loss and loss adjustment expense reserves 192.4 244.9
Standby line of credit/stop loss 1,460.7 1,260.8
----------- -----------
Total claims-paying resources $11,890.9 $11,014.7
=========== ===========
Net debt service outstanding $805,481.4 $781,589.4
Capital ratio (2) 141:1 144:1
Claims-paying ratio (3) 78:1 82:1
(1) The first and second quarters of 2003 were discounted at 5.6% and
5.3%, respectively, while 2002 was discounted at 9.0%.
(2) Net debt service outstanding divided by the capital base.
(3) Net debt service outstanding divided by the sum of the capital
base, unearned premium reserve (after-tax), present value of
installment premiums (after-tax), loss and loss adjustment expense
reserves and standby line of credit/stop loss.
