| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2020
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Connecticut | 06-1185706 | |
(State of incorporation) | (I.R.S. Employer Identification No.) | |
1 Manhattanville Road, Suite 301, Purchase, New York | 10577 | |
(Address of principal executive offices) | (Zip Code) | |
par value $1 per share
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. ☒
| Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
| Emerging growth company | ☐ |
$404,974,161.
Item 1. | Business | 1 | ||||
Item 1A. | Risk Factors | |||||
Item 1B. | Unresolved Staff Comments | |||||
Item 2. | Properties | |||||
Item 3. | Legal Proceedings | |||||
Item 4. | Mine Safety Disclosures | |||||
Item 5. | ||||||
Item 6 | Selected Financial Data | |||||
Item 7. | ||||||
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | |||||
Item 8. | Financial Statements and Supplementary Data | |||||
Item 9. | ||||||
Item 9A. | Controls and Procedures | |||||
Item 9B. | Other Information | |||||
Item 10. | Directors, Executive Officers and Corporate Governance | |||||
Item 11. | Executive Compensation | |||||
Item 12. | ||||||
Item 13. | Certain Relationships and Related Transactions, and Director Independence | |||||
Item 14. | Principal Accounting Fees and Services | |||||
Item 15. | Exhibits, Financial Statement Schedules | 143 | ||||
| 147 | ||||||
| 148 | ||||||
| 154 | ||||||
Table of ContentsPART I
Mexico S.A. de C.V. (“MBIA Mexico”).
MBIA2020.
Item 1. Business (continued)
MBIA Corp. has not written a meaningful amount of new business since 2008 as a result of declining financial capacity, ratings downgrades and regulatory limitations placed on its business. Since that time it has experienced considerable stress as a result of unprecedented levels of loss in its structured finance insurance business, primarily in its residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) pools, and collateralized debt obligation (“CDO”) portfolios. As a result, since 2008,
Item 1. Business (continued)
business.
In particular, the global outbreak of the novel coronavirus COVID-19 (“COVID-19”) could have an adverse impact on our financial condition and results of operations and other aspects of our business. For additional information relating to the risks arising from COVID-19, refer to the “Legal, Regulatory and Other Risk Factors” section in Part I, Item 1A of this Form 10-K.
Item 1. Business (continued)
National’s underwriting guidelines limited the insurance in force for any one insured credit, and for other categories such as geography. In addition, National is subject to regulatory single-risk limits with respect to any insured bond issue. See the “Insurance Regulation” section below for a description of these regulatory requirements. As of December 31, 2018,2020, National’s gross par amount outstanding for its ten largest insured U.S. public finance credits totaled $10.1$9.1 billion, representing 17.4%21.7% of National’s total U.S. public finance gross par amount outstanding. Refer to “Note 13: Insurance in Force” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form10-K for further information regarding the Company’s insured portfolio.
flows.
178 credits.
Item 1. Business (continued)
In January of 2017,
Item 1. Business (continued)
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Item 1. Business (continued)
Item 1. Business (continued)
Item 1. Business (continued)
National declared and paid a dividend of $108 million to its ultimate parent, MBIA Inc., during the fourth quarter of 2018.
Item 1. Business (continued)
2020 and 2019.
Item 1. Business (continued)
termination.
In the fourth quarter of 2017, both S&P and
AND HUMAN CAPITAL MANAGEMENT
Item 1. Business (continued)
Name | Age | Position and Term of Office | ||||
William C. Fallon | Chief Executive Officer and Director (executive officer since July 2005) | |||||
Anthony McKiernan | Executive Vice President and Chief Financial Officer (executive officer since August 2011) | |||||
Jonathan C. Harris | General Counsel and Secretary (executive officer since September 2017) | |||||
Daniel M. Avitabile | Assistant Vice President, and President and Chief Risk Officer of MBIA Corp. (executive officer since September 2017) | |||||
Adam T. Bergonzi | Assistant Vice President and Chief Risk Officer of National (executive officer since September 2017) | |||||
Christopher H. Young | Assistant Vice President, and Chief Financial Officer of National (executive officer since September 2017) | |||||
Joseph R. Schachinger | Controller (executive officer since May 2017) | |||||
Item 1. Business (continued)
Item 1A. Risk Factors (continued)
Although the financial condition of many state, local and territorial governments and finance authorities that issued the obligations we insured has improved since the financial crisis, some
The
In 2017, the Oversight Board certified and filed in the District Court of Puerto Rico bankruptcy like petitions under Title III of PROMESA for the Commonwealth of Puerto Rico as well as certain of its instrumentalities, specifically, Puerto Rico Sales Tax Financing Corporation (“COFINA”), Puerto Rico Electric Power Authority (“PREPA”) and Puerto Rico Highway and Transportation Authority (“PRHTA”). On February 4, 2019, the District Court entered an order approving the confirmation of the Plan of Adjustment for COFINA, including the settlement agreement between the Commonwealth and COFINA. The effective date of the Plan was February 12, 2019. While National has entered into a voluntary mediation process with the Oversight Board and Puerto Rico in connection with the GO Bonds and certain other insured Puerto Rico credits, there can be no assurance that National will be able to avoid anon-voluntary outcome in the Title III proceedings which could result in unanticipated losses to National which could be material.
On February 15, 2019, the United States Court of Appeals for the First Circuit issued its decision on the appeal by Aurelius Investments LLC and other appellants seeking to dismiss the Title III proceedings as unconstitutional. In its decision, the First Circuit agreed with appellants that the process PROMESA provides for the appointment of Board member is unconstitutional under the U.S. Constitution’s Appointments Clause. Notwithstanding that holding, the First Circuit affirmed Judge Swain’s denial of appellants’ motions to dismiss the Title III petitions, concluding that the Board’s constitutional infirmity did not alter or impair the validity of the Board’s past acts, and stayed its mandate for 90 days to allow the President and the Senate to validate the currently defective appointments or reconstitute the Board in accordance with the Appointments Clause. During the 90-day stay, the Board continues to operate as it does currently.
Item 1A. Risk Factors (continued)
Puerto Rico continues in its efforts to rebuild its infrastructure and to otherwise recover from the impact of Hurricane Maria in 2017, aided in part by Federal Emergency Management Agency and other federal agencies. The extent and duration of such aid is inherently uncertain. In 2018, as part of the Title III proceedings under PROMESA, the Commonwealth of Puerto Rico submitted several draft fiscal plans to the Oversight Board, each of which purported to reflect the government’s expected economic outlook for Puerto Rico over a five year period after taking into account, among other factors: (i) the negative impact of Hurricane Maria, (ii) mitigating impact of disaster relief assistance, (iii) changes to revenue and expense measures, and (iv) the impact of structural reforms. On October 23, 2018, the Oversight Board voted to certify the most recent Commonwealth fiscal plan, which reflects a $17.0 billion surplus over asix-year period assuming some levels of debt service. This fiscal plan remains subject to further adjustment, however, and in any event, will ultimately be subjected to a confirmation hearing at which the Court will be asked to approve a Plan of Adjustment addressing distributions for each insured credit. The current plan, or any revisions thereto, can provide no assurance that National will fully recover past amounts paid or future amountsagencies that may be covered under our insurance policies. In addition, the necessary andoffered to Puerto Rico is uncertain. Further, greater involvement of the federal government through its actionsaction to deliver disaster relief and other support services in addition to the evolving role of the Oversight Board and the role of Puerto Rico in its own recovery, heightens the political risk already inherent in connection with the restructuring of legacy debt.debt restructuring. This risk could lead the Oversight Board, the Commonwealth ofindependent oversight board created by PROMESA to oversee Puerto Rico’s debt restructuring (the “Oversight Board”), Puerto Rico itself, or the federal government to seek to extract greater concessions from creditors based on the uncertainty of Puerto Rico’s long-termlong term recovery prospects. In this event, losses at National on select Puerto Rico exposures could increase materially.
Item 1A. Risk Factors (continued)
the Eurozone and elsewhere may materially adversely affect our business and results of operations.
Item 1A. Risk Factors (continued)
Interruption in information technology and other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems, could harm our business.
We depend heavily on our information technology and other operational systems and on the integrity and timeliness of data we use to run our businesses. These systems may fail to operate properly or become disabled as a result of events or circumstances wholly or partly beyond our control. Further, we face the risk of operational and technology failures by others, including various financial intermediaries, vendors and parties to which we outsource the provision of services or business operations. If this risk is realized, we may experience operational difficulties, increased costs and other adverse effects on our business.
Despite our implementation of a variety of security measures, our information technology and other systems could be subject to physical or electronicbreak-ins, unauthorized tampering or other security breaches, resulting in a failure to maintain the security, confidentiality or privacy of sensitive data.
Interruption in information technology and other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems, whether due to actions by us or others, could delay or disrupt our ability to do business, harm our reputation, subject us to regulatory sanctions and other claims, lead to a loss of revenues and/or otherwise adversely affect our business.
Item 1A. Risk Factors (continued)
The Company is dependent on key executives and the loss of any of these executives, or its inability to retain other key personnel, could adversely affect its business.
The Company’s success substantially depends upon its ability to attract and retain qualified employees and upon the ability of its senior management and other key employees to implement its business strategy. The Company believes there are only a limited number of available qualified executives in the business lines in which the Company operates. The Company relies substantially upon the services of William C. Fallon, Chief Executive Officer, and other senior executives. There is no assurance that the Company will be able to retain the services of key executives. While the Company has a succession plan for key executives and does not expect the departure of any key executives to have a material adverse effect on its operations, there can be no assurance that the loss of the services of any of these individuals or other key members of the Company’s management team would not adversely affect the implementation of its business strategy.
Item 1A. Risk Factors (continued)
As
Any failure or delay in the remediation of the material weakness could result in material misstatements of accounts or disclosures related tocredits, particularly within our loss and loss adjustment expense reserves, insurance loss recoverable, losses and loss adjustment expenses and related financial disclosures in future periods that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected,international public finance sector, feature large, near term debt-service payments, and there can be no assurance that the liquidity position of MBIA Insurance Corporation will enable it to satisfy any claims that arise if the issuers of such credits are unable or unwilling to refinance or repay their obligations. Further, any national recession that may result from the pandemic and its aftermath could present additional but yet unknown credit risks to all of our insured portfolios.
more of the third parties to whom we outsource certain business
Item 1A. Risk Factors (continued)
of future loss payments.
Item 1A. Risk Factors (continued)
10-K.
In late March of 2020, the original sponsor resigned as director and manager of all but one portfolio company, and new directors and managers are currently in place at all but two portfolio companies.
Item 1A. Risk Factors (continued)
Further, MBIA Insurance Corporation believes that if the NYSDFS concludes at any time that MBIA Insurance Corporation will not be able to satisfy its obligations under
Item 1A. Risk Factors (continued)
CDS and other derivative
Repurchases
On February 23, 2016, the Company’s Board of Directors authorized the(the “Board”) in May 2020 and November 2017 and exhausted these share repurchase byauthorizations. During 2019, the Company or National of up to $100purchased or repurchased 11.1 million of its outstanding shares under a new share repurchase authorization. As of December 31, 2017, there was no remaining authorized capacity under the February 23, 2016 repurchase program.
On June 27, 2017, the Company’s Board of Directors authorized the repurchase by the Company or National of up to $250 million of its outstanding shares under a new share repurchase authorization. This program replaced the approximately $13 million remaining under the Board’s February 23, 2016 authorization. As of December 31, 2017, there was no remaining authorized capacity under the June 27, 2017 repurchase program.
On November 3, 2017, the Company’s Board of Directors authorized the repurchase by the Company or National of up to $250 million of its outstanding shares under a new share repurchase authorization. During 2018, 5.8 million shares were repurchased at a cost of approximately$101 million under the repurchase authorization approved by the Board in November 2017. During 2018, The Company or National purchased or repurchased 5.8 million shares at a cost of $48 million and an average price of $8.21 under the repurchase authorization approved by the Board in November 3, 2017 repurchase program.
2017.
Month | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan | Maximum Amount That May Be Purchased Under the Plan (in millions) | ||||||||||||
October | 117 | 9.91 | — | $ | 236 | |||||||||||
November | 168,340 | 9.01 | 168,215 | 234 | ||||||||||||
December | 3,712,775 | 8.69 | 3,712,641 | 202 | ||||||||||||
Month | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan | Maximum Amount That May Be Purchased Under the Plan (in millions) | ||||||||||||
October | 133 | 6.55 | — | $ | — | |||||||||||
November | 174 | 6.23 | — | — | ||||||||||||
December | 4,158 | 6.53 | — | — | ||||||||||||
|
20132014 and reinvestment of dividends in the security/index on the respective dividend payment dates without commissions. This graph does not forecast future performance of our common stock.
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |||||||||||||||||||
MBIA Inc. Common Stock | 100.00 | 79.90 | 54.27 | 89.61 | 61.31 | 74.71 | ||||||||||||||||||
S&P 500 Index | 100.00 | 113.68 | 115.24 | 129.02 | 157.17 | 150.27 | ||||||||||||||||||
S&P Financials Index | 100.00 | 115.18 | 113.38 | 139.17 | 169.98 | 147.82 | ||||||||||||||||||
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (continued) |
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||||
MBIA Inc. Common Stock | 100.00 | 165.12 | 112.96 | 137.65 | 143.52 | 101.54 | ||||||||||||||||||
S&P 500 Index | 100.00 | 111.95 | 136.38 | 130.39 | 171.44 | 202.96 | ||||||||||||||||||
S&P Financials Index | 100.00 | 122.75 | 149.93 | 130.38 | 172.22 | 169.19 | ||||||||||||||||||
Item 6. SelectedFinancial Data
In millions except per share amounts | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
Summary Statement of Operations Data: | ||||||||||||||||||||
Premiums earned | $ | 162 | $ | 201 | $ | 300 | $ | 372 | $ | 397 | ||||||||||
Net investment income | 130 | 154 | 152 | 152 | 179 | |||||||||||||||
Net change in fair value of insured derivatives | (25) | (51) | (19) | 129 | 459 | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (17) | (24) | 84 | 63 | 78 | |||||||||||||||
Net investment losses related to other-than-temporary impairments | (5) | (106) | (5) | (13) | (15) | |||||||||||||||
Other net realized gains (losses) | — | 31 | (282) | 17 | 28 | |||||||||||||||
Revenues of consolidated variable interest entities | (111) | 185 | 31 | 128 | 101 | |||||||||||||||
Total revenues | 162 | 433 | 294 | 853 | 1,270 | |||||||||||||||
Losses and loss adjustment | 63 | 683 | 220 | 123 | 133 | |||||||||||||||
Operating | 71 | 106 | 137 | 140 | 195 | |||||||||||||||
Interest | 206 | 197 | 197 | 199 | 210 | |||||||||||||||
Expenses of consolidated variable interest entities | 98 | 85 | 39 | 52 | 47 | |||||||||||||||
Total expenses | 458 | 1,094 | 633 | 564 | 629 | |||||||||||||||
Income (loss) before income taxes | (296) | (661) | (339) | 289 | 641 | |||||||||||||||
Net income (loss) | (296) | (1,605) | (338) | 180 | 569 | |||||||||||||||
Net income (loss) per common share: |
| |||||||||||||||||||
Basic | $ | (3.33) | $ | (13.50) | $ | (2.54) | $ | 1.06 | $ | 2.94 | ||||||||||
Diluted | $ | (3.33) | $ | (13.50) | $ | (2.54) | $ | 1.06 | $ | 2.76 | ||||||||||
Summary Balance Sheet Data: | ||||||||||||||||||||
Investments and cash and cash equivalents | 4,294 | 4,777 | 5,796 | 6,814 | 7,559 | |||||||||||||||
Total assets of consolidated variable interest entities | 1,726 | 3,215 | 2,672 | 5,378 | 5,041 | |||||||||||||||
Total assets | 8,076 | 9,095 | 11,137 | 14,836 | 16,263 | |||||||||||||||
Unearned premium revenue | 587 | 752 | 958 | 1,591 | 1,986 | |||||||||||||||
Loss and loss adjustment expense reserves | 934 | 979 | 541 | 516 | 506 | |||||||||||||||
Long-term debt | 2,249 | 2,121 | 1,986 | 1,889 | 1,789 | |||||||||||||||
Medium-term notes | 722 | 765 | 895 | 1,016 | 1,201 | |||||||||||||||
Investment agreements | 311 | 337 | 399 | 462 | 547 | |||||||||||||||
Derivative liabilities | 199 | 262 | 299 | 314 | 437 | |||||||||||||||
Total liabilities of consolidated variable interest entities | 1,744 | 2,289 | 2,241 | 5,096 | 4,804 | |||||||||||||||
Total equity | 1,132 | 1,425 | 3,239 | 3,741 | 3,950 | |||||||||||||||
Book value per share | $ | 12.46 | $ | 15.44 | $ | 23.87 | $ | 24.61 | $ | 20.47 | ||||||||||
Insurance Statistical Data: | ||||||||||||||||||||
Debt service outstanding | $ | 128,069 | $ | 154,945 | $ | 235,899 | $ | 326,612 | $ | 437,778 | ||||||||||
Gross par amount outstanding | 69,761 | 87,031 | 141,225 | 202,661 | 277,481 | |||||||||||||||
Item 6. Selected Financial Data (continued)
Quarterly Financial Information (unaudited):
| 2018 | ||||||||||||||||||||
In millions except per share amounts | First | Second | Third | Fourth | Full Year(1) | |||||||||||||||
Premiums earned | $ | 40 | $ | 36 | $ | 62 | $ | 24 | $ | 162 | ||||||||||
Net investment income | 31 | 34 | 31 | 34 | 130 | |||||||||||||||
Net change in fair value of insured derivatives | (5) | (7) | (1) | (12) | (25) | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (9) | 22 | 5 | (35) | (17) | |||||||||||||||
Net investment losses related to other-than-temporary impairments | (1) | (1) | (1) | (2) | (5) | |||||||||||||||
Other net realized gains (losses) | (1) | — | 1 | — | — | |||||||||||||||
Revenues of consolidated variable interest entities | 12 | (72) | (12) | (39) | (111) | |||||||||||||||
Total revenues | 73 | 12 | 105 | (28) | 162 | |||||||||||||||
Losses and loss adjustment | 72 | 59 | 46 | (114) | 63 | |||||||||||||||
Operating | 20 | 19 | 18 | 14 | 71 | |||||||||||||||
Interest | 51 | 52 | 52 | 51 | 206 | |||||||||||||||
Expenses of consolidated variable interest entities | 22 | 24 | 25 | 27 | 98 | |||||||||||||||
Total expenses | 169 | 158 | 150 | (19) | 458 | |||||||||||||||
Income (loss) before income taxes | (96) | (146) | (45) | (9) | (296) | |||||||||||||||
Net income (loss) | (98) | (146) | (45) | (7) | (296) | |||||||||||||||
Net income (loss) per common share: | ||||||||||||||||||||
Basic | $ | (1.12) | $ | (1.64) | $ | (0.50) | $ | (0.08) | $ | (3.33) | ||||||||||
Diluted | $ | (1.12) | $ | (1.64) | $ | (0.50) | $ | (0.08) | $ | (3.33) | ||||||||||
(1)—May not cross-foot due to rounding.
| 2017 | ||||||||||||||||||||
In millions except per share amounts | First | Second | Third | Fourth | Full Year(1) | |||||||||||||||
Premiums earned | $ | 49 | $ | 44 | $ | 53 | $ | 55 | $ | 201 | ||||||||||
Net investment income | 52 | 37 | 33 | 32 | 154 | |||||||||||||||
Net change in fair value of insured derivatives | (53) | 3 | (1) | — | (51) | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 17 | (61) | (11) | 31 | (24) | |||||||||||||||
Net investment losses related to other-than-temporary impairments | (2) | (11) | (71) | (22) | (106) | |||||||||||||||
Other net realized gains (losses) | 3 | 34 | (1) | (5) | 31 | |||||||||||||||
Revenues of consolidated variable interest entities | 1 | 20 | 29 | 135 | 185 | |||||||||||||||
Total revenues | 77 | 72 | 33 | 251 | 433 | |||||||||||||||
Losses and loss adjustment | 94 | 170 | 205 | 214 | 683 | |||||||||||||||
Operating | 29 | 32 | 21 | 24 | 106 | |||||||||||||||
Interest | 48 | 50 | 50 | 49 | 197 | |||||||||||||||
Expenses of consolidated variable interest entities | 19 | 22 | 22 | 22 | 85 | |||||||||||||||
Total expenses | 197 | 282 | 306 | 309 | 1,094 | |||||||||||||||
Income (loss) before income taxes | (120) | (210) | (273) | (58) | (661) | |||||||||||||||
Net income (loss) | (72) | (1,229) | (267) | (37) | (1,605) | |||||||||||||||
Net income (loss) per common share: | ||||||||||||||||||||
Basic | $ | (0.55) | $ | (9.78) | $ | (2.17) | $ | (0.39) | $ | (13.50) | ||||||||||
Diluted | $ | (0.55) | $ | (9.78) | $ | (2.17) | $ | (0.39) | $ | (13.50) | ||||||||||
(1)—May not cross-foot due to rounding.
2018 Events
On January 1, 2018 and July 1, 2018,
the PSA. On February 10, 2021, the Oversight Board filed a motion stating it had an agreement in principle with certain PSA parties, not including the monoline insurance companies, representing approximately $7 billion in GO and PBA Bonds, and requested until March 11, 2018,8, 2021 to file an amended plan. The Court approved the then-directorrequest. On February 22, 2021, National agreed to join a revised PSA, dated as of Zohar CDO2003-1, Limited (“Zohar I”February 22, 2021 (the “2021 PSA”), among the Oversight Board, certain holders of GO Bonds and Zohar II2005-1, Limited (“Zohar II”) placed those funds into voluntary bankruptcy proceedingsPBA Bonds, Assured Guaranty Corp. and Assured Guaranty Municipal Corp, and Syncora Guarantee Inc. in federal bankruptcy courtconnection with the GO and PBA Title III cases. The 2021 PSA provides that, among other things, National shall receive a pro rata share of allocable cash, newly issued General Obligation bonds, a contingent value instrument and certain fees. National has the right to unilaterally terminate its participation in the District of Delaware. On May 21, 2018, the Court granted the Zohar funds’ motion2021 PSA on or prior to approveMarch 31, 2021. The 2021 PSA contemplates a settlement (the “Zohar Bankruptcy Settlement”) which established a process by which the debtor funds, through an independent director and a chief restructuring officer, will work with the original sponsor of the funds to monetize the assets of the debtor funds (the “Zohar Assets”) and repay creditors, including MBIA Corp. In addition, the procedures set forth in the Zohar Bankruptcy Settlement provides for a stay of all pending litigation between the parties for a minimum of fifteen months. Notwithstanding the Zohar Bankruptcy Settlement,plan becoming effective on or before December 15, 2021; however there can be no assurance that such a plan will ever become effective, or on the valuecontemplated timeline.
In April and June of 2018, the holder of certain MBIA Inc. warrants exercised its right to purchase, in total, 11.85 million shares of MBIA Inc. common stock at an exercise price of $9.59 per share. As a result, the Company issued a total of 1.3 million shares of MBIA Inc. common stock to the holder in accordance with the cashless settlement provision of the warrants. As of December 31, 2018, there were no warrants outstanding.
| Years Ended December 31, | ||||||||||||
In millions except for per share amounts | 2018 | 2017 | 2016 | |||||||||
Net income (loss) | $ | (296) | $ | (1,605) | $ | (338) | ||||||
Net income (loss) per diluted share | (3.33) | (13.50) | (2.54) | |||||||||
Adjusted net income (loss)(1) | (38) | (410) | 30 | |||||||||
Adjusted net income (loss) per diluted share(1) | (0.42) | (3.45) | 0.23 | |||||||||
Cost of shares repurchased | 48 | 325 | 105 | |||||||||
Years Ended December 31, | ||||||||||||
In millions except for per share amounts | 2020 | 2019 | 2018 | |||||||||
Net income (loss) | $ | (578) | $ | (359) | $ | (296) | ||||||
Net income (loss) per diluted share | (9.78) | (4.43) | (3.33) | |||||||||
Adjusted net income (loss) (1) | (173) | (17) | (38) | |||||||||
Adjusted net income (loss) per diluted share (1) | (2.93) | (0.21) | (0.42) | |||||||||
Cost of shares repurchased | 198 | 101 | 48 | |||||||||
| As of December 31, | ||||||||
In millions except per share amounts | 2018 | 2017 | ||||||
Shareholders’ equity of MBIA Inc. | $ | 1,119 | $ | 1,413 | ||||
Book value per share | 12.46 | 15.44 | ||||||
Adjusted book value per share(1) | 27.38 | 28.77 | ||||||
(1)—Adjusted book value per share is anon-GAAP measure. Refer to the following “Results of Operations” section for a discussion of adjusted book value and a reconciliation of GAAP book value per share to adjusted book value per share.
short term and may continue to pose meaningful risks to these measures over the medium term. Inflation remained low due to overall weak consumer demand and low oil prices.
state and local governments during the coronavirus pandemic.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
inputs used to estimate fair values.
| Years Ended December 31, | ||||||||||||
In millions except for per share amounts | 2018 | 2017 | 2016 | |||||||||
Total revenues | $ | 162 | $ | 433 | $ | 294 | ||||||
Total expenses | 458 | 1,094 | 633 | |||||||||
|
|
|
|
|
| |||||||
Income (loss) before income taxes | (296) | (661) | (339) | |||||||||
Provision (benefit) for income taxes | — | 944 | (1) | |||||||||
|
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|
|
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| |||||||
Net income (loss) | $ | (296) | $ | (1,605) | $ | (338) | ||||||
|
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| |||||||
Net income (loss) per common share: | ||||||||||||
Basic | $ | (3.33) | $ | (13.50) | $ | (2.54) | ||||||
Diluted | $ | (3.33) | $ | (13.50) | $ | (2.54) | ||||||
Weighted average number of common shares outstanding: | ||||||||||||
Basic | 89,013,711 | 118,930,282 | 133,001,088 | |||||||||
Diluted | 89,013,711 | 118,930,282 | 133,001,088 | |||||||||
Years Ended December 31, | ||||||||||||
In millions except for per share amounts | 2020 | 2019 | 2018 | |||||||||
Total revenues | $ | 282 | $ | 280 | $ | 162 | ||||||
Total expenses | 860 | 637 | 458 | |||||||||
Income (loss) before income taxes | (578) | (357) | (296) | |||||||||
Provision (benefit) for income taxes | — | 2 | — | |||||||||
Net income (loss) | $ | (578) | $ | (359) | $ | (296) | ||||||
Net income (loss) per common share: | ||||||||||||
Basic | $ | (9.78) | $ | (4.43) | $ | (3.33) | ||||||
Diluted | $ | (9.78) | $ | (4.43) | $ | (3.33) | ||||||
Weighted average number of common shares outstanding: | ||||||||||||
Basic | 59,071,843 | 81,014,285 | 89,013,711 | |||||||||
Diluted | 59,071,843 | 81,014,285 | 89,013,711 | |||||||||
2018
The decrease in consolidated total revenues was primarily due to (i) decreases in revenues of consolidated variable interest entities “VIEs”) due to the 2018 deconsolidation of two VIEs following the Zohar Bankruptcy Settlement and eight other consolidated VIEs, (ii) lower gains related to changes in the fair values of consolidated VIEs, (iii) an increase in net realized losses from the sales of securities from the ongoing management of our U.S. public finance insurance investment portfolio and (iv) lower net premiums earned due to higher refunding activity in 2017. These unfavorable variances were partially offset by lower net investment losses related to other-than-temporary impairments (“OTTI”).
Consolidated total expenses for the years ended December 31, 2018 and 2017 included $63 million and $683 million, respectively, of net insurance loss and LAE. This decrease in loss and LAE was primarily due to lower losses incurred on certain Puerto Rico credits and insured first and second-lien residential mortgage-backed securities (“RMBS”) in 2018.
The provision (benefit) for income taxes decreased for 2018 compared with 2017 primarily due to the establishment of a full valuation allowance against the Company’s net deferred tax asset in 2017. Refer to the following “Taxes” section and “Note 11: Income Taxes” in the Notes to Consolidated Financial Statements for further information about this valuation allowance on our net deferred tax asset.
2017 vs. 2016
2019
purchases of MBIA Inc. common shares.
The provision (benefit) for income taxes increased for 2017 compared with 2016 primarily due to the establishment of a full valuation allowance against the Company’s net deferred tax asset in 2017. Refer to the following “Taxes” section and “Note 11: Income Taxes” in the Notes to Consolidated Financial Statements for further information about this valuation allowance on our net deferred tax asset.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS (continued)
Elimination of
Elimination of
Elimination
Elimination of the tax provision as a result of establishing a full valuation allowance against the Company’s net deferred tax asset in the second quarter of 2017. Subsequent to the second quarter of 2017, the
| Years Ended December 31, | ||||||||||||
In millions, except share and per share amounts | 2018 | 2017 | 2016 | |||||||||
Net income (loss) | $ | (296) | $ | (1,605) | $ | (338) | ||||||
Less: adjusted net income adjustments: | ||||||||||||
Income (loss) before income taxes of our international and structured finance insurance segment and eliminations | (278) | (185) | (475) | |||||||||
Adjustments to income before income taxes of our U.S. public finance insurance and corporate segments: | ||||||||||||
Mark-to-market gains (losses) on financial instruments(1) | 16 | 64 | 12 | |||||||||
Foreign exchange gains (losses)(1) | 21 | (63) | 11 | |||||||||
Net gains (losses) on sales of investments(1) | (13) | 14 | 60 | |||||||||
Net investment losses related to OTTI | (5) | (106) | (5) | |||||||||
Net gains (losses) on extinguishment of debt | 3 | 28 | 5 | |||||||||
Other net realized gains (losses) | (2) | (3) | (5) | |||||||||
Adjusted net income adjustment to the (provision) benefit for income tax(2) | — | (944) | 29 | |||||||||
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Adjusted net income (loss) | $ | (38) | $ | (410) | $ | 30 | ||||||
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Adjusted net income (loss) per diluted common share | $ | (0.42) | (3) | $ | (3.45) | (3) | $ | 0.23 | (4) | |||
2018:
Years Ended December 31, | ||||||||||||
In millions, except share and per share amounts | 2020 | 2019 | 2018 | |||||||||
Net income (loss) | $ | (578) | $ | (359) | $ | (296) | ||||||
Less: adjusted net income adjustments: | ||||||||||||
Income (loss) before income taxes of our international and structured finance insurance segment and eliminations | (391) | (369) | (278) | |||||||||
Adjustments to income before income taxes of our U.S. public finance insurance and corporate segments: | ||||||||||||
Mark-to-market gains (losses) on financial instruments (1) | (27) | (39) | 16 | |||||||||
Foreign exchange gains (losses) (1) | (34) | 8 | 21 | |||||||||
Net gains (losses) on sales of investments (1) | 47 | 128 | (13) | |||||||||
Net investment losses related to impairments of securities | — | (67) | (5) | |||||||||
Net gains (losses) on extinguishment of debt | — | (1) | 3 | |||||||||
Other net realized gains (losses) | — | (2) | (2) | |||||||||
Adjusted net income adjustment to the (provision) benefit for income tax (2) | — | — | — | |||||||||
Adjusted net income (loss) | $ | (173) | $ | (17) | $ | (38) | ||||||
Adjusted net income (loss) per diluted common share | $ | (2.93 | ) (3) | $ | (0.21 | ) (3) | $ | (0.42 | ) (3) | |||
(4)—Adjusted net income (loss) per diluted common share is calculated by taking adjusted net income (loss) divided by the weighted average number of diluted common shares outstanding, which includes the GAAP diluted weighted average number of common shares of 133,001,088 and the dilutive effect of common stock equivalents of 444,557 shares.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS (continued)
Non-GAAP Adjusted
In the second quarter of 2018, as part of our periodic review of the components of ABV, we decided to further adjust the unearned premium revenue component of ABV by removing the amount that is used in the GAAP calculation of our insurance loss reserves. Under GAAP, only the amount of expected insurance losses in excess of unearned premium revenue for an insurance policy is recorded as a loss reserve and reflected in book value. By excluding from ABV the amount of unearned premium revenue that reduces expected losses recorded under GAAP, we are reflecting the full amount of expected losses for each insurance policy with loss reserves in ABV. Previously reported ABV of $29.32 as of December 31, 2017 was revised to $28.77 to conform to the current approach.
ABV adjusts the GAAP book value of MBIA Inc. to remove the book value of MBIA Corp. and adjusts for certain items which the Company believes will reverse from GAAP book value through GAAP earnings and comprehensive income, as well as add in the impact of certain items which the Company believes will be realized in GAAP book value in future periods. The Company has limited such adjustments to those items that it deems to be important to fundamental value and performance and for which the likelihood and amount can be reasonably estimated. ABV is defined as total shareholders’ equityThe following provides a description of management’s adjustments to GAAP book value:
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credit defaults and policy terminations, among others.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS (continued)
As of December 31, 2018, ABV per share was $27.38, a decrease from $28.77 as of December 31, 2017. The decrease in ABV per share was primarily driven by losses incurred on certain Puerto Rico exposures, partially offset by a decrease in common shares outstanding from the share repurchases made by the Company during 2018.
| As of December 31, | As of December 31, | |||||||
In millions except share and per share amounts | 2018 | 2017 | ||||||
Total shareholders’ equity of MBIA Inc. | $ | 1,119 | $ | 1,413 | ||||
Common shares outstanding | 89,821,713 | 91,484,447 | ||||||
Book value per share | $ | 12.46 | $ | 15.44 | ||||
Book value per share adjustments: | ||||||||
Remove negative book value of MBIA Corp. | 10.93 | 8.84 | ||||||
Remove net unrealized (gains) losses onavailable-for-sale securities included in other comprehensive income (loss) | 0.46 | 0.26 | ||||||
Add net unearned premium revenue in excess of expected losses | 3.53 | 4.23 | ||||||
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Total book value per share adjustments | 14.92 | 13.33 | ||||||
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Adjusted book value per share | $ | 27.38 | $ | 28.77 | ||||
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share used in our internal analysis:
As of December 31, | As of December 31, | |||||||
In millions except share and per share amounts | 2020 | 2019 | ||||||
Total shareholders’ equity of MBIA Inc. | $ | 136 | $ | 826 | ||||
Common shares outstanding | 53,677,148 | 79,433,293 | ||||||
GAAP book value per share | $ | 2.55 | $ | 10.40 | ||||
Management’s adjustments described above: | ||||||||
Remove negative book value per share of MBIA Corp. | (31.97) | (16.81) | ||||||
Remove net unrealized gains (losses) on available-for-sale securities included in other comprehensive income (loss) | 2.86 | 1.29 | ||||||
Include net unearned premium revenue in excess of expected losses | 4.29 | 3.46 | ||||||
| Years Ended December 31, | Percent Change | |||||||||||||||||||
In millions | 2018 | 2017 | 2016 | 2018 vs. 2017 | 2017 vs. 2016 | |||||||||||||||
Net premiums earned | $ | 95 | $ | 174 | $ | 236 | -45% | -26% | ||||||||||||
Net investment income | 111 | 113 | 119 | -2% | -5% | |||||||||||||||
Fees and reimbursements | 2 | 2 | 2 | —% | —% | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (21) | 21 | 72 | n/m | -71% | |||||||||||||||
Net investment losses related to other-than-temporary impairments | (5) | (106) | (4) | -95% | n/m | |||||||||||||||
Other net realized gains (losses) | — | (4) | 2 | -100% | n/m | |||||||||||||||
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Total revenues | 182 | 200 | 427 | -9% | -53% | |||||||||||||||
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Losses and loss adjustment | 91 | 499 | 74 | -82% | n/m | |||||||||||||||
Amortization of deferred acquisition costs | 21 | 39 | 49 | -46% | -20% | |||||||||||||||
Operating | 41 | 69 | 60 | -41% | 15% | |||||||||||||||
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Total expenses | 153 | 607 | 183 | -75% | n/m | |||||||||||||||
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Income (loss) before income taxes | $ | 29 | $ | (407) | $ | 244 | -107% | n/m | ||||||||||||
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2018:
Years Ended December 31, | Percent Change | |||||||||||||||||||
In millions | 2020 | 2019 | 2018 | 2020 vs. 2019 | 2019 vs. 2018 | |||||||||||||||
Net premiums earned | $ | 57 | $ | 66 | $ | 95 | -14% | -31% | ||||||||||||
Net investment income | 70 | 98 | 111 | -29% | -12% | |||||||||||||||
Fees and reimbursements | 3 | 3 | 2 | —% | 50% | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 39 | 139 | (21) | -72% | n/m | |||||||||||||||
Net investment losses related to other-than-temporary impairments | — | (67) | (5) | -100% | n/m | |||||||||||||||
Other net realized gains (losses) | (1) | 2 | — | -150% | n/m | |||||||||||||||
Revenues of consolidated VIEs: | ||||||||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | — | 64 | — | -100% | n/m | |||||||||||||||
Other net realized gains (losses) | — | (43) | — | -100% | n/m | |||||||||||||||
Total revenues | 168 | 262 | 182 | -36% | 44% | |||||||||||||||
Losses and loss adjustment | 163 | 53 | 91 | n/m | -42% | |||||||||||||||
Amortization of deferred acquisition costs | 11 | 16 | 21 | -31% | -24% | |||||||||||||||
Operating | 48 | 49 | 41 | -2% | 20% | |||||||||||||||
Total expenses | 222 | 118 | 153 | 88% | -23% | |||||||||||||||
Income (loss) before income taxes | $ | (54) | $ | 144 | $ | 29 | -138% | n/m | ||||||||||||
MBIA Inc. common shares.
from the sales of uninsured PREPA bonds and from the COFINA bond exchange.
LOSSES AND LOSS ADJUSTMENT EXPENSES Our U.S. public finance insured portfolio management group is responsible for monitoringissuer. This impaired security was sold during the first quarter of 2020.
ReferVIEs in February of 2019. We elected to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for a descriptionrecord at fair value certain instruments that are consolidated under accounting
In millions Losses and LAE related to actual and expected payments(1) Recoveries of actual and expected payments Gross losses incurred Reinsurance Losses and loss adjustment expenses In millions Assets: Insurance loss recoverable Reinsurance recoverable on paid and unpaid losses(1) Liabilities: Gross loss and LAE reserves(2) Expected recoveries on unpaid losses Loss and LAE reserves Insurance loss recoverable—ceded(3) 2019: In millions Gross expenses Amortization of deferred acquisition costs Operating Total insurance expenses 2019.The following table presents information about our U.S. public financelosses and LAE expenses forpolicies.yearsyear ended December 31, 2018, 2017 and 2016: Years Ended December 31, Percent Change 2018 2017 2016 2018 vs. 2017 2017 vs. 2016 $ 97 $ 513 $ 75 -81 % n/m (1 ) 1 — n/m n/m 96 514 75 -81 % n/m (5 ) (15 ) (1 ) -67 % n/m $ 91 $ 499 $ 74 -82 % n/m (1)—Losses and LAE with respect to Puerto Rico exposures reflect the expected losses and LAE payments net of expected recoveries on such payments.n/m—Percent change not meaningful.For the years ended December 31, 2018, 2017 and 2016,2020, losses and LAE primarily related to certain Puerto Rico exposures as well as investor owned utility exposure. For the year ended December 31, 2019, losses and LAE primarily related to certain Puerto Rico exposures.and recoverablesliabilities as of December 31, 20182020 and 2017: December 31, 2018 December 31, 2017 Percent Change $ 571 $ 333 71 % 16 12 33 % 568 531 7 % (17 ) (19 ) -11 % $ 551 $ 512 8 % $ 15 $ 12 25 % $ 1,220 $ 911 34 % 6 14 -57 % 469 432 9 % 48 19 n/m $ (709 ) $ (474 ) 50 % —Puerto Rico exposures are reflected net of expected recoveries on such reserves.(3)—Reported within “Other liabilities” on our consolidated balance sheets.Insurance20182020 increased compared with December 31, 20172019 primarily as a result of expected recoveries related to claims paid on certain Puerto Rico exposures and changes in 2018.discount rates used to present value those future expected recoveries. Loss and LAE reserves as of December 31, 20182020 increased compared with December 31, 20172019 primarily as a result of increasesdue to an increase in expected net payments on our Puerto Rico exposures. This was partially offset by actual payments made and the impact of changes in discount rates used to present value the net offuture expected recoveriespayments related to certain Puerto Rico exposures.2018, 20172020, 2019 and 20162018 are presented in the following table: Years Ended December 31, Percent Change 2018 2017 2016 2018 vs. 2017 2017 vs. 2016 $ 41 $ 70 $ 62 -41 % 13 % $ 21 $ 39 $ 49 -46 % -20 % 41 69 60 -41 % 15 % $ 62 $ 108 $ 109 -43 % -1 % Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)RESULTS OF OPERATIONS (continued) $ 48 $ 49 $ 41 -2 % 20 % $ 11 $ 16 $ 21 -31 % -24 % 48 49 41 -2 % 20 % $ 59 $ 65 $ 62 -9 % 5 % Gross expenses decreased for 2018 compared with 2017 primarily due to decreasescompensation expense and rating agency fees. Gross expenses increased for 2017 compared with 2016 primarily due to severance related expenses associated with a headcount reduction.Amortizationthe amortization of deferred acquisition costs decreased for 2018 compared with 2017 and 2016in 2020 was due to higher refunding activity in prior years. When an insured obligation refunds, we accelerate any remaining deferred acquisition costs associated with the policy covering the refunded insured obligation. We did not defer a material amount of policy acquisition costs during 2018, 20172020 or 2016.
| Gross Par Outstanding | ||||||||||||||||
| In millions | December 31, 2018 | December 31, 2017 | ||||||||||||||
Rating | Amount | % | Amount | % | ||||||||||||
AAA | $ | 3,108 | 5.4% | $ | 3,271 | 4.6% | ||||||||||
AA | 22,162 | 38.3% | 28,354 | 39.4% | ||||||||||||
A | 18,495 | 32.0% | 23,530 | 32.7% | ||||||||||||
BBB | 9,166 | 15.8% | 10,870 | 15.1% | ||||||||||||
Below investment grade | 4,934 | 8.5% | 5,903 | 8.2% | ||||||||||||
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Total | $ | 57,865 | 100.0% | $ | 71,928 | 100.0% | ||||||||||
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS (continued)
Gross Par Outstanding | ||||||||||||||||
In millions | December 31, 2020 | December 31, 2019 | ||||||||||||||
Rating | Amount | % | Amount | % | ||||||||||||
AAA | $ | 2,080 | 5.0 | % | $ | 2,709 | 5.5 | % | ||||||||
AA | 16,299 | 39.0 | % | 19,155 | 39.2 | % | ||||||||||
A | 12,888 | 30.8 | % | 15,022 | 30.7 | % | ||||||||||
BBB | 7,019 | 16.7 | % | 8,225 | 16.8 | % | ||||||||||
Below investment grade | 3,570 | 8.5 | % | 3,809 | 7.8 | % | ||||||||||
Total | $ | 41,856 | 100.0 | % | $ | 48,920 | 100.0 | % | ||||||||
In millions | Gross Par Outstanding | Gross Par Outstanding Plus CABs Accreted Interest | Debt Service Outstanding | National Internal Rating | ||||||||||||
Puerto Rico Electric Power Authority (PREPA) | $ | 1,089 | $ | 1,089 | $ | 1,516 | d | |||||||||
Puerto Rico Commonwealth GO | 598 | (1) | 605 | 754 | d | |||||||||||
Puerto Rico Public Buildings Authority (PBA)(2) | 182 | 182 | 256 | d | ||||||||||||
Puerto Rico Highway and Transportation Authority Transportation Revenue (PRHTA) | 523 | 523 | 936 | d | ||||||||||||
Puerto Rico Highway and Transportation Authority—Subordinated Transportation Revenue (PRHTA) | 27 | 27 | 38 | d | ||||||||||||
Puerto Rico Sales Tax Financing Corporation (COFINA)(3) | 684 | (1) | 1,204 | 4,170 | d | |||||||||||
Puerto Rico Highway and Transportation Authority Highway Revenue (PRHTA) | 66 | (1) | 68 | 92 | d | |||||||||||
University of Puerto Rico System Revenue | 79 | 79 | 112 | d | ||||||||||||
Inter American University of Puerto Rico Inc. | 21 | 21 | 28 | a3 | ||||||||||||
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Total | $ | 3,269 | $ | 3,798 | $ | 7,902 | (4) | |||||||||
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2020.
In millions | Gross Par Outstanding | Debt Service Outstanding | National Internal Rating | |||||||
Puerto Rico Electric Power Authority (PREPA) | $ | 903 | $ | 1,225 | d | |||||
Puerto Rico Commonwealth GO | 290 | 378 | d | |||||||
Puerto Rico Public Buildings Authority (PBA) (1) | 169 | 223 | d | |||||||
Puerto Rico Highway and Transportation Authority Transportation Revenue (PRHTA) | 523 | 882 | d | |||||||
Puerto Rico Highway and Transportation Authority—Subordinated Transportation Revenue (PRHTA) | 27 | 35 | d | |||||||
Puerto Rico Highway and Transportation Authority Highway Revenue (PRHTA) | 41 | (2) | 61 | d | ||||||
University of Puerto Rico System Revenue | 73 | 98 | d | |||||||
Inter American University of Puerto Rico Inc. | 19 | 23 | a3 | |||||||
Total | $ | 2,045 | $ | 2,925 | ||||||
(2)—Additionally secured by the guarantee As of the Commonwealth of Puerto Rico.
(3)—As a result of the confirmation order for the COFINA Plan of Adjustment on February 4, 2019, National’s COFINA gross par outstanding,December 31, 2020, gross par outstanding plus CABs accreted interest and debt service outstanding declined by approximately $211 million, $365 million and $1.3 billion, respectively.
(4)—As a result of debt service payments made as of January 1, 2019, National’s total Puerto Rico debt service outstanding declined by $67was $43 million.
Following the resignation and replacement of several Oversight Board members, the Oversight
On One of the proceedings was resolved on February 15,4, 2019, when the United States CourtDistrict of AppealsPuerto Rico entered the order confirming the Third Amended Title III Plan of Adjustment for COFINA. The plan became effective on February 12, 2019, and as of December 31, 2019, we no longer have exposure to COFINA. There can be no assurance that the First Circuit issued its decision on the appeal by Aurelius Investments LLC and other appellants seeking to dismiss the Title III proceedings as unconstitutional. In its decision, the First Circuit agreedwill be resolved with appellants that the process PROMESA provides for the appointment of Board member is unconstitutional under the U.S. Constitution’s Appointments Clause. Notwithstanding that holding, the First Circuit affirmed Judge Swain’s denial of appellants’ motions to dismiss the Title III petitions, concluding that the Board’s constitutional infirmity did not alter or impair the validity of the Board’s past acts, and stayed its mandate for 90 days to allow the President and the Senate to validate the currently defective appointments or reconstitute the Board in accordance with the Appointments Clause. During the 90-day stay, the Board continues to operate as it does currently.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS (continued)
Status of Puerto Rico’s Fiscal Plans
In 2018, the Puerto Rico government submitted several draft fiscal plans to the Oversight Board which purportedand the Official Committee of Unsecured Creditors of all Title III Debtors (other than COFINA) (the “Committee”) filed lien avoidance adversary complaints against several hundred defendants, including National, challenging the existence, extent, and enforceability of GO bondholders’ liens. After an approximately five-month stay of litigation entered by the Court on July 24, 2019, these adversary proceedings resumed pursuant to reflectan interim schedule entered by the government’s expected economic outlook for Puerto Rico overCourt in December 2019. On February 5, 2020, National and Assured Guaranty Municipal Corp. filed a five year period after integrating four additional key drivers intomotion to dismiss the prior projections that had formedadversary proceeding. The adversary proceeding hearing was stayed indefinitely by further order of the basis of previous fiscal plan submissions: (i) the negative impact of Hurricane Maria, (ii) mitigating impact of disaster relief assistance, (iii) changes to revenue and expense measures, and (iv) impact of structural reforms.
Court.
Commonwealth. On September 7, 2018, COFINA submitted a revised fiscal plan, that incorporated changes and explanations required by the Oversight Board. On October 18, 2018,February 9, 2020, the Oversight Board votedposted an amended PSA. National was not a party to certify the COFINA fiscal plan, as amended.
On May 25, 2018, National submitted proofs of claim inamended PSA, and the Commonwealth COFINA, PRHTA, and PREPA Title III Cases on accountalso did not support the amended PSA. On February 10, 2021, following several months of its rights and remedies relating toCourt recommended mediation, the GO, PBA, COFINA, PRHTA and PREPA bonds that it insures and/or owns.
COFINA
The Oversight Board filed a Planmotion stating it had an agreement in principle with certain PSA parties representing approximately $7 billion in GO and PBA Bonds, and requested until March 8, 2021 to file an amended plan. The Court approved the request. On February 22, 2021, National agreed to join a revised PSA, dated as of Adjustment and Disclosure Statement on October 19, 2018. The Plan of Adjustment is the culmination of efforts by interested parties to resolve the Commonwealth-COFINA dispute over the ownership of the territory’s sales and use taxes. The Plan of Adjustment reflects the settlement of the Commonwealth-COFINA dispute by allocating an amount up to 53.65% of the Pledged Sales Tax Base Amount in any given year to COFINA and the balance (46.35%) of the annual Pledged Sales Tax Base Amount to the Commonwealth. The Plan of Adjustment further provided for senior COFINA bondholders to receive a 93.0% recovery on their prepetition bond claims and subordinate bondholders to receive approximately 56.4% of their prepetition claims. In addition, to compensate bondholders for the cost of negotiating and executing the Plan Support Agreement (“February 22, 2021 (the “2021 PSA”), bondholdersamong the Oversight Board, certain holders of GO Bonds and PBA Bonds, Assured Guaranty Corp. and Assured Guaranty Municipal Corp, and Syncora Guarantee Inc. in connection with the GO and PBA Title III cases. The 2021 PSA provides that, are party to the PSA received, subject to certain exceptions,among other things, National shall receive a pro rata share of additionalallocable cash, newly issued General Obligation bonds, a contingent value instrument and certain fees. National has the right to unilaterally terminate its participation in the 2021 PSA on or prior to March 31, 2021. The 2021 PSA contemplates a plan becoming effective on or before December 15, 2021; however there can be no assurance that such a plan will ever become effective, or on the contemplated timeline. In the event that National does not terminate its participation in the 2021 PSA on or prior to March 31, 2021, the Oversight Board and National shall jointly request the entry of an amount equalorder in the Title III court staying National’s actions to 2.0% oflift the aggregate amount of existing COFINA bond claims. A hearing regardingautomatic stay in the Commonwealth’s motion for approval of the Settlement AgreementGO and HTA Title III cases and to confirmappoint a trustee in the PlanHTA Title III case pursuant to Section 926, both currently before the First Circuit Court of Adjustment was held on January 16Appeals, together with other actions related to the clawback of HTA funds from the Commonwealth, and 17,National shall take no further action with respect to those proceedings subject to the Commonwealth plan becoming effective.
9019 Order, discussed below. Initial attempts to reach a consensual restructuring for PREPA were rejected by the Oversight Board in June 2017 and PREPA entered Title III restructuring on July 2, 2017.PREPA sustained heavy damage to its infrastructure from the two September 2017 hurricanes and in particular from Hurricane Maria. Its generating assets, located along the coast sustained only minor damage but damage to the transmission and distribution infrastructure was extensive. Lack of power had aknock-on effect of disabling telecommunication and water systems as well. Restoration efforts are being coordinated by the U.S. Army Corps of Engineers under contract with the Federal Emergency Management Agency (“FEMA”); monies from FEMA are expected to finance the reconstruction effort.The PREPA revised Fiscal Plan certified on August 1, 2018 calls for a wholesale transformation of PREPA to at least a partially privatized entity. Specifics regarding implementation and the impact on creditors were not detailed or readily apparent in the Plan. Advisors to the Oversight Board have taken steps to assess investor interest for privatization.Separately, the government of Puerto Rico enacted its own privatization legislation which proposes the sale and privatization of generating assets and concessionaire agreement for transmission and distribution assets. Many important details remain under development. In October 2018 the Commonwealth issued a request for qualifications seeking to identify interested parties for a potential concession or other management arrangement of the transmission and distribution assets of PREPA. To date no further developments have been reported. Separately the Puerto Rican Senate passed legislation in December 2018 to establish the regulatory and legislative framework to govern such an arrangement; that Bill awaits action in the Puerto Rican House.The Governor appointed four new Board members and a new CEO was named on July 18, 2018. On December 21, 2018, the Governor appointed three independent directors to the Board bringing the total to seven; the elected consumer member has not been seated.On July 30, 2018, PREPA, the Oversight Board, the Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”) and the Governor announced a preliminary restructuring support agreement with certain members of the Ad Hoc Group of bondholders. National is not a party to that agreement. This preliminary agreement has not been finalized and the parties continue to extend certain expiration dates.PREPA. Movants argue that PREPA’s long history of mismanagement and politicization has harmed, and will continue to harm, all of its stakeholders, including creditors and the people of Puerto Rico. Movants write that a Receiver is necessary to ensure that PREPA is managed in the best interests of all of its constituents. Discovery in connection with Movants’(the “Receiver Motion”). This motion is ongoing;stayed pending a resolution of the current trial date is set for May of 2019.PRHTA21, 2017,3, 2019, PREPA, the Oversight Board, commenced a Title III case for PRHTA. On June 3, 2017, National, together withthe Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”), the Ad Hoc Group of PREPA bondholders (the “Ad Hoc Group”), and Assured Guaranty Corp. and Assured Guaranty Municipal Corp. (“Assured”) entered into the RSA which was amended on September 9, 2019 to include National and Syncora Guarantee, Inc. (“Syncora”) as supporting parties. Approximately 90% of PREPA’s bondholders have joined the RSA.proceeding seeking to enforcecomplaint against the special revenue protectionsTrustee for the PREPA Bonds, challenging the validity of the Bankruptcy Code which are incorporated into PROMESA. These provisions ensure, among other things,liens arising under the Trust Agreement that (i) current tax and toll revenues remain subject to liens and (ii)secure insured obligations of National. The adversary proceeding is stayed until the automatic stay resulting from a filingearlier of (a) 60 days after the Court denies the 9019 Motion, (b) consummation of a Title III petition does not stayPlan, (c) 60 days after the filing by the Oversight Board and AAFAF of a Litigation Notice, or limit application(d) further order of these pledged special revenuesthe Court.repaymentRSA have filed adversary proceedings challenging the payment priority arising under the PREPA Trust Agreement, alleging that they are entitled to be paid in full before National and other bondholders
standstill agreement.Additionally,20, 2017, AAFAF informed Bank of New York, as fiscal agent22, 2020, the Oversight Board and the Puerto Rico P3 Authority announced an agreement and contract with LUMA Energy, LLC (“LUMA”) which calls for LUMA to take full responsibility for the operation and maintenance of PREPA’s transmission and distribution system; the contract runs for 15-years following a transition period expected to take 12 months. PREPA retains ownership of the system as well as responsibility for the power generation system.duethe issues raised in these proceedings would be addressed in new adversary proceedings filed by the Oversight Board on January 16, 2020. Subsequent to those filings, these proceedings were stayed by order of the Court.the fundsfor PRHTA for adequate protection or, in the debt service reserve account in AAFAF’s view were notalternative, relief from the automatic stay. The motion argues that the revenues securing the bonds insured by HTA Movants are being improperly diverted away from PRHTA, despite such revenues being the exclusive property of PRHTA and its bondholders. Pursuant to an interim schedule entered by the bondholdersCourt in December 2019, the HTA Movants, along with Ambac Assurance Corporation and that Bank of New York should not disburse these funds to bondholdersFGIC, amended the motion on January 16, 2020. Following a preliminary hearing held on June 4, 2020, on July 1, 2017.2, 2020, Judge Swain held that the Movants had failed to satisfy its burden of presenting a colorable claim that they had a statutory, contractual or equitable lien on HTA Revenues, including Excise Taxes or Toll Revenues. On September 9, 2020, the Court entered a final order denying the HTA lift stay motion, finding a balancing of factors does not support stay relief. National filed a notice of appeal to the First Circuit on September 23, 2020. The parties agreedFirst Circuit heard the appeal on February 4, 2021. A decision is pending. In the event that such funds would be held by the Bank of New York and disbursement of such funds would be addressedNational does not terminate its participation in the pending adversary proceeding.OtherOther than Inter American University2021 PSA with respect to the Commonwealth plan on or prior to March 31, 2021, the Oversight Board and National shall jointly request the entry of an order in the Title III court staying National’s actions to lift the automatic stay in the GO and HTA Title III cases, and National shall take no further action subject to a plan resolving the GO Title III case becoming effective.Rico Inc., S&P, Fitch Ratings and/or Moody’s have downgradedRico’s Fiscal Plansratings of allOversight Board requested that the Puerto Rico issuers to below investment grade withgovernment submit a negative outlook due to ongoing economic pressures, which will weigh onproposed updated Fiscal Plan for the Commonwealth in light of recent and recurring earthquakes and considering Puerto Rico’s abilitycurrent state of emergency. The Commonwealth submitted a revised fiscal plan on May 3, 2020. On May 27, 2020, after deeming the Puerto Rico government’s fiscal plan as non-compliant, the Oversight Board certified its own revised fiscal plan for the Commonwealth. The revised fiscal plan reflects a significantly reduced the cumulative surplus of $4.4 billion over the six-year projection period (after measures and structural reforms, but before contractual debt service) due primarily to meet debt and other funding obligations, potentially driving bondholder recovery ratesthe impact of the COVID-19 pandemic. The new surplus is about 65% lower as restructuringthan the island’s debt burden unfolds.On January 10, 2019,previous plan, which reflected a surplus of approximately $13.7 billion. For the remaining component units, the Oversight Board certified fiscal plans for both the University of Puerto Rico (the “University”) received notification fromand PRHTA on June 12, 2020 and June 26, 2020, while certifying a revised Fiscal Plan for PREPA on June 29, 2020. The Oversight Board also certified the Middle States Commission on Higher Education placingfiscal year 2020 budgets for Commonwealth, PREPA, the University’s 11 institutions on “show cause” status. University and PRHTA.had until the end of January 2019is not a debtor in Title III and continues to submit requested reports and argue whybe current on its accreditation should not be revoked. On January 14, 2019,debt service payment. However, the University submitted audited financial statements, among other things,is subject to a standstill agreement with its senior bondholders, which has been extended to February 28, 2021. National is not a party to the accreditation agency. While it continues to evaluate the University’s situation, there are several options that accreditation agency may take, which include withdrawing the accreditation, reaffirming the accreditation, or keeping the University under show cause status.
| 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | ||||||||||||||||||||||
Puerto Rico Electric Power Authority (PREPA) | $ | 177 | $ | 115 | $ | 140 | $ | 140 | $ | 137 | $ | 807 | $ | 1,516 | ||||||||||||||
Puerto Rico Commonwealth GO | 154 | 223 | 82 | 19 | 14 | 262 | 754 | |||||||||||||||||||||
Puerto Rico Public Buildings Authority (PBA) | 24 | 10 | 24 | 9 | 26 | 163 | 256 | |||||||||||||||||||||
| Puerto Rico Highway and Transportation Authority Transportation Revenue (PRHTA) | 27 | 26 | 27 | 27 | 36 | 793 | 936 | |||||||||||||||||||||
| Puerto Rico Highway and Transportation Authority—Subordinated Transportation Revenue (PRHTA) | 1 | 1 | 1 | 9 | 1 | 25 | 38 | |||||||||||||||||||||
Puerto Rico Sales Tax Financing Corporation (COFINA) | — | — | — | — | — | 4,170 | 4,170 | |||||||||||||||||||||
| Puerto Rico Highway and Transportation Authority Highway Revenue (PRHTA) | 16 | 16 | 3 | 2 | 4 | 51 | 92 | |||||||||||||||||||||
University of Puerto Rico System Revenue | 7 | 7 | 7 | 6 | 12 | 73 | 112 | |||||||||||||||||||||
Inter American University of Puerto Rico Inc. | 2 | 3 | 3 | 3 | 3 | 14 | 28 | |||||||||||||||||||||
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Total | $ | 408 | $ | 401 | $ | 287 | $ | 215 | $ | 233 | $ | 6,358 | $ | 7,902 | ||||||||||||||
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2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | ||||||||||||||||||||||
Puerto Rico Electric Power Authority (PREPA) | $ | 140 | $ | 140 | $ | 137 | $ | 137 | $ | 105 | $ | 566 | $ | 1,225 | ||||||||||||||
Puerto Rico Commonwealth GO | 83 | 19 | 14 | 13 | 75 | 174 | 378 | |||||||||||||||||||||
Puerto Rico Public Buildings Authority (PBA) | 24 | 9 | 27 | 43 | 36 | 84 | 223 | |||||||||||||||||||||
| Puerto Rico Highway and Transportation Authority Transportation Revenue (PRHTA) | 27 | 27 | 36 | 33 | 36 | 723 | 882 | |||||||||||||||||||||
| Puerto Rico Highway and Transportation Authority—Subordinated Transportation Revenue (PRHTA) | 1 | 9 | 1 | 1 | 1 | 22 | 35 | |||||||||||||||||||||
| Puerto Rico Highway and Transportation Authority Highway Revenue (PRHTA) | 4 | 2 | 4 | 2 | 2 | 47 | 61 | |||||||||||||||||||||
University of Puerto Rico System Revenue | 7 | 7 | 12 | 11 | 16 | 45 | 98 | |||||||||||||||||||||
Inter American University of Puerto Rico Inc. | 3 | 3 | 3 | 3 | 3 | 8 | 23 | |||||||||||||||||||||
Total | $ | 289 | $ | 216 | $ | 234 | $ | 243 | $ | 274 | $ | 1,669 | $ | 2,925 | ||||||||||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS (continued)
| Years Ended December 31, | Percent Change | |||||||||||||||||||
In millions | 2018 | 2017 | 2016 | 2018 vs. 2017 | 2017 vs. 2016 | |||||||||||||||
Net investment income | $ | 37 | $ | 37 | $ | 33 | —% | 12% | ||||||||||||
Fees | 39 | 53 | 49 | -26% | 8% | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 22 | (32) | (14) | n/m | 129% | |||||||||||||||
Net investment losses related to other-than-temporary impairments | — | — | (1) | —% | -100% | |||||||||||||||
Net gains (losses) on extinguishment of debt | 3 | 28 | 5 | -89% | n/m | |||||||||||||||
Other net realized gains (losses) | (2) | (4) | (5) | -50% | -20% | |||||||||||||||
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Total revenues | 99 | 82 | 67 | 21% | 22% | |||||||||||||||
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Operating | 50 | 62 | 83 | -19% | -25% | |||||||||||||||
Interest | 95 | 89 | 92 | 7% | -3% | |||||||||||||||
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Total expenses | 145 | 151 | 175 | -4% | -14% | |||||||||||||||
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Income (loss) before income taxes | $ | (46) | $ | (69) | $ | (108) | -33% | -36% | ||||||||||||
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2018:
Years Ended December 31, | Percent Change | |||||||||||||||||||
In millions | 2020 | 2019 | 2018 | 2020 vs. 2019 | 2019 vs. 2018 | |||||||||||||||
Net investment income | $ | 30 | $ | 37 | $ | 37 | -19% | —% | ||||||||||||
Fees | 56 | 53 | 39 | 6% | 36% | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (63) | (54) | 22 | 17% | n/m | |||||||||||||||
Net gains (losses) on extinguishment of debt | — | (1) | 3 | -100% | -133% | |||||||||||||||
Other net realized gains (losses) | — | (2) | (2) | -100% | —% | |||||||||||||||
Total revenues | 23 | 33 | 99 | -30% | -67% | |||||||||||||||
Operating | 72 | 73 | 50 | -1% | 46% | |||||||||||||||
Interest | 84 | 92 | 95 | -9% | -3% | |||||||||||||||
Total expenses | 156 | 165 | 145 | -5% | 14% | |||||||||||||||
Income (loss) before income taxes | $ | (133) | $ | (132) | $ | (46) | —% | n/m | ||||||||||||
FEES
2020.
The unfavorable change for 2017 compared with 20162019 was primarily due to foreign exchange losses on Euro denominated liabilities fromin 2020 due to the weakening of the U.S. dollar versus foreign exchange gains in 2019 on Euro denominated liabilities due to the strengthening of the U.S. dollar. This was partially offset by favorable changes in thehigher fair value of the warrants issuedlosses in 2019 compared with 2020 on MBIA Inc. common stock, a decrease in net losses on the sales of investments and an increase in gains from our interest rate swaps. The changes in the fair value of warrants were primarily attributable to a decrease in the price of MBIA Inc.’s common stock and changes in volatility, which are used in the valuation of the warrants.
NET GAINS (LOSSES) ON EXTINGUISHMENT OF DEBT The decrease in net gains on extinguishment of debt for 2018 compared with 2017 was primarily due to a decrease in gains from purchases, at discounts, of MTNs issued by the Company. The increase in net gains on extinguishment of debt for 2017 compared with 2016 was primarily due to an increase in gains from purchases, at discounts, of MTNs issued by the Company.
OPERATING EXPENSES Operating expenses decreased for 2018 compared with 2017 and 2016swaps, primarily due to decreases in compensation expense, primarily asinterest rates in 2019. During 2019, we terminated a resultportion of lower headcount.
INTEREST EXPENSE Interest expense increased for 2018 compared with 2017 duethese interest rate swaps and the termination amount paid in cash reflected the fair values of the swaps at the termination date and all collateral held by the counterparty to the purchase by National in the fourth quarter of 2017 of $129 million principal amount of MBIA Inc. 5.700% Senior Notes due 2034 that were previously repurchased by MBIA Inc. and had not been retired. Interest expense decreased for 2017 compared with 2016 dueinterest rate swaps was returned to the maturities and repurchases of debt obligations issued by the Company.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS (continued)
Mexico S.A. de C.V. (“MBIA Mexico”).
| Years Ended December 31, | Percent Change | |||||||||||||||||||
In millions | 2018 | 2017 | 2016 | 2018 vs. 2017 | 2017 vs. 2016 | |||||||||||||||
Net premiums earned | $ | 78 | $ | 44 | $ | 84 | 77% | -48% | ||||||||||||
Net investment income | 6 | 21 | 12 | -71% | 75% | |||||||||||||||
Fees and reimbursements | 47 | 57 | 72 | -18% | -21% | |||||||||||||||
Change in fair value of insured derivatives: | ||||||||||||||||||||
Realized gains (losses) and other settlements on insured derivatives | (56) | (51) | (40) | 10% | 28% | |||||||||||||||
Unrealized gains (losses) on insured derivatives | 31 | — | 21 | n/m | -100% | |||||||||||||||
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Net change in fair value of insured derivatives | (25) | (51) | (19) | -51% | n/m | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (18) | (17) | 30 | 6% | n/m | |||||||||||||||
Other net realized gains (losses) | 2 | 39 | (279) | -95% | -114% | |||||||||||||||
Revenues of consolidated VIEs: | ||||||||||||||||||||
Net investment income | 35 | 27 | 31 | 30% | -13% | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 25 | 130 | — | -81% | n/m | |||||||||||||||
Other net realized gains (losses) | (171) | 28 | — | n/m | n/m | |||||||||||||||
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Total revenues | (21) | 278 | (69) | -108% | n/m | |||||||||||||||
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Losses and loss adjustment | (28) | 184 | 146 | -115% | 26% | |||||||||||||||
Amortization of deferred acquisition costs | 31 | 43 | 56 | -28% | -23% | |||||||||||||||
Operating | 21 | 30 | 44 | -30% | -32% | |||||||||||||||
Interest | 129 | 119 | 115 | 8% | 3% | |||||||||||||||
Expenses of consolidated VIEs: | ||||||||||||||||||||
Operating | 11 | 10 | 14 | 10% | -29% | |||||||||||||||
Interest | 93 | 80 | 25 | 16% | n/m | |||||||||||||||
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Total expenses | 257 | 466 | 400 | -45% | 17% | |||||||||||||||
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Income (loss) before income taxes | $ | (278) | $ | (188) | $ | (469) | 48% | -60% | ||||||||||||
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2018:
Years Ended December 31, | Percent Change | |||||||||||||||||||
In millions | 2020 | 2019 | 2018 | 2020 vs. 2019 | 2019 vs. 2018 | |||||||||||||||
Net premiums earned | $ | 24 | $ | 27 | $ | 78 | -11% | -65% | ||||||||||||
Net investment income | 5 | 7 | 6 | -29% | 17% | |||||||||||||||
Fees and reimbursements | 12 | 21 | 47 | -43% | -55% | |||||||||||||||
Change in fair value of insured derivatives: | ||||||||||||||||||||
Realized gains (losses) and other settlements on insured derivatives | (1) | (10) | (56) | -90% | -82% | |||||||||||||||
Unrealized gains (losses) on insured derivatives | 7 | 25 | 31 | -72% | -19% | |||||||||||||||
Net change in fair value of insured derivatives | 6 | 15 | (25) | -60% | n/m | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (14) | (33) | (18) | -58% | 83% | |||||||||||||||
Other net realized gains (losses) | 1 | 4 | 2 | -75% | 100% | |||||||||||||||
Revenues of consolidated VIEs: | ||||||||||||||||||||
Net investment income | 18 | 34 | 35 | -47% | -3% | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 108 | 41 | 25 | n/m | 64% | |||||||||||||||
Other net realized gains (losses) | 37 | (20) | (171) | n/m | n/m | |||||||||||||||
Total revenues | 197 | 96 | (21) | 105% | n/m | |||||||||||||||
Losses and loss adjustment | 367 | 189 | (28) | 94% | n/m | |||||||||||||||
Amortization of deferred acquisition costs | 16 | 21 | 31 | -24% | -32% | |||||||||||||||
Operating | 27 | 26 | 21 | 4% | 24% | |||||||||||||||
Interest | 116 | 131 | 129 | -11% | 2% | |||||||||||||||
Expenses of consolidated VIEs: | ||||||||||||||||||||
Operating | 5 | 9 | 11 | -44% | -18% | |||||||||||||||
Interest | 57 | 89 | 93 | -36% | -4% | |||||||||||||||
Total expenses | 588 | 465 | 257 | 26% | 81% | |||||||||||||||
Income (loss) before income taxes | $ | (391) | $ | (369) | $ | (278) | 6% | 33% | ||||||||||||
On January 20, 2017, MBIA Corp. was presented with and fully satisfied a claim of $770 million on an insurance policy it had written insuring certain notes issued by Zohar II. In order to satisfy the claim, MBIA Corp. used approximately $60 million from its own resources and executed the following two related transactions: 1) MBIA UK Holdings sold its operating subsidiary, MBIA UK, and made a cash payment of $23 million, to Assured, in exchange for the receipt by MBIA UK Holdings of certain Zohar II notes owned by Assured, which had an aggregate outstanding principal amount of $347 million as of January 10, 2017, which notes were distributed as a dividend to MBIA Corp. upon completion of the sale of MBIA UK; and 2) MBIA Corp. executed a financing facility (the “Facility”) with affiliates of certain holders of 14%Fixed-to-Floating Rate Surplus Notes of MBIA Corp. (collectively, the “Senior Lenders”), and with MBIA Inc., pursuant to which the Senior Lenders provided $325 million of senior financing and MBIA Inc. provided $38 million of subordinated financing to MZ Funding.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS (continued)
| Years Ended December 31, | Percent Change | |||||||||||||||||||
In millions | 2018 | 2017 | 2016 | 2018 vs. 2017 | 2017 vs. 2016 | |||||||||||||||
Net premiums earned: | ||||||||||||||||||||
Non-U.S. | $ | 68 | $ | 34 | $ | 69 | 100% | -51% | ||||||||||||
U.S. | 10 | 10 | 15 | -% | -33% | |||||||||||||||
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Total net premiums earned | $ | 78 | $ | 44 | $ | 84 | 77% | -48% | ||||||||||||
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VIEs (eliminated in consolidation) | $ | 7 | $ | 8 | $ | 7 | -13% | 14% | ||||||||||||
2018:
Years Ended December 31, | Percent Change | |||||||||||||||||||
In millions | 2020 | 2019 | 2018 | 2020 vs. 2019 | 2019 vs. 2018 | |||||||||||||||
Net premiums earned: | ||||||||||||||||||||
Non-U.S. | $ | 18 | $ | 21 | $ | 68 | -14% | -69% | ||||||||||||
U.S. | 6 | 6 | 10 | —% | -40% | |||||||||||||||
Total net premiums earned | $ | 24 | $ | 27 | $ | 78 | -11% | -65% | ||||||||||||
VIEs (eliminated in consolidation) | $ | (7) | $ | (3) | $ | 7 | 133% | -143% | ||||||||||||
NET INVESTMENT INCOME The increase in net investment income for 2017 compared with 2016 was primarily related to the accretion on certain Zohar II notes received in exchange for the sale of MBIA UK to Assured on January 10, 2017.
FEES AND REIMBURSEMENTS The decreases in fees and reimbursements for 2018 compared with 2017 was due to a decrease in ceding commission income partially offset by an increase in waiver and consent fees. The decrease in fees and reimbursements for 2017 compared to 2016 was primarily due to decreases inpolicy termination and waiver and consent fees related to the ongoing management of our international and structured finance insurance business and ceding commission income as a result of refunding activity. Due to the transaction-specific nature inherent in fees and reimbursements, these revenues can vary significantly from period to period.
premium receivable write-offs.
(“CMBS”) exposure.
As of December 31, 2018 and 2017, the fair value of MBIA Corp.’s insured CDS liability was $33 million and $63 million, respectively. As of December 31, 2018, MBIA Corp. had $70 million ofresulting from gross par outstanding on an insured credit derivative compared with $127 million asamortization of December 31, 2017.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS (continued)
OTHER NET REALIZED GAINS (LOSSES) Other net realized gains (losses) for 2017 were primarily related to the settlement of litigation. Other net realized gains (losses) for 2016 related to the loss recorded to adjust the carrying value of MBIA UK to its fair value less costs to sell prior to its sale.
2020.
Summary of Financial Guarantee Insurance Losses and LAE
The following table presents information about our financial guarantee insurance lossesloss recoverable and LAE recorded in accordance with GAAP for the years ended December 31, 2018, 2017 and 2016:
| Years Ended December 31, | Percent Change | |||||||||||||||||||
In millions | 2018 | 2017 | 2016 | 2018 vs. 2017 | 2017 vs. 2016 | |||||||||||||||
Losses and LAE related to actual and expected payments(1) | $ | (11) | $ | 125 | $ | 110 | -109% | 14% | ||||||||||||
Recoveries of actual and expected payments | (17) | 66 | 35 | -126% | 89% | |||||||||||||||
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Gross losses incurred | (28) | 191 | 145 | -115% | 32% | |||||||||||||||
Reinsurance | — | (7) | 1 | -100% | n/m | |||||||||||||||
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Losses and loss adjustment expenses(2) | $ | (28) | $ | 184 | $ | 146 | -115% | 26% | ||||||||||||
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(1)—Loss and LAE with respect to Zohar II exposure reflect the expected loss and LAE payments netreserves as of expected recoveriesDecember 31, 2020 and 2019:
December 31, | December 31, | �� | Percent | |||||||||
In millions | 2020 | 2019 | Change | |||||||||
Assets: | ||||||||||||
Insurance loss recoverable | $ | 457 | $ | 783 | -42% | |||||||
Reinsurance recoverable on paid and unpaid losses (1) | 5 | 5 | —% | |||||||||
Liabilities: | ||||||||||||
Loss and LAE reserves | 521 | 469 | 11% | |||||||||
Net reserve (salvage) | $ | 59 | $ | (319) | -118% | |||||||
(2)—As a resultour consolidated balance sheets.
In millions Assets: Insurance loss recoverable Reinsurance recoverable on paid and unpaid losses(1) Liabilities: Gross loss and LAE reserves Expected recoveries on unpaid losses Loss and LAE reserves Notes to Consolidated Financial Statements for additional information about our loss reserving policy, loss reserves and recoverables. In millions Gross expenses Amortization of deferred acquisition costs Operating Total insurance expenses For 2017, losses and LAE primarily related to increases in expected payments on insured first and second-lien RMBS transactions and decreases in projected recoveries primarily related to the mortgage insurance settlement with Old Republic Corporation.For 2016, losses and LAE primarily related to increases in expected payments on insured first and second-lien RMBS transactions and decreases in projected collections from excess spread within insured second-lien RMBS securitizations, partially offset by decreases in expected payments related to CDOs.Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for further information about our insurance loss recoverable and loss and LAE reserves. The following table presents information about our insurance loss recoverable and reserves asprimarily relates to reimbursement rights arising from the payment of December 31, 2018 and 2017. December 31, December 31, Percent 2018 2017 Change $ 993 $ 178 n/m 5 5 -% 385 482 -20% (2) (16) -88% $ 383 $ 466 -18% (1)—Reported within “Other assets” on our consolidated balance sheets.n/m—Percent change not meaningfulPayment of claims totaling $919 million in November of 2015 and January of 2017, on MBIA Corp.’s policies insuring certain notes issued by Zohar I and Zohar II entitlesCDOs. Such payments also entitle MBIA Corp. to reimbursement of such amounts plus interest and expenses and/or to exercise certain rights and remedies to seek recovery of such amounts. Since the second quarter of 2018, the Company no longer consolidates Zohar I and Zohar II as VIEs and estimated recoveries from these transactions are included in “Insurance loss recoverable” on the Company’s consolidated balance sheet. As of December 31, 2017, the fair value of the assets of Zohar I and Zohar II were included in “Loans receivable and other instruments at fair value” under “Assets of consolidated variable interest entities” on the Company’s consolidated balance sheet.its reimbursement entitlements. Refer to “Note 1: Business Developments and Risks and Uncertainties” in the Notes to Consolidated Financial Statements for additional information regarding our estimates of recoveries.estimated Zohar recoveries.2018, 20172020, 2019 and 20162018 are presented in the following table: Years Ended
December 31, Percent Change 2018 2017 2016 2018 vs. 2017 2017 vs. 2016 $ 22 $ 31 $ 45 -29% -31% $ 31 $ 43 $ 56 -28% -23% 21 30 44 -30% -32% $ 52 $ 73 $ 100 -29% -27%
December 31, $ 28 $ 26 $ 22 8% 18% $ 16 $ 21 $ 31 -24% -32% 27 26 21 4% 24% $ 43 $ 47 $ 52 -9% -10% Gross expenses decreased for 2018 compared with 2017 and 2016 primarily due to decreases in compensation expense. Operating expenses decreased for 2018 compared with 2017 and 2016 primarily due to decreases in gross expenses.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)RESULTS OF OPERATIONS (continued)The decreases in the amortization of deferred acquisition costs for 2018 compared with 2017 and 2016 were due to higher refunding activity in prior years. We did not defer a material amount of policy acquisition costs during 2018, 20172020 or 2016.2019. Policy acquisition costs in these periods were primarily related to ceding commissions and premium taxes on installment policies written in prior periods.INTEREST EXPENSE OF CONSOLIDATED VIEs For 2018 and 2017, total interest expense of consolidated VIEs increased compared with 2016 primarily due to interest expense from the Facility. Refer to “Note 10: Debt” in the Notes to Consolidated Financial Statements for further information about the Facility.20182020 and 2017, 31%2019, 24% and 33%27%, respectively, of our international and structured finance insured portfolio was rated below investment grade, before giving effect to MBIA’s guarantees, based on MBIA’s internal ratings, which are generally more current than the underlying ratings provided by S&P and Moody’s for this subset of our insured portfolio.2018,2020, MBIA Corp. insured $363$277 million of CDOs and related instruments. We may experience considerable incurred losses and future expected payments in certain of these sectors. There can be no assurance that the loss reserves recorded in our financial statements will be sufficient or that we will not experience losses on transactions on which we currently have no loss reserves, in particular if the economy deteriorates. We may seek to purchase, directly or indirectly, obligations guaranteed by MBIA Corp. or seek to commute policies. The amount of insurance exposure reduced, if any, and the nature of any such actions will depend on market conditions, pricing levels from time to time, and other considerations. In some cases, these activities may result in a reduction of loss reserves, but in all cases they are intended to limit our ultimate losses and reduce the future volatility in loss development on the related policies. Our ability to purchase guaranteed obligations and to commute policies will depend on management’s assessment of available liquidity.mortgage-backed securities (“MBS”)RMBS backed by residential mortgage loans, including second-lien RMBS transactions (revolving home equity lines of credit (“HELOC”) loans andclosed-end second (“CES”) mortgages). MBIA Corp.
The following table presents the gross par outstanding of MBIA Corp.’s total direct RMBS insured exposure as of December 31, 20182020 and 2017.2019. Amounts include the gross par outstanding related to transactions that the Company consolidates under accounting guidance for VIEs.
| In millions | Gross Par Outstanding as of | |||||||||||
| December 31, | December 31, | Percent | ||||||||||
Collateral Type | 2018 | 2017 | Change | |||||||||
HELOC Second-lien | $ | 511 | $ | 975 | -48% | |||||||
CES Second-lien | 591 | 1,037 | -43% | |||||||||
Alt-A First-lien(1) | 983 | 1,078 | -9% | |||||||||
Subprime First-lien | 439 | 512 | -14% | |||||||||
Prime First-lien | 15 | 19 | -21% | |||||||||
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Total | $ | 2,539 | $ | 3,621 | -30% | |||||||
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In millions | Gross Par Outstanding as of | |||||||||||
December 31, | December 31, | Percent | ||||||||||
Collateral Type | 2020 | 2019 | Change | |||||||||
HELOC Second-lien | $ | 269 | $ | 381 | -29% | |||||||
CES Second-lien | 104 | 136 | -24% | |||||||||
Alt-A First-lien (1) | 825 | 909 | -9% | |||||||||
Subprime First-lien | 285 | 343 | -17% | |||||||||
Prime First-lien | 6 | 7 | -14% | |||||||||
Total | $ | 1,489 | $ | 1,776 | -16% | |||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS (continued)
| Years Ended December 31, | ||||||||||||
In millions | 2018 | 2017 | 2016 | |||||||||
Income (loss) before income taxes | $ | (296) | $ | (661) | $ | (339) | ||||||
Provision (benefit) for income taxes | $ | — | $ | 944 | $ | (1) | ||||||
Effective tax rate | 0.0% | -142.8% | 0.2% | |||||||||
Years Ended December 31, | ||||||||||||
In millions | 2020 | 2019 | 2018 | |||||||||
Income (loss) before income taxes | $ | (578) | $ | (357) | $ | (296) | ||||||
Provision (benefit) for income taxes | $ | — | $ | 2 | $ | — | ||||||
Effective tax rate | 0.0% | -0.6% | 0.0% | |||||||||
For 2017, our effective tax rate applied to our loss before income taxes was lower than the then U.S. statutory rate of 35% due to the establishment of a full valuation allowance against our net deferred tax asset.
In June of 2017, S&P downgraded the financial strength rating of National, which led the Company to cease its efforts to write new financial guarantee business. In addition to National’s cessation of new business activity, there was an increase in loss and LAE due to changes in assumptions on certain Puerto Rico credits. As a result of the increase in loss and LAE, the Company has a three-year cumulative loss, which is considered significant negative evidence in the assessment of its ability to use its net deferred tax asset. In addition, the Company considered all available positive and negative evidence as required by GAAP, to estimate if sufficient taxable income will be generated to use its net deferred tax asset. After considering all positive and negative evidence, including the Company’s inability to objectively identify and forecast future sources of taxable income, the Company concluded that it does not have sufficient positive evidence to support its ability to use its net deferred tax asset before it expires.
Notwithstanding the full valuation allowance on its net deferred tax asset, the Company believes that it may be able to use some of its net deferred tax asset before the expirations associated with that asset based upon expected earnings at National and potential future sources of taxable income to be identified by the Company. Accordingly, the Company will continue tore-evaluate its net deferred tax asset on a quarterly basis. There is no assurance that the Company will reverse any of its valuation allowance on its net deferred tax asset in the future.
For 2016, our effective tax rate applied to our loss before income taxes was lower than the U.S. statutory rate of 35% primarily due to the provision for deferred taxes on the basis differences of our foreign subsidiary, MBIA UK, which resulted from the change in assertion of MBIA UK paying future dividends over time to calculating deferred taxes on the basis of the sale of MBIA UK and a valuation allowance against certain foreign tax credits.
Refer to “Note 11: Income Taxes” in the Notes to Consolidated Financial Statements for a further discussion of income taxes, including the valuation allowance against the Company’s net deferred tax asset and its accounting for tax uncertainties.
repurchases or redemptions. MBIA Inc. supports the MTN and investment agreement obligations issued by the Company. We seek to maintain sufficient liquidity and capital resources to meet the Company’s general corporate needs and debt service. Based on MBIA Inc.’s debt service requirements and expected operating expenses, we expect that MBIA Inc. will have sufficient resources to satisfy its debt obligations and its general corporate needs over time from distributions from its operating subsidiaries; however, there can be no assurance that MBIA Inc. will have sufficient resources to do so. In addition, the Company may also consider raising third-party capital. Refer to “Capital, Liquidity and Market Related Risk Factors” in Part I, Item 1A of this Form10-K and the “Liquidity—Corporate Liquidity” section included herein for additional information about MBIA Inc.’s liquidity.
Warrants
In April and June of 2018, the holder of certain MBIA Inc. warrants exercised its right to purchase, in total, 11.85 million shares of MBIA Inc. common stock at an exercise price of $9.59 per share. As a result, the Company issued a total of 1.3 million shares of MBIA Inc. common stock to the holder in accordance with the cashless settlement provision of the warrants. As of December 31, 2018, there were no warrants outstanding.
National
Capital and Surplus
National reported total statutory capital
As of December 31, 2020, National was in compliance with its aggregate risk limits under New York Insurance Law (“NYIL”), but was not in compliance with certain of its single risk limits.2018,2020 from which it may pay dividends, subject to the limitations described above. During 2018,2020, National declared and paid a dividend of $108$81 million to its ultimate parent, MBIA Inc. We expect theas-of-right declared and paid dividend amounts from National to be limited to prior year adjusted net investment income for the foreseeable future.National’s CPR and components thereto, as
statutory capital. its prior estimated recoveries.
December 31,
December 31, $ 1,526 $ 1,891 445 485 1,971 2,376 355 411 129 139 484 550 (301) (169) 961 789 660 620 $ 3,115 $ 3,546 reported totalhad statutory capital of $555$273 million as of December 31, 20182020 compared with $464$476 million as of December 31, 2017.2019. As of December 31, 2018, statutory capital comprised $356 million of policyholders’2020, MBIA Insurance Corporation’s negative unassigned surplus and $199 million of contingency reserves. As of December 31, 2017, statutory capital comprised $237 million of policyholders’ surplus and $227 million of contingency reserves.was $1.9 billion. For the year ended December 31, 2018,2020, MBIA Insurance Corporation had a statutory net incomeloss of $134$202 million. Refer to the “Claims-Paying Resources (Statutory Basis)” section below for additional information on MBIA Insurance Corporation’s policyholders’ surplus included negative unassigned surplus of $1.7 billion and $1.8 billion as of December 31, 2018 and 2017, respectively. MBIA Insurance Corporation’s policyholders’ surplus may be further negatively impacted if future additional insured losses are incurred.2018,2020, MBIA Insurance Corporation recognized estimated recoveriessalvage on a statutory basis related toput-back claims against Credit Suisse, recoveries related to CDOs and excess spread recoveries on RMBSRMBS. In November of 2020, following a trial and recoveries related to CDOs. There can be no assurancepost-trial briefing, the court overseeing the litigation issued a decision declaring that we will be successful orMBIA Corp. had succeeded in establishing that we will not be delayed in realizing these recoveries. Refer to “Note 6: Loss and Loss Adjustment Expense Reserves”a majority of the loans in the Notestransaction were ineligible. In January of 2021, the Court issued an order declaring that Credit Suisse was liable to Consolidated Financial StatementsMBIA Corp. for additional information about these recoveries.Under NYIL, MBIA Insurance Corporation is also required to establish a contingency reserve to provide protection to policyholdersapproximately $604 million in damages. On February 9, 2021, the event of extreme losses in adverse economic events. The amount of the reserve is based on the percentage of principal insured or premiums earned, depending on the type of obligation (net of collateral, reinsurance, refunding, refinancings and certain insured securities). Reductions in the contingency reserve may be recognized based on excess reserves and under certain stipulated conditions, subjectparties to the approvallitigation entered into a settlement agreement pursuant to which Credit Suisse paid MBIA Corp. $600 million, an amount materially in excess of the Superintendent of the NYSDFS. As a result of regulatory approved reductions, MBIA Insurance Corporation’s contingency reserves of $199 million as of December 31, 2018 represented reserves on 27 of the 220 outstanding credits insured by MBIA Insurance Corporation.2018,2020, MBIA Corp. met the required minimum surplus of $65 million.requirement. Under NYIL, MBIA Insurance Corporation is required to invest its minimum surplus and contingency reserves and 50% of its loss reserves and unearned premium reserves in certain qualifying assets. As of December 31, 2018,2020, MBIA Insurance Corporation maintained its minimum requirement of policyholders’ surplus but did not have enough qualifying assets to support its contingency reserves and 50% of its loss reserves and unearned premium reserves. As of December 31, 2018,2020, MBIA Insurance Corporation was in compliance with its aggregate risk limits under the NYIL, but was not in compliance with certain of its single risk limits. If MBIA Insurance Corporation does not comply with the above mentioned requirements, the NYSDFS may prevent MBIA Insurance Corporation from transacting any new financial guarantee insurance business until it no longer exceeds the limitations.In connection with MBIA Insurance Corporation obtaining approval from the NYSDFS to release excess contingency reserves in previous periods, MBIA Insurance Corporation agreed that it would not pay any dividends without prior approval from the NYSDFS. business.any dividends.
| As of December 31, | As of December 31, | |||||||
In millions | 2018 | 2017 | ||||||
Policyholders’ surplus | $ | 356 | $ | 237 | ||||
Contingency reserves | 199 | 227 | ||||||
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Statutory capital | 555 | 464 | ||||||
Unearned premiums | 109 | 195 | ||||||
Present value of installment premiums (1) (4) | 139 | 192 | ||||||
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Premium resources (2) | 248 | 387 | ||||||
Net loss and LAE reserves (1) | (865) | (792) | ||||||
Salvage reserves (3) | 1,402 | 1,428 | ||||||
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Gross loss and LAE reserves | 537 | 636 | ||||||
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Total claims-paying resources | $ | 1,340 | $ | 1,487 | ||||
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As of December 31, | As of December 31, | |||||||
In millions | 2020 | 2019 | ||||||
Policyholders’ surplus | $ | 106 | $ | 282 | ||||
Contingency reserves | 167 | 194 | ||||||
Statutory capital | 273 | 476 | ||||||
Unearned premiums | 79 | 93 | ||||||
Present value of installment premiums (1) (2) | 73 | 92 | ||||||
Premium resources | 152 | 185 | ||||||
Net loss and LAE reserves (1) | (478) | (669) | ||||||
Salvage reserves on paid claims (1) (3) | 1,045 | 1,247 | ||||||
Gross loss and LAE reserves | 567 | 578 | ||||||
Total claims-paying resources | $ | 992 | $ | 1,239 | ||||
2019.
(3)—This amount primarily consists of expected recoveries related to the Company’s CDOs, excess spread andput-backs.
(4)—Based on the Company’s estimate of the remaining life for its insured exposures.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
LIQUIDITY (continued)
payments of operating expenses, taxes and funding asset purchases;
release of funds under the tax sharing agreement;
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
LIQUIDITY (continued)
During 2018, National purchased from MBIA Inc. $44 million par value of MBIA Inc.’s 5.700% Senior Notes due 2034 at a cost of approximately 70% of par value plus accrued interest and $10 million of MBIA Inc.’s 7.000% Debentures due 2025 at a cost of approximately 92% of par value plus accrued interest. These notes had been previously repurchased by MBIA Inc. and had not been retired. This transaction increased MBIA Inc.’s liquidity position by a total of $41 million and had no impact to the Company’s consolidated balance sheet.
repayment of the Facility;
payments of operating expenses; and
payment of principal and interest related to its surplus notes, if and to the extent approved by the NYSDFS. Refer to “Capital Resources – Insurance Statutory Capital” for a discussion on thenon-approval of requests to the NYSDFS to pay interest on its surplus notes.
As of December 31, 20182020 and 2017,2019, MBIA Corp. held cash and investments of $242$243 million and $271$230 million, respectively, of which $145$130 million and $124 million, respectively, were cash and cash equivalents or short-termliquid investments comprised of money market funds and municipal, U.S. agencyTreasury and corporate bonds that were immediately available to MBIA Insurance Corporation.
such non-approval.
| Years Ended December 31, | Percent Change | |||||||||||||||||||
In millions | 2018 | 2017 | 2016 | 2018 vs. 2017 | 2017 vs. 2016 | |||||||||||||||
Statement of cash flow data: | ||||||||||||||||||||
Net cash provided (used) by: | ||||||||||||||||||||
Operating activities | $ | (319) | $ | (652) | $ | (149) | -51% | n/m | ||||||||||||
Investing activities | 1,206 | 1,202 | 2,424 | —% | -50% | |||||||||||||||
Financing activities | (752) | (589) | (2,535) | 28% | -77% | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (1) | (2) | (2) | -50% | —% | |||||||||||||||
Cash and cash equivalents—beginning of year | 146 | 187 | 522 | -22% | -64% | |||||||||||||||
Reclassification to assets held for sale | — | — | (73) | —% | -100% | |||||||||||||||
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Cash and cash equivalents—end of year | $ | 280 | $ | 146 | $ | 187 | 92% | -22% | ||||||||||||
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2018:
Years Ended December 31, | Percent Change | |||||||||||||||||||
In millions | 2020 | 2019 | 2018 | 2020 vs. 2019 | 2019 vs. 2018 | |||||||||||||||
Statement of cash flow data: | ||||||||||||||||||||
Net cash provided (used) by: | ||||||||||||||||||||
Operating activities | $ | (390) | $ | (368) | $ | (319) | 6% | 15% | ||||||||||||
Investing activities | 1,738 | 1,267 | 1,206 | 37% | 5% | |||||||||||||||
Financing activities | (1,265) | (1,096) | (752) | 15% | 46% | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 1 | — | (1) | n/m | -100% | |||||||||||||||
Cash and cash equivalents—beginning of year | 83 | 280 | 146 | -70% | 92% | |||||||||||||||
Cash and cash equivalents—end of year | $ | 167 | $ | 83 | $ | 280 | 101% | -70% | ||||||||||||
Operating activities
Net cash used by operating activities decreased for the year ended December 31, 2018 compared with 2017
Investing activities
Netnet cash provided by investing activities increased slightly for the year ended December 31, 2018 compared with 2017 primarily due to an increaseVIE activity. During 2020, two VIEs were terminated and deconsolidated which resulted in sales, paydowns and maturities (purchases)$890 million of short-term investments, net of $487 million, partially offset by an increase in purchases of AFS investments of $454 million. Net cash provided by investing activities decreased for the year ended December 31, 2017 compared with 2016 primarily due to a decrease in net proceeds from paydownsHTM investments compared with the sale ofheld-to-maturity investments at fair value related to the COFINA bonds which resulted in $422 million of consolidated VIEs of $1.8 billion, partially offset by an increase in net proceeds from purchases, sales and paydowns and maturities ofavailable-for-sale investments of $582 million.
in 2019.
Item 7. Management’s Discussionaccounting policies and Analysis of Financial Condition and Results of Operations (continued)
LIQUIDITY (continued)
The following table presents our investment portfolio as of December 31, 2018 and 2017.
In millions | As of December 31, 2018 | As of December 31, 2017 | Percent Change | |||||||||
Available-for-sale investments(1) | ||||||||||||
U.S. public finance insurance | ||||||||||||
Amortized cost | $ | 2,704 | $ | 3,150 | -14% | |||||||
Unrealized net gain (loss) | (64) | (72) | -11% | |||||||||
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Fair value | 2,640 | 3,078 | -14% | |||||||||
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Corporate | ||||||||||||
Amortized cost | 921 | 1,078 | -15% | |||||||||
Unrealized net gain (loss) | 24 | 49 | -51% | |||||||||
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Fair value | 945 | 1,127 | -16% | |||||||||
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International and structured finance insurance | ||||||||||||
Amortized cost | 192 | 210 | -9% | |||||||||
Unrealized net gain (loss) | 4 | 8 | -50% | |||||||||
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Fair value | 196 | 218 | -10% | |||||||||
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Totalavailable-for-sale investments: | ||||||||||||
Amortized cost | 3,817 | 4,438 | -14% | |||||||||
Unrealized net gain (loss) | (36) | (15) | 140% | |||||||||
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Totalavailable-for-sale investments at fair value | 3,781 | 4,423 | -15% | |||||||||
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Investments carried at fair value(2) | ||||||||||||
U.S. public finance insurance | 198 | 174 | 14% | |||||||||
Corporate | 73 | 56 | 30% | |||||||||
International and structured finance insurance | 19 | — | n/m | |||||||||
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Total investments carried at fair value | 290 | 230 | 26% | |||||||||
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Other investments at amortized cost: | ||||||||||||
U.S. public finance insurance | 1 | 2 | -50% | |||||||||
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Consolidated investments at carrying value | $ | 4,072 | $ | 4,655 | -13% | |||||||
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(1)—Unrealized gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive income in shareholders’ equity.
(2)—Changes in fair value and realized gains and losses from the sale of these investments are reflected in net income. As a result of the adoption of ASU2016-01, December 31, 2018 balances include money market securities. As of December 31, 2017, money market securities were reported in AFS investments.
n/m—Percent change not meaningful.
The fair value of the Company’s investments is based on prices which include quoted prices in active markets and prices based on market-based inputs that are either directly or indirectly observable, as well as prices from dealers in relevant markets. Differences between fair value and amortized cost arise primarily as a result of changes in interest rates and general market credit spreads occurring after a fixed-income security is purchased, although other factors may also influence fair value, including specific credit-related changes, supply and demand forces and other market factors. When the Company holds an AFS investment to maturity, any unrealized gain or loss currently recorded in accumulated other comprehensive income (loss) in the shareholders’ equity section of the balance sheet is reversed. As a result, the Company would realize a value substantially equal to amortized cost. However, when investments are sold prior to maturity, the Company will realize any difference between amortized cost and the sale price of an investment as a realized gain or loss within its consolidated statements of operations.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
LIQUIDITY (continued)
| U.S. Public Finance Insurance | Corporate | International and Structured Finance Insurance | Total | |||||||
Weighted average credit quality ratings | A | Aa | Aa | Aa | ||||||
Investment grade percentage | 93% | 99% | 90% | 94% | ||||||
investments were investment grade.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
LIQUIDITY (continued)
| As of December 31, 2018 | ||||||||||||||||||||||||||||
In millions | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | |||||||||||||||||||||
U.S. public finance insurance segment: | ||||||||||||||||||||||||||||
Gross insurance claim obligations(1) | $ | 2 | $ | 1 | $ | 2 | $ | 1 | $ | 1 | $ | 17 | $ | 24 | ||||||||||||||
Lease liability | 3 | 3 | 3 | 3 | 2 | 20 | 34 | |||||||||||||||||||||
Corporate segment: | ||||||||||||||||||||||||||||
Long-term debt | 37 | 37 | 37 | 298 | 20 | 403 | 832 | |||||||||||||||||||||
Investment agreements | 18 | 47 | 11 | 11 | 29 | 358 | 474 | |||||||||||||||||||||
Medium-term notes | 67 | 7 | 7 | 65 | 7 | 880 | 1,033 | |||||||||||||||||||||
Lease liability | 1 | — | — | — | — | — | 1 | |||||||||||||||||||||
International and structured finance insurance segment: | ||||||||||||||||||||||||||||
Surplus notes | 839 | 129 | 129 | 129 | 129 | 2,131 | 3,486 | |||||||||||||||||||||
Gross insurance claim obligations(1) | 82 | 23 | 23 | 18 | 12 | 1,024 | 1,182 | |||||||||||||||||||||
MBIA Corp. Financing Facility | 80 | 349 | — | — | — | — | 429 | |||||||||||||||||||||
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Total | $ | 1,129 | $ | 596 | $ | 212 | $ | 525 | $ | 200 | $ | 4,833 | $ | 7,495 | ||||||||||||||
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As of December 31, 2020 | ||||||||||||||||||||||||||||
In millions | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | |||||||||||||||||||||
U.S. public finance insurance segment: | ||||||||||||||||||||||||||||
Gross insurance claim obligations (1) | $ | 5 | $ | 1 | $ | — | $ | — | $ | — | $ | — | $ | 6 | ||||||||||||||
Lease liability | 3 | 3 | 3 | 3 | 3 | 14 | 29 | |||||||||||||||||||||
Corporate segment: | ||||||||||||||||||||||||||||
Long-term debt | 20 | 20 | 20 | 20 | 66 | 318 | 464 | |||||||||||||||||||||
Investment agreements | 11 | 11 | 27 | 32 | 43 | 265 | 389 | |||||||||||||||||||||
Medium-term notes | 5 | 67 | 17 | 128 | 66 | 692 | 975 | |||||||||||||||||||||
International and structured finance insurance segment: | ||||||||||||||||||||||||||||
Surplus notes | 1,066 | 108 | 108 | 108 | 108 | 1,724 | 3,222 | |||||||||||||||||||||
Gross insurance claim obligations (1) | 117 | 34 | 28 | 23 | 22 | 878 | 1,102 | |||||||||||||||||||||
Refinanced Facility | 33 | 277 | — | — | — | — | 310 | |||||||||||||||||||||
Total | $ | 1,260 | $ | 521 | $ | 203 | $ | 314 | $ | 308 | $ | 3,891 | $ | 6,497 | ||||||||||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
LIQUIDITY (continued)
| Change in Interest Rates | ||||||||||||||||||||||||
In millions | 300 Basis Point Decrease | 200 Basis Point Decrease | 100 Basis Point Decrease | 100 Basis Point Increase | 200 Basis Point Increase | 300 Basis Point Increase | ||||||||||||||||||
Estimated change in fair value | $ | 429 | $ | 242 | $ | 105 | $ | (84) | $ | (151) | $ | (205) | ||||||||||||
Change in Interest Rates | ||||||||||||||||||||||||
In millions | 300 Basis Point Decrease | 200 Basis Point Decrease | 100 Basis Point Decrease | 100 Basis Point Increase | 200 Basis Point Increase | 300 Basis Point Increase | ||||||||||||||||||
Estimated change in fair value | $ | 226 | $ | 125 | $ | 53 | $ | (41) | $ | (76) | $ | (105) | ||||||||||||
| Change in Foreign Exchange Rates | ||||||||||||||||
| Dollar Weakens | Dollar Strengthens | |||||||||||||||
In millions | 20% | 10% | 10% | 20% | ||||||||||||
Estimated change in fair value | $ | (73) | $ | (36) | $ | 36 | $ | 73 | ||||||||
Change in Foreign Exchange Rates | ||||||||||||||||
Dollar Weakens | Dollar Strengthens | |||||||||||||||
In millions | 20% | 10% | 10% | 20% | ||||||||||||
Estimated change in fair value | $ | (72) | $ | (36) | $ | 36 | $ | 72 | ||||||||
| Change in Credit Spreads | ||||||||||||
In millions | 50 Basis Point Decrease | 50 Basis Point Increase | 200 Basis Point Increase | |||||||||
Estimated change in fair value | $ | 60 | $ | (57) | $ | (195) | ||||||
Change in Credit Spreads | ||||||||||||
In millions | 50 Basis Point Decrease | 50 Basis Point Increase | 200 Basis Point Increase | |||||||||
Estimated change in fair value | $ | 42 | $ | (40) | $ | (138) | ||||||
Financial Statements
| 62 | ||||
| 65 | ||||
| ||||
| 80 | ||||
| 81 | ||||
| 83 | ||||
| 122 | ||||
| 126 | ||||
| 129 | ||||
| 131 | ||||
| 133 | ||||
| 134 | ||||
| 135 | ||||
| 136 | ||||
Refer to “Item 6. Selected Financial Data” for Supplementary Financial Information
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2018 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
COSO.
February 28, 2019
| December 31, 2018 | December 31, 2017 | |||||||
Assets | ||||||||
Investments: | ||||||||
Fixed-maturity securities held asavailable-for-sale, at fair value (amortized cost $3,601 and $3,728) | $ | 3,565 | $ | 3,712 | ||||
Investments carried at fair value | 222 | 200 | ||||||
Investments pledged as collateral, at fair value (amortized cost $46 and $147) | 43 | 148 | ||||||
Short-term investments, at fair value (amortized cost $241 and $589) | 241 | 589 | ||||||
Other investments (includes investments at fair value of $— and $4) | 1 | 6 | ||||||
|
|
|
| |||||
Total investments | 4,072 | 4,655 | ||||||
Cash and cash equivalents | 222 | 122 | ||||||
Premiums receivable | 296 | 369 | ||||||
Deferred acquisition costs | 74 | 95 | ||||||
Insurance loss recoverable | 1,564 | 511 | ||||||
Other assets | 122 | 128 | ||||||
Assets of consolidated variable interest entities: | ||||||||
Cash | 58 | 24 | ||||||
Investmentsheld-to-maturity, at amortized cost (fair value $925 and $916) | 890 | 890 | ||||||
Investments carried at fair value | 157 | 182 | ||||||
Loans receivable and other instruments at fair value | 172 | 1,679 | ||||||
Loan repurchase commitments | 418 | 407 | ||||||
Other assets | 31 | 33 | ||||||
|
|
|
| |||||
Total assets | $ | 8,076 | $ | 9,095 | ||||
|
|
|
| |||||
Liabilities and Equity | ||||||||
Liabilities: | ||||||||
Unearned premium revenue | $ | 587 | $ | 752 | ||||
Loss and loss adjustment expense reserves | 934 | 979 | ||||||
Long-term debt | 2,249 | 2,121 | ||||||
Medium-term notes (includes financial instruments carried at fair value of $102 and $115) | 722 | 765 | ||||||
Investment agreements | 311 | 337 | ||||||
Derivative liabilities | 199 | 262 | ||||||
Other liabilities | 198 | 165 | ||||||
Liabilities of consolidated variable interest entities: | ||||||||
Variable interest entity notes (includes financial instruments carried at fair value of $480 and $1,069) | 1,744 | 2,289 | ||||||
|
|
|
| |||||
Total liabilities | 6,944 | 7,670 | ||||||
|
|
|
| |||||
Commitments and contingencies (Refer to Note 20) | ||||||||
Equity: | ||||||||
Preferred stock, par value $1 per share; authorized shares—10,000,000; issued and outstanding—none | — | — | ||||||
Common stock, par value $1 per share; authorized shares—400,000,000; issued shares—283,625,689 and 283,717,973 | 284 | 284 | ||||||
Additionalpaid-in capital | 3,025 | 3,171 | ||||||
Retained earnings | 966 | 1,095 | ||||||
Accumulated other comprehensive income (loss), net of tax of $8 and $16 | (156) | (19) | ||||||
Treasury stock, at cost—193,803,976 and 192,233,526 shares | (3,000) | (3,118) | ||||||
|
|
|
| |||||
Total shareholders’ equity of MBIA Inc. | 1,119 | 1,413 | ||||||
Preferred stock of subsidiary | 13 | 12 | ||||||
|
|
|
| |||||
Total equity | 1,132 | 1,425 | ||||||
|
|
|
| |||||
Total liabilities and equity | $ | 8,076 | $ | 9,095 | ||||
|
|
|
| |||||
December 31, 2020 | December 31, 2019 | |||||||
Assets | ||||||||
Investments: | ||||||||
| Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $2,078 and $2,705) | $ | 2,257 | $ | 2,820 | ||||
Investments carried at fair value | 196 | 209 | ||||||
Investments pledged as collateral, at fair value (amortized cost $6 and $15) | 1 | 10 | ||||||
Short-term investments, at fair value (amortized cost $281 and $423) | 282 | 423 | ||||||
Total investments | 2,736 | 3,462 | ||||||
Cash and cash equivalents | 158 | 75 | ||||||
Premiums receivable (net of allowance for credit losses $5 and $0) | 216 | 249 | ||||||
Deferred acquisition costs | 50 | 60 | ||||||
Insurance loss recoverable | 1,677 | 1,694 | ||||||
Other assets | 84 | 115 | ||||||
Assets of consolidated variable interest entities: | ||||||||
Cash | 9 | 8 | ||||||
| Investments held-to-maturity, at amortized cost (fair value $0 and $892) | 0 | 890 | ||||||
Investments carried at fair value | 77 | 83 | ||||||
Loans receivable at fair value | 120 | 136 | ||||||
Loan repurchase commitments | 604 | 486 | ||||||
Other assets | 20 | 26 | ||||||
Total assets | $ | 5,751 | $ | 7,284 | ||||
Liabilities and Equity | ||||||||
Liabilities: | ||||||||
Unearned premium revenue | $ | 405 | $ | 482 | ||||
Loss and loss adjustment expense reserves | 990 | 901 | ||||||
Long-term debt | 2,229 | 2,228 | ||||||
Medium-term notes (includes financial instruments carried at fair value of $110 and $108) | 710 | 680 | ||||||
Investment agreements | 269 | 304 | ||||||
Derivative liabilities | 215 | 175 | ||||||
Other liabilities | 161 | 136 | ||||||
Liabilities of consolidated variable interest entities: | ||||||||
Variable interest entity notes (includes financial instruments carried at fair value of $350 and $403) | 623 | 1,539 | ||||||
Total liabilities | 5,602 | 6,445 | ||||||
Commitments and contingencies (Refer to Note 19) | 0 | 0 | ||||||
Equity: | ||||||||
Preferred stock, par value $1 per share; authorized shares—10,000,000; issued and outstanding—0ne | 0 | 0 | ||||||
Common stock, par value $1 per share; authorized shares—400,000,000; issued shares—283,186,115 and 283,433,401 | 283 | 283 | ||||||
| Additional paid-in capital | 2,962 | 2,999 | ||||||
Retained earnings (deficit) | (13) | 607 | ||||||
Accumulated other comprehensive income (loss), net of tax of $8 and $8 | 115 | (2) | ||||||
Treasury stock, at cost—229,508,967 and 204,000,108 shares | (3,211) | (3,061) | ||||||
Total shareholders’ equity of MBIA Inc. | 136 | 826 | ||||||
Preferred stock of subsidiary | 13 | 13 | ||||||
Total equity | 149 | 839 | ||||||
Total liabilities and equity | $ | 5,751 | $ | 7,284 | ||||
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
Revenues: | ||||||||||||
Premiums earned: | ||||||||||||
Scheduled premiums earned | $ | 114 | $ | 107 | $ | 168 | ||||||
Refunding premiums earned | 48 | 94 | 132 | |||||||||
|
|
|
|
|
| |||||||
Premiums earned (net of ceded premiums of $5, $6 and $7) | 162 | 201 | 300 | |||||||||
Net investment income | 130 | 154 | 152 | |||||||||
Fees and reimbursements | 25 | 15 | 28 | |||||||||
Change in fair value of insured derivatives: | ||||||||||||
Realized gains (losses) and other settlements on insured derivatives | (56) | (51) | (40) | |||||||||
Unrealized gains (losses) on insured derivatives | 31 | — | 21 | |||||||||
|
|
|
|
|
| |||||||
Net change in fair value of insured derivatives | (25) | (51) | (19) | |||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (17) | (24) | 84 | |||||||||
Net investment losses related to other-than-temporary impairments: | ||||||||||||
Investment losses related to other-than-temporary impairments | — | (101) | (1) | |||||||||
Other-than-temporary impairments recognized in accumulated other comprehensive income (loss) | (5) | (5) | (4) | |||||||||
|
|
|
|
|
| |||||||
Net investment losses related to other-than-temporary impairments | (5) | (106) | (5) | |||||||||
Net gains (losses) on extinguishment of debt | 3 | 28 | 5 | |||||||||
Other net realized gains (losses) | — | 31 | (282) | |||||||||
Revenues of consolidated variable interest entities: | ||||||||||||
Net investment income | 35 | 27 | 31 | |||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 25 | 130 | — | |||||||||
Other net realized gains (losses) | (171) | 28 | — | |||||||||
|
|
|
|
|
| |||||||
Total revenues | 162 | 433 | 294 | |||||||||
Expenses: | ||||||||||||
Losses and loss adjustment | 63 | 683 | 220 | |||||||||
Amortization of deferred acquisition costs | 20 | 23 | 40 | |||||||||
Operating | 71 | 106 | 137 | |||||||||
Interest | 206 | 197 | 197 | |||||||||
Expenses of consolidated variable interest entities: | ||||||||||||
Operating | 11 | 10 | 14 | |||||||||
Interest | 87 | 75 | 25 | |||||||||
|
|
|
|
|
| |||||||
Total expenses | 458 | 1,094 | 633 | |||||||||
|
|
|
|
|
| |||||||
Income (loss) before income taxes | (296) | (661) | (339) | |||||||||
Provision (benefit) for income taxes | — | 944 | (1) | |||||||||
|
|
|
|
|
| |||||||
Net income (loss) | $ | (296) | $ | (1,605) | $ | (338) | ||||||
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| |||||||
Net income (loss) per common share: | ||||||||||||
Basic | $ | (3.33) | $ | (13.50) | $ | (2.54) | ||||||
Diluted | $ | (3.33) | $ | (13.50) | $ | (2.54) | ||||||
Weighted average number of common shares outstanding: | ||||||||||||
Basic | 89,013,711 | 118,930,282 | 133,001,088 | |||||||||
Diluted | 89,013,711 | 118,930,282 | 133,001,088 | |||||||||
Years Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Revenues: | ||||||||||||
Premiums earned: | ||||||||||||
Scheduled premiums earned | $ | 59 | $ | 68 | $ | 114 | ||||||
Refunding premiums earned | 14 | 17 | 48 | |||||||||
Premiums earned (net of ceded premiums of $5, $5 and $5) | 73 | 85 | 162 | |||||||||
Net investment income | 76 | 114 | 130 | |||||||||
Fees and reimbursements | 2 | 1 | 25 | |||||||||
Change in fair value of insured derivatives: | ||||||||||||
Realized gains (losses) and other settlements on insured derivatives | (1) | (10) | (56) | |||||||||
Unrealized gains (losses) on insured derivatives | 7 | 25 | 31 | |||||||||
Net change in fair value of insured derivatives | 6 | 15 | (25) | |||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (38) | 52 | (17) | |||||||||
Net investment losses related to other-than-temporary impairments: | ||||||||||||
Other-than-temporary impairments recognized in accumulated other comprehensive income (loss) | 0 | (67) | (5) | |||||||||
Net investment losses related to other-than-temporary impairments | 0 | (67) | (5) | |||||||||
Net gains (losses) on extinguishment of debt | 0 | (1) | 3 | |||||||||
Other net realized gains (losses) | 0 | 4 | 0 | |||||||||
Revenues of consolidated variable interest entities: | ||||||||||||
Net investment income | 18 | 34 | 35 | |||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 108 | 105 | 25 | |||||||||
Other net realized gains (losses) | 37 | (62) | (171) | |||||||||
Total revenues | 282 | 280 | 162 | |||||||||
Expenses: | ||||||||||||
Losses and loss adjustment | 530 | 242 | 63 | |||||||||
Amortization of deferred acquisition costs | 10 | 11 | 20 | |||||||||
Operating | 87 | 92 | 71 | |||||||||
Interest | 178 | 201 | 206 | |||||||||
Expenses of consolidated variable interest entities: | ||||||||||||
Operating | 5 | 9 | 11 | |||||||||
Interest | 50 | 82 | 87 | |||||||||
Total expenses | 860 | 637 | 458 | |||||||||
Income (loss) before income taxes | (578) | (357) | (296) | |||||||||
Provision (benefit) for income taxes | 0 | 2 | 0 | |||||||||
Net income (loss) | $ | (578) | $ | (359) | $ | (296) | ||||||
Net income (loss) per common share: | ||||||||||||
Basic | $ | (9.78) | $ | (4.43) | $ | (3.33) | ||||||
Diluted | $ | (9.78) | $ | (4.43) | $ | (3.33) | ||||||
Weighted average number of common shares outstanding: | ||||||||||||
Basic | 59,071,843 | 81,014,285 | 89,013,711 | |||||||||
Diluted | 59,071,843 | 81,014,285 | 89,013,711 | |||||||||
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
Net income (loss) | $ | (296) | $ | (1,605) | $ | (338) | ||||||
Other comprehensive income (loss): | ||||||||||||
Unrealized gains (losses) onavailable-for-sale securities: Unrealized gains (losses) arising during the period | (60) | (22) | 28 | |||||||||
Provision (benefit) for income taxes | 5 | (1) | 7 | |||||||||
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|
|
|
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| |||||||
Total | (65) | (21) | 21 | |||||||||
Reclassification adjustments for (gains) losses included in net income (loss) | (5) | 2 | (1) | |||||||||
Provision (benefit) for income taxes | — | — | 1 | |||||||||
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|
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|
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| |||||||
Total | (5) | 2 | (2) | |||||||||
Available-for-sale securities with other-than-temporary impairments: | ||||||||||||
Other-than-temporary impairments and unrealized gains (losses) arising during the period | 41 | (3) | 10 | |||||||||
Provision (benefit) for income taxes | — | — | 4 | |||||||||
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| |||||||
Total | 41 | (3) | 6 | |||||||||
Reclassification adjustments for (gains) losses included in net income (loss) | 5 | 7 | 4 | |||||||||
Provision (benefit) for income taxes | — | 1 | 1 | |||||||||
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| |||||||
Total | 5 | 6 | 3 | |||||||||
Foreign currency translation: | ||||||||||||
Foreign currency translation gains (losses) | 2 | 146 | (94) | |||||||||
Provision (benefit) for income taxes | — | 21 | 1 | |||||||||
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| |||||||
Total | 2 | 125 | (95) | |||||||||
Instrument-specific credit risk of liabilities measured at fair value: | ||||||||||||
Unrealized gains (losses) arising during the period | 52 | — | — | |||||||||
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| |||||||
Total other comprehensive income (loss) | 30 | 109 | (67) | |||||||||
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| |||||||
Comprehensive income (loss) | $ | (266) | $ | (1,496) | $ | (405) | ||||||
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| |||||||
Years Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Net income (loss) | $ | (578) | $ | (359) | $ | (296) | ||||||
Other comprehensive income (loss): | ||||||||||||
Available-for-sale securities with no credit losses: | ||||||||||||
Unrealized gains (losses) arising during the period | 83 | 139 | (60) | |||||||||
Provision (benefit) for income taxes | 0 | 0 | 5 | |||||||||
Total | 83 | 139 | (65) | |||||||||
Reclassification adjustments for (gains) losses included in net income (loss) | (19) | (13) | (5) | |||||||||
Available-for-sale securities with credit losses: | ||||||||||||
Unrealized gains (losses) arising during the period | 0 | 0 | 41 | |||||||||
Reclassification adjustments for (gains) losses included in net income (loss) | 0 | 25 | 5 | |||||||||
Total | 0 | 25 | 5 | |||||||||
Foreign currency translation: | ||||||||||||
Foreign currency translation gains (losses) | (3) | 0 | 2 | |||||||||
Total | (3) | 0 | 2 | |||||||||
Instrument-specific credit risk of liabilities measured at fair value: | ||||||||||||
Unrealized gains (losses) arising during the period | 50 | (25) | 52 | |||||||||
Reclassification adjustments for (gains) losses included in net income (loss) | 6 | 28 | 0 | |||||||||
Total other comprehensive income (loss) | 117 | 154 | 30 | |||||||||
Comprehensive income (loss) | $ | (461) | $ | (205) | $ | (266) | ||||||
2018
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (loss) | Treasury Stock | Total Shareholders’ Equity of MBIA Inc. | Preferred Stock of Subsidiary | Total Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2016 | 281,833,618 | $ | 282 | $ | 3,138 | $ | 3,038 | $ | (61) | (130,303,241) | $ | (2,668) | $ | 3,729 | 1,315 | $ | 12 | $ | 3,741 | |||||||||||||||||||||||||
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| |||||||||||||||||||||||
Net income (loss) | — | — | — | (338) | — | — | — | (338) | — | — | (338) | |||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | (67) | — | — | (67) | — | — | (67) | |||||||||||||||||||||||||||||||||
Share-based compensation, net of tax | 2,156,381 | 2 | 22 | — | — | (1,925,990) | (16) | 8 | — | — | 8 | |||||||||||||||||||||||||||||||||
Treasury shares acquired under share repurchase program | — | — | — | — | — | (16,559,937) | (105) | (105) | — | — | (105) | |||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||
Balance, December 31, 2016 | 283,989,999 | $ | 284 | $ | 3,160 | $ | 2,700 | $ | (128) | (148,789,168) | $ | (2,789) | $ | 3,227 | 1,315 | $ | 12 | $ | 3,239 | |||||||||||||||||||||||||
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| |||||||||||||||||||||||
Net income (loss) | — | — | — | (1,605) | — | — | — | (1,605) | — | — | (1,605) | |||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | 109 | — | — | 109 | — | — | 109 | |||||||||||||||||||||||||||||||||
Share-based compensation, net of tax | (272,026) | — | 11 | — | — | (402,707) | (4) | 7 | — | — | 7 | |||||||||||||||||||||||||||||||||
Treasury shares acquired under share repurchase program | — | — | — | — | — | (43,041,651) | (325) | (325) | — | — | (325) | |||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||
Balance, December 31, 2017 | 283,717,973 | $ | 284 | $ | 3,171 | $ | 1,095 | $ | (19) | (192,233,526) | $ | (3,118) | $ | 1,413 | 1,315 | $ | 12 | $ | 1,425 | |||||||||||||||||||||||||
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| |||||||||||||||||||||||
ASU2016-01 transition adjustment | — | — | — | 164 | (164) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
ASU2018-02 transition adjustment | — | — | — | 3 | (3) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | (296) | — | — | — | (296) | — | — | (296) | |||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | 30 | — | — | 30 | — | — | 30 | |||||||||||||||||||||||||||||||||
Share-based compensation, net of tax | (92,284) | — | (125) | — | — | 2,994,497 | 132 | 7 | — | — | 7 | |||||||||||||||||||||||||||||||||
Treasury shares issued for warrant exercises | — | — | (21) | — | — | 1,277,620 | 34 | 13 | — | — | 13 | |||||||||||||||||||||||||||||||||
Treasury shares acquired under share repurchase program | — | — | — | — | — | (5,842,567) | (48) | (48) | — | — | (48) | |||||||||||||||||||||||||||||||||
Other | — | — | — | — | — | — | — | — | — | 1 | 1 | |||||||||||||||||||||||||||||||||
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Balance, December 31, 2018 | 283,625,689 | $ | 284 | $ | 3,025 | $ | 966 | $ | (156) | (193,803,976) | $ | (3,000) | $ | 1,119 | 1,315 | $ | 13 | $ | 1,132 | |||||||||||||||||||||||||
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2020 | 2019 | 2018 | ||||||||||
Common shares | ||||||||||||
Balance at beginning of year | 283,433,401 | 283,625,689 | 283,717,973 | |||||||||
Common shares issued (cancelled), net | (247,286) | (192,288) | (92,284) | |||||||||
Balance at end of year | 283,186,115 | 283,433,401 | 283,625,689 | |||||||||
Common stock amount | ||||||||||||
Balance at beginning and end of year | $ | 283 | $ | 284 | $ | 284 | ||||||
Period change | 0 | (1) | 0 | |||||||||
Balance at end of period | $ | 283 | $ | 283 | $ | 284 | ||||||
Additional paid-in capital | ||||||||||||
Balance at beginning of year | $ | 2,999 | $ | 3,025 | $ | 3,171 | ||||||
Treasury shares issued for warrant exercises | 0 | 0 | (21) | |||||||||
Share-based compensation | (37) | (26) | (125) | |||||||||
Balance at end of year | $ | 2,962 | $ | 2,999 | $ | 3,025 | ||||||
Retained earnings (deficit) | ||||||||||||
Balance at beginning of year | $ | 607 | $ | 966 | $ | 1,095 | ||||||
ASU 2016-13 transition adjustment | (42) | 0 | 0 | |||||||||
ASU 2016-01 transition adjustment | 0 | 0 | 164 | |||||||||
ASU 2018-02 transition adjustment | 0 | 0 | 3 | |||||||||
Net income (loss) | (578) | (359) | (296) | |||||||||
Balance at end of year | $ | (13) | $ | 607 | $ | 966 | ||||||
Accumulated other comprehensive income (loss) | ||||||||||||
Balance at beginning of year | $ | (2) | $ | (156) | $ | (19) | ||||||
ASU 2016-01 transition adjustment | 0 | 0 | (164) | |||||||||
ASU 2018-02 transition adjustment | 0 | 0 | (3) | |||||||||
Other comprehensive income (loss) | 117 | 154 | 30 | |||||||||
Balance at end of year | $ | 115 | $ | (2) | $ | (156) | ||||||
Treasury shares | ||||||||||||
Balance at beginning of year | (204,000,108) | (193,803,976) | (192,233,526) | |||||||||
Treasury shares issued for warrant exercises | 0 | 0 | 1,277,620 | |||||||||
Treasury shares acquired under share repurchase program | (26,430,768) | (11,098,995) | (5,842,567) | |||||||||
Share-based compensation | 921,909 | 902,863 | 2,994,497 | |||||||||
Balance at end of year | (229,508,967) | (204,000,108) | (193,803,976) | |||||||||
Treasury stock amount | ||||||||||||
Balance at beginning of year | $ | (3,061) | $ | (3,000) | $ | (3,118) | ||||||
Treasury shares issued for warrant exercises | 0 | 0 | 34 | |||||||||
Treasury shares acquired under share repurchase program | (198) | (101) | (48) | |||||||||
Share-based compensation | 48 | 40 | 132 | |||||||||
Balance at end of year | $ | (3,211) | $ | (3,061) | $ | (3,000) | ||||||
Total shareholders’ equity of MBIA Inc. | ||||||||||||
Balance at beginning of year | $ | 826 | $ | 1,119 | $ | 1,413 | ||||||
Period change | (690) | (293) | (294) | |||||||||
Balance at end of year | $ | 136 | $ | 826 | $ | 1,119 | ||||||
Preferred stock of subsidiary shares | ||||||||||||
Balance at beginning and end of year | 1,315 | 1,315 | 1,315 | |||||||||
Preferred stock of subsidiary amount | ||||||||||||
Balance at beginning of year | $ | 13 | $ | 13 | $ | 12 | ||||||
Period change | 0 | 0 | 1 | |||||||||
Balance at end of year | 13 | 13 | 13 | |||||||||
Total equity | $ | 149 | $ | 839 | $ | 1,132 | ||||||
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Premiums, fees and reimbursements received | $ | 86 | $ | 61 | $ | 115 | ||||||
Investment income received | 205 | 248 | 318 | |||||||||
Insured derivative commutations and losses paid | (56) | (52) | (43) | |||||||||
Financial guarantee losses and loss adjustment expenses paid | (385) | (768) | (351) | |||||||||
Proceeds from recoveries and reinsurance | 61 | 170 | 99 | |||||||||
Operating and employee related expenses paid | (83) | (130) | (134) | |||||||||
Interest paid, net of interest converted to principal | (146) | (177) | (148) | |||||||||
Income taxes (paid) received | (1) | (4) | (5) | |||||||||
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Net cash provided (used) by operating activities | (319) | (652) | (149) | |||||||||
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Cash flows from investing activities: | ||||||||||||
Purchases ofavailable-for-sale investments | (2,265) | (1,811) | (2,661) | |||||||||
Sales ofavailable-for-sale investments | 2,117 | 2,256 | 2,412 | |||||||||
Paydowns and maturities ofavailable-for-sale investments | 329 | 568 | 680 | |||||||||
Purchases of investments at fair value | (189) | (263) | (199) | |||||||||
Sales, paydowns and maturities of investments at fair value | 212 | 326 | 260 | |||||||||
Sales, paydowns and maturities (purchases) of short-term investments, net | 420 | (67) | (125) | |||||||||
Sales, paydowns and maturities ofheld-to-maturity investments | — | — | 1,799 | |||||||||
Paydowns and maturities of loans receivable and other instruments | 614 | 259 | 261 | |||||||||
Consolidation of variable interest entities | — | 18 | 9 | |||||||||
Deconsolidation of variable interest entities | (7) | — | (8) | |||||||||
(Payments) proceeds for derivative settlements | (24) | (64) | (44) | |||||||||
Collateral (to) from counterparties | — | 4 | 49 | |||||||||
Capital expenditures | (1) | (1) | (1) | |||||||||
Other investing | — | (23) | (8) | |||||||||
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Net cash provided (used) by investing activities | 1,206 | 1,202 | 2,424 | |||||||||
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Cash flows from financing activities: | ||||||||||||
Proceeds from investment agreements | 12 | 17 | 19 | |||||||||
Principal paydowns of investment agreements | (37) | (75) | (85) | |||||||||
Principal paydowns of medium-term notes | (85) | (157) | (120) | |||||||||
Proceeds from the MBIA Corp. Financing Facility | — | 328 | — | |||||||||
Principal paydowns of variable interest entity notes | (598) | (368) | (2,234) | |||||||||
Purchases of treasury stock | (44) | (330) | (110) | |||||||||
Other financing | — | (4) | (5) | |||||||||
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| |||||||
Net cash provided (used) by financing activities | (752) | (589) | (2,535) | |||||||||
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| |||||||
Effect of exchange rate changes on cash and cash equivalents | (1) | (2) | (2) | |||||||||
Net increase (decrease) in cash and cash equivalents | 134 | (41) | (262) | |||||||||
Cash and cash equivalents—beginning of period | 146 | 187 | 522 | |||||||||
Reclassification to assets held for sale | — | — | (73) | |||||||||
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Cash and cash equivalents—end of period | $ | 280 | $ | 146 | $ | 187 | ||||||
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Reconciliation of net income (loss) to net cash provided (used) by operating activities: | ||||||||||||
Net income (loss) | $ | (296) | $ | (1,605) | $ | (338) | ||||||
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | ||||||||||||
Change in: | ||||||||||||
Premiums receivable | 60 | 49 | 75 | |||||||||
Deferred acquisition costs | 21 | 22 | 41 | |||||||||
Unearned premium revenue | (165) | (206) | (263) | |||||||||
Loss and loss adjustment expense reserves | (46) | 778 | 29 | |||||||||
Insurance loss recoverable | (213) | (681) | (74) | |||||||||
Accrued interest payable | 157 | 116 | 102 | |||||||||
Accrued expenses | (9) | (29) | 7 | |||||||||
Net investment losses related to other-than-temporary impairments | 5 | 106 | 5 | |||||||||
Unrealized (gains) losses on insured derivatives | (31) | — | (21) | |||||||||
Net (gains) losses on financial instruments at fair value and foreign exchange | (8) | (106) | (84) | |||||||||
Other net realized (gains) losses | 171 | (59) | 282 | |||||||||
Deferred income tax provision (benefit) | — | 940 | (5) | |||||||||
Interest on variable interest entities, net | 17 | 35 | 57 | |||||||||
Other operating | 18 | (12) | 38 | |||||||||
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| |||||||
Total adjustments to net income (loss) | (23) | 953 | 189 | |||||||||
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| |||||||
Net cash provided (used) by operating activities | $ | (319) | $ | (652) | $ | (149) | ||||||
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Supplementary Disclosure of Consolidated Cash Flow Information | ||||||||||||
Non-cash investing activities: | ||||||||||||
Non-cash consideration received from the sale of MBIA UK Insurance Limited | $ | — | $ | 332 | $ | — | ||||||
Years Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Premiums, fees and reimbursements received | $ | 28 | $ | 47 | $ | 86 | ||||||
Investment income received | 118 | 176 | 205 | |||||||||
Insured derivative commutations and losses paid | (1) | (11) | (56) | |||||||||
Financial guarantee losses and loss adjustment expenses paid | (475) | (489) | (385) | |||||||||
Proceeds from recoveries and reinsurance | 84 | 155 | 61 | |||||||||
Operating and employee related expenses paid | (73) | (77) | (83) | |||||||||
Interest paid, net of interest converted to principal | (84) | (180) | (146) | |||||||||
Income taxes (paid) received | 13 | 11 | (1) | |||||||||
Net cash provided (used) by operating activities | (390) | (368) | (319) | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of available-for-sale investments | (1,133) | (2,140) | (2,265) | |||||||||
Sales of available-for-sale investments | 1,095 | 2,195 | 2,117 | |||||||||
Paydowns and maturities of available-for-sale investments | 724 | 857 | 329 | |||||||||
Purchases of investments at fair value | (179) | (151) | (189) | |||||||||
Sales, paydowns and maturities of investments at fair value | 198 | 617 | 212 | |||||||||
Sales, paydowns and maturities (purchases) of short-term investments, net | 143 | (157) | 420 | |||||||||
Sales, paydowns and maturities of held-to-maturity investments | 890 | 0 | 0 | |||||||||
Paydowns and maturities of loans receivable and other instruments at fair value | 16 | 74 | 614 | |||||||||
Consolidation of variable interest entities | 0 | 72 | 0 | |||||||||
Deconsolidation of variable interest entities | 0 | (2) | (7) | |||||||||
(Payments) proceeds for derivative settlements | (16) | (98) | (24) | |||||||||
Capital expenditures | 0 | 0 | (1) | |||||||||
Net cash provided (used) by investing activities | 1,738 | 1,267 | 1,206 | |||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from investment agreements | 12 | 15 | 12 | |||||||||
Principal paydowns of investment agreements | (48) | (25) | (37) | |||||||||
Principal paydowns of medium-term notes | 0 | (57) | (85) | |||||||||
Principal paydowns of variable interest entity notes | (914) | (765) | (598) | |||||||||
Principal paydowns of long-term debt | (115) | (150) | 0 | |||||||||
Purchases of treasury stock | (200) | (106) | (44) | |||||||||
Other financing | 0 | (8) | 0 | |||||||||
Net cash provided (used) by financing activities | (1,265) | (1,096) | (752) | |||||||||
Effect of exchange rate changes on cash and cash equivalents | 1 | 0 | (1) | |||||||||
Net increase (decrease) in cash and cash equivalents | 84 | (197) | 134 | |||||||||
Cash and cash equivalents—beginning of year | 83 | 280 | 146 | |||||||||
Cash and cash equivalents—end of year | $ | 167 | $ | 83 | $ | 280 | ||||||
Reconciliation of net income (loss) to net cash provided (used) by operating activities: | ||||||||||||
Net income (loss) | $ | (578) | $ | (359) | $ | (296) | ||||||
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | ||||||||||||
Change in: | ||||||||||||
Premiums receivable | 29 | 62 | 60 | |||||||||
Deferred acquisition costs | 10 | 12 | 21 | |||||||||
Accrued investment income | 6 | 20 | 8 | |||||||||
Unearned premium revenue | (77) | (105) | (165) | |||||||||
Loss and loss adjustment expense reserves | 86 | 0 | (46) | |||||||||
Insurance loss recoverable | 16 | (99) | (213) | |||||||||
Accrued interest payable | 133 | 106 | 157 | |||||||||
Accrued expenses | 34 | 12 | (9) | |||||||||
Net investment losses related to other-than-temporary impairments | 0 | 67 | 5 | |||||||||
Unrealized (gains) losses on insured derivatives | (7) | (25) | (31) | |||||||||
Net (gains) losses on financial instruments at fair value and foreign exchange | (70) | (157) | (8) | |||||||||
Other net realized (gains) losses | (37) | 58 | 171 | |||||||||
Deferred income tax provision (benefit) | 12 | 13 | 0 | |||||||||
Interest on variable interest entities, net | 6 | (3) | 17 | |||||||||
Other operating | 47 | 30 | 10 | |||||||||
Total adjustments to net income (loss) | 188 | (9) | (23) | |||||||||
Net cash provided (used) by operating activities | $ | (390) | $ | (368) | $ | (319) | ||||||
Financial Strength Ratings
In June
Stock Warrants
In April and June of 2018, the holder of certain MBIA Inc. warrants exercised its right to purchase, in total, 11.85$
Sale MBIA UKOn January 10, 2017, MBIA UK Holdings sold its operating subsidiary, MBIA UK,debt service outstanding related to Puerto Rico. Refer to the “Risks and made a cash payment of $23 million, to Assured in exchangeUncertainties” section below for the receipt by MBIA UK Holdings of certain notes owned by Assured that were issued by Zohar II2005-1, Limited (“Zohar II”) with an aggregate outstanding principal amount of $347 million as of January 10, 2017 (the “Sale Transaction”). During 2017, the Company recorded a gain of $5 million to adjust the carrying value of MBIA UK to its fair value less costs to sell as of the sale date. These results were reflected in the Company’s international and structured finance insurance segment and included in “Other net realized gains (losses)”additional information on the Company’s consolidated statementPuerto Rico exposures.
In addition, the restructuring the RSA contemplates has received criticism from various parties including members of the Puerto Rico government and other stakeholders. This opposition could adversely impact the ability of the Oversight Board and RSA Parties to obtain final approval of the RSA.
The Commonwealth of Puerto Rico and certain of its instrumentalities (“Puerto Rico”) are experiencing significant fiscal stress and constrained liquidity due to, among other things, Puerto Rico’s structural budget imbalance, the lack of access to the capital markets, a stagnating local economy, net migration of people out of Puerto Rico and a high debt burden. Puerto Rico continues in its efforts to rebuild its infrastructure and to otherwise recover from the impact of Hurricane Maria in 2017, aided in part by Federal Emergency Management Agency and other federal agencies. As part of the Title III proceedings under Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), Puerto Rico submitted several draft fiscal plans and an independent Financial Oversight and Management Board for Puerto Rico (“Oversight Board”) voted to certify the most recent fiscal plan. The current plan, or any revisions thereto, can provide no assurance that National will fully recover past amounts paid or future amounts that may be covered under its insurance policies. In addition, the extent and duration of such aid is inherently uncertain, and the necessary and greater involvement of the federal government, through its actions to deliver disaster relief and other support services, in addition to the role of the Oversight Board and the role of Puerto Rico in its own recovery, heightens political risk in connection with the restructuring of legacy debt. This risk could lead the Oversight Board, Puerto Rico or the federal government to seek to extract greater concessions from creditors based on the uncertainty of Puerto Rico’s long term recovery prospects. In this event, losses at National on select Puerto Rico exposures could increase materially.
Puerto Rico defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $276 million during 2018. On January 1, 2019, Puerto Rico also defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $65 million.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1: Business Developments and Risks and Uncertainties (continued)
In particular, as the monetization process unfolds in coordination with the new directors and managers in place, and new information concerning the financial condition of the portfolio companies is disclosed, the Company may revise its expectations for recoveries. For example, at a June 3, 2020 hearing, counsel for one of the portfolio companies announced that the monetization process for that company would be delayed as a consequence of having to investigate issues relating to the integrity of the company’s financial statements.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1: Business Developments and Risks and Uncertainties (continued)
Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation. This includes a change in the classification of certain cash receipts and cash payments on the Company’s consolidated statements of cash flows as resulting from the adoption of Accounting Standards Update (“ASU”)2016-15, “Statement of Cash Flows (Topic 230)”. This classification change affected “Interest paid, net of interest converted to principal”, in operating cash flows, and “Principal paydowns of investment agreements” and “Principal paydowns of medium-term notes”, in financing cash flows, on the Company’s consolidated statements of cash flows for the prior period. Such reclassifications did not materially impact total revenues, expenses, assets, liabilities, shareholders’ equity, operating cash flows, investing cash flows, or financing cash flows for all periods presented. Refer to “Note 3: Recent Accounting Pronouncements” for additional recent accounting standards that impact the Company.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2: Significant Accounting Policies (continued)
Other-Than-Temporary Impairments on Investments
The Company’s consolidated statements of operations reflect the full impairment (the difference between a security’s amortized cost basis and fair value) on debt securities thatif the Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis. For AFS debt securities in an unrealized loss position and HTM debt securities held prior to their redemption during 2020, the securities are evaluated on a quarterly basis to determine if credit losses exist. The Company considers that management hascredit losses exist when the Company does not expect to recover the entire amortized cost basis of the debt security. The Company measures an allowance for credit losses on a
The Company’s AFS and HTM securities for which the fair value is less than amortized cost are reviewed no less than quarterly in order to determine whether a credit loss exists. This evaluation includes both qualitative and quantitative considerations. In assessing whether a decline in value is related to a credit loss, the Company considers several factors, including but not limited to (a) the magnitude and duration of the decline, (b) credit indicators and the reasons for the decline, such as general interest rate or credit spread movements, credit rating downgrades, issuer-specific changes in credit spreads, and the financial conditionlosses including accretion of the issuer, and (c) any guarantees associatedallowance for credit losses are recognized in earnings through other net realized gains (losses) with a security such as those provided by financial guarantee insurance companies. Credit loss expectationscorresponding change to the allowance for ABS and collateralized debt obligations (“CDOs”) are assessed using discounted cash flow modeling, and the recoverability of amortized cost for corporate obligations is generally assessed using issuer-specific credit analyses.
losses.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2: Significant Accounting Policies (continued)
As of December 31, 2020, the Company had no remaining insured exposure accounted for as an insured CDS derivative.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2: Significant Accounting Policies (continued)
The Company considers its ability to collect contractual interest on claim payments when developing its expected inflows. The inclusion of such interest may result in the Company recording recoveries in excess of its actual or expected claim payments on a policy.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2: Significant Accounting Policies (continued)
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2: Significant Accounting Policies (continued)
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2: Significant Accounting Policies (continued)
Revenue from Contracts with Customers (Topic 606) (ASU2014-09) andDeferral of the Effective Date(ASU2015-14)
In May of 2014, the Financial Accounting Standards Board (“FASB”) issued ASU2014-09. ASU2014-09 amends the accounting guidance for recognizing revenue for the transfer of goods or services from contracts with customers unless those contracts are within the scope of other accounting standards. ASU2014-09 does not apply to financial guarantee insurance contracts within the scope of Topic 944, “Financial Services — Insurance.” In August of 2015, the FASB issued ASU2015-14, “Revenue from Contracts with Customers (Topic 606)—Deferral of the Effective Date.” ASU2015-14 defers the effective date of ASU2014-09 to interim and annual periods beginning January 1, 2018, and is applied on a retrospective or modified retrospective basis. The Company adopted ASU2014-09 in the first quarter of 2018 and the adoption of ASU2014-09 did not affect the Company’s consolidated financial statements.
Financial Instruments-Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU2016-01)
In January of 2016, the FASB issued ASU2016-01, “Financial Instruments-Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU2016-01 requires certain equity investments other than those accounted for under the equity method of accounting or result in consolidation of the investee to be measured at fair value with changes in fair value recognized in net income, and permits an entity to measure equity investments that do not have readily determinable fair values at cost less any impairment plus or minus adjustments for certain changes in observable prices. An entity is also required to evaluate the need for a valuation allowance on a deferred tax asset related to AFS debt securities in combination with the entity’s other deferred tax assets. ASU2016-01 requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability that results from a change in the instrument-specific credit risk for financial liabilities that the entity has elected to measure at fair value in accordance with the fair value option for financial instruments. ASU2016-01 was effective for interim and annual periods beginning January 1, 2018. As such, the Company reclassed a loss of $162 million from retained earnings to AOCI related to the instrument-specific credit risk portion of financial liabilities measured at fair value in accordance with the fair value option. In addition, the Company reclassed net unrealized gains of $2 million from AOCI to retained earnings related to equity investments. As of December 31, 2018 and 2017, the Company had a full valuation allowance against its deferred tax asset.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 3: Recent Accounting Pronouncements (continued)
Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU2018-02)
In February of 2018, the FASB issued ASU2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU2018-02 permits, but does not require, the reclassification of the income tax effects of the Tax Cuts and Jobs Act (the “Act”) from AOCI to retained earnings. ASU2018-02 is effective for interim and annual periods beginning after December 15, 2018. Early adoption of ASU2018-02 is permitted and is applied in the period of adoption or retroactively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company adopted ASU2018-02 in the first quarter of 2018. As such, the Company reclassed income taxes of $3 million from AOCI to retained earnings. The Company’s accounting policy related to releasing income tax effects that are lodged in AOCI is on a portfolio approach basis.
The Company has not adopted any other new accounting pronouncements that had a material impact on its consolidated financial statements.
Recent Accounting Developments
Leases (Topic 842) (ASU2016-02)
In February of 2016, the FASB issued ASU2016-02, “Leases (Topic 842)”, that amends the accounting guidance for leasing transactions. ASU2016-02 requires a lessee to classify lease contracts as finance or operating leases, and to recognize assets and liabilities for the rights and obligations created by leasing transactions with lease terms more than twelve months. ASU2016-02 substantially retains the criteria for classifying leasing transactions as finance or operating leases. For finance leases, a lessee recognizes aright-of-use asset and a lease liability initially measured at the present value of the lease payments, and recognizes interest expense on the lease liability separately from the amortization of theright-of-use asset. For operating leases, a lessee recognizes aright-of-use asset and a lease liability initially measured at the present value of the lease payments, and recognizes lease expense on a straight-line basis. ASU2016-02 is effective for interim and annual periods beginning January 1, 2019 with early adoption permitted, and is applied on a modified retrospective basis.
The Company plans to adopt ASU2016-02 in its entirety in the first quarter of 2019, using an additional (and optional) modified retrospective transition approach and will recognize and measure all leases that exist at the adoption date. Comparative periods will be presented in accordance with Topic 840, Leases, and do not include any retrospective adjustments to comparative periods to reflect the adoption of ASU2016-02. Based on the Company’s leases as of January 1, 2019, the Company expects to record aright-of-use asset and lease liability of $23 million. The gross up of the assets and liabilities does not have a cumulative effect adjustment to the opening balance of retained earnings and does not impact the Company’s statement of operations. Refer to “Note 20: Commitments and Contingencies” for information about the Company’s lease commitments.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 3: Recent Accounting Pronouncements (continued)
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4: Variable Interest Entities (continued)
the Company.
| December 31, 2018 | ||||||||||||||||||||||||
| Carrying Value of Assets | Carrying Value of Liabilities | |||||||||||||||||||||||
In millions | Maximum Exposure to Loss | Investments(1) | Premiums Receivable(2) | Insurance Loss Recoverable(3) | Unearned Premium Revenue(4) | Loss and Loss Adjustment Expense Reserves(5) | ||||||||||||||||||
Insurance: | ||||||||||||||||||||||||
Global structured finance: | ||||||||||||||||||||||||
Mortgage-backed residential | $ | 3,103 | $ | 17 | $ | 19 | $ | 128 | $ | 17 | $ | 345 | ||||||||||||
Mortgage-backed commercial | 52 | — | — | — | — | — | ||||||||||||||||||
Consumer asset-backed | 560 | — | 3 | 1 | 2 | 12 | ||||||||||||||||||
Corporate asset-backed | 1,338 | — | 9 | 858 | 10 | — | ||||||||||||||||||
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Total global structured finance | 5,053 | 17 | 31 | 987 | 29 | 357 | ||||||||||||||||||
Global public finance | 2,231 | — | 9 | — | 12 | — | ||||||||||||||||||
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|
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|
|
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|
|
|
| |||||||||||||
Total insurance | $ | 7,284 | $ | 17 | $ | 40 | $ | 987 | $ | 41 | $ | 357 | ||||||||||||
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| |||||||||||||
(1)—Reported within “Investments” on MBIA’s consolidated balance sheets.
(2)—Reported within “Premiums receivable” on MBIA’s consolidated balance sheets.
(3)—Reported within “Insurance loss recoverable” on MBIA’s consolidated balance sheets.
(4)—Reported within “Unearned premium revenue” on MBIA’s consolidated balance sheets.
(5)—Reported within “Loss and loss adjustment expense reserves” on MBIA’s consolidated balance sheets.
| December 31, 2017 | ||||||||||||||||||||||||
| Carrying Value of Assets | Carrying Value of Liabilities | |||||||||||||||||||||||
In millions | Maximum Exposure to Loss | Investments(1) | Premiums Receivable(2) | Insurance Loss Recoverable(3) | Unearned Premium Revenue(4) | Loss and Loss Adjustment Expense Reserves(5) | ||||||||||||||||||
Insurance: | ||||||||||||||||||||||||
Global structured finance: | ||||||||||||||||||||||||
Mortgage-backed residential | $ | 3,741 | $ | 19 | $ | 22 | $ | 172 | $ | 20 | $ | 396 | ||||||||||||
Mortgage-backed commercial | 94 | — | — | — | — | — | ||||||||||||||||||
Consumer asset-backed | 981 | — | 4 | 1 | 3 | 10 | ||||||||||||||||||
Corporate asset-backed | 1,645 | — | 13 | — | 14 | — | ||||||||||||||||||
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|
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| |||||||||||||
Total global structured finance | 6,461 | 19 | 39 | 173 | 37 | 406 | ||||||||||||||||||
Global public finance | 2,524 | — | 10 | — | 14 | — | ||||||||||||||||||
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| |||||||||||||
Total insurance | $ | 8,985 | $ | 19 | $ | 49 | $ | 173 | $ | 51 | $ | 406 | ||||||||||||
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(1)—Reported within “Investments” on MBIA’s consolidated balance sheets.
(2)—Reported within “Premiums receivable” on MBIA’s consolidated balance sheets.
(3)—Reported within “Insurance loss recoverable” on MBIA’s consolidated balance sheets.
(4)—Reported within “Unearned premium revenue” on MBIA’s consolidated balance sheets.
(5)—Reported within “Loss and loss adjustment expense reserves” on MBIA’s consolidated balance sheets.
December 31, 2020 | ||||||||||||||||||||||||
Carrying Value of Assets | Carrying Value of Liabilities | |||||||||||||||||||||||
In millions | Maximum Exposure to Loss | Investments | Premiums Receivable | Insurance Loss Recoverable | Unearned Premium Revenue | Loss and Loss Adjustment Expense Reserves | ||||||||||||||||||
Insurance: | ||||||||||||||||||||||||
Global structured finance: | ||||||||||||||||||||||||
Mortgage-backed residential | $ | 1,835 | $ | 21 | $ | 16 | $ | 90 | $ | 14 | $ | 482 | ||||||||||||
Consumer asset-backed | 293 | 0 | 1 | 1 | 1 | 15 | ||||||||||||||||||
Corporate asset-backed | 735 | 0 | 5 | 364 | 5 | 0 | ||||||||||||||||||
Total global structured finance | 2,863 | 21 | 22 | 455 | 20 | 497 | ||||||||||||||||||
Global public finance | 1,434 | 0 | 7 | 0 | 7 | 2 | ||||||||||||||||||
Total insurance | $ | 4,297 | $ | 21 | $ | 29 | $ | 455 | $ | 27 | $ | 499 | ||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
Carrying Value of Assets | Carrying Value of Liabilities | |||||||||||||||||||||||
In millions | Maximum Exposure to Loss | Investments | Premiums Receivable | Insurance Loss Recoverable | Unearned Premium Revenue | Loss and Loss Adjustment Expense Reserves | ||||||||||||||||||
Insurance: | ||||||||||||||||||||||||
Global structured finance: | ||||||||||||||||||||||||
Mortgage-backed residential | $ | 2,253 | $ | 15 | $ | 19 | $ | 107 | $ | 16 | $ | 436 | ||||||||||||
Mortgage-backed commercial | 26 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Consumer asset-backed | 384 | 0 | 1 | 1 | 1 | 11 | ||||||||||||||||||
Corporate asset-backed | 937 | 0 | 6 | 673 | 7 | 0 | ||||||||||||||||||
Total global structured finance | 3,600 | 15 | 26 | 781 | 24 | 447 | ||||||||||||||||||
Global public finance | 1,926 | 0 | 8 | 0 | 9 | 0 | ||||||||||||||||||
Total insurance | $ | 5,526 | $ | 15 | $ | 34 | $ | 781 | $ | 33 | $ | 447 | ||||||||||||
The Company evaluates whether any premiums receivable are uncollectible at each balance sheet date. If the Company determines that premiums are uncollectible, it records awrite-off of such amounts in current earnings. The majority of the Company’s premiums receivable consists of the present values of future installment premiums that are not yet billed or due, primarily from structured finance transactions. Given that premiums due to MBIA typically have priority over most other payment obligations of structured finance transactions, the Company determined that the amount of uncollectible premiums as of December 31, 2018 and 2017 was insignificant.
premium receivables.
In millions | Adjustments | |||||||||||||||||||||||
Premiums | Premium Payments Received | Premiums from New Business Written | Changes in Expected Term of Policies | Accretion of Premiums Receivable Discount (1) | Other (2) | Premiums Receivable as of December 31, 2018 | ||||||||||||||||||
| $ 369 | $ | (74) | $ | — | $ | 2 | $ | 9 | $ | (10) | $ | 296 | ||||||||||||
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2019.
In millions | Adjustments | |||||||||||||||||||||||
Premiums Receivable as of December 31, 2019 | Premium Payments Received | Premiums from New Business Written | Changes in Expected Term of Policies | Accretion of Premiums Receivable Discount (1) | Other (2) | Premiums Receivable as of December 31, 2020 | ||||||||||||||||||
| $ 249 | $ | (30) | $ | 0 | $ | (1) | $ | 6 | $ | (8) | $ | 216 | ||||||||||||
In millions | Adjustments | |||||||||||||||||||||||
Premiums | Premium Payments Received | Premiums from New Business Written | Changes in Expected Term of Policies | Accretion of Premiums Receivable Discount (1) | Other (2) | Premiums Receivable as of December 31, 2017 | ||||||||||||||||||
| $ 409 | $ | (50) | $ | 3 | $ | (15) | $ | 10 | $ | 12 | $ | 369 | ||||||||||||
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In millions | Adjustments | |||||||||||||||||||||||
Premiums Receivable as of December 31, 2018 | Premium Payments Received | Premiums from New Business Written | Changes in Expected Term of Policies | Accretion of Premiums Receivable Discount (1) | Other (2) | Premiums Receivable as of December 31, 2019 | ||||||||||||||||||
| $ 296 | $ | (43) | $ | 0 | $ | (4) | $ | 7 | $ | (7) | $ | 249 | ||||||||||||
In millions | Expected Collection of Premiums | |||
Three months ending: | ||||
March 31, 2019 | $ | 4 | ||
June 30, 2019 | 12 | |||
September 30, 2019 | 6 | |||
December 31, 2019 | 12 | |||
Twelve months ending: | ||||
December 31, 2020 | 32 | |||
December 31, 2021 | 30 | |||
December 31, 2022 | 26 | |||
December 31, 2023 | 23 | |||
Five years ending: | ||||
December 31, 2028 | 86 | |||
December 31, 2033 | 54 | |||
December 31, 2038 and thereafter | 72 | |||
|
| |||
Total | $ | 357 | ||
|
| |||
In millions | Expected Collection of Premiums | |||
Three months ending: | ||||
March 31, 2021 | $ | 3 | ||
June 30, 2021 | 10 | |||
September 30, 2021 | 5 | |||
December 31, 2021 | 10 | |||
Twelve months ending: | ||||
December 31, 2022 | 24 | |||
December 31, 2023 | 22 | |||
December 31, 2024 | 20 | |||
December 31, 2025 | 18 | |||
Five years ending: | ||||
December 31, 2030 | 64 | |||
December 31, 2035 | 45 | |||
December 31, 2040 and thereafter | 54 | |||
Total | $ | 275 | ||
In millions | Unearned Premium Revenue | Expected Future Premium Earnings | Accretion | Total Expected Future Premium Earnings | ||||||||||||||||
| Upfront | Installments | |||||||||||||||||||
December 31, 2018 | $ | 587 | ||||||||||||||||||
Three months ending: | ||||||||||||||||||||
March 31, 2019 | 569 | $ | 9 | $ | 9 | $ | 2 | $ | 20 | |||||||||||
June 30, 2019 | 552 | 9 | 8 | 2 | 19 | |||||||||||||||
September 30, 2019 | 535 | 9 | 8 | 2 | 19 | |||||||||||||||
December 31, 2019 | 518 | 9 | 8 | 2 | 19 | |||||||||||||||
Twelve months ending: | ||||||||||||||||||||
December 31, 2020 | 456 | 32 | 30 | 7 | 69 | |||||||||||||||
December 31, 2021 | 401 | 28 | 27 | 6 | 61 | |||||||||||||||
December 31, 2022 | 352 | 25 | 24 | 6 | 55 | |||||||||||||||
December 31, 2023 | 309 | 22 | 21 | 5 | 48 | |||||||||||||||
Five years ending: | ||||||||||||||||||||
December 31, 2028 | 158 | 81 | 70 | 20 | 171 | |||||||||||||||
December 31, 2033 | 79 | 42 | 37 | 12 | 91 | |||||||||||||||
December 31, 2038 and thereafter | — | 33 | 46 | 11 | 90 | |||||||||||||||
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| |||||||||||||
Total | $ | 299 | $ | 288 | $ | 75 | $ | 662 | ||||||||||||
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In millions | Unearned Premium Revenue | Expected Future Premium Earnings | Accretion | Total Expected Future Premium Earnings | ||||||||||||||||
Upfront | Installments | |||||||||||||||||||
December 31, 2020 | $ | 405 | ||||||||||||||||||
Three months ending: | ||||||||||||||||||||
March 31, 2021 | 392 | $ | 6 | $ | 7 | $ | 1 | $ | 14 | |||||||||||
June 30, 2021 | 379 | 6 | 7 | 1 | 14 | |||||||||||||||
September 30, 2021 | 367 | 6 | 6 | 2 | 14 | |||||||||||||||
December 31, 2021 | 355 | 6 | 6 | 1 | 13 | |||||||||||||||
Twelve months ending: | ||||||||||||||||||||
December 31, 2022 | 310 | 21 | 24 | 5 | 50 | |||||||||||||||
December 31, 2023 | 271 | 19 | 20 | 4 | 43 | |||||||||||||||
December 31, 2024 | 235 | 17 | 19 | 4 | 40 | |||||||||||||||
December 31, 2025 | 204 | 15 | 16 | 4 | 35 | |||||||||||||||
Five years ending: | ||||||||||||||||||||
December 31, 2030 | 104 | 50 | 50 | 15 | 115 | |||||||||||||||
December 31, 2035 | 50 | 24 | 30 | 9 | 63 | |||||||||||||||
December 31, 2040 and thereafter | 0 | 16 | 34 | 9 | 59 | |||||||||||||||
Total | $ | 186 | $ | 219 | $ | 55 | $ | 460 | ||||||||||||
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6: Loss and Loss Adjustment Expense Reserves (continued)
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6: Loss and Loss Adjustment Expense Reserves (continued)
MBIA Inc. and, Subsidiaries
Notes to Consolidated Financial Statements
Note 6: Loss and Loss Adjustment Expense Reserves (continued)
Forfor first-lien RMBS, the Company estimates the amount of loans that are expected to be liquidated in the future through foreclosure or short sale. The time to liquidation for a defaulted loan is specific to the loan’s delinquency bucket.
accordingly and re-evaluate its assumptions.
Once a claim payment has been made, the claim liability has been satisfied and the Company’s right to recovery is no longer considered an offset to future expected claim payments, the right to recovery is recorded as a salvage asset. The amount of recoveries recorded by the Company is limited to paid claims plus the present value of projected estimated future claim payments. As claim payments are made, the recorded amount of potential recoveries may exceed the remaining amount of the claim liability for a given policy. The gross claim liability and gross potential recoveries reflect the elimination of claim liabilities and potential recoveries related to VIEs consolidated by the Company.
The
Notwithstanding
The Company continues to consider relevant facts and circumstances in developing its assumptions on expected cash inflows, probability of potential recoveries (including the outcome of litigation) and recovery period. The estimated amount and likelihood of potential recoveries are expected to be revised and supplemented to the extent there are developments in the pending litigation and/or changes to the financial condition of Credit Suisse. While the Company believes it will be successful in realizing its recoveries from itsput-back contract claims against Credit Suisse, the ultimate amount recovered may be materially different from that recorded by the Company given the inherent uncertainty of the manner of resolving the claims (i.e., litigation and/or negotiatedout-of-court settlement) and the assumptions used in the required estimation process for accounting purposes which are based, in part, on judgments and other information that are not easily corroborated by historical data or other relevant benchmarks.case. Refer to “Note 20:19: Commitments and Contingencies” for further information about the Company’s litigation with Credit Suisse.
As of December 31, 2020, the Company consolidated the RMBS securitization originated by Credit Suisse as a VIE and, therefore, eliminates its estimate of recoveries from its insurance accounting and reflects such recoveries in its accounting for the loan repurchase commitments asset of the VIE using a fair value measurement.
The following discussion provides information about the Company’s process for estimating reserves and credit impairments on these policies is determined as the present value of the probability-weighted potential future losses, net of estimated recoveries, across multiple scenarios.
The Company considers several factors when developing the range of potential outcomes and their impact on MBIA. The following approaches require substantial judgments about the future performanceA range of loss scenarios is considered under different default and severity rates for each transaction:
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|
transaction’s collateral. Additionally, each transaction is evaluated for its commutation potential.
MBIA Inc. In particular, as the monetization process unfolds in coordination with the new directors and Subsidiaries
Notesmanagers in place, and new information concerning the financial condition of the portfolio companies is disclosed, the Company may revise its expectations for recoveries. For example, at a June 3, 2020 hearing, counsel for one of the portfolio companies announced that the monetization process for that company would be delayed as a consequence of having to Consolidated Financial Statements
Note 6: Loss and Loss Adjustment Expense Reserves (continued)
investigate issues relating to the integrity of the company’s financial statements. Failure to recover a substantial amountportion of suchthe payments made on Zohar I and Zohar II could impede MBIA Corp.’s ability to make payments when due on other policies. MBIA Corp. believes that if the NYSDFS concludes at any time that MBIA Insurance Corporation will not
| As of December 31, 2018 | As of December 31, 2017 | |||||||||||||||
In millions | Balance Sheet Line Item | Balance Sheet Line Item | ||||||||||||||
| Insurance loss recoverable | Loss and LAE reserves | Insurance loss recoverable | Loss and LAE reserves | |||||||||||||
U.S. Public Finance Insurance | $ | 571 | $ | 551 | $ | 333 | $ | 512 | ||||||||
International and Structured Finance Insurance: |
| |||||||||||||||
Before VIE eliminations(1) | 1,430 | 637 | 1,478 | 710 | ||||||||||||
VIE eliminations(1) | (437) | (254) | (1,300) | (243) | ||||||||||||
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| |||||||||
Total international and structured finance insurance | 993 | 383 | 178 | 467 | ||||||||||||
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| |||||||||
Total | $ | 1,564 | $ | 934 | $ | 511 | $ | 979 | ||||||||
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As | As | |||||||||||||||
In millions | Balance Sheet Line Item | Balance Sheet Line Item | ||||||||||||||
Insurance loss recoverable | Loss LAE reserves (2) | Insurance loss recoverable | Loss LAE reserves (2) | |||||||||||||
U.S. Public Finance Insurance | $ | 1,220 | $ | 469 | $ | 911 | $ | 432 | ||||||||
International and Structured Finance Insurance: | ||||||||||||||||
Before VIE eliminations (1) | 1,082 | 780 | 1,286 | 749 | ||||||||||||
VIE eliminations (1) | (625) | (259) | (503) | (280) | ||||||||||||
Total international and structured finance insurance | 457 | 521 | 783 | 469 | ||||||||||||
Total | $ | 1,677 | $ | 990 | $ | 1,694 | $ | 901 | ||||||||
In millions | Changes in Loss and LAE Reserves for the Year Ended December 31, 2018 | |||||||||||||||||||||||||||
Gross Loss | Loss Payments | Accretion of Claim Liability Discount | Changes in Discount Rates | Changes in Assumptions | Changes in Unearned Premium Revenue | Changes in LAE Reserves | Gross Loss and LAE Reserves as of December 31, 2018 | |||||||||||||||||||||
| $ 979 | $ | (354) | $ | 26 | $ | 13 | $ | 261 | $ | 15 | $ | (6) | $ | 934 | ||||||||||||||
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In millions | Changes in Loss and LAE Reserves for the Year Ended December 31, 2017 | |||||||||||||||||||||||||||||||
Gross Loss | Loss Payments(1) | Accretion of Claim Liability Discount | Changes in Discount Rates | Changes in Assumptions | Changes in Unearned Premium Revenue | Changes in LAE Reserves | Other(2) | Gross Loss and LAE Reserves as of December 31, 2017 | ||||||||||||||||||||||||
| $ 541 | $ | (1,069) | $ | 12 | $ | 15 | $ | 661 | $ | (30) | $ | 6 | $ | 843 | $ | 979 | ||||||||||||||||
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In millions | Changes in Loss and LAE Reserves for the Year Ended December 31, 2020 | |||||||||||||||||||||||||||
Gross Loss and LAE Reserves as of December 31, 2019 (1) | Loss Payments | Accretion of Claim Liability Discount | Changes in Discount Rates | Changes in Assumptions | Changes in Unearned Premium Revenue | Other | Gross Loss and LAE Reserves as of December 31, 2020 (1) | |||||||||||||||||||||
$ 901 | $ | (441) | $ | 11 | $ | (86) | $ | 606 | $ | 8 | $ | (9) | $ | 990 | ||||||||||||||
(2)—Primarily changes in the amount to satisfy the Zohar II Claim.
In millions | Changes in Loss and LAE Reserves for the Year Ended December 31, 2019 | |||||||||||||||||||||||||||||||
Gross Loss and LAE Reserves as of December 31, 2018 (1) | Loss Payments | Accretion of Claim Liability Discount | Changes in Discount Rates | Changes in Assumptions | Changes in Unearned Premium Revenue | Changes in LAE Reserves | Other | Gross Loss and LAE Reserves as of December 31, 2019 (1) | ||||||||||||||||||||||||
$ 965 | $ | (431) | $ | 18 | $ | (54) | $ | 407 | $ | 23 | $ | (26) | $ | (1) | $ | 901 | ||||||||||||||||
Theexposures and the elimination of COFINA loss reserves due to the consolidation of the Trusts as VIEs. These decreases were partially offset by an increase in the Company’s gross loss and LAE reserves during 2017 was primarily related to increases due to changes in assumptions on certain Puerto Rico exposures.
exposures and first-lien RMBS transactions.
Current period changes in
| Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses for the Year Ended December 31, 2018 | ||||||||||||||||||||||||||||||||
In millions | Gross Reserve as of December 31, 2017 | Collections for Cases | Accretion of Recoveries | Changes in Discount Rates | Changes in Assumptions | Changes in LAE Recoveries | Other(1) | Gross Reserve as of December 31, 2018 | ||||||||||||||||||||||||
Insurance loss recoverable | $ | 511 | $ | (56) | $ | 25 | $ | (13) | $ | 1,099 | (2) | $ | — | $ | (2) | $ | 1,564 | |||||||||||||||
Recoveries on unpaid losses (3) | 35 | — | 1 | (1) | (8) | (8) | — | 19 | ||||||||||||||||||||||||
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| |||||||||||||||||
Total | $ | 546 | $ | (56) | $ | 26 | $ | (14) | $ | 1,091 | $ | (8) | $ | (2) | $ | 1,583 | ||||||||||||||||
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Changes in Insurance Loss Recoverable for the Year Ended December 31, 2020 | ||||||||||||||||||||||||||||
In millions | Gross Reserve as of December 31, 2019 | Collections for Cases | Accretion of Recoveries | Changes in Discount Rates | Changes in Assumptions (1) | Other | Gross Reserve as of December 31, 2020 | |||||||||||||||||||||
Insurance loss recoverable | $ | 1,694 | $ | (49) | $ | 14 | $ | 115 | $ | (94) | $ | (3) | $ | 1,677 | ||||||||||||||
Changes in Insurance Loss Recoverable for the Year Ended December 31, 2019 | ||||||||||||||||||||||||||||
In millions | Gross Reserve as of December 31, 2018 | Collections for Cases | Accretion of Recoveries | Changes in Discount Rates | Changes in Assumptions (1) | Other (2) | Gross Reserve as of December 31, 2019 | |||||||||||||||||||||
Insurance loss recoverable | $ | 1,595 | $ | (148) | $ | 35 | $ | 70 | $ | 105 | $ | 37 | $ | 1,694 | ||||||||||||||
(2)—Includes amounts which have been paid and
(3)—Excludesfuture as well as a decline in risk-free rates on certain Puerto Rico recoveries which have been netted against reserves.
| Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses for the Year Ended December 31, 2017 | ||||||||||||||||||||||||||||||||
In millions | Gross Reserve as of December 31, 2016 | Collections for Cases | Accretion of Recoveries | Changes in Discount Rates | Changes in Assumptions | Changes in LAE Recoveries | Other(1) | Gross Reserve as of December 31, 2017 | ||||||||||||||||||||||||
Insurance loss recoverable | $ | 504 | $ | (124) | $ | 10 | $ | 2 | $ | 113 | $ | — | $ | 6 | $ | 511 | ||||||||||||||||
Recoveries on unpaid losses (2) | 79 | — | 1 | 1 | (45) | (1) | — | 35 | ||||||||||||||||||||||||
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Total | $ | 583 | $ | (124) | $ | 11 | $ | 3 | $ | 68 | $ | (1) | $ | 6 | $ | 546 | ||||||||||||||||
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(1)—Primarily changes in amount and timing of collections.
(2)—Excludes certain Puerto Rico recoveries which have been netted against reserves.
exposures.
Thecredits, partially offset by amounts received related to recoveries on second-lien RMBS and CDO transactions and a decline in the amount of estimated future recoveries related to CDO transactions.
Loss
incurred primarily related to a decrease in expected salvage collections related to CDOs and an increase in expected payments on insured first-lien RMBS transactions and certain Puerto Rico exposures.
For 2017, losses and LAE primarily related to increases in actual and expected payments on certain Puerto Rico exposures, insured first-lien RMBS transactions and a decrease in actual and projected collections from mortgage insurance included in the Company’s excess spread within its second-lien RMBS transactions from the settlement of litigation regarding insurance coverage involving Old Republic Insurance Corporation, Bank of America, N.A. and the Bank of New York Mellon.
For 2016, loss and LAE primarily related to increases in actual and expected payments on certain Puerto Rico exposures and insured first and second-lien RMBS transactions and decreases in projected collections from excess spread within insured second-lien RMBS transactions. These were partially offset by increases in recoveries of actual and expected payments on certain Puerto Rico exposures and decreases in actual and expected payments on CDOs.
| Surveillance Categories | ||||||||||||||||||||
| Caution | Caution | Caution | ||||||||||||||||||
| List | List | List | Classified | |||||||||||||||||
$ in millions | Low | Medium | High | List | Total | |||||||||||||||
Number of policies | 50 | 18 | — | 232 | 300 | |||||||||||||||
Number of issues(1) | 16 | 4 | — | 101 | 121 | |||||||||||||||
Remaining weighted average contract period (in years) | 6.7 | 8.0 | — | 9.7 | 8.9 | |||||||||||||||
Gross insured contractual payments outstanding:(2) | ||||||||||||||||||||
Principal | $ | 1,604 | $ | 249 | $ | — | $ | 5,353 | $ | 7,206 | ||||||||||
Interest | 2,118 | 123 | — | 5,414 | 7,655 | |||||||||||||||
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Total | $ | 3,722 | $ | 372 | $ | — | $ | 10,767 | $ | 14,861 | ||||||||||
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Gross Claim Liability(3) | $ | — | $ | — | $ | — | $ | 977 | $ | 977 | ||||||||||
Less: | ||||||||||||||||||||
Gross Potential Recoveries(4) | — | — | — | 2,255 | 2,255 | |||||||||||||||
Discount, net(5) | — | — | — | (670) | (670) | |||||||||||||||
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Net claim liability (recoverable) | $ | — | $ | — | $ | — | $ | (608) | $ | (608) | ||||||||||
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Unearned premium revenue | $ | 5 | $ | 4 | $ | — | $ | 63 | $ | 72 | ||||||||||
Reinsurance recoverable on paid and unpaid losses(6) | $ | 21 | ||||||||||||||||||
2020:
Surveillance Categories | ||||||||||||||||||||
Caution | Caution | Caution | ||||||||||||||||||
List | List | List | Classified | |||||||||||||||||
$ in millions | Low | Medium | High | List | Total | |||||||||||||||
Number of policies | 46 | 16 | 0 | 219 | 281 | |||||||||||||||
Number of issues (1) | 16 | 3 | 0 | 100 | 119 | |||||||||||||||
Remaining weighted average contract period (in years) | 6.4 | 6.4 | — | 7.9 | 7.4 | |||||||||||||||
Gross insured contractual payments outstanding: (2) | ||||||||||||||||||||
Principal | $ | 1,422 | $ | 123 | $ | 0 | $ | 3,302 | $ | 4,847 | ||||||||||
Interest | 1,974 | 54 | 0 | 1,441 | 3,469 | |||||||||||||||
Total | $ | 3,396 | $ | 177 | $ | 0 | $ | 4,743 | $ | 8,316 | ||||||||||
Gross Claim Liability (3) | $ | 0 | $ | 0 | $ | 0 | $ | 1,088 | $ | 1,088 | ||||||||||
Less: | ||||||||||||||||||||
Gross Potential Recoveries (4) | 0 | 0 | 0 | 1,947 | 1,947 | |||||||||||||||
Discount, net (5) | 0 | 0 | 0 | (173) | (173) | |||||||||||||||
Net claim liability (recoverable) | $ | 0 | $ | 0 | $ | 0 | $ | (686) | $ | (686) | ||||||||||
Unearned premium revenue | $ | 10 | $ | 0 | $ | 0 | $ | 35 | $ | 45 | ||||||||||
Reinsurance recoverable on paid and unpaid losses (6) | $ | 11 | ||||||||||||||||||
| Surveillance Categories | ||||||||||||||||||||
| Caution List | Caution List | Caution List | Classified | |||||||||||||||||
$ in millions | Low | Medium | High | List | Total | |||||||||||||||
Number of policies | 89 | 5 | 1 | 280 | 375 | |||||||||||||||
Number of issues(1) | 20 | 4 | 1 | 119 | 144 | |||||||||||||||
Remaining weighted average contract period (in years) | 7.4 | 4.3 | 8.7 | 9.7 | 8.9 | |||||||||||||||
Gross insured contractual payments outstanding:(2) | ||||||||||||||||||||
Principal | $ | 2,764 | $ | 13 | $ | 104 | $ | 6,083 | $ | 8,964 | ||||||||||
Interest | 2,676 | 3 | 46 | 5,756 | 8,481 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 5,440 | $ | 16 | $ | 150 | $ | 11,839 | $ | 17,445 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Gross Claim Liability(3) | $ | — | $ | — | $ | — | $ | 1,082 | $ | 1,082 | ||||||||||
Less: | ||||||||||||||||||||
Gross Potential Recoveries(4) | — | — | — | 782 | 782 | |||||||||||||||
Discount, net(5) | — | — | — | (178) | (178) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net claim liability (recoverable) | $ | — | $ | — | $ | — | $ | 478 | $ | 478 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Unearned premium revenue | $ | 9 | $ | — | $ | 4 | $ | 77 | $ | 90 | ||||||||||
Reinsurance recoverable on paid and unpaid losses(6) | $ | 17 | ||||||||||||||||||
2019:
Surveillance Categories | ||||||||||||||||||||
Caution | Caution | Caution | ||||||||||||||||||
List | List | List | Classified | |||||||||||||||||
$ in millions | Low | Medium | High | List | Total | |||||||||||||||
Number of policies | 45 | 19 | 0 | 212 | 276 | |||||||||||||||
Number of issues (1) | 13 | 5 | 0 | 94 | 112 | |||||||||||||||
Remaining weighted average contract period (in years) | 7.3 | 7.2 | — | 7.9 | 7.7 | |||||||||||||||
Gross insured contractual payments outstanding: (2) | ||||||||||||||||||||
Principal | $ | 1,546 | $ | 248 | $ | 0 | $ | 3,794 | $ | 5,588 | ||||||||||
Interest | 2,107 | 110 | 0 | 1,668 | 3,885 | |||||||||||||||
Total | $ | 3,653 | $ | 358 | $ | 0 | $ | 5,462 | $ | 9,473 | ||||||||||
Gross Claim Liability (3) | $ | 0 | $ | 0 | $ | 0 | $ | 965 | $ | 965 | ||||||||||
Less: | ||||||||||||||||||||
Gross Potential Recoveries (4) | 0 | 0 | 0 | 2,184 | 2,184 | |||||||||||||||
Discount, net (5) | 0 | 0 | 0 | (453) | (453) | |||||||||||||||
Net claim liability (recoverable) | $ | 0 | $ | 0 | $ | 0 | $ | (766) | $ | (766) | ||||||||||
Unearned premium revenue | $ | 6 | $ | 3 | $ | 0 | $ | 39 | $ | 48 | ||||||||||
Reinsurance recoverable on paid and unpaid losses (6) | $ | 19 | ||||||||||||||||||
The change from a net claim liability as of December 31, 2017 to a net claim recoverable as of December 31, 2018 is due to the deconsolidation of the Zohar funds as VIEs and the recording of estimated recoveries from Zohar I and Zohar II in 2018 within “Insurance loss recoverable” on the Company’s consolidated balance sheet. As of December 31, 2017, gross potential recoveries exclude the recoveries of Zohar I and Zohar II that are included in “Loans receivable and other instruments at fair value” which are presented in “Assets of consolidated variable interest entities” on the Company’s consolidated balance sheets.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
and Liabilities
Financial Liabilities (excluding derivative liabilities)
consolidated VIEs. Financial liabilities, excluding derivative liabilities, issued by the Company primarily consist of debt issued for general corporate purposes within its corporate segment, MTNs, investment agreements and debt issued by consolidated VIEs. The majority of the financial liabilities that the Company has elected to fair value or that require fair value reporting or disclosures are valued based on the estimated value of the underlying collateral, the Company’s or a third-party’s estimate of discounted cash flow model estimates, or quoted market values for similar products. These valuations include adjustments for expected nonperformance risk of the Company.
Derivative Liabilities
The Company’s derivative liabilities are primarily interest rate swaps and an insured credit derivative. The Company’s insured credit derivative contract is anon-traded structured credit derivative transaction and since it is highly customized, there is generally no observable market for this derivative. The Company estimates its fair value in a hypothetical market based on an internal model that incorporates market or estimated prices of similar securities that are obtained for all collateral within a transaction, the present value of the market-implied potential loss and nonperformance risk. The Company reviews its valuation model results on a quarterly basis to assess the appropriateness of the assumptions and results in light of current market activity and conditions. This review is performed by internal staff with relevant expertise.
Internal Review Process
All significant financial assets and liabilities are reviewed by the valuation committee to ensure compliance with the Company’s policies and risk procedures in the development of fair values of financial assets and liabilities. The valuation committee reviews, among other things, key assumptions used for internally developed prices, significant changes in sources and uses of inputs, including changes in model approaches, and any adjustments from third-party inputs or prices to internally developed inputs or prices. The committee also reviews any significant impairment or improvements in fair values of the financial instruments from prior periods. The committee is comprised of senior finance and other team members with relevant experience in the financial instruments the committee is responsible for. The committee documents its agreement with the fair value measurements reported in the Company’s consolidated financial statements.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7: Fair Value of Financial Instruments (continued)
These
The investment in money market securities was also measured at fair value by applying the net asset value per share practical expedient. These funds are backed by high quality, very liquid short-term instruments and the probability is remote that the funds would be sold for a value other than net asset value.
Company’s consolidated balance sheet.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7: Fair Value of Financial Instruments (continued)
hierarchy and do not include accrued interest.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7: Fair Value of Financial Instruments (continued)
Valuation Model Overview
The Company usesused an internally developed Direct Price Model to value its insured credit derivative that incorporatesincorporated market prices or estimated prices of similar securities that are obtained for all collateral within athe transaction, the present value of the market-implied potential losses, and nonperformance risk. The valuation of the insured credit derivative includesincluded the impact of its credit standing. The insured credit derivative iswas categorized in Level 3 of the fair value hierarchy based on unobservable inputs that arewere significant to the fair value measurement in its entirety.
Other
Stock warrants issued by the Company are valued using the Black-Scholes model and are recorded at fair value. Inputs into the warrant valuation include the Company’s stock price, the strike price of the warrant, time to expiration, a volatility parameter, interest rates, and dividend data. As all significant inputs are market-based and observable, warrants are categorized in Level 2 of the fair value hierarchy. As of December 31, 2018, there were no warrants outstanding.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7: Fair Value of Financial Instruments (continued)
In millions | Fair Value as of December 31, 2018 | Valuation Techniques | Unobservable Input | Range (Weighted | ||||||
Assets of consolidated VIEs: | ||||||||||
Loans receivable and other instruments at fair value | $ | 172 | Market prices adjusted for financial guarantees provided to VIE obligations | Impact of financial guarantee(1) | -17%—75% (7%) | |||||
Loan repurchase commitments | 418 | Discounted cash flow | Recovery rates(2) | |||||||
| Breach rates(2) | ||||||||||
Liabilities of consolidated VIEs: | ||||||||||
Variable interest entity notes | 366 | Market prices of VIE assets adjusted for financial guarantees provided | Impact of financial guarantee | 0%—63% (39%) | ||||||
Credit derivative liabilities: | ||||||||||
CMBS | 33 | Direct Price Model | Nonperformance risk | 54%—54% (54%) | ||||||
Other derivative liabilities | 7 | Discounted cash flow | Cash flows | $0—$49 ($25) (3) | ||||||
2019:
In millions | Fair Value as of December 31, 2020 | Valuation Techniques | Unobservable Input | Range (Weighted Average) | ||||||
Assets | ||||||||||
Loans receivable at fair value | $ | 120 | Market prices adjusted for financial guarantees provided to VIE obligations | Impact of financial guarantee (2) | -28%—109% (22%) (1) | |||||
Loan repurchase commitments | 604 | Discounted cash flow | Recovery value (3) | |||||||
Liabilities of consolidated VIEs: | ||||||||||
Variable interest entity notes | 303 | Market prices of VIE assets adjusted for financial guarantees provided | Impact of financial guarantee | 30%—73% (1) | ||||||
Other derivative liabilities | 49 | Discounted cash flow | Cash flows | $49—$49 | ||||||
In millions | Fair Value as of December 31, 2019 | Valuation Techniques | Unobservable Input | Range (Weighted Average) | ||||||
Assets of consolidated VIEs: | ||||||||||
Loans receivable at fair value | $ | 136 | Market prices adjusted for financial guarantees provided to VIE obligations | Impact of financial guarantee (1) | -20%—99% (22%) | |||||
Loan repurchase commitments | 486 | Discounted cash flow | Recovery rates (2) Breach rates(2) | |||||||
Liabilities of consolidated VIEs: | ||||||||||
Variable interest entity notes | 347 | Market prices of VIE assets adjusted for financial guarantees provided | Impact of financial guarantee | 37%—76% | ||||||
Credit derivative liabilities—CMBS | 7 | Direct Price Model | Nonperformance risk | 54%—54% | ||||||
Other derivative liabilities | 34 | Discounted cash flow | Cash flows | $0—$49 (3) | ||||||
ineligible loans.
In millions | Fair Value as of December 31, 2017 | Valuation Techniques | Unobservable Input | Range (Weighted | ||||||
Assets of consolidated VIEs: | ||||||||||
Loans receivable and other instruments at fair value | $ | 1,679 | Market prices adjusted for financial guarantees provided to VIE obligations | Impact of financial guarantee(1) | -25%—35% (-2%) | |||||
| Multiples of EBITDA | Multiples(2) | |||||||||
Loan repurchase commitments | 407 | Discounted cash flow | Recovery rates(3) | |||||||
| Breach rates(3) | ||||||||||
Liabilities of consolidated VIEs: | ||||||||||
Variable interest entity notes | 406 | Market prices of VIE assets adjusted for financial guarantees provided | Impact of financial guarantee | 0%—60% (36%) | ||||||
Credit derivative liabilities: | ||||||||||
CMBS | 63 | Direct Price Model | Nonperformance risk | 54%—54% (54%) | ||||||
Other derivative liabilities | 4 | Discounted cash flow | Cash flows | $0—$49 ($25)(4) | ||||||
(1)—Negative percentage represents financial guarantee policies in a receivable position.
(2)—Unobservable inputs are primarily based on comparable companies’ EBITDA multiples.
(3)—Recovery rates and breach rates include estimates about potential variations in the outcome
As of December 31, 2018, the
as part of litigation seeking to enforce its contractual rights. The Company’s remaining loan repurchase commitments were settled in the first quarter of 2021 for $600 million. As of December 31, 2019, the significant unobservable inputs used in the fair value measurement of the Company’s loan repurchase commitments of consolidated VIEs are a breach rate, which represented the percentage of ineligible loans held within a trust, and a recovery rates and breach rates. Recovery rates reflectrate, which reflected the estimatesestimate of future cash flows reduced for litigation delays and risks and/or potential financial distressreceipts including legal risk in the enforcement of the sellers/servicers. The estimated recoveries of the loan repurchase commitments may differ from the actual recoveries that may be received in the future. Breach rates represent the rate at which mortgages fail to comply with stated representations and warranties of the sellers/servicers. Significant increases or decreases in the recovery rates and the breach rates would result in significantly higher or lower fair values of the loan repurchase commitments, respectively. Additionally, changes in the legal environment and the ability of the counterparties to pay would impact the recovery rate assumptions, which could significantly impact the fair value measurement. Any significant challenges by the counterparties to the Company’s determination of breaches of representations and warranties could have a material adverse impact on the fair value measurement. Recovery rates and breach rates are determined independently. Changes in one input will not necessarily have any impact on the other input.
contractual rights.
The
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of December 31, 2018 | ||||||||||||
Assets: | ||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||
U.S. Treasury and government agency | $ | 1,028 | $ | 90 | $ | — | $ | 1,118 | ||||||||
State and municipal bonds | — | 728 | — | 728 | ||||||||||||
Foreign governments | — | 9 | — | 9 | ||||||||||||
Corporate obligations | — | 1,410 | — | 1,410 | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Residential mortgage-backed agency | — | 219 | — | 219 | ||||||||||||
Residential mortgage-backednon-agency | — | 28 | — | 28 | ||||||||||||
Commercial mortgage-backed | — | 47 | 7 | (1) | 54 | |||||||||||
Asset-backed securities: | ||||||||||||||||
Collateralized debt obligations | — | 121 | — | 121 | ||||||||||||
Other asset-backed | — | 181 | 3 | (1) | 184 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fixed-maturity investments | 1,028 | 2,833 | 10 | 3,871 | ||||||||||||
Money market securities | — | — | — | 67 | (2) | |||||||||||
Perpetual debt and equity securities | 23 | 35 | — | 58 | ||||||||||||
Fixed-income fund | — | — | — | 75 | (2) | |||||||||||
Cash and cash equivalents | 222 | — | — | 222 | ||||||||||||
Derivative assets: | ||||||||||||||||
Non-insured derivative assets: | ||||||||||||||||
Interest rate derivatives | — | 2 | — | 2 | ||||||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of December 31, 2020 | ||||||||||||
Assets: | ||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||
U.S. Treasury and government agency | $ | 750 | $ | 105 | $ | 0 | $ | 855 | ||||||||
State and municipal bonds | 0 | 195 | 0 | 195 | ||||||||||||
Foreign governments | 0 | 15 | 0 | 15 | ||||||||||||
Corporate obligations | 0 | 975 | 0 | 975 | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Residential mortgage-backed agency | 0 | 319 | 0 | 319 | ||||||||||||
Residential mortgage-backed non-agency | 0 | 32 | 0 | 32 | ||||||||||||
Commercial mortgage-backed | 0 | 20 | 0 | 20 | ||||||||||||
Asset-backed securities: | ||||||||||||||||
Collateralized debt obligations | 0 | 121 | 0 | 121 | ||||||||||||
Other asset-backed | 0 | 141 | 0 | 141 | ||||||||||||
Total fixed-maturity investments | 750 | 1,923 | 0 | 2,673 | ||||||||||||
Money market securities | 1 | 0 | 0 | 1 | ||||||||||||
Perpetual debt and equity securities | 37 | 25 | 0 | 62 | ||||||||||||
Cash and cash equivalents | 158 | 0 | 0 | 158 | ||||||||||||
Derivative assets: | ||||||||||||||||
Non-insured derivative assets: | ||||||||||||||||
Interest rate derivatives | 0 | 1 | 0 | 1 | ||||||||||||
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of December 31, 2018 | ||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||
Corporate obligations | — | 9 | 5 | (1) | 14 | |||||||||||
Mortgage-backed securities: | ||||||||||||||||
Residential mortgage-backednon-agency | — | 92 | — | 92 | ||||||||||||
Commercial mortgage-backed | — | 34 | — | 34 | ||||||||||||
Asset-backed securities: | ||||||||||||||||
Collateralized debt obligations | — | 6 | 1 | (1) | 7 | |||||||||||
Other asset-backed | — | 10 | — | 10 | ||||||||||||
Cash | 58 | — | — | 58 | ||||||||||||
Loans receivable and other instruments at fair value: | ||||||||||||||||
Residential loans receivable | — | — | 172 | 172 | ||||||||||||
Loan repurchase commitments | — | — | 418 | 418 | ||||||||||||
Other assets: | ||||||||||||||||
Currency derivatives | — | — | 17 | (1) | 17 | |||||||||||
Other | — | — | 14 | (1) | 14 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 1,331 | $ | 3,021 | $ | 637 | $ | 5,131 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Medium-term notes | $ | — | $ | — | $ | 102 | (1) | $ | 102 | |||||||
Derivative liabilities: | ||||||||||||||||
Insured derivatives: | ||||||||||||||||
Credit derivatives | — | 2 | 33 | 35 | ||||||||||||
Non-insured derivatives: | ||||||||||||||||
Interest rate derivatives | — | 157 | — | 157 | ||||||||||||
Other | — | — | 7 | 7 | ||||||||||||
Other liabilities: | ||||||||||||||||
Other payable | — | — | 5 | (1) | 5 | |||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||
Variable interest entity notes | — | 114 | 366 | 480 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | $ | — | $ | 273 | $ | 513 | $ | 786 | ||||||||
|
|
|
|
|
|
|
| |||||||||
(1)—Unobservable inputs are either not developed by the Company or do not significantly impact the overall fair values
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of December 31, 2020 | ||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||
Corporate obligations | 0 | 6 | 0 | 6 | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Residential mortgage-backed non-agency | 0 | 40 | 0 | 40 | ||||||||||||
Commercial mortgage-backed | 0 | 16 | 0 | 16 | ||||||||||||
Asset-backed securities: | ||||||||||||||||
Collateralized debt obligations | 0 | 8 | 0 | 8 | ||||||||||||
Other asset-backed | 0 | 7 | 0 | 7 | ||||||||||||
Cash | 9 | 0 | 0 | 9 | ||||||||||||
Loans receivable at fair value: | ||||||||||||||||
Residential loans receivable | 0 | 0 | 120 | 120 | ||||||||||||
Loan repurchase commitments | 0 | 0 | 604 | 604 | ||||||||||||
Other assets: | ||||||||||||||||
Currency derivatives | 0 | 0 | 6 | 6 | ||||||||||||
Other | 0 | 0 | 14 | 14 | ||||||||||||
Total assets | $ | 955 | $ | 2,026 | $ | 744 | $ | 3,725 | ||||||||
Liabilities: | ||||||||||||||||
Medium-term notes | $ | 0 | $ | 0 | $ | 110 | $ | 110 | ||||||||
Derivative liabilities: | ||||||||||||||||
Insured derivatives: | ||||||||||||||||
Credit derivatives | 0 | 2 | 0 | 2 | ||||||||||||
Non-insured derivatives: | ||||||||||||||||
Interest rate derivatives | 0 | 164 | 0 | 164 | ||||||||||||
Other | 0 | 0 | 49 | 49 | ||||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||
Variable interest entity notes | 0 | 47 | 303 | 350 | ||||||||||||
Total liabilities | $ | 0 | $ | 213 | $ | 462 | $ | 675 | ||||||||
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of December 31, 2017 | ||||||||||||
Assets: | ||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||
U.S. Treasury and government agency | $ | 1,256 | $ | 96 | $ | — | $ | 1,352 | ||||||||
State and municipal bonds | — | 858 | — | 858 | ||||||||||||
Foreign governments | — | 10 | — | 10 | ||||||||||||
Corporate obligations | — | 1,338 | 2 | (1) | 1,340 | |||||||||||
Mortgage-backed securities: | ||||||||||||||||
Residential mortgage-backed agency | — | 368 | — | 368 | ||||||||||||
Residential mortgage-backednon-agency | — | 32 | — | 32 | ||||||||||||
Commercial mortgage-backed | — | 60 | 7 | (1) | 67 | |||||||||||
Asset-backed securities: | ||||||||||||||||
Collateralized debt obligations | — | 118 | — | 118 | ||||||||||||
Other asset-backed | — | 178 | 5 | (1) | 183 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fixed-maturity investments | 1,256 | 3,058 | 14 | 4,328 | ||||||||||||
Money market securities | 180 | — | — | 180 | ||||||||||||
Perpetual debt and equity securities | 26 | 37 | — | 63 | ||||||||||||
Fixed-income fund | — | — | — | 82 | (2) | |||||||||||
Cash and cash equivalents | 122 | — | — | 122 | ||||||||||||
Derivative assets: | ||||||||||||||||
Non-insured derivative assets: | ||||||||||||||||
Interest rate derivatives | — | 2 | — | 2 | ||||||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of December 31, 2019 | ||||||||||||
Assets: | ||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||
U.S. Treasury and government agency | $ | 791 | $ | 97 | $ | 0 | $ | 888 | ||||||||
State and municipal bonds | 0 | 200 | 0 | 200 | ||||||||||||
Foreign governments | 0 | 10 | 0 | 10 | ||||||||||||
Corporate obligations | 0 | 1,266 | 0 | 1,266 | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Residential mortgage-backed agency | 0 | 330 | 0 | 330 | ||||||||||||
Residential mortgage-backed non-agency | 0 | 19 | 0 | 19 | ||||||||||||
Commercial mortgage-backed | 0 | 22 | 0 | 22 | ||||||||||||
Asset-backed securities: | ||||||||||||||||
Collateralized debt obligations | 0 | 140 | 0 | 140 | ||||||||||||
Other asset-backed | 0 | 326 | 1 | 327 | ||||||||||||
Total fixed-maturity investments | 791 | 2,410 | 1 | 3,202 | ||||||||||||
Money market securities | 154 | 0 | 0 | 154 | ||||||||||||
Perpetual debt and equity securities | 30 | 25 | 0 | 55 | ||||||||||||
Fixed-income fund | 0 | 0 | 0 | 51 | (1) | |||||||||||
Cash and cash equivalents | 75 | 0 | 0 | 75 | ||||||||||||
Derivative assets: | ||||||||||||||||
Non-insured derivative assets: | ||||||||||||||||
Interest rate derivatives | 0 | 1 | 0 | 1 | ||||||||||||
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of December 31, 2017 | ||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||
Corporate obligations | — | 19 | — | 19 | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Residential mortgage-backednon-agency | — | 108 | — | 108 | ||||||||||||
Commercial mortgage-backed | — | 30 | 6 | (1) | 36 | |||||||||||
Asset-backed securities: | ||||||||||||||||
Collateralized debt obligations | — | 8 | 1 | (1) | 9 | |||||||||||
Other asset-backed | — | 10 | — | 10 | ||||||||||||
Cash | 24 | — | — | 24 | ||||||||||||
Loans receivable and other instruments at fair value: | ||||||||||||||||
Residential loans receivable | — | — | 759 | 759 | ||||||||||||
Corporate loans receivable and other instruments | — | — | 920 | 920 | ||||||||||||
Loan repurchase commitments | — | — | 407 | 407 | ||||||||||||
Other assets: | ||||||||||||||||
Currency derivatives | — | — | 19 | (1) | 19 | |||||||||||
Other | — | — | 14 | (1) | 14 | |||||||||||
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|
| |||||||||
Total assets | $ | 1,608 | $ | 3,272 | $ | 2,140 | $ | 7,102 | ||||||||
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|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Medium-term notes | $ | — | $ | — | $ | 115 | (1) | $ | 115 | |||||||
Derivative liabilities: | ||||||||||||||||
Insured derivatives: | ||||||||||||||||
Credit derivatives | — | 2 | 63 | 65 | ||||||||||||
Non-insured derivatives: | ||||||||||||||||
Interest rate derivatives | — | 193 | — | 193 | ||||||||||||
Other | — | — | 4 | 4 | ||||||||||||
Other liabilities: | ||||||||||||||||
Warrants | — | 6 | — | 6 | ||||||||||||
Other payable | — | — | 7 | (1) | 7 | |||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||
Variable interest entity notes | — | 663 | 406 | 1,069 | ||||||||||||
|
|
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|
|
|
|
| |||||||||
Total liabilities | $ | — | $ | 864 | $ | 595 | $ | 1,459 | ||||||||
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| |||||||||
(1)—Unobservable inputs are either not developed by the Company or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.
(2)—Investment that was measured at fair value by applying the net asset value per share practical expedient, and was required not to be classified in the fair value hierarchy.
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of December 31, 2019 | ||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||
Corporate obligations | 0 | 8 | 0 | 8 | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Residential mortgage-backed non-agency | 0 | 45 | 0 | 45 | ||||||||||||
Commercial mortgage-backed | 0 | 16 | 0 | 16 | ||||||||||||
Asset-backed securities: | ||||||||||||||||
Collateralized debt obligations | 0 | 6 | 0 | 6 | ||||||||||||
Other asset-backed | 0 | 8 | 0 | 8 | ||||||||||||
Cash | 8 | 0 | 0 | 8 | ||||||||||||
Loans receivable at fair value: | ||||||||||||||||
Residential loans receivable | 0 | 0 | 136 | 136 | ||||||||||||
Loan repurchase commitments | 0 | 0 | 486 | 486 | ||||||||||||
Other assets: | ||||||||||||||||
Currency derivatives | 0 | 0 | 8 | 8 | ||||||||||||
Other | 0 | 0 | 18 | 18 | ||||||||||||
Total assets | $ | 1,058 | $ | 2,519 | $ | 649 | $ | 4,277 | ||||||||
Liabilities: | ||||||||||||||||
Medium-term notes | $ | 0 | $ | 0 | $ | 108 | $ | 108 | ||||||||
Derivative liabilities: | ||||||||||||||||
Insured derivatives: | ||||||||||||||||
Credit derivatives | 0 | 2 | 7 | 9 | ||||||||||||
Non-insured derivatives: | ||||||||||||||||
Interest rate derivatives | 0 | 132 | 0 | 132 | ||||||||||||
Other | 0 | 0 | 34 | 34 | ||||||||||||
Other liabilities: | ||||||||||||||||
Other payable | 0 | 0 | 4 | 4 | ||||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||
Variable interest entity notes | 0 | 56 | 347 | 403 | ||||||||||||
Total liabilities | $ | 0 | $ | 190 | $ | 500 | $ | 690 | ||||||||
| (1)—Investment | that was measured at fair value by applying the net asset value per share practical expedient, and was required not to be classified in the fair value hierarchy. |
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7: Fair Value of Financial Instruments (continued)
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value Balance as of December 31, 2018 | Carry Value Balance as of December 31, 2018 | |||||||||||||||
Assets: | ||||||||||||||||||||
Other investments | $ | — | $ | 1 | $ | — | $ | 1 | $ | 1 | ||||||||||
Assets of consolidated VIEs: | ||||||||||||||||||||
Investmentsheld-to-maturity | — | — | 925 | 925 | 890 | |||||||||||||||
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| |||||||||||
Total assets | $ | — | $ | 1 | $ | 925 | $ | 926 | $ | 891 | ||||||||||
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| |||||||||||
Liabilities: | ||||||||||||||||||||
Long-term debt | $ | — | $ | 1,101 | $ | — | $ | 1,101 | $ | 2,249 | ||||||||||
Medium-term notes | — | — | 422 | 422 | 620 | |||||||||||||||
Investment agreements | — | — | 388 | 388 | 311 | |||||||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||||||
Variable interest entity notes | — | 378 | 925 | 1,303 | 1,264 | |||||||||||||||
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| |||||||||||
Total liabilities | $ | — | $ | 1,479 | $ | 1,735 | $ | 3,214 | $ | 4,444 | ||||||||||
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| |||||||||||
Financial Guarantees: | ||||||||||||||||||||
Gross liability (recoverable) | $ | — | $ | — | $ | 993 | $ | 993 | $ | (43) | ||||||||||
Ceded | — | — | 65 | 65 | 35 | |||||||||||||||
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value Balance as of December 31, 2017 | Carry Value Balance as of December 31, 2017 | |||||||||||||||
Assets: | ||||||||||||||||||||
Other investments | $ | — | $ | 2 | $ | — | $ | 2 | $ | 2 | ||||||||||
Assets of consolidated VIEs: | ||||||||||||||||||||
Investmentsheld-to-maturity | — | — | 916 | 916 | 890 | |||||||||||||||
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| |||||||||||
Total assets | $ | — | $ | 2 | $ | 916 | $ | 918 | $ | 892 | ||||||||||
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| |||||||||||
Liabilities: | ||||||||||||||||||||
Long-term debt | $ | — | $ | 1,002 | $ | — | $ | 1,002 | $ | 2,121 | ||||||||||
Medium-term notes | — | — | 406 | 406 | 650 | |||||||||||||||
Investment agreements | — | — | 433 | 433 | 337 | |||||||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||||||
Variable interest entity notes | — | 352 | 916 | 1,268 | 1,220 | |||||||||||||||
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| |||||||||||
Total liabilities | $ | — | $ | 1,354 | $ | 1,755 | $ | 3,109 | $ | 4,328 | ||||||||||
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| |||||||||||
Financial Guarantees: | ||||||||||||||||||||
Gross liability | $ | — | $ | — | $ | 1,785 | $ | 1,785 | $ | 1,220 | ||||||||||
Ceded | — | — | 61 | 61 | 39 | |||||||||||||||
2019. The carryingmajority of the financial assets and liabilities that the Company requires fair value reporting or disclosures are valued based on the estimated value of the Company’s gross financial guarantees consists of unearned premium revenue and loss and LAE reserves, net of the insurance loss recoverable as reported onunderlying collateral, the Company’s consolidated balance sheets. The carrying valueor a third-party’s estimate of ceded financial guarantees consistsdiscounted cash flow model estimates, or quoted market values for similar products.
Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value Balance as of December 31, 2020 | Carry Value Balance as of December 31, 2020 | |||||||||||||||
Liabilities: | ||||||||||||||||||||
Long-term debt | $ | 0 | $ | 631 | $ | 0 | $ | 631 | $ | 2,229 | ||||||||||
Medium-term notes | 0 | 0 | 396 | 396 | 598 | |||||||||||||||
Investment agreements | 0 | 0 | 376 | 376 | 269 | |||||||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||||||
Variable interest entity notes | 0 | 276 | 0 | 276 | 273 | |||||||||||||||
Total liabilities | $ | 0 | $ | 907 | $ | 772 | $ | 1,679 | $ | 3,369 | ||||||||||
Financial Guarantees: | ||||||||||||||||||||
Gross liability (recoverable) | $ | 0 | $ | 0 | $ | 811 | $ | 811 | $ | (282) | ||||||||||
Ceded recoverable (liability) | 0 | 0 | 45 | 45 | (17) | |||||||||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||
In millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value Balance as of December 31, 2019 | Carry Value Balance as of December 31, 2019 | |||||||||||||||
Assets: | ||||||||||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||||||
Investments held-to-maturity | $ | 0 | $ | 0 | $ | 892 | $ | 892 | $ | 890 | ||||||||||
Total assets | $ | 0 | $ | 0 | $ | 892 | $ | 892 | $ | 890 | ||||||||||
Liabilities: | ||||||||||||||||||||
Long-term debt | $ | 0 | $ | 1,073 | $ | 0 | $ | 1,073 | $ | 2,228 | ||||||||||
Medium-term notes | 0 | 0 | 396 | 396 | 570 | |||||||||||||||
Investment agreements | 0 | 0 | 394 | 394 | 304 | |||||||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||||||
Variable interest entity notes | 0 | 261 | 892 | 1,153 | 1,136 | |||||||||||||||
Total liabilities | $ | 0 | $ | 1,334 | $ | 1,682 | $ | 3,016 | $ | 4,238 | ||||||||||
Financial Guarantees: | ||||||||||||||||||||
Gross liability (recoverable) | $ | 0 | $ | 0 | $ | 556 | $ | 556 | $ | (311) | ||||||||||
Ceded recoverable (liability) | 0 | 0 | 56 | 56 | 24 | |||||||||||||||
2019:
In millions | Balance, Beginning of Year | Realized Gains / (Losses) | Unrealized Gains / (Losses) Included in Earnings | Unrealized Gains / (Losses) Included in OCI | Foreign Exchange Recognized in OCI or Earnings | Purchases | Issuances | Settlements | Sales | Transfers into Level 3(1) | Transfers out of Level 3(1) | Ending Balance | Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of December 31, 2018 | |||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate obligations | $ | 2 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (2) | $ | — | $ | — | ||||||||||||||||||||||||||
Commercial mortgage-backed | 7 | — | — | — | — | — | — | — | — | 7 | (7) | 7 | — | |||||||||||||||||||||||||||||||||||||||
Other asset-backed | 5 | — | — | (1) | — | 5 | — | (1) | (3) | — | (2) | 3 | — | |||||||||||||||||||||||||||||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate obligations | — | — | — | — | — | — | — | (1) | — | 6 | — | 5 | — | |||||||||||||||||||||||||||||||||||||||
Commercial mortgage-backed | 6 | — | — | — | — | — | — | — | — | — | (6) | — | — | |||||||||||||||||||||||||||||||||||||||
Collateralized debt obligations | 1 | — | — | — | — | — | — | — | — | — | — | 1 | — | |||||||||||||||||||||||||||||||||||||||
Loans receivable-residential | 759 | — | 14 | — | — | — | — | (114) | (487) | — | — | 172 | (22) | |||||||||||||||||||||||||||||||||||||||
Loans receivable and other instruments-corporate | 920 | — | 11 | — | — | — | — | (6) | (925) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Loan repurchase commitments | 407 | — | 11 | — | — | — | — | — | — | — | — | 418 | 11 | |||||||||||||||||||||||||||||||||||||||
Currency derivatives | 19 | — | (2) | — | — | — | — | — | — | — | — | 17 | (2) | |||||||||||||||||||||||||||||||||||||||
Other | 14 | — | — | — | — | — | — | — | — | — | — | 14 | — | |||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Total assets | $ | 2,140 | $ | — | $ | 34 | $ | (1) | $ | — | $ | 5 | $ | — | $ | (122) | $ | (1,415) | $ | 13 | $ | (17) | $ | 637 | $ | (13) | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
In millions | Balance, Beginning of Year | Realized (Gains) / Losses | Unrealized (Gains) / Losses Included in Earnings | Unrealized (Gains) / Losses Included in Credit Risk in OCI | Foreign Exchange Recognized in OCI or Earnings | Purchases | Issuances | Settlements | Sales | Transfers into Level 3(1) | Transfers out of Level 3(1) | Ending Balance | Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of December 31, 2018 | |||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Medium-term notes | $ | 115 | $ | (9) | $ | (1) | $ | 55 | $ | (10) | $ | — | $ | — | $ | (48) | $ | — | $ | — | $ | — | $ | 102 | $ | (11) | ||||||||||||||||||||||||||
Credit derivatives | 63 | 56 | (30) | — | — | — | — | (56) | — | — | — | 33 | (30) | |||||||||||||||||||||||||||||||||||||||
Other derivatives | 4 | — | 3 | — | — | — | — | — | — | — | — | 7 | 3 | |||||||||||||||||||||||||||||||||||||||
Other payable | 7 | — | 1 | — | — | — | — | (3) | — | — | — | 5 | 1 | |||||||||||||||||||||||||||||||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
VIE notes | 406 | 39 | (30) | (20) | — | — | 8 | (37) | — | — | — | 366 | (30) | |||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Total liabilities | $ | 595 | $ | 86 | $ | (57) | $ | 35 | $ | (10) | $ | — | $ | 8 | $ | (144) | $ | — | $ | — | $ | — | $ | 513 | $ | (67) | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
(1)—Transferred in and out at the end of the period.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7: Fair Value of Financial Instruments (continued)
In millions | Balance, Beginning of Year | Total Gains / (Losses) Included in Earnings | Unrealized Gains / (Losses) Included in OCI (1) | Purchases | Issuances | Settlements | Sales | Transfers into Level 3 | Transfers out of Level 3 | Ending Balance | Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of December 31, 2020 | Change in Unrealized Gains (Losses) for the Period Included in OCI for Assets still held as of December 31, 2020 (1) | ||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Other asset-backed | $ | 1 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | (1) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans receivable-residential | 136 | 0 | 0 | 0 | 0 | (16) | 0 | 0 | 0 | 120 | (4) | 0 | ||||||||||||||||||||||||||||||||||||
Loan repurchase commitments | 486 | 118 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 604 | 118 | 0 | ||||||||||||||||||||||||||||||||||||
Currency derivatives | 8 | (2) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 6 | (2) | 0 | ||||||||||||||||||||||||||||||||||||
Other | 18 | (4) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 14 | (4) | 0 | ||||||||||||||||||||||||||||||||||||
Total assets | $ | 649 | $ | 112 | $ | 0 | $ | 0 | $ | 0 | $ | (17) | $ | 0 | $ | 0 | $ | 0 | $ | 744 | $ | 108 | $ | 0 | ||||||||||||||||||||||||
In millions | Balance, Beginning of Year | Total (Gains) / Losses Included in Earnings | Unrealized (Gains) / Losses Included in Credit Risk in OCI (2) | Purchases | Issuances | Settlements | Sales | Transfers into Level 3 | Transfers out of Level 3 | Ending Balance | Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of December 31, 2020 | Change in Unrealized (Gains) Losses for the Period Included in OCI for Liabilities still held as of December 31, 2020 (2) | ||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Medium-term notes | $ | 108 | $ | 15 | $ | (13) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 110 | $ | 15 | $ | (13) | ||||||||||||||||||||||||
Credit derivatives | 7 | (6) | 0 | 0 | 0 | (1) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Other derivatives | 34 | 15 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 49 | 15 | 0 | ||||||||||||||||||||||||||||||||||||
Other payable | 4 | 0 | 0 | 0 | 0 | (4) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||||||||||||||||||||||||||||||||||
VIE notes | 347 | 11 | (40) | 0 | 0 | (15) | 0 | 0 | 0 | 303 | 5 | (38) | ||||||||||||||||||||||||||||||||||||
Total liabilities | $ | 500 | $ | 35 | $ | (53) | $ | 0 | $ | 0 | $ | (20) | $ | 0 | $ | 0 | $ | 0 | $ | 462 | $ | 35 | $ | (51) | ||||||||||||||||||||||||
| (1)—Reported | within the “Unrealized gains (losses) on available-for-sale |
| (2)—Reported | within the “Instrument-specific credit risk of liabilities measured at fair value” on MBIA’s Consolidated Statement of Comprehensive Income/Loss. |
In millions | Balance, Beginning of Year | Realized Gains / (Losses) | Unrealized Gains / (Losses) Included in Earnings | Unrealized Gains / (Losses) Included in OCI | Foreign Exchange Recognized in OCI or Earnings | Purchases | Issuances | Settlements | Sales | Transfers into Level 3(1) | Transfers out of Level 3(1) | Ending Balance | Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of December 31, 2017 | |||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate obligations | $ | 2 | $ | — | $ | — | $ | — | $ | — | $ | 1 | $ | — | $ | — | $ | — | $ | — | $ | (1) | $ | 2 | $ | — | ||||||||||||||||||||||||||
Commercial mortgage-backed | — | — | — | — | — | — | — | — | — | 14 | (7) | 7 | — | |||||||||||||||||||||||||||||||||||||||
Collateralized debt obligations | 15 | — | — | — | — | — | — | (7) | — | — | (8) | — | — | |||||||||||||||||||||||||||||||||||||||
Other asset-backed | 44 | — | — | 2 | — | — | — | (41) | — | — | — | 5 | — | |||||||||||||||||||||||||||||||||||||||
State and municipal bonds | — | — | — | — | — | — | — | — | — | 1 | (1) | — | — | |||||||||||||||||||||||||||||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate obligations | — | — | — | — | — | — | — | (2) | — | 6 | (4) | — | — | |||||||||||||||||||||||||||||||||||||||
Commercial mortgage-backed | — | — | — | — | — | — | — | — | (3) | 9 | — | 6 | — | |||||||||||||||||||||||||||||||||||||||
Collateralized debt obligations | 1 | — | — | — | — | — | — | — | — | — | — | 1 | — | |||||||||||||||||||||||||||||||||||||||
Other asset-backed | 1 | — | — | — | — | — | — | — | — | 1 | (2) | — | — | |||||||||||||||||||||||||||||||||||||||
Loans receivable-residential | 916 | — | 79 | — | — | — | — | (236) | — | — | — | 759 | 79 | |||||||||||||||||||||||||||||||||||||||
Loans receivable and other instruments-corporate | 150 | — | 89 | — | — | 719 | — | (38) | — | — | — | 920 | 89 | |||||||||||||||||||||||||||||||||||||||
Loan repurchase commitments | 404 | — | 3 | — | — | — | — | — | — | — | — | 407 | 3 | |||||||||||||||||||||||||||||||||||||||
Currency derivatives | 19 | — | 2 | — | (2) | — | — | — | — | — | — | 19 | — | |||||||||||||||||||||||||||||||||||||||
Other | — | — | (3) | — | — | 17 | — | — | — | — | — | 14 | (3) | |||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Total assets | $ | 1,552 | $ | — | $ | 170 | $ | 2 | $ | (2) | $ | 737 | $ | — | $ | (324) | $ | (3) | $ | 31 | $ | (23) | $ | 2,140 | $ | 168 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
In millions | Balance, Beginning of Year | Realized (Gains) / Losses | Unrealized (Gains) / Losses Included in Earnings | Unrealized (Gains) / Losses Included in OCI | Foreign Exchange Recognized in OCI or Earnings | Purchases | Issuances | Settlements | Sales | Transfers into Level 3(1) | Transfers out of Level 3(1) | Ending Balance | Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of December 31, 2017 | |||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Medium-term notes | $ | 101 | $ | — | $ | (1) | $ | — | $ | 15 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 115 | $ | 14 | ||||||||||||||||||||||||||
Credit derivatives | 64 | 51 | (1) | — | — | — | — | (51) | — | — | — | 63 | 1 | |||||||||||||||||||||||||||||||||||||||
Other derivatives | 20 | — | 18 | — | — | — | — | (34) | — | — | — | 4 | 18 | |||||||||||||||||||||||||||||||||||||||
Other payable | — | — | — | — | — | 7 | — | — | — | — | — | 7 | — | |||||||||||||||||||||||||||||||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
VIE notes | 476 | — | 37 | — | — | — | — | (56) | (51) | — | — | 406 | 37 | |||||||||||||||||||||||||||||||||||||||
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Total liabilities | $ | 661 | $ | 51 | $ | 53 | $ | — | $ | 15 | $ | 7 | $ | — | $ | (141) | $ | (51) | $ | — | $ | — | $ | 595 | $ | 70 | ||||||||||||||||||||||||||
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(1)—Transferred in and out at the end201
In millions | Balance, Beginning of Year | Total Gains / (Losses) Included in Earnings | Unrealized Gains / (Losses) Included in OCI | Purchases | Issuances | Settlements | Sales | Transfers into Level 3 (1) | Transfers out of Level 3 (1) | Ending Balance | Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of December 31, 2019 | |||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||
Commercial mortgage-backed | $ | 7 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | (4) | $ | 0 | $ | 0 | $ | (3) | $ | 0 | $ | 0 | ||||||||||||||||||||||
Other asset-backed | 3 | (1) | (1) | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 0 | |||||||||||||||||||||||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||||||||||||||||||||||||||||||
Corporate obligations | 5 | 0 | 0 | 0 | 0 | (2) | 0 | 0 | (3) | 0 | 0 | |||||||||||||||||||||||||||||||||
Collateralized debt obligations | 1 | 0 | 0 | 0 | 0 | 0 | (1) | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||
Loans receivable-residential | 172 | 35 | 0 | 0 | 0 | (23) | (48) | 0 | 0 | 136 | 26 | |||||||||||||||||||||||||||||||||
Loan repurchase commitments | 418 | 68 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 486 | 68 | |||||||||||||||||||||||||||||||||
Currency derivatives | 17 | (9) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 8 | (9) | |||||||||||||||||||||||||||||||||
Other | 14 | 4 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 18 | 4 | |||||||||||||||||||||||||||||||||
Total assets | $ | 637 | $ | 97 | $ | (1) | $ | 0 | $ | 0 | $ | (29) | $ | (49) | $ | 0 | $ | (6) | $ | 649 | $ | 89 | ||||||||||||||||||||||
In millions | Balance, Beginning of Year | Total (Gains) / Losses Included in Earnings | Unrealized (Gains) / Losses Included in OCI | Purchases | Issuances | Settlements | Sales | Transfers into Level 3 (1) | Transfers out of Level 3 (1) | Ending Balance | Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of December 31, 2019 | |||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
Medium-term notes | $ | 102 | $ | 0 | $ | 6 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 108 | $ | 0 | ||||||||||||||||||||||
Credit derivatives | 33 | (15) | 0 | 0 | 0 | (11) | 0 | 0 | 0 | 7 | (25) | |||||||||||||||||||||||||||||||||
Other derivatives | 7 | 27 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 34 | 27 | |||||||||||||||||||||||||||||||||
Other payable | 5 | 2 | 0 | 0 | 0 | (3) | 0 | 0 | 0 | 4 | 2 | |||||||||||||||||||||||||||||||||
Liabilities of consolidated VIEs: | ||||||||||||||||||||||||||||||||||||||||||||
VIE notes | 366 | 45 | 11 | 0 | 10 | (25) | (60) | 0 | 0 | 347 | 21 | |||||||||||||||||||||||||||||||||
Total liabilities | $ | 513 | $ | 59 | $ | 17 | $ | 0 | $ | 10 | $ | (39) | $ | (60) | $ | 0 | $ | 0 | $ | 500 | $ | 25 | ||||||||||||||||||||||
| (1)—Transferred | in and out at the end of the period. |
For the year ended December 31, 2017, transfers into Level 3 and out of Level 2 were principally related to CMBS and corporate obligations, where inputs, which are significant to their valuation, became unobservable during the period. CDOs, CMBS, corporate obligations and other asset-backed comprised the majority of the instruments transferred out of Level 3 where inputs, which are significant to their valuation, became observable during the period. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of Level 1.
All Level 1, 2 and 3 designations are made at the end of each accounting period.
In millions | Total Gains (Losses) Included in Earnings | Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets and Liabilities still held as of December 31, | ||||||||||||||||||||||
| 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Unrealized gains (losses) on insured derivatives | $ | 30 | $ | 1 | $ | 21 | $ | 30 | $ | (1) | $ | 13 | ||||||||||||
Realized gains (losses) and other settlements on insured derivatives | (56) | (51) | (43) | — | — | — | ||||||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 17 | (32) | 1 | 8 | (32) | 1 | ||||||||||||||||||
Net investment losses related to other-than-temporary impairments | — | — | (1) | — | — | — | ||||||||||||||||||
Other net realized gains (losses) | (1) | — | — | (1) | — | — | ||||||||||||||||||
Revenues of consolidated VIEs: | ||||||||||||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 25 | 131 | 14 | 17 | 131 | 32 | ||||||||||||||||||
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Total | $ | 15 | $ | 49 | $ | (8) | $ | 54 | $ | 98 | $ | 46 | ||||||||||||
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In millions | Total Gains (Losses) Included in Earnings | Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets and Liabilities still held as of December 31, | ||||||||||||||||||||||
2020 | 2019 | 2018 | 2020 | 2019 | 2018 | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Unrealized gains (losses) on insured derivatives | $ | 7 | $ | 25 | $ | 30 | $ | 0 | $ | 25 | $ | 30 | ||||||||||||
Realized gains (losses) and other settlements on insured derivatives | (1) | (10) | (56) | 0 | 0 | 0 | ||||||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (30) | (26) | 17 | (30) | (27) | 8 | ||||||||||||||||||
Net investment losses related to other-than-temporary impairments | 0 | (1) | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other net realized gains (losses) | 0 | (2) | (1) | 0 | (2) | (1) | ||||||||||||||||||
Revenues of consolidated VIEs: | ||||||||||||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 101 | 53 | 25 | 103 | 68 | 17 | ||||||||||||||||||
Total | $ | 77 | $ | 39 | $ | 15 | $ | 73 | $ | 64 | $ | 54 | ||||||||||||
| Years Ended December 31, | ||||||||||||
In millions | 2018 | 2017 | 2016 | |||||||||
Investments carried at fair value(1) | $ | (11) | $ | 8 | $ | 7 | ||||||
Fixed-maturity securities held at fairvalue-VIE(2) | (25) | (22) | (124) | |||||||||
Loans receivable and other instruments at fair value: | ||||||||||||
Residential mortgage loans(2) | (100) | (158) | (268) | |||||||||
Corporate loans and other instruments(2) | 11 | 52 | — | |||||||||
Loan repurchase commitments(2) | 12 | 3 | 8 | |||||||||
Otherassets-VIE(2) | — | (3) | — | |||||||||
Medium-term notes(1) | 19 | (14) | 4 | |||||||||
Other liabilities(3) | (2) | — | — | |||||||||
Variable interest entity notes(2) | 118 | 230 | 383 | |||||||||
Years Ended December 31, | ||||||||||||
In millions | 2020 | 2019 | 2018 | |||||||||
Investments carried at fair value (1) | $ | 2 | $ | 15 | $ | (11) | ||||||
Fixed-maturity securities held at fair value-VIE (2) | 4 | 95 | (25) | |||||||||
Loans receivable and other instruments at fair value: | ||||||||||||
Residential mortgage loans (2) | 0 | 35 | (100) | |||||||||
Corporate loans and other instruments (2) | 0 | 0 | 11 | |||||||||
Loan repurchase commitments (2) | 118 | 68 | 12 | |||||||||
Other assets-VIE (2) | (4) | 4 | 0 | |||||||||
Medium-term notes (1) | (15) | 1 | 19 | |||||||||
Other liabilities (3) | 0 | (2) | (2) | |||||||||
Variable interest entity notes (2) | (12) | (89) | 118 | |||||||||
As of December 31, 2020 | As of December 31, 2019 | |||||||||||||||||||||||
In millions | Contractual Outstanding Principal | Fair Value | Difference | Contractual Outstanding Principal | Fair Value | Difference | ||||||||||||||||||
Loans receivable at fair value: | ||||||||||||||||||||||||
Residential mortgage loans—current | $ | 89 | $ | 89 | $ | 0 | $ | 107 | $ | 107 | $ | 0 | ||||||||||||
Residential mortgage loans (90 days or more past due) | 147 | 31 | 116 | 154 | 29 | 125 | ||||||||||||||||||
Total loans receivable and other instruments at fair value | $ | 236 | $ | 120 | $ | 116 | $ | 261 | $ | 136 | $ | 125 | ||||||||||||
Variable interest entity notes | $ | 1,117 | $ | 350 | $ | 767 | $ | 1,126 | $ | 403 | $ | 723 | ||||||||||||
Medium-term notes | $ | 122 | $ | 110 | $ | 12 | $ | 112 | $ | 108 | $ | 4 | ||||||||||||
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding asmillion, respectively.
AFS.
December 31, 2020 | ||||||||||||||||||||
In millions | Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||
AFS Investments | ||||||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||||||
U.S. Treasury and government agency | $ | 775 | $ | 0 | $ | 75 | $ | (1) | $ | 849 | ||||||||||
State and municipal bonds | 162 | 0 | 32 | 0 | 194 | |||||||||||||||
Foreign governments | 11 | 0 | 1 | 0 | 12 | |||||||||||||||
Corporate obligations | 827 | 0 | 64 | (1) | 890 | |||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||
Residential mortgage-backed agency | 305 | 0 | 8 | (1) | 312 | |||||||||||||||
Residential mortgage-backed non-agency | 22 | 0 | 3 | 0 | 25 | |||||||||||||||
Commercial mortgage-backed | 17 | 0 | 1 | 0 | 18 | |||||||||||||||
Asset-backed securities: | ||||||||||||||||||||
Collateralized debt obligations | 120 | 0 | 0 | (2) | 118 | |||||||||||||||
Other asset-backed | 121 | 0 | 0 | 0 | 121 | |||||||||||||||
Total AFS investments | $ | 2,360 | $ | 0 | $ | 184 | $ | (5) | $ | 2,539 | ||||||||||
| December 31, 2018 | ||||||||||||||||||||
In millions | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Other-Than- Temporary Impairments(1) | |||||||||||||||
AFS Investments | ||||||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||||||
U.S. Treasury and government agency | $ | 1,093 | $ | 26 | $ | (10) | $ | 1,109 | $ | — | ||||||||||
State and municipal bonds | 641 | 97 | (11) | 727 | 42 | |||||||||||||||
Foreign governments | 9 | — | — | 9 | — | |||||||||||||||
Corporate obligations | 1,473 | 6 | (131) | 1,348 | (68) | |||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||
Residential mortgage-backed agency | 218 | 1 | (5) | 214 | — | |||||||||||||||
Residential mortgage-backednon-agency | 30 | 1 | (4) | 27 | — | |||||||||||||||
Commercial mortgage-backed | 53 | — | (2) | 51 | — | |||||||||||||||
Asset-backed securities: | ||||||||||||||||||||
Collateralized debt obligations | 122 | — | (3) | 119 | — | |||||||||||||||
Other asset-backed | 178 | — | (1) | 177 | — | |||||||||||||||
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Total AFS investments | $ | 3,817 | $ | 131 | $ | (167) | $ | 3,781 | $ | (26) | ||||||||||
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HTM Investments | ||||||||||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||||||
Corporate obligations | $ | 890 | $ | 35 | $ | — | $ | 925 | $ | — | ||||||||||
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Total HTM investments | $ | 890 | $ | 35 | $ | — | $ | 925 | $ | — | ||||||||||
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2019:
December 31, 2019 | ||||||||||||||||||||
In millions | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Other-Than- Temporary Impairments (1) | |||||||||||||||
AFS Investments | ||||||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||||||
U.S. Treasury and government agency | $ | 838 | $ | 46 | $ | (2) | $ | 882 | $ | 0 | ||||||||||
State and municipal bonds | 178 | 22 | 0 | 200 | 0 | |||||||||||||||
Foreign governments | 8 | 1 | 0 | 9 | 0 | |||||||||||||||
Corporate obligations | 1,140 | 52 | (1) | 1,191 | 0 | |||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||
Residential mortgage-backed agency | 317 | 3 | 0 | 320 | 0 | |||||||||||||||
Residential mortgage-backed non-agency | 23 | 1 | (5) | 19 | 0 | |||||||||||||||
Commercial mortgage-backed | 20 | 0 | 0 | 20 | 0 | |||||||||||||||
Asset-backed securities: | ||||||||||||||||||||
Collateralized debt obligations | 139 | 0 | (2) | 137 | 0 | |||||||||||||||
Other asset-backed | 321 | 1 | (1) | 321 | 0 | |||||||||||||||
Total AFS investments | $ | 2,984 | $ | 126 | $ | (11) | $ | 3,099 | $ | 0 | ||||||||||
HTM Investments | ||||||||||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||||||
Corporate obligations | $ | 890 | $ | 2 | $ | 0 | $ | 892 | $ | 0 | ||||||||||
Total HTM investments | $ | 890 | $ | 2 | $ | 0 | $ | 892 | $ | 0 | ||||||||||
MBIA Inc.
Notes to Consolidated Financial Statements
Note 8: Investments (continued)
| December 31, 2017 | ||||||||||||||||||||
In millions | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Other-Than- Temporary Impairments(1) | |||||||||||||||
AFS Investments | ||||||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||||||
U.S. Treasury and government agency | $ | 1,317 | $ | 34 | $ | (6) | $ | 1,345 | $ | — | ||||||||||
State and municipal bonds | 840 | 29 | (12) | 857 | — | |||||||||||||||
Foreign governments | 10 | — | — | 10 | — | |||||||||||||||
Corporate obligations | 1,332 | 25 | (80) | 1,277 | (72) | |||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||
Residential mortgage-backed agency | 365 | 1 | (4) | 362 | — | |||||||||||||||
Residential mortgage-backednon-agency | 35 | 1 | (4) | 32 | — | |||||||||||||||
Commercial mortgage-backed | 66 | — | — | 66 | — | |||||||||||||||
Asset-backed securities: | ||||||||||||||||||||
Collateralized debt obligations | 116 | — | — | 116 | — | |||||||||||||||
Other asset-backed | 175 | — | — | 175 | 1 | |||||||||||||||
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| |||||||||||
Total fixed-maturity investments | 4,256 | 90 | (106) | 4,240 | (71) | |||||||||||||||
Money market securities | 179 | — | — | 179 | — | |||||||||||||||
Perpetual debt and equity securities | 3 | 1 | — | 4 | — | |||||||||||||||
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Total AFS investments | $ | 4,438 | $ | 91 | $ | (106) | $ | 4,423 | $ | (71) | ||||||||||
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HTM Investments | ||||||||||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||||||
Corporate obligations | $ | 890 | $ | 26 | $ | — | $ | 916 | $ | — | ||||||||||
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| |||||||||||
Total HTM investments | $ | 890 | $ | 26 | $ | — | $ | 916 | $ | — | ||||||||||
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(1)—Represents unrealized gains or losses on OTTI securities recognized in AOCI, which includes thenon-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities reported in AOCI.
liabilities within structured finance VIEs that were deconsolidated during 2020.
| AFS Securities | HTM Securities | |||||||||||||||
| Consolidated VIEs | ||||||||||||||||
In millions | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
Due in one year or less | $ | 820 | $ | 831 | $ | — | $ | — | ||||||||
Due after one year through five years | 715 | 741 | — | — | ||||||||||||
Due after five years through ten years | 651 | 568 | — | — | ||||||||||||
Due after ten years | 1,030 | 1,053 | 890 | 925 | ||||||||||||
Mortgage-backed and asset-backed | 601 | 588 | — | — | ||||||||||||
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| |||||||||
Total fixed-maturity investments | $ | 3,817 | $ | 3,781 | $ | 890 | $ | 925 | ||||||||
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| |||||||||
AFS Securities | ||||||||
In millions | Net Amortized Cost | Fair Value | ||||||
Due in one year or less | $ | 509 | $ | 511 | ||||
Due after one year through five years | 363 | 379 | ||||||
Due after five years through ten years | 266 | 296 | ||||||
Due after ten years | 637 | 759 | ||||||
Mortgage-backed and asset-backed | 585 | 594 | ||||||
Total fixed-maturity investments | $ | 2,360 | $ | 2,539 | ||||
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 8: Investments (continued)
| December 31, 2018 | ||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
In millions | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
AFS Investments | ||||||||||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||||||||||
U.S. Treasury and government agency | $ | 231 | $ | (1) | $ | 278 | $ | (9) | $ | 509 | $ | (10) | ||||||||||||
State and municipal bonds | 60 | (1) | 135 | (10) | 195 | (11) | ||||||||||||||||||
Foreign governments | 5 | — | 2 | — | 7 | — | ||||||||||||||||||
Corporate obligations | 900 | (41) | 335 | (90) | 1,235 | (131) | ||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Residential mortgage-backed agency | 29 | (1) | 118 | (4) | 147 | (5) | ||||||||||||||||||
Residential mortgage-backednon-agency | 2 | — | 13 | (4) | 15 | (4) | ||||||||||||||||||
Commercial mortgage-backed | 24 | — | 21 | (2) | 45 | (2) | ||||||||||||||||||
Asset-backed securities: | ||||||||||||||||||||||||
Collateralized debt obligations | 98 | (3) | 7 | — | 105 | (3) | ||||||||||||||||||
Other asset-backed | 127 | — | 35 | (1) | 162 | (1) | ||||||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||||
Total AFS investments | $ | 1,476 | $ | (47) | $ | 944 | $ | (120) | $ | 2,420 | $ | (167) | ||||||||||||
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| |||||||||||||
| December 31, 2017 | ||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
In millions | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
AFS Investments | ||||||||||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||||||||||
U.S. Treasury and government agency | $ | 353 | $ | (1) | $ | 124 | $ | (5) | $ | 477 | $ | (6) | ||||||||||||
State and municipal bonds | 203 | (8) | 116 | (4) | 319 | (12) | ||||||||||||||||||
Foreign governments | 8 | — | — | — | 8 | — | ||||||||||||||||||
Corporate obligations | 425 | (3) | 163 | (77) | 588 | (80) | ||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Residential mortgage-backed agency | 105 | (1) | 156 | (3) | 261 | (4) | ||||||||||||||||||
Residential mortgage-backednon-agency | — | — | 14 | (4) | 14 | (4) | ||||||||||||||||||
Commercial mortgage-backed | 27 | — | 5 | — | 32 | — | ||||||||||||||||||
Asset-backed securities: | ||||||||||||||||||||||||
Collateralized debt obligations | 12 | — | — | — | 12 | — | ||||||||||||||||||
Other asset-backed | 71 | — | 39 | — | 110 | — | ||||||||||||||||||
|
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|
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|
|
|
|
|
|
|
| |||||||||||||
Total AFS investments | $ | 1,204 | $ | (13) | $ | 617 | $ | (93) | $ | 1,821 | $ | (106) | ||||||||||||
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| |||||||||||||
2019:
December 31, 2020 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
In millions | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
AFS Investments | ||||||||||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||||||||||
U.S. Treasury and government agency | $ | 99 | $ | (1) | $ | 0 | $ | 0 | $ | 99 | $ | (1) | ||||||||||||
Foreign governments | 2 | 0 | 0 | 0 | 2 | 0 | ||||||||||||||||||
Corporate obligations | 103 | (1) | 7 | 0 | 110 | (1) | ||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Residential mortgage-backed agency | 53 | (1) | 0 | 0 | 53 | (1) | ||||||||||||||||||
Residential mortgage-backed non-agency | 2 | 0 | 1 | 0 | 3 | 0 | ||||||||||||||||||
Commercial mortgage-backed | 0 | 0 | 5 | 0 | 5 | 0 | ||||||||||||||||||
Asset-backed securities: | ||||||||||||||||||||||||
Collateralized debt obligations | 37 | 0 | 78 | (2) | 115 | (2) | ||||||||||||||||||
Other asset-backed | 29 | 0 | 0 | 0 | 29 | 0 | ||||||||||||||||||
Total AFS investments | $ | 325 | $ | (3) | $ | 91 | $ | (2) | $ | 416 | $ | (5) | ||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
In millions | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
AFS Investments | ||||||||||||||||||||||||
Fixed-maturity investments: | ||||||||||||||||||||||||
U.S. Treasury and government agency | $ | 148 | $ | (1) | $ | 79 | $ | (1) | $ | 227 | $ | (2) | ||||||||||||
State and municipal bonds | 11 | 0 | 15 | 0 | 26 | 0 | ||||||||||||||||||
Corporate obligations | 53 | (1) | 10 | 0 | 63 | (1) | ||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Residential mortgage-backed agency | 62 | 0 | 7 | 0 | 69 | 0 | ||||||||||||||||||
Residential mortgage-backed non-agency | 0 | 0 | 11 | (5) | 11 | (5) | ||||||||||||||||||
Commercial mortgage-backed | 5 | 0 | 0 | 0 | 5 | 0 | ||||||||||||||||||
Asset-backed securities: | ||||||||||||||||||||||||
Collateralized debt obligations | 44 | 0 | 77 | (2) | 121 | (2) | ||||||||||||||||||
Other asset-backed | 48 | (1) | 7 | 0 | 55 | (1) | ||||||||||||||||||
Total AFS investments | $ | 371 | $ | (3) | $ | 206 | $ | (8) | $ | 577 | $ | (11) | ||||||||||||
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 8: Investments (continued)
| AFS Securities | ||||||||||||
Percentage of Fair Value Below Book Value | Number of Securities | Book Value (in millions) | Fair Value (in millions) | |||||||||
> 5% to 15% | 47 | $ | 299 | $ | 273 | |||||||
> 15% to 25% | 11 | 35 | 29 | |||||||||
> 25% to 50% | 3 | 12 | 9 | |||||||||
> 50% | 3 | 99 | 30 | |||||||||
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| |||||||
Total | 64 | $ | 445 | $ | 341 | |||||||
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| |||||||
The2020:
AFS Securities | ||||||||||||
Percentage of Fair Value Below Book Value | Number of Securities | Book Value (in millions) | Fair Value (in millions) | |||||||||
> 5% to 15% | 6 | $ | 3 | $ | 3 | |||||||
> 15% to 25% | 1 | 0 | 0 | |||||||||
> 50% | 2 | 0 | 0 | |||||||||
Total | 9 | $ | 3 | $ | 3 | |||||||
Other-Than-Temporary Impairments
Evaluating AFS Securities for OTTI
The Company has an ongoing review process for all securities in its investment portfolio, including a quarterly assessment of OTTI. This evaluation includes both qualitative and quantitative considerations. In assessing whether a decline in value is related to a credit loss, the Company considers several factors, including but not limited to (i) the magnitude and duration of declines in fair value; (ii) the reasons for the declines in fair value, such as general credit spread movements in each asset-backed sector, transaction-specific changes in credit spreads, credit rating downgrades, modeled defaults, and principal and interest payment priorities within each investment structure; and (iii) any guarantees associated with a security such as those provided by financial guarantee insurance companies, including MBIA Corp. and National.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 8: Investments (continued)
LossLosses on ABS, MBS and Corporate Obligations
Corporate
During 2017, certain municipal bonds had liquidity concerns, recent
the security’s underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) changes in the financial condition, credit rating and near-term prospects of the issuer, (d) level of excess cash flows generated from the underlying collateral supporting the principal and interest payments of the security. Estimates of collectability require the use of significant management judgment and include the probability and timing of issuer’s default and loss severity estimates. In addition, cash flow projections may change when these factors are reviewed and updated as appropriate.
In millions | Fair Value | Unrealized Loss | Insurance Loss Reserve(2) | |||||||||
Mortgage-backed: | ||||||||||||
MBIA(1) | $ | 13 | $ | (4) | $ | 15 | ||||||
Corporate obligations: | ||||||||||||
MBIA(1) | 81 | (8) | — | |||||||||
Other: | ||||||||||||
Other | 1 | — | — | |||||||||
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| |||||||
Total | $ | 95 | $ | (12) | $ | 15 | ||||||
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| |||||||
(1)—Includes investmentsCompany. The Company did not hold any securities in an unrealized loss position that were insured by MBIA Corp. and National.
(2)a third-party financial guarantor as of December 31, 2020.
In millions | Fair Value | Unrealized Loss | Insurance Loss Reserve (1) | |||||||||
Mortgage-backed | $ | 3 | $ | 0 | $ | 1 | ||||||
Total | $ | 3 | $ | 0 | $ | 1 | ||||||
Year Ended December 31, 2020 | ||||||||||||||||||||||||
In millions | Balance as of January 1, 2020 (1) | Current period provision for expected credit losses | Initial allowance recognized for PCD assets | Write-Offs | Recoveries | Balance as of December 31, 2020 | ||||||||||||||||||
HTM Investments | ||||||||||||||||||||||||
Assets of consolidated VIEs: | ||||||||||||||||||||||||
Corporate obligations | $ | 37 | $ | (37) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Total Allowance on HTM investments | $ | 37 | $ | (37) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
| (1)—Represents | transition adjustment upon adoption of ASU 2016-13. |
for AFS
In millions | Years Ended December 31, | |||||||
Credit Losses Recognized in Earnings Related to OTTI | 2019 | 2018 | ||||||
Beginning balance | $ | 37 | $ | 32 | ||||
Additions for credit loss impairments recognized in the current period on securities previously impaired | 67 | 5 | ||||||
Reductions for credit loss impairments previously recognized on securities impaired to fair value during the period | (104) | 0 | ||||||
Ending balance | $ | 0 | $ | 37 | ||||
| Years Ended December 31, | ||||||||||||
In millions | 2018 | 2017 | 2016 | |||||||||
Proceeds from sales | $ | 2,117 | $ | 2,256 | $ | 2,412 | ||||||
Gross realized gains | $ | 6 | $ | 40 | $ | 84 | ||||||
Gross realized losses | $ | (19) | $ | (22) | $ | (23) | ||||||
Years Ended December 31, | ||||||||||||
In millions | 2020 | 2019 | 2018 | |||||||||
Proceeds from sales | $ | 1,095 | $ | 2,195 | $ | 2,117 | ||||||
Gross realized gains | $ | 59 | $ | 103 | $ | 6 | ||||||
Gross realized losses | $ | (15) | $ | (4) | $ | (19) | ||||||
| ||||
| ||||
| ||||
| ||||
| ||||
Years Ended December 31, | ||||||||||||
In millions | 2020 | 2019 | 2018 | |||||||||
Net gains and (losses) recognized during the period on equity securities | $ | 3 | $ | 11 | $ | (4) | ||||||
Less: | ||||||||||||
Net gains and (losses) recognized during the period on equity securities sold during the period | (1) | 1 | 1 | |||||||||
Unrealized gains and (losses) recognized during the period on equity securities still held at the reporting date | $ | 4 | $ | 10 | $ | (5) | ||||||
Changes in the fair values of the Company’s insured derivatives within its U.S. Public Finance segment are included in “Net change in fair value of insured derivatives” on the Company’s consolidated statements of operations.
foreign exchange” on the Company’s consolidated statements of operations.
The
Changes in the fair values of the Company’s insured derivatives within its International and Structured Finance segment are included in “Net change in fair value of insured derivatives” on the Company’s consolidated statements of operations.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 9: Derivative Instruments (continued)
Changes in the fair value of the VIE derivative are included in “Net gains (losses) on financial instruments at fair value and foreign exchange-VIE” on the Company’s consolidated statements of operations.
$ in millions | As of December 31, 2018 | |||||||||||||||||||||||||||||||
| Notional Value | ||||||||||||||||||||||||||||||||
Credit Derivatives Sold | Weighted Average Remaining Expected Maturity | AAA | AA | A | BBB | Below Investment Grade | Total Notional | Fair Value Asset (Liability) | ||||||||||||||||||||||||
Insured credit default swaps | 1.0 Years | $ | — | $ | — | $ | — | $ | — | $ | 70 | $ | 70 | $ | (33) | |||||||||||||||||
Insured swaps | 15.7 Years | — | 74 | 1,463 | 896 | — | 2,433 | (2) | ||||||||||||||||||||||||
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| |||||||||||||||||||
Total notional | $ | — | $ | 74 | $ | 1,463 | $ | 896 | $ | 70 | $ | 2,503 | ||||||||||||||||||||
|
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| |||||||||||||||||||||
Total fair value | $ | — | $ | — | $ | (1) | $ | (1) | $ | (33) | $ | (35) | ||||||||||||||||||||
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| |||||||||||||||||||||
$ in millions | As of December 31, 2017 | |||||||||||||||||||||||||||||||
| Notional Value | ||||||||||||||||||||||||||||||||
Credit Derivatives Sold | Weighted Average Remaining Expected Maturity | AAA | AA | A | BBB | Below Investment Grade | Total Notional | Fair Value Asset (Liability) | ||||||||||||||||||||||||
Insured credit default swaps | 1.0 Years | $ | — | $ | — | $ | — | $ | — | $ | 127 | $ | 127 | $ | (63) | |||||||||||||||||
Insured swaps | 15.5 Years | — | 117 | 1,818 | 846 | 20 | 2,801 | (2) | ||||||||||||||||||||||||
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| |||||||||||||||||||
Total notional | $ | — | $ | 117 | $ | 1,818 | $ | 846 | $ | 147 | $ | 2,928 | ||||||||||||||||||||
|
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| |||||||||||||||||||||
Total fair value | $ | — | $ | — | $ | (1) | $ | (1) | $ | (63) | $ | (65) | ||||||||||||||||||||
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$ in millions | As of December 31, 2020 | |||||||||||||||||||||||||||||||
Notional Value | ||||||||||||||||||||||||||||||||
Credit Derivatives Sold | Weighted Average Remaining Expected Maturity | AAA | AA | A | BBB | Below Investment Grade | Total Notional | Fair Value Asset (Liability) | ||||||||||||||||||||||||
Insured swaps | 13.9 Years | $ | 0 | $ | 58 | $ | 1,327 | $ | 358 | $ | 0 | $ | 1,743 | $ | (2) | |||||||||||||||||
Total notional | $ | 0 | $ | 58 | $ | 1,327 | $ | 358 | $ | 0 | $ | 1,743 | ||||||||||||||||||||
Total fair value | $ | 0 | $ | 0 | $ | (1) | $ | (1) | $ | — | $ | (2) | ||||||||||||||||||||
$ in millions | As of December 31, 2019 | |||||||||||||||||||||||||||||||
Notional Value | ||||||||||||||||||||||||||||||||
Credit Derivatives Sold | Weighted Average Remaining Expected Maturity | AAA | AA | A | BBB | Below Investment Grade | Total Notional | Fair Value Asset (Liability) | ||||||||||||||||||||||||
Insured credit default swaps | 1.0 Years | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 32 | $ | 32 | $ | (7) | |||||||||||||||||
Insured swaps | 14.0 Years | 0 | 121 | (1) | 1,371 | (2) | 433 | (3) | 0 | 1,925 | (4) | (2) | ||||||||||||||||||||
Total notional | $ | 0 | $ | 121 | $ | 1,371 | $ | 433 | $ | 32 | $ | 1,957 | ||||||||||||||||||||
Total fair value | $ | 0 | $ | 0 | $ | (1) | $ | (1) | $ | (7) | $ | (9) | ||||||||||||||||||||
| (1)—The | Company revised its previously reported amount of $66 million to $121 million. |
| (2)—The | Company revised its previously reported amount of $1,284 million to $1,371 million. |
| (3)—The | Company revised its previously reported amount of $445 million to $433 million. |
| (4)—The | Company revised its previously reported amount of $1,795 million to $1,925 million. |
net interest settlements plus principal payments where applicable, on amortizing swaps.
swap agreement.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 9: Derivative Instruments (continued)
In millions | Derivative Assets(1) | Derivative Liabilities(1) | ||||||||||||||||||
Derivative Instruments | Notional Amount Outstanding | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||||
Not designated as hedging instruments: | ||||||||||||||||||||
Insured credit default swaps | $ | 70 | Other assets | $ | — | Derivative liabilities | $ | (33) | ||||||||||||
Insured swaps | 2,433 | Other assets | — | Derivative liabilities | (2) | |||||||||||||||
Interest rate swaps | 712 | Other assets | 2 | Derivative liabilities | (157) | |||||||||||||||
Interest rate swaps-embedded | 293 | Medium-term notes | — | Medium-term notes | (13) | |||||||||||||||
Currencyswaps-VIE | 62 | Otherassets-VIE | 16 | Derivative liabilities-VIE | — | |||||||||||||||
All other | 49 | Other assets | — | Derivative liabilities | (7) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Totalnon-designated derivatives | $ | 3,619 | $ | 18 | $ | (212) | ||||||||||||||
|
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|
|
|
| |||||||||||||||
2020:
In millions | Derivative Assets (1) | Derivative Liabilities (1) | ||||||||||||||||||
Derivative Instruments | Notional Amount Outstanding | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||||
Not designated as hedging instruments: | ||||||||||||||||||||
Insured swaps | $ | 1,743 | Other assets | $ | 0 | Derivative liabilities | $ | (2) | ||||||||||||
Interest rate swaps | 437 | Other assets | 1 | Derivative liabilities | (164) | |||||||||||||||
Interest rate swaps-embedded | 252 | Medium-term notes | 0 | Medium-term notes | (10) | |||||||||||||||
Currency swaps-VIE | 53 | Other assets-VIE | 6 | Derivative liabilities-VIE | 0 | |||||||||||||||
All other | 49 | Other assets | 0 | Derivative liabilities | (49) | |||||||||||||||
Total non-designated derivatives | $ | 2,534 | $ | 7 | $ | (225) | ||||||||||||||
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 9: Derivative Instruments (continued)
In millions | Derivative Assets(1) | Derivative Liabilities(1) | ||||||||||||||||||
Derivative Instruments | Notional Amount Outstanding | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||||
Not designated as hedging instruments: | ||||||||||||||||||||
Insured credit default swaps | $ | 127 | Other assets | $ | — | Derivative liabilities | $ | (63) | ||||||||||||
Insured swaps | 2,801 | Other assets | — | Derivative liabilities | (2) | |||||||||||||||
Interest rate swaps | 747 | Other assets | 2 | Derivative liabilities | (193) | |||||||||||||||
Interest rate swaps-embedded | 305 | Medium-term notes | 1 | Medium-term notes | (6) | |||||||||||||||
Currencyswaps-VIE | 69 | Otherassets-VIE | 19 | Derivative liabilities-VIE | — | |||||||||||||||
All other | 49 | Other assets | — | Derivative liabilities | (4) | |||||||||||||||
All other-embedded | 2 | Other investments | — | Other investments | (1) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Totalnon-designated derivatives | $ | 4,100 | $ | 22 | $ | (269) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
In millions | Derivative Assets (1) | Derivative Liabilities (1) | ||||||||||||||||||
Derivative Instruments | Notional Amount Outstanding | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||||
Not designated as hedging instruments: | ||||||||||||||||||||
Insured credit default swaps | $ | 32 | Other assets | $ | 0 | Derivative liabilities | $ | (7) | ||||||||||||
Insured swaps | 1,925 | (2) | Other assets | 0 | Derivative liabilities | (2) | ||||||||||||||
Interest rate swaps | 441 | Other assets | 1 | Derivative liabilities | (132) | |||||||||||||||
Interest rate swaps-embedded | 232 | Medium-term notes | 0 | Medium-term notes | (15) | |||||||||||||||
Currency swaps-VIE | 58 | Other assets-VIE | 8 | Derivative liabilities-VIE | 0 | |||||||||||||||
All other | 49 | Other assets | 0 | Derivative liabilities | (34) | |||||||||||||||
Total non-designated derivatives | $ | 2,737 | $ | 9 | $ | (190) | ||||||||||||||
In millions | Location of Gain (Loss) Recognized in Income on Derivative | Years Ended December 31, | ||||||||||||
Derivatives Not Designated as Hedging | 2018 | 2017 | 2016 | |||||||||||
Insured credit default swaps | Unrealized gains (losses) on insured derivatives | $ | 31 | $ | — | $ | 21 | |||||||
Insured credit default swaps | Realized gains (losses) and other settlements on insured derivatives | (56) | (51) | (40) | ||||||||||
Interest rate swaps | Net gains (losses) on financial instruments at fair value and foreign exchange | 4 | 3 | (11) | ||||||||||
Interest rateswaps-VIE | Net gains (losses) on financial instruments at fair value and foreignexchange-VIE | — | — | 8 | ||||||||||
Currencyswaps-VIE | Net gains (losses) on financial instruments at fair value and foreignexchange-VIE | (2) | (1) | 9 | ||||||||||
All other | Net gains (losses) on financial instruments at fair value and foreign exchange | (4) | (19) | (2) | ||||||||||
|
|
|
|
|
| |||||||||
Total | $ | (27) | $ | (68) | $ | (15) | ||||||||
|
|
|
|
|
| |||||||||
In millions | Years Ended December 31, | |||||||||||||
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | |||||||||||||
2020 | 2019 | 2018 | ||||||||||||
Insured credit default swaps | Unrealized gains (losses) on insured derivatives | $ | 7 | $ | 25 | $ | 31 | |||||||
Insured credit default swaps | Realized gains (losses) and other settlements on insured derivatives | (1 | ) | (10 | ) | (56 | ) | |||||||
Interest rate swaps | Net gains (losses) on financial instruments at fair value and foreign exchange | (42 | ) | (66 | ) | 4 | ||||||||
Currency swaps-VIE | Net gains (losses) on financial instruments at fair value and foreign exchange-VIE | (2 | ) | (8 | ) | (2 | ) | |||||||
All other | Net gains (losses) on financial instruments at fair value and foreign exchange | (15 | ) | (26 | ) | (4 | ) | |||||||
Total | $ | (53) | $ | (85) | $ | (27) | ||||||||
| As of December 31, | ||||||||
In millions | 2018 | 2017 | ||||||
6.400% Senior Notes due 2022(1) | $ | 265 | $ | 265 | ||||
7.000% Debentures due 2025 | 46 | 46 | ||||||
7.150% Debentures due 2027 | 100 | 100 | ||||||
6.625% Debentures due 2028 | 141 | 141 | ||||||
5.700% Senior Notes due 2034(2) | 21 | 21 | ||||||
Surplus Notes due 2033(3) | 940 | 940 | ||||||
Accrued interest | 751 | 624 | ||||||
Debt issuance costs | (15) | (16) | ||||||
|
|
|
| |||||
Total | $ | 2,249 | $ | 2,121 | ||||
|
|
|
| |||||
As of December 31, | ||||||||
In millions | 2020 | 2019 | ||||||
6.400% Senior Notes due 2022 | $ | 0 | $ | 115 | ||||
7.000% Debentures due 2025 | 46 | 46 | ||||||
7.150% Debentures due 2027 | 100 | 100 | ||||||
6.625% Debentures due 2028 | 141 | 141 | ||||||
5.700% Senior Notes due 2034 (1) | 21 | 21 | ||||||
Surplus Notes due 2033 (2) | 940 | 940 | ||||||
Accrued interest | 991 | 877 | ||||||
Debt issuance costs | (10) | (12) | ||||||
Total | $ | 2,229 | $ | 2,228 | ||||
(2)—Callable anytime at the greater of par or the present value of the remaining scheduled payments of principal and interest.
(3)
financial statements.
In millions | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | |||||||||||||||||||||
Corporate debt | $ | — | $ | — | $ | — | $ | 265 | $ | — | $ | 308 | $ | 573 | ||||||||||||||
Surplus Notes due 2033 | — | — | — | — | — | 940 | 940 | |||||||||||||||||||||
|
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| |||||||||||||||
Total debt obligations due | $ | — | $ | — | $ | — | $ | 265 | $ | — | $ | 1,248 | $ | 1,513 | ||||||||||||||
|
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|
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| |||||||||||||||
In millions | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | |||||||||||||||||||||
Corporate debt | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 46 | $ | 262 | $ | 308 | ||||||||||||||
Surplus Notes due 2033 | 0 | 0 | 0 | 0 | 0 | 940 | 940 | |||||||||||||||||||||
Total debt obligations due | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 46 | $ | 1,202 | $ | 1,248 | ||||||||||||||
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 10: Debt (continued)
In millions | Principal Amount | |||
Maturity date: | ||||
2019 | $ | 7 | ||
2020 | 35 | |||
2021 | 2 | |||
2022 | 2 | |||
2023 | 20 | |||
Thereafter (through 2037) | 295 | |||
|
| |||
Total expected principal payments(1) | $ | 361 | ||
Less discount and other adjustments(2) | 50 | |||
|
| |||
Total | $ | 311 | ||
|
| |||
In millions | Principal Amount | |||
Maturity date: | ||||
2021 | $ | 2 | ||
2022 | 3 | |||
2023 | 19 | |||
2024 | 23 | |||
2025 | 35 | |||
Thereafter (through 2037) | 225 | |||
Total expected principal payments (1) | $ | 307 | ||
Less discount and other adjustments (2) | 38 | |||
Total | $ | 269 | ||
In millions | Principal Amount | |||
Maturity date: | ||||
2019 | $ | 58 | ||
2020 | — | |||
2021 | — | |||
2022 | 58 | |||
2023 | — | |||
Thereafter (through 2036) | 835 | |||
|
| |||
Total expected principal payments(1) | $ | 951 | ||
Less discount and other adjustments(2) | 229 | |||
|
| |||
Total | $ | 722 | ||
|
| |||
In millions | Principal Amount | |||
Maturity date: | ||||
2021 | $ | 0 | ||
2022 | 62 | |||
2023 | 12 | |||
2024 | 123 | |||
2025 | 61 | |||
Thereafter (through 2036) | 659 | |||
Total expected principal payments (1) | $ | 917 | ||
Less discount and other adjustments (2) | 207 | |||
Total | $ | 710 | ||
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 10: Debt (continued)
In connection with the Zohar II Claim in January of 2017, MBIA Corp. entered into the Facility. The initial outstanding principal amount of the Facility was $366 million, of which, $38 million of subordinated financing was provided by MBIA Inc. and eliminated in consolidation. As of December 31, 2018 and 2017,2019, the consolidated outstanding amount of the Refinanced Facility was $373$273 million and $330$246 million, respectively. Under the Facility, MBIA Inc. has agreed to provide an additional $50 million subordinated financing toThe New MZ Funding which MZ Funding would then lend to MBIA Corp., if needed by MBIA Insurance Corporation for liquidity purposes.Notes mature on January 20, 2022 and bear interest at 12% per annum. The Refinanced Facility is secured by a first priority security interest in all of MBIA Corp.’s right, title and interest in the recovery of its claims from the assets of Zohar I and Zohar II which include, among other things, loans made to, and equity interests in, certain portfolio companies purportedly controlled by the Zohar Sponsor and any claims that the Company may haveexist against the Zohar Sponsor. MBIA Corp. was obligated to pay a commitment fee of $10 million for this facility. The Facility matures on January 20, 2020 and bears interest at 14% per annum. If funds received from MBIA Corp. under the Refinanced Facility are insufficient to pay interest on interest payment dates, MZ Funding may elect to pay interest in kind, which increases the outstanding principal amount.
In millions | Principal Amount | |||
Maturity date: | ||||
2019 | $ | 108 | ||
2020 | 396 | |||
2021 | 72 | |||
2022 | 41 | |||
2023 | 13 | |||
Thereafter (through 2052) | 1,111 | |||
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| |||
Total | $ | 1,741 | (1) | |
|
| |||
(1)—Includes $480 million of VIE notes accountedexpected maturity dates and for at fair value as of December 31, 2018.
all other consolidated VIEs, principal amounts are based on the contractual maturity dates.
In millions | Insured Principal Amount | |||
Maturity date: | ||||
2021 | $ | 42 | ||
2022 | 308 | |||
2023 | 28 | |||
2024 | 14 | |||
2025 | 24 | |||
Thereafter (through 2038) | 306 | |||
Total | $ | 722 | ||
| Years Ended December 31, | ||||||||||||
In millions | 2018 | 2017 | 2016 | |||||||||
Domestic | $ | (287) | $ | (638) | $ | (362) | ||||||
Foreign | (9) | (23) | 23 | |||||||||
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Income (loss) before income taxes | $ | (296) | $ | (661) | $ | (339) | ||||||
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Years Ended December 31, | ||||||||||||||||||||
In millions | 2020 | 2019 | 2018 | |||||||||||||||||
Domestic | $ | (578) | $ | (357) | $ | (287) | ||||||||||||||
Foreign | 0 | 0 | (9) | |||||||||||||||||
Income (loss) before income taxes | $ | (578) | $ | (357) | $ | (296) | ||||||||||||||
| Years Ended December 31, | ||||||||||||
In millions | 2018 | 2017 | 2016 | |||||||||
Current taxes: | ||||||||||||
Federal | $ | — | $ | 4 | $ | 4 | ||||||
State | 1 | — | 1 | |||||||||
Deferred taxes: | ||||||||||||
Federal | (1) | 945 | (8) | |||||||||
Foreign | — | (5) | 2 | |||||||||
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Provision (benefit) for income taxes | — | 944 | (1) | |||||||||
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Income taxes charged (credited) to shareholders’ equity related to: | ||||||||||||
Change in unrealized gains (losses) on AFS securities | 5 | (1) | 8 | |||||||||
Change in AFS securities with OTTI | — | 1 | 5 | |||||||||
Change in foreign currency translation | — | 21 | 1 | |||||||||
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Total income taxes charged (credited) to shareholders’ equity | 5 | 21 | 14 | |||||||||
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Total effect of income taxes | $ | 5 | $ | 965 | $ | 13 | ||||||
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Years Ended December 31, | ||||||||||||
In millions | 2020 | 2019 | 2018 | |||||||||
Current taxes: | ||||||||||||
Federal | $ | 0 | $ | 0 | $ | 0 | ||||||
State | 0 | 2 | 1 | |||||||||
Deferred taxes: | ||||||||||||
Federal | 0 | 0 | (1) | |||||||||
Foreign | 0 | 0 | 0 | |||||||||
Provision (benefit) for income taxes | 0 | 2 | 0 | |||||||||
Income taxes charged (credited) to shareholders’ equity related to: | ||||||||||||
Change in unrealized gains (losses) on AFS securities | 0 | 0 | 5 | |||||||||
Change in AFS securities with OTTI | 0 | 0 | 0 | |||||||||
Change in foreign currency translation | 0 | 0 | 0 | |||||||||
Total income taxes charged (credited) to shareholders’ equity | 0 | 0 | 5 | |||||||||
Total effect of income taxes | $ | 0 | $ | 2 | $ | 5 | ||||||
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
Federal income tax computed at the statutory rate | 21.0% | 35.0% | 35.0% | |||||||||
Increase (reduction) in taxes resulting from: | ||||||||||||
Tax Reform/Change in Tax Rate | 0.0% | (71.4)% | 0.0% | |||||||||
Mark-to-market on warrants | (0.7)% | 1.4% | (1.5)% | |||||||||
Change in valuation allowance | (20.9)% | (116.9)% | (2.2)% | |||||||||
Nondeductible compensation | 0.0% | 0.0% | (1.4)% | |||||||||
Deferred inventory adjustments | (1.0)% | 0.8% | 3.6% | |||||||||
Foreign Taxes | 0.0% | 8.2% | 0.0% | |||||||||
Basis difference in foreign subsidiary | 0.0% | 0.0% | (33.0)% | |||||||||
Other | 1.6% | 0.1% | (0.3)% | |||||||||
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| |||||||
Effective tax rate | 0.0% | (142.8)% | 0.2% | |||||||||
Years Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Federal income tax computed at the statutory rate | 21.0% | 21.0% | 21.0% | |||||||||
Increase (reduction) in taxes resulting from: | ||||||||||||
Mark-to-market on warrants | 0.0% | 0.0% | (0.7)% | |||||||||
Change in valuation allowance | (20.3)% | (20.7)% | (20.9)% | |||||||||
State income tax, net of federal benefit | 0.0% | (0.4)% | 0.0% | |||||||||
Deferred inventory adjustments | 0.0% | 0.0% | (1.0)% | |||||||||
Other | (0.7)% | (0.5)% | 1.6% | |||||||||
Effective tax rate | 0.0% | (0.6)% | 0.0% | |||||||||
| As of | ||||||||
In millions | December 31, 2018 | December 31, 2017 | ||||||
Deferred tax liabilities: | ||||||||
Unearned premium revenue | $ | 59 | $ | 75 | ||||
Deferral of cancellation of indebtedness income | — | 14 | ||||||
Deferred acquisition costs | 16 | 21 | ||||||
Partnership basis difference | 3 | 11 | ||||||
Basis difference in foreign subsidiaries | — | 1 | ||||||
Net deferred taxes on VIEs | 55 | 38 | ||||||
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Total gross deferred tax liabilities | 133 | 160 | ||||||
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Deferred tax assets: | ||||||||
Compensation and employee benefits | 7 | 11 | ||||||
Accrued interest | 158 | 131 | ||||||
Loss and loss adjustment expense reserves | 135 | 87 | ||||||
Net operating loss | 512 | 582 | ||||||
Foreign tax credits | 62 | 62 | ||||||
Other-than-temporary impairments | 22 | 22 | ||||||
Net unrealized losses on insured derivatives | 8 | 14 | ||||||
Net losses on financial instruments at fair value and foreign exchange | 30 | 13 | ||||||
Net unrealized losses in accumulated other comprehensive income | 32 | 5 | ||||||
Other | 1 | 3 | ||||||
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Total gross deferred tax assets | 967 | 930 | ||||||
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Valuation allowance | 834 | 770 | ||||||
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Net deferred tax asset | $ | — | $ | — | ||||
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On June 26, 2017, S&P downgraded
As of | ||||||||
In millions | December 31, 2020 | December 31, 2019 | ||||||
Deferred tax liabilities: | ||||||||
Unearned premium revenue | $ | 48 | $ | 54 | ||||
Deferred acquisition costs | 10 | 13 | ||||||
Net unrealized gains and losses in accumulated other comprehensive income | 25 | 0 | ||||||
Net deferred taxes on VIEs | 53 | 51 | ||||||
Other | 6 | 0 | ||||||
Total gross deferred tax liabilities | 142 | 118 | ||||||
Deferred tax assets: | ||||||||
Compensation and employee benefits | 9 | 8 | ||||||
Accrued interest | 210 | 185 | ||||||
Partnership basis difference | 10 | 10 | ||||||
Loss and loss adjustment expense reserves | 98 | 101 | ||||||
Net operating loss | 656 | 590 | ||||||
Foreign tax credits | 61 | 61 | ||||||
Other-than-temporary impairments | 0 | 2 | ||||||
Net unrealized gains and losses on insured derivatives | 10 | 9 | ||||||
Net gains and losses on financial instruments at fair value and foreign exchange | 54 | 21 | ||||||
Other | — | 4 | ||||||
Total gross deferred tax assets | 1,108 | 991 | ||||||
Valuation allowance | 966 | 873 | ||||||
Net deferred tax asset | $ | 0 | $ | 0 | ||||
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Act”), which among other items reduces the federal corporate tax rate to 21% effective January 1, 2018. As a result, during the fourth quarter of 2017, the Company revalued its net tax deferred tax asset using the newly enacted tax rate of 21%.
Under the Act,
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 11: Income Taxes (continued)
During 2017, the Company sold MBIA UK and reversed any deferred income taxes with respect to the differences in the book and tax basis in the Company’s carrying value of MBIA UK.
2020.
2030.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12: Business Segments (continued)
| Year Ended December 31, 2018 | ||||||||||||||||||||
In millions | U.S. Public Finance Insurance | Corporate | International and Structured Finance Insurance | Eliminations | Consolidated | |||||||||||||||
Revenues(1) | $ | 178 | $ | 31 | $ | 108 | $ | — | $ | 317 | ||||||||||
Net change in fair value of insured derivatives | — | — | (25) | — | (25) | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (20) | 22 | (19) | — | (17) | |||||||||||||||
Net investment losses related to other-than-temporary impairments | (5) | — | — | — | (5) | |||||||||||||||
Net gains (losses) on extinguishment of debt | — | 3 | — | — | 3 | |||||||||||||||
Other net realized gains (losses) | — | (2) | 2 | — | — | |||||||||||||||
Revenues of consolidated VIEs | — | — | (111) | — | (111) | |||||||||||||||
Inter-segment revenues(2) | 29 | 45 | 24 | (98) | — | |||||||||||||||
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Total revenues | 182 | 99 | (21) | (98) | 162 | |||||||||||||||
Losses and loss adjustment | 91 | — | (28) | — | 63 | |||||||||||||||
Operating | 18 | 47 | 26 | — | 91 | |||||||||||||||
Interest | — | 78 | 128 | — | 206 | |||||||||||||||
Expenses of consolidated VIEs | — | — | 98 | — | 98 | |||||||||||||||
Inter-segment expenses(2) | 44 | 20 | 33 | (97) | — | |||||||||||||||
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Total expenses | 153 | 145 | 257 | (97) | 458 | |||||||||||||||
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Income (loss) before income taxes | $ | 29 | $ | (46) | $ | (278) | $ | (1) | $ | (296) | ||||||||||
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Identifiable assets | $ | 4,203 | $ | 1,192 | $ | 4,742 | $ | (2,061) | (3) | $ | 8,076 | |||||||||
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2018:
Year Ended December 31, 2020 | ||||||||||||||||||||
In millions | U.S. Public Finance Insurance | Corporate | International and Structured Finance Insurance | Eliminations | Consolidated | |||||||||||||||
Revenues (1) | $ | 102 | $ | 20 | $ | 29 | $ | 0 | $ | 151 | ||||||||||
Net change in fair value of insured derivatives | 0 | 0 | 6 | 0 | 6 | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 39 | (63) | (14) | 0 | (38) | |||||||||||||||
Other net realized gains (losses) | (1) | 0 | 1 | 0 | 0 | |||||||||||||||
Revenues of consolidated VIEs | 0 | 0 | 163 | 0 | 163 | |||||||||||||||
Inter-segment revenues (2) | 28 | 66 | 12 | (106) | 0 | |||||||||||||||
Total revenues | 168 | 23 | 197 | (106) | 282 | |||||||||||||||
Losses and loss adjustment | 163 | 0 | 367 | 0 | 530 | |||||||||||||||
Operating | 14 | 69 | 14 | 0 | 97 | |||||||||||||||
Interest | 0 | 65 | 113 | 0 | 178 | |||||||||||||||
Expenses of consolidated VIEs | 0 | 0 | 55 | 0 | 55 | |||||||||||||||
Inter-segment expenses (2) | 45 | 22 | 39 | (106) | 0 | |||||||||||||||
Total expenses | 222 | 156 | 588 | (106) | 860 | |||||||||||||||
Income (loss) before income taxes | $ | (54) | $ | (133) | $ | (391) | $ | 0 | $ | (578) | ||||||||||
Identifiable assets | $ | 3,644 | $ | 954 | $ | 3,671 | $ | (2,518) | (3) | $ | 5,751 | |||||||||
| Year Ended December 31, 2017 | ||||||||||||||||||||
In millions | U.S. Public Finance Insurance | Corporate | International and Structured Finance Insurance | Eliminations | Consolidated | |||||||||||||||
Revenues(1) | $ | 262 | $ | 30 | $ | 78 | $ | — | $ | 370 | ||||||||||
Net change in fair value of insured derivatives | — | — | (51) | — | (51) | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 25 | (32) | (17) | — | (24) | |||||||||||||||
Net investment losses related to other-than-temporary impairments | (106) | — | — | — | (106) | |||||||||||||||
Net gains (losses) on extinguishment of debt | — | 28 | — | — | 28 | |||||||||||||||
Other net realized gains (losses) | (4) | (4) | 39 | — | 31 | |||||||||||||||
Revenues of consolidated VIEs | — | — | 185 | — | 185 | |||||||||||||||
Inter-segment revenues(2) | 23 | 60 | 44 | (127) | — | |||||||||||||||
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Total revenues | 200 | 82 | 278 | (127) | 433 | |||||||||||||||
Losses and loss adjustment | 499 | — | 184 | — | 683 | |||||||||||||||
Operating | 36 | 59 | 34 | — | 129 | |||||||||||||||
Interest | — | 81 | 116 | — | 197 | |||||||||||||||
Expenses of consolidated VIEs | — | — | 85 | — | 85 | |||||||||||||||
Inter-segment expenses(2) | 72 | 11 | 47 | (130) | — | |||||||||||||||
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Total expenses | 607 | 151 | 466 | (130) | 1,094 | |||||||||||||||
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Income (loss) before income taxes | $ | (407) | $ | (69) | $ | (188) | $ | 3 | $ | (661) | ||||||||||
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Identifiable assets | $ | 4,582 | $ | 1,312 | $ | 5,404 | $ | (2,203) | (3) | $ | 9,095 | |||||||||
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Year Ended December 31, 2019 | ||||||||||||||||||||
In millions | U.S. Public Finance Insurance | Corporate | International and Structured Finance Insurance | Eliminations | Consolidated | |||||||||||||||
Revenues (1) | $ | 139 | $ | 27 | $ | 34 | $ | 0 | $ | 200 | ||||||||||
Net change in fair value of insured derivatives | 0 | 0 | 15 | 0 | 15 | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 139 | (54) | (33) | 0 | 52 | |||||||||||||||
Net investment losses related to other-than-temporary impairments | (67) | 0 | 0 | 0 | (67) | |||||||||||||||
Net gains (losses) on extinguishment of debt | 0 | (1) | 0 | 0 | (1) | |||||||||||||||
Other net realized gains (losses) | 2 | (2) | 4 | 0 | 4 | |||||||||||||||
Revenues of consolidated VIEs | 21 | 1 | 55 | 0 | 77 | |||||||||||||||
Inter-segment revenues (2) | 28 | 62 | 21 | (111) | 0 | |||||||||||||||
Total revenues | 262 | 33 | 96 | (111) | 280 | |||||||||||||||
Losses and loss adjustment | 53 | 0 | 189 | 0 | 242 | |||||||||||||||
Operating | 13 | 69 | 21 | 0 | 103 | |||||||||||||||
Interest | 0 | 73 | 128 | 0 | 201 | |||||||||||||||
Expenses of consolidated VIEs | 0 | 0 | 91 | 0 | 91 | |||||||||||||||
Inter-segment expenses (2) | 52 | 23 | 36 | (111) | 0 | |||||||||||||||
Total expenses | 118 | 165 | 465 | (111) | 637 | |||||||||||||||
Income (loss) before income taxes | $ | 144 | $ | (132) | $ | (369) | $ | 0 | $ | (357) | ||||||||||
Identifiable assets | $ | 4,019 | $ | 1,041 | $ | 4,504 | $ | (2,280) | (3) | $ | 7,284 | |||||||||
| Year Ended December 31, 2016 | ||||||||||||||||||||
In millions | U.S. Public Finance Insurance | Corporate | International and Structured Finance Insurance | Eliminations | Consolidated | |||||||||||||||
Revenues(1) | $ | 335 | $ | 24 | $ | 121 | $ | — | $ | 480 | ||||||||||
Net change in fair value of insured derivatives | — | — | (19) | — | (19) | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 72 | (14) | 26 | — | 84 | |||||||||||||||
Net investment losses related to other-than-temporary impairments | (4) | (1) | — | — | (5) | |||||||||||||||
Net gains (losses) on extinguishment of debt | — | 5 | — | — | 5 | |||||||||||||||
Other net realized gains (losses) | 2 | (5) | (279) | — | (282) | |||||||||||||||
Revenues of consolidated VIEs | — | — | 31 | — | 31 | |||||||||||||||
Inter-segment revenues(2) | 22 | 58 | 51 | (131) | — | |||||||||||||||
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Total revenues | 427 | 67 | (69) | (131) | 294 | |||||||||||||||
Losses and loss adjustment | 74 | — | 146 | — | 220 | |||||||||||||||
Operating | 40 | 80 | 57 | — | 177 | |||||||||||||||
Interest | — | 91 | 106 | — | 197 | |||||||||||||||
Expenses of consolidated VIEs | — | — | 39 | — | 39 | |||||||||||||||
Inter-segment expenses(2) | 69 | 4 | 52 | (125) | — | |||||||||||||||
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Total expenses | 183 | 175 | 400 | (125) | 633 | |||||||||||||||
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Income (loss) before income taxes | $ | 244 | $ | (108) | $ | (469) | $ | (6) | $ | (339) | ||||||||||
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Identifiable assets | $ | 5,077 | $ | 2,479 | $ | 6,486 | $ | (2,905) | (3) | $ | 11,137 | |||||||||
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Year Ended December 31, 2018 | ||||||||||||||||||||
In millions | U.S. Public Finance Insurance | Corporate | International and Structured Finance Insurance | Eliminations | Consolidated | |||||||||||||||
Revenues (1) | $ | 178 | $ | 31 | $ | 108 | $ | 0 | $ | 317 | ||||||||||
Net change in fair value of insured derivatives | 0 | 0 | (25) | 0 | (25) | |||||||||||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (20) | 22 | (19) | 0 | (17) | |||||||||||||||
Net investment losses related to other-than-temporary impairments | (5) | 0 | 0 | 0 | (5) | |||||||||||||||
Net gains (losses) on extinguishment of debt | 0 | 3 | 0 | 0 | 3 | |||||||||||||||
Other net realized gains (losses) | 0 | (2) | 2 | 0 | 0 | |||||||||||||||
Revenues of consolidated VIEs | 0 | 0 | (111) | 0 | (111) | |||||||||||||||
Inter-segment revenues (2) | 29 | 45 | 24 | (98) | 0 | |||||||||||||||
Total revenues | 182 | 99 | (21) | (98) | 162 | |||||||||||||||
Losses and loss adjustment | 91 | 0 | (28) | 0 | 63 | |||||||||||||||
Operating | 18 | 47 | 26 | 0 | 91 | |||||||||||||||
Interest | 0 | 78 | 128 | 0 | 206 | |||||||||||||||
Expenses of consolidated VIEs | 0 | 0 | 98 | 0 | 98 | |||||||||||||||
Inter-segment expenses (2) | 44 | 20 | 33 | (97) | 0 | |||||||||||||||
Total expenses | 153 | 145 | 257 | (97) | 458 | |||||||||||||||
Income (loss) before income taxes | $ | 29 | $ | (46) | $ | (278) | $ | (1) | $ | (296) | ||||||||||
(3)—Consists of intercompany deferred income taxes, reinsurance balances and repurchase agreements.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12: Business Segments (continued)
| Years Ended December 31, | ||||||||||||
In millions | 2018 | 2017 | 2016 | |||||||||
Total premiums earned: | ||||||||||||
United States | $ | 94 | $ | 169 | $ | 238 | ||||||
Other Americas | 68 | 25 | 26 | |||||||||
United Kingdom | — | 2 | 27 | |||||||||
Other | — | 6 | 13 | |||||||||
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Total | $ | 162 | $ | 202 | $ | 304 | ||||||
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Years Ended December 31, | ||||||||||||
In millions | 2020 | 2019 | 2018 | |||||||||
Total premiums earned: | ||||||||||||
United States | $ | 55 | $ | 63 | $ | 94 | ||||||
Other Americas | 16 | 17 | 68 | |||||||||
Other | 2 | 5 | 0 | |||||||||
Total | $ | 73 | $ | 85 | $ | 162 | ||||||
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 13: Insurance in Force (continued)
| As of December 31, | ||||||||||||||||
$ in billions | 2018 | 2017 | ||||||||||||||
Geographic Location | Insurance in Force | % of Insurance in Force | Insurance in Force | % of Insurance in Force | ||||||||||||
California | $ | 25.9 | 20.2% | $ | 30.3 | 19.6% | ||||||||||
Illinois | 11.1 | 8.7% | 13.1 | 8.5% | ||||||||||||
Puerto Rico | 7.9 | 6.2% | 8.2 | 5.3% | ||||||||||||
New Jersey | 6.8 | 5.3% | 7.6 | 4.9% | ||||||||||||
New York | 5.9 | 4.6% | 9.3 | 6.0% | ||||||||||||
Hawaii | 4.3 | 3.4% | 4.5 | 2.9% | ||||||||||||
Texas | 4.3 | 3.4% | 6.1 | 3.9% | ||||||||||||
Virginia | 3.7 | 2.9% | 4.2 | 2.7% | ||||||||||||
Oregon | 3.2 | 2.5% | 3.6 | 2.3% | ||||||||||||
Florida | 3.1 | 2.4% | 3.8 | 2.5% | ||||||||||||
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| |||||||||
Subtotal | 76.2 | 59.6% | 90.7 | 58.6% | ||||||||||||
Nationally Diversified | 13.5 | 10.5% | 15.7 | 10.1% | ||||||||||||
Other states | 29.1 | 22.7% | 37.0 | 23.9% | ||||||||||||
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| |||||||||
Total United States | 118.8 | 92.8% | 143.4 | 92.6% | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Internationally Diversified | 0.4 | 0.3% | 0.4 | 0.3% | ||||||||||||
Country specific | 8.9 | 6.9% | 11.1 | 7.1% | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Totalnon-United States | 9.3 | 7.2% | 11.5 | 7.4% | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 128.1 | 100.0% | $ | 154.9 | 100.0% | ||||||||||
|
|
|
|
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|
|
| |||||||||
As of December 31, | ||||||||||||||||
$ in billions | 2020 | 2019 | ||||||||||||||
Geographic Location | Insurance in Force | % of Insurance in Force | Insurance in Force | % of Insurance in Force | ||||||||||||
California | $ | 20.0 | 21.9% | $ | 22.4 | 20.9% | ||||||||||
Illinois | 8.9 | 9.7% | 10.2 | 9.5% | ||||||||||||
New Jersey | 5.4 | 5.9% | 6.0 | 5.6% | ||||||||||||
Hawaii | 4.1 | 4.4% | 4.2 | 3.9% | ||||||||||||
Texas | 3.7 | 4.0% | 4.0 | 3.7% | ||||||||||||
Virginia | 3.2 | 3.6% | 3.6 | 3.3% | ||||||||||||
New York | 3.0 | 3.3% | 4.7 | 4.4% | ||||||||||||
Puerto Rico | 2.9 | 3.2% | 3.3 | 3.1% | ||||||||||||
Oregon | 2.7 | 2.9% | 2.9 | 2.7% | ||||||||||||
Colorado | 2.1 | 2.3% | 2.8 | 2.6% | ||||||||||||
Subtotal | 56.0 | 61.2% | 64.1 | 59.7% | ||||||||||||
Nationally Diversified | 8.7 | 9.5% | 11.8 | 11.0% | ||||||||||||
Other states | 19.8 | 21.7% | 23.5 | 21.8% | ||||||||||||
Total United States | 84.5 | 92.4% | 99.4 | 92.5% | ||||||||||||
Internationally Diversified | 0.3 | 0.3% | 0.3 | 0.3% | ||||||||||||
Country specific | 6.6 | 7.3% | 7.8 | 7.2% | ||||||||||||
Total non-United States | 6.9 | 7.6% | 8.1 | 7.5% | ||||||||||||
Total | $ | 91.4 | 100.0% | $ | 107.5 | 100.0% | ||||||||||
| As of December 31, | ||||||||||||||||
$ in billions | 2018 | 2017 | ||||||||||||||
Bond type | Insurance in Force | Gross Par Amount | Insurance in Force | Gross Par Amount | ||||||||||||
Global public finance—United States: | ||||||||||||||||
General obligation (1) | $ | 34.2 | $ | 17.3 | $ | 42.8 | $ | 22.9 | ||||||||
General obligation—lease | 4.0 | 3.0 | 5.1 | 3.8 | ||||||||||||
Municipal utilities | 14.2 | 9.5 | 17.7 | 11.8 | ||||||||||||
Tax-backed | 24.0 | 11.2 | 26.5 | 12.4 | ||||||||||||
Transportation | 12.0 | 4.8 | 15.2 | 6.9 | ||||||||||||
Higher education | 2.5 | 1.7 | 3.2 | 2.1 | ||||||||||||
Health care | 1.7 | 1.2 | 2.6 | 1.8 | ||||||||||||
Military housing | 15.8 | 7.2 | 16.3 | 7.3 | ||||||||||||
Investor-owned utilities(2) | 2.0 | 1.3 | 3.1 | 2.0 | ||||||||||||
Municipal housing | 0.3 | 0.2 | 0.4 | 0.3 | ||||||||||||
Other (3) | 0.9 | 0.5 | 1.1 | 0.6 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total United States | 111.6 | 57.9 | 134.0 | 71.9 | ||||||||||||
|
|
|
|
|
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|
| |||||||||
Global publicfinance—non-United States: | ||||||||||||||||
International utilities | 1.4 | 1.2 | 1.7 | 1.4 | ||||||||||||
Sovereign-related andsub-sovereign(4) | 3.5 | 2.5 | 3.8 | 2.7 | ||||||||||||
Transportation | 3.0 | 2.5 | 4.5 | 3.6 | ||||||||||||
Other(5) | 0.1 | 0.1 | 0.2 | 0.1 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Totalnon-United States | 8.0 | 6.3 | 10.2 | 7.8 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total global public finance | 119.6 | 64.2 | 144.2 | 79.7 | ||||||||||||
|
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|
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|
|
|
| |||||||||
Global structured finance: | ||||||||||||||||
Collateralized debt obligations(6) | 0.5 | 0.4 | 0.5 | 0.4 | ||||||||||||
Mortgage-backed residential | 3.4 | 2.5 | 4.7 | 3.6 | ||||||||||||
Mortgage-backed commercial | 0.6 | 0.3 | 0.7 | 0.3 | ||||||||||||
Consumer asset-backed | 0.5 | 0.4 | 0.9 | 0.7 | ||||||||||||
Corporate asset-backed(7) | 3.5 | 2.0 | 3.9 | 2.3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total global structured finance | 8.5 | 5.6 | 10.7 | 7.3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 128.1 | $ | 69.8 | $ | 154.9 | $ | 87.0 | ||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, | ||||||||||||||||
$ in billions | 2020 | 2019 | ||||||||||||||
Bond type | Insurance in Force | Gross Par Amount | Insurance in Force | Gross Par Amount | ||||||||||||
Global public finance—United States: | ||||||||||||||||
General obligation (1) | $ | 25.0 | $ | 12.1 | $ | 29.1 | $ | 14.3 | ||||||||
Tax-backed | 15.7 | 7.9 | 17.7 | 9.2 | ||||||||||||
Military housing | 14.8 | 7.0 | 15.2 | 7.1 | ||||||||||||
Municipal utilities | 10.6 | 7.3 | 12.0 | 8.1 | ||||||||||||
Transportation | 9.2 | 3.0 | 10.6 | 3.9 | ||||||||||||
General obligation—lease | 2.4 | 1.9 | 3.1 | 2.3 | ||||||||||||
Higher education | 1.5 | 1.1 | 2.2 | 1.5 | ||||||||||||
Health care | 1.2 | 0.8 | 1.4 | 1.0 | ||||||||||||
Investor-owned utilities (2) | 0.9 | 0.6 | 1.4 | 0.9 | ||||||||||||
Municipal housing | 0.1 | 0.1 | 0.2 | 0.1 | ||||||||||||
Other (3) | 0.1 | 0.1 | 0.8 | 0.5 | ||||||||||||
Total United States | 81.5 | 41.9 | 93.7 | 48.9 | ||||||||||||
Global public finance—non-United States: | ||||||||||||||||
Sovereign-related and sub-sovereign (4) | 2.8 | 2.1 | 3.0 | 2.3 | ||||||||||||
Transportation | 2.1 | 1.8 | 2.7 | 2.3 | ||||||||||||
International utilities | 0.9 | 0.8 | 1.1 | 1.0 | ||||||||||||
Other (5) | 0.1 | 0.1 | 0.2 | 0.1 | ||||||||||||
Total non-United States | 5.9 | 4.8 | 7.0 | 5.7 | ||||||||||||
Total global public finance | 87.4 | 46.7 | 100.7 | 54.6 | ||||||||||||
Global structured finance: | ||||||||||||||||
Mortgage-backed residential | 2.0 | 1.5 | 2.5 | 1.8 | ||||||||||||
Corporate asset-backed (6) | 0.8 | 0.6 | 3.0 | 1.7 | ||||||||||||
Mortgage-backed commercial | 0.5 | 0.2 | 0.5 | 0.2 | ||||||||||||
Collateralized debt obligations | 0.4 | 0.3 | 0.4 | 0.3 | ||||||||||||
Consumer asset-backed | 0.3 | 0.3 | 0.4 | 0.3 | ||||||||||||
Total global structured finance | 4.0 | 2.9 | 6.8 | 4.3 | ||||||||||||
Total | $ | 91.4 | $ | 49.6 | $ | 107.5 | $ | 58.9 | ||||||||
financing.
(7)—As of December 31, 2018,2020, all remaining insurance in force and gross par relating to structured insurance securitizations was terminated. As of December 31, 2019, includes structured insurance securitizations of $2.2$2.1 billion and $1.0 billion of insurance in force and gross par amount, respectively. As of December 31, 2017, includes structured insurance securitizations of $2.3 billion and $1.1 billion of insurance in force and gross par amount, respectively.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 13: Insurance in Force (continued)
In millions | ||||||||||||||||||||
Reinsurers | Standard & Poor’s Rating (Status) | Moody’s Rating (Status) | Ceded Par Outstanding | Letters of Credit/Trust Accounts | Reinsurance Recoverable(1) | |||||||||||||||
Assured Guaranty Re Ltd. | AA | WR(2) | $ | 1,009 | $ | 27 | $ | 4 | ||||||||||||
| (Stable Outlook) | ||||||||||||||||||||
Assured Guaranty Corp. | AA | A3 | 870 | — | 2 | |||||||||||||||
| (Stable Outlook) | (Stable Outlook) | |||||||||||||||||||
Overseas Private | AA+ | Aaa | 244 | — | — | |||||||||||||||
Investment Corporation | (Stable Outlook) | (Stable Outlook) | ||||||||||||||||||
Others | A+ or above | WR(2) | 71 | 3 | — | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total | $ | 2,194 | $ | 30 | $ | 6 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
In millions | ||||||||||||||||||||
Reinsurers | Standard & Poor’s Rating (Status) | Moody’s Rating (Status) | Ceded Par Outstanding | Letters of Credit/Trust Accounts | Reinsurance Recoverable/ (Payable) (1) | |||||||||||||||
Assured Guaranty Re Ltd. | AA | WR (2) | $ | 584 | $ | 21 | $ | 0 | ||||||||||||
| (Stable Outlook) | ||||||||||||||||||||
Assured Guaranty Corp. | AA | A3 | 620 | 0 | (37) | |||||||||||||||
| (Stable Outlook) | (Stable Outlook) | |||||||||||||||||||
Overseas Private | AA+ | Aaa | 221 | 0 | 0 | |||||||||||||||
Investment Corporation | (Stable Outlook) | (Stable Outlook) | ||||||||||||||||||
Others | A + or above | WR or above (2) | 55 | 0 | (1) | |||||||||||||||
Total | $ | 1,480 | $ | 21 | $ | (38) | ||||||||||||||
losses net of (payables) on salvage received.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
MBIA Insurance Corporation
For the years ended December 31, 2018 and 2017, MBIA Insurance Corporation had statutory net income of $134 million and $107 million, respectively. MBIA Insurance Corporation’s policyholders’ surplus as of December 31, 20182020 and 20172019 included negative unassigned surplus of $1.7 billion and $1.8 billion, respectively.$1.9 billion. MBIA Insurance Corporation’s policyholders’ surplus may be further negatively impacted if future additional insured losses are incurred.
In 2018
The Company maintains a qualifiednon-contributory defined contribution pension plan to which the Company contributes 10% of each eligible employee’s annual compensation. Annual compensation for determining such contributions consists of base salary and bonus, as applicable, up to a maximum of $2 million in 2018 and 2017. Pension benefits vest over a five-year period with 20% vested after two years, 60% vested after three years, 80% vested after four years and 100% vested after five years. The Company funds the annual pension contribution by the following February of each applicable year. Pension expense related to the Company’s qualified pension plan for the years ended December 31, 2018, 2017 and 2016 was $1 million, $2 million, and $1 million, respectively.
The Company also maintains a qualified profit sharing/401(k) plan. The plan is a voluntary contributory plan that allows eligible employees to defer compensation for federal income tax purposes under Section 401(k) of the Internal Revenue Code of 1986, as amended. Employees may contribute, through payroll deductions, up to 25% of eligible compensation. The Company matches employee contributions up to the first 5% of such compensation. The 401(k) matching contributions are made in the form of cash, whereby participants may direct the Company match to an investment of their choice. The 401(k) matching benefits vest over a five-year period with 20% vested after two years, 60% vested after three years, 80% vested after four years and 100% vested after five years. Generally, a participating employee is entitled to distributions from the plans upon termination of employment, retirement, death or disability. Participants who qualify for distribution may receive a single lump sum, transfer the assets to another qualified plan or individual retirement account, or receive a series of specified installment payments. Profit sharing/401(k) expense related to the Company’s qualified plan for each of the years ended December 31, 2018, 2017 and 2016 was $1 million.
In addition to the above two plans, the Company maintains anon-qualified deferred compensation plan. Contributions to the above qualified plans that exceed limitations established by federal regulations are then contributed to thenon-qualified deferred compensation plan. Thenon-qualified pension and profit sharing/401(k) expense for the years ended December 31, 2018, 2017 and 2016 was $1 million, $3 million and $3 million, respectively.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The stock option component of the Omnibus Plan enables key employees of Currently, the Company and its subsidiaries to acquire shares of common stock of the Company or to benefit from appreciation in the price of the common stock of the Company. The stock option grants which may be awarded every year, provide the right to purchase shares of common stock at the fair value of the stock on the date of the grant. Options granted will either be Incentive Stock Options (“ISOs”) that qualify under Section 422(a) of the Internal Revenue Code, orNon-Qualified Stock Options (“NQSOs”). ISOs and NQSOs are granted at a price not less than 100% of the fair value, defined as the closing price on the grant date, of the Company’s commonrestricted stock. Options are exercisable as specified at the time of grant depending on the level of the recipient (generally five years) and expire either seven or ten years from the date of grant (or shorter if specified or following termination of employment).
2020.
MBIA Inc. and Subsidiaries
Notes Refer to Consolidated Financial Statements
Note 16: Long-term Incentive Plans (continued)
the “Performance Based Awards” section below for additional information on compensation expense.
| Restricted Share Activity | ||||||||||||||||||||||||
| 2018 | 2017 | 2016 | ||||||||||||||||||||||
| Number of Shares | Weighted Average Price Per Share | Number of Shares | Weighted Average Price Per Share | Number of Shares | Weighted Average Price Per Share | |||||||||||||||||||
Outstanding at beginning of year | 2,392,978 | $ | 9.6142 | 3,916,661 | $ | 9.3553 | 4,727,319 | $ | 9.9302 | |||||||||||||||
Granted | 3,668,801 | 9.9711 | 708,529 | 9.3740 | 756,381 | 8.2722 | ||||||||||||||||||
Vested | (267,163) | 10.0705 | (1,051,657) | 9.9732 | (917,039) | 13.6196 | ||||||||||||||||||
Forfeited | (750,000) | 9.9576 | (1,180,555) | 8.2912 | (650,000) | 6.2601 | ||||||||||||||||||
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| |||||||||||||
Outstanding at end of year | 5,044,616 | $ | 9.7986 | 2,392,978 | $ | 9.6142 | 3,916,661 | $ | 9.3553 | |||||||||||||||
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Stock Options
The Company determines the fair value for stock option awards at the date of grant and is estimated using the Black-Scholes option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions, are fully transferable, and contain both service and some performance conditions. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.
During 2018, 2017 and 2016, there were no stock option awards granted. The Company did not expense deferred tax assets during 2018 and 2017 after consideration of the Company’s valuation allowance. During 2016, the Company expensed deferred tax assets of $1 million related to the stock option awards as a charge through the statements of operations. As of December 31, 2018, there was no remaining unrecognized compensation cost and all stock options had vested.
There were no stock options outstanding as of December 31, 2018. A summary of the Company’s stock options activity as of December 31, 2017 and 2016, and changes during the years ended on those dates, is presented in the following tables:
| 2017 | 2016 | |||||||||||||||
Options | Number of Shares | Weighted Average Price Per Share | Number of Shares | Weighted Average Price Per Share | ||||||||||||
Outstanding at beginning of year | 237,800 | $ | 14.6689 | 2,325,300 | $ | 6.3703 | ||||||||||
Exercised | (200,000) | 5.0500 | (2,050,000) | 4.4722 | ||||||||||||
Expired or forfeited | (37,800) | 65.5624 | (37,500) | 57.5100 | ||||||||||||
Outstanding at end of year | — | $ | — | 237,800 | $ | 14.6689 | ||||||||||
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| |||||||||
Exercisable at end of year | — | $ | — | 237,800 | $ | 14.6689 | ||||||||||
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| |||||||||
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 16: Long-term Incentive Plans (continued)
Restricted Share Activity | ||||||||||||||||||||||||
2020 | 2019 | 2018 | ||||||||||||||||||||||
Number of Shares | Weighted Average Price Per Share | Number of Shares | Weighted Average Price Per Share | Number of Shares | Weighted Average Price Per Share | |||||||||||||||||||
Outstanding at beginning of year | 5,146,828 | $ | 10.0958 | 5,044,616 | $ | 9.7986 | 2,392,978 | $ | 9.6142 | |||||||||||||||
Granted | 1,003,720 | 6.8150 | 711,176 | 11.4185 | 3,668,801 | 9.9711 | ||||||||||||||||||
Vested | (448,455) | 8.9834 | (416,676) | 9.0332 | (267,163) | 10.0705 | ||||||||||||||||||
Forfeited | (247,286) | 11.1800 | (192,288) | 9.4917 | (750,000) | 9.9576 | ||||||||||||||||||
Outstanding at end of year | 5,454,807 | $ | 9.5344 | 5,146,828 | $ | 10.0958 | 5,044,616 | $ | 9.7986 | |||||||||||||||
| Years Ended December 31, | ||||||||||||
In millions except per share amounts | 2018 | 2017 | 2016 | |||||||||
Basic earnings per share: | ||||||||||||
Net income (loss) available to common shareholders | (296) | (1,605) | (338) | |||||||||
Basic weighted average shares (1) | 89.0 | 118.9 | 133.0 | |||||||||
|
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| |||||||
Net income (loss) per basic common share | $ | (3.33) | $ | (13.50) | $ | (2.54) | ||||||
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| |||||||
Diluted earnings per share: | ||||||||||||
Net income (loss) available to common shareholders | (296) | (1,605) | (338) | |||||||||
Diluted weighted average shares | 89.0 | 118.9 | 133.0 | |||||||||
|
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| |||||||
Net income (loss) per diluted common share | $ | (3.33) | $ | (13.50) | $ | (2.54) | ||||||
|
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| |||||||
Potentially dilutive securities excluded from the diluted EPS because of antidilutive affect | 4.4 | 14.1 | 16.5 | |||||||||
2018:
Years Ended December 31, | ||||||||||||
In millions except per share amounts | 2020 | 2019 | 2018 | |||||||||
Basic earnings per share: | ||||||||||||
Net income (loss) available to common shareholders | $ | (578) | $ | (359) | $ | (296) | ||||||
Basic weighted average shares (1) | 59.1 | 81.0 | 89.0 | |||||||||
Net income (loss) per basic common share | $ | (9.78) | $ | (4.43) | $ | (3.33) | ||||||
Diluted earnings per share: | ||||||||||||
Net income (loss) available to common shareholders | (578) | (359) | (296) | |||||||||
Diluted weighted average shares | 59.1 | 81.0 | 89.0 | |||||||||
Net income (loss) per diluted common share | $ | (9.78) | $ | (4.43) | $ | (3.33) | ||||||
Potentially dilutive securities excluded from the diluted EPS because of antidilutive affect | 4.6 | 4.3 | 4.4 | |||||||||
Repurchases
On February 23, 2016, the Company’s Board of Directors authorized the repurchase by the Company or National of up to $100 million of its outstanding shares under a new share repurchase authorization. On June 27, 2017, the Company’s Board of Directors approved a new share repurchase authorization for the Company or National to repurchase up to $250 million of the Company’s outstanding common shares. This new program replaced approximately $13 million remaining under the Board’s February 23, 2016 authorization. During 2017, the Company exhausted any remaining capacity under the June 27, 2017 authorization. On November 3, 2017, the Company’s Board of Directors approved a new share repurchase authorization for the Company or National to repurchase up to $250 million of the Company’s outstanding common shares.
In millions, except per share amounts | 2018 | 2017 | ||||||
Number of shares repurchased | 5.8 | 43.0 | ||||||
Average price paid per share | $ | 8.21 | $ | 7.55 | ||||
Remaining authorization as of December 31 | $ | 202 | $ | 250 | ||||
Subsequent to December 31, 2018 through February 21, 2019, the Company repurchased .5 million common shares of MBIA Inc. at an average share price of $8.94 under the November 3, 2017 share repurchase authorization. As of February 21, 2019, $198 million remained available under this new program.
During 2018 and 2017, 62,134 and 490,557 shares, respectively, were purchased by the Company for settling awards under the Company’s long-term incentive plans.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 18: Common and
In millions, except per share amounts | 2020 | 2019 | 2018 | |||||||||
Number of shares purchased or repurchased | 26.4 | 11.1 | 5.8 | |||||||||
Average price paid per share | $ | 7.50 | $ | 9.12 | $ | 8.21 | ||||||
Remaining authorization as of December 31 | $ | 0 | $ | 101 | $ | 202 | ||||||
Stock Warrants
In April and June of 2018, the holder of certain MBIA Inc. warrants exercised its right to purchase, in total, 11.85 million shares of MBIA Inc. common stock at an exercise price of $9.59 per share. As a result, the Company issued a total of 1.3 million shares of MBIA Inc. common stock to the holder in accordance with the cashless settlement provision of the warrants.
Preferred Stock
As of December 31, 2018,2020, MBIA Insurance Corporation had 2,759 shares of preferred stock issued and outstanding with a carrying value of $28 million, including 1,444 shares held by MBIA Inc. that were purchased at a weighted average price of $10,900 per share or 10.9% of face value and 1,315 shares held by unaffiliated investors. During 2018,2020, MBIA Inc. did not repurchase any additional shares.
| Unrealized | Instrument-Specific | |||||||||||||||
| Gains (Losses) | Credit Risk of | |||||||||||||||
| on AFS | Foreign Currency | Liabilities Measured | ||||||||||||||
In millions | Securities, Net | Translation, Net | at Fair Value, Net | Total | ||||||||||||
Balance, January 1, 2016 | $ | (22) | $ | (39) | $ | — | $ | (61) | ||||||||
Other comprehensive income (loss) before reclassifications | 27 | (95) | — | (68) | ||||||||||||
Amounts reclassified from AOCI | 1 | — | — | 1 | ||||||||||||
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| |||||||||
Net period other comprehensive income (loss) | 28 | (95) | — | (67) | ||||||||||||
Balance, December 31, 2016 | 6 | (134) | — | (128) | ||||||||||||
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| |||||||||
Other comprehensive income (loss) before reclassifications | (24) | 125 | — | 101 | (1) | |||||||||||
Amounts reclassified from AOCI | 8 | — | — | 8 | ||||||||||||
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| |||||||||
Net period other comprehensive income (loss) | (16) | 125 | — | 109 | ||||||||||||
Balance, December 31, 2017 | $ | (10) | $ | (9) | $ | — | $ | (19) | ||||||||
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| |||||||||
ASU2016-01 transition adjustment | (2) | — | (162) | (164) | ||||||||||||
ASU2018-02 transition adjustment | (3) | — | — | (3) | ||||||||||||
Net period other comprehensive income (loss) | (24) | 2 | 52 | 30 | ||||||||||||
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| |||||||||
Balance, December 31, 2018 | $ | (39) | $ | (7) | $ | (110) | $ | (156) | ||||||||
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(1)—Includes items included in the Company’s loss calculation to adjust the carrying value of MBIA UK to its fair value less costs to sell for the year ended December 31, 2016. The sale was completed in January of 2017 and as such, these amounts included in AOCI were reversed and included in the Sale Transaction.
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 19: Accumulated Other Comprehensive Income (continued)
In millions | Unrealized Gains (Losses) on AFS Securities, Net | Foreign Currency Translation, Net | Instrument-Specific Credit Risk of Liabilities Measured at Fair Value, Net | Total | ||||||||||||
Balance, January 1, 2018 | $ | (10) | $ | (9) | $ | 0 | $ | (19) | ||||||||
ASU 2016-01 transition adjustment | (2) | 0 | (162) | (164) | ||||||||||||
ASU 2018-02 transition adjustment | (3) | 0 | 0 | (3) | ||||||||||||
Net period other comprehensive income (loss) | (24) | 2 | 52 | 30 | ||||||||||||
Balance, December 31, 2018 | $ | (39) | $ | (7) | $ | (110) | $ | (156) | ||||||||
Other comprehensive income (loss) before reclassifications | 139 | 0 | (25) | 114 | ||||||||||||
Amounts reclassified from AOCI | 12 | 0 | 28 | 40 | ||||||||||||
Net period other comprehensive income (loss) | 151 | 0 | 3 | 154 | ||||||||||||
Balance, December 31, 2019 | $ | 112 | $ | (7) | $ | (107) | $ | (2) | ||||||||
Other comprehensive income (loss) before reclassifications | 83 | (3) | 50 | 130 | ||||||||||||
Amounts reclassified from AOCI | (19) | 0 | 6 | (13) | ||||||||||||
Net period other comprehensive income (loss) | 64 | (3) | 56 | 117 | ||||||||||||
Balance, December 31, 2020 | $ | 176 | $ | (10) | $ | (51) | $ | 115 | ||||||||
In millions | Amounts Reclassified from AOCI Years Ended December 31, | |||||||||||||
Details about AOCI Components | 2018 | 2017 | 2016 | Affected Line Item on the Consolidated Statements of Operations | ||||||||||
Unrealized gains (losses) on AFS securities: | ||||||||||||||
Realized gain (loss) on sale of securities | $ | 6 | $ | 3 | $ | 7 | Net gains (losses) on financial instruments at fair value and foreign exchange | |||||||
OTTI | (5 | ) | (7 | ) | (4 | ) | Net investment losses related to OTTI | |||||||
Amortization on securities | (1 | ) | (5 | ) | (6 | ) | Net investment income | |||||||
|
|
|
|
|
| |||||||||
| — | (9 | ) | (3 | ) | Income (loss) before income taxes | |||||||||
| — | (1 | ) | (2 | ) | Provision (benefit) for income taxes | |||||||||
|
|
|
|
|
| |||||||||
Total reclassifications for the period | $ | — | $ | (8 | ) | $ | (1 | ) | Net income (loss) | |||||
|
|
|
|
|
| |||||||||
In millions | Amounts Reclassified from AOCI Years Ended December 31, | |||||||||||||
Details about AOCI Components | 2020 | 2019 | 2018 | Affected Line Item on the Consolidated Statements of Operations | ||||||||||
Unrealized gains (losses) on AFS securities: | ||||||||||||||
Realized gain (loss) on sale of securities | $ | 19 | $ | 14 | $ | 6 | Net gains (losses) on financial instruments at fair value and foreign exchange | |||||||
Credit losses | 0 | (25) | (5) | Net investment losses related to OTTI | ||||||||||
Amortization on securities | 0 | (1) | (1) | Net investment income | ||||||||||
| 19 | (12) | 0 | Income (loss) before income taxes | |||||||||||
| 19 | (12) | 0 | Net income (loss) | |||||||||||
Instrument-specific credit risk of liabilities: | ||||||||||||||
Settlement of liabilities | (6) | (28) | 0 | Net gains (losses) on financial instruments at fair value and foreign exchange | ||||||||||
Total reclassifications for the period | $ | 13 | $ | (40) | $ | 0 | Net income (loss) | |||||||
Lynn court entered an order dismissing the case.
Westchester County)
Assured Guaranty Corp.
liens asserted against HTA.
MBIANational, and Syncora Guarantee Inc. (“Syncora”), and Subsidiaries
Notesthe RSA Parties agreed on an amendment to Consolidatedthe RSA pursuant to which National and Syncora joined the RSA. The RSA includes the agreement for resolving PREPA’s restructuring plan issues and arrangements.
Note 20: CommitmentsOversight and Contingencies (continued)
TheManagement Board for Puerto Rico, as Representative of the Commonwealth of Puerto Rico, et al. v. Autonomy Master Fund Limited et al.,
On August 10, 2017, the Court approved and entered a Stipulation and Order Approving Procedure to Resolve Commonwealth-COFINA Dispute in the PROMESA Title III proceeding relating to whether sales and use taxes purportedly pledged by COFINA to secure debt are property of the Commonwealth or COFINA under applicable law. On November 16, 2017, National intervened as a Defendant in the adversary proceeding and filed its answer, affirmative defenses, and counterclaims. December 21, 2018) (Swain, J.)
Court.
Lease Commitments
2020:
$ in millions | As of December 31, 2020 | Balance Sheet Location | ||||||
Right-of-use asset | $ | 20 | Other assets | |||||
Lease liability | $ | 20 | Other liabilities | |||||
Weighted average remaining lease term (years) | 8.3 | |||||||
Discount rate used for operating leases | 7.5% | |||||||
Total future minimum lease payments | $ | 29 | ||||||
Refer to “Note 20: Commitments and Contingencies” for information about legal proceedings that occurred after December 31, 2018.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, has evaluated the Company’s internal control over financial reporting to determine whether any changes occurred during the fourth fiscal quarterperiod covered by this annual report that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the fourth fiscal quarter of 2018.
report.
Item 9A. Controls and Procedures (continued)
In connection with Management’s review
The Company’s internal control over financial reporting as of December 31, 20182020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included in Item 8, “Financial StatementsStatements.”
Remediation Steps to Address the Material Weakness
The Company has commenced its remediation plan with the goal of remediating this material weakness as soon as possible, subject to the conclusion by Management that the enhanced internal control over financial reporting is operating effectively following appropriate testing, althoughto determine whether any changes occurred during the Company cannot estimate when the remediation will be completed. Specifically, management plansfourth fiscal quarter covered by this annual report that have materially affected or are reasonably likely to identify and document key controls over data, assumptions and calculations used in the Company’s RMBS loss reserving and recovery models and modify existing controls as necessary to ensure they operate at a sufficient level of precision.
During the remediation of the above material weakness, the Company may decide to modify other internal controls to further strengthen its overallmaterially affect, our internal control environment.
| (a) | (b) | (c) | ||||||||||
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(2) | |||||||||
Equity compensation plans approved by security holders | 163,292 | $ | 13.19 | 2,633,754 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | 163,292 | $ | 13.19 | 2,633,754 | ||||||||
(a) | (b) | (c) | ||||||||||
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (2) | |||||||||
Equity compensation plans approved by security holders | 104,862 | $ | 13.41 | 3,496,683 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 104,862 | $ | 13.41 | 3,496,683 | ||||||||
| (a) | Financial Statements and Financial Statement Schedules and Exhibits |
2019.
2018.
2018.
2018.
2018.
Schedule | Title | |
| I. | Summary of investments, other than investments in related parties, as of December 31, | |
| II. | Condensed financial information of Registrant: | |
Condensed balance sheets as of December 31, 2019. | ||
Condensed statements of operations for the years ended December 31, 2018. | ||
Condensed statements of cash flows for the years ended December 31, 2018. | ||
Notes to condensed financial statements. | ||
| IV. | Reinsurance for the years ended December 31, |
Item 15. Exhibits, Financial Statement Schedules (continued)
Item 15. Exhibits, Financial Statement Schedules (continued)
Dated: February 28, 2019March 1, 2021 By /s/ William C. Fallon Name: William C. Fallon Title: Chief Executive Officer Director and Chief Executive Officer February 28, 2019March 1, 2021 Chief Financial Officer February 28, 2019March 1, 2021 Assistant Vice President and Controller (Chief Accounting Officer) February 28, 2019March 1, 2021 Chairman and Director February 28, 2019March 1, 2021Francis Y. Chin Francis Y. Chin Director February 28, 2019March 1, 2021Diane L. Dewbrey Diane L. Dewbrey Director February 28, 2019March 1, 2021Steven J. Gilbert Steven J. Gilbert Director February 28, 2019March 1, 2021Theodore Shasta Theodore Shasta Director February 28, 2019/s/ Richard C. Vaughan Richard C. VaughanDirectorFebruary 28, 2019March 1, 2021
2020
| December 31, 2018 | ||||||||||||
Type of investment | Cost | Fair Value | Amount at which shown in the balance sheet | |||||||||
Available-for-sale: | ||||||||||||
U.S. Treasury and government agency | $ | 916 | $ | 932 | $ | 932 | ||||||
State and municipal bonds | 641 | 727 | 727 | |||||||||
Foreign governments | 3 | 3 | 3 | |||||||||
Corporate obligations | 1,457 | 1,332 | 1,332 | |||||||||
Mortgage-backed securities: | ||||||||||||
Residential mortgage-backed agency | 218 | 214 | 214 | |||||||||
Residential mortgage-backednon-agency | 30 | 27 | 27 | |||||||||
Commercial mortgage-backed | 53 | 51 | 51 | |||||||||
Asset-backed securities: | ||||||||||||
Collateralized debt obligations | 122 | 119 | 119 | |||||||||
Other asset-backed | 178 | 177 | 177 | |||||||||
|
|
|
|
|
| |||||||
Total long-termavailable-for-sale | 3,618 | 3,582 | 3,582 | |||||||||
Short-termavailable-for-sale | 199 | 199 | 199 | |||||||||
|
|
|
|
|
| |||||||
Totalavailable-for-sale | 3,817 | 3,781 | 3,781 | |||||||||
Investments at fair value | 300 | 290 | 290 | |||||||||
Other investments | 1 | 1 | 1 | |||||||||
|
|
|
|
|
| |||||||
Total investments | $ | 4,118 | $ | 4,072 | $ | 4,072 | ||||||
|
|
|
|
|
| |||||||
Assets of consolidated variable interest entities: | ||||||||||||
Investments at fair value | 143 | 157 | 157 | |||||||||
Held-to-maturity: | ||||||||||||
Corporate obligations | 890 | 925 | 890 | |||||||||
Loans receivable | 159 | 172 | 172 | |||||||||
|
|
|
|
|
| |||||||
Total investments of consolidated variable interest entities | $ | 1,192 | $ | 1,254 | $ | 1,219 | ||||||
|
|
|
|
|
| |||||||
December 31, 2020 | ||||||||||||
Type of investment | Cost | Fair Value | Amount at which shown in the balance sheet | |||||||||
Available-for-sale: | ||||||||||||
U.S. Treasury and government agency | $ | 556 | $ | 631 | $ | 631 | ||||||
State and municipal bonds | 162 | 194 | 194 | |||||||||
Foreign governments | 9 | 10 | 10 | |||||||||
Corporate obligations | 767 | 830 | 830 | |||||||||
Mortgage-backed securities: | ||||||||||||
Residential mortgage-backed agency | 305 | 312 | 312 | |||||||||
Residential mortgage-backed non-agency | 23 | 25 | 25 | |||||||||
Commercial mortgage-backed | 17 | 17 | 17 | |||||||||
Asset-backed securities: | ||||||||||||
Collateralized debt obligations | 120 | 118 | 118 | |||||||||
Other asset-backed | 121 | 121 | 121 | |||||||||
Total long-term available-for-sale | 2,080 | 2,258 | 2,258 | |||||||||
Short-term available-for-sale | 280 | 281 | 281 | |||||||||
Total available-for-sale | 2,360 | 2,539 | 2,539 | |||||||||
Investments at fair value | 189 | 197 | 197 | |||||||||
Total investments | $ | 2,549 | $ | 2,736 | $ | 2,736 | ||||||
Assets of consolidated variable interest entities: | ||||||||||||
Investments at fair value | 96 | 77 | 77 | |||||||||
Loans receivable | 124 | 120 | 120 | |||||||||
Total investments of consolidated variable interest entities | $ | 220 | $ | 197 | $ | 197 | ||||||
| December 31, 2018 | December 31, 2017 | |||||||
Assets | ||||||||
Investments: | ||||||||
Fixed-maturity securities held asavailable-for-sale, at fair value (amortized cost $815 and $590) | $ | 839 | $ | 639 | ||||
Investments carried at fair value | 7 | 8 | ||||||
Investments pledged as collateral, at fair value (amortized cost $49 and $155) | 46 | 148 | ||||||
Short-term investments held asavailable-for-sale, at fair value (amortized cost $83 and $283) | 83 | 283 | ||||||
Other investments | — | 1 | ||||||
|
|
|
| |||||
Total investments | 975 | 1,079 | ||||||
Cash and cash equivalents | 40 | 10 | ||||||
Investment in wholly-owned subsidiaries | 1,876 | 2,290 | ||||||
Other assets | 130 | 144 | ||||||
|
|
|
| |||||
Total assets | $ | 3,021 | $ | 3,523 | ||||
|
|
|
| |||||
Liabilities and Shareholders’ Equity | ||||||||
Liabilities: | ||||||||
Investment agreements | $ | 276 | $ | 301 | ||||
Long-term debt | 577 | 576 | ||||||
Affiliate loans payable | 729 | 772 | ||||||
Income taxes payable | 138 | 237 | ||||||
Other liabilities | 182 | 224 | ||||||
|
|
|
| |||||
Total liabilities | 1,902 | 2,110 | ||||||
|
|
|
| |||||
Shareholders’ Equity: | ||||||||
Preferred stock, par value $1 per share; authorized shares—10,000,000; issued and outstanding—none | — | — | ||||||
Common stock, par value $1 per share; authorized shares—400,000,000; issued shares—283,625,689 and 283,717,973 | 284 | 284 | ||||||
Additionalpaid-in capital | 3,025 | 3,171 | ||||||
Retained earnings | 966 | 1,095 | ||||||
Accumulated other comprehensive income (loss), net of tax | (156) | (19) | ||||||
Treasury stock, at cost—193,803,976 and 192,233,526 shares | (3,000) | (3,118) | ||||||
|
|
|
| |||||
Total shareholders’ equity of MBIA Inc. | 1,119 | 1,413 | ||||||
|
|
|
| |||||
Total liabilities and shareholders’ equity | $ | 3,021 | $ | 3,523 | ||||
|
|
|
| |||||
December 31, 2020 | December 31, 2019 | |||||||
Assets | ||||||||
Investments: | ||||||||
Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $621 | $ | 719 | $ | 674 | ||||
Investments carried at fair value | 1 | 1 | ||||||
Investments pledged as collateral, at fair value (amortized cost $10 and $19) | 1 | 11 | ||||||
Short-term investments held as available-for-sale, at fair value (amortized cost $31 and $167) | 31 | 167 | ||||||
Total investments | 752 | 853 | ||||||
Cash and cash equivalents | 26 | 11 | ||||||
Investment in wholly-owned subsidiaries | 728 | 1,456 | ||||||
Other assets | 139 | 123 | ||||||
Total assets | $ | 1,645 | $ | 2,443 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Liabilities: | ||||||||
Investment agreements | $ | 269 | $ | 274 | ||||
Long-term debt | 312 | 427 | ||||||
Affiliate loans payable | 695 | 658 | ||||||
Income taxes payable | 12 | 60 | ||||||
Derivative liabilities | 164 | 133 | ||||||
Other liabilities | 57 | 65 | ||||||
Total liabilities | 1,509 | 1,617 | ||||||
Shareholders’ Equity: | ||||||||
Preferred stock, par value $1 per share; authorized shares—10,000,000; issued and outstanding—NaN | 0 | 0 | ||||||
Common stock, par value $1 per share; authorized shares—400,000,000; issued shares—283,186,115 and 283,433,401 | 283 | 283 | ||||||
Additional paid-in capital | 2,962 | 2,999 | ||||||
Retained earnings (deficit) | (13) | 607 | ||||||
Accumulated other comprehensive income (loss), net of tax | 115 | (2) | ||||||
Treasury stock, at cost—229,508,967 and 204,000,108 shares | (3,211) | (3,061) | ||||||
Total shareholders’ equity of MBIA Inc. | 136 | 826 | ||||||
Total liabilities and shareholders’ equity | $ | 1,645 | $ | 2,443 | ||||
| Years ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
Revenues: | ||||||||||||
Net investment income | $ | 35 | $ | 35 | $ | 29 | ||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | 20 | (34) | (13) | |||||||||
Investment losses related to other-than-temporary impairments: | ||||||||||||
Investment losses related to other-than-temporary impairments | — | — | (1) | |||||||||
Other-than-temporary impairments recognized in accumulated other comprehensive income (loss) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Net investment losses related to other-than-temporary impairments | — | — | (1) | |||||||||
Net gains (losses) on extinguishment of debt | 3 | 28 | 5 | |||||||||
Other net realized gains (losses) | (2) | (3) | (5) | |||||||||
|
|
|
|
|
| |||||||
Total revenues | 56 | 26 | 15 | |||||||||
|
|
|
|
|
| |||||||
Expenses: | ||||||||||||
Operating | 11 | 13 | 16 | |||||||||
Interest | 93 | 87 | 90 | |||||||||
|
|
|
|
|
| |||||||
Total expenses | 104 | 100 | 106 | |||||||||
|
|
|
|
|
| |||||||
Gain (loss) before income taxes and equity in earnings of subsidiaries | (48) | (74) | (91) | |||||||||
Provision (benefit) for income taxes | (35) | 507 | (15) | |||||||||
|
|
|
|
|
| |||||||
Gain (loss) before equity in earnings of subsidiaries | (13) | (581) | (76) | |||||||||
Equity in net income (loss) of subsidiaries | (283) | (1,024) | (262) | |||||||||
|
|
|
|
|
| |||||||
Net income (loss) | $ | (296) | $ | (1,605) | $ | (338) | ||||||
|
|
|
|
|
| |||||||
Years ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Revenues: | ||||||||||||
Net investment income | $ | 28 | $ | 35 | $ | 35 | ||||||
Net gains (losses) on financial instruments at fair value and foreign exchange | (67) | (57) | 20 | |||||||||
Net gains (losses) on extinguishment of debt | 0 | (1) | 3 | |||||||||
Other net realized gains (losses) | 0 | (2) | (2) | |||||||||
Total revenues | (39) | (25) | 56 | |||||||||
Expenses: | ||||||||||||
Operating | 10 | 10 | 11 | |||||||||
Interest | 83 | 90 | 93 | |||||||||
Total expenses | 93 | 100 | 104 | |||||||||
Gain (loss) before income taxes and equity in earnings of subsidiaries | (132) | (125) | (48) | |||||||||
Provision (benefit) for income taxes | (4) | (99) | (35) | |||||||||
Gain (loss) before equity in earnings of subsidiaries | (128) | (26) | (13) | |||||||||
Equity in net income (loss) of subsidiaries | (450) | (333) | (283) | |||||||||
Net income (loss) | $ | (578) | $ | (359) | $ | (296) | ||||||
| Years ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Fees and reimbursements received | $ | — | $ | — | $ | 4 | ||||||
Investment income received | 132 | 141 | 144 | |||||||||
Operating expenses paid | (17) | (27) | (18) | |||||||||
Interest paid, net of interest converted to principal | (91) | (101) | (93) | |||||||||
Income taxes (paid) received | (16) | 26 | 73 | |||||||||
|
|
|
|
|
| |||||||
Net cash provided (used) by operating activities | 8 | 39 | 110 | |||||||||
|
|
|
|
|
| |||||||
Cash flows from investing activities: | ||||||||||||
Purchases ofavailable-for-sale investments | (495) | (164) | (129) | |||||||||
Sales ofavailable-for-sale investments | 175 | 172 | 165 | |||||||||
Paydowns and maturities ofavailable-for-sale investments | 101 | 152 | 90 | |||||||||
Purchases of investments at fair value | (9) | (70) | (57) | |||||||||
Sales, paydowns and maturities of investments at fair value | 10 | 71 | 58 | |||||||||
Sales, paydowns and maturities (purchases) of short-term investments, net | 262 | (34) | 1 | |||||||||
(Payments) proceeds for derivative settlements | (24) | (30) | (37) | |||||||||
Collateral (to) from counterparty | — | 4 | 52 | |||||||||
Contributions to subsidiaries, net | 51 | (12) | (10) | |||||||||
Advances to subsidiaries, net | 3 | (3) | — | |||||||||
|
|
|
|
|
| |||||||
Net cash provided (used) by investing activities | 74 | 86 | 133 | |||||||||
|
|
|
|
|
| |||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from investment agreements | 11 | 15 | 16 | |||||||||
Principal paydowns of investment agreements | (35) | (72) | (71) | |||||||||
Proceeds from long-term debt | 40 | 127 | — | |||||||||
Payments for affiliate loans | (71) | (142) | (111) | |||||||||
Purchases of treasury stock | — | (65) | (108) | |||||||||
Restricted stock awards settlements | 4 | 11 | 8 | |||||||||
|
|
|
|
|
| |||||||
Net cash provided (used) by financing activities | (51) | (126) | (266) | |||||||||
|
|
|
|
|
| |||||||
Effect of exchange rates on cash and cash equivalents | (1) | (2) | 1 | |||||||||
Net increase (decrease) in cash and cash equivalents | 30 | (3) | (22) | |||||||||
Cash and cash equivalents—beginning of year | 10 | 13 | 35 | |||||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents—end of year | $ | 40 | $ | 10 | $ | 13 | ||||||
|
|
|
|
|
| |||||||
Reconciliation of net income (loss) to net cash provided (used) by operating activities: | ||||||||||||
Net income (loss) | $ | (296) | $ | (1,605) | $ | (338) | ||||||
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | ||||||||||||
Change in: | ||||||||||||
Intercompany accounts receivable | (9) | (22) | (8) | |||||||||
Current income taxes | (15) | 48 | 78 | |||||||||
Equity in earnings of subsidiaries | 283 | 1,024 | 262 | |||||||||
Dividends from subsidiaries | 112 | 118 | 118 | |||||||||
Net (gains) losses on financial instruments at fair value and foreign exchange | (20) | 34 | 13 | |||||||||
Deferred income tax provision (benefit) | (35) | 485 | (20) | |||||||||
(Gains) losses on extinguishment of debt | — | (28) | (5) | |||||||||
Other operating | (12) | (15) | 10 | |||||||||
|
|
|
|
|
| |||||||
Total adjustments to net income (loss) | 304 | 1,644 | 448 | |||||||||
|
|
|
|
|
| |||||||
Net cash provided (used) by operating activities | $ | 8 | $ | 39 | $ | 110 | ||||||
|
|
|
|
|
| |||||||
Years ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Investment income received | $ | 101 | $ | 156 | $ | 132 | ||||||
Operating expenses paid | (47) | (17) | (17) | |||||||||
Interest paid, net of interest converted to principal | (60) | (88) | (91) | |||||||||
Income taxes (paid) received | 5 | 34 | (16) | |||||||||
Net cash provided (used) by operating activities | (1) | 85 | 8 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of available-for-sale | (216) | (278) | (495) | |||||||||
Sales of available-for-sale | 183 | 319 | 175 | |||||||||
Paydowns and maturities of available-for-sale | 41 | 179 | 101 | |||||||||
Purchases of investments at fair value | (2) | 5 | (9) | |||||||||
Sales, paydowns and maturities of investments at fair value | 2 | 0 | 10 | |||||||||
Sales, paydowns and maturities (purchases) of short-term investments, net | 137 | (61) | 262 | |||||||||
(Payments) proceeds for derivative settlements | (16) | (98) | (24) | |||||||||
Contributions (to) from subsidiaries, net | 0 | (14) | 51 | |||||||||
Advances (to) from subsidiaries, net | 0 | 0 | 3 | |||||||||
Net cash provided (used) by investing activities | 129 | 52 | 74 | |||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from investment agreements | 12 | 15 | 11 | |||||||||
Principal paydowns of investment agreements | (18) | (20) | (35) | |||||||||
Proceeds from long-term debt | 0 | 0 | 40 | |||||||||
Principal paydowns of long-term debt | (115) | (150) | 0 | |||||||||
Payments for affiliate loans | 0 | (19) | (71) | |||||||||
Restricted stock awards settlements | 8 | 8 | 4 | |||||||||
Net cash provided (used) by financing activities | (113) | (166) | (51) | |||||||||
Effect of exchange rates on cash and cash equivalents | 0 | 0 | (1) | |||||||||
Net increase (decrease) in cash and cash equivalents | 15 | (29) | 30 | |||||||||
Cash and cash equivalents—beginning of year | 11 | 40 | 10 | |||||||||
Cash and cash equivalents—end of year | $ | 26 | $ | 11 | $ | 40 | ||||||
Reconciliation of net income (loss) to net cash provided (used) by operating activities: | ||||||||||||
Net income (loss) | $ | (578) | $ | (359) | $ | (296) | ||||||
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | ||||||||||||
Change in: | ||||||||||||
Intercompany accounts receivable | (39) | (16) | (9) | |||||||||
Current income taxes | 5 | 23 | (15) | |||||||||
Equity in earnings of subsidiaries | 450 | 333 | 283 | |||||||||
Dividends from subsidiaries | 81 | 134 | 112 | |||||||||
Net (gains) losses on financial instruments at fair value and foreign exchange | 67 | 57 | (20) | |||||||||
Deferred income tax provision (benefit) | (4) | (88) | (35) | |||||||||
(Gains) losses on extinguishment of debt | 0 | 1 | (3) | |||||||||
Other operating | 17 | 0 | (9) | |||||||||
Total adjustments to net income (loss) | 577 | 444 | 304 | |||||||||
Net cash provided (used) by operating activities | $ | (1) | $ | 85 | $ | 8 | ||||||
Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation. This includes a change in the classification of certain cash receipts and cash payments on the Company’s consolidated statements of cash flows resulting from the adoption of Accounting Standards Update (“ASU”)2016-15, “Statement of Cash Flows (Topic 230)”. This classification change affected “Interest paid, net of interest converted to principal”, in operating cash flows, and “Principal paydowns of investment agreements” and “Payments for affiliate loans”, in financing cash flows, on the Company’s consolidated statements of cash flows for the prior periods. Such reclassifications did not materially impact total revenues, expenses, assets, liabilities, shareholders’ equity, operating cash flows, investing cash flows, or financing cash flows for all periods presented.
During 2017 and 2016, National Public Finance Guarantee Holdings, Inc. declared and paid a dividend of $118 million to the Parent Company.
2018
Column A Insurance Premium Written | Column B Direct Amount | Column C Ceded to Others | Column D Assumed From Other Companies | Column E Net Amount | Column F Percentage of Amount Assumed to Net | |||||||||||||||
2018 | $ | 3 | $ | 1 | $ | — | $ | 2 | 0% | |||||||||||
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2017 | $ | (1) | $ | 1 | $ | — | $ | (2) | 0% | |||||||||||
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2016 | $ | 37 | $ | 1 | $ | — | $ | 36 | 0% | |||||||||||
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159
Column A Insurance Premium Written | Column B Direct Amount | Column C Ceded to Others | Column D Assumed From Other Companies | Column E Net Amount | Column F Percentage of Amount Assumed to Net | |||||||||||||||
2020 | $ | 1 | $ | 1 | $ | 0 | $ | 0 | 0 % | |||||||||||
2019 | $ | 3 | $ | 0 | $ | 0 | $ | 3 | 0% | |||||||||||
2018 | $ | 3 | $ | 1 | $ | 0 | $ | 2 | 0% | |||||||||||