MBIA Inc. (NYSE:MBI) Q3 2021 Earnings Conference Call November 4, 2021 8:00 AM ET Company Participants Greg Diamond - Managing Director, Investor & Media Relations Bill Fallon - CEO Anthony McKiernan - EVP and CFO Conference Call Participants Tommy McJoynt - KBW John Staley - Staley Capital Paul Saunders - Hutch Capital Geoffrey Dunn - Dowling and Partners Operator Welcome to the MBIA Inc. Third Quarter 2021 Financial Results Conference Call. I would now like to turn the call over to Greg Diamond, Managing ...

MBIA Inc. (NYSE:MBI) Q2 2021 Earnings Conference Call August 5, 2021 8:00 AM ET Company Representatives Bill Fallon - Chief Executive Office Anthony McKiernan - Executive Vice President & Chief Financial Officer Greg Diamond - Managing Director, Investor & Media Relations Conference Call Participants Tommy McJoynt - KBW John Staley - Staley Capital Advisers Operator Welcome to the MBIA Inc. Second Quarter 2021 Financial Results Conference Call. I would now like to turn the call over to Greg Diamond, Managi ...

[PART I FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents MBIA Inc.'s unaudited consolidated financial statements for the quarter ended June 30, 2021, highlighting a $61 million net loss and a decrease in total assets to $5.3 billion [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) MBIA Inc.'s balance sheet as of June 30, 2021, shows total assets decreased to $5.25 billion, total liabilities to $5.28 billion, and shareholders' equity shifted to a $36 million deficit Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | $5,252 | $5,751 | | **Total Liabilities** | $5,275 | $5,602 | | **Total Shareholders' Equity of MBIA Inc.** | $(36) | $136 | | Cash and cash equivalents | $342 | $158 | | Total investments | $2,797 | $2,736 | | Loss and loss adjustment expense reserves | $954 | $990 | | Long-term debt | $2,283 | $2,229 | - A significant change in assets was the settlement of 'Loan repurchase commitments', which were valued at **$604 million** as of December 31, 2020, and are **zero** as of June 30, 2021[12](index=12&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) MBIA reported a net loss of $61 million for Q2 2021, an improvement from a $106 million loss in Q2 2020, primarily due to significantly lower loss adjustment expenses Statement of Operations Highlights (in millions, except per share data) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $18 | $114 | $90 | $108 | | Losses and loss adjustment | $9 | $136 | $107 | $379 | | Total Expenses | $79 | $220 | $257 | $547 | | **Net Income (Loss)** | **$(61)** | **$(106)** | **$(167)** | **$(439)** | | **Diluted EPS** | **$(1.23)** | **$(1.69)** | **$(3.38)** | **$(6.51)** | [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company reported comprehensive income of $3 million for Q2 2021, a significant turnaround from a $68 million comprehensive loss in Q2 2020, driven by unrealized gains on available-for-sale securities Comprehensive Income (Loss) Summary (in millions) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(61) | $(106) | $(167) | $(439) | | Total other comprehensive income (loss) | $64 | $38 | $(12) | $131 | | **Comprehensive income (loss)** | **$3** | **$(68)** | **$(179)** | **$(308)** | [Consolidated Statement of Changes in Shareholders' Equity](index=7&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Shareholders%27%20Equity) MBIA Inc.'s total shareholders' equity decreased by $172 million to a $36 million deficit for the six months ended June 30, 2021, primarily due to a net loss and accumulated other comprehensive income losses - Total shareholders' equity of MBIA Inc. declined from **$136 million** at the beginning of the period to a deficit of **$(36) million** at the end of the six months ended June 30, 2021[21](index=21&type=chunk) - The company did not repurchase any shares under its share repurchase program in the first six months of 2021, compared to acquiring **17.8 million shares** for **$136 million** in the same period of 2020[21](index=21&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly improved to $545 million for H1 2021, driven by $600 million from loan repurchase commitments, while investing and financing cash flows saw notable shifts Cash Flow Summary (in millions) | Cash Flow Activity | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $545 | $(89) | | Net cash provided (used) by investing activities | $(110) | $941 | | Net cash provided (used) by financing activities | $(255) | $(481) | | **Net increase (decrease) in cash** | **$180** | **$371** | - A key driver for the positive operating cash flow in H1 2021 was the receipt of **$600 million** from the settlement of loan repurchase commitments[24](index=24&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's financial position and performance, covering business developments, litigation settlements, COVID-19 risks, loss reserves, fair value measurements, and segment performance [Note 1: Business Developments and Risks and Uncertainties](index=9&type=section&id=Note%201%3A%20Business%20Developments%20and%20Risks%20and%20Uncertainties) This note details significant business events and risks, including Puerto Rico debt restructuring, a $600 million Credit Suisse litigation settlement, and ongoing uncertainties from the COVID-19 pandemic - National paid aggregate gross claims of **$277 million** in H1 2021 related to defaults on its insured Puerto Rico bonds[28](index=28&type=chunk) - As of June 30, 2021, National had **$2.9 billion** of debt service outstanding related to Puerto Rico[28](index=28&type=chunk) - In February 2021, MBIA Corp. received a **$600 million** settlement payment from Credit Suisse, resolving litigation over ineligible loans in an RMBS transaction[34](index=34&type=chunk) - The company continues to assess the financial impact of the COVID-19 pandemic, noting that adverse macroeconomic factors could materially affect the performance of its insured portfolios, particularly those sensitive to economic slowdowns[38](index=38&type=chunk) [Note 4: Variable Interest Entities](index=13&type=section&id=Note%204%3A%20Variable%20Interest%20Entities) This note details the company's involvement with Variable Interest Entities (VIEs), reporting consolidated VIE assets of $218 million and liabilities of $450 million, with a maximum exposure to loss of $3.2 billion for nonconsolidated VIEs Consolidated VIEs (in millions) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets of consolidated VIEs | $218 | $830 | | Liabilities of consolidated VIEs | $450 | $623 | - The company's maximum exposure to loss for nonconsolidated VIEs was **$3.2 billion** as of June 30, 2021, down from **$4.3 billion** at year-end 2020[65](index=65&type=chunk)[67](index=67&type=chunk) - This exposure is primarily related to financial guarantees on global structured finance obligations[65](index=65&type=chunk)[67](index=67&type=chunk) [Note 5: Loss and Loss Adjustment Expense Reserves](index=15&type=section&id=Note%205%3A%20Loss%20and%20Loss%20Adjustment%20Expense%20Reserves) This note details the methodology for estimating loss reserves, which decreased to $954 million, and insurance loss recoverable, which decreased to $1.56 billion, influenced by Puerto Rico and structured finance exposures Loss and LAE Reserves and Recoveries (in millions) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Loss and LAE reserves** | **$954** | **$990** | | U.S. Public Finance | $484 | $469 | | International & Structured Finance | $470 | $521 | | **Insurance loss recoverable** | **$1,561** | **$1,677** | | U.S. Public Finance | $1,226 | $1,220 | | International & Structured Finance | $335 | $457 | - For the six months ended June 30, 2021, loss and LAE reserves declined primarily due to payments on Puerto Rico exposures and the impact of higher risk-free rates on RMBS reserves, partially offset by unfavorable changes in recovery assumptions for Puerto Rico[89](index=89&type=chunk) - The 'Classified List' surveillance category contains the vast majority of risk, with **$4.3 billion** in gross insured contractual payments outstanding and a gross claim liability of **$983 million** as of June 30, 2021[99](index=99&type=chunk) [Note 6: Fair Value of Financial Instruments](index=20&type=section&id=Note%206%3A%20Fair%20Value%20of%20Financial%20Instruments) This note details the fair value measurement of financial instruments, with total assets at $3.36 billion and liabilities at $566 million as of June 30, 2021, including significant Level 3 valuations Fair Value Hierarchy Summary as of June 30, 2021 (in millions) | Category | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | **Total Assets at Fair Value** | $1,198 | $2,010 | $150 | $3,358 | | **Total Liabilities at Fair Value** | $0 | $171 | $395 | $566 | - Level 3 assets decreased significantly from **$744 million** at year-end 2020 to **$150 million** at June 30, 2021, primarily due to the settlement of 'Loan repurchase commitments' which were valued at **$604 million**[140](index=140&type=chunk)[154](index=154&type=chunk) - The company elected the fair value option for certain financial instruments, including VIE loans and notes, resulting in a net loss of **$1 million** from these instruments for Q2 2021[165](index=165&type=chunk)[168](index=168&type=chunk) [Note 7: Investments](index=34&type=section&id=Note%207%3A%20Investments) This note details the company's investment portfolio, primarily available-for-sale fixed-maturity securities, with a fair value of $2.47 billion as of June 30, 2021, and no allowance for credit losses established Available-for-Sale (AFS) Investments as of June 30, 2021 (in millions) | Metric | Amount | | :--- | :--- | | Amortized Cost | $2,335 | | Gross Unrealized Gains | $146 | | Gross Unrealized Losses | $(8) | | **Fair Value** | **$2,473** | - As of June 30, 2021, **35 securities** were in an unrealized loss position for twelve months or longer[183](index=183&type=chunk) - The company concluded it does not have the intent to sell these securities and it is more likely than not that it would not have to sell them before recovery[184](index=184&type=chunk) - The company did not establish an allowance for credit losses for AFS securities as of June 30, 2021, nor did it purchase any credit-deteriorated assets during the first half of the year[188](index=188&type=chunk) [Note 8: Derivative Instruments](index=39&type=section&id=Note%208%3A%20Derivative%20Instruments) The company uses derivative instruments, primarily interest rate swaps and insured credit derivatives, with a total notional amount of $2.44 billion and a net liability fair value of $140 million as of June 30, 2021 Derivative Instruments Outstanding as of June 30, 2021 (in millions) | Instrument Type | Notional Amount | Fair Value Asset | Fair Value Liability | | :--- | :--- | :--- | :--- | | Insured swaps | $1,719 | $0 | $(1) | | Interest rate swaps | $427 | $1 | $(139) | | Interest rate swaps-embedded | $243 | $0 | $(9) | | Currency swaps-VIE | $51 | $8 | $0 | | **Total** | **$2,440** | **$9** | **$(149)** | - As of June 30, 2021, the company had posted securities with a fair value of **$166 million** as collateral to derivative counterparties[207](index=207&type=chunk) [Note 10: Business Segments](index=42&type=section&id=Note%2010%3A%20Business%20Segments) MBIA operates in U.S. Public Finance, Corporate, and International/Structured Finance segments, with Q2 2021 showing U.S. Public Finance income of $57 million and losses in Corporate and International segments Segment Income (Loss) Before Income Taxes for Q2 2021 (in millions) | Segment | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | U.S. Public Finance Insurance | $57 | $(27) | | Corporate | $(19) | $(19) | | International and Structured Finance Insurance | $(97) | $(60) | | Eliminations | $(2) | $0 | | **Consolidated** | **$(61)** | **$(106)** | - The U.S. Public Finance segment's profitability in Q2 2021 was driven by a significant benefit from 'Losses and loss adjustment' of **$(42) million**, compared to an expense of **$72 million** in Q2 2020[237](index=237&type=chunk)[239](index=239&type=chunk) [Note 13: Commitments and Contingencies](index=48&type=section&id=Note%2013%3A%20Commitments%20and%20Contingencies) This note updates significant legal matters, including a $600 million Credit Suisse settlement, ongoing lawsuits related to Lynn Tilton, and complex legal proceedings concerning Puerto Rico's debt restructuring - The litigation `MBIA Insurance Corp. v. Credit Suisse` was settled in February 2021, with Credit Suisse paying MBIA Corp. **$600 million**[255](index=255&type=chunk) - Multiple legal proceedings involving Lynn Tilton and the Zohar Funds remain active, including claims of fraudulent inducement and equitable subordination[256](index=256&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk) - The company is deeply involved in litigation related to the Puerto Rico debt crisis, with active cases concerning PREPA, PBA, HTA, and GO bonds[260](index=260&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk)[271](index=271&type=chunk) - Many of these are stayed pending restructuring negotiations and court approvals[260](index=260&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk)[271](index=271&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results, covering COVID-19 impacts, Puerto Rico restructurings, the Credit Suisse settlement, non-GAAP measures, segment performance, capital resources, and liquidity management [Executive Overview](index=53&type=section&id=Executive%20Overview) The executive overview highlights continued COVID-19 uncertainty, key business developments including $277 million in Puerto Rico claims and a $600 million Credit Suisse settlement, and a Q2 2021 GAAP net loss of $61 million - National paid **$277 million** in gross claims on defaulted Puerto Rico bonds during the first half of 2021[289](index=289&type=chunk) - MBIA Corp. received a **$600 million** settlement from Credit Suisse in February 2021[293](index=293&type=chunk) Financial Highlights (in millions) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Net income (loss) | $(61) | $(106) | | Adjusted net income (loss) (Non-GAAP) | $37 | $(72) | [Results of Operations](index=57&type=section&id=Results%20of%20Operations) This section details financial results, showing an improved Q2 2021 consolidated net loss of $61 million due to lower insurance loss expenses, and introduces non-GAAP measures like Adjusted Net Income and Adjusted Book Value - The decrease in consolidated total expenses for Q2 2021 was driven by a significant reduction in net insurance loss and LAE, which were **$9 million** compared to **$136 million** in Q2 2020[310](index=310&type=chunk) - The company uses non-GAAP Adjusted Net Income (ANI) which removes the results of the international segment and certain mark-to-market items[317](index=317&type=chunk) - For Q2 2021, ANI was **$37 million** versus a GAAP net loss of **$61 million**[318](index=318&type=chunk) - Management also uses Adjusted Book Value (ABV) per share, which adjusts GAAP book value for items like the negative book value of MBIA Corp and unrealized gains/losses[321](index=321&type=chunk) - GAAP book value per share was **$(0.66)** as of June 30, 2021[324](index=324&type=chunk) [Capital Resources](index=71&type=section&id=Capital%20Resources) The company's total capital resources were $1.3 billion as of June 30, 2021, with National's statutory capital stable at $2.0 billion and MBIA Insurance Corporation's capital decreasing to $160 million, alongside $1.1 billion in unpaid surplus note interest - The company's Board of Directors has no current authorization for share repurchases[413](index=413&type=chunk) - No shares were repurchased under the program in H1 2021[414](index=414&type=chunk) Statutory Claims-Paying Resources (CPR) (in millions) | Entity | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | National | $3,106 | $3,115 | | MBIA Insurance Corporation | $786 | $992 | - As of July 15, 2021, there was **$1.1 billion** of unpaid interest on MBIA Insurance Corporation's Surplus Notes due to non-approval from the NYSDFS[430](index=430&type=chunk) [Liquidity](index=75&type=section&id=Liquidity) The company manages liquidity on a legal-entity basis, with National holding $2.1 billion in cash and investments, MBIA Inc. at $238 million, and MBIA Corp.'s liquidity increasing to $664 million due to the Credit Suisse settlement Liquidity Position by Entity (in millions) | Entity | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | National (Cash & Investments) | $2,100 | Not Stated | | MBIA Inc. (Holding Co.) | $238 | $294 | | MBIA Corp. (Cash & Investments) | $664 | $243 | - Consolidated net cash provided by operating activities was **$545 million** for H1 2021, primarily due to the **$600 million** received from the Credit Suisse litigation settlement[451](index=451&type=chunk) - MBIA Inc. expects National to be its primary source of payments, but dividends are limited[442](index=442&type=chunk) - MBIA Inc. does not expect to receive dividends from MBIA Corp[442](index=442&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=79&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include interest rate, foreign exchange, and credit spread exposures, with no material changes reported since December 31, 2020 - The company's main market risks are interest rate, foreign exchange, and credit spread risks[462](index=462&type=chunk) - There were no material changes in market risk exposure since the year-end 2020 report[462](index=462&type=chunk) [Controls and Procedures](index=79&type=section&id=Item%204.%20Controls%20and%20Procedures) The company concluded its disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[463](index=463&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are likely to materially affect, these controls[463](index=463&type=chunk) [PART II OTHER INFORMATION](index=80&type=section&id=PART%20II%20OTHER%20INFORMATION) [Legal Proceedings](index=80&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 13 for detailed discussion of the company's legal proceedings and related matters, with selected information available on the company's website - For details on legal proceedings, the report directs readers to Note 13 of the financial statements[465](index=465&type=chunk) [Risk Factors](index=80&type=section&id=Item%201A.%20Risk%20Factors) This section supplements risk factors, emphasizing ongoing fiscal stress for public finance issuers and significant risks from Puerto Rico exposures, including debt restructuring uncertainties - A key risk is the fiscal stress experienced by public finance issuers, which could lead to increased credit losses[467](index=467&type=chunk) - This is particularly acute for jurisdictions with underfunded pension liabilities[468](index=468&type=chunk) - The company highlights significant risk from its Puerto Rico exposure, where National had **$2.9 billion** of debt service outstanding as of June 30, 2021[471](index=471&type=chunk) - The company paid **$277 million** in claims on Puerto Rico bonds in H1 2021[471](index=471&type=chunk) - Uncertainty surrounds the effectiveness and timing of restructuring agreements for Puerto Rico's GO, PBA, HTA, and PREPA debt, which could materially impact National's losses[473](index=473&type=chunk)[474](index=474&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=81&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2021, the company repurchased a small number of shares in open market transactions related to its non-qualified deferred compensation plan, not as part of a publicly announced repurchase program Share Purchases in Q2 2021 | Month | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April | 86 | $10.00 | | May | 97 | $9.46 | | June | 86 | $10.51 | | **Total** | **269** | **$9.97** | - The shares purchased were related to the company's non-qualified deferred compensation plan and not part of a publicly announced share repurchase program[477](index=477&type=chunk) [Exhibits](index=82&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act[478](index=478&type=chunk)[479](index=479&type=chunk)[480](index=480&type=chunk) - Interactive Data Files (XBRL) are also included as part of the filing[480](index=480&type=chunk)

Financial Data and Key Metrics Changes - The company reported a consolidated GAAP net loss of $106 million or a negative $2.16 per share for Q1 2021, an improvement from a net loss of $333 million or a negative $4.62 per share in Q1 2020 [9] - The adjusted net loss for Q1 2021 was $116 million or a negative $2.36 per diluted share, compared to an adjusted net loss of $47 million or negative $0.65 per diluted share in Q1 2020 [11] - Book value per share decreased to a negative $0.76 as of March 31, 2021, down from $2.55 as of December 31, 2020 [11] Business Line Data and Key Metrics Changes - National's insured portfolio gross par outstanding declined to $40.5 billion at March 31, 2021, down $1.4 billion from year-end 2020 [8] - National reported a statutory net loss of $35 million for Q1 2021, an improvement from a statutory net loss of $80 million in Q1 2020 [13] - MBIA Insurance Corp. had a statutory net loss of $34 million for Q1 2021, compared to a statutory net loss of $91 million in Q1 2020 [15] Market Data and Key Metrics Changes - The leverage ratio of National's gross par to statutory capital was 21:1 as of March 31, 2021 [8] - National's total fixed income investment portfolio had a book-adjusted carrying value of $2 billion as of March 31, 2021 [14] Company Strategy and Development Direction - The company has reached an agreement with the Oversight Board to resolve its Puerto Rico Highways and Transportation Authority exposure, indicating a focus on Puerto Rico credits as a top priority [6][24] - Management is considering strategic alternatives, including potential consolidation in the industry, and is likely to be a seller in the future [24] Management Comments on Operating Environment and Future Outlook - Management expressed hope that the process for implementing the restructuring support agreement for PREPA will regain momentum soon [7] - The company anticipates that the restructuring of Puerto Rico credits could be resolved by early to late 2022, although no specific dates are set [7][24] Other Important Information - The Corporate segment had total assets of approximately $900 million as of March 31, 2021, with unencumbered cash and liquid assets totaling $298 million [12] - Cash and liquid assets for MBIA Insurance Corp. increased to $503 million as of March 31, 2021, up from $130 million as of December 31, 2020 [15] Q&A Session Summary Question: What is the timeline for PREPA negotiations? - Management indicated there is no specific date set for PREPA negotiations but expects attention to turn towards it now that other agreements have been made [19] Question: Can you discuss the Board's thinking on potential buybacks at National? - National currently does not have the capacity to buy back shares due to regulatory constraints, but future capacity may open up depending on surplus increases or stock price decreases [22] Question: What actions are being considered to create value for shareholders in the interim? - The company is focused on executing Puerto Rico deals and expects the portfolio to continue to decline, which is seen as beneficial [24] Question: Are the settlement agreements consistent with Assured Guaranty? - Management confirmed that the agreements on HTA are consistent with those of Assured Guaranty [26]

Financial Data and Key Metrics Changes - The company reported a consolidated GAAP net loss of $81 million for Q4 2020, an improvement from a net loss of $243 million in Q4 2019 [12] - For the full year 2020, the consolidated GAAP net loss was $578 million, compared to a net loss of $359 million in 2019 [14] - Adjusted net loss for Q4 2020 was $36 million, compared to an adjusted net loss of $95 million in Q4 2019 [14] - Book value per share decreased to $2.55 as of December 31, 2020, down from $10.40 a year earlier [16] Business Line Data and Key Metrics Changes - National's insured portfolio declined to $42 billion at year-end 2020, down $2 billion from the previous quarter [11] - National reported statutory net income of $41 million for Q4 2020, up from $4 million in Q4 2019 [20] - MBIA Insurance Corp. reported a statutory net loss of $54 million for Q4 2020, an improvement from a net loss of $73 million in Q4 2019 [22] Market Data and Key Metrics Changes - The outstanding gross par of the insured portfolios continues to reduce, with National's leverage ratio gross par to statutory capital at 21:1 [11] - National's total fixed income investment portfolio had a book-adjusted carrying value of $2 billion as of December 31, 2020 [21] Company Strategy and Development Direction - The company is focused on resolving Puerto Rico-related exposures to enhance shareholder value by moving cash from National to the holding company [42][43] - Management believes that running off the insured portfolio and maximizing cash flow to shareholders is the best strategy moving forward [42] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of resolving Puerto Rico issues as a key to freeing up cash for shareholders [37] - The company is optimistic about the performance of its portfolio, indicating that the stress on municipalities has not been as severe as initially feared [72] Other Important Information - The company received a $600 million settlement from Credit Suisse, which will improve liquidity and is reflected in the fourth quarter results [8][22] - National's claims paying resources totaled $3.1 billion as of December 31, 2020 [21] Q&A Session Summary Question: Conditions for continuing support of the planned support agreement - Management indicated that the focus is now on the Highway and Transportation Authority (HTA) and that the situation is confidential [25][27] Question: Progress toward HTA resolution - Management stated that discussions are confidential but emphasized that parties are focused on the March 31 deadline [27] Question: Impact of risk-free discount rates on expected recoveries - Management confirmed that the rates were based on year-end figures and adjustments would be made based on future rates [28][30] Question: Upstream sources of capital to the holding company - Management provided details on expected dividends and tax escrow releases, indicating limited contributions from tax escrow in the future [31][32] Question: Post-Puerto Rico plans to enhance shareholder value - Management stated that the focus will be on running off the insured portfolio and maximizing cash flow to shareholders [42][43] Question: Plans for the $600 million from Credit Suisse - Management discussed optimizing the investment portfolio and potentially repaying some debt with the funds [46] Question: Timing for resolving Puerto Rico exposures - Management indicated that timing is uncertain and varies based on the complexity of negotiations [62] Question: Credit Suisse settlement impact on financials - Management confirmed that the settlement has been reflected in the fourth quarter results [64] Question: Capacity for share repurchases - Management noted that there is capacity for share repurchases but emphasized the need for liquidity considerations [60][67]

Financial Performance - As of December 31, 2020, National had $41.9 billion of insured gross par outstanding on U.S. public finance obligations covering 2,470 policies[29]. - Insurance in force as of December 31, 2020 was $81.5 billion, with an average annual insured debt service of $5.5 billion[30]. - MBIA Corp.'s gross par amount outstanding of insured obligations was $7.7 billion, with insurance in force totaling $9.9 billion as of December 31, 2020[32]. - National declared and paid dividends of $81 million in Q4 2020, compared to $134 million in Q4 2019[16]. - The Company redeemed $115 million principal amount of its 6.400% Senior Notes due 2022 during 2020[16]. Insurance and Risk Management - The average life of National's domestic public finance insurance policies in force was estimated at 9 years as of December 31, 2020[29]. - MBIA Corp. estimates the average life of its international and structured finance insurance policies in force is 6 years as of December 31, 2020[33]. - National's ten largest insured U.S. public finance credits totaled $9.1 billion, representing 21.7% of its total U.S. public finance gross par amount outstanding[30]. - The Company conducts ongoing credit surveillance for U.S. public finance, focusing on economic and political trends, issuer debt management, and cash flow adequacy under stress[43]. - The Company monitors international public finance credits by assessing country risk, local regulatory oversight, and economic factors, with increased review frequency for downgraded exposures[43]. - The Company uses an internal credit rating system to rank credits, with performance issues categorized into "Caution List" and "Classified List" for potential claims[45]. - The Company measures market risk on a consolidated basis, focusing on interest rates, credit spreads, and foreign exchange rates, using various models to test exposure under market stress scenarios[49]. - The Operational Risk function identifies vulnerabilities to operational disruptions and reports periodically to the Risk Oversight Committee and Audit Committee[50]. - The company currently has third-party reinsurance agreements covering 3% of its insured par outstanding, with no immediate plans to reduce insured exposure through reinsurance[66]. - National reported non-compliance with certain single risk limits as of December 31, 2020, due to changes in statutory capital, although it was compliant with aggregate risk limits[77]. Corporate Governance and Management - The executive officers of the Company include William C. Fallon as CEO since July 2005 and Anthony McKiernan as CFO since May 2012[95][96]. - The Board of Directors appointed William C. Fallon as CEO on September 15, 2017, and Anthony McKiernan as CFO on March 11, 2016[96]. - Jonathan C. Harris serves as General Counsel and Secretary, appointed on May 3, 2017[97]. - Daniel M. Avitabile is the Chief Risk Officer of MBIA Corp., appointed on March 11, 2016[98]. - Adam T. Bergonzi oversees risk and insured portfolio management activities as Chief Risk Officer of National since 2010[99]. - Christopher H. Young has been the Chief Financial Officer of National since March 2009[100]. - Joseph R. Schachinger has served as Controller since May 2017[100]. Operational and Strategic Initiatives - The Company maintains a stable liquidity position, expected to service obligations over the next several years without needing to access capital markets[14]. - The Company has a designated Model Governance Team to enhance the consistency, reliability, and transparency of its models, mitigating model risk on an enterprise-wide basis[42]. - The Company has invested in imaging technology to reduce paper usage, promoting a paperless office environment[52]. - The Company has paid out over $20 million in matching gifts and nearly $12 million in grants through the MBIA Foundation since its inception[61]. - The Company implemented business continuity plans in response to the COVID-19 pandemic, with all employees working remotely until conditions permit a safe return[63]. Regulatory and Compliance - The company is subject to insurance regulation and supervision by the State of New York, with specific requirements for solvency and business conduct[68]. - MBIA Insurance Corporation is exempt from assessments by insurance guarantee funds in most states where it operates, as it primarily writes municipal bond insurance and financial guarantee insurance[82]. - The company is required to maintain contingency reserves, contributing 50% of premiums earned on policies written prior to July 1, 1989, and over a period of 15 or 20 years for policies written after that date[75]. - The company does not maintain a capital facility and relies on its investment policies to optimize capital resources[86]. - The company does not maintain a contractual relationship with major rating agencies, but Moody's continues to maintain ratings at its discretion[85]. - The Company has made available certain confidential information subject to a non-disclosure agreement[91]. - The Company maintains a website where it provides access to SEC filings, but this information is not incorporated by reference into its Form 10-K[89].

Financial Data and Key Metrics Changes - The company reported a consolidated GAAP net loss of $58 million or a negative $1.11 per share for Q3 2020, compared to a net income of $83 million or $1 per share for Q3 2019, driven by higher loss and LAE expenses and lower gains from investment portfolio security sales [11][12] - Book value per share decreased to $4.25 as of September 30, 2020, from $10.40 as of December 31, 2019, primarily due to a year-to-date net loss of $497 million [13] - The adjusted net loss for Q3 2020 was $18 million or a negative $0.34 per diluted share, compared to an adjusted net income of $115 million or $1.46 per diluted share for Q3 2019 [13][14] Business Line Data and Key Metrics Changes - National's insured portfolio declined to $44 billion, down $2 billion from the last quarter, with a leverage ratio of gross par to statutory capital at 22:1 as of September 30, 2020 [9] - National reported statutory income before taxes of $36 million for Q3 2020, down from $112 million for Q3 2019, primarily due to lower capital gains and lower premium and investment income [16] - National's statutory net loss was $8 million for Q3 2020, compared to a net income of $87 million for the same quarter in the previous year [17] Market Data and Key Metrics Changes - The outstanding gross par of the insured portfolios continued to reduce, with National's insured gross par outstanding now at $43.9 billion, down $1.9 billion during the quarter [18] - As of September 30, 2020, National's total fixed income investment portfolio had a book adjusted carrying value of $2 billion, with claims paying resources totaling $3.2 billion [18] Company Strategy and Development Direction - The company remains focused on resolving National's Puerto Rico exposure, which includes credits from the Commonwealth's General Obligation Bonds, PREPA, and HTA [8] - The company has paused share repurchases to assess the situation in Puerto Rico and ensure sufficient liquidity at National [27][48] - Future share repurchases will depend on the progress of the Puerto Rico restructuring and the new Oversight Board's actions [27][48] Management's Comments on Operating Environment and Future Outlook - Management noted that there has been no material impact on financial performance due to the COVID-19 pandemic, but they continue to monitor risks associated with insured portfolios [9] - The company expects the resolution of Puerto Rico's restructuring to take time, with no material changes to loss scenarios made this quarter [22] - Management expressed confidence in the fiscal state of Puerto Rico, noting substantial cash balances and federal aid that could improve recovery prospects [36][37] Other Important Information - National purchased 8.6 million shares of MBIA's common stock at an average price of $7.23 per share during Q3 2020, with a total of 26.4 million shares repurchased year-to-date [10] - The company received an annual dividend from National amounting to $81 million, ensuring sufficient assets to cover foreseeable obligations through at least the end of 2022 [15] Q&A Session Summary Question: Impact of COVID-19 on Puerto Rico restructuring - Management indicated that while COVID-19 has caused delays, there were no material changes to expected losses on Puerto Rico credits [20][22] Question: Focus on top credits outside Puerto Rico - Management stated they are monitoring the situation closely but have not identified any substantial reserves needed due to COVID-19 impacts [24] Question: Future share repurchase plans - Management confirmed a pause in share repurchases while assessing the situation in Puerto Rico, with plans to evaluate future buybacks based on developments [27][48] Question: Current fiscal state of Puerto Rico - Management acknowledged Puerto Rico's significant cash balances and federal aid, suggesting a potentially better recovery outlook than previously indicated [36][37] Question: Remaining capacity for stock buybacks - Management noted that as of September 30, National had about $250 million of remaining capacity for purchasing shares [49]