<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1995
OR
( ) TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File No. 1-9583 I.R.S. Employer Identification No. 06-1185706
MBIA INC.
A Connecticut Corporation
113 King Street, Armonk, N. Y. 10504
(914) 273-4545
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes__X__
NO_____
As of October 30, 1995 there were outstanding 41,911,356
shares of Common Stock, par value $1 per share, of the
registrant.
<PAGE>
INDEX
-----
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MBIA Inc. and Subsidiaries
Consolidated Balance Sheets - September 30, 1995
and December 31, 1994 3
Consolidated Statements of Income - Three months and
nine months ended September 30, 1995 and 1994 4
Consolidated Statement of Changes in Shareholders' Equity
- Nine months ended September 30, 1995 5
Consolidated Statements of Cash Flows
- Nine months ended September 30, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-15
PART II OTHER INFORMATION, AS APPLICABLE
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
(2)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
September 30, 1995 December 31, 1994
------------------ -----------------
(Unaudited) (Audited)
ASSETS
Investments:
Fixed maturity securities held
as available-for-sale at market
(amortized cost $3,332,939 and
$3,123,838) $3,480,987 $3,051,906
Short-term investments,
at amortized cost (which
approximates market value) 173,529 121,384
Other investments 16,446 17,550
---------- ----------
3,670,962 3,190,840
Municipal investment agreement
portfolio, held as available-
for-sale at market (amortized
cost $2,423,173 and $1,738,375) 2,467,481 1,675,935
---------- ----------
TOTAL INVESTMENTS 6,138,443 4,866,775
Cash and cash equivalents 12,821 7,940
Accrued investment income 79,174 68,486
Deferred acquisition costs 138,132 133,048
Prepaid reinsurance premiums 195,146 186,492
Goodwill (less accumulated
amortization of $39,987 and $36,115) 107,880 111,252
Property and equipment, at cost (less
accumulated depreciation of $16,685
and $13,917) 45,672 45,069
Receivable for investments sold 2,783 945
Other assets 38,060 36,432
---------- ----------
TOTAL ASSETS $6,758,111 $5,456,439
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Deferred premium revenue $1,598,597 $1,512,211
Loss and loss adjustment
expense reserves 45,246 40,148
Municipal investment agreements 2,314,339 1,526,133
Long-term debt 298,872 298,790
Short-term debt 23,000 17,000
Deferred income taxes 200,183 76,843
Payable for investments purchased 35,929 209,966
Securities sold under agreements
to repurchase 69,000 ---
Other liabilities 82,661 70,632
---------- ----------
TOTAL LIABILITIES 4,667,827 3,751,723
---------- ----------
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--200,000,000;
issued shares--42,077,387 42,077 42,077
Additional paid-in capital 722,478 719,750
Retained earnings 1,212,628 1,057,092
Cumulative translation adjustment 2,609 503
Unrealized appreciation (depreciation)
of investments, net of deferred
income tax provision (benefit) of
$67,879 and $(46,292) 125,075 (86,560)
Treasury stock, at cost;
shares--248,331 and 461,763 (14,583) (28,146)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 2,090,284 1,704,716
---------- ----------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $6,758,111 $5,456,439
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
(3)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands except per share amounts)
Three months ended Nine months ended
September 30 September 30
---------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
Revenues:
Insurance:
Gross premiums written $ 92,022 $ 80,099 $269,199 $274,385
Ceded premiums (13,077) (12,011) (32,206) (38,686)
---------- ---------- ---------- ----------
Net premiums written 78,945 68,088 236,993 235,699
Increase in deferred
premium revenue (23,336) (13,358) (76,422) (72,829)
---------- ---------- ---------- ----------
Premiums earned (net
of ceded premiums of
$8,900, $11,719,
$23,552 and $26,087) 55,609 54,730 160,571 162,870
Net investment income 56,057 49,551 162,885 144,241
Net realized gains 4,665 752 8,087 9,659
Investment management
services:
Income 5,164 4,222 13,705 12,019
Net realized losses (3,186) (145) (3,360) (603)
Other 421 902 1,555 1,527
---------- ---------- ---------- ----------
Total revenues 118,730 110,012 343,443 329,713
---------- ---------- ---------- ----------
Expenses:
Insurance:
Losses and loss
adjustment 3,211 1,626 7,954 5,665
Policy acquisition
costs, net 5,511 5,232 15,781 16,292
Operating 10,554 10,816 29,546 30,453
Investment management
services 3,049 2,646 9,339 7,592
Interest 7,112 6,759 21,271 20,214
Other 285 420 1,256 1,053
---------- --------- ---------- ----------
Total expenses 29,722 27,499 85,147 81,269
---------- --------- ---------- ----------
Income before income
taxes 89,008 82,513 258,296 248,444
Provision for income
taxes 19,174 17,466 55,149 52,705
---------- ---------- ---------- ----------
NET INCOME $ 69,834 $ 65,047 $203,147 $195,739
========== ========== ========== ==========
NET INCOME PER
COMMON SHARE $ 1.65 $ 1.54 $ 4.82 $ 4.65
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND
COMMON STOCK
EQUIVALENTS
OUTSTANDING 42,254,807 42,105,144 42,176,243 42,111,624
========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
(4)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
For the nine months ended September 30, 1995
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional Cumulative Appreciation Treasury Stock
--------------- Paid-in Retained Translation (Depreciation) ------------------
Shares Amount Capital Earnings Adjustment of Investments Shares Amount
------ ------- -------- ---------- ---------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1,
1995 42,077 $42,077 $719,750 $1,057,092 $ 503 $(86,560) 462 $28,146
Exercise
of stock
options --- --- 2,728 (7,333) --- --- (214) (13,563)
Net income --- --- --- 203,147 --- --- --- ---
Change in
foreign
currency
translation --- --- --- --- 2,106 --- --- ---
Change in
unrealized
appreciation
of investments
net of change
in deferred
income taxes
of $114,171 --- --- --- --- --- 211,635 --- ---
Dividends
(declared
per common
share $.965,
paid per
common share
$.930) --- --- --- (40,278) --- --- --- ---
------ ------- -------- ---------- ------ -------- ------ -------
Balance,
September
30, 1995 42,077 $42,077 $722,478 $1,212,628 $2,609 $125,075 248 $14,583
====== ======= ======== ========== ====== ======== ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
(5)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine months ended
September 30
---------------------
1995 1994
---------- ----------
Cash flows from operating activities:
Net income $ 203,147 $ 195,739
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accrued investment income (10,688) (8,262)
Increase in deferred acquisition costs (5,084) (7,560)
Increase in prepaid reinsurance premiums (8,654) (12,599)
Increase in deferred premium revenue 85,076 85,428
Increase in loss and loss adjustment
expense reserves 5,098 5,076
Depreciation 2,901 2,333
Amortization of goodwill 3,872 3,770
Amortization of bond discount, net (13,529) (5)
Net realized gains on sale of investments (4,727) (9,056)
Deferred income taxes 9,169 13,735
Other, net 17,509 6,134
---------- ---------
Total adjustments to net income 80,943 78,994
---------- ---------
Net cash provided by operating activities 284,090 274,733
---------- ---------
Cash flows from investing activities:
Purchase of fixed maturity securities, net
of payable for investments purchased (2,206,715) (781,908)
Sale of fixed maturity securities, net of
receivable for investments sold 1,429,309 355,441
Redemption of fixed maturity securities, net
of receivable for investments redeemed 63,390 91,793
(Purchase) sale of short-term investments, net (204,006) 30,897
Sale of other investments, net 2,570 87,379
Purchases for municipal investment agreement
portfolio, net of payable for investments
purchased (177,818) (1,394,415)
Sales from municipal investment agreement
portfolio, net of receivable for
investments sold (2,007) 378,171
Capital expenditures, net of disposals (3,471) (2,246)
---------- ----------
Net cash used by investing activities (1,098,748) (1,234,888)
---------- ----------
Cash flows from financing activities:
Dividends paid (38,748) (32,582)
Purchase of treasury stock --- (8,886)
Proceeds from issuance of municipal
investment agreements 1,628,063 1,563,308
Payments for drawdowns of municipal
investment agreements (847,734) (554,297)
Securities sold under agreements
to repurchase 69,000 ---
Exercise of stock options 8,958 1,985
--------- ---------
Net cash provided by financing activities 819,539 969,528
--------- ---------
Net increase in cash and cash equivalents 4,881 9,373
Cash and cash equivalents - beginning of period 7,940 2,492
--------- ---------
Cash and cash equivalents - end of period $ 12,821 $ 11,865
========= =========
Supplemental cash flow disclosures:
Income taxes paid $ 41,910 $ 41,783
Interest paid:
Municipal investment agreements $ 81,892 $ 22,279
Long-term debt 22,475 22,475
Short-term debt 835 56
The accompanying notes are an integral part of the consolidated
financial statements.
(6)
<PAGE>
MBIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to
Form 10-Q and, accordingly, do not include all of the
information and disclosures required by generally accepted
accounting principles. These statements should be read in
conjunction with the consolidated financial statements and
notes thereto included in Form 10-K for the year ended
December 31, 1994 for MBIA Inc. and Subsidiaries (the
"Company"). The accompanying unaudited consolidated
financial statements have not been audited by independent
accountants in accordance with generally accepted auditing
standards but in the opinion of management such financial
statements include all adjustments, consisting only of
normal recurring adjustments, necessary to summarize fairly
the Company's financial position and results of operations.
The results of operations for the nine months ended
September 30, 1995 may not be indicative of the results that
may be expected for the year ending December 31, 1995. The
December 31, 1994 condensed balance sheet data was derived
from audited financial statements, but does not include all
disclosures required by generally accepted accounting
principles.
2. Dividends Declared
Dividends declared by the Company during the nine months
ended September 30, 1995 were $40.3 million.
(7)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
1995 AND 1994 - THIRD QUARTER RESULTS
- -------------------------------------
Third quarter 1995 consolidated net income for MBIA Inc. and
Subsidiaries (the "Company") was $69.8 million compared to
$65.0 million in 1994. Earnings per share grew 7% to $1.65
from $1.54 in the third quarter of 1994.
The Company also measures its performance in terms of core
earnings. Core earnings exclude the effects of the
relatively less predictable elements of net income, which
consist of premiums earned from refundings and calls of
previously insured issues, realized gains or losses and non-
recurring accounting changes. Core earnings increased by
12% to $1.50 per share compared with $1.34 per share in the
third quarter of last year, reflecting the Company's
continuing ability to produce consistent growth from its
expanding portfolio of insured issues, its investment
portfolio and its investment management services businesses.
Insurance Operations:
- --------------------
Total long-term new issue municipal bond par value volume
was $31.7 billion in the third quarter of 1995, down
modestly from $33.7 billion in the same period last year.
The insured portion of the market was a record 51% compared
with 37% in the third quarter of 1994. In the third quarter
of 1995, the Company's principal operating subsidiary, MBIA
Insurance Corporation (formerly, Municipal Bond Investors
Assurance Corporation) ("MBIA Corp."), continued to lead the
industry in market share, guaranteeing 44% of the insured
long-term new issue municipal bond volume.
In its domestic structured finance business, the Company
insured $3.7 billion of par value compared with $1.7 billion
insured in the same period last year.
Gross premiums written by MBIA Corp. increased 15% to
$92.0 million during the third quarter, from $80.1 million
during the third quarter of 1994. Domestic new issue and
secondary market municipal and asset-backed premiums, the
major components of gross premiums written, increased 13% to
$82.2 million compared with $72.5 million in the same period
last year. Installment premiums received for policies
issued in prior years, including net amounts assumed related
to the installment business of the Association, were $9.3
million and $7.4 million for the third quarters of 1995 and
1994, respectively. International premiums
(8)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
contributed $0.5 million of gross premium written in the
third quarter of 1995, up from $0.2 million in the third
quarter of 1994.
Premiums ceded to reinsurers increased 9% to $13.1 million
during the third quarter of 1995 compared with $12.0 million
in the same period last year. This was due primarily to the
overall increase in the volume of gross premiums this
quarter over the third quarter of 1994. The percentage of
ceded premiums written to gross premiums written decreased
slightly to 14% for the third quarter of 1995 compared with
15% in the third quarter of 1994.
Typically, insurance premiums are paid in full at the time
the insurance policy is issued and are earned pro rata over
the period of risk. Premiums are allocated to each bond
maturity based on par amount and are earned on a straight-
line basis over the term of each maturity. Accordingly, the
portion of net premiums earned on each policy in any given
year represents a relatively small percentage of the total
net upfront premium received. The balance represents
deferred premium revenue to be earned in the future over the
remaining life of the bond.
Approximately 10% of MBIA's premiums are collected on an
installment basis. Installment premiums are not recorded as
a component of deferred premium revenue until received and
therefore represent an off-balance sheet value which will
contribute to future earned premiums and cash flow. As of
September 30, 1995, MBIA estimates the present value of this
future stream of payments to be $186.6 million. The present
value of future installment premiums originated in the third
quarter of 1995 increased 65% to $19.5 million from $11.8
million in the third quarter of 1994.
Premiums earned in the third quarter were $55.6 million, a
slight increase over the $54.7 million earned in the third
quarter of 1994. During the third quarter of 1995, the
growth in deferred premium revenue from the addition of new
business modestly offset the decline in earned premiums
associated with bond refundings and calls, which were
significantly lower than in the same period last year.
When an MBIA-insured bond issue is refunded or retired
prior to the end of the expected period of coverage, the
outstanding exposure associated with the refunded or called
portion is extinguished and the remaining deferred premium
revenue is earned immediately, except for any portion which
may be applied as a credit toward the premium charged on
(9)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
the refunding bond issue if such refunding issue is insured
by MBIA Corp. Earned premiums generated by refunded and
called bonds in the third quarter of 1995 declined to $9.6
million from $13.9 million. The amount of bond refundings
and calls is difficult to predict since it is influenced by
a variety of factors such as prevailing interest rates
relative to the coupon rates of the original issue, the
issuer's desire to modify restrictive covenants and changing
requirements under the Internal Revenue Code.
The Company's investment portfolio related to its
insurance operations was $3.67 billion as of September 30,
1995. This portfolio generated net investment income of
$56.1 million in the third quarter of 1995, a 13% increase
over $49.6 million generated in the corresponding period of
1994. The increase was primarily the result of the growth
of investments from continued positive operating cash flows.
Average invested assets during the third quarter of 1995
were $3.48 billion at amortized cost compared with $3.15
billion for the same period last year. Tax-exempt
securities represented 73% of the portfolio at September 30,
1995 compared with 77% at September 30, 1994. The average
quality of the fixed income investments is double-A. Net
realized capital gains for the third quarter of 1995
increased to $4.7 million from $0.8 million in the same
period of 1994.
The provision for losses and loss adjustment expenses for
the third quarter of 1995 was $3.2 million, compared with
$1.6 million in 1994, representing additions to the loss
reserves consistent with the Company's reserve methodology.
At September 30, 1995, $18.5 million of the $45.2 million
loss and loss adjustment expense reserve was allocated on a
case basis, compared with $23.3 million of the $38.8 million
reserve at September 30, 1994. During the third quarter of
1995 there were no new case reserves nor any material
adjustments made to those reserves currently outstanding.
For the third quarter of 1995, policy acquisition costs
net of deferrals increased by $0.3 million to $5.5 million
over the third quarter of 1994. This increase was offset by
a comparable decrease in other insurance operating expenses
for the same periods.
For the third quarter of 1995, the Company's interest
expense increased to $7.1 million from $6.8 million in the
third quarter 1994. The increase resulted from utilization
of short-term bank borrowings under existing lines of credit
during the third quarter of 1995 for investment management
services' capital needs.
(10)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Investment Management Services:
- ------------------------------
MBIA has undertaken the development of investment
management services which capitalize on its capabilities,
reputation and marketplace relationships.
MBIA Municipal Investors Services Corporation
("MBIA/MISC"), a subsidiary of the Company, provides cash
management services for local governments, school districts
and similar authorities. As of September 30, 1995 MBIA/MISC
had over 1,100 clients and over $2.3 billion of client
assets under management. MBIA/MISC is operating in nine
states and plans to continue its expansion into additional
states. MBIA/MISC also provides fund administration
services to 232 clients.
MBIA Investment Management Corp. ("IMC"), another
subsidiary of the Company, provides investment agreements
guaranteed as to principal and interest, for states,
municipalities and municipal authorities. At September 30,
1995, aggregate principal and accrued interest outstanding
on investment agreements was $2.3 billion compared with $1.5
billion at September 30, 1994. The related assets are high
quality securities and are recorded as a component of the
Company's total investments as the municipal investment
agreement portfolio.
Municipal investment agreements are recorded as
liabilities at the time such agreements are executed. The
liability for a municipal investment agreement is carried at
the principal value of the obligation plus accrued interest
due. Interest expense on municipal investment agreements is
computed daily based upon the outstanding liability balance
at rates specified in the agreements. Such expense is
deducted from the investment income arising from the related
investment agreement assets, and the net amount is included
in investment management services income.
For the third quarter of 1995, these businesses
contributed $5.2 million in operating revenues, a 22%
increase over third quarter 1994's $4.2 million. For the
same periods, operating expenses increased by 15% to $3.0
million from $2.6 million. Net realized capital losses for
the third quarter of 1995 were $3.2 million compared to $0.1
million in the third quarter of 1994.
(11)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
- ---------------------
1995 AND 1994 - FIRST NINE MONTHS RESULTS
- -----------------------------------------
The Company's 1995 first nine months net income and earnings
per share were $203.1 million and $4.82, respectively,
compared with $195.7 million and $4.65 in the first nine
months of 1994.
For the first nine months of 1995, core earnings
increased by 11% to $4.37 per share compared with $3.92 per
share in the first nine months of last year, reflecting the
Company's continuing ability to produce consistent growth
from its expanding portfolio of insured issues and
investment portfolio.
Insurance Operations:
- --------------------
Total long-term new issue municipal bond volume for the
first nine months of 1995 was $95.9 billion of par value,
down from $121.1 billion in the first nine months of 1994.
The insured portion of new issue volume increased to 45%
versus 39% in the comparable period last year. In the first
nine months of 1995, MBIA Corp. led the industry in market
share, guaranteeing 44% of the insured long-term new issue
municipal bond volume compared with 42% in the first nine
months of 1994.
In its domestic structured finance business, for the first
nine months of 1995, MBIA insured $6.8 billion of par value
compared with $4.0 billion in the first nine months of last
year.
Gross premiums written by MBIA Corp. decreased 2% to
$269.2 million during the first nine months of 1995 from
$274.4 million during the first nine months of 1994.
Domestic new issue and secondary market municipal and asset-
backed premiums, the major components of gross premiums
written, increased modestly to $232.8 million compared with
$232.1 million in the same period last year. Installment
premiums received for policies issued in prior years,
including net amounts assumed related to the installment
business of the Association, were $27.9 million and $23.0
million for the first nine months of 1995 and 1994,
respectively. International premiums contributed $8.5
million of gross premium written in the first nine months of
1995, down from $19.1 million in the same period last year.
Included in last year's premium is $15.2 million relating to
one unusually large transaction. Excluding this transaction
international premiums increased by $4.6 million over the
first nine months of 1994. Gross premiums written also
included portfolio assumptions of $0.2 million for the first
nine months of 1994.
(12)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The present value of future installment premiums
originated in the first nine months of 1995 increased 57% to
$44.9 million from $28.6 million in the same period last
year.
With the decrease in the volume of gross premiums written,
premiums ceded to reinsurers declined 17% to $32.2 million
during the first nine months of 1995 compared to $38.7
million in the same period last year. In the first nine
months of 1995, premiums ceded as a percentage of gross
premiums written decreased to 12% from 14% last year.
For the first nine months of 1995, net premium writings
were $237.0 million, reflecting a 1% increase over $235.7
million in the same period last year.
Premiums earned in the first nine months of 1995 decreased
1% to $160.6 million from $162.9 million in the first nine
months of 1994. This decrease reflected the decline in
earned premiums resulting from lower bond refundings and
calls during 1995, partially mitigated by the growth in
deferred premium revenues from the addition of new business
in 1994. Earned premiums generated by refunded and called
bonds in the first nine months of 1995 and 1994 were $26.8
million and $39.9 million, respectively.
Net investment income increased 13% to $162.9 million in
the first nine months of 1995 compared with $144.2 million
in the corresponding period of 1994. The increase was a
result of the growth of invested assets from continued
positive operating cash flows. Average invested assets
during the first nine months of 1995 were $3.39 billion at
amortized cost compared with $3.08 billion for the same
period last year. Net realized capital gains in the first
nine months of 1995 decreased to $8.1 million from $9.7
million in the same period of 1994.
The provision for losses and loss adjustment expenses for
the first nine months of 1995 was $8.0 million, compared
with $5.7 million in 1994, representing additions to the
loss reserves consistent with the Company's reserve
methodology. During the first nine months of 1995 there
were no new case reserves nor any material adjustments made
to those reserves currently outstanding.
(13)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Other insurance related expenses, which are composed of net
policy acquisition costs and operating expenses, were $45.3
million compared with $46.7 million in the previous year.
The Company's interest expense increased to $21.3 million
for the first nine months of 1995 from $20.2 million in
1994. The increase resulted from utilization of short-term
bank borrowings under existing lines of credit during the
first nine months of 1995 for investment management
services' capital needs.
Investment Management Services:
- ------------------------------
For the first nine months of 1995, MBIA's investment
management services operating revenues were $13.7 million, a
14% increase over the first nine month 1994 operating
revenues of $12.0 million. Included in 1994's first nine
months was $1.8 million of net proceeds from the sale of
MBIA's 49% interest in a joint venture. Investment
management services income, excluding the sale, increased
34% over the first nine months of 1994. For the same
periods, operating expenses increased by 23% to $9.3 million
from $7.6 million. Net realized capital losses for the first
nine months of 1995 were $3.4 million compared to $0.6
million for the first nine months of 1994.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1995, the market value of the Company's
consolidated investment portfolio was $6.14 billion, an
increase of 26% from $4.87 billion at year-end 1994. The
increase was substantially due to continued positive
operating cash flow from the Company's insurance and
municipal investment agreement operations, as well as a
$325.8 million increase in the market value of its
investments from year end 1994.
MBIA Inc.'s liquidity is in part dependent upon MBIA
Corp.'s ability to pay dividends to MBIA Inc. MBIA Corp.'s
net income, consisting of premium earnings and investment
income less losses and expenses, is a source of continuing
additions to earned surplus and dividend paying capability.
Under New York insurance law, without prior approval of the
Superintendent of the New York State Insurance Department,
MBIA Corp. may pay a dividend only from earned surplus
subject to the maintenance of a minimum capital requirement,
and the dividends in any 12-month period may not exceed the
lesser of 10% of its policyholders' surplus as shown on its
last filed statutory-based financial statements or adjusted
(14)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
net investment income, as defined in the law, for such 12-
month period. MBIA Corp. paid dividends of $66.5 million in
the first nine months of 1995 and at September 30, 1995 had
in excess of $35 million available for payment of further
dividends to the Company without prior approval.
MBIA Corp. has an irrevocable standby line of credit of
$650 million with a group of major banks to provide funds
for the payment of claims in the event that severe losses
should occur. The agreement is for a seven-year term
expiring on September 30, 2002 but, subject to approval by
the banks, the agreement may be renewed annually to extend
the term to seven years beyond the renewal date. MBIA Inc.
and MBIA Corp. maintain short-term liquidity facilities
totaling $250 million with major banks for general corporate
purposes including immediate liquidity for payment of claims
should they occur. At September 30, 1995, $23 million was
outstanding under these facilities to fund investment
management services' capital requirements.
MBIA Corp. also maintains a high degree of liquidity
within its investment portfolio in the form of readily
marketable high quality fixed income securities and short-
term investments. In management's opinion, the capital
resources of MBIA Corp., represented by the liquidity of its
investment portfolio, its cash flows from operations and
bank lines of credit, are more than adequate to meet the
Company's expected cash requirements.
At September 30, 1995, MBIA Corp. had $18.5 million in
case specific loss reserves. Any related payments are
expected to be funded from operating cash flows.
(15)
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11. Computation of Earnings Per Share Assuming Full
Dilution
27. Financial Data Schedule
99. Additional Exhibits - MBIA Insurance Corporation and
Subsidiaries Consolidated Financial Statements
(b) Reports on Form 8-K - No Reports on Form 8-K were filed
in this quarter.
(16)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
MBIA INC.
----------------------------------------
Registrant
Date: November 2, 1995 /s/ JULLIETTE S. TEHRANI
--------------------- -----------------------------
Julliette S. Tehrani
Senior Vice President,
Chief Financial Officer
Date: November 2, 1995 /s/ ELIZABETH B. SULLIVAN
--------------------- -----------------------------
Elizabeth B. Sullivan
Vice President,
Controller
(Principal Accounting Officer)
(17)
<PAGE>
EXHIBIT 11
MBIA INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION
(In thousands except per share amounts)
Three months ended Nine months ended
September 30 September 30
------------------ ------------------
1995 1994 1995 1994
------- ------- -------- --------
Net income $69,834 $65,047 $203,147 $195,739
======= ======= ======== ========
Fully diluted shares:
Average number of common
shares outstanding 41,767 41,703 41,701 41,702
Assumed exercise of dilutive
stock options 516 427 541 431
------- ------- -------- --------
42,283 42,130 42,242 42,133
======= ======= ======== ========
Earnings per share assuming
full dilution $1.65 $1.54 $4.81 $4.65
======= ======= ======== ========
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 3,480,987
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 6,138,443
<CASH> 12,821
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 138,132
<TOTAL-ASSETS> 6,758,111
<POLICY-LOSSES> 45,246
<UNEARNED-PREMIUMS> 1,598,597
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 298,872
<COMMON> 42,077
0
0
<OTHER-SE> 2,048,207
<TOTAL-LIABILITY-AND-EQUITY> 6,758,111
160,571
<INVESTMENT-INCOME> 162,885
<INVESTMENT-GAINS> 8,087
<OTHER-INCOME> 11,900
<BENEFITS> 7,954
<UNDERWRITING-AMORTIZATION> 15,781
<UNDERWRITING-OTHER> 29,546
<INCOME-PRETAX> 258,296
<INCOME-TAX> 55,149
<INCOME-CONTINUING> 203,147
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,147
<EPS-PRIMARY> 4.82
<EPS-DILUTED> 4.81
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE>
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
AND FOR THE THREE AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1995 AND 1994
<PAGE>
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
I N D E X
---------
PAGE
----
Consolidated Balance Sheets - September 30, 1995 (Unaudited)
and December 31, 1994 (Audited) 3
Consolidated Statements of Income - Three months and
nine months ended September 30, 1995 and 1994 (Unaudited) 4
Consolidated Statement of Changes in Shareholder's
Equity - Nine months ended September 30, 1995 (Unaudited) 5
Consolidated Statements of Cash Flows
- Nine months ended September 30, 1995 and 1994 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
- 2 -
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
September 30, 1995 December 31, 1994
------------------ -----------------
(Unaudited) (Audited)
ASSETS
Investments:
Fixed maturity securities held
as available-for-sale at market
(amortized cost $3,332,939
and $3,123,838) $3,480,987 $3,051,906
Short-term investments,
at amortized cost
(which approximates market value) 173,529 121,384
Other investments 13,228 11,970
---------- ----------
TOTAL INVESTMENTS 3,667,744 3,185,260
Cash and cash equivalents 2,202 1,332
Accrued investment income 57,092 55,347
Deferred acquisition costs 138,132 133,048
Prepaid reinsurance premiums 195,146 186,492
Goodwill (less accumulated
amortization of
$36,134 and $32,437) 106,846 110,543
Property and equipment, at cost
(less accumulated
depreciation of
$11,457 and $9,501) 40,839 39,648
Receivable for investments sold 776 945
Other assets 48,050 46,552
---------- ----------
TOTAL ASSETS $4,256,827 $3,759,167
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deferred premium revenue $1,598,597 $1,512,211
Loss and loss adjustment expense
reserves 45,246 40,148
Deferred income taxes 184,053 97,828
Payable for investments purchased 10,333 6,552
Other liabilities 56,694 46,925
---------- ----------
TOTAL LIABILITIES 1,894,923 1,703,664
---------- ----------
Shareholder's Equity
Common stock, par value $150 per
share; authorized, issued and
outstanding - 100,000 shares 15,000 15,000
Additional paid-in capital 963,645 953,655
Retained earnings 1,285,606 1,134,061
Cumulative translation adjustment 2,464 427
Unrealized appreciation
(depreciation) of investments,
net of deferred income tax provision
(benefit) of $51,786 and $(25,334) 95,189 (47,640)
---------- -----------
TOTAL SHAREHOLDER'S EQUITY 2,361,904 2,055,503
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $4,256,827 $3,759,167
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
- 3 -
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
Three months ended Nine months ended
September 30 September 30
------------------ -------------------
1995 1994 1995 1994
-------- -------- -------- --------
Revenues:
Gross premiums written $ 92,362 $ 80,313 $270,139 $274,841
Ceded premiums (13,077) (12,011) (32,206) (38,686)
-------- -------- -------- --------
Net premiums written 79,285 68,302 237,933 236,155
Increase in deferred
premium revenue (23,336) (13,358) (76,422) (72,829)
-------- -------- -------- --------
Premiums earned
(net of ceded premiums
of $8,900, $11,719, $23,552
and $26,087) 55,949 54,944 161,511 163,326
Net investment income 55,988 49,676 162,836 144,070
Net realized gains 2,902 751 6,324 9,659
Other income 421 887 1,553 1,505
-------- -------- -------- --------
Total revenues 115,260 106,258 332,224 318,560
-------- -------- -------- --------
Expenses:
Losses and loss
adjustment expenses 3,211 1,626 7,954 5,665
Underwriting and operating
expenses 10,554 10,820 29,553 30,466
Policy acquisition costs, net 5,511 5,232 15,781 16,292
-------- -------- --------- --------
Total expenses 19,276 17,678 53,288 52,423
-------- -------- -------- --------
Income before income taxes 95,984 88,580 278,936 266,137
Provision for income taxes 20,811 19,293 60,891 59,070
-------- -------- -------- --------
Net income $ 75,173 $ 69,287 $218,045 $207,067
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
- 4 -
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited)
For the nine months ended September 30, 1995
(Dollars in thousands except per share amounts)
Unrealized
Common Stock Additional Cumulative Appreciation
--------------- Paid-in Retained Translation (Depreciation)
Shares Amount Capital Earnings Adjustment of Investments
------- ------- -------- ---------- ---------- --------------
Balance,
January 1,
1995 100,000 $15,000 $953,655 $1,134,061 $ 427 $(47,640)
Net income --- --- --- 218,045 --- ---
Change in
foreign
currency
translation --- --- --- --- 2,037 ---
Change in
unrealized
apprec-
iation of
investments
net of change
in deferred
income taxes
of $77,120 --- --- --- --- --- 142,829
Dividends
declared
(per common
share $665) --- --- --- (66,500) --- ---
Tax reduction
related to
tax shar-
ing agree-
ment with
MBIA Inc. --- --- 9,990 --- --- ---
------- ------- -------- ---------- ------- ---------
Balance,
September 30,
1995 100,000 $15,000 $963,645 $1,285,606 $2,464 $95,189
======= ======= ======== ========== ====== =========
The accompanying notes are an integral part of the consolidated
financial statements.
- 5 -
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine months ended
September 30
--------------------
1995 1994
-------- --------
Cash flows from operating activities:
Net income $218,045 $207,067
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accrued investment income (1,745) (1,214)
Increase in deferred acquisition costs (5,084) (7,560)
Increase in prepaid reinsurance premiums (8,654) (12,599)
Increase in deferred premium revenue 85,076 85,499
Increase in loss and loss adjustment
expense reserves 5,098 5,076
Depreciation 1,975 1,027
Amortization of goodwill 3,697 3,721
Amortization of bond discount, net (1,389) (3)
Net realized gains on sale of investments (6,324) (9,659)
Deferred income taxes 9,105 13,807
Other, net 21,247 (4,339)
-------- --------
Total adjustments to net income 103,002 73,756
-------- --------
Net cash provided by operating activities 321,047 280,823
-------- --------
Cash flows from investing activities:
Purchase of fixed maturity securities, net
of payable for investments purchased (664,949) (824,635)
Sale of fixed maturity securities, net of
receivable for investments sold 376,589 355,441
Redemption of fixed maturity securities,
net of receivable for investments redeemed 55,513 91,793
(Purchase) sale of short-term investments, net (17,035) 30,897
(Purchase) sale of other investments (664) 87,376
Capital expenditures, net of disposals (3,131) (132)
-------- --------
Net cash used in investing activities (253,677) (259,260)
-------- --------
Cash flows from financing activities:
Dividends paid (66,500) (21,000)
-------- --------
Net cash used by financing activities (66,500) (21,000)
-------- --------
Net increase in cash and cash equivalents 870 563
Cash and cash equivalents-beginning of period 1,332 747
-------- --------
Cash and cash equivalents-end of period $ 2,202 $ 1,310
======== ========
Supplemental cash flow disclosures:
Income taxes paid $ 40,290 $ 41,530
The accompanying notes are an integral part of the consolidated
financial statements.
- 6 -
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
- -------------------------
The accompanying consolidated financial statements are
unaudited and include the accounts of MBIA Insurance
Corporation and its Subsidiaries (the "Company"). The
statements do not include all of the information and
disclosures required by generally accepted accounting
principles. These statements should be read in conjunction
with the Company's consolidated financial statements and
notes thereto for the year ended December 31, 1994. The
accompanying consolidated financial statements have not been
audited by independent accountants in accordance with
generally accepted auditing standards but in the opinion of
management such financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary
to summarize fairly the Company's financial position and
results of operations. The results of operations for the
nine months ended September 30, 1995 may not be indicative
of the results that may be expected for the year ending
December 31, 1995. The December 31, 1994 condensed
balance sheet data was derived from audited financial
statements, but does not include all disclosures required
by generally accepted accounting principles.
2. DIVIDENDS DECLARED
- ----------------------
Dividends declared by the Company during the nine months
ended September 30, 1995 were $66.5 million.
- 7 -
