UNITED STATES
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 June 30, 2000
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 August 4, 2000 there were outstanding 100,360,258 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 - June 30, 2000
and December 31, 1999 3
Consolidated Statements of Income - Three months and
six months ended June 30, 2000 and 1999 4
Consolidated Statement of Changes in Shareholders' Equity
- Six months ended June 30, 2000 5
Consolidated Statements of Cash Flows
- Six months ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 22
PART II OTHER INFORMATION, AS APPLICABLE
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
(2)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------- -------------------
<S> <C> <C>
ASSETS
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $6,189,584 and $6,006,506) $ 6,027,101 $ 5,783,979
Short-term investments, at amortized cost
(which approximates fair value) 293,384 274,022
Other investments 139,343 146,038
------------ ------------
6,459,828 6,204,039
Municipal investment agreement portfolio held as available-for-sale
at fair value (amortized cost $4,657,819 and $4,583,920) 4,577,308 4,489,551
------------ ------------
TOTAL INVESTMENTS 11,037,136 10,693,590
Cash and cash equivalents 70,182 93,559
Securities borrowed or purchased under agreements to resell 197,111 261,171
Accrued investment income 143,428 135,344
Deferred acquisition costs 257,657 251,922
Prepaid reinsurance premiums 435,983 403,210
Reinsurance recoverable on unpaid losses 27,250 30,819
Goodwill (less accumulated amortization of $64,121 and $68,388) 106,673 110,023
Property and equipment, at cost (less accumulated depreciation
of $57,303 and $50,469) 131,461 128,733
Receivable for investments sold 203,230 24,922
Other assets 107,136 130,606
------------ ------------
TOTAL ASSETS $12,717,247 $12,263,899
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deferred premium revenue $ 2,360,138 $ 2,310,758
Loss and loss adjustment expense reserves 443,694 467,279
Municipal investment agreements 3,500,919 3,483,911
Municipal repurchase agreements 971,197 1,028,921
Long-term debt 589,320 689,204
Short-term debt 160,194 68,751
Securities loaned or sold under agreements to repurchase 305,711 288,750
Deferred income taxes 83,109 32,805
Deferred fee revenue 36,049 36,536
Payable for investments purchased 300,066 102,666
Other liabilities 250,006 241,217
------------ ------------
TOTAL LIABILITIES 9,000,403 8,750,798
------------ ------------
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 -- 100,353,537 and 100,072,846 100,354 100,073
Additional paid-in capital 1,200,610 1,191,108
Retained earnings 2,707,917 2,486,478
Accumulated other comprehensive loss, net of
deferred income tax benefit of $(87,689) and $(112,920) (182,296) (224,511)
Unallocated ESOP shares (3,537) (4,363)
Unearned compensation--restricted stock (8,983) (9,986)
Treasury stock -- 2,110,922 shares in 2000 and 520,722 shares in 1999 (97,221) (25,698)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 3,716,844 3,513,101
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,717,247 $12,263,899
============ ============
</TABLE>
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INSURANCE
Revenues:
Gross premiums written $189,295 $146,817 $338,132 $301,727
Ceded premiums (61,810) (35,356) (104,776) (95,352)
------------- ------------- ------------- -------------
Net premiums written 127,485 111,461 233,356 206,375
(Increase) decrease in deferred premium revenue (18,333) (4,244) (19,500) 12,953
------------- ------------- ------------- -------------
Premiums earned (net of ceded premiums of
$33,624, $27,738, $72,003, and $58,187) 109,152 107,217 213,856 219,328
Net investment income 99,472 88,861 194,842 176,626
Advisory fees 6,219 6,550 14,194 11,515
------------- ------------- ------------- -------------
Total insurance revenues 214,843 202,628 422,892 407,469
Expenses:
Losses and loss adjustment 13,735 10,239 22,322 172,169
Policy acquisition costs, net 8,736 9,231 17,322 18,424
Operating 21,281 20,115 40,675 38,213
------------- ------------- ------------- -------------
Total insurance expenses 43,752 39,585 80,319 228,806
------------- ------------- ------------- -------------
Insurance income 171,091 163,043 342,573 178,663
------------- ------------- ------------- -------------
INVESTMENT MANAGEMENT SERVICES
Revenues 28,943 20,301 55,821 39,643
Expenses 15,174 10,762 28,770 20,729
------------- ------------- ------------- -------------
Investment management services income 13,769 9,539 27,051 18,914
------------- ------------- ------------- -------------
MUNICIPAL SERVICES
Revenues 11,313 6,310 18,935 9,989
Expenses 11,378 9,417 19,429 20,383
------------- ------------- ------------- -------------
Municipal services loss (65) (3,107) (494) (10,394)
------------- ------------- ------------- -------------
CORPORATE
Net realized gains 7,425 7,291 19,310 16,955
Interest expense 13,355 13,497 26,851 26,993
Other expenses 4,754 4,888 8,401 6,810
One-time corporate charges -- 105,023 -- 105,023
------------- ------------- ------------- -------------
Corporate loss (10,684) (116,117) (15,942) (121,871)
------------- ------------- ------------- -------------
Income before income taxes 174,111 53,358 353,188 65,312
Income tax provision (benefit) 44,718 (3,435) 91,475 (901)
------------- ------------- ------------- -------------
NET INCOME $129,393 $ 56,793 $261,713 $ 66,213
============= ============= ============= =============
NET INCOME PER COMMON SHARE:
BASIC $ 1.32 $ 0.57 $ 2.65 $ 0.66
DILUTED $ 1.31 $ 0.56 $ 2.64 $ 0.66
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
BASIC 98,323,037 99,671,350 98,711,735 99,609,359
DILUTED 98,932,392 100,592,588 99,302,974 100,532,884
</TABLE>
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 SIX MONTHS ENDED JUNE 30, 2000
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
---------------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings Loss
---------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 100,073 $100,073 $1,191,108 $2,486,478 $(224,511)
Comprehensive income:
Net income --- --- --- 261,713 ---
Other comprehensive income:
Change in unrealized
depreciation of investments
net of change in deferred
income taxes of $(25,231) --- --- --- --- 46,484
Change in foreign currency
translation --- --- --- --- (4,269)
Other comprehensive income
Total comprehensive income
Treasury shares acquired --- --- --- --- ---
Exercise of stock options 273 273 9,238 --- ---
Unallocated ESOP shares --- --- (41) --- ---
Unearned compensation-
restricted stock 8 8 305 --- ---
Dividends (declared and paid per
common share $0.41) --- --- --- (40,274) ---
---------- --------- ------------ ----------- -------------
Balance, June 30, 2000 100,354 $100,354 $1,200,610 $2,707,917 $(182,296)
========== ========= ============ =========== =============
<PAGE>
Unearned
Unallocated Compensation- Treasury Stock Total
ESOP Restricted -------------------- Shareholders'
Shares Stock Shares Amount Equity
-------------- -------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 $(4,363) $(9,986) (521) $(25,698) $3,513,101
Comprehensive income:
Net income --- --- --- --- 261,713
Other comprehensive income:
Change in unrealized
depreciation of investments
net of change in deferred
income taxes of $(25,231) --- --- --- --- 46,484
Change in foreign currency
translation --- --- --- --- (4,269)
------------
Other comprehensive income 42,215
------------
Total comprehensive income 303,928
------------
Treasury shares acquired --- --- (1,590) (71,523) (71,523)
Exercise of stock options --- --- --- --- 9,511
Unallocated ESOP shares 826 --- --- --- 785
Unearned compensation-
restricted stock --- 1,003 --- --- 1,316
Dividends (declared and paid per
common share $0.41) --- --- --- --- (40,274)
-------------- -------------- --------- --------- -------------
Balance, June 30, 2000 $(3,537) $(8,983) (2,111) $(97,221) $3,716,844
============== ============== ========= ========= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2000
-----------
Disclosure of reclassification amount:
Unrealized appreciation of
investments arising
during the period, net of taxes $53,340
Reclassification of adjustment,
net of taxes (6,856)
-----------
Net unrealized appreciation,
net of taxes $46,484
===========
(5)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $261,713 $ 66,213
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income (8,084) (995)
Increase in deferred acquisition costs (5,735) (4,600)
Increase in prepaid reinsurance premiums (32,773) (37,165)
Increase in deferred premium revenue 52,273 24,212
(Decrease) increase in loss and loss adjustment
expense reserves, net (20,016) 158,631
Depreciation 6,834 4,923
Amortization of goodwill 3,350 3,552
Amortization of bond discount, net (15,351) (10,092)
Net realized gains on sale of investments (19,310) (16,955)
Deferred income tax provision (benefit) 25,097 (91,287)
Other, net 28,253 19,198
----------- -----------
Total adjustments to net income 14,538 49,422
----------- -----------
Net cash provided by operating activities 276,251 115,635
----------- -----------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased (3,399,501) (3,512,961)
Sale of fixed-maturity securities, net of
receivable for investments sold 3,061,188 3,145,933
Redemption of fixed-maturity securities, net of
receivable for investments redeemed 133,480 161,559
(Purchase) sale of short-term investments, net (2,407) 168,968
Sale of other investments, net 5,316 17,613
Purchases for municipal investment agreement
portfolio, net of payable for investments purchased (1,069,705) (1,275,646)
Sales from municipal investment agreement
portfolio, net of receivable for investments sold 1,045,166 849,215
Capital expenditures, net of disposals (9,739) (15,964)
Other, net 8,385 (2,173)
----------- -----------
Net cash used by investing activities (227,817) (463,456)
----------- -----------
Cash flows from financing activities:
Net repayment from retirement of short-term debt (8,500) --
Dividends paid (40,516) (39,874)
Purchase of treasury stock (71,523) --
Proceeds from issuance of municipal investment
and repurchase agreements 1,036,880 1,258,565
Payments for drawdowns of municipal investment
and repurchase agreements (1,078,684) (801,998)
Securities loaned or sold under agreements to repurchase, net 81,021 (35,071)
Exercise of stock options 9,511 11,471
----------- -----------
Net cash (used) provided by financing activities (71,811) 393,093
----------- -----------
Net (decrease) increase in cash and cash equivalents (23,377) 45,272
Cash and cash equivalents - beginning of period 93,559 20,757
----------- -----------
Cash and cash equivalents - end of period $ 70,182 $ 66,029
=========== ===========
Supplemental cash flow disclosures:
Income taxes paid $ 37,686 $ 88,999
Interest paid:
Municipal investment and repurchase agreements $128,044 $102,293
Long-term debt 26,194 26,144
</TABLE>
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, 1999 for MBIA Inc.
and Subsidiaries (the company). 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 six months ended June 30, 2000 may not be indicative of the results
that may be expected for the year ending December 31, 2000. The December
31, 1999 balance sheet was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. The consolidated financial statements include the accounts of
the company and its wholly owned subsidiaries. All significant intercompany
balances have been eliminated. Business segment results are presented gross
of intersegment transactions, which are not material to each segment.
2. DIVIDENDS DECLARED
------------------
Dividends declared by the company during the six months ended June 30, 2000
were $40.3 million.
3. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards 133, "Accounting for Derivative
Instruments and Hedging Activities." (SFAS 133) SFAS 133 is effective for
all quarters of all fiscal years beginning after June 15, 2000 (January 1,
2001 for the company). SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair
value of derivatives are recorded each period in the current earnings or
other comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge
transaction. For fair value hedge transactions in which the company is
hedging changes in an asset's, liability's, or firm commitment's fair
value, changes in the fair value of the derivative instrument will
generally be offset in the income statement by changes in the hedged item's
fair value. For cash-flow hedge transactions in which the company is
hedging the variability of cash flows related to a variable-rate asset,
liability, or a forecasted transaction, changes in the fair value of the
derivative instrument will be reported in other comprehensive income. The
gains and losses on the derivative instrument that are reported in other
comprehensive income will be reclassified as earnings in the period in
which earnings are impacted by the variability of the cash flows of the
(7)
<PAGE>
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
hedged item. The ineffective portion of all hedges will be recognized in
current-period earnings. The company is currently evaluating the impact
that the adoption of SFAS 133 will have on its earnings and statement of
financial position.
4. UNALLOCATED LOSS RESERVE METHODOLOGY UPDATE
-------------------------------------------
The company completed an update of its unallocated loss reserving
methodology in the first quarter of 1999. The update included an analysis
of loss-reserve factors based on the latest available industry data. The
company included the analysis of historical default and recovery experience
for the relevant sectors of the fixed-income market. Also factored in was
the changing mix of the company's book of business. The study resulted in
an increase in the company's quarterly loss provision and a one-time charge
in the first quarter of 1999 of $153 million to incorporate the new factors
on the existing insured portfolio.
5. CAPITAL ASSET WRITE-DOWN
------------------------
Early in 1999, the company concluded that its investment in Capital Asset
was not consistent with its strategic objectives and took steps to
restructure it for divestiture. As part of this process, the company
evaluated the recoverability of its investment in Capital Asset. Through a
detailed valuation exercise, management estimated the total pretax
impairment to be $102 million and, accordingly, a write-down for that
amount was recorded in the consolidated statement of income as a one-time
corporate charge during the second quarter of 1999.
(8)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
--------
MBIA Inc. and Subsidiaries (the company) turned in a solid quarter as we
continue to focus on our triple-A ratings, no-loss underwriting standards, and
building of shareholder value. We continued our disciplined approach to pricing
and risk selection enabling the company to add another quarter of high quality
future earnings to our balance sheet. Our asset management business posted very
strong results for the quarter as operating income rose 44%. The company is well
positioned to capitalize on strong long-term growth prospects in our insurance
and investment management business segments and, particularly, in our
international financial guarantee sector.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
-----------------------------------------
Statements included in this discussion which are not historical or current facts
are "forward-looking statements" made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1998. The words "believe,"
"anticipate," "project," "plan," "expect," "intend," "will likely result," or
"will continue," and similar expressions identify forward-looking statements.
These statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. We wish to caution readers not to place undue reliance
on any such forward-looking statements, which speak only as of their respective
dates. The following are some of the factors that could affect our financial
performance or could cause actual results to differ materially from estimates
contained in or underlying our company's forward-looking statements:
o fluctuations in the economic, credit or interest rate environment in the
United States and abroad;
o level of activity within the national and international credit markets;
o competitive conditions and pricing levels;
o legislative and regulatory developments;
o technological developments;
o changes in tax laws;
o the effects of mergers, acquisitions and divestitures; and
o uncertainties that have not been identified at this time.
Our company undertakes no obligation to publicly correct or update any
forward-looking statement if we later become aware that such results are not
likely to be achieved.
(9)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
RESULTS OF OPERATIONS
---------------------
SUMMARY
The following chart presents highlights of our consolidated financial results
for the second quarter and first six months of 2000 and 1999.
<TABLE>
<CAPTION>
Percent Change
--------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter June 30 2000 2000
----------------- ------------------ vs. vs.
2000 1999 2000 1999 1999 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (in millions):
As reported $ 129 $ 57 $ 262 $ 66 128% 295%
Excluding one-time charges $ 129 $ 122 $ 262 $ 246 6% 6%
Per share data: *
Net income:
As reported $ 1.31 $ 0.56 $ 2.64 $ 0.66 134% 300%
Excluding one-time charges $ 1.31 $ 1.21 $ 2.64 $ 2.45 8% 8%
Operating earnings $ 1.26 $ 1.16 $ 2.51 $ 2.34 9% 7%
Core earnings $ 1.20 $ 1.07 $ 2.44 $ 2.11 12% 16%
Book value $ 37.88 $ 35.56 7%
Adjusted book value $ 55.58 $ 51.52 8%
---------------------------------------------------------------------------------------------------------------
</TABLE>
*All earnings per share calculations are diluted.
Core earnings, which exclude the effects of refundings and calls on our
insured issues, realized gains and losses on our investment portfolio and
nonrecurring charges, provide the most indicative measure of our underlying
profit. For the second quarter and first six months of 2000, core earnings per
share increased 12% and 16%, respectively, over the second quarter and first six
months of 1999, reflecting strong results in our investment management services
segment and a near breakeven result in our municipal services segment.
Our second quarter and first six months of 2000 net income and earnings per
share, excluding one-time charges, grew 6% and 8%, respectively. Including the
one-time charges, second quarter net income increased by 128% over 1999 and our
first half net income increased 295% over 1999.
Operating earnings per share, which exclude the impact of realized gains
and losses and one-time charges, increased by 9% and 7%, respectively, over the
second quarter and first half of 1999.
Our book value at June 30, 2000 was $37.88 per share, up from $35.56 at
June 30, 1999. A more appropriate measure of a financial guarantee company's
intrinsic value is its adjusted book value. It is defined as book value plus the
after-tax effects of net
(10)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
deferred premium revenue net of deferred acquisition costs, the present value of
unrecorded future installment premiums, and the unrealized gains or losses on
investment contract liabilities. Our adjusted book value per share was $55.58 at
June 30, 2000, an 8% increase from second quarter-end 1999.
The following table presents the components of our adjusted book value per
share:
Percent Change
June 30, June 30, --------------
2000 1999 2000 vs. 1999
-------------------------------------------------------------------------------
Book value $37.88 $35.56 7%
After-tax value of:
Net deferred premium
revenue, net of deferred
acquisition costs 11.04 10.74 3%
Present value of future
installment premiums* 5.29 4.33 22%
Unrealized gain on
investment contract
liabilities 1.37 0.89 54%
-------------------------------------------------------------------------------
Adjusted book value $55.58 $51.52 8%
-------------------------------------------------------------------------------
*The discount rate used to present value future installment premiums was 9% for
both periods.
INSURANCE
The company's production in terms of adjusted gross premiums (AGP), gross
premiums written (GPW) and par insured for the second quarter and first six
months of 2000 and 1999 is presented in the following table:
<TABLE>
<CAPTION>
Percent Change
--------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter June 30 2000 2000
------------ ------------- vs. vs.
2000 1999 2000 1999 1999 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums written:
(in millions)
AGP $226 $144 $381 $326 58% 17%
GPW $189 $147 $338 $302 29% 12%
Par insured (in billions) $ 27 $ 19 $ 42 $ 43 38% (4)%
</TABLE>
In the second quarter of 2000, bond issuance was down significantly from
1999 levels. However, we were able to maintain our pricing discipline and
continued to write business of levels A and above for the period. As a result,
AGP was up by 58% compared to the second quarter of 1999, while par insured was
up by only 38%. AGP includes our upfront premiums as well as the estimated
present value of current and future premiums from installment-based insurance
policies issued during the period. GPW, as reported in our financial statements,
primarily reflects cash receipts and does not include the value of future
premium receipts expected from installment policies
(11)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
originated in the period. GPW was $189 million, up 29% over the second quarter
of 1999.
For the first six months of 2000 AGP was up by 17% compared to the same
period a year ago, while par insured was down by 4%. GPW was $338 million for
the first half of 2000, up 12% over the first half of 1999.
We estimate the present value of our total future installment premium
stream on outstanding policies to be $799 million at June 30, 2000, compared
with $664 million at June 30, 1999.
MUNICIPAL MARKET Domestic new issue municipal market information and MBIA's par
and premium writings in both the new issue and secondary domestic municipal
markets are shown in the following table:
<TABLE>
<CAPTION>
Percent Change
--------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter June 30 2000 2000
------------ ------------- vs. vs.
Domestic Municipal 2000 1999 2000 1999 1999 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total new issue market:*
Par value (in billions) $ 45 $ 49 $ 81 $ 102 (8)% (21)%
Insured penetration 44% 52% 46% 54%
MBIA market share 35% 26% 29% 24%
MBIA insured:
Par insured (in billions) $ 11 $ 9 $ 16 $ 18 23% (14)%
Premiums (in millions):
AGP $ 104 $ 90 $ 176 $ 186 16% (5)%
GPW $ 95 $ 83 $ 170 $ 176 15% (3)%
-----------------------------------------------------------------------------------------------
</TABLE>
* Market data are reported on a sale date basis while MBIA's insured data are
based on closing date information. Typically, there can be a one- to
four-week delay between the sale date and closing date of an insured issue.
New issuance was lower in the municipal market, decreasing by 8% to $45 billion
for the second quarter of 2000, compared with $49 billion in the second quarter
of 1999. The insured penetration also decreased in the second quarter to 44% in
2000 from 52% in the second quarter of 1999. MBIA's market share of insured par
was 35% for the quarter compared with 26% in last year's second quarter. For the
first six months of 2000, new issuance in the municipal market was down 21% to
$81 billion and insured penetration was 46%, down from 54% last year. MBIA
captured 29% of the insured municipal market this year compared with 24% in the
first six months of 1999.
Somewhat offsetting the lower new issue market was a strong secondary
market, as activity in this market is frequently counter-cyclical to activity in
the new issue market, and returns tend to be higher. By taking advantage of our
strong secondary operations
(12)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
and some unique opportunities, we were able to improve our overall returns and
maintain strong credit quality in the business we wrote.
MBIA's domestic municipal AGP increased by 16% over 1999's second quarter
while par insured increased by 23%. On a year-to-date basis, par insured was
down 14% while AGP was down only 5%, significantly less than the reduction in
par insured and the market in general.
Looking ahead to the third quarter in the municipal market, we are
expecting stronger issuance, a better mix of business, and firm pricing.
STRUCTURED FINANCE MARKET Details regarding the asset-backed market and MBIA's
par and premium writings in both the domestic new issue and secondary structured
finance markets are shown in the table below:
<TABLE>
<CAPTION>
Percent Change
--------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter June 30 2000 2000
Domestic ------------ ------------- vs. vs.
Structured Finance 2000 1999 2000 1999 1999 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total asset-backed market:*
Par value (in billions) $ 59 $ 50 $111 $99 18% 12%
MBIA insured:
Par written (in billions) $ 11 $ 9 $ 17 $21 21% (18)%
Premiums (in millions):
AGP $ 58 $ 42 $ 96 $84 40% 15%
GPW $ 42 $ 36 $ 87 $77 16% 13%
-----------------------------------------------------------------------------------------------
</TABLE>
* Market data exclude mortgage-backed securities and private placements.
Issuance in the asset backed market increased 18% over the second quarter
of 1999. For the six month period, issuance is up 12%, still below what we
expect for the full year. MBIA regained some momentum during the second quarter,
insuring $11 billion of par value, up 21% compared with the second quarter of
last year. AGP was up 40% for the quarter, again due to our pricing discipline.
For the year par insured was down 18% while AGP was up 15%.
Credit quality improved modestly during the quarter, with 40% of the
business written rated A or better. Looking ahead to the third quarter, volume
has been picking up and our business prospects look strong.
(13)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
INTERNATIONAL MARKET The international results were up sharply over the second
quarter of 1999. The quarterly mix of business included several very large
deals, and a good diversification by bond type and by country. During the
quarter 86% of international business insured was rated A or above, up from 82%
in the first quarter of the year. For the first half of 2000 global CDO deals
dominated the mix of business, followed by CDO volume from Europe and Australia.
Our municipal and structured finance international business volume in the new
issue and secondary markets for the second quarter and first six months of 2000
and 1999 are illustrated as follows:
<TABLE>
<CAPTION>
Percent Change
--------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter June 30 2000 2000
------------ ------------- vs. vs.
International 2000 1999 2000 1999 1999 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Par insured (in billions) $ 6 $ 2 $ 9 $ 5 177% 93%
Premiums (in millions):
AGP $ 64 $ 12 $ 109 $ 55 423% 97%
GPW $ 51 $ 27 $ 82 $ 49 90% 65%
-----------------------------------------------------------------------------------------------
</TABLE>
International par insured was up 177% to $6 billion in the second quarter and
AGP was $64 million, up over 400%. For the six month period par and AGP were up
93% and 97%, respectively, as we have reported almost as much AGP in the first
six months of 2000 as we did for the entire year of 1999.
On March 21, 2000 the company and Ambac Financial Group, Inc. (Ambac)
announced the restructuring of the international joint marketing and reinsurance
arrangements that have been in place since 1995 with the formation of the
MBIA-AMBAC International joint venture. The company and Ambac will continue
having reciprocal reinsurance and surveillance arrangements for international
business in 2000. The companies will market and originate international
financial guarantee insurance independently. The restructuring did not affect
business conducted in Japan where the market for financial guarantees is just
beginning to develop. The companies will continue to market and originate
transactions jointly under the original arrangement in Japan. We believe the
decision to dissolve the MBIA/AMBAC joint venture is working better than
expected for both parties.
Reinsurance Premiums ceded to reinsurers from all insurance operations were $62
million and $35 million in the second quarter of 2000 and 1999, respectively.
Cessions as a percentage of GPW increased to 33% in 2000 from 24% in 1999. For
the first six months of 2000 we have ceded 31% of GPW, slightly less than the
32% we ceded in last year's first half.
(14)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
Reinsurance is a very good capital source for MBIA. It allows us to write
better quality, better return business, and yet stay within our very strict
single risk and credit guidelines. We have continued the initiative begun in the
fourth quarter of 1998 as we focused on reducing larger single risks across the
portfolio.
Most of our reinsurers are rated Double-A or higher by S&P, or Single-A or
higher by A. M. Best Co. Although we remain liable for all reinsured risks, we
are confident that we will recover the reinsured portion of any losses, should
they occur.
PREMIUMS EARNED The composition of MBIA's premiums earned in terms of its
scheduled and refunded components is illustrated below:
<TABLE>
<CAPTION>
Percent Change
--------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter June 30 2000 2000
------------ ------------- vs. vs.
In millions 2000 1999 2000 1999 1999 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums earned:
Scheduled $ 100 $ 92 $ 202 $ 181 9% 11%
Refunded 9 15 12 38 (40)% (68)%
--------------------------------------------------------------------------------------------------
Total $ 109 $ 107 $ 214 $ 219 2% (2)%
--------------------------------------------------------------------------------------------------
</TABLE>
Premiums are recognized over the life of the bonds we insure. The extended
premium recognition coupled with compounding investment income from investing
our premiums and capital form a solid foundation for consistent revenue growth.
In the second quarter and first six months of 2000 premiums earned from
scheduled amortization increased by 9% and 11%, respectively, over the second
quarter and first six months of 1999, indicating that the benefits of the
increased pricing strategy established in early 1999 are beginning to emerge.
Refunded premiums earned declined significantly this year compared with the
second quarter of 1999, reflecting the higher interest rate environment. When an
MBIA-insured bond issue is refunded or retired early, the related deferred
premium revenue is earned immediately. The amount of bond refundings and calls
is influenced by a variety of factors such as prevailing interest rates, the
coupon rates of the bond issue, the issuer's desire or ability to modify bond
covenants and applicable regulations under the Internal Revenue Code.
INVESTMENT INCOME Our insurance-related investment income (exclusive of realized
gains) increased 12% to $99 million in the second quarter of 2000, up from $89
million in the second quarter of 1999. In the first six months of 2000
investment income is up 10% over 1999. This increase was primarily due to a
shift in the investment portfolio from tax-exempt to taxable investments, and
the growth of cash flow available for investment. Our cash flows were generated
from operations and the compounding of previously earned and reinvested
investment income.
(15)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
ADVISORY FEES The company collects fee revenues in conjunction with certain
structured finance transactions. Fees are generally deferred and earned over the
life of the related transactions. In the second quarter of 2000, advisory fee
revenues decreased 5% to $6 million from $7 million. This decrease was primarily
due to the non-deferrable type of fees recognized during the quarter. Advisory
fees are up 23% for the first six months of 2000 compared with the first six
months of 1999.
LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) We maintain a loss reserve based on
our estimate of unidentified losses from our insured obligations. The total
reserve is calculated by applying a risk factor based on a study of bond
defaults to net debt service written. To the extent that we identify specific
insured issues as currently or likely to be in default, the present value of our
expected payments, net of expected reinsurance and collateral recoveries, is
allocated within the total loss reserve as case-specific reserves.
We periodically evaluate our estimates for losses and LAE and any resulting
adjustments are reflected in current earnings. We believe that our reserving
methodology and the resulting reserves are adequate to cover the ultimate net
cost of claims. However, the reserves are based on estimates, and there can be
no assurance that any ultimate liability will not exceed such estimates.
In 1999, we completed an update of our loss reserving methodology. The
update included an analysis of loss-reserve factors based on the latest
available industry data. We included the analysis of historical default and
recovery experience for the relevant sectors of the fixed-income market. Also
factored in was the changing mix of our book of business. The study resulted in
an increase in our company's loss reserving factors and a one-time charge of
$153 million in the first quarter of 1999, to incorporate the new factors on the
existing insured portfolio.
The following table shows the case-specific, reinsurance recoverable and
unallocated components of our total loss and LAE reserves at the end of the
second quarter of 2000 and 1999, as well as our loss provision for the second
quarter of 2000 and 1999:
<TABLE>
<CAPTION>
Percent Change
June 30, June 30, --------------
In millions 2000 1999 2000 vs. 1999
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Case-specific:
Gross $199 $217 (8)%
Reinsurance recoverable on unpaid losses 27 30 (9)%
--------------------------------------------------------------------------------------
Net case reserves 172 187 (8)%
Unallocated 244 242 1 %
--------------------------------------------------------------------------------------
Net loss and LAE reserves $416 $429 (3)%
Provision $ 14 $ 10 34%
</TABLE>
(16)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
OPERATING EXPENSES Expenses related to the production of our insurance business
(policy acquisition costs) are deferred and recognized over the period in which
the related premiums are earned. Our company's policy acquisition costs, general
operating expenses and total insurance operating expenses, as well as related
expense ratios, are shown below:
<TABLE>
<CAPTION>
Percent Change
--------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter June 30 2000 2000
------------ ------------- vs. vs.
In millions 2000 1999 2000 1999 1999 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Policy acquisition costs, net $ 9 $ 9 $ 17 $ 18 --- (6)%
Operating 21 20 41 38 6% 6%
-----------------------------------------------------------------
Total insurance
operating expenses $ 30 $ 29 $ 58 $ 56 2% 2%
Expense ratio:
GAAP 27.5% 27.4% 27.1% 25.8%
Statutory 19.7% 24.4% 20.3% 22.8%
--------------------------------------------------------------------------------------------------
</TABLE>
For the second quarter of 2000, policy acquisition costs net of deferrals
remained consistent with the second quarter of 1999. The ratio of policy
acquisition costs net of deferrals to earned premiums decreased to 8.0% for the
second quarter of 2000 compared with 8.6% for the comparable 1999 period. For
the first half of 2000, policy acquisition costs net of deferrals decreased 6%
to $17 million compared with the first six months of 1999. The ratio of policy
acquisition costs net of deferrals to earned premiums decreased to 8.1% for the
first half of 2000 compared with 8.4% for the comparable 1999 period.
Operating expenses increased 6% over the second quarter and the first six
months of 1999. Total insurance operating expenses increased modestly over the
second quarter and the first half of 1999, reflecting the company's increased
emphasis on expense management.
Financial guarantee insurance companies use the statutory expense ratio
(expenses before deferrals divided by net premiums written) as a measure of
expense management. Our company's second quarter 2000 statutory expense ratio of
19.7% is significantly below the second quarter 1999 ratio of 24.4%. The GAAP
expense ratio remained relatively flat with the second quarter of 1999. For the
first six months of 2000 the statutory expense ratio of 20.3% is also below the
comparable 1999 period ratio of 22.8%.
INSURANCE INCOME The company's insurance income of $171 million for the second
quarter of 2000 increased 5% over the second quarter of 1999. For the first
half, insurance income, excluding the one-time pre-tax charge of $152.7 million
in 1999 to increase loss reserves, rose 3 percent to $343 million from $331
million a year ago.
(17)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
INVESTMENT MANAGEMENT SERVICES
In 1998 after our merger with 1838 Investment Advisors, Inc. (1838), the company
formed a holding company, MBIA Asset Management Corporation, to consolidate the
resources and capabilities of our four investment management services. The table
below summarizes our consolidated investment management results for the second
quarter and first six months of 2000 and 1999:
<TABLE>
<CAPTION>
Percent Change
--------------------------
2nd Quarter Year-to-date
----------- ------------
2nd Quarter June 30 2000 2000
------------ ------------- vs. vs.
In millions 2000 1999 2000 1999 1999 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 29 $ 20 $ 56 $ 40 43% 41%
Expenses 15 10 29 21 41% 39%
--------------------------------------------------------------------------------------------------
Income $ 14 $ 10 $ 27 $ 19 44% 43%
</TABLE>
The success of the merger with 1838 is reflected in the investment
management services operating results, with consolidated revenues up 43% over
the second quarter of 1999, while expenses were up slightly less at 41%. As a
result, operating income increased by 44% for the second quarter of 2000 over
the same period in 1999. We ended the quarter with over $34 billion in assets
under management, up 24% from June 30, 1999.
MBIA Asset Management Corporation is comprised of 1838, MBIA Municipal
Investors Service Corp. (MBIA-MISC), MBIA Investment Management Corp. (IMC) and
MBIA Capital Management Corp. (CMC). The following provides a summary of each of
these businesses:
1838 is a full-service asset management firm with a strong institutional focus.
It manages over $14 billion in equity, fixed-income and balanced portfolios for
a client base comprised of municipalities, endowments, foundations, corporate
employee benefit plans and high-net-worth individuals.
MBIA-MISC provides cash management, investment fund administration and
fixed-rate investment placement services directly to local governments and
school districts. MBIA-MISC is a Securities and Exchange Commission
(SEC)-registered investment adviser and at June 30, 2000 had $7.5 billion in
assets under management, up 13% over June 30, 1999.
IMC provides state and local governments with tailored investment agreements for
bond proceeds and other public funds, such as construction, loan origination,
capitalized interest and debt service reserve funds. At June 30, 2000, principal
and accrued interest outstanding on investment and repurchasing agreements was
$4.5 billion, compared with $3.9 billion at June 30, 1999. At amortized cost,
the assets supporting IMC's investment agreements were $4.7 billion and $4.0
billion at June 30, 2000 and
(18)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
1999. These assets are comprised of high-quality securities with an average
credit quality rating of Double-A.
IMC from time-to-time uses derivative financial instruments to manage
interest rate risk. We have established policies limiting the amount, type and
concentration of such instruments. By matter of policy, derivative positions can
only be used to hedge interest rate exposures and not for speculative trading
purposes. At second quarter-end 2000, our exposure to derivative financial
instruments was not material.
CMC is an SEC-registered investment adviser and National Association of
Securities Dealers member firm. CMC specializes in fixed-income management for
institutional funds and provides investment management services for IMC's
investment agreements, MBIA-MISC's municipal cash management programs and the
company's insurance related portfolios. At June 30, 2000, CMC's third party
assets under management were $1.8 billion compared with $1.6 billion at June 30,
1999.
MUNICIPAL SERVICES
MBIA MuniServices Company (MBIA MuniServices)(formerly known as Strategic
Services, Inc.) was established in 1996 as part of the company's strategy to
broaden its product offerings to its core clients, leveraging its relationships
and presence as a leading provider of products and services to the public
sector. During 1999, the company completed a reorganization of the operations of
two of its subsidiaries, Municipal Tax Bureau (MTB) and Municipal Resource
Consultants (MRC). With the reorganization complete, this business, operating as
MBIA MuniServices, is now focused on delivering revenue enhancement services and
products to public-sector clients nationwide, consisting of discovery, audit,
collections/recovery, enforcement and information (data) services. The Municipal
Services segment also includes Capital Asset Holdings, Inc. (Capital Asset), a
servicer of delinquent tax certificates.
In the second quarter of 2000 the municipal services operations lost $0.1
million compared with a loss of $3 million during the same period of 1999. For
the first half of 2000, municipal services reported a $0.5 million loss compared
with a loss of $10 million in the comparable 1999 period.
CORPORATE
NET REALIZED GAINS Net realized gains were $7 million in the second quarter of
2000, the same as in the second quarter of 1999. For the first half of 2000, net
realized gains were $19 million compared with $17 million in the comparable
1999 period.
INTEREST EXPENSE In the second quarter of 2000, we incurred $13 million of
interest expense, the same as in the second quarter of 1999. For the first half
of 2000, interest expense was $27 million, the same as in the first half of
1999.
(19)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
OTHER EXPENSES Other expenses were comprised primarily of non-insurance goodwill
amortization and general corporate overhead. In the second quarter of 2000 other
expenses were $5 million, the same as the comparable 1999 period. For the first
half of 2000, other expenses were $8 million, slightly higher than the first
half of 1999.
ONE-TIME CORPORATE CHARGES In the second quarter of 1999 one-time corporate
charges were comprised of a $102 million charge for the write-down of the
carrying value of the company's investment in Capital Asset and the value of the
loans provided by the company to Capital Asset, as well as a $3 million loss on
the sale of MuniFinancial.
TAXES
Our tax policy is to optimize our after-tax income by maintaining the
appropriate mix of taxable and tax-exempt investments. However, we will see our
tax rate fluctuate from time-to-time as we manage our investment portfolio on a
total return basis. Our effective tax rate has increased over last year's second
quarter primarily due to a shift from tax-exempt investments into taxable
investments.
CAPITAL RESOURCES
-----------------
We carefully manage our capital resources to optimize our cost of capital while
maintaining appropriate claims-paying resources to sustain our Triple-A
claims-paying ratings. At June 30, 2000, our total shareholders' equity was $3.7
billion, with total long-term borrowings at $589 million. We use debt financing
to lower our overall cost of capital, thereby increasing our return on
shareholders' equity. We maintain debt at levels we consider to be prudent based
on our cash flow and total capital. The following table shows our long-term debt
and the ratio we use to measure it:
June 30, December 31,
2000 1999
--------------------------------------------------------------------------------
Long-term debt (in millions) $589 $689
Long-term debt to total capital 14% 16%
In July 1999, the Board of Directors authorized the repurchase of 7.5
million shares of common stock of the company. The company began the repurchase
program in the fourth quarter of 1999. As of June 30, 2000 the company has
repurchased a total of 2,090,200 shares at an average price of $46.03.
(20)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
In addition, our insurance company has a $900 million irrevocable standby
line of credit facility with a group of major Triple-A Rated 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, which expires on October 31, 2006, and,
subject to approval by the banks, may be renewed annually to extend the term to
seven years beyond the renewal date. Our insurance company also maintains
stop-loss reinsurance coverage of $175 million in excess of incurred losses of
$700 million.
At quarter end, total claims-paying resources for our insurance company
stood at $8.8 billion, an 8% increase over second quarter-end 1999.
LIQUIDITY
Cash flow needs at the parent company level are primarily for dividends to our
shareholders and interest payments on our debt. These requirements have
historically been met by upstreaming dividend payments from the insurance
company, which generates substantial cash flow from premium writings and
investment income. In the first half of 2000, operating cash flow totaled $276
million.
Under New York state insurance law, without prior approval of the
superintendent of the state insurance department, financial guarantee insurance
companies can pay dividends from earned surplus subject to retaining a minimum
capital requirement. In our case, dividends in any 12-month period cannot be
greater than 10% of policyholders' surplus. During the second quarter of 2000
our insurance company paid dividends of $14 million and at June 30, 2000 had
dividend capacity in excess of $60 million without special regulatory approval.
The company has significant liquidity supporting its businesses. At the end
of the second quarter of 2000, cash equivalents and short-term investments
totaled $364 million. Should significant cash flow reductions occur in any of
our businesses, for any combination of reasons, we have additional alternatives
for meeting ongoing cash requirements. They include selling or pledging our
fixed-income investments from our investment portfolio, tapping existing
liquidity facilities and new borrowings.
The company has substantial external borrowing capacity. We maintain two
short-term bank lines totaling $650 million with a group of worldwide banks. At
June 30, 2000, there were no balances outstanding under these lines.
The investment portfolio provides a high degree of liquidity since it is
comprised of readily marketable high-quality fixed-income securities and
short-term investments. At June 30, 2000, the fair value of our consolidated
investment portfolio was $11.0 billion, as shown below:
(21)
<PAGE>
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
<TABLE>
<CAPTION>
June 30, December 31, Percent Change
In millions 2000 1999 2000 vs. 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance operations:
Amortized cost $ 6,622 $ 6,427 3%
Unrealized loss (162) (223) (27)%
---------------------------------------------------------------------------------------------------
Fair value $ 6,460 $ 6,204 4%
---------------------------------------------------------------------------------------------------
Municipal investment
Agreements:
Amortized cost $ 4,658 $ 4,584 2%
Unrealized loss (81) (94) (15)%
---------------------------------------------------------------------------------------------------
Fair value $ 4,577 $ 4,490 2%
---------------------------------------------------------------------------------------------------
Total portfolio at fair value $11,037 $10,694 3%
</TABLE>
The growth of our insurance-related investments in 2000 was the result of
positive cash flows. The fair value of investments related to our municipal
investment agreement business has increased to $4.6 billion from $4.5 billion at
December 31, 1999.
The investment portfolios are considered to be available-for-sale, and the
differences between their fair value and amortized cost, net of applicable
taxes, are reflected as an adjustment to shareholders' equity. Differences
between fair value and amortized cost arise primarily as a result of changes in
interest rates occurring after a fixed-income security is purchased, although
other factors influence fair value, including credit-related actions, supply and
demand forces and other market factors. The weighted-average credit quality of
our fixed-income portfolios has been maintained at Double-A since our inception.
Since we generally intend to hold most of our investments to maturity as part of
our risk management strategy, we expect to realize a value substantially equal
to amortized cost.
(22)
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The following matters were voted upon at the Annual Meeting of
Shareholders of the company held on May 11, 2000, and received the
votes set forth below:
1: The proposal to adopt the company's 2000 Stock Option Plan was
adopted, with 76,599,008 votes in favor, 4,873,671 votes against
and 408,153 votes abstaining.
2: The proposal to ratify the appointment by the Board of Directors
of PricewaterhouseCoopers LLP, certified public accountants, as
independent auditors for the company for the year 2000 was
adopted, with 81,483,135 votes in favor, 184,107 votes against
and 213,590 votes abstaining.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11. Computation of Earnings Per Share Assuming 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.
(23)
<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: August 11, 2000 /s/ Neil G. Budnick
------------------- -----------------------------
Neil G. Budnick
Chief Financial Officer
Date: August 11, 2000 /s/ Douglas C. Hamilton
------------------- ------------------------------
Douglas C. Hamilton
Controller
(Principal Accounting Officer)
(24)
