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 March 31, 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 May 10, 2000 there were outstanding 98,383,764 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 - March 31, 2000
and December 31, 1999 3
Consolidated Statements of Income - Three months
ended March 31, 2000 and 1999 4
Consolidated Statement of Changes in Shareholders' Equity
- Three months ended March 31, 2000 5
Consolidated Statements of Cash Flows
- Three months ended March 31, 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 - 21
PART II OTHER INFORMATION, AS APPLICABLE
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
(2)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
ASSETS
<S> <C> <C>
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $6,150,880 and $6,006,506) $ 6,008,500 $ 5,783,979
Short-term investments, at amortized cost
(which approximates fair value) 260,945 274,022
Other investments 147,323 146,038
------------ ------------
6,416,768 6,204,039
Municipal investment agreement portfolio held as available-for-sale
at fair value (amortized cost $4,542,245 and $4,583,920) 4,481,227 4,489,551
------------ ------------
TOTAL INVESTMENTS 10,897,995 10,693,590
Cash and cash equivalents 56,453 93,559
Securities borrowed or purchased under agreements to resell 200,611 261,171
Accrued investment income 126,753 135,344
Deferred acquisition costs 255,816 251,922
Prepaid reinsurance premiums 407,797 403,210
Reinsurance recoverable on unpaid losses 31,439 30,819
Goodwill (less accumulated amortization of $62,446 and $68,388) 108,348 110,023
Property and equipment, at cost (less accumulated depreciation
of $53,743 and $50,469) 129,738 128,733
Receivable for investments sold 118,388 24,922
Other assets 103,920 130,606
------------ ------------
TOTAL ASSETS $ 12,437,258 $ 12,263,899
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deferred premium revenue $ 2,315,148 $ 2,310,758
Loss and loss adjustment expense reserves 475,062 467,279
Municipal investment agreements 3,463,819 3,483,911
Municipal repurchase agreements 983,257 1,028,921
Long-term debt 589,291 689,204
Short-term debt 168,694 68,751
Securities loaned or sold under agreements to repurchase 314,511 288,750
Deferred income taxes 76,268 32,805
Deferred fee revenue 36,676 36,536
Payable for investments purchased 92,808 102,666
Other liabilities 255,074 241,217
------------ ------------
TOTAL LIABILITIES 8,770,608 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 -- 100,155,635 and 100,072,846 100,156 100,073
Additional paid-in capital 1,193,775 1,191,108
Retained earnings 2,598,536 2,486,478
Accumulated other comprehensive loss, net of
deferred income tax benefit of $(73,505) and $(112,920) (155,569) (224,511)
Unallocated ESOP shares (3,872) (4,363)
Unearned compensation--restricted stock (9,770) (9,986)
Treasury stock -- 1,311,022 shares in 2000 and 520,722 shares in 1999 (56,606) (25,698)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 3,666,650 3,513,101
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,437,258 $ 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
MARCH 31
------------------------------
2000 1999
-------------- -------------
<S> <C> <C>
INSURANCE
Revenues:
Gross premiums written $148,837 $154,910
Ceded premiums (42,966) (59,996)
-------------- -------------
Net premiums written 105,871 94,914
(Increase) decrease in deferred premium revenue (1,167) 17,197
-------------- -------------
Premiums earned (net of ceded premiums of
$38,379 and $30,449) 104,704 112,111
Net investment income 95,370 87,765
Advisory fees 7,975 4,965
-------------- -------------
Total insurance revenues 208,049 204,841
Expenses:
Losses and loss adjustment 8,587 161,930
Policy acquisition costs, net 8,586 9,193
Operating 19,394 18,098
-------------- -------------
Total insurance expenses 36,567 189,221
-------------- -------------
Insurance income 171,482 15,620
-------------- -------------
INVESTMENT MANAGEMENT SERVICES
Revenues 26,878 19,342
Expenses 13,596 9,967
-------------- -------------
Investment management services income 13,282 9,375
-------------- -------------
MUNICIPAL SERVICES
Revenues 7,622 3,679
Expenses 8,051 10,966
-------------- -------------
Municipal services loss (429) (7,287)
-------------- -------------
CORPORATE
Net realized gains 11,885 9,664
Interest expense 13,496 13,496
Other expenses 3,647 1,922
-------------- -------------
Corporate loss (5,258) (5,754)
-------------- -------------
Income before income taxes 179,077 11,954
Provision for income taxes 46,757 2,534
-------------- -------------
NET INCOME $132,320 $ 9,420
============== =============
NET INCOME PER COMMON SHARE:
BASIC $ 1.34 $ 0.09
DILUTED $ 1.33 $ 0.09
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
BASIC 99,100,433 99,547,368
DILUTED 99,676,043 100,465,119
</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 THREE MONTHS ENDED MARCH 31, 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 --- --- --- 132,320 ---
Other comprehensive income:
Change in unrealized
depreciation of investments
net of change in deferred
income taxes of $(39,415) --- --- --- --- 72,839
Change in foreign currency
translation --- --- --- --- (3,897)
Other comprehensive income
Comprehensive income
Treasury shares acquired --- --- --- --- ---
Exercise of stock options 73 73 2,259 --- ---
Unallocated ESOP shares --- --- (29) --- ---
Unearned compensation-
restricted stock 10 10 437 --- ---
Dividends (declared and paid per
common share $0.205) --- --- --- (20,262) ---
---------- --------- ------------- ----------- -------------
Balance, March 31, 2000 100,156 $100,156 $1,193,775 $2,598,536 $(155,569)
========== ========= ============= =========== =============
<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 --- --- --- --- 132,320
Other comprehensive income:
Change in unrealized
depreciation of investments
net of change in deferred
income taxes of $(39,415) --- --- --- --- 72,839
Change in foreign currency
translation --- --- --- --- (3,897)
------------
Other comprehensive income 68,942
------------
Comprehensive income 201,262
------------
Treasury shares acquired --- --- (790) (30,908) (30,908)
Exercise of stock options --- --- --- --- 2,332
Unallocated ESOP shares 491 --- --- --- 462
Unearned compensation-
restricted stock --- 216 --- --- 663
Dividends (declared and paid per
common share $0.205) --- --- --- --- (20,262)
-------------- -------------- --------- --------- -------------
Balance, March 31, 2000 $(3,872) $(9,770) (1,311) $(56,606) $3,666,650
============== ============== ========= ========= =============
</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 $76,237
Reclassification of adjustment,
net of taxes (3,398)
----------
Net unrealized appreciation,
net of taxes $72,839
==========
(5)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
-------------------------
2000 1999
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $132,320 $ 9,420
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease in accrued investment income 8,591 8,550
Increase in deferred acquisition costs (3,894) (498)
Increase in prepaid reinsurance premiums (4,587) (29,547)
Increase in deferred premium revenue 5,754 12,353
Increase in loss and loss adjustment expense reserves, net 7,163 158,717
Depreciation 3,274 2,417
Amortization of goodwill 1,675 1,754
Amortization of bond discount, net (6,911) (4,915)
Net realized gains on sale of investments (11,885) (9,664)
Deferred income tax provision (benefit) 4,085 (47,165)
Other, net 39,365 (22,634)
----------- -----------
Total adjustments to net income 42,630 69,368
----------- -----------
Net cash provided by operating activities 174,950 78,788
----------- -----------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased (1,581,886) (1,966,627)
Sale of fixed-maturity securities, net of
receivable for investments sold 1,344,599 1,724,242
Redemption of fixed-maturity securities, net of
receivable for investments redeemed 76,984 100,133
Sale of short-term investments, net 5,820 100,988
(Purchase) sale of other investments, net (1,712) 8,395
Purchases for municipal investment agreement
portfolio, net of payable for investments purchased (545,242) (495,169)
Sales from municipal investment agreement
portfolio, net of receivable for investments sold 516,382 399,684
Capital expenditures, net of disposals (4,413) (6,589)
Other, net 8,376 (2,517)
----------- -----------
Net cash used by investing activities (181,092) (137,460)
----------- -----------
Cash flows from financing activities:
Dividends paid (20,406) (19,897)
Purchase of treasury stock (30,908) ---
Proceeds from issuance of municipal investment
and repurchase agreements 523,515 507,152
Payments for drawdowns of municipal investment
and repurchase agreements (591,818) (385,507)
Securities loaned or sold under agreements to repurchase, net 86,321 (35,071)
Exercise of stock options 2,332 5,765
----------- -----------
Net cash (used) provided by financing activities (30,964) 72,442
----------- -----------
Net (decrease) increase in cash and cash equivalents (37,106) 13,770
Cash and cash equivalents - beginning of period 93,559 20,757
----------- -----------
Cash and cash equivalents - end of period $ 56,453 $34,527
=========== ===========
Supplemental cash flow disclosures:
Income taxes paid $ 1,168 $ 2,518
Interest paid:
Municipal investment and repurchase agreements $ 61,637 $45,841
Long-term debt 13,631 13,554
</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 three
months ended March 31, 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 three months ended March 31,
2000 were $20.3 million.
3. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement requires companies to
recognize all derivatives as either assets or liabilities, with the
instruments measured at fair value. The accounting for changes in fair
value, gains or losses, depends on the intended use of the derivative and
its resulting designation. SFAS 133 is effective for the company for the
year commencing January 1, 2001. The company is currently evaluating the
impact of the adoption of SFAS 133 on the consolidated financial statements.
(7)
<PAGE>
MBIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
(8)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
MBIA (the company) posted strong financial and operating results for the
quarter as we continued to focus on our triple-A ratings, no-loss underwriting
standards, and building of shareholder value. Our disciplined approach to
pricing and risk selection enabled 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 42%. The
company is well positioned to capitalize on strong long-term growth prospects in
our insurance and investment business units, 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:
* fluctuations in the economic, credit or interest rate environment in the
United States and abroad;
* level of activity within the national and international credit markets;
* competitive conditions and pricing levels;
* legislative and regulatory developments;
* technological developments;
* changes in tax laws;
* the effects of mergers, acquisitions and divestitures; and
* 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 first quarters of 2000 and 1999.
Percent Change
March 31, March 31, --------------
2000 1999 2000 vs.1999
-----------------------------------------------------------------------
Net income (in millions):
As reported $132 $9 1,305%
Excluding one-time charges $132 $124 7%
Per share data:*
Net income:
As reported $1.33 $0.09 1,378%
Excluding one-time
charges $1.33 $1.23 8%
Operating earnings $1.25 $1.17 7%
Core earnings $1.23 $1.04 18%
Book value $37.14 $37.11 ---
Adjusted book value $54.31 $52.57 3%
-----------------------------------------------------------------------
*All earnings per share calculations are diluted.
Core earnings, which exclude the effects of refundings and calls on our
insured issues, realized capital gains and losses on our investment portfolio
and nonrecurring charges, provide the most indicative measure of our underlying
profit. For the first quarter of 2000, core earnings per share reflected strong
top line results at 18% over first quarter 1999.
Our first quarter 2000 net income and earnings per share, excluding
one-time charges, grew 7% and 8%, respectively. Including the one-time charges,
net income increased by 1,305% for 2000 over 1999.
Operating earnings per share, which exclude the impact of realized gains and
losses and one-time charges, increased by 7% over first quarter 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 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.
(10)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The following table presents the components of our adjusted book value per
share:
Percent Change
March 31, March 31, ---------------
2000 1999 2000 vs. 1999
- --------------------------------------------------------------------------
Book value $37.14 $37.11 ---
After-tax value of:
Net deferred premium
revenue, net of deferred 10.87 10.77 1%
acquisition costs
Present value of future
installment premiums* 5.06 4.31 17%
Unrealized gain on
investment contract
liabilities 1.24 0.38 226%
- --------------------------------------------------------------------------
Adjusted book value $54.31 $52.57 3%
- --------------------------------------------------------------------------
*The discount rate used to present value future installment premiums was 9%.
Our book value at March 31, 2000 was $37.14 per share, up from $37.11 at
March 31, 1999. Our adjusted book value per share was $54.31 at March 31, 2000,
a 3% increase from first quarter-end 1999.
FINANCIAL GUARANTEE INSURANCE
The company's production in terms of adjusted gross premiums (AGP), gross
premiums written (GPW) and par written for the first quarters of 2000 and 1999
is presented in the following table:
Percent Change
March 31, March 31, ---------------
2000 1999 2000 vs. 1999
- ------------------------------------------------------------------------------
Premiums written (in millions):
AGP $155 $182 (15)%
GPW $149 $155 (4)%
Par written (in billions) $ 15 $ 24 (38)%
In the first quarter of 2000, bond issuance was down for the quarter
significantly from 1999 levels, causing renewed pricing pressures. However, we
were able to maintain our pricing discipline and continued to write business
levels of A and above for the period. As a result, AGP was down by 15% compared
to the first quarter of 1999, while par insured was down by 38%. This indicates
that we received more premium for every dollar of risk insured. 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 originated in the period. GPW was $149 million, down 4%
from the first quarter of 1999.
(11)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We estimate the present value of our total future installment premium stream
on outstanding policies to be $769 million at March 2000, compared with $660
million at March 1999, a growth rate of 16%.
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:
Percent Change
March 31, March 31, --------------
Domestic Municipal 2000 1999 2000 vs. 1999
----------------------------------------------------------------------------
Total new issue market:*
Par value (in billions) $34 $53 (36)%
Insured penetration 50% 57%
MBIA market share 22% 22%
MBIA insured:
Par written (in billions) $ 5 $ 9 (45)%
Premiums (in millions):
AGP $72 $91 (21)%
GPW $73 $87 (16)%
----------------------------------------------------------------------------
* 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 weak in the municipal market, decreasing by 36% to $34 billion
for the first quarter of 2000, compared with $53 billion in the first quarter of
1999. The insured penetration also decreased to 50% in 2000 from 57% in 1999.
Somewhat offsetting the weak 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 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 decreased by 21% over 1999's first quarter
while par written declined by 45%. The decrease in AGP when compared with the
greater decline in par written is the result of a value-added pricing discipline
which ensures that we realize not just adequate, but attractive returns on each
deal we insure.
Looking ahead to the second quarter in the municipal market, we are
expecting stronger issuance, a better mix of business, and firm pricing.
(12)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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:
Percent Change
Domestic March 31, March 31, --------------
Structured Finance 2000 1999 2000 vs. 1999
------------------------------------------------------------------------
Total asset-backed market:*
Par value (in billions) $52 $49 7%
MBIA insured:
Par written (in billions) $ 5 $ 11 (52)%
Premiums (in millions):
AGP $37 $40 (6)%
GPW $42 $37 13%
------------------------------------------------------------------------
*Market data exclude mortgage-backed securities and private placements.
As with first quarter municipal issuance, overall public and private
structured finance issuance was down. Our par written was down sharply at 52%
from first quarter 1999, resulting from low volume in the home equity business
and a difficult comparison to the first quarter of 1999 in the consumer asset
sector. The good news was that AGP was down only 6% for the quarter, far less
than the insured par value. This relationship between par insured and AGP
reflects strong pricing discipline and a shift in the mix of our portfolio
toward higher priced business.
Credit quality shifted somewhat during the quarter, with 37% of the
business written rated A or better, and 63% in the triple B category. This
compares with the first quarter of 1999 with 57% written rated A or better and
43% in the triple B category. Pricing remained strong and expected returns were
comparable to the same period last year. Looking ahead to the second quarter,
volume has been picking up and our business prospects look strong.
INTERNATIONAL MARKET. The international results were up compared with the first
quarter of 1999. Global asset-backed deals dominated the mix of business written
during the quarter, followed by volume from Latin America, Australia, and the
Netherlands. Our municipal and structured finance international business volume
in the new issue and secondary markets for the first quarters of 2000 and 1999
are illustrated as follows:
Percent Change
March 31, March 31, --------------
International 2000 1999 2000 vs. 1999
-----------------------------------------------------------------------
Par written (in billions) $3.5 $2.7 31%
Premiums (in millions):
AGP $ 45 $ 43 5%
GPW $ 30 $ 22 34%
(13)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Par written and AGP were up 31% and 5%, respectively, for 2000 compared with
the first quarter of 1999. This year 82% of our international business written
in the quarter was rated A or above, substantially stronger than the 59% rated A
or better we insured in the first quarter of 1999. This higher quality insured
volume, as well as the mix of business written, accounts for the weakening AGP
to par insured ratio. The opportunities in our international sector are
significant and we are well positioned to capitalize on these opportunities in
the future.
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.
REINSURANCE Premiums ceded to reinsurers from all insurance operations were $43
million and $60 million in the first quarter of 2000 and 1999, respectively.
Cessions as a percentage of GPW decreased to 29% in 2000 from 39% in 1999. The
decrease in our cession rate from first quarter 1999 was largely driven by the
1999 strategic use of reinsurance to shape the portfolio. 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:
Percent Change
March 31, March 31, --------------
In millions 2000 1999 2000 vs. 1999
---------------------------------------------------------
Premiums earned:
Scheduled $102 $89 14%
Refunded 3 23 (86)%
---------------------------------------------------------
Total $105 $112 (7)%
(14)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 2000 premiums earned from scheduled amortization increased by 14% over the
first quarter 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
first 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 capital
gains) increased 9% to $95 million in the first quarter of 2000, up from $88
million in the first quarter of 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.
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 first quarter of 2000, advisory fee
revenues increased 61% to $8 million from $5 million. This increase was
primarily due to the "non-deferrable" type of fees recognized during the
quarter.
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
(15)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
first quarter of 2000 and 1999, as well as our loss provision for the first
quarter of 2000 and 1999:
Percent Change
March 31, March 31, ---------------
In millions 2000 1999 2000 vs.1999
- --------------------------------------------------------------------------------
Case-specific:
Gross $242 $224 8%
Reinsurance recoverable on unpaid losses 31 31 3%
- --------------------------------------------------------------------------------
Total case reserves 211 193 9%
Unallocated 233 236 (1)%
- --------------------------------------------------------------------------------
Net loss and LAE reserves $444 $429 3%
Provision $ 9 $162 (95)%
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:
Percent Change
March 31, March 31, --------------
In millions 2000 1999 2000 vs. 1999
---------------------------------------------------------------------
Policy acquisition costs, net $ 9 $ 9 ---
Operating 19 18 7%
---------------------------------------------------------------------
Total insurance
operating expenses $28 $27 3%
Expense ratio:
GAAP 26.7% 24.3%
Statutory 20.9% 20.9%
For the first quarter of 2000, policy acquisition costs net of deferrals
remained consistent with the first quarter of 1999. The ratio of policy
acquisition costs net of deferrals to earned premiums has also remained steady
at 8.2% for both 1999 and 2000.
(16)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Operating expenses increased 7% over the first quarter of 1999. Total
insurance operating expenses increased 3%, 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 first quarter 2000 statutory expense ratio has
remained consistent with the first quarter of 1999 at 20.9%. The GAAP expense
ratio has increased over the first quarter of 1999 to 26.7% from 24.3%,
reflecting the decline in the refunding earned premiums year over year.
INSURANCE INCOME MBIA's insurance income of $171 million for the first quarter
of 2000 increased significantly over the first quarter of 1999 due to the
one-time increase to our loss provision in 1999. Excluding the one-time
provision increase, insurance income grew by 2%.
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 first
quarters of 2000 and 1999:
March 31, March 31, Percent Change
In millions 2000 1999 2000 vs. 1999
------------------------------------------------------------------------------
Revenues $27 $19 39%
Expenses 14 10 36%
------------------------------------------------------------------------------
Income $13 $ 9 42%
The success of the merger with 1838 is reflected in the investment
management services operating results, with consolidated revenues up 39% over
the first quarter of 1999, while expenses were up slightly less at 36%. As a
result, operating income increased by 42% for the first quarter of 2000 over the
same period in 1999. We ended the quarter with over $33 billion in assets under
management, up 10% from the end of 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 $13 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.
(17)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MBIA-MISC provides cash management, investment fund administration and
fixed-rate investment placement services directly to local governments and
school districts. Its subsidiary, American Money Management Associates, Inc.
(AMMA), provides investment and treasury management consulting services for
municipal and quasi-public-sector clients. Both MBIA-MISC and AMMA are
Securities and Exchange Commission (SEC)-registered investment advisers and at
March 31, 2000 had $7 billion in assets under management, up 10% over March 31,
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 March 31, 2000,
principal and accrued interest outstanding on investment and repurchasing
agreements was $4.4 billion, compared with $3.6 billion at March 31, 1999. At
amortized cost, the assets supporting IMC's investment agreements were $4.5
billion and $3.6 billion at March 31, 2000 and 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 first 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 MBIA's
insurance related portfolios. At March 31, 2000, CMC's assets under management
were $1.8 billion compared to $1.1 billion at March 31, 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 first quarter of 2000 the municipal services operations lost $0.4
million compared with a loss of $7 million during the same period of 1999.
(18)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CORPORATE
NET REALIZED GAINS Net realized gains were $12 million in the first quarter of
2000, which was comparable with $10 million in the first quarter of 1999.
INTEREST EXPENSE In the first quarter of 2000, we incurred $13 million of
interest expense, the same as in the first quarter of 1999.
OTHER EXPENSES In the first quarter of 2000 other expenses were comprised
primarily of non-insurance goodwill amortization and general corporate overhead.
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 first
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 March 31, 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:
March 31, 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 March 31, 2000 the company has
repurchased a total of 1,290,300 shares at an average price of $43.10.
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
(19)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 $8.7 billion, an 8% increase over first 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 quarter of 2000, operating cash flow totaled
$175 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 first three months of
2000 our insurance company paid dividends of $47 million and at March 31, 2000
had dividend capacity in excess of $14 million without special regulatory
approval.
The company has significant liquidity supporting its businesses. At the end
of the first quarter of 2000, cash equivalents and short-term investments
totaled $317 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
March 31, 2000, there were no balances outstanding under these lines.
(20)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 March 31, 2000, the fair value of our consolidated
investment portfolio was $10.9 billion, as shown below:
Percent Change
March 31, December 31, --------------
In millions 2000 1999 2000 vs.1999
-------------------------------------------------------------------------
Insurance operations:
Amortized cost $ 6,559 $ 6,427 2%
Unrealized loss (142) (223) (36%)
-------------------------------------------------------------------------
Fair value $ 6,417 $ 6,204 3%
-------------------------------------------------------------------------
Municipal investment
Agreements:
Amortized cost $ 4,542 $ 4,584 (1%)
Unrealized loss (61) (94) (35%)
-------------------------------------------------------------------------
Fair value $ 4,481 $ 4,490 ---
-------------------------------------------------------------------------
Total portfolio at fair value $10,898 $10,694 2%
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 remained constant at $4.5 billion.
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.
(21)
<PAGE>
PART II - OTHER INFORMATION
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.
(22)
<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: May 15, 2000 /s/ Neil G. Budnick
------------------- ------------------------------
Neil G. Budnick
Chief Financial Officer
Date: May 15, 2000 /s/ Douglas C. Hamilton
------------------- ------------------------------
Douglas C. Hamilton
Controller
(Principal Accounting Officer)
(23)
EXHIBIT 11
MBIA INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE ASSUMING DILUTION
(In thousands except per share amounts)
THREE MONTHS ENDED
MARCH 31
------------------------------
2000 1999
------------ ------------
Net income $132,320 $9,420
============ ============
Diluted weighted average shares:
Basic weighted average shares outstanding 99,100 99,547
Effect of stock options 454 776
Unallocated ESOP shares 122 142
------------ ------------
Diluted weighted average shares: 99,676 100,465
============ ============
Basic EPS $ 1.34 $ 0.09
============ ============
Diluted EPS $ 1.33 $ 0.09
============ ============
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000814585
<NAME> MBIA Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 6,008,500
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 10,897,995
<CASH> 56,453
<RECOVER-REINSURE> 31,439
<DEFERRED-ACQUISITION> 255,816
<TOTAL-ASSETS> 12,437,258
<POLICY-LOSSES> 475,062
<UNEARNED-PREMIUMS> 2,315,148
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 757,985
0
0
<COMMON> 100,156
<OTHER-SE> 2,566,494
<TOTAL-LIABILITY-AND-EQUITY> 12,437,258
104,704
<INVESTMENT-INCOME> 95,370
<INVESTMENT-GAINS> 11,885
<OTHER-INCOME> 42,475
<BENEFITS> 8,587
<UNDERWRITING-AMORTIZATION> 8,586
<UNDERWRITING-OTHER> 19,394
<INCOME-PRETAX> 179,077
<INCOME-TAX> 46,757
<INCOME-CONTINUING> 132,320
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,320
<EPS-BASIC> 1.34
<EPS-DILUTED> 1.33
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
AND FOR THE PERIODS ENDED MARCH 31, 2000 AND 1999
<PAGE>
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
I N D E X
---------
PAGE
----
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 (Unaudited) 3
Consolidated Statements of Income -
Three months ended March 31, 2000 and 1999 (Unaudited) 4
Consolidated Statement of Changes in Shareholder's Equity -
Three months ended March 31, 2000 (Unaudited) 5
Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
-2-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
--------------- -----------------
ASSETS
<S> <C> <C>
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $6,148,824 and $6,006,506) $6,006,638 $5,783,979
Short-term investments, at amortized cost
(which approximates fair value) 259,656 273,816
Other investments 15,420 8,425
--------------- -----------------
TOTAL INVESTMENTS 6,281,714 6,066,220
Cash and cash equivalents 9,260 33,702
Securities purchased under agreements to resell 195,000 205,000
Accrued investment income 91,851 93,512
Deferred acquisition costs 255,816 251,922
Prepaid reinsurance premiums 407,797 403,210
Reinsurance recoverable on unpaid losses 31,439 30,819
Goodwill (less accumulated amortization of
$58,125 and $56,906) 84,855 86,075
Property and equipment, at cost (less accumulated
depreciation of $33,393 and $31,104) 112,329 111,549
Receivable for investments sold 80,427 2,882
Other assets 124,718 161,082
--------------- -----------------
TOTAL ASSETS $7,675,206 $7,445,973
=============== =================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deferred premium revenue $2,315,148 $2,310,758
Loss and loss adjustment expense reserves 475,062 467,279
Securities sold under agreements to repurchase 195,000 205,000
Deferred income taxes 112,594 79,895
Deferred fee revenue 29,409 28,478
Payable for investments purchased 70,829 18,948
Other liabilities 117,039 107,988
--------------- -----------------
TOTAL LIABILITIES 3,315,081 3,218,346
--------------- -----------------
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 1,519,199 1,514,014
Retained earnings 2,936,797 2,858,210
Accumulated other comprehensive loss,
net of deferred income tax benefit
of $(49,417) and $(77,942) (110,871) (159,597)
--------------- -----------------
TOTAL SHAREHOLDER'S EQUITY 4,360,125 4,227,627
--------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $7,675,206 $7,445,973
=============== =================
</TABLE>
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
March 31
---------------------------
2000 1999
----------- ------------
Revenues:
Gross premiums written $148,837 $154,910
Ceded premiums (42,966) (59,996)
----------- ------------
Net premiums written 105,871 94,914
(Increase) decrease in deferred premium revenue (1,167) 17,197
----------- ------------
Premiums earned (net of ceded
premiums of $38,379 and $30,449) 104,704 112,111
Net investment income 94,588 88,007
Net realized gains 6,575 7,759
Advisory fees 6,531 4,965
----------- ------------
Total revenues 212,398 212,842
----------- ------------
Expenses:
Losses and loss adjustment 8,587 161,930
Policy acquisition costs, net 8,586 9,193
Operating 18,762 18,098
----------- ------------
Total expenses 35,935 189,221
----------- ------------
Income before income taxes 176,463 23,621
Provision for income taxes 50,876 1,212
----------- ------------
Net income $125,587 $22,409
=========== ============
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 three months ended March 31, 2000
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
--------------------- Paid-in Retained Comprehensive Shareholder's
Shares Amount Capital Earnings Loss Equity
---------- ---------- ------------ ------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 100,000 $15,000 $1,514,014 $2,858,210 $(159,597) $ 4,227,627
Comprehensive income:
Net income --- --- --- 125,587 --- 125,587
Other comprehensive income:
Change in unrealized
depreciation of investments
net of change in deferred
income taxes of $(28,525) --- --- --- --- 52,616 52,616
Change in foreign
currency translation --- --- --- --- (3,890) (3,890)
---------------
Other comprehensive income 48,726
---------------
Comprehensive income 174,313
---------------
Dividends declared (per common
share $470.00) --- --- --- (47,000) --- (47,000)
Tax reduction related to tax
sharing agreement
with MBIA Inc. --- --- 5,185 --- --- 5,185
---------- ---------- ------------ ------------ ------------------ ---------------
Balance, March 31, 2000 100,000 $15,000 $1,519,199 $2,936,797 $(110,871) $ 4,360,125
========== ========== ============ ============ ================== ===============
</TABLE>
Disclosure of reclassification amount:
Unrealized appreciation of
investments arising
during the period, net of taxes $56,741
Reclassification of adjustment,
net of taxes (4,125)
---------
Net unrealized appreciation,
net of taxes $52,616
=========
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)
<TABLE>
<CAPTION>
Three months ended
March 31
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 125,587 $ 22,409
Adjustments to reconcile net income to net
cash provided by operating activities:
Decrease in accrued investment income 1,661 3,455
Increase in deferred acquisition costs (3,894) (498)
Increase in prepaid reinsurance premiums (4,587) (29,547)
Increase in deferred premium revenue 5,754 12,350
Increase in loss and loss adjustment expense reserves, net 7,163 158,717
Depreciation 2,289 1,565
Amortization of goodwill 1,220 1,219
Amortization of bond discount, net (4,410) (3,661)
Net realized gains on sale of investments (6,575) (7,759)
Deferred income tax provision (benefit) 4,213 (47,058)
Other, net 46,265 (69,467)
------------ ------------
Total adjustments to net income 49,099 19,316
------------ ------------
Net cash provided by operating activities 174,686 41,725
------------ ------------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased (733,652) (555,620)
Sale of fixed-maturity securities, net of
receivable for investments sold 506,928 321,916
Redemption of fixed-maturity securities,
net of receivable for investments redeemed 76,984 100,133
Sale of short-term investments, net 6,903 100,989
(Purchase) sale of other investments, net (6,201) 643
Capital expenditures, net of disposals (3,090) (6,196)
------------ ------------
Net cash used by investing activities (152,128) (38,135)
------------ ------------
Cash flows from financing activities:
Dividends paid (47,000) ---
------------ ------------
Net cash used by financing activities (47,000) ---
------------ ------------
Net (decrease) increase in cash and cash equivalents (24,442) 3,590
Cash and cash equivalents - beginning of period 33,702 6,546
------------ ------------
Cash and cash equivalents - end of period $ 9,260 $ 10,136
============ ============
Supplemental cash flow disclosures:
Income taxes paid $ 455 $ 1,523
</TABLE>
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, 1999. 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
three months ended March 31, 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.
2. Dividends Declared
- -----------------------
Dividends declared and paid by the company during the three months ended March
31, 2000 were $47.0 million.
3. 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.
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