EX-99.1 2 a4632231ex99.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 MBIA Inc. Reports 8 Percent Decrease in First Quarter Earnings Per Share ARMONK, N.Y.--(BUSINESS WIRE)--May 4, 2004--MBIA Inc. (NYSE: MBI), the holding company for MBIA Insurance Corporation, reported today that net income for the first quarter was $207.6 million compared with $223.3 million in the same period last year, a 7 percent decrease. First quarter diluted earnings per share decreased 8 percent to $1.42 from $1.54 in 2003. The decrease was primarily a result of a pre-tax mark-to-market unrealized loss of $10.7 million, or $0.05 per share, for the first quarter of 2004 compared with a pre-tax mark-to-market unrealized gain of $60.2 million, or $0.27 per share, in the first quarter of 2003. Diluted earnings per share information -------------------------------------- Three Months Ended March 31 2004 2003 ------------ ----------- Net income $1.42 $1.54 Net realized gains 0.20 0.13 Net gains (losses) on derivative instruments and foreign exchange (0.05) 0.27 ------------ ----------- Operating income (1) $1.27 $1.13 (1) Comparable to First Call estimates. Gary Dunton, MBIA president, said, "While MBIA's operating income for the first quarter was solid, significantly lower new business production was a disappointment. The quarter was characterized by tighter spreads, which decreased insured penetration across all markets and increased competition. While business activity has accelerated recently, the weak first quarter will make it difficult to match 2003's record new business production. Over the longer term, we remain confident that the global capital markets will continue to expand, providing attractive opportunities for new business growth." Insurance Operations Adjusted direct premiums (ADP) for the first quarter of 2004 decreased 43 percent to $138.0 million from $243.5 million in the same period in 2003. ADP, a non-GAAP measure, consists of both upfront premiums written and the present value of estimated installment premiums for new business writings and excludes premiums assumed or ceded. MBIA - Adjusted Direct Premium ($ in millions) Three Months Ended March 31 2004 2003 % Change ---------- ---------- ---------- Global Public Finance United States $55.2 $132.2 (58%) Non-United States 3.7 31.1 (88%) ---------- ---------- ---------- Total 58.9 163.3 (64%) Global Structured Finance United States 60.0 40.5 48% Non-United States 19.1 39.7 (52%) ---------- ---------- ---------- Total 79.1 80.2 (1%) Total $138.0 $243.5 (43%) Global public finance ADP declined 64 percent compared to the first quarter of last year. U.S. public finance production declined as a result of lower insured penetration in the U.S. markets and tighter credit spreads. Non-U.S. activity was minimal reflecting the ongoing volatility of business writings in the international marketplace. Credit quality for global public finance was very high, with 97 percent of insured business written rated Single-A or above in the first quarter of 2004 as the company maintained its high underwriting and pricing standards. First quarter 2004 global structured finance ADP was essentially flat relative to the same period of the prior year, as greater demand for uninsured transactions and tighter credit spreads, particularly in the CDO and mortgage-backed sectors, continued to impact the company's opportunities in this market. Solid U.S. production driven by several commercial asset securitizations offset a sharp decline in international business. In global structured finance, 56 percent of insured business written in the first quarter of 2004 was rated Single-A or higher. Scheduled earned premiums rose 14 percent to $160.3 million from $140.7 million due to strong levels of business written over the last two years. Total earned premiums rose 24 percent to $199.8 million from $161.2 million as earned premiums from refundings were up 93 percent, to $39.5 million, in the first quarter of 2004 as interest rates continued to remain near historic lows. Pre-tax net investment income for the first quarter of 2004 rose 14 percent to $121.8 million compared with $106.4 million in the same period of 2003, as a 12 percent increase in average invested assets offset the impact of lower yields. First quarter after-tax net investment income increased by 11 percent to $95.2 million in 2004, compared with $85.4 million in the same period last year. MBIA's advisory fees in the first three months of 2004 were down 56 percent to $5.9 million from $13.3 million during the same period of 2003 primarily reflecting fewer large, complex transactions in the first quarter of 2004. Insurance operating expenses were up 15 percent for the first quarter. Due to lower premiums written and advisory fees in the first quarter as well as the effect of portfolio reassumptions and cessions, the statutory expense ratio for insurance operations increased to 35.2 percent, compared to 11.7 percent in the first quarter of 2003. The GAAP expense ratio remained relatively consistent at 21.4 percent as compared to 22.6 percent in last year's first quarter. MBIA's pre-tax operating income from insurance operations rose 17 percent to $265.5 million from $227.6 million in last year's first quarter. Risk Management and Loss Reserves The company incurred $19.2 million in loss and loss adjustment expenses in the first quarter of 2004, a 14 percent increase compared with $16.9 million in last year's first quarter. The increase was driven by the growth in scheduled earned premium, which is the basis of the company's loss reserving formula. Case-incurred activity was $14.0 million in the first quarter of 2004, which primarily pertained to MBIA's guaranteed tax lien portfolios, AHERF and an older vintage CDO. MBIA Insurance Corp. acquired the assets of Asian Securitization & Infrastructure Assurance Pte Ltd. (Asia Ltd.) during the first quarter, which consist primarily of cash from the liquidation of Asia Ltd.'s investment portfolio, and has assumed Asia Ltd.'s insurance obligations. The assumed portfolio consists of 23 issues with an outstanding par balance of $369.2 million. In connection with the assumption of Asia Ltd.'s insured portfolio, MBIA Insurance Corp. acquired $8.8 million of unearned premium reserves, $19.4 million of case loss reserves and $32.7 million of unallocated loss reserves. During the quarter, MBIA reassumed portfolios of previously ceded transactions from American Re-Insurance Company, Axa Re Finance S.A., Radian Reinsurance Inc. and Partner Re. In the aggregate, the company reassumed $181.2 million of unearned premium reserves, $15.4 million of case loss reserves and $31.6 billion of insured exposure. Subsequently, the company ceded $161.4 million of unearned premium reserves and $26.3 billion of insured exposure to Channel Reinsurance Ltd. (Channel Re), a newly formed Triple-A rated reinsurance company of which MBIA owns 17.4 percent. There were no case loss reserves ceded to Channel Re in connection with this transaction. The portion of the insured portfolio rated below investment grade increased slightly in the first quarter. The increase was driven in part by the company's reassumption of more non-investment grade exposure from downgraded reinsurers than it subsequently ceded to Channel Re. Investment Management Services The market value of quarterly average assets under management, excluding those attributable to 1838 Investment Advisors, LLC, was $36.2 billion in the first quarter of 2004, up 17 percent from $30.5 billion in last year's first quarter. In addition, conduit assets totaled $7.7 billion at the end of the quarter. Pre-tax operating income from MBIA's fixed-income investment management businesses declined to $11.8 million in the first quarter of 2004 from $12.5 million in last year's first quarter. The decline resulted from the impact of the low interest rate environment on third-party cash management revenues as well as new product startup costs. Corporate The corporate segment includes net investment income, interest expense and corporate expenses. Net corporate segment expenses in the first quarter increased 18 percent to $21.5 million from $18.2 million in the same period last year. The increase reflects MBIA's minority share of costs incurred by Asia Ltd. prior to MBIA's acquisition of its portfolio. Gains and Losses In the first quarter of 2004, MBIA recorded a net realized gain of $44.3 million compared with a net realized gain of $30.2 million in the first quarter of 2003. This gain was primarily the result of the sale of more than half of a common stock investment the company made in 2002. The company recorded a pre-tax unrealized loss of $10.7 million in the first quarter of 2004 on its derivative and foreign currency exposure, compared with a pre-tax unrealized gain of $60.2 million for the first quarter of 2003. The unrealized loss this year was due to lower U.S. dollar interest rates, which impacted market values on certain interest rate swaps related to the investment management business. Discontinued Operations As previously announced, MBIA has agreed to sell the assets of 1838 Investment Advisors to the management of 1838 and an investor group led by Orca Bay Partners. The sale is expected to close in the second quarter and result in a small gain. Consequently, this business has been accounted for as a discontinued operation for the first quarter of 2004, and its revenues and expenses have been excluded from the results of continuing operations. Income from discontinued operations was approximately breakeven for the quarter. Book Value and Adjusted Book Value MBIA's book value per share at the end of the first quarter of 2004 increased to $45.31 compared to $43.50 at December 31, 2003, up 4 percent due to growth in net income and the unrealized appreciation on the company's investment portfolio. Adjusted book value (ABV) per share at March 31, 2004 rose 2 percent to $61.21 from $59.84 at December 31, 2003. ABV, a non-GAAP measure, includes the after-tax effects of deferred premium revenue less prepaid reinsurance premiums and deferred acquisition costs, the present value of installment premiums, unrealized gains or losses on investment contract liabilities and a provision for loss and loss adjustment expenses. Share Repurchase The company repurchased approximately 351,000 shares during the first four months of the year at an average cost of $61.72 per share. Approximately 1.4 million shares remain in the company's 11.3 million share buyback program. Conference Call MBIA will host a conference call for investors today at 11 a.m. EDT. The conference call will consist of brief comments by Neil Budnick, the company's chief financial officer, followed by a question and answer session. The conference call will be webcast live on MBIA's Web site at http://investor.mbia.com (then click "Conference Call"). Those who are unable to participate in the conference call may listen to a replay by dialing 1-800-396-1244 in the United States and 1-402-998-1607 for international calls. A recording will also be available on MBIA's Web site approximately two hours after the end of the conference call. MBIA Inc., through its subsidiaries, is a leading financial guarantor and provider of specialized financial services. MBIA's innovative and cost-effective products and services meet the credit enhancement, financial and investment needs of its public and private sector clients, domestically and internationally. MBIA Inc.'s principal operating subsidiary, MBIA Insurance Corporation, has a financial strength rating of Triple-A from Moody's Investors Service, Standard & Poor's Ratings Services, Fitch Ratings, and Rating and Investment Information, Inc. Please visit MBIA's Web site at http://www.mbia.com. This document contains forward-looking statements. Important factors such as general market conditions and the competitive environment could cause actual results to differ materially from those projected in these forward-looking statements. Risk factors are detailed in our 10K, which is available on our Web site, www.mbia.com. The company undertakes no obligation to revise or update any forward-looking statements to reflect changes in events or expectations. Explanation of Non-GAAP Financial Measures The following are explanations of why MBIA believes that the non-GAAP financial measures used in this press release, which serve to supplement GAAP information, are meaningful to investors. Operating Income: The company believes operating income is a useful measurement of performance because it measures income from operations, unaffected by investment portfolio realized gains and losses, gains and losses on derivatives instruments and foreign exchange and non-recurring items. Operating income is also provided to assist research analysts and investors who use this information in their analysis of the company. Adjusted Book Value: The company believes the presentation of adjusted book value, which includes items that are expected to be realized in future periods, provides additional information that gives a comprehensive measure of the value of the company. Since the company expects these items to affect future results and, in general, they do not require any additional future performance obligation on the company's part, ABV provides an indication of the company's value in the absence of any new business activity. ABV is not a substitute for GAAP book value but does provide investors with additional information when viewed in conjunction with GAAP book value. Adjusted Direct Premiums: The company believes adjusted direct premiums are a meaningful measure of the total value of the insurance business written during a reporting period since they represent the present value of all premiums collected and expected to be collected on policies closed during the period. As such, it gives investors an opportunity to measure the value of new business activities in a given period and compare it to new business activities in other periods. Other measures, such as premiums written and premiums earned, include the value of premiums resulting from business closed in prior periods and do not provide the same information to investors. MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- (dollars in thousands) March 31, December 31, 2004 2003 ------------- ------------- Assets ------ Investments: Fixed-maturity securities held as available-for-sale at fair value (amortized cost $17,140,295 and $16,526,579) $ 18,182,082 $ 17,390,979 Conduit investments held-to-maturity 7,726,328 8,386,280 Investment agreement portfolio pledged as collateral at fair value (amortized cost $818,939 and $581,633) 856,368 596,366 Short-term investments 788,823 975,836 Other investments 343,881 357,346 ------------- ------------- Total investments 27,897,482 27,706,807 Cash and cash equivalents 265,614 172,129 Accrued investment income 262,915 269,610 Deferred acquisition costs 339,931 319,728 Prepaid reinsurance premiums 523,726 535,728 Reinsurance recoverable on unpaid losses 42,454 61,085 Goodwill 79,406 79,406 Property and equipment (net of accumulated depreciation) 119,407 120,691 Receivable for investments sold 274,447 20,376 Derivative assets 245,860 256,744 Variable interest entity assets 600,272 600,322 Other assets 150,491 125,108 ------------- ------------- Total assets $ 30,802,005 $ 30,267,734 ============= ============= Liabilities and Shareholders' Equity ------------------------------------ Liabilities: Deferred premium revenue $ 3,037,756 $ 3,079,851 Loss and loss adjustment expense reserves 616,182 559,510 Investment agreement and medium-term note obligations 9,081,092 8,840,125 Securities sold under agreements to repurchase 747,730 505,883 Conduit debt obligations 7,215,740 7,848,060 Short-term debt 58,745 57,337 Long-term debt 1,018,391 1,021,795 Current income taxes 71,046 14,554 Deferred income taxes 605,367 552,740 Deferred fee revenue 23,717 21,543 Payable for investments purchased 284,763 47,059 Derivative liabilities 523,744 437,683 Variable interest entity liabilities 600,272 600,322 Other liabilities 364,026 422,257 ------------- ------------- Total liabilities 24,248,571 24,008,719 Shareholders' Equity: Common stock 154,631 153,551 Additional paid-in capital 1,350,557 1,295,638 Retained earnings 4,766,412 4,593,486 Accumulated other comprehensive income 732,070 632,623 Unearned compensation - restricted stock (25,875) (12,299) Treasury stock (424,361) (403,984) ------------- ------------- Total shareholders' equity 6,553,434 6,259,015 Total liabilities and shareholders' equity $ 30,802,005 $ 30,267,734 ============= ============= MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (dollars in thousands except per share amounts) Three Months Ended March 31 --------------------------- 2004 2003 ------------- ------------- Insurance operations Revenues: Gross premiums written $ 204,693 $ 288,147 Ceded premiums (34,964) (64,119) ------------- ------------- Net premiums written 169,729 224,028 Scheduled premiums earned 160,280 140,653 Refunding premiums earned 39,542 20,527 ------------- ------------- Premiums earned 199,822 161,180 Net investment income 121,841 106,421 Advisory fees 5,865 13,302 ------------- ------------- Total insurance revenues 327,528 280,903 Expenses: Losses and LAE incurred 19,234 16,878 Amortization of deferred acquisition costs 15,586 12,782 Operating 27,172 23,643 ------------- ------------- Total insurance expenses 61,992 53,303 Insurance income 265,536 227,600 ------------- ------------- Investment management services Revenues 121,460 93,750 Interest expense 91,035 70,025 ------------- ------------- Net revenues 30,425 23,725 Expenses 18,587 11,186 ------------- ------------- Investment management services income 11,838 12,539 ------------- ------------- Municipal services Revenues 5,959 6,042 Expenses 5,854 5,990 ------------- ------------- Municipal services income 105 52 ------------- ------------- Corporate Net investment income 2,120 2,373 Interest expense 17,774 16,949 Corporate expenses 5,890 3,663 ------------- ------------- Corporate loss (21,544) (18,239) ------------- ------------- Gains and losses Net realized gains 44,251 30,157 Net gains (losses) on derivative instruments and foreign exchange (10,663) 60,209 ------------- ------------- Net gains and losses 33,588 90,366 ------------- ------------- Income from continuing operations before income taxes 289,523 312,318 Provision for income taxes 81,903 89,106 ------------- ------------- Income from continuing operations 207,620 223,212 Income from discontinued operations, net of tax 29 114 ------------- ------------- Net income $ 207,649 $ 223,326 ============= ============= Net income per common share: Basic $ 1.45 $ 1.55 Diluted $ 1.42 $ 1.54 Weighted-average common shares outstanding: Basic 143,608,056 144,042,116 Diluted 146,647,142 145,357,445 MBIA INC. AND SUBSIDIARIES Reconciliation of Adjusted Direct Premiums to Gross Premiums Written (in millions) --------------------------------------------- Three Months Ended March 31 ------------------------ 2004 2003 ------------ ----------- Adjusted direct premiums (1) $138.0 $243.5 Adjusted premiums assumed (2.9) 5.4 ------------ ----------- Adjusted gross premiums 135.1 248.9 Present value of estimated future installment premiums (2) (82.3) (97.9) ------------ ----------- Gross upfront premiums written 52.8 151.0 Gross installment premiums received 151.9 137.1 ------------ ----------- Gross premiums written $204.7 $288.1 ============ =========== (1) A non-GAAP measure. At March 31, 2004 the discount rate was 4.7% and at March 31, 2003 (2) the discount rate was 5.6%. Components of Net Income per Share ---------------------------------- Three Months Ended March 31 ------------------------ 2004 2003 ------------ ----------- Net income $1.42 $1.54 Income from discontinued operations 0.00 0.00 ------------ ----------- Net income from continuing operations 1.42 1.54 Net realized gains 0.20 0.13 Net gains (losses) on derivative instruments and foreign exchange (0.05) 0.27 ------------ ----------- Operating income (1) $1.27 $1.13 ============ =========== (1) A non-GAAP measure. MBIA INC. AND SUBSIDIARIES Components of Adjusted Book Value per Share ------------------------------------------- March 31, 2004 December 31, 2003 ------------------- ------------------- Book value $45.31 $43.50 After-tax value of: Deferred premium revenue 13.65 13.91 Prepaid reinsurance premiums (2.35) (2.42) Deferred acquisition costs (1.53) (1.44) --------- --------- Net deferred premium revenue 9.77 10.05 Present value of installment premiums (1) 9.59 9.27 Unrealized losses on investment contract liabilities (0.95) (0.49) Loss provision (2) (2.51) (2.49) --------- --------- Adjusted book value (3) $61.21 $59.84 ========= ========= (1) At March 31, 2004 and December 31, 2003 the discount rate was 4.7%. (2) The loss provision is calculated by applying 12% to the following items on an after-tax basis: (a) deferred premium revenue; (b) prepaid reinsurance premiums; and, (c) the present value of installment premiums. (3) A non-GAAP measure. CONSOLIDATED INSURANCE OPERATIONS --------------------------------- Selected Financial Data Computed on a Statutory Basis ----------------------------------------------------- (dollars in millions) March 31, December 31, 2004 2003 ------------- ------------- Capital and surplus $ 3,737.4 $ 3,715.0 Contingency reserve 2,489.2 2,368.2 ------------- ------------- Capital base 6,226.6 6,083.2 Unearned premium reserve 3,057.7 3,066.6 Present value of installment premiums (1) 2,133.9 2,052.9 ------------- ------------- Premium resources 5,191.6 5,119.5 Loss and loss adjustment expense reserves 264.3 200.7 Standby line of credit/stop loss 1,200.0 1,236.0 ------------- ------------- Total claims-paying resources $ 12,882.5 $ 12,639.4 ============= ============= Net debt service outstanding $ 830,306.3 $ 835,773.8 Capital ratio (2) 133:1 137:1 Claims-paying ratio (3) 75:1 77:1 (1) At March 31, 2004 and December 31, 2003 the discount rate was 4.7%. (2) Net debt service outstanding divided by the capital base. (3) Net debt service outstanding divided by the sum of the capital base, unearned premium reserve (after-tax), present value of installment premiums (after-tax), loss and loss adjustment expense reserves and standby line of credit/stop loss. CONTACT: MBIA Inc., Armonk Michael Ballinger, 914-765 3893