-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Wi/Nsl73GuJzk5weWR1J/HKDpCB68HaqEtJcnonSbW+qSSJOUZJx9XmN9c2CNgKb dCWw+iyE+UKotPPLxDO6Fw== 0000814585-94-000034.txt : 19941128 0000814585-94-000034.hdr.sgml : 19941128 ACCESSION NUMBER: 0000814585-94-000034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941115 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MBIA INC CENTRAL INDEX KEY: 0000814585 STANDARD INDUSTRIAL CLASSIFICATION: 6351 IRS NUMBER: 061185706 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09583 FILM NUMBER: 94560214 BUSINESS ADDRESS: STREET 1: 113 KING ST CITY: ARMONK STATE: NY ZIP: 10504 BUSINESS PHONE: 9142734545 MAIL ADDRESS: STREET 1: 113 KING ST CITY: ARMONK STATE: NY ZIP: 10504 10-Q 1 3RD QTR 10Q 94 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1994 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 November 2, 1994, there were outstanding 41,615,624 shares of Common Stock, par value $1 per share, of the registrant. PAGE 1 OF 18 INDEX ----- PAGE - - ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) MBIA Inc. and Subsidiaries Consolidated Balance Sheets - September 30, 1994 and December 31, 1993 (Audited) 3 Consolidated Statements of Income - Three months and nine months ended September 30, 1994 and 1993 4 Consolidated Statement of Changes in Shareholders'Equity - Nine months ended September 30, 1994 5 Consolidated Statements of Cash Flows - Nine months ended September 30, 1994 and 1993 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 15 PART II OTHER INFORMATION, AS APPLICABLE Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 (2) MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except per share amounts) September 30, 1994 December 31, 1993 ------------------ ------------------ (Unaudited) (Audited) ASSETS Investments: Fixed maturity securities, at amortized cost (market value $3,015,527) $ --- $2,796,699 Fixed maturity securities held as available-for-sale at market (amortized cost $3,064,590) 3,063,011 --- Short-term investments, at amortized cost (which approximates market value) 107,887 104,205 Other investments 17,633 104,681 ---------- ---------- 3,188,531 3,005,585 Municipal investment agreement portfolio, at amortized cost (market value $536,590) --- 538,751 Municipal investment agreement portfolio, at market (amortized cost $1,542,360) 1,494,536 --- ---------- ---------- TOTAL INVESTMENTS 4,683,067 3,544,336 Cash and cash equivalents 11,865 2,492 Accrued investment income 63,056 54,794 Deferred acquisition costs 128,044 120,484 Prepaid reinsurance premiums 183,150 170,551 Goodwill (less accumulated amortization of $34,858 and $31,088) 112,509 116,279 Property and equipment, at cost (less accumulated depreciation of $13,070 and $10,734) 44,045 44,115 Receivable for investments sold 935 31,903 Other assets 37,335 21,359 ---------- ---------- TOTAL ASSETS $5,264,006 $4,106,313 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deferred premium revenue $1,488,522 $1,402,807 Loss and loss adjustment expense reserves 38,811 33,735 Long-term debt 298,763 298,680 Municipal investment agreements 1,514,413 493,014 Current income taxes payable --- 1,811 Deferred income taxes 101,290 107,881 Payable for investments purchased 34,562 111,279 Other liabilities 73,464 60,748 ---------- ---------- TOTAL LIABILITIES 3,549,825 2,509,955 ---------- ---------- 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 --100,000,000; issued shares -- 42,077,387 and 42,074,387 42,077 42,074 Additional paid-in capital 719,973 719,281 Retained earnings 1,005,299 844,916 Cumulative translation adjustment 810 (1,218) Unrealized (depreciation) appreciation of investments, net of deferred income tax (benefit) provision of $(16,514) and $3,813 (31,357) 7,080 Treasury stock, at cost; shares-- 362,663 and 260,243 (22,621) (15,775) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 1,714,181 1,596,358 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,264,006 $4,106,313 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. (3) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands except per share amounts) Three Months Ended Nine Months Ended September 30 September 30 ---------------------- ---------------------- 1994 1993 1994 1993 ---------- ---------- ---------- ---------- Revenues: Gross premiums written $ 80,099 $110,022 $274,385 $362,362 Ceded premiums (12,011) (6,487) (38,686) (35,646) Net premiums written 68,088 103,535 235,699 326,716 -------- -------- -------- -------- Increase in deferred premium revenue (13,358) (42,298) (72,829) (153,093) -------- -------- -------- -------- Premiums earned (net of ceded premiums of $11,719, $10,674, $26,087 and $28,408) 54,730 61,237 162,870 173,623 Net investment income 49,551 44,932 144,241 131,850 Net realized gains 752 1,372 9,659 6,698 Non-insurance revenues 4,222 1,018 12,019 3,005 Non-insurance net realized losses (145) --- (603) --- Other income 902 1,663 1,527 4,293 -------- -------- -------- -------- Total revenues 110,012 110,222 329,713 319,469 -------- -------- -------- -------- Expenses: Insurance: Losses and loss adjustment expenses 1,626 1,862 5,665 6,018 Policy acquisition costs, net 5,232 6,413 16,292 18,922 Operating expenses 10,816 9,102 30,453 27,721 Non-insurance expenses 2,646 1,279 7,592 3,362 Interest expense 6,759 6,719 20,214 20,181 Other expenses 420 442 1,053 1,077 -------- -------- -------- -------- Total expenses 27,499 25,817 81,269 77,281 -------- -------- -------- -------- Income before income taxes 82,513 84,405 248,444 242,188 Provision for income taxes 17,466 24,588 52,705 58,802 -------- -------- -------- -------- Income before cumulative effect of accounting changes 65,047 59,817 195,739 183,386 Cumulative effect of accounting changes --- --- --- 12,923 -------- -------- -------- -------- NET INCOME $ 65,047 $ 59,817 $195,739 $196,309 ======== ======== ======== ======== Income per common share before cumulative effect of accounting changes $ 1.54 $ 1.41 $ 4.65 $ 4.32 NET INCOME PER COMMON SHARE $ 1.54 $ 1.41 $ 4.65 $ 4.62 ======== ======== ======== ======== Weighted average number of common shares and common stock equivalents outstanding 42,105,144 42,529,415 42,111,624 42,470,708 ========== ========== ========== ========== The accompanying notes are an integral part of the consolidated financial statements. (4) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) For the nine months ended September 30, 1994 (In thousands except per share amounts)
Unrealized Common Stock Additional Cumulative Appreciation Treasury Stock ---------------- Paid-in Retained Translation (Depreciation) -------------- Shares Amount Capital Earnings Adjustment of Investments Shares Amount ------ ------- ---------- ----------- ----------- -------------- ------ ------- BALANCE, JANUARY 1, 1994 42,074 $42,074 $719,281 $ 844,916 $(1,218) $ 7,080 260 $15,775 Treasury shares acquired --- --- --- --- --- --- 147 8,886 Exercise of stock options 3 3 692 (750) --- --- (44) (2,040) Net income --- --- --- 195,739 --- --- --- --- Change in foreign currency translation --- --- --- --- 2,028 --- --- --- Change in unrealized appreciation (depreciation) of investments net of change in deferred income taxes of $(20,326) --- --- --- --- --- (38,437) --- --- Dividends (declared per common share $.83; paid per common share $.78) --- --- --- (34,606) --- --- --- --- ------ ------- -------- ---------- ---------- -------------- ------ ------- BALANCE, SEPTEMBER 30, 1994 42,077 $42,077 $719,973 $1,005,299 $ 810 $(31,357) 363 $22,621 ====== ======= ======== ========== ========== ============== ====== =======
The accompanying notes are an integral part of the consolidated financial statements. (5) MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September 30 --------------------------- 1994 1993 ---------- ---------- Cash flows from operating activities: Net income $ 195,739 $ 196,309 Adjustments to reconcile net income to net cash provided by operating activities: (Increase) decrease in accrued investment income (8,262) 126 Increase in deferred acquisition costs (7,560) (7,315) Increase in prepaid reinsurance premiums (12,599) (7,238) Increase in deferred premium revenue 85,428 160,331 Increase in loss and loss adjustment expense reserves 5,076 7,470 Depreciation 2,333 2,102 Amortization of goodwill 3,770 3,802 Amortization of bond discount, net (5) (679) Net realized gains on sale of investments (9,056) (6,698) Deferred income taxes 13,735 3,610 Other, net 6,134 15,275 ---------- ---------- Total adjustments to net income 78,994 170,786 ---------- ---------- Net cash provided by operating activities 274,733 367,095 ---------- ---------- Cash flows from investing activities: Purchase of fixed maturity securities, net of payable for investments purchased (781,908) (629,281) Sale of fixed maturity securities, net of receivable for investments sold 355,441 185,950 Redemption of fixed maturity securities, net of receivable for investments redeemed 91,793 170,848 Sale (purchase) of short-term investments, net 30,897 (41,844) Sale (purchase) of other investments, net 87,379 (23,019) Purchases for municipal investment agreement portfolio, net of payable for investments purchased (1,394,415) (46,718) Sales from municipal investment agreement portfolio, net of receivable for investments sold 378,171 --- Capital expenditures, net of disposals (2,246) (5,482) ---------- ---------- Net cash used by investing activities (1,234,888) (389,546) ---------- ---------- Cash flows from financing activities: Dividends paid (32,582) (26,416) Purchase of treasury stock (8,886) --- Proceeds from issuance of municipal investment agreements 1,563,308 46,302 Payments for drawdowns of municipal investment agreements (554,297) (378) Exercise of stock options 1,985 5,908 ---------- ---------- Net cash provided by financing activities 969,528 25,416 ---------- ---------- Net increase in cash and cash equivalents 9,373 2,965 Cash and cash equivalents - beginning of period 2,492 11,226 ---------- ---------- Cash and cash equivalents - end of period $ 11,865 $ 14,191 ========== ========== Supplemental cash flow disclosures: Income taxes paid $ 41,783 $ 36,384 Interest paid: Long-term debt $ 22,475 $ 22,316 Municipal investment agreements 22,279 --- The accompanying notes are an integral part of the consolidated financial statements. (6) 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 the Form 10-K for the year ended December 31, 1993 for MBIA Inc. and Subsidiaries (the "Company"). The accompanying unaudited consolidated financial statements have not been audited by independent accountants in accordance with generally accepted auditing standards but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to summarize fairly the Company's financial position and results of operations. The results of operations for the nine months ended September 30, 1994 may not be indicative of the results that may be expected for the year ending December 31, 1994. The December 31, 1993 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 2. Dividends Declared Dividends declared by the Company during the nine months ended September 30, 1994 were $34.6 million. 3. Investments in Debt and Equity Securities As of March 31, 1994 the Company adopted Statement of Financial Accounting Standards ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities." Fixed-income investments, which were previously carried at amortized cost were deemed by management to be available-for-sale and therefore are reported at market value with net unrealized gains and losses reported in shareholders' equity. The adoption of SFAS 115 resulted in a decrease of $49.4 million as of September 30, 1994 in the reported value of the Company's investment portfolio and a decrease in shareholders' equity of $32.1 million as of September 30, 1994. There was no income statement impact. (7) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - - --------------------- 1994 AND 1993 - THIRD QUARTER RESULTS - - ------------------------------------- MBIA Inc.'s (the "Company") 1994 third quarter net income increased 9% to $65.0 million compared with $59.8 million for third quarter of 1993. Earnings per share also rose 9% to $1.54 from $1.41. The Company also measures its performance in terms of core earnings, which exclude the net income effects of the relatively less predictable elements of net premiums earned from refundings and calls of previously insured issues, realized gains and other non-recurring items such as accounting changes and the 1993 tax adjustments. Core earnings increased by 14% to $1.34 per share compared with $1.18 a year ago, reflecting the Company's ability to produce earnings growth from its expanding portfolio of insured issues and investment portfolio, even during a period of declining municipal volume. According to THE BOND BUYER, long-term new issue municipal bond volume was $37.4 billion of par value in the third quarter of 1994, down from $75.4 billion in the third quarter of 1993. The insured portion of the market decreased to 32% from 34% for the same period last year. In the third quarter of 1994, the Company's principal operating subsidiary, Municipal Bond Investors Assurance Corporation ("MBIA Corp."), led the industry in market share, guaranteeing 45% of the insured long-term new issue municipal bond volume. In addition, MBIA Corp. led the insured new issue structured finance market in the United States and Europe. With the decline in overall market volume, gross premiums written decreased 27% to $80.1 million during the third quarter, from $110.0 million during the third quarter of 1993. New issue and secondary market municipal and asset-backed premiums, the major components of gross premiums written, decreased 18% to $72.0 million compared with $88.0 million in the same period last year. Installment premiums received for policies issued in prior years, including net amounts assumed related to the installment business of MBIA Corp.'s predecessor, the Municipal Bond Insurance Association (the "Association"), were $8.1 million and $9.7 million for the third quarters of 1994 and 1993, respectively. Although MBIA's gross premium writings decreased for the period, premiums ceded to reinsurers increased 85% to $12.0 million during the third quarter of 1994 compared to $6.5 million in the same period last year. In the third quarter of 1994, premiums ceded as a percentage of gross premiums written increased to 15% compared to 6% for the same period last year, reflecting a higher level of cessions on business where MBIA has capacity constraints. (8) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Net premium writings for the third quarter of 1994 were $68.1 million, a 34% decrease from $103.5 million in the same period last year. Typically, insurance premiums are paid in full at the time the insurance policy is issued and are earned pro rata over the period of risk. Premiums are allocated to each bond maturity based on par amount and are earned on a straight-line basis over the term of each maturity. Accordingly, the portion of net premiums earned on each policy in any given year represents a relatively small percentage of the total net premium received. The balance represents deferred premium revenue which will be earned in the future over the remaining life of the bond. Installment premiums are not recorded as a component of deferred premium revenues until received and therefore represent an off- balance sheet value which will contribute to future earned premiums. As of September 30, 1994, MBIA estimates the present value of its future stream of payments increased to $192.2 million from $183.3 million a year ago. Premiums earned in the third quarter decreased 11% to $54.7 million from $61.2 million in the third quarter of 1993. This decrease reflects the decline in earned premiums resulting from lower bond refundings and calls during 1994, mitigated by the growth in deferred premium revenues from the addition of new business in 1993. When an MBIA-insured bond issue is refunded or retired early, the outstanding liability associated with the refunded or called portion is extinguished and the remaining deferred premium revenue is earned immediately, except for any portion which may be applied as a credit toward the premium charged on the refunding bond issue if such refunding issue is insured by MBIA Corp. Earned premiums generated by refunded and called bonds in the third quarter of 1994 and 1993 were $13.9 million and $23.4 million, respectively. Of these amounts, $2.8 million and $14.5 million, respectively, related to issues for which MBIA Corp. insured the replacement bonds. The amount of bond refundings and calls is difficult to predict since it is influenced by a variety of factors such as prevailing interest rates relative to the coupon rates of the original issue, the issuer's desire to modify restrictive covenants and changing requirements under the Internal Revenue Code. The Company's total investments were $4.68 billion as of September 30, 1994, including $1.49 billion related to the Company's municipal investment agreement business. Net investment income (excluding the amounts earned on investment agreement assets which are recorded as a component of non-insurance revenues) increased 10% to $49.6 million in the third quarter of 1994 compared with $44.9 (9) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) million in the corresponding period of 1993. The increase was primarily the result of growth in invested assets from continued positive operating cash flows. Average investments excluding investment agreement assets were $3.15 billion in the third quarter of 1994 compared with $2.84 billion for the same period last year. Tax-exempt investments as of September 30, 1994 represented 78% of total investments excluding investment agreement assets, compared with 70% at December 31, 1993. Net realized capital gains in the third quarter of 1994 were $0.8 million, down from $1.4 million in the same period of 1993. The Company has undertaken the development of non-insurance businesses which capitalize on its core capabilities. In aggregate, these businesses contributed $4.1 million in revenues in the third quarter of 1994, a significant increase over the $1.0 million generated in the same period last year. MBIA Municipal Investors Services Corporation ("MBIA/MISC") provides cash management services for local governments, school districts and similar authorities. As of September 30, 1994 MBIA/MISC had approximately $2.0 billion of client assets under management. MBIA/MISC is operating in seven states and plans to continue its expansion into additional states in the near term. In 1993, the Company formed MBIA Investment Management Corp. ("IMC"), which provides investment vehicles in the form of investment agreements guaranteed as to principal and interest, for states, municipalities and municipal authorities. At September 30, 1994, IMC had outstanding investment agreement liabilities of $1.5 billion. The related assets are invested in high quality securities and are recorded as a component of the Company's total investments, exclusive of payables and receivables for investments not settled. Municipal investment agreements are recorded as balance sheet liabilities at the time such agreements are executed. The liability for a municipal investment agreement is carried at the principal value of the obligation plus accrued interest due. Interest expense on municipal investment agreements is computed daily based upon the outstanding liability balance at rates specified in the agreements, and that expense is deducted from the investment income from the related assets in non-insurance revenues. The provision for losses and loss adjustment expenses for the third quarter of 1994 was $1.6 million, compared with $1.9 million in 1993, representing additions to the loss reserves consistent with the Company's reserve methodology. At September 30, 1994, $23.3 million of the $38.8 million loss and loss adjustment expense reserve was allocated on a case basis, compared with $7.8 million of the $33.0 million reserve at September 30, 1993. The (10) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) increase in case reserves had no impact on net income, since the increase in the Company's case-specific reserve was offset by a corresponding decrease in the unallocated portion of its general loss reserve. Other insurance-related expenses which are composed of net policy acquisition costs and operating expenses were 3% higher than the corresponding quarter last year. Expenses related to the Company's non-insurance business lines increased to $2.6 million in the third quarter of 1994 from $1.3 million in the third quarter of 1993 due to the expansion of these new businesses. The Company's interest expense was virtually unchanged at $6.8 million for the third quarters of 1994 and 1993. In aggregate, expenses for the third quarter of 1994 increased by 7% over the third quarter of 1993. The Company's effective tax rate at 21.2% decreased from 29.1% for the third quarter 1993. The unusually high rate for 1993 was due principally to the year-to-date adjustment in the increase in the Corporate income tax rates from 34% to 35%. As of March 31, 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities." Fixed-income investments, which were previously carried at amortized cost are now classified as available-for-sale and reported at market value. Changes in the market value of securities classified as available- for-sale have no income statement impact, but are recorded, net of taxes, as a component of shareholders' equity. As of September 30, 1994, the after tax effects of the change in market value of fixed-income investments included in shareholders' equity and book value per share were declines of $30.5 million and $0.73 per share, respectively. RESULTS OF OPERATIONS - - --------------------- 1994 AND 1993 - FIRST NINE MONTHS RESULTS - - ----------------------------------------- The Company's 1994 first nine months net income and earnings per share were $195.7 million and $4.65, respectively. The Company's 1993 first nine months results of $196.3 million and $4.62 earnings per share included the benefit of (11) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) non-recurring accounting changes, primarily related to deferred taxes. Excluding these effects, net income and earnings per share for the first nine months of 1994 increased 3% and 4%, respectively, over the same period in 1993. For the first nine months of 1994, core earnings increased by 15% to $3.92 per share compared with $3.40 per share a year ago, reflecting the Company's continuing ability to produce consistent growth from its expanding portfolio of insured issues and investment portfolio. According to THE BOND BUYER, long-term new issue municipal bond volume for the first nine months of 1994 was $126.6 billion of par value, a 44% decrease over the first nine months of 1993. The insured portion of new issue volume was 38%, the same percentage as in the comparable period last year. In the first nine months of 1994, MBIA Corp. led the industry in market share, guaranteeing 41% of the insured long-term new issue municipal bond volume compared with 37% in the first nine months of 1993, and a record 16% of all new issue bonds sold. With the decline in overall market volume, gross premiums written by MBIA Corp. decreased 24% to $274.4 million during the first nine months of 1994, from $362.4 million during the first nine months of 1993. New issue and secondary market municipal and asset-backed premiums, the major components of gross premiums written, decreased 21% to $250.6 million compared with $318.9 million in the same period last year. Installment premiums received for policies issued in prior years, including net amounts assumed related to the installment business of the Association, were $23.6 million and $24.6 million for the first nine months of 1994 and 1993, respectively. Gross premiums written also included portfolio assumptions of $0.2 million and $15.8 million for the first nine months of 1994 and 1993, respectively. Premiums ceded to reinsurers increased 9% to $38.7 million during the first nine months of 1994 compared to $35.6 million in the same period last year. In the first nine months of 1994, premiums ceded as a percentage of gross premiums written increased to 14% from 10% last year. Net premium writings of $235.7 million for 1994 decreased 28% from $326.7 million in the same period last year. Premiums earned in the first nine months of 1994 decreased 6% to $162.9 million from $173.6 million in the first nine months of 1993. This decrease reflected the decline in earned premiums resulting from lower bond refundings and calls during 1994, partially mitigated by the growth in deferred premium revenues from the addition of new business in 1993. (12) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Earned premiums generated by refunded and called bonds in the first nine months of 1994 and 1993 were $39.9 million and $66.2 million, respectively. Of these amounts, $14.5 million and $44.1 million, respectively, related to issues for which MBIA Corp. insured the replacement bonds. Net investment income (excluding the amount earned on investment agreement assets which are recorded as a component of non- insurance revenues) increased 9% to $144.2 million in the first nine months of 1994 compared with $131.9 million in the corresponding period of 1993. The increase was primarily the result of growth in invested assets from continued positive operating cash flows. Average invested assets excluding investment agreement assets were $3.08 billion in the first nine months of 1994 compared with $2.73 billion for the same period last year. Net realized capital gains in the first nine months of 1994 increased to $9.7 million from $6.7 million in the same period of 1993. For 1994, the Company realized $9.4 million in gains from the liquidation of its investment in an S&P indexed fund, which was partially offset by realized losses in its fixed- income portfolio. MBIA's non-insurance businesses contributed $11.4 million in revenues in the first nine months of 1994, more than triple the first nine months of 1993 revenues of $3.0 million. The provision for losses and loss adjustment expenses for the first nine months of 1994 was $5.7 million, compared with $6.0 million in 1993, representing additions to the loss reserves consistent with the Company's reserve methodology. During the first nine months of 1994, the Company's case reserves increased by $15.8 million of which $14.0 million related to five issues added to the case specific portion of the total reserve. None of these issues are currently in default. The increase in case reserves had no impact on net income, since the increase in the Company's case-specific reserve was offset by a corresponding decrease in the unallocated portion of its general loss reserve. Other insurance related expenses which are composed of net policy acquisition costs and operating expenses of $46.7 million were virtually unchanged from a year ago. Expenses related to the Company's non-insurance business lines increased to $7.6 million in the first nine months of 1994 from $3.4 million in the first nine months of 1993 due to the expansion of these new businesses. The Company's interest expense was $20.2 million for the first nine months of both 1994 and 1993. (13) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In aggregate, expenses for the first nine months of 1994 increased by 5% over the first nine months of 1993. The Company's effective tax rate for the first nine months of 1994 was 21.2% compared with 24.3% for the same period in 1993. This was due principally to the shift towards a higher proportion of tax-exempt securities in the Company's investment portfolio. LIQUIDITY AND CAPITAL RESOURCES - - ------------------------------- The Company's consolidated reported invested assets and cash grew 32% to $4.69 billion at September 30, 1994 from $3.55 billion at year-end 1993. The increase was due to continued positive operating cash flows from MBIA Corp.'s insurance premiums and investment income, and an increase in the municipal investment agreement portfolio. The Company's liquidity is largely dependent upon MBIA Corp.'s ability to pay dividends to the Company. MBIA Corp.'s net income, comprised of premium earnings and investment income less losses, expenses and taxes, is a source of continuing additions to capital and dividend paying capability. Under New York insurance law, without prior approval of the Superintendent of the New York State Insurance Department, MBIA Corp. may pay a dividend only from earned surplus subject to the maintenance of a minimum capital requirement, and the dividends in any 12-month period may not exceed the lesser of 10% of its policyholders' surplus as shown on its last filed statutory-based financial statements or adjusted net investment income, as defined, for such 12-month period. MBIA Corp. paid dividends of $21.0 million in the first nine months of 1994 and at September 30, 1994 had in excess of $75 million available for payment of further dividends to the Company without prior approval. MBIA Corp. has an irrevocable standby line of credit of $600 million with a group of major banks to provide funds for the payment of claims in the event that severe losses should occur. The agreement is for a seven-year term expiring on September 30, 2001 but, subject to approval by the banks, the agreement may be renewed annually to extend the term to seven years beyond the renewal date. To further facilitate the immediate payment of claims, should they occur, MBIA Corp. has established lines of credit totaling $225 million with seven other major banks. The Company also maintains a $25 million revolving line of credit with a major bank for general corporate purposes. (14) MBIA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) MBIA Corp. also maintains a high degree of liquidity within its investment portfolio in the form of readily marketable high quality fixed-income securities and short-term investments. In management's opinion, the capital resources of MBIA Corp., represented by the liquidity of its investment portfolio, its cash flows from operations and bank lines of credit are more than adequate to meet the Company's expected cash requirements. At September 30, 1994, MBIA Corp. had $23.3 million in case- specific loss reserves. Any related payments are expected to be funded from operating cash flows. (15) PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 11. Computation of Earnings Per Share Assuming Full Dilution (16) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MBIA INC. -------------------------------------- Registrant Date: November 11, 1994 /s/ ARTHUR M. WARREN ------------------------- -------------------------------------- Arthur M. Warren Senior Vice President, Chief Financial Officer Date: November 11, 1994 /s/ JULLIETTE S. TEHRANI ------------------------ ------------------------------------- Julliette S. Tehrani Senior Vice President, Controller & Assistant Treasurer (Principal Accounting Officer) (17) EX-11 2 3RD QTR 94 EXHIBIT 11 EXHIBIT 11 MBIA INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION (In thousands except per share amounts) Three Months Ended Nine Months Ended September 30 September 30 ------------------ ------------------ 1994 1993 1994 1993 -------- -------- -------- -------- Net income $ 65,047 $ 59,817 $195,739 $196,309 ======== ======== ======== ======== Fully diluted shares: Average number of common shares outstanding 41,703 42,002 41,702 41,957 Assumed exercise of dilutive stock options 427 581 431 595 -------- -------- -------- -------- 42,130 42,583 42,133 42,552 -------- -------- -------- -------- Earnings per share assuming full dilution $1.54 $1.40 $4.65 $4.61 ======== ======== ======== ======== EX-27 3 3RD QTR 94 EX.27 (FDS)
7 1,000
9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 3,063,011 0 0 0 0 0 4,683,067 11,865 0 128,044 5,264,006 38,811 1,488,522 0 0 298,763 42,077 0 0 1,672,104 5,264,006 162,870 144,241 9,659 12,943 5,665 16,292 30,453 248,444 52,705 195,739 0 0 0 195,739 4.65 4.65 33,735 5,665 0 0 0 38,811 0
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