• On January 1, 2019 and July 1, 2019, the Commonwealth of Puerto Rico and certain of its instrumentalities (“Puerto Rico”), defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $393 million. On January 1, 2020, Puerto Rico also defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $59 million. As of December 31, 2019, National had $3.3 billion of debt service outstanding related to Puerto Rico. Refer to the “U.S. Public Finance Insurance Puerto Rico Exposures” section for additional information on our Puerto Rico exposures.
adjustments, if applicable. For 2017, we removed the provision for income taxes impact of recording a full valuation allowance against the Company’s net deferred tax asset.
Management adjusts GAAP book value to remove the book value of MBIA Corp. and for certain items which the Company believes will reverse from GAAP book value through GAAP earnings and comprehensive income, as well as add in the impact of certain items which the Company believes will be realized in GAAP book value in future periods. The Company has limited such adjustments to those items that it deems to be important to fundamental value and performance and for which the likelihood and amount can be reasonably estimated. The following provides a description of management’s adjustments to GAAP book value:
In June of 2017, S&P downgraded the financial strength rating of National, which led the Company to cease its efforts to write new financial guarantee business. In addition to National’s cessation of new business activity, it experienced higher levels of losses and LAE over the last several years due to unfavorable developments in certain Puerto Rico credits. As a result of the increase in loss and LAE, the Company has a three-year cumulative loss, which is considered significant negative evidence in the assessment of its ability to use its net deferred tax asset. In addition, the Company considered all available positive and negative evidence as required by GAAP, to estimate if sufficient taxable income will be generated to use its net deferred tax asset. After considering all positive and negative evidence, including the Company’s inability to objectively identify and forecast future sources of taxable income, the Company concluded that it does not have sufficient positive evidence to support its ability to use its net deferred tax asset before it expires.
declared and paid dividend amounts from National to be limited to prior year adjusted net investment income for the foreseeable future.
MBIA Insurance Corporation had statutory capital of $476 million as of December 31, 2019 compared with $555 million as of December 31, 2018. As of December 31, 2019, MBIA Insurance Corporation’s negative unassigned surplus was $1.7 billion. For the year ended December 31, 2019, MBIA Insurance Corporation had a statutory net loss of $141 million. Refer to the “Claims-Paying Resources (Statutory Basis)” section below for additional information on MBIA Insurance Corporation’s statutory capital.
The principal considerations for our determination that performing procedures relating to the valuation of assets of consolidated VIEs: loan repurchase commitments is a critical audit matter are (i) there was significant judgment by management when determining the estimate, which in turn led to a high degree of auditor subjectivity and judgment in performing procedures related to the valuation of assets of consolidated VIEs: loan repurchase commitments; and (ii) there was significant audit effort and judgment in evaluating the audit evidence relating to the aforementioned assumptions, cash flow model and estimates.
Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation. This includes a presentation of the Company’s insurance loss recoverable and its loss and loss adjustment expense (“LAE”) reserves. Refer to “Loss and Loss Adjustment Expenses” below for additional information.
“Leases (Topic 842)”, that amends the accounting guidance for leasing transactions. ASU 2016-02
the intraperiod tax allocation principle that allocates total tax expense or benefit to components of the income statement and other comprehensive income. As a result of this adoption, the Company reversed $29
and taxable indebtedness of U.S. political subdivisions, as well as utilities, airports, health care institutions, higher educational facilities, student loan issuers, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. The Company estimates future losses by using probability-weighted cash flow scenarios that are customized to each insured transaction. Future loss estimates consider debt service due for each insured transaction, which includes par outstanding and interest due, as well as recoveries for such payments, if any. Gross par outstanding for capital appreciation bonds represents the par amount at the time of issuance of the insurance policy.
The international and structured finance insurance segment’s case basis reserves and insurance loss recoveries recorded in accordance with GAAP do not include estimates for a policy insuring a credit derivative or on financial guarantee VIEs that are eliminated in consolidation. The policy insuring a credit derivative contract is accounted for as a derivative and is carried at fair value in the Company’s consolidated financial statements under GAAP. The fair value of the insured credit derivative contract is influenced by a variety of market and transaction-specific factors that may be unrelated to potential future claim payments under the Company’s insurance policy. Refer to “Note 9: Derivative Instruments” for a further discussion of the Company’s use of derivatives and their impact on the Company’s consolidated financial statements.
or liquidated. The loss reserve estimates are based on a probability-weighted average of three scenarios of loan losses. Additional data used for both second and first-liens include historic averages of deal specific voluntary prepayment rates, forward projections of the London Interbank Offered Rate (“LIBOR”) interest rates, and historic averages of deal-specific loss severities. In addition, for second-lien RMBS backed by home equity lines of credit, the Company assumes a constant basis spread between Prime and LIBOR interest rates.
recoveries that had been included in the Company’s financial statements at the times preceding the settlements, there can be no assurance that the Company will prevail in its litigation against Credit Suisse. However, based on the Company’s assessment of the strength of its contractual put-back
The increase in the Company’s insurance loss recoverable during 2018 was primarily due to the re-establishment
a result of the Company changing its presentation of its insurance loss recoverable and its loss and LAE reserves related to its first-lien exposure as discussed above, the amounts in the preceding table related to gross claim liability and gross potential recoveries have both been increased by $108
Investments Carried at Fair Value, Investments Pledged as Collateral and Short-term Investments
component of impairments, as well as all subsequent changes in fair value of such impaired securities reported in AOCI.
basis and recognized an OTTI loss for the difference between its amortized cost and fair value. This OTTI loss was included in “Investment losses related to other-than-temporary impairments” on the Company’s consolidated statement of operations
The following tables present information about credit derivatives sold by the Company’s insurance operations that were outstanding as of December 31, 2019 and 2018. Credit ratings represent the lower of underlying ratings assigned to the collateral by Moody’s
The following table presents the effect of derivative instruments on the consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017:
Amounts reflect principal due at maturity for notes issued at a discount.
Discount is net of carrying amount and market value adjustments of $43 million and accrued interest adjustment of $4 million.
of December 31, 2019, for VIE notes not accounted for at fair value, contractual interest rates ranged from 3.71% to 12.00% and the weighted average interest rate was 5.57%. As of December 31, 2018, for VIE notes not accounted for at fair value, contractual interest rates ranged from 2.81% to 14.00% and the weighted average interest rate was 6.91%.
income. On the basis of this evaluation, the Company has recorded a full valuation allowance against its net deferred tax asset of $873 million and $834 million as of December 31, 2019 and 2018, respectively. The Company will continue to analyze the valuation allowance on a quarterly basis.
The Company’s U.S. public finance insurance portfolio is managed through National. The financial guarantees issued by National provide unconditional and irrevocable guarantees of the payment of the principal of, and interest or other amounts owing on, U.S. public finance insured obligations when due. The obligations are not subject to acceleration, except that National may have the right, at its discretion, to accelerate insured obligations upon default or otherwise. National’s guarantees insure municipal bonds, including tax-exempt
The Company’s corporate segment consists of general corporate activities, including providing support services to MBIA Inc.’s subsidiaries as well as asset and capital management. Support services are provided by the Company’s service company, MBIA Services, and include, among others, management, legal, accounting, treasury, information technology, and insurance portfolio surveillance, on a fee-for-service
For the years ended December 31, 2019 and 2018, National had statutory net income
In 2019 and 2018, National declared and paid dividends of $134 million and $108 million, respectively, to its ultimate parent, MBIA Inc.
Motion of Assured Guaranty Corp., Assured Guaranty Municipal Corp., Ambac Assurance Corporation and National Public Finance Guarantee Corporation for Relief from the Automatic Stay or, in the Alternative, for Adequate Protection,