MBIA INC. National Public Finance Guarantee Corporation
Statutory-Basis Financial Statements
December 31, 2023 and 2022
Page(s) | |
Report of Independent Auditors | 1-3 |
Statutory-Basis Financial Statements | |
Statements of Admitted Assets, Liabilities and Capital and Surplus | 4 |
Statements of Income | 5 |
Statements of Changes in Capital and Surplus | 6 |
Statements of Cash Flows | 7 |
Notes to Statutory-Basis Financial Statements | 8 - 39 |
Supplemental Schedules | |
Summary Investment Schedule | 40 |
Supplemental Investment Risks Interrogatories | 41 - 44 |
Report of Independent Auditors
To the Board of Directors of National Public Finance Guarantee Corporation
Opinions
We have audited the accompanying statutory-basis financial statements of National Public Finance Guarantee Corporation (the "Company"), which comprise the statutory-basis statements of admitted assets, liabilities and capital and surplus as of December 31, 2023 and 2022, and the related statutory-basis statements of income and changes in capital and surplus, and of cash flows for the years then ended, including the related notes (collectively referred to as the "financial statements").
Unmodified Opinion on Statutory Basis of Accounting
In our opinion, the accompanying financial statements present fairly, in all material respects, the admitted assets, liabilities and capital and surplus of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in accordance with the accounting practices prescribed or permitted by the New York State Department of Financial Services described in Note 2.
Adverse Opinion on U.S. Generally Accepted Accounting Principles
In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles section of our report, the accompanying financial statements do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2023 and 2022, or the results of its operations or its cash flows for the years then ended.
Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles
As described in Note 2 to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the New York State Department of Financial Services, which is a basis of accounting other than accounting principles generally accepted in the United States of America.
The effects on the financial statements of the variances between the statutory basis of accounting described in Note 2 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices prescribed or permitted by the New York State Department of Financial Services. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date the financial statements are available to be issued.
Auditors' Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with US GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
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- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
Other Information
Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental Summary Investment Schedule and Supplemental Investment Risks Interrogatories (collectively referred to as the "supplemental schedules") of the Company as of December 31, 2023 and for the year then ended are presented to comply with the National Association of Insurance Commissioners' Annual Statement Instructions and Accounting Practices and Procedures Manual and for purposes of additional analysis and are not a required part of the financial statements. The supplemental schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves and other additional procedures, in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplemental schedules are fairly stated, in all material respects, in relation to the financial statements taken as a whole.
New York, New York
March 4, 2024
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NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION
STATUTORY-BASIS STATEMENTS OF ADMITTED ASSETS, LIABILITIES and CAPITAL and SURPLUS
(Dollars in thousands except share and per share amounts)
Admitted Assets | December 31, 2023 | December 31, 2022 | |||
Investments: | |||||
Fixed maturity securities, (fair value $1,256,296 and $1,653,777) | $ | 1,337,775 | $ | 1,801,065 | |
Securities purchased under agreements to resell (parent) | 32,000 | 85,000 | |||
Short-term investments, at amortized cost | |||||
which approximates fair value | 2,166 | 2,884 | |||
Receivables for securities sold | 160 | 88 | |||
Other invested assets | 10,291 | 10,290 | |||
Total investments | 1,382,392 | 1,899,327 | |||
Cash and cash equivalents | 72,854 | 222,211 | |||
Total cash and investments | 1,455,246 | 2,121,538 | |||
Accrued investment income | 10,338 | 13,592 | |||
Other assets | 4,353 | 4,341 | |||
Total admitted assets | $ | 1,469,937 | $ | 2,139,471 | |
Liabilities, Capital and Surplus | |||||
Liabilities: | |||||
Deferred premium revenue | $ | 237,108 | $ | 261,715 | |
Loss and loss adjustment expense reserves | |||||
(net of salvage and subrogation recoverable) | 75,004 | (140,025) | |||
Contingency reserve | 354,340 | 379,328 | |||
Securities sold under agreements to repurchase (parent) | 32,000 | 85,000 | |||
Payable for investments purchased | 140 | 311 | |||
Other liabilities | 7,946 | 8,384 | |||
Total liabilities | 706,538 | 594,713 | |||
Capital and Surplus: | |||||
Common stock, par value $30 per share; authorized, | |||||
issued and outstanding - 500,000 shares | 15,000 | 15,000 | |||
Additional paid-in capital | 574,441 | 574,441 | |||
Unassigned surplus | 173,958 | 955,317 | |||
Total capital and surplus | 763,399 | 1,544,758 | |||
Total liabilities, capital and surplus | $ | 1,469,937 | $ | 2,139,471 | |
The accompanying notes are an integral part of the statutory-basis financial statements.
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NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION
STATUTORY-BASIS STATEMENTS OF INCOME
(Dollars in thousands)
Years ended December 31, | |||||
Revenues: | 2023 | 2022 | |||
Gross premiums written | $ | 9,947 | $ | 10,199 | |
Ceded premiums written | - | - | |||
Net premiums written | 9,947 | 10,199 | |||
Decrease in unearned premiums | 24,607 | 49,768 | |||
Premiums earned | 34,554 | 59,967 | |||
Expenses: | |||||
Losses incurred (benefit) | 177,784 | (6,701) | |||
Loss adjustment expenses incurred | 6,018 | 6,878 | |||
Other underwriting expenses incurred | 37,737 | 38,634 | |||
Total underwriting expenses | 221,539 | 38,811 | |||
Net underwriting gain (loss) | (186,985) | 21,156 | |||
Investment income: | |||||
Net investment income (loss) | 95,997 | 80,133 | |||
Net realized capital gains (losses), (less tax of $- and $-) | (51,072) | (25,995) | |||
Net investment gain (loss) | 44,925 | 54,138 | |||
Income (loss) before income taxes (after capital gains tax) | (142,060) | 75,294 | |||
Provision (benefit) for income taxes | (5) | 5 | |||
Net income (loss) | $ | (142,055) | $ | 75,289 | |
The accompanying notes are an integral part of the statutory-basis financial statements.
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NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
For the years ended December 31, 2023 and 2022
(Dollars in thousands except share amounts)
Additional | Total | |||||||||||||
Common Stock | Paid-in | Unassigned | Capital and | |||||||||||
Shares | Amount | Capital | Surplus | Surplus | ||||||||||
Balance, January 1, 2022 | 500,000 | $ | 15,000 | $ | 574,441 | $ | 979,982 | $ | 1,569,423 | |||||
Net income (loss) | - | - | - | 75,289 | 75,289 | |||||||||
Change in deferred income taxes | - | - | - | (64,045) | (64,045) | |||||||||
Change in non-admitted assets | - | - | - | 254,123 | 254,123 | |||||||||
Change in contingency reserve | - | - | - | 23,108 | 23,108 | |||||||||
Change in net unrealized gain (loss) | ||||||||||||||
on investments, net of tax | - | - | - | (240,932) | (240,932) | |||||||||
Dividends paid | - | - | - | (72,208) | (72,208) | |||||||||
Balance, December 31, 2022 | 500,000 | $ | 15,000 | $ | 574,441 | $ | 955,317 | $ | 1,544,758 | |||||
Net income (loss) | - | - | - | (142,055) | (142,055) | |||||||||
Change in deferred income taxes | - | - | - | (121,641) | (121,641) | |||||||||
Change in non-admitted assets | - | - | - | 562,195 | 562,195 | |||||||||
Change in contingency reserve | - | - | - | 24,988 | 24,988 | |||||||||
Change in net unrealized gain (loss) | ||||||||||||||
on investments, net of tax | - | - | (457,601) | (457,601) | ||||||||||
Dividends paid | - | - | - | (647,245) | (647,245) | |||||||||
Balance, December 31, 2023 | 500,000 | $ | 15,000 | $ | 574,441 | $ | 173,958 | $ | 763,399 | |||||
The accompanying notes are an integral part of the statutory-basis financial statements.
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NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
(Dollars in thousands) | |||||
Years Ended December 31, | |||||
2023 | 2022 | ||||
Cash from operations | |||||
Premiums collected, net of reinsurance | $ | 9,744 | $ | 10,205 | |
Net investment income received | 91,438 | 69,409 | |||
Total | 101,182 | 79,614 | |||
Loss payments (receipts) | (43,988) | (268,996) | |||
Loss adjustment expenses, commissions and expenses paid | 50,880 | 63,608 | |||
Federal income taxes paid (recovered) | (5) | (3,988) | |||
Total | 6,887 | (209,376) | |||
Net cash provided (used) by operating activities | 94,295 | 288,990 | |||
Cash from investments | |||||
Proceeds from investments sold, matured or repaid: | |||||
Fixed-maturity securities | 775,082 | 776,099 | |||
Common stock | - | 500 | |||
Net gains or (losses) on cash, cash equivalents and short-term investments | 11 | - | |||
Miscellaneous proceeds | 7 | (8) | |||
Total investment proceeds | 775,100 | 776,591 | |||
Cost of investments acquired: | |||||
Fixed-maturity securities | 349,889 | 902,784 | |||
Common stock | 23,360 | - | |||
Miscellaneous uses | 242 | 3,839 | |||
Total investments acquired | 373,491 | 906,623 | |||
Net cash provided (used) by investment activities | 401,609 | (130,032) | |||
Cash from financing and miscellaneous sources | |||||
Securities under agreement to repurchase | (53,000) | (5,000) | |||
Dividends paid | (647,245) | (72,208) | |||
Other cash applied (used) | 1,266 | 951 | |||
Net cash provided (used) for financing and miscellaneous sources | (698,979) | (76,257) | |||
Net change in cash, cash equivalents and short-term investments | (203,075) | 82,701 | |||
Cash, cash equivalents and short-term investments - beginning of year | 310,095 | 227,394 | |||
Cash, cash equivalents and short-term investments - end of year | $ | 107,020 | $ | 310,095 | |
The accompanying notes are an integral part of the statutory-basis financial statements.
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NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
As of and for the years ended December 31, 2023 and 2022
1. Business Developments and Risks and Uncertainties
National Public Finance Guarantee Corporation ("National" or "the Company") is a wholly-owned subsidiary of MBIA Inc. ("the Parent" or "Parent Company") through an intermediary holding company, National Public Finance Guarantee Holdings, Inc. ("National Holdings").
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, insured obligations when due or, in the event National has exercised, at its discretion, the right to accelerate the payment under its policies upon the acceleration of the underlying insured obligations due to default or otherwise. Through its reinsurance of United States ("U.S.") public finance financial guarantees from MBIA Insurance Corporation ("MBIA Corp."), National's insurance portfolio consists of municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utilities, airports, healthcare institutions, higher educational facilities, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects generally are supported by taxes, assessments, user fees or tariffs related to the use of these projects, by lease payments or by other similar types of revenue streams. As of December 31, 2023, National had insured gross par outstanding of $28.4 billion.
Business Developments
Puerto Rico
During 2023, the Puerto Rico Electric Power Authority ("PREPA") defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $137 million. As of December 31, 2023, National had $808 million of debt service outstanding related to PREPA. On January 1, 2024, PREPA defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $16 million.
PREPA
On January 31, 2023, National entered into a restructuring support agreement ("PREPA RSA") with the Financial Oversight and Management Board for Puerto Rico (the "Oversight Board"), on behalf of itself and as the sole Title III representative of PREPA. An amended plan of adjustment for PREPA and related disclosure statement was filed on February 9, 2023. On June 26, 2023, the Court entered an order reducing bondholder allowed net unsecured claims to $2.4 billion from approximately $7.6 billion. On August 25, 2023, National entered into the First Amendment to the PREPA Plan Support Agreement (the "Amended PSA") with the Oversight Board, on behalf of itself and as the sole Title III representative of PREPA. By order dated November 17, 2023, the Court approved the Disclosure Statement for the Third Amended Plan incorporating, among other things, the terms of the Amended PSA. On December 29, 2023, the Oversight Board filed the Corrected Fourth Amended Title III Plan (the "Amended Plan"). The Amended PSA provides that, upon effective date of the Amended Plan, National shall receive cash, together with certain fees and expense reimbursement payments, in an amount based in part on the ultimate participation, if any, of certain currently non-accepting holders of uninsured PREPA bonds. The Amended PSA also provides National with additional consideration in the form of two types of contingent values instruments, whose value cannot be assured. The Amended PSA remains subject to a number of conditions, including (but not limited to) the Title III Court's confirmation and effectiveness of the Amended Plan, as it may be further amended with the Court's approval. Refer to "Note 9: Loss and Loss Adjustment Expense Reserves" for a further discussion of the Company's PREPA reserves and recoveries.
Dividends
In November of 2023, National declared and paid an as-of-right dividend of $97 million to its ultimate parent, MBIA Inc. In addition, on December 7, 2023, National paid a $550 million special dividend that was approved by the New York State Department of Financial Services ("NYSDFS") to its ultimate parent, MBIA Inc. During 2022, National declared and paid an as-of-right dividend of $72 million to its ultimate parent, MBIA Inc.
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MBIA Incorporated published this content on 04 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 March 2024 15:46:03 UTC.
