NU Online News Service, March 1, 3:12 p.m. EST

Bond insurer MBIA today reports a fourth-quarter loss of $626 million.

Armonk, N.Y.-based insurer's chief executives told financial analysts during a conference call that despite the losses the company was on track to relieving itself of risk in its structured-finance portfolio and expects a return to profitability once outstanding litigation is resolved.

“Looking back, 2011 brought us much closer to achieving the transformation goals that I set out for us four years ago,” says Jay Brown, chief executive officer.

The fourth-quarter result compares to 2010 fourth-quarter net income of $451 million.

On the year, the company reports a net loss of $1.3 billion compared to net income of $53 million in 2010. Revenues stood at negative-$1.56 billion compared to $894 million in 2010.

Brown says the company reduced volatility in its portfolio through “negotiated settlements” in the structured-finance policies the company wrote while pursuing litigation against the financial institutions MBIA alleges wrote fraudulent mortgages the insurer covered.

“We are very much closer to the end of the process than the beginning,” says Brown.

He notes that the commutation process did not come without cost. He says the company reached agreements to commute more than $32 billion in exposure at a cost of about $2.5 billion in 2011.

“We believe that cost was well worth the confidence gained by eliminating potential future losses in our insured book,” he says.

He says the company continues to negotiate with a few policyholders where “volatility remains a concern.”

Turning to the company's legal issues, Brown says he is confident the courts will uphold the company's split into two divisions, separating its book of structured-finance coverage from the municipal-bond coverage. He notes that of the 18 plaintiffs that originally challenged the split, only four remain.

In 2009, MBIA split into two companies, with National Public Finance Guarantee holding onto the company's healthy portfolio of municipal-bond insurance. The second company, MBIA Insurance, retains the structured-finance policies that became toxic with the housing implosion during the great recession.

Brown says the company has demonstrated that its plan to split is sound and it has not failed to make claims payments, undermining the plaintiff's allegations.

He also believes that the company will be successful in its pursuit of banks that MBIA believes wrote fraudulent mortgages the company insured. Brown says he believes the company will eventually regain claims payments it made.

Once these matters are cleared up, he says he is confident the company will once again become a profitable enterprise.

At the end of the question and answer period, Brown may have raised some speculation concerning the bankruptcy proceedings of Ambac.

Once the second largest bond insurer, Ambac suffered the same set-back as MBIA over structured-finance policies.

An analyst asked if MBIA was involved in any way with trustees and the Ambac reorganization.

Brown declined to comment.

Special Reports /

MBIA Reports $626m Q4 Loss

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