MBIA Inc (MBI) 2005 Q4 法說會逐字稿

Hello and welcome to the MBIA Inc. fourth-quarter 2005 earnings teleconference. At the request of MBIA, this conference is being recorded for instant replay purposes. As a reminder following today's presentation we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) At this time I would like to turn the call over to Mr. Willard Hill, Managing Director of Investor Relations. Sir, you may begin.

Thank you. Good morning everyone and welcome to MBIA's fourth-quarter conference call. This call is also being broadcast on the web. Our earnings press release and quarterly operating supplement are on our website. Gary Dunton, MBIA's CEO, will open our call this morning with his perspective on 2005. He will be followed by Nicholas Ferreri, our Chief Financial Officer, who will detail the year's results. Nick will then be joined by Gary and Mitch Sonkin, MBIA's Head of Insured Portfolio Management, for a question-and-answer period.

As usual I have an important reminder, that during this call we may provide forward-looking information that relates to the future performance of the Company. These forward-looking statements are not guarantees of future performance and our actual results may differ materially due to a number of potential factors. Additional information about these factors can be found in our filings with the SEC which are available on our website at mbia.com.

Many of you have participated on our calls for a number of years and others may be new to us. So I thought that I would take a minute to go over our practice relating to the question-and-answer portion of our call. We use this voluntary forum to discuss information disclosed in our press release with our shareholders and with those analysts who publish reports about the Company or who represent our shareholders and to maintain transparency in the market. We acknowledge questions from those analysts and shareholders who are known to us and whose interest in the Company we believe is based on a need for information regardless of whether they have a positive or negative view of the Company or its management. Any person who does not have an opportunity to ask a question during the call is always invited to contact us directly afterwards.

Before we begin, I would like to say how much I've enjoyed working with you over the past fifteen months. I will be moving on shortly to new responsibilities as MBIA's Chief Compliance Officer. Greg Diamond, a long-time MBIA employee and investor relations veteran known to many of you will be taking over in my role. And I wish him much luck in his new position.

With that, I'd like to turn the call over to Gary Dunton. Gary?

Thanks, Willard, and good morning everyone. Thank you all for joining us on this call. I asked Nick if I could start off our call this morning because I wanted to give you my personal perspective on the year. And he was gracious enough to let me.

2005 was a year of many significant challenges and demands for MBIA some of which were new to us such as the regulatory investigations which had a profound effect on our employees of whom I am so proud, while other challenges we have faced before such as intense competition from the uninsured market and the traditional as well as new monoline financial guarantee companies and from selected European banks.

Additionally, overall demand for our product was muted as a result of very liquid investors reaching for yield in what continues to be a very favorable and benign global economic environment. Interest rates remained near their secular lows; corporate default rates remained near cyclical lows; end markets almost everywhere are a wash in capital. Too much money chasing too few transactions.

As a result of these market dynamics, credit spreads, including corporate and emerging market spreads remain tight when compared to historical averages. And we continue to see these conditions result in pricing and underwriting pressure in most of the markets and sectors in which we operate.

In spite of these challenges, our operating financial results for the year were acceptable. Also we have continued to strengthen our franchise financially, operationally and strategically. Our insurance company has stable AAA ratings from the major rating agencies. Credit default swap spreads on our Company are at all-time lows, and there is excellent demand for and pricing on our insured transactions by institutional investors. As our long-term shareholders understand well, success in this business is measured over several years not several months. We continue to believe that the secular trends in the global capital markets are conducive to long-term profitable growth.

Last year presented the industry with another new challenge in the form of widespread municipal damage caused by Hurricane Katrina. Was it a freak occurrence, the category three hurricane, and a major levy breach in a densely populated urban area? Or is the level of destruction and damage repeatable under other different scenarios? And beyond the event itself, we cannot know what the collective government response will be and therefore what effects this event will have on our industry including losses, changes in underwriting standards, core change in pricing to include such risks.

It is too early in the cleanup process to reach any firm conclusions, notwithstanding of some certainty however, the industry currently believes that losses, if any, will be modest. We do no one thing for certain, and that is that the value of our AAA rated product was once again proven to investors who can count on insured bonds paying them principal and interest when due.

While managing through the challenges of the year we were reminded of several valuable lessons. The need for effective and frequent communication with our stakeholders has never been greater.

The benefits of maintaining a very transparent business model and financial reporting standards are unmistakably clear and we fully understand the wisdom of and continue to be fully committed to operating with best-in-class corporate governance practices.

In fact, in recognition of our commitment to and past implementation of best practices in corporate governance, in 2005 institutional shareholder services ranked MBIA first among all S&P 500 companies for corporate governance practices.

We continue to believe that the perception of risk in the capital markets is much understated relative to the levels of real risk. Under these conditions we believe it is exactly the wrong time to be overly aggressive in our financial guarantee business. It is the equivalent to buying high. I should note however, that these market conditions did not have a significant impact on our asset management business which enjoyed another record year.

Historically we have had our best years when the perception of risk exceeds the real risk. Quite the opposite to today's market. We do not believe we are operating in a new and permanent economic paradigm characterized by the elimination of the business cycle. We do not know when but we believe that it is inevitable that the economic pendulum will swing back to a position that is more favorable for our industry. No economic cycle lasts forever and as with most things in nature, there is a tendency for mean reversion.

In any event and under all conditions, we will remain faithful to our four foundation principles of maintaining the strongest team, underwriting to a zero loss standard, protecting our AAA ratings, and of course building long-term shareholder wealth. For the bottom line for now as current market conditions are likely to persist throughout the coming year we do not expect that we will achieve our historic growth rates for 2006. Our underwriting standards and just pricing discipline are designed for the long-term and we simply will not compromise them for the short-term gain.

With that, I will turn the call over to Nick.

Thank you, Gary. And good morning everyone. As Gary mentioned, I'll review our results for the year and then Gary and Mitch Sonkin will join me for the Q&A portion of the call.

As you know, MBIA accrued $75 million in the third quarter of 2005 which represents our estimate of what the Company will have to pay in connection with any settlements of regulatory investigations. Of course our results were impacted by the accrual but our business production was reasonable for the year and we continue to be optimistic about our ability to build long-term value for our shareholders.

Beginning with earnings, year-end diluted earnings per share decreased 11% to $5.18 per share due in part to an unfavorable year-over-year comparison related to a significant gain on the sale of a common stock investment in 2004 as well as the $75 million accrual we made in the third quarter of 2005. Operating income per share, a cleaner indicator of our earning strength rose 4% from 2004.

Turning to our insurance business, a difficult fourth quarter contributed to an overall decline in ADP for the year, down 4% to $1.1 billion.

The market environment is challenging to say the least almost a perfect storm with tight spreads, tough competition and reduced investment demand for insured securities particularly in the structured finance market.

When you break ADP down by sector you see where the trends and opportunities are. In global public finance we saw a 19% decrease in total year-end ADP primarily due to weakness in the international public finance market. Year-over-year there was a 65% decrease in non-U.S. public finance production due mainly to a scarcity of European PFI and infrastructure deals as well as competition from banks. But we saw robust activity in Latin America and Australia and a 7% growth in domestic public finance business. Deal flow in this market remains strong and we closed some particularly noteworthy transactions this year in the transportation and military housing sectors.

For example in Hawaii, we insured 1.35 billion in military housing revenue bonds to finance a privatization at US Army installations located on the island of Oahu.

There was robust growth in global structured finance with ADP up 22% in 2005 nearly three quarters of which came from international markets. We also saw strong activity individual business lines particular in operating assets, CDOs and consumer. One notable consumer deal that MBIA insured was the Hertz vehicle financing transaction where we insured over $2 billion in notes backed by rental car fleet leases.

Total earned premiums in 2005 were down 1% which was better than what we expected due to strong refunding activity. Pretax net investment income increased 4% over 2004 driven by growth in the average asset base from premiums collected and reinvested interest.

We saw insurance expenses climbed 11% for 2005 for a couple of reasons. As reported in the third quarter, we adjusted the way operating expenses are deferred and recorded as policy acquisition costs. With diminished levels of new business written over the past few years we're deferring less costs and this largely contributed to the 17% increase in operating expenses for year-end 2005.

Also in keeping with accounting adjustments, the cost of our [soft] capital facility now appears on our income statement. This change combined with the adjustment in deferring policy acquisition costs and an increase in loss prevention expenses led to the overall increase in insurance expenses. If we look, however, at gross operating expenses which are expenses before [seating] commissions and deferred costs, they rose only 3% year-over-year.

In keeping with our loss reserve policy additions to reserves are made each quarter according to our formula of 12% of schedule earned premium. This allows us to be prepared for potential losses that may be embedded in the insurance portfolio but haven't been specifically identified or can't be immediately estimated.

Total case incurred activity in 2005 was $188.6 million in large part due to our Northwest Airline's EETC transaction but also related to activity in our CDO tax lien and manufactured housing sectors. More specifically, we established a $76 million case loss reserve in the fourth quarter related to our $685 million net par exposure to four Northwest EETC financings involving 64 aircraft. After filing for bankruptcy this past September, Northwest defaulted on lease payments involving 31 of the aircraft within three of the four financings.

To determine an adequate reserve, we consider projected lower income from the leases, projected revenue from the potential redeployment and/or sale of certain aircraft and estimated valuations for the 31 aircraft in the defaulted leases. We're satisfied with the performance of the 33 remaining aircraft leases and we have given temporary extensions to those aircraft with defaulted leases to allow them to keep flying. Negotiations with Northwest continue but should be completed shortly.

Aside from Northwest at year-end 2005, we have $2.93 billion in net par exposure to EETC financing relating to six airlines, Jet Blue, American, Continental, Delta, US Airways and Air France. All EETC deals are currently performing within expectations including Delta which filed for bankruptcy in September but is current on all lease and related debt service payments to date. As a result of our case reserve activity at year end our unallocated reserves total $208.6 million.

Touching briefly on credit quality in our overall portfolio the year ended with 81.1% of the total book of business rated A or better, up from 80.3% at the end of 2004. The percentage of our portfolio rated non-investment grade increased somewhat to 2.1% up from 1.9% in 2004 driven by the addition of two large consumer asset-backed financings neither of which are of particular concern.

Turning to our asset management business, we showed excellent results ending the year with pretax operating income up 41% over 2004 levels. Steady growth in asset liability products and advisory services more than offset a quiet year in our conduit business. Not including conduits at year end, assets under management were $44 billion up 13%.

Corporate expenses for 2005 at $171.8 million are significantly higher than 2004. They reflect not only the $75 million accrual but also include a number of special items such as increased legal and consulting expenses related to the regulatory investigations as well as increased interest expenses on higher average debt outstanding. Excluding the accrual and legal and consulting expenses associated with the investigations, net corporate expenses decreased 1%.

MBIA's operating return on equity declined in 2005 to 12.5% but remained in line with our expectation. MBIA bought back 5.9 million shares in 2005 which were below their adjusted book value and all repurchased during the first half of the year. Adjusted book value at December 31st was $70.62, a 6% increase over 2004. In late December MBIA Insurance Corp. paid its regular quarterly dividend of $95 million to its holding company, MBIA Inc.

So to conclude, MBIA had a satisfactory year. We faced significant challenges and came through with our AAA ratings and our franchise intact. Having said that, we are still awaiting final settlements on the regulatory investigations and we won't be able to comment on any aspects of the investigations at this time.

Now we will take your questions.

(OPERATOR INSTRUCTIONS) Ken Zerbe at Morgan Stanley.

Good morning. Couple of questions. I guess first of all I'm aware that you did not pass up the special dividend from the insurance subsidiary up to the holding company back in fourth quarter. What conclusions can we draw from that? Did you not receive approval or is there another reason why that was not passed up?

At this point, Ken, we don't need approval from the New York State Insurance Department to dividend money from the insurance company up to the holding company. Once we had asked for the special dividend back in the fourth quarter of 2004 that sort of put any other dividends on hold for the 12-month time period without a special request. Once in late December, we had the ability to dividend more money out of the insurance company up to 10% of our policyholders' surplus.

We chose at this time just to dividend up the $95 million which is what we just felt we needed up at the holding company. The other thing obviously that we consider there is the view of our excess capital position with the rating agencies. As you know, Moody's has indicated in a report going back all the way to 12-31-'04, they did not view us to have too much excess capital. We have been talking with Moody's and working with them to discuss the results of 2005 to make a determination as to where exactly we are in terms of our excess capital position. Both we and them at this point preliminarily certainly view us as being in an excess capital position. But we are sort of working through those numbers. At this point we felt the $95 million dividend distribution up to the holding company was the appropriate amount.

Okay. So you are able to pass up I guess throughout earlier '06, you're able to pass up additional capital or cash as you needed at the holding company?

That is correct.

The next question I had was just looking at I guess the unallocated and case reserve. If you look at point-to-point 2005 unallocated reserves declined by about 34% to the $209 million that you mentioned while case reserves were $189 million. Obviously if you extrapolate it out, not that we can, you would essentially run out of unallocated reserves by the end of '06. I guess my question is just at what point would you consider making a special addition or building unallocated reserves above and beyond your 12% formulaic approach?

Right, a couple of things, Ken. One is, your analysis of saying that we would run out through 2006 would not count the fact that we in 2006 -- you'd be adding 12% (multiple speakers) of scheduled earned premiums.

Correct, so maybe '07 but again --?

I understand the question. A lot would depend on what losses developed from the existing portfolio and what we anticipated those losses to be. Obviously we've indicated that we were looking at the EETC transactions closely. Obviously with the bankruptcies happening with Northwest and Delta, obviously we're looking at our manufactured housing book very closely. If losses developed in those areas where it is certainly somewhat expected, that is the point of having the unallocated reserve and you would still transfer money from the unallocated to a specific case reserve.

If losses developed outside of what we were expecting, then certainly we would take the view that would be necessary to potentially take an addition to the unallocated in a onetime way if necessary. Each quarter we do look at a level of unallocated reserves compared to the overall portfolio and make the determination as to whether we need to add to it or not. We obviously made that determination this quarter and felt that it was not necessary.

Okay, I see. My final question I have. You mentioned in the press release that during 2005 there was a $19 million write-down of receivables under salvage and subrogation rights. That obviously seems to have grown over time. What exactly does that refer to?

Well, most of that goes back to the third quarter of '05 that related to a corporate risk that was taken many years ago on Trenwick. And we wrote down the value of that collateral by $15 million in the third quarter of '05. We added slightly to that relating to some of the tax lien transaction of about $3 million to get to the 19.

I'm sorry, so you are saying that the tax lien losses are going through -- realized losses and not the insurance?

No. What happens is once bonds are called, if you go back to the Capital Asset transactions of '97 and '98, those bonds were called. At the time you make an estimate as to the value of the collateral that you have left and that goes -- that gets transferred from the liability side to what you think the value of that asset is. And that sits in other assets. The amount sitting in other assets relating to those two transactions was about $5 million in the fourth quarter of '05. We wrote down that amount by about $3 million. So there's about $2 million left sitting as collateral.

I see. Okay. Great, thank you very much.

Geoff Dunn of KBW. Mr. Dunn, you may want to check your mute button. Sir, we can go onto the next one and Mr. Dunn can queue up again.

Our next question is from Rob Ryan of Merrill Lynch.

Good morning. Could you detail for us the case loss activity exclusive of the Northwest during the fourth quarter?

It's very, very, little minor activity beyond the Northwest. There was one addition to a CDO transaction that was small for about $5 million. Everything else was under a couple million dollars, very insignificant. Other than the Northwest transaction, it was quite quiet.

Okay. Looking at the income statement there seems to be an above trend tax rate in the fourth quarter. Is there something there?

Not really. I mean obviously you know that the overall tax rate for the year is impacted by the $75 million accrual and what our estimate is between disgorgement and penalties and what would be used as actually a tax deduction. So that obviously drives the tax rate up for the year. In the fourth quarter we just had a refinement in terms of what we saw throughout the year in terms of the amount of international taxes to be paid and that was a bit of a catch-up in the fourth quarter.

Okay, so it doesn't necessarily represent any kind of run rate going forward?

No.

All right. Other activity on the watch list, not necessarily case loss activity but what you are seeing in terms of the credit overall portfolio ins and outs?

It's relatively quiet. We feel very comfortable with what we have in terms of our monitoring of the backlog in terms of what is there, in terms of what we think are potential issues and problems and we have those identified. And we're not seeing additional items come on the watch list. We have our problem credits identified. So not really much change there.

Just one last thing. Was there something unusual in the interest expense line?

Well, yes. We called $100 million of debt in the fourth quarter and as a result you have to recognize any previously costs associated with when we first put that debt on the books. And you have to amortize whatever is outstanding which is about $2.8 million which got thrown into the interest expense line once the debt was retired.

Pretax number?

Yes.

Great. Thank you.

Gary Ransom of Fox-Pitt, Kelton.

Good morning. I had a question about the future earned premium that you provide in the supplement. And there was a fairly substantial decrease in the estimate for expected installments in 2006. That's a number that tends if I just follow what you were estimating for '06, it tends to move gradually up although I realize there is some volatility. But it seems like there was some major changes in estimates about either things that were getting paid down quicker or do you have an explanation for that?

No, I'd have to spend some time looking at that particularly. I'm not aware of any particular adjustment that we were looking to make putting that down.

Okay. Another question, can you tell us about the new exposure that showed up on the below investment grade list? The ARG Funding Corp? Is that -- what is that?

It's a car rental fleet transaction that is driven by the downgrade of GM on the corporate side that had an effect on that particular transaction. And S&P lowered that rating to I believe BB1. And as a result, below investment grade. But we do not believe that that transaction is impaired. We do not think that's going to be a problem. Those deals have a tendency to run off relatively quickly. Average life is about three years.

And just one last big picture question. Is there -- I realize it's a difficult competitive environment but is there any -- what are you seeing recently? Is it stable, remaining difficult, is it heading in any direction, getting worse, getting a little better? Are there any broad big picture comments you can make in that regard about the direction of where we might be going?

Right now, Gary, it's pretty much more of the same. You've got an imbalance in our view between the supply of the product and the demand for the product. And you've got a couple of new entrants out there that are looking to make a name in the marketplace to attain trading value, perhaps to go public at some point in the future. And growth to them is more important than it is to some of the more established monolines. So we're not seeing any increase in competition. We're not seeing any decrease in competition. It's about the same as it has been throughout 2005 and for the first month and a half in 2006.

Okay, thank you.

Mark Lane of William Blair & Company.

Good morning. Two questions ,first of all, on the Northwest Airlines EETC exposure, within your supplemental data, on your -- on all your exposure in that asset class, you have five transactions listed for Northwest but in your opening remarks you said -- you referenced three of the four deals. Which of the five deals is the case activity associated with?

I believe the case activity was on -- let me just take a look at that list.

Mark, it's Mitch Sonkin. The answer is there are four EETC deals for Northwest, within one of the EETC deals there are two different classes of guaranteed notes which is why it may appear to show up as five, but indeed it's four EETC deals.

So which transaction wasn't there any activity?

Which Northwest transaction?

Yes.

There was no activity on the 2002 deal, 2002, G1 and G2 notes.

Great. My other question is regarding operating expenses within financial guarantee. Was there really a change in methodology in the third quarter in terms of deferring expenses or did you just come to the conclusion that it was the right decision to make at that time? How did you come to the conclusion to formally change that?

I think periodically it's necessary to review what costs you are deferring. We go through the process of preparing a study by interviewing all of the employees in the Company in terms of what their activities are. And it's necessary to do that under the accounting guidance to make sure that you are deferring costs that vary with and are primarily related to new business production. Obviously it becomes more obvious in terms of that varying with new business production when you see that our new business production over the last two years has been flat and if you compare it to 2003 it is down. So that certainly would trigger you to want to make sure that you looked at that closely. And as a result we felt it was more prudent to be deferring less costs associated with that.

Do you look at that every single quarter or -- you don't do that study or analysis every single quarter do you?

No, you wouldn't do it that often.

So why did you come to that close conclusion just in the third quarter?

Well, I mean it could have been done in prior quarters but at that point in time is when we completed the study. And typically it's something that you would want to do on an annual basis.

Okay. And then just a related question. What I don't understand about if you look at page 14 of the supplement on the expense disclosure. I don't understand the way that you present expenses. Where are the amortization of deferred costs? I don't understand how you present that.

The amortization of deferred costs is on one line item in that table. If you look at net insurance expenses, you see a line that says deferred acquisition costs.

But that is what you are deferring. I'm saying like where is the amortization of previously deferred --?

That is separate and you'll see that right on the face of the income statement. We left that line off of that chart. The amortization of previously deferred acquisition cost is right on the face of the income statement.

Okay.

Do you see it there?

Yes, right. Okay, thanks.

Geoff Dunn of KBW.

I'm sorry for missing you guys before. A couple of questions. First of all in the international structured production this quarter can you give a little bit more color on what might have gone through there? It just looked like the ratio of ADP to par dropped materially. Was there a big high-quality deal or what affected that ratio?

I think the difference is when looking at last year we had a couple of transactions there that were of a very high premium rate with not much par. And as a result when you look at what we did this year that comparison is thrown off. What we did this year is probably more common than the transactions last year.

So nothing unique inside of what you wrote in that segment this quarter?

No.

Okay. Going to your regular dividend that you got up in December, I'm assuming that that's kind of a good quarterly opportunity for you given the trailing statutory results?

Yes.

What is your appetite for putting that to work? Are you still kind of holding capital at the parent company for whatever reason or can you redeploy that through capital management?

We have our options there. We can certainly redeploy through capital management and we'll make that determination each period. We have that flexibility.

Okay. And then the last question. Within the corporate expense line, you've obviously had these legal costs this year unique to dealing with the regulatory issues. Is my math correct that based on your guidance you would have been down 1% of those costs, that that run rate is going to drop about 5 million annually once you get past the settlement?

Well, yes. We're still anticipating costs in 2006. We've got to get through that -- through the entire final settlement and stuff before we would get to a point where you can start looking at that run rate.

Hopefully we will be there soon. Thank you.

Mike Grasher of Piper Jaffray.

Thanks for taking my question. With regard to the exposures around the EETCs, are their concerns around some of maybe the airports that might be impacting or do you have exposure with any of the airports that may be impacted by some of these like Northwest in different regional airports?

Nothing of particular concern. I mean obviously separate from that you have the Katrina issue in terms of we have exposure to the airport in New Orleans which we are looking at closely. But no other significant impact we're seeing at this time relating to those bankruptcies on our airports' exposure.

Could you give us an update in terms of any commentary coming from the agencies with their review of ancillary operations? Such as the asset management area or is it just too soon to speculate?

It's a little too soon. But we're working closely with them and they are certainly moving along in that analysis. The process is going well as far as we are concerned.

Okay. Thanks for taking my questions.

Joshua Shanker of Citigroup.

Good morning. The first question I have, can you describe the ROE characteristics of the business that you are writing currently? Is it similar to business written two years ago, one year ago? Is it similar to business written in the previous quarter? Are you in the growth predictions or is it just not appetizing?

We don't look at every individual transaction and come up with necessarily a return on equity on that particular deal. However, I mean obviously we've seen pricing in the business decline over the last few years certainly in comparison to the excellent years that we saw in 2001, '02 and '03. So I certainly would think that the returns related to the business written today is lower than the returns written a few years ago. However, they are certainly acceptable and within our parameters and it's one of the things that we do look at closely because we are concerned about the pricing and that certainly has an impact in terms of our new business production.

And following up a little on Geoffrey Dunn's question and maybe you've answered satisfactory but maybe you can provide more color. In the global non-U.S. business, you guaranteed about $4.5 billion in transactions and received about $12.5 million of ADP on that which seems low compared to what you receive historically on that kind of business. But also in terms of the gross premiums written, it was a rather robust 34.7. I'm wondering if you can walk us through a little bit how those calculations may work quarter to quarter?

It depends on the mix, Josh. If we're doing AAA rated or super AAA rated synthetic execution of CDOs, you get a lot of par. You get a very low capital charge; you get a high RAROC ( Risk Adjusted Return on Capital) but you are not generating a lot of premium because the risk is relatively de minimis.

On the other hand you have a quarter that is rich with say future flow transactions, the transactions tend to be small, the premium is higher, the risk is higher as a result and you get a different premium per capital charge type of a ratio. And because the business on the international side is relatively lumpy, you can get quarter to quarter changes depending on that mix of business. Your observation is basically that we wrote a lot of high par, high quality business that didn't generate a lot of premium in the fourth quarter. And that is correct.

Thank you --

I want to go back to you on the pricing side, though. Pricing in this industry at best is where it was back in 2000 and the industry has basically given up in our view the gains that were made beyond 2000 into 2001, '02 and '03. One of the reasons that our production has been flat over the last couple of years is that we just will not sacrifice price beyond a premium to our cost to capital just in order to generate business. And so that is one of the driving forces behind the reduction in premiums for this Company in 2004 and 2005.

Very good. In terms of looking at 2004's numbers, they have been restated from the restatements made last year. Is that in flux or -- what is exactly driving these very minor but consistent restatements?

The numbers you are seeing now should be final restatements.

Okay. And -- similar modifications on similar issues related to reinsurance?

Yes, that particular item was more of just a correction of an item there, just particular to that line item.

And finally, share repurchase. Any guidelines going forward? You didn't repurchase anything in the second half that I saw?

We look at it each quarter. We base it on what we think are good -- whether we have good market conditions and what's going on in terms of our excess capital. We take all those factors into consideration and we will do that as we go forward and we still have 5 million shares available under our repurchase program. And we will make that determination as we go forward.

Thank you very much.

Darin Arita of Deutsche Bank.

Good morning. A number of questions here. I was wondering if you could give us first the cash at the holding company at the end of the quarter?

I'm sorry, Darin, I didn't hear that.

Can you give the cash at the holding company at the end of the fourth quarter?

At the end of the fourth quarter it's about $200 million at the holding company, about $160 million $170 million is available cash and easily liquidable investments.

On the net investment income line, it was $129 million in the fourth quarter and it seemed to uptick quite a bit from the third quarter. Was there any change to the investment portfolio there that would explain that?

No, no change. When you do it on a comparative basis, I mean the average assets under management relating to that was up 6% and that was a good reason for the rise there.

Okay. Lastly a question for Mitch. I was wondering if you could comment on where things stand on Eurotunnel and if the situation there over the past year you think has either improved or deteriorated or stayed the same?

Darin, I'll be happy to. As you may know we've been involved in restructuring negotiations with Eurotunnel for a good part of 2005. We're under confidentiality so I'm limited in what I can remark. But you will note from public pronouncements in recent days that the ad hoc committee of which MBIA is a part of has reached a memorandum of understanding with Eurotunnel regarding a roadmap for how we think the restructuring of the company ought to take place.

We have a long way to go. Very difficult restructuring; needs to be restructured top to bottom. It has to be restructured top to bottom because it's an essential asset. It will be -- we will hope to get to conclusion on this during 2006 but I would characterize that we've made some progress in the negotiations to date.

Great. Thanks very much.

Adam Starr with Gulfside Partners.

My question has been answered, thank you.

Terry Shu of JPMorgan.

Gary, you commented earlier about pricing. You said pricing has gone down to 2000 levels. Can you talk about it not just broadly but by segment some of the areas? Is it across the board? And also in terms of being able -- doing transactions that meet your return hurdles, can you talk a little bit about return on capital, return on equity what kind of business you are writing? What kind of returns you are generating with the transactions you are doing?

I can give you a little color. It's more prevalent, the pricing pressure on the domestic public finance side where they are perceived to be very little risk and very easy to underwrite types of transactions, the commodity type transactions. The pricing tends to be the most robust on the international structured finance side where the transactions are more complex, more structured with probably a little more expertise. I would say that the ROEs on average are as I mentioned before probably back to where they were in the 2000 timeframe.

Can you quantify that?

I'm not going to tell you what the numbers are.

You mean for the business you are writing or are you talking about generally the marketplace?

For the marketplace.

So I'm assuming that you are selective and your returns have trended down but not as much for the new business generated?

It is a very complex formula. You don't have access to the internal capital models of each of the companies. You do have access to S&P's capital models and their semi-annual report on pricing per unit of risk. But even on that basis it's not apples-to-apples and those ratios don't easily translate into ROEs or IRRs. And it's a quantitative measure only which shows directionally that pricing is going down per unit of risk for the whole industry and that it's going down more on the domestic public finance side than any other side.

I was really asking specific to MBIA. In the old, old days you used to give ROE numbers on classes of business.

Not since I've been here eight years.

Right. The other question is in terms of the emergence of premiums earned. The premiums earned has been -- trying to track it, it hasn't been completely consistent. I gather that the weakness there some of it is just the quicker runoff, the prepayments, etc. When we look into '06 can you give a little guidance because you do give -- your bar chart shows how your earnings emerge over time even if you have flat production, stuff like that. Assuming you have flat production or down a little, how would the premiums earned line look? How would it emerge assuming that because it's a balance between new business written and the prepayments? Can you talk a little about that?

It's hard to give too much commentary on that. If business stays flat your earned premiums would you would think, would stay relatively flat but it depends on the pricing that you have as well. It's quite a broad question and it's hard to get too more specific to that.

It also depends on the mix of business.

Right, right, right.

(multiple speakers) structured finance transactions they earn more quickly than if you're doing longer maturity public finance transactions.

I asked that because you do a lot of modeling and you show this bar chart that even if you had no production that your earnings would emerge a certain way. You know the bar chart that I'm talking about?

Yes, that is revenues.

Right, revenues. But then it sort of tracks earnings as well.

Well the easy answer, Terry, is that if we have a decline in business we will probably have a decline in earned premiums all things being equal. If we have a flat earnings -- if we have a flat year it will be flat earnings and if we increase our ADP, we will probably have an increase (multiple speakers).

Right, right, and I understand that.

-- that is really the simple truth.

Or right, thanks.

Geoff Dunn KBW.

Just two quick follow-ups. First, we've seen some of the other players in the industry continue to have a pretty healthy appetite for the healthcare sector. Can you update us on your opinion of the competitive dynamics of that space right now?

Yes, we take a different view. We are more conservative and we're less eager to write new business on the terms that are generally available in the marketplace. We may be right, we may be wrong, but that is our position.

Okay. And then I wanted to follow up about a previous comment that you guys will be -- look at buying back your stock when market conditions are favorable. What was not attractive about fourth-quarter conditions? You remained below adjustment book value. Was it a capital at the holding company issue or is there something else holding you back there?

I think, Jeff, we're waiting as a lot of people are, just to get this settlement behind us. And in terms of our approach, we want to be more conservative than not. And so we just put the thing on hold.

Okay. Thank you very much.

This concludes the question-and-answer portion of today's conference. I'd like to turn the conference back over to Mr. Willard Hill. Sir, you may take the call.

Thank you very much. We'd like to thank you for participating on the call today and would remind you that you are welcome to call us with any follow-up questions that you may have. As always we encourage you to visit our website where we maintain a frequently asked question site for investors as well as a variety of other financial and portfolio information. Thank you for your participation.

This concludes today's conference. We do thank you for your participation.