Welcome to MBIA Inc. Fourth Quarter and Full Year 2018 Financial Results Conference Call. I would now like to turn the call over to Greg Diamond, Managing Director of Investor and Media Relations at MBIA. Please go ahead, sir.

Thank you, Maria. Welcome to MBIA's conference call for our fourth quarter and full year 2018 financial results. After the market closed yesterday, we issued and posted several items on our website, including our financial results press release, 10-K, quarterly operating supplements and statutory financial statements for both MBIA Insurance Corp and National Public Finance Guarantee Corp. We also posted updates to the listings of our insurance portfolios. Regarding today's call, please note that anything said on the call is qualified by the information provided in the company's 10-K, and other SEC filings as our company's definitive disclosures are incorporated in those documents. We urge investors to read our 10-K as it contains our most current disclosures about the company and its financial and operating results. The 10-K also contains information that may not be addressed on today's call. The definitions and reconciliations of the non-GAAP terms included in our remarks today are also included in our 10-K as well as our financial results press release and our quarterly operating supplements. A recorded replay of today's call will become available approximately two hours after the end of the call, and the information for accessing it was included in yesterday's financial results press release. Now for our Safe Harbor disclosure statement. Our remarks on today's conference call may contain forward-looking statements. Important factors such as general market conditions and the competitive environment could cause our actual results to differ materially from the projected results referenced in our forward-looking statements. Risk factors are detailed in our 10-K and 10-Q, which are available on our website at MBIA.com. The company cautions not to place undue reliance on any such forward-looking statements. Company also undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware that such statement is no longer accurate. For our call today, Bill Fallon and Anthony McKiernan will provide some introductory comments and then a question-and-answer session will follow. Now here is Bill Fallon.

Thanks Greg. Good morning, everyone. Thank you for being with us today. Remediating our Puerto Rico credit continues to be a priority. Last month the Puerto Rico sales tax bonds known as the COFINA bond which accounted for approximately half of our insured Puerto Rico debt service exposure were restructured. As a result of the restructuring, our insured COFINA accreted and debt service exposures have been reduced by 30%. Insured accretive value has been reduced to approximately $839 million from $1.2 billion and insured debt service reduced to under $3 billion from $4.2 billion. For the non-commuted national insured COFINA bonds, new COFINA bonds have been deposited into a trust. The new trust will operate on a pass through basis. As the trust receives debt service payments from the new bond and sells the new bonds, the trust cash will be paid to the trust certificate holders and national insured exposure will reduce accordingly. In other Puerto Rico development, last month the First Circuit Court of Appeals ruled the appointment process used to seek the members of the Puerto Rico oversight management board was unconstitutional. The court allotted 90 days for the board appointments to be rectified. The oversight board announced yesterday that it will appeal the decision to the US Supreme Court. Regarding PREPA, a hearing is scheduled for May 8th on our lift stay motion to have a receiver appointed to run PREPA. As I said last quarter, we believe PREPA need several reforms before its debt can be restructured. PREPA has failed to fix these problems on its own. A receiver free from impermissible political influence with experienced and proven expertise managing public utilities will benefit all of PREPA's stakeholders including the people of Puerto Rico. There is nothing new to report on our general obligation and…

Thanks Bill, and good morning. I will summarize the drivers of our fourth quarter and year-end 2018 GAAP and non GAAP results, and walk through our statutory results for National and MBIA Insurance Corp. The company reported a consolidated GAAP net loss of $7 million or negative $0.08 per share for the quarter ended December 31st, 2018, compared to a consolidated GAAP net loss of $37 million or negative $0.39 per share for the quarter ended December 31st, 2017. The improved result for this quarter was due to the following. Lower loss and loss adjustment expense at National related to Puerto Rico exposures due to a decrease in the risk-free rates at discount estimated losses and expected future recoveries on past and projected claim payments. Updated cash flow scenario analysis and clarification of the final COFINA structure, as well as lower loss in LAE at MBIA Insurance Corp across several structured finance asset classes. The positive effects of those items were offset by lower premium earnings, higher mark-to-market losses on our interest rate swaps and realized losses related to the de-consolidation and termination of five second lien RMBS VIES. The realized loss is related to the VIED consolidations were due to credit losses previously and other comprehensive income moving to retained earnings through the P&L. The VIED consolidations were actually positive for total shareholders' equity as proceeds received from the transaction exceeded the net assets removed from the balance sheet. Adjusted net income or non-GAAP measure for income was $106 million or $1.20 per diluted share for the fourth quarter of 2018 compared to an adjusted net loss of $167 million or negative $1.73 per diluted share for the fourth quarter of 2017. The favorable change was primarily due to lower quarter-over-quarter loss and loss adjustment expenses at National related…

[Operator Instructions] Our first question comes from one of Andrew Gadlin of Odeon Capital Group.

Good morning, guys. I was wondering if you could talk a little bit about the time how Puerto Rico timing will be affected by the developments with the oversight board and how does that figure into your thinking? Both for your various negotiations, as well as your capital plans.

Yes, Andrew, you can appreciate it's difficult to predict exactly how some of the events over the last few weeks will impact timing. The oversight board has stated that they are still open for business, and as we've stated for years, we are more than eager to try to come to consensual resolution on any of the credits and at some point all the credits. Having said that, we're all trying to figure out given the ruling of the First Circuit and the announcement that they are going to try to take this to Supreme Court exactly what that means further complicating as you know, at the end of August the first three-year term of the oversight board members ends as written in PROMESA. So we're monitoring the situation very carefully, and we'll see how it plays out.

In terms of PREPA, there's --the bonds have been rallying recently and there's some speculation that the deal for that could materialize in the short term. That's something that you see as possible in this small window.

You're talking about the remaining 90 days that was allotted by the First Circuit, it would seem challenging but again, I know we're open to trying to reach a resolution on this. I assume the other creditors are as well, and if all the parties can come to an agreement then it's possible. I wouldn't say that we believe it's a high likelihood but I'm not sure that trying to assess probabilities and likelihoods is necessarily very productive.

Hasn't been in Puerto Rico. Just one detail like question I guess on the tax escrow release. Anthony, you mentioned that there was $91 million released in Q1 of this year. I think it's the 10-K says $56 million was cash, what's the remainder?

The remainder was primarily MBIA shares.

Our next question comes from the line of Bose George of KBW.

Hey, guys. This is Tommy McJoynt on for Bose. Going along with the tax, that tax escrow question. What's scheduled to be released if anything in 2020? And I don't believe there's anything for 2021. Can you guys just talk about that for a second?

So we just-- again we just settled the 2016 tax release. National made no deposits for the 2017 as for the 2017 tax year. So we wouldn't expect obviously anything released to Inc. next year. And at the moment then there's $55 million in the escrow for 2018 deposits that either will go to Inc. back to National or some combination thereof.

Okay, great. And then separately could you kind of give some details on --and some of the cost saves that you guys could be targeting over the next year? And you kind of expect to sort of be able to trim cost in line with where the portfolio is running off. And then it's what you mentioned on the material weakness over internal controls. Is there any sort of expected uptick and expenses related to that?

Let me answer the second question first. No, we don't see any significant increase in cost associated with remeditating the deficiency. On operating expenses in general to your first question, as you've seen the trend over the last several years has been a significant reduction in operating expenses. Even in the last year we went from approximately $106 million to under $75 million of operating expenses. There are some things that we will obviously continue to do to your point as the portfolio runs down. But I wouldn't expect a material change in operating expenses during the 2019 year. We push pretty hard to get expenses down over the last two years. We will always continue to be on top of this and find ways to take expenses out, but you won't see the types of reduction that you saw over the last two years. And I would expect expenses in sort of the $70 million - $80 million range over 2019 and maybe even 2020.

Okay. Thanks for the clarity there. And then just lastly, outside of reaching some resolution on COFINA, was there anything else that supported your decision to repurchase shares in a fourth quarter after holding off for a couple quarters?

As we've stated in the past, we view this as a dynamic situation. We look at lots of information with regard to the financial situation. What the shares are trading at, future outlook et cetera and we thought it was appropriate and beneficial to the shareholders at the prices that we saw in the fourth quarter and beginning of the first quarter to repurchase the shares.

Our next question comes from line of Jack Barnes of Samlyn Capital.

Hey, good morning, guys. Thanks for taking the question. I noticed that the gross loss reserves in the US Public Finance segment were down a decent amount maybe $70 million in the quarter which I assume is related to Puerto Rico. Can you just talked about what was the driver of the change in expectations about future loss payments there?

Sure, good morning. So for GAAP purposes, we experienced a reduction in our overall loss in LAE due primarily to lower discount rates. There was a drop in the risk-free rate across the curve during the fourth quarter. And when you're discounting long-term recoveries at a lower rate, the recoveries are worth more. And that's the main reason for the decrease in reserves for the quarter.

Okay. I read that in the release but I was struggling with the just looking at the breakdown of the two pieces that make up your reserve. One is the gross loss reserve and the other part is the recoverable. The recoverable went up which makes sense as you discounted at a lower rate, but that was - it look like a smaller driver of the decline in the net reserve. The bigger driver was the decline in the gross loss reserve. Would that be also driven by discounting or is that just a function of changes in expectations around lost payments in the future?

It's also from lost payments themselves that were made. So that's reducing the loss reserves as well.

So you are making the payments in the -

Just for the - I am talking about the annual loss reserve decrease. We have a part of that is obviously payments. But, yes, part of it is assumptions and part of it is on the recoveries on future claim payments. That's the primary driver. Thank you. And at this time, there are no further questions. I would like to turn the floor back over to Greg Diamond for any additional or closing remarks.

Thanks again Maria, and thanks to all of those listening to our call today. Please contact us directly if you have any questions. We also recommend that you visit our website at mbia.com for additional information on the company. Thank you for your interest in MBIA. Good day and goodbye.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.