MBIA INC

Previous wording

MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA”, the “Company”, “we”, “us”, or “our”) operates within the financial guarantee insurance industry. MBIA manages its business within three operating segments: 1) United States (“U.S.”) public finance insurance; 2) corporate; and 3) international and structured finance insurance. Our U.S. public finance insurance portfolio is managed through National Public Finance Guarantee Corporation (“National”), our corporate segment is managed through MBIA Inc. and several of its subsidiaries, including our service company, MBIA Services Corporation (“MBIA Services”), and our international and structured finance insurance business is primarily managed through MBIA Insurance Corporation and its subsidiaries (“MBIA Corp.”).

Current wording

MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA”, the “Company”, “we”, “us”, or “our”) operates within the financial guarantee insurance industry. MBIA manages its business within three operating segments: 1) United States (“U.S.”) public finance insurance; 2) corporate; and 3) international and structured finance insurance. Our U.S. public finance insurance portfolio is managed through National Public Finance Guarantee Corporation (“National”), our corporate segment is managed through MBIA Inc. and several of its subsidiaries, including our service company, MBIA Services Corporation (“MBIA Services”), and our international and structured finance insurance business is managed through MBIA Insurance Corporation and its subsidiaries (“MBIA Corp.”).

Previous wording

National’s primary objectives are to maximize the performance of its existing insured portfolio through effective surveillance and remediation activity and effectively manage its investment portfolio. Our corporate segment consists of general corporate activities, including providing support services to MBIA’s operating subsidiaries and asset and capital management. MBIA Corp.’s primary objectives are to satisfy all claims by its policyholders and to maximize future recoveries, if any, for its surplus note holders, and then its preferred stock holders. MBIA Corp. is executing this strategy by, among other things, taking steps to maximize the collection of recoveries and reducing and mitigating potential losses on its insurance exposures. We do not expect National or MBIA Corp. to write new financial guarantee policies outside of remediation related activities. The Company announced in May of 2023 that it had suspended its process of exploring strategic alternatives in light of prevailing market conditions and feedback arising from that process. However, the Company continued to pursue additional measures, such as payments of extraordinary cash dividends on MBIA’s common stock, to enhance shareholder value. Refer to the Business Development section below for a discussion on the extraordinary dividend paid in 2023.

Current wording

National’s primary objectives are to maximize the performance of its existing insured portfolio through effective surveillance and remediation activity and effectively manage its investment portfolio. Our corporate segment consists of general corporate activities, including providing support services to MBIA’s operating subsidiaries and asset and capital management. MBIA Corp.’s primary objectives are to satisfy all claims by its policyholders and to maximize future recoveries, if any, for its surplus note holders, and then its preferred stock holders. MBIA Corp. is executing this strategy by, among other things, taking steps to maximize the collection of recoveries and reducing and mitigating potential losses on its insurance exposures. We do not expect National or MBIA Corp. to write new financial guarantee policies outside of remediation related activities.

Previous wording

U.S. economic activity indicators point to modest growth in spending and production, with robust job gains and a low unemployment rate. Inflation remains elevated. With the Federal Open Market Committee (“FOMC”) seeking to achieve maximum employment and 2% inflation, the FOMC has maintained its target range for the federal funds rate at 5.25% to 5.50%. Economic and financial market trends could impact the Company’s financial results. Economic improvement at the state and local level strengthens the credit quality of the issuers of our insured municipal bonds, improves the performance of our insured U.S. public finance portfolio and could reduce the amount of National’s potential incurred losses. Higher interest rates could adversely affect the values of our Company’s investment portfolio, but increase investment portfolio yield and income, and decrease the present value of loss reserves.

Current wording

U.S. economic activity indicators have continued to expand at a solid pace with the unemployment rate stabilizing at a low level and labor market conditions remaining solid. Inflation remains elevated. With the Federal Open Market Committee (“FOMC”) seeking to achieve maximum employment and 2% inflation over the longer run, at the most recent meeting, the FOMC maintained its federal funds rate target range at 4.25% to 4.50%. Economic and financial market trends could impact the Company’s financial results. Economic improvement at the state and local level strengthens the credit quality of the issuers of our insured municipal bonds, improves the performance of our insured U.S. public finance portfolio and could reduce the amount of National’s potential incurred losses. Higher interest rates could adversely affect the values of our Company’s investment portfolio, but increase investment portfolio yield and income, and decrease the present value of loss reserves.

Previous wording

The following is a summary of 2023 business developments:

Current wording

The following is a summary of business developments:

Previous wording

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.

Current wording

During 2024, 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, 2024, National had $670 million of debt service outstanding related to PREPA. On January 1, 2025, PREPA defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $13 million.

Previous wording

Pursuant to a plan of liquidation that became effective in August of 2022, MBIA Corp.'s interest in the remaining collateral of the Zohar collateralized debt obligation (“CDO”) 2003-1, Limited (“Zohar I”) and Zohar II 2005-1, Limited (“Zohar II”) (collectively, the "Zohar CDOs") was distributed to MBIA Corp. either directly or in the form of interests in certain asset recovery entities. Refer to “Note 1: Business Developments and Risks and Uncertainties” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for a further discussion of the Zohar CDOs.

Current wording

Pursuant to a plan of liquidation that became effective in August of 2022, MBIA Corp.'s interest in the remaining collateral of the Zohar collateralized debt obligation (“CDO”) 2003-1, Limited (“Zohar I”) and Zohar II 2005-1, Limited (“Zohar II”) (collectively, the "Zohar CDOs") was distributed to MBIA Corp. either directly or in the form of interests in certain asset recovery entities. Since then, MBIA Corp. has sought to monetize these interests through sales. Refer to “Note 1: Business Developments and Risks and Uncertainties” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for a further discussion of the Zohar CDOs.

Previous wording

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. Also on December 7, 2023, the Company's Board of Directors declared an extraordinary cash dividend on MBIA’s common stock of $8.00 per share. The dividend was paid on December 22, 2023 to shareholders of record as of the close of business on December 18, 2023. Due to the absence of retained earnings for MBIA Inc., the Company accounted for the dividend as a return of capital that was paid from additional paid-in capital on the Company's consolidated balance sheet. In addition, due to the absence of positive current and accumulated earnings and profits of MBIA Inc. as of December 31, 2023, we expect that the dividend will be treated by investors as a tax-free return of investment up to an investor’s adjusted cost basis in its shares. A portion of the dividends from National are being retained by MBIA Inc. and are intended to be used for general corporate purposes including, but not limited to, future operating expenses and debt service obligations.

Current wording

In December of 2024 and November of 2023, National declared and paid as-of-right dividends of $69 million and $97 million, respectively, 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. Also on December 7, 2023, the Company's Board of Directors declared an extraordinary cash dividend on MBIA’s common stock of $8.00 per share. The dividend was paid on December 22, 2023 to shareholders of record as of the close of business on December 18, 2023. Due to the absence of retained earnings for MBIA Inc., the Company accounted for the dividend as a return of capital that was paid from additional paid-in capital on the Company's consolidated balance sheet.

Previous wording

The decrease in consolidated total revenues was principally due to unfavorable changes in fair value gains on interest rate swaps, revenues from variable interest entities (“VIEs”), net realized investment losses and foreign exchange rates. These unfavorable changes were partially offset by a decrease in losses from fair valuing investments and an increase in net investment income. Fair value gains on our interest rate swaps for 2023 were $14 million compared with gains of $89 million for 2022. The decrease was primarily due to the impact of a larger increase in interest rates in 2022. Consolidated VIE revenue for 2023 was a loss of $70 million compared with a gain of $5 million for 2022. Consolidated VIE revenue for 2023 was primarily driven by the reclassification of credit risk losses from accumulated other comprehensive income ("AOCI") to net income (loss) in 2023. Consolidated VIE revenues for 2022 included a gain from a litigation settlement by a litigation trust that we consolidate as a VIE, partially offset by the reclassification of net credit risk losses from AOCI to net income (loss). These reclassifications were due to early redemptions of VIE liabilities carried at fair value and the deconsolidation of VIEs. Net realized investment losses from sales of investments for 2023 were $76 million compared with $41 million for 2022. Foreign exchange losses for 2023 on euro-denominated liabilities was $6 million compared with gains of $16 million for 2022. This unfavorable change in foreign exchange was due to weakening and strengthening of the U.S. dollar against the euro in 2023 and 2022, respectively. 2023 included $6 million of gains from fair valuing investments compared with $51 million of losses from fair valuing investments for 2022. The losses from fair valuing investments for 2022 were primarily driven by increases in interest rates, widening of credit spreads and mark-to-market changes on Puerto Rico contingent value instruments (“CVI”). Net investment income increased $21 million for 2023 compared with 2022 primarily due to the higher interest rate environment in 2023.

Current wording

The increase in consolidated total revenues for 2024 compared with 2023 was principally due to favorable changes from net realized investment losses from sales of investments and revenues from consolidated VIEs. These favorable changes were partially offset by an increase in losses from fair valuing investments and a decrease in net investment income. Net realized investment losses from sales of investments for 2024 were $3 million compared with $76 million for 2023. In addition, 2024 and 2023 included $37 million and $70 million, respectively, of consolidated VIE losses primarily from the reclassification of credit risk losses from accumulated other comprehensive income ("AOCI") to net income (loss) due to early redemptions of VIE liabilities and losses from the deconsolidation of VIEs. 2024 included $49 million of losses from fair valuing investments compared with $6 million of gains for 2023. Net investment income decreased $32 million for 2024 compared with 2023 primarily due to a lower average asset base as a result of the extraordinary cash dividend payment on MBIA Inc.'s stock in December of 2023.

Previous wording

Consolidated total expenses for 2023 and 2022 included net insurance losses and loss adjustment expense ("LAE") of $177 million and $38 million, respectively. The increase in losses and LAE was primarily due to incurred losses and LAE in 2023 compared with an incurred loss and LAE benefit in 2022 on our insured first-lien residential mortgage-backed securities ("RMBS") exposure. These changes were primarily related to the impact of changes in risk-free interest rates on the present value of loss reserves. In addition, there was a net increase in net losses and LAE on Puerto Rico related credits in 2023 compared with 2022. Refer to the following “Loss and Loss Adjustment Expenses” sections of the U.S. Public Finance Insurance and International and Structured Finance Insurance segments for additional information on our losses and LAE. Interest expense and non-VIE operating expense increased $31 million and $19 million, respectively, for 2023 compared with 2022. The increase in interest expense was primarily due to an increase in the interest rate on MBIA Corp.'s surplus notes. Refer to the following “Interest Expense” section of the International and Structured Finance Insurance segment for additional information MBIA Corp.'s surplus note interest. The increase in operating expense was primarily due to an increase in compensation expense primarily related to the Company’s non-qualified deferred compensation plan.

Current wording

Consolidated total expenses for 2024 and 2023 included non-VIE interest expense of $208 million and $210 million, respectively, principally from MBIA Corp.'s surplus notes. Refer to the following “Interest Expense” section of the International and Structured Finance Insurance segment for additional information on MBIA Corp.'s surplus notes interest expense. In addition, consolidated total expenses for 2024 included $184 million of losses and LAE compared with $177 million for 2023, primarily related to PREPA. Refer to the following “Loss and Loss Adjustment Expenses” sections of the U.S. Public Finance Insurance and International and Structured Finance Insurance segments for additional information on our losses and LAE. Non-VIE operating expense decreased $18 million for 2024 compared with 2023. This decrease was primarily due to a decrease in compensation expense.

Previous wording

As of December 31, 2023 and 2022, the Company’s valuation allowance against its net deferred tax asset was $1.2 billion. Notwithstanding the full valuation allowance on its net deferred tax asset, the Company believes that it may be able to use some of its net deferred tax asset before the expirations associated with that asset based upon expected earnings at National. Accordingly, the Company will continue to re-evaluate its net deferred tax asset on a quarterly basis. There is no assurance that the Company will reverse any of its valuation allowance on its net deferred tax asset in the future. Refer to “Note 11: Income Taxes” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for a further discussion of income taxes, including the valuation allowance against the Company’s net deferred tax asset and its accounting for tax uncertainties.

Current wording

As of December 31, 2024 and 2023, the Company’s valuation allowance against its net deferred tax asset was $1.4 billion and $1.2 billion, respectively. Notwithstanding the full valuation allowance on its net deferred tax asset, the Company believes that it may be able to use some of its net deferred tax asset before the expirations associated with that asset based upon expected earnings at National. Accordingly, the Company will continue to re-evaluate its net deferred tax asset on a quarterly basis. There is no assurance that the Company will reverse any of its valuation allowance on its net deferred tax asset in the future. Refer to “Note 10: Income Taxes” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for a further discussion of income taxes, including the valuation allowance against the Company’s net deferred tax asset and its accounting for tax uncertainties.